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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Invista Euro. | LSE:IERE | London | Ordinary Share | LU0273211432 | ORD EUR0.10 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.30 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number : 5269F
Invista European Real Estate Trust
14 January 2010
14 January 2010
INVISTA EUROPEAN REAL ESTATE TRUST SICAF
PRELIMINARY RESULTS FOR 12 MONTHS ENDED 30 sEPTEMBER 2009
Invista European Real Estate Trust SICAF (the "Company"/"Group") today announces
results for the 12 months to 30 September 2009.
Highlights
* Property assets of EUR532.9 million (30 September 2008: EUR687.4 million) comprising
46 properties across seven continental European countries (includes EUR70 million
of sales). The like for like fall in the quarter to September 2009 was a
relatively modest 1.1%.
* NAV per share, adjusted to add back deferred tax, of EUR1.12 (30 September 2008:
EUR2.34)
* Loss before tax of EUR127.1 million (30 September 2008: loss EUR63.2 million)
principally due to negative property re-valuations and interest rate swap
movements.
* EUR70.4 million of properties successfully disposed of at prices on average 2.7%
above the prevailing valuation, reducing debt by EUR42.9 million. A further EUR38.6
million is currently under offer.
* Net rental and other income of EUR43.9 million (30 September 2008: EUR45.4 million)
reflecting the reduced size of the property portfolio.
* Weighted average lease length maintained at in excess of 6 years during the
year.
* Net current income return of 7.45%, rising to 7.79% on ERV.
* Operational costs were pro-actively reduced by over EUR3 million, or 20%, (on an
annualised basis) during the year.
* Following the year-end, the Company announced the successful capital raise of
GBP58.3 million by way of a Firm Placing, Placing and Open Offer. It has also
concluded new banking terms following the pay down of EUR40.0 million of debt out
of the net proceeds of the capital raise.
* Liberum Capital Limited has been appointed as Joint Broker to the Company
alongside J P Morgan Cazenove with immediate effect.
Commenting, Tom Chandos, Chairman of Invista European Real Estate Trust, said:
"Re-setting the capital structure and reducing the risk of loan covenant breach
were essential steps for the Company to move onto the front foot in 2010. The
new debt terms lower the Group's LTV ratio, reduce the cost of servicing loan
interest and extend the duration of the facility as well as increase the LTV
covenant from 65% to 85% through what may continue to be a challenging period in
the credit markets.
"We are cautiously optimistic about the near term future. Nevertheless, the
speed and shape of the recovery is difficult to predict. There is no doubt that
growth will vary across each country and each asset class in which the Company
is invested. Our success in realising EUR70.4 million of investments at prices on
average 2.7% above the prevailing valuation and with a further EUR38.6 million
under offer provides clear evidence of improved liquidity. However, we do not
anticipate a rapid recovery in the wider market and therefore will remain
conservative in our approach over the short to medium term."
For further information:
Tony Smedley / Chris Ludlam
Invista Real Estate Investment Management +44 (0) 20 7153 9345
Stephanie Highett / Dido Laurimore/ Rachel Drysdale
Financial Dynamics +44 (0) 20
7831 3113
Invista European Real Estate Trust Company Summary
As at 30 September 2009, Invista European Real Estate Trust SICAF (the
"Company") and its subsidiaries (together the "Group") owned a diversified real
estate portfolio comprising 46 commercial properties across seven Continental
European countries and were committed to acquire one further property. The
combined aggregate value of these properties was EUR541.6 million (EUR532.9 million
of which were owned1).
The Company's investment objective 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 remains the Western European countries due to the relative
stability, transparency and liquidity of these markets.
Financial Summary
* Net Asset Value2 per share decreased by 52.2% to EUR1.12
* Loss per share of EUR1.11
* Value of property sold during the year EUR70.4 million
* Reduction in property portfolio valuation during the year EUR87.6 million
+-----------------------------------------+--------------------+------------------+
| | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------------+--------------------+------------------+
| Net Asset Value ("NAV")2 | EUR128.0m | EUR267.7m |
+-----------------------------------------+--------------------+------------------+
| NAV per share 2 | EUR1.12 | EUR2.34 |
+-----------------------------------------+--------------------+------------------+
| NAV per share 2,3 | GBP1.03 | GBP1.86 |
+-----------------------------------------+--------------------+------------------+
| Share price | 28.0p | 51.75p |
+-----------------------------------------+--------------------+------------------+
| Share price discount to NAV | 72.8% | 72.2% |
+-----------------------------------------+--------------------+------------------+
| NAV total return | -52.2% | -19.9% |
+-----------------------------------------+--------------------+------------------+
| Total Group assets less current | EUR554.8 | EUR713.2m |
| liabilities4 | | |
+-----------------------------------------+--------------------+------------------+
Sources: Invista Real Estate Investment Management; Datastream
+----+----------------------------------------------------------------------------+
| 1. | Direct property valuation includes three assets held for sale or sold |
| | since 30 September 2009. |
+----+----------------------------------------------------------------------------+
| 2. | NAV is calculated using International Financial Reporting Standards and |
| | adjusted to add back deferred tax. |
+----+----------------------------------------------------------------------------+
| 3. | EUR:GBP exchange rate used was EUR1.091 as at 30 September 2009; EUR1.2582 as at |
| | 30 September 2008. |
+----+----------------------------------------------------------------------------+
| 4. | Current liabilities exclude banking facilities. |
+----+----------------------------------------------------------------------------+
Performance Summary
Property performance
+-----------------------------------------------------+----------------+----------------+
| | 30 September | 30 September |
| | 2009 | 2008 |
| | Total | Total |
| | EUR'm | EUR'm |
+-----------------------------------------------------+----------------+----------------+
| Value of property assets | 532.9 | 687.4 |
+-----------------------------------------------------+----------------+----------------+
| Current annualised rental income | 43.9 | 50.7 |
+-----------------------------------------------------+----------------+----------------+
| Estimated open market rental value per annum | 45.0 | 49.9 |
+-----------------------------------------------------+----------------+----------------+
Summary consolidated income statement
+-----------------------------------------------------+----------------+----------------+
| | Year ended | Year ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
| | EUR'm | EUR'm |
+-----------------------------------------------------+----------------+----------------+
| Net rental and other income | 43.2 | 45.4 |
+-----------------------------------------------------+----------------+----------------+
| Net valuation loss on derivative financial | (34.7) | - |
| instruments | | |
+-----------------------------------------------------+----------------+----------------+
| Net valuation loss on investment property | (97.3) | (65.9) |
+-----------------------------------------------------+----------------+----------------+
| Expenses | (11.7) | (14.6) |
+-----------------------------------------------------+----------------+----------------+
| Net finance costs | (33.3) | (26.4) |
+-----------------------------------------------------+----------------+----------------+
| Loss before tax | (133.8) | (61.5) |
+-----------------------------------------------------+----------------+----------------+
| Taxation | 6.7 | (1.7) |
+-----------------------------------------------------+----------------+----------------+
| Loss for the year | (127.1) | (63.2) |
+-----------------------------------------------------+----------------+----------------+
Earnings and dividends
+-----------------------------------------------------+----------------+----------------+
| | Year ended | Year ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------------------------+----------------+----------------+
| Loss per share (euro) | (1.11) | (0.55) |
+-----------------------------------------------------+----------------+----------------+
| Dividends declared per share (euro) | - | 0.0887 |
+-----------------------------------------------------+----------------+----------------+
| Dividend yield on 30 September share price 1 | - | 13.6% |
+-----------------------------------------------------+----------------+----------------+
Bank borrowings
+-----------------------------------------------------+----------------+----------------+
| | Year ended | Year ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------------------------+----------------+----------------+
| Borrowings EUR'm | 400.2 | 445.5 |
+-----------------------------------------------------+----------------+----------------+
| Borrowings as % of total assets less current | 72.1% | 62.5% |
| liabilities | | |
+-----------------------------------------------------+----------------+----------------+
| Borrowing as % of market value of property assets | 65.6% | 64.8% |
| (under Bank of Scotland finance documents) | | |
+-----------------------------------------------------+----------------+----------------+
| Bank of Scotland loan covenant of borrowings as % | 75.0% | 70.0% |
| of market value of property assets | | |
+-----------------------------------------------------+----------------+----------------+
Estimated annualised total expense ratio
+-----------------------------------------------------+----------------+----------------+
| | Year ended | Year ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------------------------+----------------+----------------+
| As % of total assets less current liabilities 2 | 2.13% | 1.80% |
+-----------------------------------------------------+----------------+----------------+
| As % of shareholders' funds 2,3 | 6.45% | 4.46% |
+-----------------------------------------------------+----------------+----------------+
+----+-----------------------------------------------------------------------------+
| 1. | Share price converted to Euro at exchange rate of EUR:GBP of 1.091 prevailing |
| | at 30 September 2009 and 1.2582 prevailing at 30 September 2008. During the |
| | 2009 financial year no dividend was paid. |
+----+-----------------------------------------------------------------------------+
| 2. | The TER reflects the total of all operating costs associated with running |
| | the Group, including the Investment Manager's annual management charge, but |
| | excluding any costs associated with the day to day maintenance of the |
| | assets |
+----+-----------------------------------------------------------------------------+
| 3. | These calculations are presented as a percentage of average shareholder's |
| | funds over the period. |
+----+-----------------------------------------------------------------------------+
Chairman's Statement
The depth and extent of the turmoil in the financial markets, and wholesale
repricing of assets that this caused has been widely reported. The property
investment market behaved no differently than any other asset class and this
year our results were dominated by the impact of capital value declines.
Improving sentiment in the financial markets in the second half of the year led
many to conclude that the worst of the credit crisis had passed, but any
recovery is unlikely to be predictable or uniform across geographies and/or
sectors.
The Board and the Investment Manager took proactive measures during the year to
counter the effects of asset price deflation. Pursuing our strategic objectives
of effecting asset sales, paying down debt, reducing operational costs and
maximising rental revenue had a positive impact, but it was recognised that
further action was required to place the Company on a firmer footing.
Following the year-end, we were therefore pleased to announce the agreement of
new banking terms, in conjunction with an associated GBP58.3 million capital
raise on 16 November 2009 by way of a firm placing, placing and open offer.
Together, these measures represent a significant positive step towards re-basing
the Company's capital structure. The reduced size and enhanced operational
flexibility of the revised debt package from the Bank of Scotland has stabilised
our balance sheet and the new capital injection places us on a much firmer
footing for 2010 and beyond.
Benefits of the Capital Raising
Reducing outstanding debt and raising new capital has multiple benefits for the
Company. Re-setting the capital structure and reducing the risk of loan covenant
breach were essential steps for the Company to move onto the front foot in 2010.
In addition, the new debt terms lower the Group's LTV ratio, reduce the cost of
servicing loan interest and extend the duration of the facility, through what
may continue to be a challenging period in the credit markets.
The capital raise, which was completed on 30 December 2009, comprised the issue
of 145,685,674 million Ordinary Shares and 29,137,134 Preference Shares.
The structure of the capital raise reflected our aim to appropriately balance
the interests of existing shareholders with those of new investors and, above
all, to ensure the Company remains an attractive investment opportunity. The
blend of new ordinary shares and preference shares reduced the dilution that
would have been caused by only issuing ordinary shares and also satisfied demand
from investors for both income and/or equity upside.
Results
The decline in the independent valuation of the portfolio in the last quarter of
the financial year was a relatively modest 1.1%, down from a peak quarter on
quarter fall a year earlier of 6.3%. The cumulative effect of asset value
declines caused the unaudited NAV of the Company, adjusted to add back deferred
tax, to decrease by EUR1.22 per share or 52.2% to EUR1.12 during the financial year.
Most of this decline was front-ended and reflected the high degree of
uncertainty prevailing in the market at that time. Now, with greater visibility
on the possible bottom of the property market and the prospect of property
valuations stabilising further, the outlook for the portfolio's performance is
more favourable.
The speed and shape of the recovery is difficult to predict. There is no doubt
that growth will vary across each country and each asset class in which the
Company is invested. Our success in realising EUR70.4 million of the Company's
investments at prices on average 2.7% above the prevailing valuation (and with a
further EUR38.6 million under offer) provides clear evidence of improved liquidity
in the markets. However, we do not anticipate a rapid recovery in the wider
market and therefore will remain conservative in our approach over the short to
medium term.
Borrowings
As at the year end the Company had drawn down facilities of EUR400.2 million. This
reduced from EUR445.5 million a year earlier as a result of our active sales
programme. During the year we refinanced a 16,558 sqm property development in
Trappes, Paris with Crédit Foncier in order to release committed equity and
remove loan covenants associated with that investment.
The completion of the capital raise on 30 December 2009 has enabled debt to be
reduced to EUR359.3 million on 12 January 2010 in exchange for new, improved terms
including a lower margin, additional two year duration, a reduced exit fee and
an increase in LTV covenant from 65% to 85%. The higher LTV covenant will enable
the Company to withstand up to a further 20% fall in property values before a
breach occurs in 2010.
Property Portfolio
As at 30 September 2009 the Company held a diverse portfolio of 46 properties
across seven countries and three sectors. Our largest markets, France and
Germany, appear to be recovering more quickly than neighbouring Continental
European countries, as their GDP growth turned positive in Q3 2009. This is
encouraging for future prospective portfolio performance and supports our
strategy to invest in larger, more mature markets.
Long term total returns from commercial property investment are largely
comprised of income and despite a challenging year, the income from the property
portfolio has remained relatively resilient. The Investment Manager's focus on
maximising income returns resulted in the weighted average lease length rising
from 6.06 years in March 2009 to 6.16 years in June. Re-negotiating leases has
been the largest contributor to this improved income security and such efforts
will continue throughout 2010 as the outlook for the occupational markets
remains uncertain and void levels may rise further.
Looking Forward
The Board recognises and acknowledges the support of the Company's shareholders
and new investors in participating in the capital raise. The Company had
absorbed a total of 23.4% property valuation declines since the market's peak
and, with lower fixed costs, longer term financing and a stronger balance sheet,
it will be better placed than it has been since asset value declines commenced
at the beginning of 2008.
Post completion of the capital raise and subject to the payment of the
preference dividend to the holders of the preference shares (as detailed above),
it is the Board's intention to consider paying a dividend on the ordinary shares
as soon as practicably possible.
Certain operational costs including the investment management fee, property
accounting and administration fees, were reduced by EUR3.1 million (equivalent to
21% on an annualised basis) during the year. There is more work to be done and
we remain focused on widening the gap between earnings and cost so as to
maximise free cash flow.
We are cautiously optimistic about the near term future. I would like to thank
my fellow Directors for their commitment to the task during the last 12 months.
We look forward to improving markets but in the meantime we are happy to report
that the Company is now well positioned to continue to work towards capturing
future growth for our shareholders.
Tom Chandos
Chairman
Invista European Real Estate Trust SICAF
Investment Manager's Report
Business Update
This has been another very challenging year during which the capital structures
of most companies have remained under pressure. The Company was no exception as
property valuations continued to fall during the year. The rate of valuation
decline has however reduced significantly from 5.9% in the quarter to March 2009
to just 1.1% in the quarter to September 2009. This is encouraging as there is
now greater visibility on the likely bottom of the cycle which provides a better
basis on which to predict valuation and income performance.
Measures put in place during the year to maximise property revenue, reduce
operational costs and stabilise the balance sheet through reducing debt are now
having a positive effect on the Company and its outlook. Nevertheless, we
anticipate a slow process of recovery in the markets in which the Company is
invested and we will continue efforts to meet the strategic goals to further
stabilise the balance sheet.
On 30 December 2009, the Company successfully completed a capital raise of
GBP58.3 million to repay EUR40 million of debt and provide additional working
capital. The raise was fully underwritten by investors, will place the Company
on a firmer footing and will have a number of additional benefits in the future
for the Company. Further commentary is contained in the Chairman's Statement.
The Market
Having contracted sharply in the months after the collapse of Lehman Brothers in
September 2008, the Eurozone economy reached an important turning point in
mid-2009 when Germany and France emerged from recession. Most other European
economies have since followed suit; however Gross Domestic Product (GDP) growth
has been steady rather than spectacular and the economic recovery remains
fragile. Eurozone inflation has been flat or slightly negative for much of the
past year and has encouraged a loose monetary policy from the European Central
Bank (ECB) which we expect to continue for much of 2010.
Against this background, property investment yields have become increasingly
attractive for income oriented investors. According to CB Richard
Ellis, (Source: MarketView European Capital Markets Q3 2009) European property
investment volumes reached a low point during Q1 2009 and have since risen
albeit from very low levels. As a result, capital values are starting to show
signs of stabilisation in the most liquid European property markets, most
notably in prime segments.
Mispricing opportunities are therefore now becoming increasingly apparent across
Eurozone property markets. Some opportunities are clearly attractively priced as
a result of values over correcting downwards or being located in markets
believed to be better positioned for recovery. Others are over priced, largely
as a result of some markets not having properly reflected the realities of
reduced values and liquidity in the investment market as well as the challenging
outlook for new lettings and rental values.
Most recent leasing activity has been limited to those tenants seeking to
consolidate or reduce costs. Unemployment rates are projected to rise further in
2010 and, as a result, leasing activity is likely to remain subdued in the short
term. Against this, lower development activity has already significantly reduced
the supply of new space although we would not expect this to feed through to
positive rental growth in most European markets until 2012. Data from
CBRE (Source: MarketView European Capital Markets Q3 2009) shows that office
rents have so far declined more rapidly than the relatively defensive retail and
logistics sectors in which over 70% of the Company's portfolio is invested.
We expect renewed property investment activity to focus on the largest, most
transparent markets such as France and Germany. The degree and speed with which
this manifests itself more widely across the Eurozone markets is expected to
vary according to the relative health of underlying occupational market
conditions. This suggests a return to property performance will be driven by
asset and market fundamentals rather than capital market influences.
The Portfolio
As at 30 September 2009, the Company owned a portfolio of 46 assets valued at
EUR532.9 million. The Company remains committed to acquire a logistics property
valued at EUR8.7 million in Girona, Spain. The portfolio valuation has decreased
by 13.9% on a like-for-like basis over the year, however, the rate of decline
has been slowing since March 2009 and the quarterly decline between June 2009
and September 2009 was just 1.1%. We expect that the valuation declines will
total another 2% to 4% during 2010.
Top 10 properties by value*- Table 1
+-----------------------------------------------+------------+----------+
| Address | Sector | % |
+-----------------------------------------------+------------+----------+
| Heusenstamm, Frankfurt, Germany | Office | 12.33% |
+-----------------------------------------------+------------+----------+
| Riesa, Germany | Retail | 8.91% |
+-----------------------------------------------+------------+----------+
| Lutterberg, Germany | Logistics | 5.03% |
+-----------------------------------------------+------------+----------+
| Cergy, Paris, France | Office | 4.64% |
+-----------------------------------------------+------------+----------+
| Madrid, Spain | Logistics | 3.81% |
+-----------------------------------------------+------------+----------+
| Monteux, France | Logistics | 3.17% |
+-----------------------------------------------+------------+----------+
| Marseille, France | Logistics | 3.15% |
+-----------------------------------------------+------------+----------+
| Grenoble, France | Office | 3.11% |
+-----------------------------------------------+------------+----------+
| Roth, Germany | Retail | 3.08% |
+-----------------------------------------------+------------+----------+
| Miramas, Aix-en-Provence, France | Logistics | 2.83% |
+-----------------------------------------------+------------+----------+
| Total | | 50.06% |
+-----------------------------------------------+------------+----------+
* Percentage of aggregate asset value plus cash (including committed asset) as
at 30 September 2009
Table 1 above shows the Company's ten largest properties by value calculated as
a proportion of the open market value of the portfolio (including cash) as at 30
September 2009. The largest property in the portfolio is fully let to Deutsche
Telekom on a fifteen year lease from 2006 and provides a stable, indexed cash
flow.
As at 30 September 2009, the property portfolio remained diversified by country
and sector as shown in the charts below.
+------------------------+------------+
| Sector Analysis |
+-------------------------------------+
| Split by Sector | % |
| | Portfolio |
+------------------------+------------+
| Logistics | 54.93% |
+------------------------+------------+
| Offices | 29.70% |
+------------------------+------------+
| Retail | 15.36% |
+------------------------+------------+
| | |
+------------------------+------------+
Note: percentage of aggregate asset value excluding cash (including committed
asset) as at 30 September 2009.
+------------------------+------------+
| COUNTRY ANALYSIS | |
+------------------------+------------+
| Split by Country | % |
| | Portfolio |
+------------------------+------------+
| France | 44.86% |
+------------------------+------------+
| Germany | 35.97% |
+------------------------+------------+
| Belgium | 7.09% |
+------------------------+------------+
| Spain | 5.62% |
+------------------------+------------+
| Netherlands | 3.48% |
+------------------------+------------+
| Czech Republic | 1.78% |
+------------------------+------------+
| Poland | 1.20% |
+------------------------+------------+
| Total | |
+------------------------+------------+
Note: percentage of aggregate asset value excluding cash (including committed
asset) as at 30 September 2009.
Income/Tenancies
The Group's property portfolio currently generates a gross income of EUR43.9
million per annum (net EUR43.1 million) from 171 individual leases and 163
tenants. The current net income return at property level is 7.45% (based on 30
September 2009 valuation) and 7.79% on ERV. This would rise to 8.07% should the
current vacancy of 7.55% be leased. The credit rating of the tenants within the
portfolio is 69/100 which is classified as "normal creditworthiness" (Source:
Experian June 2009). The tenant covenant has remained stable throughout the year
(69/100 as at June 2008) and indeed since IPO in December 2006.
Top 10 tenants by income**- Table 2
+-----------------------------------------------------------+----------+
| Tenant | % |
+-----------------------------------------------------------+----------+
| Norbert Dentressangle | 19.96% |
+-----------------------------------------------------------+----------+
| Deutsche Telekom | 12.76% |
+-----------------------------------------------------------+----------+
| DHL Exel Supply Chain | 8.35% |
+-----------------------------------------------------------+----------+
| Valeo | 4.12% |
+-----------------------------------------------------------+----------+
| Schneker Logistics | 3.88% |
+-----------------------------------------------------------+----------+
| Carrefour | 3.52% |
+-----------------------------------------------------------+----------+
| AVA Marktkauf | 2.78% |
+-----------------------------------------------------------+----------+
| Real-SB Warenhaus GmbH | 2.39% |
+-----------------------------------------------------------+----------+
| Tech Data | 2.22% |
+-----------------------------------------------------------+----------+
| Strauss Innovation | 2.13% |
+-----------------------------------------------------------+----------+
| Total | 62.11% |
+-----------------------------------------------------------+----------+
** Percentage of aggregate gross rent (including committed asset) as at 30
September 2009
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 2009. The weighting to Norbert Dentressangle is higher than intended
due to their acquisition of two companies, including Christian Salvesen, who
were already tenants in the Company's portfolio. We have been seeking to reduce
this exposure through active asset management and sales and so anticipate a
reduction to 12.6% by March 2010.
Expiry Dates of Lease Contracts
+-----------+-----------+
| Year | % Annual |
| | Gross |
| | Income |
| | Due to |
| | Expire |
+-----------+-----------+
| 2010 | 1.97% |
+-----------+-----------+
| 2011 | 10.41% |
+-----------+-----------+
| 2012 | 6.46% |
+-----------+-----------+
| 2013 | 2.30% |
+-----------+-----------+
| 2014 | 10.40% |
+-----------+-----------+
| 2015 | 20.63% |
+-----------+-----------+
| 2016 | 4.16% |
+-----------+-----------+
| 2017 | 7.74% |
+-----------+-----------+
| 2018 | 11.46% |
+-----------+-----------+
| 2019+ | 19.30% |
+-----------+-----------+
Break Dates of Lease Contracts
+-----------+-----------+
| Year | % Annual |
| | Gross |
| | Income |
| | Due to |
| | Break |
+-----------+-----------+
| 2010 | 7.98% |
+-----------+-----------+
| 2011 | 22.02% |
+-----------+-----------+
| 2012 | 24.70% |
+-----------+-----------+
| 2013 | 2.92% |
+-----------+-----------+
| 2014 | 4.92% |
+-----------+-----------+
| 2015 | 10.41% |
+-----------+-----------+
| 2016 | 2.58% |
+-----------+-----------+
| 2017 | 2.87% |
+-----------+-----------+
| 2018 | 0.00% |
+-----------+-----------+
| 2019+ | 16.29% |
+-----------+-----------+
The charts above show the income expiry and possible first break profile of the
occupational leases of the Company's portfolio. The percentages are calculated
as a proportion of the Group's gross annual rental income as at 30 September
2009. We continue to re-negotiate leases with a view to maximising income
security. Stabilising a total of thirteen leases during the year has ensured
that the weighted average lease term to expiry has remained in excess of six
years and has improved the weighted average term to first possible lease break
from a minimum of 3.93 years in September 2008 to 4.19 years in 30 September
2009 on a like-for-like basis.
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Portfolio | France | Germany | Spain | Netherlands | Belgium | Czech | Poland | Total |
| Statistics 1 | | | | | | Republic | | Portfolio |
| | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Number of Tenants2 | 30 | 101 | 2 | 2 | 26 | 1 | 1 | 163 |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Number of Leases2 | 37 | 102 | 2 | 2 | 26 | 1 | 1 | 171 |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Ten Largest Tenants | 82.9% | 83.9% | 100.0% | 100.0% | 81.1% | 100.0% | 100.0% | 62.1% |
| (%)2 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| ERV (EUR,000) 3 | EUR21,193 | EUR15,302 | EUR2,343 | EUR1,708 | EUR3,024 | EUR779 | EUR667 | EUR45,016 |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Gross Rent (EUR,000) | EUR19,534 | EUR15,937 | EUR1,721 | EUR1,906 | EUR3,206 | EUR957 | EUR650 | EUR43,911 |
| 2 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Net Rent (EUR,000) 3 | EUR19,734 | EUR15,154 | EUR1,652 | EUR1,719 | EUR3,206 | EUR952 | EUR637 | EUR43,054 |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Potential Rent2,3,4 | EUR22,336 | EUR16,016 | EUR2,386 | EUR1,906 | EUR3,248 | EUR957 | EUR650 | EUR47,499 |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Over/Under Rent5 | 5.39% | 4.67% | 1.84% | 11.59% | 7.41% | 22.85% | -2.55% | 5.52% |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Average Occupancy | 87.5% | 99.5% | 72.2% | 100.0% | 98.7% | 100.0% | 100.0% | 92.4% |
| Rate (%)6 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Number of | 30 | 6 | 2 | 2 | 5 | 1 | 1 | 47 |
| Properties2 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Average lot size | 8,099 | 32,468 | 15,225 | 9,425 | 7,675 | 9,650 | 6,500 | 11,524 |
| (EUR000) 3 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Net Equivalent | 8.55% | 7.46% | 7.22% | 7.86% | 7.82% | 7.58% | 9.36% | 8.13% |
| Yield (%)7 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Net Initial Yield | 7.50% | 7.35% | 5.17% | 8.45% | 8.09% | 9.71% | 9.80% | 7.45% |
| (%)7 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Lettable Floor | 410,180 | 197,066 | 48,398 | 30,082 | 22,345 | 17,147 | 16,030 | 741,176 |
| Space (sqm) 2 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Lettable Floor | 55.33% | 26.59% | 6.53% | 4.06% | 3.01% | 2.31% | 2.16% | 100.00% |
| Space (%)2 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Sector3,8 | | | | | | | | |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Office | 21.4% | 36.2% | 0.0% | 0.0% | 100.0% | 0.0% | 0.0% | 29.7% |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Logistics | 78.6% | 21.1% | 100.0% | 100.0% | 0.0% | 100.0% | 100.0% | 54.9% |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
| Retail | 0.0% | 42.7% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 15.4% |
+---------------------+---------+---------+--------+-------------+---------+----------+--------+-----------+
+----+----------------------------------------------------------------------------+
| 1. | As at 30 September 2009, includes committed property in Girona, Spain |
+----+----------------------------------------------------------------------------+
| 2. | Source: Invista Real Estate Investment Management Limited |
+----+----------------------------------------------------------------------------+
| 3. | Source; DTZ Debenham Tie Leung Valuation as at 30 September 2009 |
+----+----------------------------------------------------------------------------+
| 4. | Potential Rent is calculated as the sum of Gross Rent and ERV on vacancy |
+----+----------------------------------------------------------------------------+
| 5. | Positive figures represent over-rented, negative figures represent |
| | under-rented. Calculated as the percentage difference between Potential |
| | Rent and ERV |
+----+----------------------------------------------------------------------------+
| 6. | Calculated as a percentage of ERV on vacancy on total Potential Rent |
+----+----------------------------------------------------------------------------+
| 7. | Weighted average by property |
+----+----------------------------------------------------------------------------+
| 8. | Calculated as a percentage of market valuation as at 30 September 2009 |
+----+----------------------------------------------------------------------------+
Disposals
The Company has been successful in disposing of five assets during the financial
year and two assets post 30 September 2009. Six properties were sold in France
and one in Belgium for a total consideration of EUR70.4 million at prices on
average 2.7% above the prevailing valuation. This enabled the Company to
maximise sale proceeds and to de-leverage, reducing debt by EUR42.9million as
shown in the table below:-
+----------------------------+----------------+---------------+--------------+
| Property | Sale | % Above/Below | Debt |
| | Consideration | Valuation | Reduction |
| | EURm | | EURm |
+----------------------------+----------------+---------------+--------------+
| Lyon, France | 35.0 | 3.2% | 32.5 |
+----------------------------+----------------+---------------+ +
| Lyon, France | 21.0 | (4.1%) | |
+----------------------------+----------------+---------------+--------------+
| Brussels, Belgium | 5.8 | 42.2% | 3.1 |
+----------------------------+----------------+---------------+--------------+
| Aix-en-Provence, France | 1.0 | 18.8% | 0.7 |
+----------------------------+----------------+---------------+--------------+
| Aix-en-Provence, France | 6.3 | (6.0%) | 5.7 |
+----------------------------+----------------+---------------+--------------+
| Aix-en-Provence, France | 0.7 | 5.8% | 0.5 |
+----------------------------+----------------+---------------+--------------+
| Entraigues, France | 0.6 | 25.5% | 0.4 |
+----------------------------+----------------+---------------+--------------+
| Total | 70.4 | 2.7% | 42.9 |
+----------------------------+----------------+---------------+--------------+
In addition, the Company is currently in negotiations to dispose of a further
three properties totalling EUR38.6 million at sale prices 2.2% above the September
2009 year end valuation. An opportunistic approach is being taken to such
disposals, where business plan initiatives have been completed and a sale would
maximise property returns to the Company, further de-leverage and return equity
to the balance sheet.
Asset Management Highlights
Good progress continues to be made in lengthening lease terms and preserving
rental income. Over the year, lease negotiations on 19.5% of the portfolio (by
gross annual income as at 30 September 2009) have resulted in extending leases
by an average of 3.5 years. It is clear that the NAV performance of the Company
will be increasingly driven by focused, intensive property level asset
management. A disciplined approach of pro-actively implementing business plan
initiatives has, despite market falls, created positive returns in some of our
investments this year. This has been achieved through leasing 11,000 sqm of
vacant accommodation and undertaking capital investments to secure higher rents
and/or longer, more secure leases.
Offices
Occupancy in the office sector has increased by 1.2% on a like-for-like
basis over the financial year. This included two new leases during the year
signed in Brussels (Belgium).
The office sector generates an income return of 7.56%. Should the currently
vacant space be leased, this would rise to 8.19%. Such income performance was in
part driven by like-for-like income growth of 1.6% over the year to September
2009.
Logistics
The Company successfully completed the pre-letting of a 16,558 sqm logistics
development project in Trappes, southwest Paris, which now generates an annual
rent of EUR975,000. The tenant, Nature et Decouvertes, took occupation in August
2009 on the basis of a nine year lease. This pre-let development produced an
un-leveraged IRR at asset level of 11.8%.
As referred to earlier in this report we are focused on reducing the Company's
exposure to its largest tenant, Norbert Dentressangle. A number of initiatives
have been implemented which, if successful, will decrease portfolio level
exposure to Norbert Dentressangle to less than 13% in March 2010.
The logistics properties in the portfolio provide an above average income return
which is accretive to cash flow. The income producing properties generate a
blended annual rental return of 8.16%, with a number of smaller properties
yielding in excess of 9-10% per annum.
The logistics portfolio has experienced the greatest increase in vacancy over
the year as tenants have been impacted by the decline in global trade. Vacancy
on a like-for-like basis has increased over the financial year from 1.49% to
9.25% as tenants reduced space commitments, principally in Spain and France.
Despite vacancy increasing, the Company has been successful in securing and
extending existing rental income. A total of ten leases have been renegotiated,
including top ten tenants DHL and Strauss Innovation (together representing 5.1%
of income as at 30 September 2009) which has had the effect of extending income
duration on their leases for a weighted average of 4.3 years to first possible
break.
Retail
The Company's retail portfolio consists of three properties in Germany which are
98% income producing. The blended income return from the retail portfolio is
7.36%.
Case Studies
SW Paris - 16,558sqm - Development - 12% Unleveraged IRR - August 2009
Securing planning consent and a pre-letting of this logistics development to
national retailer Nature et Decouvertes enabled the Company to complete
construction earlier in the year. The tenant has now taken occupation on the
basis of a 9 year lease at a record rent for the location and 25% above the
Estimated Rental Value. The opportunity was also taken to improve the investment
performance of the existing building on site by renegotiating and extending the
lease on a long term basis to provide a secure, indexed cash flow on the entire
property. These joint initiatives have increased rental revenue from EUR692,000 to
EUR1,615,000 per annum and improved the average lease length from 2.6 yrs to
5.3yrs.
Brussels - 2,673sqm - Sale at 44% over valuation February - 2009
This office building was acquired as part of a portfolio of assets in Brussels
in December 2007. The purchase was underwritten on the basis of implementing an
active management strategy of a break-up and new letting or a sale. The business
plan was completed earlier this year and the property was sold to an owner
occupier at a price 44% above the December 2008 valuation and 26% in excess of
the purchase price. Proceeds were used to de-leverage and supplement working
capital. Completing business plan objectives and generating such profits was an
excellent achievement for the Company.
Tiel, Holland - 20,849sqm - Extended DHL lease by 5 years - June 2009
This high quality logistics property is fully occupied by DHL who operate
distribution services on behalf of several clients. In order to improve
investment performance a new five year lease was signed in June 2009 on the
entire warehouse. This provided an additional 3.5 years income security at a
rent of EUR1,325,000 per annum. Stabilising this important income stream from DHL
is key to maximising total return from this property and re-affirms DHL's
commitment to the property and location. The rental income generated by this
investment now comprises some 3% of the total portfolio revenue as at 30
September 2009.
Marseille - 28,131sqm - Lease re-gear 6% above ERV - January 2009
The Company recently negotiated a new lease on this prime logistics property in
the port of Marseille. SDV, the main tenant of the property, who distribute on
behalf of their client Danone, occupied 3 of the 5 bays of the warehouse however
these were not contiguous. Following a negotiated surrender of their existing
lease, a new 9 year lease (with break option at 3 and 6 years) was agreed on an
increased area of 22,000 sq m, which improved the weighted average lease length
to expiry by 5.1 yrs and maximised revenue. The property now benefits from an
annual income of EUR1,032,000 which reflects EUR47/sqm per annum, in line with the
Estimated Rental Value.
Riesa, Germany - 50,263sqm - 98.4% income producing
This large retail park stands on a 260,000 sqm site in Riesa and is the dominant
out of town retail park located between Leipzig and Dresden in Germany. The site
is anchored by tenants Real and Toom representing 46% of property income. The
strategy has been to maximise both income return and lease security which has
resulted in the scheme now being 98.4% income producing. A local retail
specialist has been engaged to assist in further enhancing value through
potential re-configuration and re-development.
Amiens, France - 12,594sqm - Lease re-gear at 31.8% above ERV - September 2009
The strategy for this logistics property was to re-position the investment
through re-negotiation of the lease with the occupier Mory Logidis. A
simultaneous surrender and renewal was negotiated and a new 9 year lease (with a
break option at 6 years) was signed at a rent of EUR52.80 per sq m per annum. This
rental level is 31.8% above the Estimated Rental Value of the property as at 30
September 2009. The new lease provides a stable cash flow and increases net
income returns as all operating costs are now recoverable from the tenant. The
lease renegotiation also provides evidence for future lettings and lease
renewals on the Amiens logistics park, where the Company owns a total of 12
properties.
Finance
As at 30 September 2009, the Company had drawn down EUR400.2 million of senior
debt in respect of its EUR416.5 million facility with the Bank of Scotland and its
EUR12 million facility with Crédit Foncier. The Company had total cash balances of
EUR29.8 million (excluding tenant deposits of EUR5.1 million) as at 30 September
2009 giving a net debt of EUR370.4 million. Under the Finance Documents with the
Bank of Scotland - which is based on the 30 September 2008 valuation - the
Company's gross LTV (gross debt divided by market value of properties) was 65.6%
against a gross LTV covenant of 75%.
Post year end, the Company concluded revised banking terms with Bank of Scotland
which were conditional on reducing debt by EUR40 million and with a revised
facility size of EUR359.3 million. The new, improved terms include three
significant benefits for shareholders:
1) an extension of the maturity date by two years until December 2013,
2) greater covenant headroom,
3) access to lower cost loan margins at lower LTV ratios.
These new terms were agreed to enable the Company to withstand significant
further property valuation and income falls and strengthen its balance sheet.
On 16 November 2009, the Company announced a capital raising of approximately
GBP58.3 million (GBP53.5 million net of expenses) by way of a Firm Placing and a
Placing and Open Offer of both New Ordinary Shares and a new class of Preference
Shares with Warrants attached. This capital raising was successful and closed on
30 December 2009.
Outlook
The portfolio value has fallen by over 23.4% from the peak. We anticipate that
during 2010 valuations across Europe will stabilise. Positive returns and out
performance are capable of being created from this point in the cycle. Whilst
the economies remain weak this is broadly already reflected in today's property
values. Pro-active asset management and highly selective stock selection should
enable the Company to drive returns from a more stable platform.
As reported in the Company's interim accounts, the strategic objective this year
has been to focus on earnings, reduce costs and strengthen the balance sheet. In
line with this objective, we acted to reduce risks associated with lease breaks,
cut recurring operating costs by an annualised EUR3.1 million and re-negotiated
the bank debt over the course of 2009. In our view, the achievement of these key
steps have positioned the Company well for growth in the future.
We are cautiously optimistic about the property markets in which the Company is
invested and we expect our tactical decision to invest in less volatile, mature
and relatively transparent markets will remain of long term benefit to the
Group. This has been evident in the Company's largest market of France where 45%
of the Company's property portfolio is located. We will continue to focus on
implementing business plan initiatives, maximising revenue and further
developing tenant relations in all markets so as to drive positive returns from
superior rental growth.
We are pleased that the capital raise announced post year end has been
successful and feel confident that this will position us well to enhance
shareholder value over time.
Tony Smedley
Head of Continental European Funds
Invista Real Estate Investment Management
13 January 2010
Report of the Directors
The Directors of the Company (the 'Directors' or the 'Board') present their
report and the Audited Statements of the Company and the Group Financial
Statements for the year ended 30 September 2009.
Investment objective and policy
Investment objective
The long term investment objective of the Company is to provide shareholders
with an attractive level of income return together with the potential for income
and capital growth through investing in commercial real estate in Continental
Europe. The Company's focus has predominantly been in Western European countries
due to the relative stability, transparency and liquidity of these markets.
Diversification
The Board believes 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 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 object of spreading investment risk and taking into account
the Company's investment objective, policy and restrictions.
Asset allocation
The Group currently owns, and intends to continue to own, a diversified
portfolio of commercial real estate. Its sector focus is logistics, office,
retail and light industrial. From time to time the Group may acquire 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') and the Company's investment objective, policy
and restrictions.
Borrowings
The Company's Articles of Association limit its borrowings to 65% of the Group's
gross assets, calculated at the time of drawdown. In addition Luxembourg legal
and regulatory provisions require that the Company must comply with its
borrowing limit at all times and for this reason the Directors concluded at the
time of the Company's IPO in December 2006 that it would be prudent for the
ongoing borrowing limit to be set at 70% of the Group's gross assets. If the 70%
limit is breached at any time the Directors will be required to adopt as their
priority objective for the Group sales transactions to bring borrowings within
the 70% limit while taking due account of the interests of shareholders.
Accordingly, corrective measures may not have to be taken immediately if this
would be detrimental to shareholder interests.
Material change to investment objective and policy
In accordance with the requirements of the UK Listing Authority, any material
change in the investment objective and policy of the Company may only be made
with the approval of Shareholders.
Investment strategy
The Investment Manager has targeted assets for acquisition which it believes
exhibit some or all of the following characteristics:
> well-located for its purpose;
> modern or recently refurbished;
> let to tenants of good creditworthiness on market standard leases;
> freehold or long leasehold;
> low vacancy;
> net initial yields higher than those available on prime properties and
> opportunity to enhance value through active asset management.
The degree to which the Group's current or future properties exhibit some or all
of these characteristics depends on conditions in the local real estate market
and the specific property.
The strategy for ownership of the Group's properties is to actively manage
investment performance through lease re-negotiation, maximising the net rental
income receivable from tenants, extending lease duration to preserve income
security, leasing current vacancy, stabilising rents and, amongst other
initiatives, developing surplus or ancillary land reserves.
The Investment Manager will continue to manage the Group's portfolio based on a
research led investment strategy to identify relative outperforming or
underperforming property markets over the medium to long term in different
countries, regions and sectors with a view to recycling capital where
appropriate to do so.
Investment restrictions
The Company and, where relevant, its subsidiaries will observe the following
restrictions in compliance with the current Listing Rules:
+-----------------------------------------------------------------------+
| * distributable income will be principally derived from investment. |
| Neither the Company nor any subsidiary will conduct a trading |
| activity which is significant in the context of the Group as a whole; |
+-----------------------------------------------------------------------+
| * the Company will invest and manage its assets in a way which is |
| consistent with its object of spreading investment risk; and |
+-----------------------------------------------------------------------+
| * the Company will only use financial derivatives instruments for |
| hedging purposes. |
+-----------------------------------------------------------------------+
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. The Company or, where relevant, the Group
will observe the following restrictions in compliance with the current Listing
Rules for closed-ended investment:
+------------------------------------------------------------------------+
| * the borrowings of the Group (excluding intra group loans) are |
| limited by the Articles to 65% of the gross assets of the Group |
| (consolidated where applicable). This limit is tested at the time any |
| borrowing is made. (In addition, the Company is subject to a limit on |
| borrowing of 70% of gross assets which, in accordance with Luxembourg |
| legal and regulatory requirements, applies at all times); |
+------------------------------------------------------------------------+
| * no one property (including all adjacent or contiguous properties) |
| shall at the time of Admission or, if later, at the time of |
| acquisition, represent more than 15%, of the gross assets of the Group |
| (consolidated where applicable). |
+------------------------------------------------------------------------+
In relation to the investment restriction set out 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 will comply with this investment
restriction at the latest four years after its conversion into a SICAF.
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
revised investment restrictions applicable to the Company and, if considered
suitable, will subject to the prior approval of the CSSF adopt the new Listing
Rules investment restrictions.
Where any change in the above investment restrictions and limits is determined
to be material, and subject to the approval of the CSSF, such change will take
effect on the quarter date subsequent to the quarter date on or before which a
notice informing the Shareholders of such material change was sent.
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.
Business review
Business of the Company
The Company was incorporated on 6 June 2005 as Insight European Real Estate
Trust S.A. On 17 November 2006 the Company's name was changed to its present
name Invista European Real Estate Trust SICAF together with conversion of the
Company into an investment company with fixed capital (société d'investissement
à capital fixe). The Company has been listed on the main market of the London
Stock Exchange since 20 December 2006.
Invista European Real Estate Trust SICAF is a public limited closed-ended
capital company managed by Invista Real Estate Investment Management Limited. A
review of the business during the year is contained in the Chairman's Statement
and the Investment Manager's Report.
Investments
The independent valuation of the Company's property portfolio excluding the
committed asset as at 30 September 2009 was EUR532.9 million and consisted of 46
properties located in France, Germany, The Netherlands, Spain, Belgium, Czech
Republic and Poland.
Disposals
On 21 October 2008, the Company successfully completed the disposal of two real
estate assets in Villeurbanne and Lyon in France for a total consideration of
EUR21.0 million and EUR35.0 million.
On 30 September 2008, the market values of the disposed properties were EUR21.9
million and EUR33.9 million.
On 2 February 2009 the Company successfully completed the disposal of a real
estate asset in Brussels, Belgium for a total consideration of EUR5.8 million.
On 31 December 2008, the market value of the disposed property was EUR4.1 million.
On 19 March 2009 the Company successfully completed the disposal of a real
estate asset in the Zone d'Activités Aix Les Milles, France for a total
consideration of EUR6.3 million.
On 31 December 2008, the market value of the disposed property was EUR6.6 million.
On 31 March 2009 the Company successfully completed the disposal of a real
estate asset in the Zone d'Activités Aix Les Milles, France for a total
consideration of EUR950,000.
On 31 December 2008, the market value of the disposed property was EUR 806,600.
On 26 October 2009 the Company successfully completed the disposal of a real
estate asset in Aix-en-Provence, France for a total consideration of EUR688,000.
On 30 September 2009, the market value of the disposed property was EUR650,000.
On 16 November 2009 the Company successfully completed the partial disposal of a
real estate asset in Entraigues-sur-la Sorgue, France for a total consideration
of EUR618,000.
On 30 September 2009, the market value of the disposed property was EUR471,755.
Strategic outlook
The Company will continue to actively manage the existing property portfolio to
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 is
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 2009, the
Company's audited NAV (adjusted to add back deferred taxation) was EUR1.12 per
share.
Over the 12 months to 30 September 2009, the Company's audited adjusted NAV has
decreased by EUR1.22 per share or 52.2%. The principal reason for the decline in
NAV is the fall in valuation of the Group's property portfolio and the fall in
the market-to-market valuation of the Group's interest rate swaps.
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. The
most notable event was the capital raising completed by the Company on 30
December 2009 in which the Company raised GBP58.3million (before expenses), by
way of a Firm Placing and a Placing and open offer of both New Ordinary Shares
and a new class of Preference Shares with Warrant's attached. This included the
re-negotiation of the senior debt facility with the Bank of Scotland.
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 completion of the capital raising and refinancing of the Company's debt
facility has provided the Board with an improved level of clarity as to the
Company's ongoing financial position. The revised loan terms enable the Group to
access cheaper loan margins at lower LTV ratios. These cheaper loan margins,
combined with the potential to access current lower Swap rates, are expected to
improve the Group's net cash income on an annual basis thereby providing the
potential for the resumption of dividend payments on the ordinary shares.
Subject to the payment of the Preference Dividend to the holders of the
Preference Shares. It is the Board's intention to consider paying a dividend on
the ordinary shares.
Principal risks
The Board considers the following risks to be key risks to the Company. These
key risks fall broadly under the following categories:
Investment and strategy
Market circumstances can introduce volatility into investment returns arising
from factors such as market sentiment, an excess supply of accommodation
relative to occupier demand, macro economic factors impacting on the capability
of tenants to pay rents, or fiscal and legislative changes. The Investment
Manager and the Board seek to mitigate these risks through a business plan led
approach to asset management, research-based investment decisions, regularly
reviewing portfolio strategy and through owning a well diversified and balanced
portfolio.
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 Experian.
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. Furthermore income receivable from any tenant, or tenants within the same
group, in any one financial year shall not exceed 20% of the total rental income
of the Group in that financial year.
Borrowings
The Group seeks to enhance NAV total returns through borrowing. There is risk
associated with third party borrowings and the Board adopts the following
approach to mitigate these risks. The principal risk control is an upper
borrowing limit of 65% of the Group's gross assets on a fully consolidated
basis. This limit is tested at the time any borrowing is made. In addition, the
Group is subject to a limit on borrowing of 70% of gross assets which, in
accordance with Luxembourg legal and regulatory requirements, applies at all
times.
At 30 September 2009 the Group had access to a EUR416.5 million credit facility
from Bank of Scotland of which the Group had drawn down a total of EUR394.1
million (plus EUR6.1 million with Crédit Foncier). On 12 January 2010, following
the Company's year end, the Group paid down EUR40 million of debt under its senior
loan facility with Bank of Scotland and this facility was reduced to EUR359.3
million. The Group seeks to avoid significant exposure to unforeseen upward
interest rate movements, with all third party debt currently hedged.
Accounting, legal and regulatory
The Group has processes in place to ensure that accurate accounting records are
maintained and that 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 a
specialist property valuation firm who 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 full legal due
diligence with 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
Commission de surveillance de secteur financier ('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 notifiable
events.
Finally, the Board is satisfied that the Investment Manager and Administrator
have adequate procedures in place to ensure continued compliance with regulatory
requirements of the UK Financial Services Authority and the CSSF.
Management
The Company has retained the services of Invista Real Estate Investment
Management Limited ('Invista') as Investment Manager.
Invista is the largest listed real estate fund manager in the UK with Lloyds
Banking Group holding a 55% stake. Under an investment management agreement
dated 17 November 2006 (as subsequently amended) (the 'Investment Management
Agreement'), Invista is responsible for advising the Group on the overall
management of the Group's investments in accordance with the Group's investment
objective and policy and subject to the overall supervision of the Directors.
The team dealing with the Company is led by Duncan Owen, CEO of Invista who is a
member of the bi-monthly investment committee. The other members of that
committee are Tim Francis, Veronica Gallo-Alvarez, Guillaume Masset and Chris
Ludlam. The Investment committee is chaired by Tony Smedley. The Board continues
to be satisfied that Invista has sufficient resources available to deliver the
investment objective.
Under the terms of the Investment Management Agreement, subject to the overall
supervision of the Directors, the Investment Manager shall provide the Company
with such investment advisory, investment management services and administrative
services as may be required by them in relation to the Total Property Portfolio.
The Investment Manager will also procure the provision of asset management
services to the Property Subsidiaries.
The Investment Management Agreement may be terminated by either the Company or
the Investment Manager giving to the other not less than 18 months' written
notice.
The Investment Management Agreement may also be terminated by the Company with
immediate effect on the occurrence of certain events.
Management fees
Under the Investment Management Agreement, the Investment Manager is entitled to
a base management fee of 2% per annum of the aggregate Net Asset Value
attributable to the Ordinary Shares and the Preference Shares subject to a
minimum annual fee of EUR3 million. The amount of the fee will be adjusted such
that the annual amount paid to the Investment Manager cannot be higher than that
applicable should a fee of 0.95% per annum be applied to the Adjusted Gross
Assets, meaning that the previous cap remains unchanged. This base management
fee is payable monthly in arrears subject to a recalculation provision to
capture any change in Net Assets from quarter to quarter on a straight line
basis. The Investment Management Agreement also provides for the Investment
Manager to be reimbursed by the Company for costs and expenses incurred by it,
including (without limitation) all costs and expenses relating to accounting,
tax, due diligence, legal, surveyors, building contractors, estate managers and
other properly appointed service providers.
The Investment Manager is also entitled to an annual performance fee where the
total return per Share during the relevant financial period exceeds an annual
rate of 10% (the "Performance Hurdle"). Where the Performance Hurdle is met, a
performance fee will be payable in an amount equal to 15% of any aggregate total
return over and above the Performance Hurdle.
The Performance Hurdle is calculated on a three year rolling basis. This
requires that the annualised total return over the period from Admission to the
end of the relevant financial period in the first three year period, and on a
rolling three year basis thereafter, is equal to or greater than 10% per annum.
The performance fee is paid in each of the first two years on the to-date
performance.
Subject to the above conditions, the performance fee is payable by the Company
to the Investment Manager within 14 days of receipt by the Company of such
calculation.
Administration
Citco REIF Services (Luxembourg) S.A., as Administrator, is responsible for the
performance of the general administrative functions required by the Investment
Funds Act of Luxembourg and, in particular, for the calculation of the NAV per
share, the performance and oversight of the bookkeeping, the preparation and
drafting of the Company's annual accounts and the periodical financial
statements and reports.
The Administration Agreement may be terminated by either party giving to the
other not less than 120 days notice in writing.
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 is appropriate to adopt the going concern basis in preparing
the financial statements.
Creditor payment policy
It is the Group's policy to ensure settlement of supplier invoices in accordance
with stated terms.
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
2009 and 30 December 2009) are listed below:
+--------------+------------+------------+------------+------------+------------+------------+
| Director | 30 | 30 | 30 | 30 | 30 | 30 |
| | December | December | September | September | September | September |
| | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 |
+--------------+------------+------------+------------+------------+------------+------------+
| | Number of | % | Number of | % | Number of | % |
| | shares | | Shares | | Shares | |
| | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| Tom Chandos | 111,000 | 0.0427 | 60,000 | 0.0525 | 60,000 | 0.0525 |
| (Chairman) | ordinary | 0.0350 | | | | |
| | shares and | | | | | |
| | 10,200 | | | | | |
| | preference | | | | | |
| | shares | | | | | |
| | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| Duncan Owen | 13,875 | 0.0053 | 7,500 | 0.0066 | 7,500 | 0.0066 |
| | ordinary | | | | | |
| | shares | | | | | |
| | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| John | 57,350 | 0.0221 | 31,000 | 0.0271 | 31,000 | 0.0271 |
| Frederiksen | ordinary | | | | | |
| | shares | | | | | |
| | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| Michael | 0 | 0 | 0 | 0 | 0 | 0 |
| Chidiac | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| Robert | 0 | 0 | 0 | 0 | 0 | 0 |
| DeNormandie | | | | | | |
+--------------+------------+------------+------------+------------+------------+------------+
| Jaap Meijer | 0 | 0 | 0 | 0 | 0 | 0 |
+--------------+------------+------------+------------+------------+------------+------------+
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.
None of the Directors has a service contract with the Company during the year.
The appointment/resignation dates and gross remuneration of the Directors during
the financial year was as follows:
+----------------------+------------------+------------+
| Director | Date of | EUR |
| | appointment | |
+----------------------+------------------+------------+
| Tom Chandos | 17 November 2006 | 52,000 |
| (Chairman) | | |
+----------------------+------------------+------------+
| Duncan Owen | 17 November 2006 | 30,000 |
+----------------------+------------------+------------+
| John Frederiksen | 17 November 2006 | 30,000 |
+----------------------+------------------+------------+
| Michael Chidiac | 17 November 2006 | 35,000 |
+----------------------+------------------+------------+
| Robert DeNormandie | 26 April 2007 | 40,000 |
+----------------------+------------------+------------+
| Jaap Meijer | 16 November 2007 | 35,000 |
+----------------------+------------------+------------+
The Directors receive a base fee of EUR30,000 per annum, and the Chairman receives
EUR52,000 per annum. The Chairman of the Audit Committee receives an additional
fee of EUR5,000 per annum, reflecting his additional responsibilities and
workload. All Luxembourg based Directors also receive an additional EUR5,000 per
annum in recognition of their additional work.
Disclosure of information to auditors
As far as each of the Directors is aware, there is no relevant audit information
of which the Company's auditors are unaware, 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 Directors are aware of
that information.
Substantial shareholdings
At 31 December 2009 the Board was aware that the following shareholders owned 3%
or more of the issued shares of the Company.
+--------------------------------+----------------+----------------+
| | Number of | % |
| | Ordinary | |
| | Shares | |
+--------------------------------+----------------+----------------+
| Spearpoint Limited | 26,470,322 | 10.18 |
+--------------------------------+----------------+----------------+
| Rensburg Sheppards Investment | 23,512,069 | 9.05 |
| Management | | |
+--------------------------------+----------------+----------------+
| Invista Real Estate Investment | 16,625,249 | 6.40 |
| Mgmt Ltd | | |
+--------------------------------+----------------+----------------+
| Ashcourt Asset Management | 16,099,257 | 6.20 |
+--------------------------------+----------------+----------------+
| Henderson New Star | 13,345,607 | 5.14 |
+--------------------------------+----------------+----------------+
| River & Mercantile Asset | 13,021,361 | 5.01 |
| Management LLP | | |
+--------------------------------+----------------+----------------+
| Gartmore Investment Management | 9,383,535 | 3.61 |
| Plc | | |
+--------------------------------+----------------+----------------+
Independent auditors
KPMG Audit S.à.r.l. has been appointed as independent auditor of the Company
with effect from 17 November 2006 and for a duration of six years.
Corporate governance
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 Luxembourg 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
Combined Code (which is available at www.frc.org.uk/corporate/combinedcode.cfm)
is discussed in the following paragraphs.
Principles statement
The Directors are committed to high standards of corporate governance and have
made its Company policy to comply with best practice in this area, insofar as
the Directors believe it is relevant and appropriate to the Company, to comply
with the Combined Code published by the Financial Reporting Council or to
otherwise state areas of non-compliance.
Role of the Board
The Board has determined that its role is to consider and determine the
following principal matters which it considers are of strategic importance to
the Company:
The overall objectives of the Company as described under Investment Policy above
and the strategy for fulfilling those objectives within an appropriate risk
framework.
The strategy it considers may be appropriate in light of the prevailing market
conditions.
The capital structure of the company including consideration of an appropriate
use of borrowings both for the Company.
The appointment of the Investment Manager, Administrator and other appropriately
skilled service providers and monitor their effectiveness through regular
reports and meetings.
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 financial gearing.
The powers of the Board are further described in articles 6,9,10 and title III
of the Articles.
Board performance evaluation
The Board undertook a review of its performance in respect of 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 2009 has been through a combination of questionnaire and discussion.
The evaluation process is designed to show whether individual Directors continue
to contribute effectively to the Board and to clarify the strengths and
weaknesses of the Board's composition and processes. The Chairman takes the lead
in acting on the results of the evaluation process. In respect of the Chairman,
a meeting of Directors was held, without the Chairman present, to evaluate his
performance.
This review concluded that the Board was operating effectively and that the
members of the Board had the breadth of skills required to fulfill their role.
Accordingly, 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 that all Directors standing for re-election at the Annual General
Meeting on 10 March 2010 should be re-elected.
Non-Executive Directors, rotation of Directors and Directors' tenure
The Combined Code recommends that Directors should be appointed for a specified
period. The re-election period of the Directors is one year.
John Frederiksen is a Non-Executive Director of Invista Foundation Property
Trust Limited. Invista Foundation Property Trust Limited is managed by the
Investment Manager and Mr. Frederiksen is therefore considered to be a
non-independent director under the Listing Rules.
Duncan Owen is the Chief Executive Officer of Invista and therefore a Director
of the Investment Manager. Pursuant to the Listing Rules, as a Director of the
Investment Manager Duncan Owen is considered to be a non-independent director.
The remaining Directors (Tom Chandos, Michael Chidiac, Robert DeNormandie and
Jaap Meijer) are considered independent.
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 2009:
+--------------------------------+------------------+----------------+
| Director | Board | Audit |
| | | Committee |
+--------------------------------+------------------+----------------+
| Tom Chandos (Chairman) | 4 | 1 |
+--------------------------------+------------------+----------------+
| Duncan Owen | 3 | 1 |
+--------------------------------+------------------+----------------+
| John Frederiksen | 4 | 1 |
+--------------------------------+------------------+----------------+
| Michael Chidiac | 4 | 4 |
+--------------------------------+------------------+----------------+
| Robert DeNormandie | 4 | 4 |
+--------------------------------+------------------+----------------+
| Jaap Meijer | 4 | 4 |
+--------------------------------+------------------+----------------+
| Number of meetings during the | 4 | 4 |
| year | | |
+--------------------------------+------------------+----------------+
In between its regular quarterly meetings, the Board has also met on a number of
occasions during the year to consider specific transactions or reach decisions
on matters arising. It has not always been possible for all Directors to attend
these meetings. The Company maintains liability insurance for its Directors and
Officers.
Committees of the Board
The Audit Committee
The Audit Committee is chaired by Robert DeNormandie with John Frederiksen,
Michael Chidiac and Jaap Meijer as voting members. Non-voting members are Tom
Chandos and Duncan Owen. 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.
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. This includes periodically reporting to the
Board on its activities and to make recommendations for the appointment,
compensation, retention and oversight of, and consider the independence of the
Company's external auditors and perform 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.
The Audit Committee is responsible for reviewing the half-year and annual
financial statements before their submission to the Board.
In addition the Audit Committee is charged to operate under specific terms of
reference to advise the Board on the terms and scope of the appointment of the
auditors, their remuneration, the independence and objectivity of the auditors,
and reviewing with the auditors the results and effectiveness of the audit.
Members of the Audit Committee may also meet with the Company's valuer to
discuss the scope and conclusions of their work.
During the year the Company's auditors were involved in a limited review of the
interim financial statements. No other audit work was performed.
Other Committees
The Company does not have a remuneration committee or a nomination committee,
since the Company does not have any executive Directors. New appointments to the
Board and remuneration issues are considered by the Board as a whole from time
to time.
There is also no management committee. Review of the Investment Manager's
performance and the contractual arrangement with the Investment Manager are
instead conducted by the Board as a whole, as described above.
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
(www.ieret.eu). Members of the Investment Manager's Investment Committee make
themselves available at all reasonable times to meet with 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 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 10
March 2010 can be found in the Notice of the Meeting.
Statement of Directors' responsibilities
The Directors are responsible for ensuring proper preparation of the Directors'
Report, Annual Report and Financial Statements for each financial period; which
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Group as at the end of the financial period and of the
profit or loss of the Group for that period in accordance with International
Financial Reporting Standards and ensure that they are in accordance with
applicable laws and which give a true view of the evolution and results of the
Group as well as a description of the risks and uncertainties the Group may
encounter.
In preparing those financial statements the Directors are required to:
Select suitable accounting policies and apply them consistently.
Make judgments and estimates that are reasonable and prudent.
State whether applicable accounting standards have been followed, subject to any
material departures disclosed and explained in the Financial Statements.
Prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy the financial position of the Group and to
enable them to ensure that the Financial Statements comply with all relevant
regulations. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for:
Ensuring that the Report of the Directors and other information included in the
Annual Report is prepared in accordance with applicable company law.
Ensuring that the Annual Report includes information required by the Listing
Rules .
The Group's system of internal controls is designed to meet the Group's
particular needs and the risks to which it is exposed.
Internal control
The Directors are responsible for the determination of the Company's investment
objective and policy and have overall responsibility for the Group's activities
including the review of investment activity and performance.
The Combined 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:
The Board has reviewed a report prepared by Invista's risk team on Invista
(Investment Manager), Citco (Administrator), Primexis (French Accountant), RBC
Dexia (Custodian) and Maitland (Registrar) and has been satisfied that their
approach is appropriate for the Group.
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.
The Group's system of internal control therefore is substantially reliant on
Invista's and Citco's 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 Combined Code.
The key elements designed to provide effective control are as follows:
Regular review of relevant financial data including management accounts and
performance projections.
Contractual documentation with appropriately regulated entities which clearly
describes responsibilities for the two principal service providers concerned.
The Investment Manager's system of internal controls is based on clear written
processes, a formal investment committee, clear lines of responsibility and
reporting all of which are monitored by Invista's internal risk team. Invista is
regulated by the Financial Services Authority in the UK.
The Company's strategy is authorised by the Board which also monitors regularly
the Investment Manager's effectiveness in its implementation.
Material contracts
Material contracts which have been entered into by the Company are listed in
Part XI, Section 8. of the Prospectus.
Compensation in case of resignation, redundancy or takeover bid.
The Company has not entered into any agreements with the Directors or employees
providing for compensation if they resign or are made redundant without valid
reason or if their employment cease because of a takeover bid.
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 to 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.
Tom Chandos, Chairman
13 January 2010
Robert DeNormandie, Chairman of the Audit Committee
13 January 2010
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2009
+-------------------------------------+---------+-------------------+--------------------+
| | Notes | 30 September 2009 | 30 September 2008 |
| | | EUR'000 | EUR'000 |
+-------------------------------------+---------+-------------------+--------------------+
| Rental income | | 44,931 | 47,283 |
+-------------------------------------+---------+-------------------+--------------------+
| Property operating expenses | 5 | (3,882) | (2,188) |
+-------------------------------------+---------+-------------------+--------------------+
| Net rental and related income | | 41,049 | 45,095 |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Gains on disposal of property | | 848 | - |
+-------------------------------------+---------+-------------------+--------------------+
| Other income | 6 | 1,308 | 271 |
+-------------------------------------+---------+-------------------+--------------------+
| Total other income | | 2,156 | 271 |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Expenses | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Investment management fees | 7 | (4,684) | (7,362) |
+-------------------------------------+---------+-------------------+--------------------+
| Professional fees | 8 | (3,160) | (2,079) |
+-------------------------------------+---------+-------------------+--------------------+
| Abortive fees | 8 | 116 | (1,656) |
+-------------------------------------+---------+-------------------+--------------------+
| Administrative fees | 9 | (3,135) | (2,747) |
+-------------------------------------+---------+-------------------+--------------------+
| Directors' fees | | (199) | (222) |
+-------------------------------------+---------+-------------------+--------------------+
| Other expenses | | (621) | (458) |
+-------------------------------------+---------+-------------------+--------------------+
| Total expenses | | (11,683) | (14,524) |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Net loss on derivative instruments | 14 | (34,741) | - |
+-------------------------------------+---------+-------------------+--------------------+
| Net change in the fair value of | 12 | (97,265) | (65,927) |
| investment property | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Net loss on valuation | | (132,006) | (65,927) |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Net operating loss | | (100,484) | (35,085) |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Finance income | | 1,214 | 3,442 |
+-------------------------------------+---------+-------------------+--------------------+
| Finance expenses | | (34,556) | (29,862) |
+-------------------------------------+---------+-------------------+--------------------+
| Net finance costs | 10 | (33,342) | (26,420) |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Loss before tax | | (133,826) | (61,505) |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Deferred taxation | 11 | 6,681 | 4,651 |
+-------------------------------------+---------+-------------------+--------------------+
| French restructuring income tax | | - | (4,319) |
+-------------------------------------+---------+-------------------+--------------------+
| Other taxation | 11 | 66 | (2,026) |
+-------------------------------------+---------+-------------------+--------------------+
| Total taxation | 11 | 6,747 | (1,694) |
+-------------------------------------+---------+-------------------+--------------------+
| Loss for the year attributable to | | (127,079) | (63,199) |
| the equity holders of the Company | | | |
+-------------------------------------+---------+-------------------+--------------------+
| | | | |
+-------------------------------------+---------+-------------------+--------------------+
| Basic and diluted loss per share | 21 | (1.11) | (0.55) |
| (euro) | | | |
+-------------------------------------+---------+-------------------+--------------------+
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEET
As at 30 September 2009
+-------------------------------------+---------+-------------------+------------------+
| | Notes | 30 September 2009 | 30 September |
| | | EUR'000 | 2008 |
| | | | EUR'000 |
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Assets | | | |
+-------------------------------------+---------+-------------------+------------------+
| Investment property | 12 | 517,481 | 631,569 |
+-------------------------------------+---------+-------------------+------------------+
| Deferred tax assets | 18 | - | 1,447 |
+-------------------------------------+---------+-------------------+------------------+
| Total non-current assets | | 517,481 | 633,016 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Trade and other receivables | 13 | 17,048 | 17,163 |
+-------------------------------------+---------+-------------------+------------------+
| Derivative financial instruments | 14 | - | 8,990 |
+-------------------------------------+---------+-------------------+------------------+
| Cash and cash equivalents | 15 | 34,347 | 29,915 |
+-------------------------------------+---------+-------------------+------------------+
| Non-current assets classified as | 28 | 16,264 | 57,559 |
| held for sale | | | |
+-------------------------------------+---------+-------------------+------------------+
| Total current assets | | 67,659 | 113,627 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Total assets | | 585,140 | 746,643 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Share capital | | 142,829 | 142,829 |
+-------------------------------------+---------+-------------------+------------------+
| Share premium | | 149,304 | 149,304 |
+-------------------------------------+---------+-------------------+------------------+
| Reserves | | 5,180 | 8,304 |
+-------------------------------------+---------+-------------------+------------------+
| Retained earnings | | (179,455) | (52,264) |
+-------------------------------------+---------+-------------------+------------------+
| Total equity attributable to equity | 16 | 117,858 | 248,173 |
| holders of the Company | | | |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Liabilities | | | |
+-------------------------------------+---------+-------------------+------------------+
| Interest-bearing loans and | 17 | 372,771 | - |
| borrowings | | | |
+-------------------------------------+---------+-------------------+------------------+
| Long term provision | 32 | 12,495 | - |
+-------------------------------------+---------+-------------------+------------------+
| Derivative financial instruments | 14 | 29,056 | - |
+-------------------------------------+---------+-------------------+------------------+
| Deferred tax liabilities | 18 | 6,969 | 18,506 |
+-------------------------------------+---------+-------------------+------------------+
| Total non-current liabilities | | 421,291 | 18,506 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Interest-bearing loans and | 17 | - | 411,715 |
| borrowings | | | |
+-------------------------------------+---------+-------------------+------------------+
| Trade and other payables | 19 | 22,366 | 22,522 |
+-------------------------------------+---------+-------------------+------------------+
| Current taxation payable | | 7,339 | 8,740 |
+-------------------------------------+---------+-------------------+------------------+
| Liabilities directly associated | 28 | 16,286 | 36,987 |
| with non-current assets classified | | | |
| held for sale | | | |
+-------------------------------------+---------+-------------------+------------------+
| Total current liabilities | | 45,991 | 479,964 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Total liabilities | | 467,282 | 498,470 |
+-------------------------------------+---------+-------------------+------------------+
| | | | |
+-------------------------------------+---------+-------------------+------------------+
| Total equity and liabilities | | 585,140 | 746,643 |
+-------------------------------------+---------+-------------------+------------------+
| Net Asset Value per share (euro) | 20 | 1.03 | 2.17 |
+-------------------------------------+---------+-------------------+------------------+
The financial statements were approved by the Board of Directors on 13 January
2010 and signed on its behalf by:
Tom ChandosRobert DeNormandie
Chairman Chairman of Audit Committee
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2009
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| | Share | Share | Hedging | Restricted | Currency | Retained | Total |
| | capital | premium | reserve | reserves | translation | earnings | Equity |
| | | | | | adjustment | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Balance as at | 142,829 | 170,215 | 5,380 | 101 | - | 10,192 | 328,717 |
| 30 September | | | | | | | |
| 2007 | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Effective | - | - | 3,610 | - | - | - | 3,610 |
| portion of | | | | | | | |
| changes in fair | | | | | | | |
| value of cash | | | | | | | |
| flow hedges | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Translation | - | - | - | - | 743 | | 743 |
| differences | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Restricted | - | - | - | (787) | - | - | (787) |
| reserve | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Total income | - | | 3,610 | (787) | 743 | | 3,566 |
| and expense | | | | | | | |
| recognised | | | | | | | |
| directly in | | | | | | | |
| equity | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Loss for the | - | - | - | - | - | (63,199) | (63,199) |
| year | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Total | - | | 3,610 | (787) | 743 | (63,199) | (59,633) |
| recognised | | | | | | | |
| income and | | | | | | | |
| expense | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Issuing fees | - | (749) | - | - | - | - | (749) |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Dividends to | - | (20,162) | - | - | - | - | (20,162) |
| equity holders | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Balance as at | 142,829 | 149,304 | 8,990 | (686) | 743 | (53,007) | 248,173 |
| 30 September | | | | | | | |
| 2008 | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Amortisation of | - | - | (3,304) | - | - | - | (3,304) |
| hedging reserve | | | | | | | |
| | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Translation | - | - | - | - | (112) | - | (112) |
| differences | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Restricted | - | - | - | 180 | - | - | 180 |
| reserve | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Total income | - | - | (3,304) | 180 | (112) | - | (3,236) |
| and expense | | | | | | | |
| recognised | | | | | | | |
| directly in | | | | | | | |
| equity | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Loss for the | - | - | - | - | - | (127,079) | (127,079) |
| year | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Total | - | - | (3,304) | 180 | (112) | (127,079) | -(130,315) |
| recognised | | | | | | | |
| income and | | | | | | | |
| expense | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| Balance as at | 142,829 | 149,304 | 5,686 | (506) | 631 | (180,086) | 117,858 |
| 30 September | | | | | | | |
| 2009 | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
| | | | | | | | |
+-----------------+---------+----------+---------+------------+-------------+-----------+------------+
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2009
+--------------------------------------------+--------------------+------------------+
| | 30 September 2009 | 30 September |
| | | 2008 |
+--------------------------------------------+--------------------+------------------+
| | EUR'000 | EUR'000 |
+--------------------------------------------+--------------------+------------------+
| Operating Activities | | |
+--------------------------------------------+--------------------+------------------+
| Loss for the year before taxation | (133,826) | (61,505) |
+--------------------------------------------+--------------------+------------------+
| Adjustments for: | | |
+--------------------------------------------+--------------------+------------------+
| Net change in fair value of investment | 97,265 | 65,927 |
| property | | |
+--------------------------------------------+--------------------+------------------+
| Net finance costs | 33,342 | 26,420 |
+--------------------------------------------+--------------------+------------------+
| Unrealised change in fair value of | 34,741 | - |
| derivatives | | |
+--------------------------------------------+--------------------+------------------+
| Unrealised foreign currency exchange | 70 | 192 |
+--------------------------------------------+--------------------+------------------+
| Operating loss before changes in working | 31,592 | 31,034 |
| capital and provisions | | |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Increase in trade and other receivables | (143) | (2,950) |
+--------------------------------------------+--------------------+------------------+
| Decrease in trade and other payables | (3,902) | (7,658) |
+--------------------------------------------+--------------------+------------------+
| Cash generated from operations | 27,547 | 20,426 |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Interest paid | (28,979) | (25,989) |
+--------------------------------------------+--------------------+------------------+
| Interest received | 1,987 | 3,413 |
+--------------------------------------------+--------------------+------------------+
| Tax paid | (1,608) | (1,433) |
+--------------------------------------------+--------------------+------------------+
| Cash flows from/ (to) operating activities | (1,053) | (3,583) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Investing Activities | | |
+--------------------------------------------+--------------------+------------------+
| Proceeds from disposal of investment in | 66,446 | - |
| property | | |
+--------------------------------------------+--------------------+------------------+
| Capital expenditure | (8,679) | - |
+--------------------------------------------+--------------------+------------------+
| Acquisition of investment properties | - | (29,472) |
+--------------------------------------------+--------------------+------------------+
| Cash flows from/ (to) investing activities | 57,767 | (29,472) |
| | | |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Financing Activities | | |
+--------------------------------------------+--------------------+------------------+
| Dividends | - | (20,162) |
+--------------------------------------------+--------------------+------------------+
| Issuing fees | - | (749) |
+--------------------------------------------+--------------------+------------------+
| Draw down of interest-bearing loans | 6,071 | 17,945 |
+--------------------------------------------+--------------------+------------------+
| Repayment of bank loans | (51,376) | |
+--------------------------------------------+--------------------+------------------+
| Finance costs paid on arrangement of long | (7,279) | (1,840) |
| term loan | | |
+--------------------------------------------+--------------------+------------------+
| Cash flows from/ (to) financing activities | (52,584) | (4,806) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Net (decrease) / increase in cash and cash | 4,130 | (37,861) |
| equivalents for the year | | |
+--------------------------------------------+--------------------+------------------+
| Opening cash and cash equivalents | 30,826 | 68,687 |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Closing cash and cash equivalents | 34,956 | 30,826 |
+--------------------------------------------+--------------------+------------------+
| Cash directly associated with non-current | (609) | (911) |
| assets held for sale | | |
+--------------------------------------------+--------------------+------------------+
| Closing cash and cash equivalents | 34,347 | 29,915 |
+--------------------------------------------+--------------------+------------------+
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
COMPANY INCOME STATEMENT
For the year ended 30 September 2009
+-------------------------------------+--------+------------------+------------------+
| | Notes | 30 September | 30 September |
| | | 2009 | 2008 |
| | | EUR'000 | EUR'000 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Net loss on derivative instruments | 14 | (34,741) | - |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Expenses | | | |
+-------------------------------------+--------+------------------+------------------+
| Investment management fees | 7 | (1,520) | (2,465) |
+-------------------------------------+--------+------------------+------------------+
| Professional fees | 8 | (80) | (823) |
+-------------------------------------+--------+------------------+------------------+
| Abortive fees | 8 | 82 | (1,592) |
+-------------------------------------+--------+------------------+------------------+
| Administrative fees | 9 | (1,205) | (831) |
+-------------------------------------+--------+------------------+------------------+
| Directors' fees | | (200) | (223) |
+-------------------------------------+--------+------------------+------------------+
| Other expenses | | (49) | - |
+-------------------------------------+--------+------------------+------------------+
| Total expenses | | (2,972) | (5,934) |
+-------------------------------------+--------+------------------+------------------+
| Net operating loss | | (37,713) | (5,934) |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Finance income | | 958 | 4,845 |
+-------------------------------------+--------+------------------+------------------+
| Finance expenses | | (4,390) | (919) |
+-------------------------------------+--------+------------------+------------------+
| Net finance income/ (costs) | 10 | (3,432) | 3,926 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Loss for the year before tax | | (41,145) | (2,008) |
+-------------------------------------+--------+------------------+------------------+
| Taxation | | (93) | (124) |
+-------------------------------------+--------+------------------+------------------+
| Loss for the year | | (41,238) | (2,132) |
+-------------------------------------+--------+------------------+------------------+
| Basic and diluted loss per share | | (0.36) | (0.02) |
| (euro) | | | |
+-------------------------------------+--------+------------------+------------------+
All items in the above statement are derived from continuing operations.
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
COMPANY BALANCE SHEET
As at 30 September 2009
+-------------------------------------+--------+------------------+------------------+
| | Notes | 30 September | 30 September |
| | | 2009 | 2008 |
| | | EUR'000 | EUR'000 |
+-------------------------------------+--------+------------------+------------------+
| Assets | | | |
+-------------------------------------+--------+------------------+------------------+
| Investment in subsidiaries | | 25 | 25 |
+-------------------------------------+--------+------------------+------------------+
| Loans to subsidiaries | 31 | 272,610 | 292,019 |
+-------------------------------------+--------+------------------+------------------+
| Deferred expenses | 32 | 9,371 | 233 |
+-------------------------------------+--------+------------------+------------------+
| Non-current assets | | 282,006 | 292,277 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Amount due from subsidiaries | | 13,584 | 8,173 |
+-------------------------------------+--------+------------------+------------------+
| Trade and other receivables | 13 | 235 | 66 |
+-------------------------------------+--------+------------------+------------------+
| Derivative financial instruments | 14 | - | 8,990 |
+-------------------------------------+--------+------------------+------------------+
| Cash and cash equivalents | 15 | 5,206 | 2,653 |
+-------------------------------------+--------+------------------+------------------+
| Current assets | | 19,025 | 19,882 |
+-------------------------------------+--------+------------------+------------------+
| Total assets | | 301,031 | 312,159 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Share capital | | 142,829 | 142,829 |
+-------------------------------------+--------+------------------+------------------+
| Share premium | | 149,304 | 149,304 |
+-------------------------------------+--------+------------------+------------------+
| Reserves | | 5,686 | 8,990 |
+-------------------------------------+--------+------------------+------------------+
| Retained earnings | | (56,590) | (15,352) |
+-------------------------------------+--------+------------------+------------------+
| Total equity attributable to equity | 16 | 241,229 | 285,771 |
| holders of the Company | | | |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Liabilities | | | |
+-------------------------------------+--------+------------------+------------------+
| Loans from subsidiaries | | 9,850 | 14,100 |
+-------------------------------------+--------+------------------+------------------+
| Long term provision | 32 | 12,495 | - |
+-------------------------------------+--------+------------------+------------------+
| Derivative financial instruments | 14 | 29,056 | - |
+-------------------------------------+--------+------------------+------------------+
| Non-current liabilities | | 51,401 | 14,100 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Amount due to subsidiaries | | 6,691 | 9,739 |
+-------------------------------------+--------+------------------+------------------+
| Trade and other payables | 19 | 1,710 | 2,549 |
+-------------------------------------+--------+------------------+------------------+
| Current liabilities | | 8,401 | 12,288 |
+-------------------------------------+--------+------------------+------------------+
| Total liabilities | | 59,802 | 26,388 |
+-------------------------------------+--------+------------------+------------------+
| Total equity and liabilities | | 301,031 | 312,159 |
+-------------------------------------+--------+------------------+------------------+
| | | | |
+-------------------------------------+--------+------------------+------------------+
| Net Asset Value per Share (euro) | 20 | 2.11 | 2.50 |
+-------------------------------------+--------+------------------+------------------+
The financial statements were approved by the Board of Directors on 13 January
2010 and signed on its behalf by:
Tom ChandosRobert DeNormandie
Chairman
Chairman of Audit Committee
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2009
+-----------------------------+---------+----------+---------+----------+----------+
| | Share | Share | Hedging | Retained | Total |
| | capital | premium | | | equity |
| | | | reserve | earnings | |
+-----------------------------+---------+----------+---------+----------+----------+
| | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+-----------------------------+---------+----------+---------+----------+----------+
| Balance as at 30 September | 142,829 | 170,215 | 5,380 | (13,220) | 305,204 |
| 2007 | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Effective portion of | - | - | 3,610 | - | 3,610 |
| changes in fair value of | | | | | |
| cash flow hedges | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Total income and expense | - | - | 3,610 | - | 3,610 |
| recognised directly in | | | | | |
| equity | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Loss for the year | - | - | - | (2,132) | (2,132) |
+-----------------------------+---------+----------+---------+----------+----------+
| Total recognised income and | | - | 3,610 | (2,132) | 1,478 |
| expense | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Issuing fees | - | (749) | - | - | (749) |
+-----------------------------+---------+----------+---------+----------+----------+
| Dividends to equity holders | - | (20,162) | - | - | (20,162) |
+-----------------------------+---------+----------+---------+----------+----------+
| Balance as at 30 September | 142,829 | 149,304 | 8,990 | (15,352) | 285,771 |
| 2008 | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Effective portion of | - | - | (3,304) | - | (3,304) |
| changes in fair value of | | | | | |
| cash flow hedges | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Total income and expense | - | - | (3,304) | - | (3,304) |
| recognised directly in | | | | | |
| equity | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Loss for the year | - | - | - | (41,238) | (41,238) |
+-----------------------------+---------+----------+---------+----------+----------+
| Total recognised income and | | - | (3,304) | (41,238) | (44,542) |
| expense | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
| Balance as at 30 September | 142,829 | 149,304 | 5,686 | (56,590) | 241,229 |
| 2009 | | | | | |
+-----------------------------+---------+----------+---------+----------+----------+
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 September 2009
+--------------------------------------------+--------------------+------------------+
| | 30 September 2009 | 30 September |
| | | 2008 |
+--------------------------------------------+--------------------+------------------+
| | EUR'000 | EUR'000 |
+--------------------------------------------+--------------------+------------------+
| Operating Activities | | |
+--------------------------------------------+--------------------+------------------+
| Loss for the year before taxation | (41,145) | (2,008) |
+--------------------------------------------+--------------------+------------------+
| Adjustments for: | | |
+--------------------------------------------+--------------------+------------------+
| Net finance cost | 34,741 | (3,926) |
| Unrealised foreign currency exchange | - | 83 |
| Interest expense | 3,432 | - |
+--------------------------------------------+--------------------+------------------+
| Operating loss before changes in working | (2,972) | (5,851) |
| capital and provisions | | |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Decrease/(Increase) in trade and other | (169) | 3,776 |
| receivables | | |
+--------------------------------------------+--------------------+------------------+
| Decrease in trade and other payables | (854) | (6,261) |
+--------------------------------------------+--------------------+------------------+
| Cash generated from operations | (3,995) | (8,336) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Interest paid | (970) | (300) |
+--------------------------------------------+--------------------+------------------+
| Interest received | 987 | 2,252 |
+--------------------------------------------+--------------------+------------------+
| Tax paid | (80) | (124) |
+--------------------------------------------+--------------------+------------------+
| Cash flows from operating activities | (4,058) | (6,508) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Investing Activities | | |
+--------------------------------------------+--------------------+------------------+
| Loan repayments | 19,409 | (14,499) |
+--------------------------------------------+--------------------+------------------+
| Cash flows from investing activities | 19,409 | (14,499) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Financing Activities | | |
+--------------------------------------------+--------------------+------------------+
| Dividends | - | (20,162) |
+--------------------------------------------+--------------------+------------------+
| Issuing fees | - | (749) |
+--------------------------------------------+--------------------+------------------+
| Loan relating to subsidiaries / | (12,798) | 14,100 |
| shareholders | | |
+--------------------------------------------+--------------------+------------------+
| Cash flows from financing activities | (12,798) | (6,811) |
+--------------------------------------------+--------------------+------------------+
| | | |
+--------------------------------------------+--------------------+------------------+
| Net increase in cash and cash equivalents | 2,553 | (27,818) |
| for the year | | |
+--------------------------------------------+--------------------+------------------+
| Opening cash and cash equivalents | 2,653 | 30,471 |
+--------------------------------------------+--------------------+------------------+
| Closing cash and cash equivalents | 5,206 | 2,653 |
+--------------------------------------------+--------------------+------------------+
The accompanying notes 1 to 33 form an integral part of these consolidated
financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2009
+----+-----------------------------------------------------------------------------+
| 1. | REPORTING ENTITY |
+----+-----------------------------------------------------------------------------+
Invista European Real Estate Trust SICAF ("the Company") was incorporated as
a "société anonyme" under the laws of Luxembourg on 6 June 2005. On 17 November
2006 the Company was converted into an investment company with fixed capital
"société d'investissement à capital fixe" ("SICAF"). Through its subsidiaries
(together "the Group") its main activity is to evaluate, make and actively
manage direct and indirect investments in real estate in Continental European
countries.
The Company is a public limited liability company incorporated for an unlimited
term. As of 31 July 2009 the registered office of the Company has moved from
25B, Boulevard Royal, L-2449 Luxembourg to 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 under
Luxembourg General Accepted Accounting Principles.
+----+-----------------------------------------------------------------------------+
| 2. | BASIS OF PREPARATION |
+----+-----------------------------------------------------------------------------+
Statement of compliance
These consolidated financial statements have been approved for issue by the
Board of Directors on 13 January 2010 and have been prepared in accordance with
International Financial Reporting Standard (IFRS) and interpretations adopted by
the International Accounting Standard Board (IASB), as adopted by the European
Union (EU).
Basis of measurement
The consolidated financial statements have been prepared on the historical cost
basis except for the following:
* Derivative financial instruments are measured at fair value (note 14)
* Investment properties are measured at fair value (note 12)
The methods used to measure fair values are discussed further in note 4.
The financial statements have been prepared on the going concern basis which the
Directors of the Company believe to be appropriate for the following reasons:
* As at 30 September 2009, the Group had drawn down debt of EUR400.2 million against
a senior debt facility of EUR416.5 million with the Bank of Scotland (which was
due to expire on 31 December 2011) and a EUR12.0 million facility with Crédit
Foncier. On 11 November 2009 the Group entered into an amendment to the existing
loan documentation where, inter alia, the facility is reduced to EUR359.3
million, the final maturity date is extended to 31 December 2013 and LTV
covenants are increased. These revised terms became effective on 12 January
2010.
* On 30 December 2009 a capital raise of GBP58.3 million (before expenses) took
place, by way of a firm placing and a placing and open offer. Of the net
proceeds, EUR40.0 million was used to reduce the debt facility with the Bank of
Scotland and the remainder held as working capital.
* Detailed cash flow models are maintained and regularly reviewed to ensure that
the Group can continue to meet its liabilities as they fall due, including
interest payments on loan facilities.
* During the period to 30 September 2009, the Group was in compliance with all of
its debt servicing and loan-to-value covenants.
Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the
Company's functional currency. All financial information presented in Euro has
been rounded to the nearest thousand.
Use of estimates and judgments
The preparation of 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.
In particular, 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 financial statements is
included in the following notes:
Note 4 - Determination of fair values
Note 27 - Contingencies
+----+-----------------------------------------------------------------------------+
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
+----+-----------------------------------------------------------------------------+
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements, and have been
applied consistently by Group entities.
Basis of consolidation
The consolidated financial statements comprise the accounts 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 holdings companies. The cost of an
acquisition is measured as the fair value of the assets given, 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 been changed where necessary to ensure consistency with the
policies adopted by the Group.
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,
use 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 costs associated with the investment property.
After initial recognition, investment properties are measured at fair value,
with unrealised gains and losses recognised in the Consolidated Income
Statement.
Where unconditional commitments have been entered into prior to the Balance
Sheet date property acquisitions are recognised at their contractual value.
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.
Investment in subsidiaries (Company only)
Investments in subsidiaries are held at cost less any impairment.
Loan to subsidiaries (Company only)
Loans and receivables are financial assets with fixed or determinable payments
that are not quoted in an active market. Such assets are recognised initially at
fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, loans and receivables are measured at amortised cost using
the effective interest method, less any impairment losses.
Financial Instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash
and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value
plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are
measured as described below.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts. 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 cash
flow statement.
Loans and borrowings
Borrowings are recognised initially at fair value of the consideration received,
less attributable transaction costs. Subsequent to initial recognition, interest
bearing borrowings are stated at amortised cost with any difference between cost
and redemption value being recognised in the Consolidated Income Statement over
the period of the borrowings on an effective interest basis.
Financing costs incurred in obtaining a debt facility are capitalised and
amortised over the period of the facility using the effective interest rate
method.
Other
Other non-derivative financial instruments are measured at amortised cost using
the effective interest method, less any impairment loss.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to
interest rate risks arising from operational, financing and investment
activities.
Derivatives are initially recognised at fair value; attributable transaction
costs are recognised in the Consolidated Income Statement when incurred.
Subsequent to initial recognition, derivative financial instruments are measured
and stated at fair value, and changes therein are accounted for as described
below:
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.
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.
On 28 November 2008, the Group finalised an agreement with Bank of Scotland to
extend its existing debt facility for a further three years to 31 December 2011.
Due to the difference in the maturity of the extended loan facility (2011) and
the related hedging contracts/derivative financial instruments (2013), the hedge
accounting relationship has been discontinued with effect from 1 October 2008,
since the derivative financial instruments no longer meet the hedging criteria.
Future movements in the valuations of the derivative financial instruments will
be included in the income statement. The related reserve of EUR9.0 million, which
has been credited to the reserves as at 30 September 2008, is amortised to the
Consolidated Income Statement over the life of the new credit facility.
Share capital
Ordinary shares are classified as equity. External costs directly attributable
to the issue of new shares, other than on a business combination, are shown as a
deduction, net of tax, in equity from the proceeds. Share issue costs incurred
directly in connection with a business combination are included in the cost of
acquisition.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
Impairment
Financial assets
The Company assesses at each balance sheet date whether there is any objective
evidence that a financial asset is impaired. A financial asset is deemed to be
impaired if, and only if, there is objective evidence of an impairment as a
result of one or more events that has occurred after the initial recognition of
the asset (an incurred "loss event") and that loss event has an impact on the
estimated future cash flows of the financial asset that can be reliably
estimated. Evidence of impairment may include indications that the debtors or a
group of debtors is experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that they will
enter bankruptcy or financial reorganisation and where observable data indicate
that there is a measurable decrease in the estimated cash flows, such as changes
in arrears or economic conditions that correlate with defaults.
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.
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 is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognised. For financial assets
measured at amortised cost, the reversal is recognised in the Consolidated
Income Statement.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than investment
property and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication
exists, then the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its
value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to that asset.
For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of assets
(the "cash-generating unit").
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its estimated recoverable amount. Impairment losses
are recognised in the Consolidated Income Statement.
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.
Revenue
Rental income
Rental income from investment properties is accounted for on a straight-line
basis over the term of the ongoing leases and is shown gross of any income tax.
Any material premiums or rent-free periods are spread evenly over the lease
term.
Finance income and expenses
Finance income comprises interest income on funds invested. Interest income is
recognised on an accruals basis.
Finance expenses comprise interest expense on borrowings, 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.
Expenses
Operating Expenses
All expenses are accounted for on an accrual basis. The Group's investment
management and administration fees and all other expenses are charged to the
Consolidated Income Statement.
Taxation
According to the Luxembourg regulations regarding SICAF companies the Company is
not subject to capital gains taxes in Luxembourg. It is, however, liable to an
annual subscription of 0.05% (taxe d'abonnement) of its total net assets,
payable quarterly, and assessed on the last day of each quarter.
Real estate revenues, or capital gains derived thereon, may be subject to taxes
by assessment, withholding or otherwise in the countries where the real estate
is situated.
The subsidiaries within 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 balance sheet liability
method, on temporary differences arising between the tax bases 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 that
at the time of the transaction affects neither accounting nor taxable profit or
loss. Deferred income tax is determined using tax rates (and laws) that have
been enacted or substantially enacted by the Balance Sheet date and are expected
to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax 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.
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.
Earnings per share
The Group presents earnings per share (EPS) data for its ordinary shares. 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.
Segment reporting
A segment is a distinguishable component of the Group that is engaged either in
providing related products or services (business segment), or in providing
products or services within a particular economic environment (geographical
segment), which is subject to risks and returns that are different from those of
other segments. Segment information is presented in respect of the Group's
geographical segments. The Group's primary format for segment reporting is based
on geographical segments. The geographical segments are determined based on the
Group's management and internal reporting structure.
Inter-segment pricing is determined on an arm's length basis.
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly investments (other than investment property)
and related revenue, loans and borrowings and related expenses, corporate assets
(primarily the Company's headquarters) and head office expenses, and income tax
assets and liabilities.
Non current assets held for sale
The Group classifies assets as held for sale (disposal group) when their
carrying amount will be recovered principally through a sale transaction rather
then through continuing use. For this to be the case, the asset must be
available for immediate sale in its present condition subject only to terms that
are usual and customary for sales of such assets and its sale must be highly
probable. For the sale to be highly probable the appropriate level of management
must be committed to a plan to sell the asset and an active programme to locate
a buyer and complete the plan must have been initiated. Further, the asset must
be actively marketed for sale at a price that is reasonable in relation to its
current fair value. In addition, the sale should be expected to qualify for
recognition as a completed sale within one year from the date of classification.
The related results of operations and cash flows of the disposal group that
qualified as discontinued operation are separated from the results of those that
would be recovered principally through continuing use, and prior years'
consolidated statement of income and cash flows are represented. Results of
operations and cash flows of the disposal group that qualified as discontinued
operation are presented in the consolidated statement of income and consolidated
statement of cash flows as items associated with non current assets held for
sale.
Subsequent Events
Post year-end events that provide additional information about the Group's
position at the balance sheet date (adjusting events) are reflected in the
consolidated financial statements. Post year-end events that are not adjusting
events are disclosed in the notes to the consolidated financial statements when
material.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations have been
published, but are not yet effective for the year ended 30 September 2009, and
have not been applied in preparing these consolidated financial statements:
IFRS 8 Operating Segments introduces the "management approach" to segment
reporting. IFRS 8, which becomes mandatory for the Group's 2010 consolidated
financial statements, will require a change in the presentation and disclosure
of segment information based on the internal reports regularly reviewed in order
to assess each segment's performance and to allocate resources to them.
Currently the Group presents segment information in respect of geographical
segments (see note 25).
Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and
requires that an entity capitalise borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset as part of the
cost of the asset. The revised IAS 23 will become mandatory for the Group's 2010
consolidated financial statements and will constitute a change in accounting
policy for the Group. In accordance with the transitional provisions, the group
will apply the revised IAS 23 to qualifying assets for which capitalisation of
borrowing costs commences on or after the effective date. Therefore there will
be no impact on prior periods in the Group's 2010 consolidated financial
statements.
Revised IAS 1 Presentation of Financial Statements (2007) introduces the term
"total comprehensive income", which represents changes in equity during a period
other than those changes resulting from transactions with owners in their
capacity as owners. Total comprehensive income may be presented in either a
single statement of comprehensive income (effectively combining both the income
statement and all non-owner changes in equity in a single statement), or in an
income statement and a separate statement of comprehensive income. Revised IAS
1, which becomes mandatory for the Group's 2010 consolidated financial
statements, is expected to have a significant impact on the presentation of the
consolidated financial statements. The Group plans to provide total
comprehensive income in a single statement of comprehensive income for its 2010
consolidated financial statements.
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial statements - Puttable Financial Instruments and Obligations Arising
on Liquidation requires puttable instruments, and instruments that impose on the
entity an obligation to deliver to another party a pro rata share of the net
assets of the entity only on liquidation, to be classified as equity if certain
conditions are met. The amendments, which become mandatory for the Group's 2010
consolidated financial statements, with retrospective application required, are
not expected to have any impact on the consolidated financial statements.
Revised IFRS 3 Business Combinations (2008) incorporates the following changes
that are likely to be relevant to the Group's operations:
* The definition of a business has been broadened, which is likely to result in
more acquisitions being treated as business combinations.
* Contingent consideration will be measured at fair value, with subsequent changes
therein recognised in profit or loss.
* Transactions costs, other than share and debt issue costs, will be expensed as
incurred.
* Any pre-existing interest in the acquiree will be measured at fair value with
the gain or loss recognized in the profit or loss.
* Any non-controlling (minority) interest will be measured at either fair value,
or at its proportionate interest in the identifiable assets and liabilities of
the acquiree, on a transaction-by-transaction basis.
Revised IFRS 3, which becomes mandatory for the Group's 2010 consolidated
financial statements, will be applied prospectively and therefore there will be
no impact on prior periods in the Group's 2010 Consolidated financial
statements.
Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires
accounting for changes in ownership interests by the Group in a subsidiary,
while maintaining control, to be recognised as an equity transaction. When the
Group loses control of a subsidiary, any interest retained in the former
subsidiary will be measured at fair value with the gain or loss recognised in
the profit or loss. The amendments to IAS 27, which becomes mandatory for the
Group's 2010 consolidated financial statements, are not expected to have a
significant impact on the consolidated financial statements.
The Group is in the process of analysing the impact of these revised standards
on the Group's financial statements.
+----+-----------------------------------------------------------------------------+
| 4. | DETERMINATION OF FAIR VALUES |
+----+-----------------------------------------------------------------------------+
A number of the Group's accounting policies and disclosures require the
determination of fair value, for both financial and non financial assets and
liabilities. Fair values have been determined for measurement and / or
disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
Investment property
Fair value is based on the open market valuations of the properties as provided
by an independent expert, DTZ Debenham Tie Leung, in accordance with the
guidance issued by the Royal Institution of Chartered Surveyors (the "RICS").
Market valuations are carried out on a quarterly basis.
The fair values are based on market values, being the estimated amount for which
a property could be exchanged on the date of the valuation between a willing
buyer and a willing seller in an arm's length transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently and without
compulsion.
In the absence of current prices in an active market, the valuations are
prepared by considering the aggregate of the estimated cash flows expected to be
received from renting out the property. A yield that reflects the specific risks
inherent in the net cash flows is then applied to the net annual cash flows to
arrive at the property valuation.
Valuations reflect, typically, the type of tenants actually in occupation or
responsible for meeting lease commitments or likely to be in occupation after
letting vacant accommodation and the market's general perception of their
creditworthiness, the allocation of maintenance and insurance responsibilities
between the Group and the lessee and the remaining economic life of the
property. When rent reviews or lease renewals are pending with anticipated
reversionary increases, it is assumed that all notices, and when appropriate
counter-notices, have been served validly and within the appropriate time.
It should be noted that the valuation of property and property related assets is
inherently subjective due to the nature of the each property and the
characteristics of local, regional and national real estate market which change
over time. As a result valuations are subject to uncertainty, as are the
assumptions that are made when valuations are being prepared. The current
economic climate and volatility in the global capital markets creates additional
uncertainty and there can therefore be no assurance that valuations of the
Company's assets will reflect actual sale prices even where such sales occur
shortly after the valuation date. Refer to note 12 for the related balances.
Derivative financial instruments
The fair value of the Group's derivatives is the estimated amount that the Group
would receive or pay to terminate the derivative at the balance sheet date,
taking into account current interest rates and the current creditworthiness of
the derivative counterparties. Refer to note 14 for the related balances.
+----+-----------------------------------------------------------------------------+
| 5. | Property operating expenses |
+----+-----------------------------------------------------------------------------+
+-------------------------------------+----------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+----------------------+----------------------+
| Insurance | 287 | 111 |
+-------------------------------------+----------------------+----------------------+
| Property management fees | 595 | 719 |
+-------------------------------------+----------------------+----------------------+
| Property service charge | 685 | 310 |
+-------------------------------------+----------------------+----------------------+
| Property maintenance | 556 | 314 |
+-------------------------------------+----------------------+----------------------+
| Property tax | 868 | 544 |
+-------------------------------------+----------------------+----------------------+
| Other miscellaneous expenses | 891 | 190 |
+-------------------------------------+----------------------+----------------------+
| Total | 3,882 | 2,188 |
+-------------------------------------+----------------------+----------------------+
+----+-----------------------------------------------------------------------------+
| 6. | Other Income |
+----+-----------------------------------------------------------------------------+
+-------------------------------------+----------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+----------------------+----------------------+
| Proceeds from insurance | 550 | - |
+-------------------------------------+----------------------+----------------------+
| Reversal of deferred rent accrual | 496 | - |
+-------------------------------------+----------------------+----------------------+
| Adjustments and reversal of | 67 | 33 |
| accruals | | |
+-------------------------------------+----------------------+----------------------+
| Deposits | 28 | - |
+-------------------------------------+----------------------+----------------------+
| Currency gain | 127 | 238 |
+-------------------------------------+----------------------+----------------------+
| Reduction of acquisition cost | 40 | - |
+-------------------------------------+----------------------+----------------------+
| Total | 1,308 | 271 |
+-------------------------------------+----------------------+----------------------+
+----+-----------------------------------------------------------------------------+
| 7. | Investment management and performance fees |
+----+-----------------------------------------------------------------------------+
The Investment Manager is entitled to a base fee and a performance fee together
with reasonable expenses incurred by it in the performance of its duties.
The base fee from 17 November 2006 to 26 May 2009 was calculated at a rate of
0.95% per annum of gross assets pro rated from the acquisition date of the
assets. On 27 May 2009 the Company entered into an agreement with the Investment
Manager to effect a change in the base fee. From this date the base fee was
payable monthly in arrears at an amount equal to the lower of:
* 2 per cent of the Net Asset Value of the Company per annum (subject to a minimum
threshold of EUR3 million per annum); and
* A percentage equivalent of the Net Asset Value of the Company per annum which
represents 0.95 per cent of the Gross Assets of the Company per annum.
In addition, and subject to the conditions below, the Investment Manager is
entitled to an annual performance fee where the total NAV per share during the
relevant financial period exceeds an annual rate of 10.0% (the "performance
hurdle"). Where the performance hurdle is met, a performance fee will be payable
in an amount equal to 15.0% of any aggregate total return over and above the
performance hurdle. The performance hurdle is calculated on a three year rolling
basis. This requires that the annualised total return over the period from
listing on 20 December 2006 to the end of the relevant financial period in the
first three year period, and on a rolling three year basis thereafter, is equal
to or greater than 10.0% per annum.
As the conditions for receipt of a performance fee were not met during the year,
no charge has been recognised in the Consolidated Income Statement.
+----+-----------------------------------------------------------------------------+
| 8. | Professional and abortive fees |
+----+-----------------------------------------------------------------------------+
Professional fees include auditors' remuneration of EUR589,354 (2008: EUR536,384).
Abortive fees represent costs relating to aborted transactions in 2008 and an
accruals reversal in 2009.
+----+-----------------------------------------------------------------------------+
| 9. | Administrative fees |
+----+-----------------------------------------------------------------------------+
+-------------------------------------+---------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+---------------------+----------------------+
| Group | | |
+-------------------------------------+---------------------+----------------------+
| Accounting and administrative fees | 2,144 | 1,217 |
+-------------------------------------+---------------------+----------------------+
| Investment property valuation fees | 244 | 169 |
+-------------------------------------+---------------------+----------------------+
| Custodian, registrar and other fees | 747 | 1,361 |
+-------------------------------------+---------------------+----------------------+
| Total | 3,135 | 2,747 |
+-------------------------------------+---------------------+----------------------+
| | | |
+-------------------------------------+---------------------+----------------------+
| Company | | |
+-------------------------------------+---------------------+----------------------+
| Accounting and administrative fees | 598 | 22 |
+-------------------------------------+---------------------+----------------------+
| Investment property valuation fees | - | 130 |
+-------------------------------------+---------------------+----------------------+
| Custodian, registrar and other fees | 607 | 679 |
+-------------------------------------+---------------------+----------------------+
| Total | 1,205 | 831 |
+-------------------------------------+---------------------+----------------------+
+-----+------------------+---------------------+------------------+------------------+
| 10. | Net finance costs |
+-----+-----------------------------------------------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+------------------------+---------------------+-------------------------------------+
| Group | | |
+------------------------+---------------------+-------------------------------------+
| Finance income | | |
+------------------------+---------------------+-------------------------------------+
| Interest income on | 296 | 768 |
| bank deposits | | |
+------------------------+---------------------+-------------------------------------+
| Swap interest income | 918 | 2,674 |
+------------------------+---------------------+-------------------------------------+
| Total finance income | 1,214 | 3,442 |
+------------------------+---------------------+-------------------------------------+
| | | |
+------------------------+---------------------+-------------------------------------+
| Finance expenses | | |
+------------------------+---------------------+-------------------------------------+
| Amortisation of loan | (5,931) | (4,153) |
| related transaction | | |
| costs | | |
+------------------------+---------------------+-------------------------------------+
| Interest expense on | (21,727) | (25,989) |
| bank loans | | |
+------------------------+---------------------+-------------------------------------+
| Swap interest expense | (6,855) | (29) |
+------------------------+---------------------+-------------------------------------+
| Other finance charges | (43) | 309 |
| | | |
+------------------------+---------------------+-------------------------------------+
| Total finance | (34,556) | (29,862) |
| expenses | | |
+------------------------+---------------------+-------------------------------------+
| Net finance cost | (33,342) | (26,420) |
+------------------------+---------------------+-------------------------------------+
| | | |
+------------------------+---------------------+-------------------------------------+
| Company | | |
+------------------------+---------------------+-------------------------------------+
| Finance income | | |
+------------------------+---------------------+-------------------------------------+
| Interest income | 958 | 1,953 |
+------------------------+---------------------+-------------------------------------+
| Amortisation on loan | - | 2,892 |
| related transaction | | |
| costs recharged to | | |
| subsidiaries | | |
+------------------------+---------------------+-------------------------------------+
| Total finance income | 958 | 4,845 |
+------------------------+---------------------+-------------------------------------+
| | | |
+------------------------+---------------------+-------------------------------------+
| Finance expenses | | |
+------------------------+---------------------+-------------------------------------+
| | | |
+------------------------+---------------------+-------------------------------------+
| Interest expense on | (537) | (421) |
| shareholder loans | | |
+------------------------+---------------------+-------------------------------------+
| Other finance charges | (3,853) | (498) |
+------------------------+---------------------+-------------------------------------+
| Total finance | (4,390) | (919) |
| expenses | | |
+------------------------+---------------------+-------------------------------------+
| Net finance income/ | (3,432) | 3,926 |
| (expense) | | |
+-----+------------------+---------------------+------------------+------------------+
Amortisation of transaction costs incurred in relation to the refinancing of the
bank loans are further disclosed in note 17. Such costs were capitalised on 1
January 2009 and are amortised till the maturity date of the bank loans of 31
December 2011.
+-----+-----------------+---------------------+---------------------+-----------------+
| 11. | Taxation |
+-----+-------------------------------------------------------------------------------+
| | |
+-----+-------------------------------------------------------------------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-----------------------+---------------------+---------------------+
| Current tax income | | |
| expense | | |
+-----------------------+---------------------+---------------------+
| French restructuring | - | (4,319) |
| income tax | | |
+-----------------------+---------------------+---------------------+
| Other taxes | 66 | (2,026) |
+-----------------------+---------------------+---------------------+
| Total current tax | 66 | (6,345) |
| (expense) income | | |
+-----------------------+---------------------+---------------------+
| Deferred tax income/ | | |
+-----------------------+---------------------+---------------------+
| Change in | 6,681 | 4,651 |
| unrecognised | | |
| temporary difference | | |
+-----------------------+---------------------+---------------------+
| Total tax | 6,747 | (1,694) |
| income/(expense) | | |
+-----+-----------------+---------------------+---------------------+-----------------+
A charge of EUR4.3 million was paid in the year ended 30 September 2008 for a tax
liability in respect of restructuring of finance leases in a number of French
property owning companies. A corresponding net tax benefit of approximately EUR4.0
million was recognised in local entity statutory accounts but which was not
recognised in the consolidated NAV given the Group's accounting policies which
must comply with IFRS.
+------------------------------------+---------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+------------------------------------+---------------------+----------------------+
| Reconciliation of effective tax | | |
| rate | | |
+------------------------------------+---------------------+----------------------+
| Loss for year | (127,079) | (63,199) |
+------------------------------------+---------------------+----------------------+
| Total income tax | (6,747) | 1,694 |
+------------------------------------+---------------------+----------------------+
| Loss excluding income tax | (133,826) | (61,505) |
+------------------------------------+---------------------+----------------------+
| | | |
+------------------------------------+---------------------+----------------------+
| Income tax gain/(expense) using | 37,901 | 17,498 |
| the Company's domestic tax rate, | | |
| which is 28.32% | | |
+------------------------------------+---------------------+----------------------+
| Tax adjustments | 2,205 | 144 |
+------------------------------------+---------------------+----------------------+
| Minimum taxable net margin | (3) | (69) |
+------------------------------------+---------------------+----------------------+
| Differences in tax rates | (828) | (1,227) |
+------------------------------------+---------------------+----------------------+
| Tax losses arising/used in the | (8,334) | (5,386) |
| year | | |
+------------------------------------+---------------------+----------------------+
| Permanent differences | 1,069 | (4,158) |
+------------------------------------+---------------------+----------------------+
| Short term differences | (10,311) | (359) |
+------------------------------------+---------------------+----------------------+
| Differences arising due to fair | (13,781) | (8,724) |
| value adjustments in investment | | |
| properties | | |
+------------------------------------+---------------------+----------------------+
| Differences due to consolidation | (846) | 1,052 |
+------------------------------------+---------------------+----------------------+
| Other taxes | (325) | (465) |
+------------------------------------+---------------------+----------------------+
| Total | 6,747 | (1,694) |
+------------------------------------+---------------------+----------------------+
+-----+-----------------------------------------------------------------------------+
| 12. | Investment properties |
+-----+-----------------------------------------------------------------------------+
+--------------------------------------------+---------------------+---------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+--------------------------------------------+---------------------+---------------------+
| At beginning of year | 631,569 | 724,270 |
+--------------------------------------------+---------------------+---------------------+
| Acquisitions of investment property and | - | 29,026 |
| related cost | | |
+--------------------------------------------+---------------------+---------------------+
| Fair value of properties disposed during | (12,937) | - |
| the year | | |
+--------------------------------------------+---------------------+---------------------+
| Capital expenditure incurred | 11,514 | - |
+--------------------------------------------+---------------------+---------------------+
| Net change in fair value of portfolio | (97,265) | (65,927) |
+--------------------------------------------+---------------------+---------------------+
| Investment property classified as held for | (15,400) | (55,800) |
| sale | | |
+--------------------------------------------+---------------------+---------------------+
| At end of year | 517,481 | 631,569 |
+--------------------------------------------+---------------------+---------------------+
At 30 September 2009, all properties of the portfolio were subject to registered
mortgages in order to secure bank loans.
The carrying amount of investment property is the market value of the property,
as determined by DTZ Debenham Tie Leung, a registered independent appraiser
having appropriate recognised professional qualifications, and experience in the
location and category of the properties being valued. Market values were
determined having regards to recent market transactions for similar properties
in the same location as the Group's investment property and/or considering the
aggregate of the estimated cash flows expected to be received from renting out
the property.
Investment property comprises commercial properties that are leased to third
parties.
As at 30 September 2009 the Group was conditionally contracted to acquire an
investment property in Girona (Spain) (see note 26)
+-----+----------------------------------------------------------------------------+
| 13. | Trade and other receivables |
+-----+----------------------------------------------------------------------------+
+-------------------------------------+---------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+---------------------+----------------------+
| Group | | |
+-------------------------------------+---------------------+----------------------+
| Rent receivable | 9,250 | 9,225 |
+-------------------------------------+---------------------+----------------------+
| Tax receivable | 4,494 | 2,428 |
+-------------------------------------+---------------------+----------------------+
| Swap interest receivables | 16 | 723 |
+-------------------------------------+---------------------+----------------------+
| Security deposits | - | 73 |
+-------------------------------------+---------------------+----------------------+
| Prepayments | 805 | 994 |
+-------------------------------------+---------------------+----------------------+
| Other receivables | 407 | 2,446 |
+-------------------------------------+---------------------+----------------------+
| Service charge advances | 2,076 | 1,274 |
+-------------------------------------+---------------------+----------------------+
| Total | 17,048 | 17,163 |
+-------------------------------------+---------------------+----------------------+
| | | |
+-------------------------------------+---------------------+----------------------+
| Company | | |
+-------------------------------------+---------------------+----------------------+
| Tax receivable | 169 | - |
+-------------------------------------+---------------------+----------------------+
| VAT receivable | - | - |
+-------------------------------------+---------------------+----------------------+
| Prepayments | 66 | 66 |
+-------------------------------------+---------------------+----------------------+
| Other receivables | - | - |
+-------------------------------------+---------------------+----------------------+
| Total | 235 | 66 |
+-------------------------------------+---------------------+----------------------+
Of the EUR9.3 million rent receivable included in the table above, EUR4.5 million
relate to the period after 30 September 2009 (see deferred income in note 19).
Trade and other receivables are analysed as follows:
+-------------------------------------+---------------------+---------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+---------------------+---------------------+
| | | |
+-------------------------------------+---------------------+---------------------+
| Not past due | 10,272 | 12,592 |
+-------------------------------------+---------------------+---------------------+
| past due 30-120 days | 4,765 | 594 |
+-------------------------------------+---------------------+---------------------+
| past due 120 days-one year | 755 | 1,387 |
+-------------------------------------+---------------------+---------------------+
| More than one year | 1,256 | 2,590 |
+-------------------------------------+---------------------+---------------------+
| Total | 17,048 | 17,163 |
+-------------------------------------+---------------------+---------------------+
+-----+-----------------------------------------------------------------------------+
| 14. | Derivative financial instruments |
+-----+-----------------------------------------------------------------------------+
The derivative financial instruments are Euro interest-rate swaps, transacted to
hedge the interest rate risks arising from the floating rate borrowings (see
note 17). As at 30 September 2009 the fair value of the interest-rate swaps was
-EUR29,055,655 (2008; EUR8,990,291). The notional amount of the interest-rate swaps
amounted to EUR406,941,956 (2008: EUR445,472,247).
Since 1 October 2008 the derivative financial instruments no longer meet the
hedging criteria due to the difference in the maturity of the extended loan
facility (2011) and the related hedging contracts/derivative financial
instruments (2013) and consequently all future differences in their fair
valuation are booked to the Income Statement.
The weighted average Euro interest swap rate on Group debt was 4.132% per annum
(2008: 4.053%).
+-----+-----------------------------------------------------------------------------+
| 15. | Cash and ash equivalents |
+-----+-----------------------------------------------------------------------------+
+-------------------------------------+---------------------+----------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+---------------------+----------------------+
| Group | | |
+-------------------------------------+---------------------+----------------------+
| Bank balances | 31,074 | 28,415 |
+-------------------------------------+---------------------+----------------------+
| Bank deposits | 3,273 | 1,500 |
+-------------------------------------+---------------------+----------------------+
| Total | 34,347 | 29,915 |
+-------------------------------------+---------------------+----------------------+
| | | |
+-------------------------------------+---------------------+----------------------+
| Company | | |
+-------------------------------------+---------------------+----------------------+
| Bank balances | 1,606 | 1,153 |
+-------------------------------------+---------------------+----------------------+
| Bank deposits | 3,600 | 1,500 |
+-------------------------------------+---------------------+----------------------+
| Total | 5,206 | 2,653 |
+-------------------------------------+---------------------+----------------------+
The cash balance mentioned above at group level includes tenant deposits of EUR4.7
million (2008: EUR5.6 million).
As at the balance sheet date, an amount of EUR34.3 million has been pledged in
favour of Bank of Scotland under the terms of account pledge agreements. These
are related to loan agreements concluded by subsidiaries of the Company and
Bank of Scotland for the purposes of financing acquisitions of investment
property. No restrictions on the utilisation of these pledged bank accounts have
been imposed.
+-----+-----------------------------------------------------------------------------+
| 16. | Issued capital and reserves |
+-----+-----------------------------------------------------------------------------+
Share capital
The Company has an issued share capital of EUR142,829,093.75 consisting of
114,263,275 shares with a par value of EUR1.25 per share, 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 shares rank equally with regard to the Company's residual assets.
No shares have been issued during the years ended 30 September 2008 and 30
September 2009.
Authorised capital
The Company has an authorised capital of EUR938,463,133.75 consisting of
750,770,507 shares of a par value of EUR1.25 per share.
Dividends
No dividend has been paid in the current financial year (2008: EUR 0.178 per
share was paid).
Hedging reserve
The hedging reserve comprised the effective portion of the cumulative net change
in the fair value of cash flow hedging instruments related to the hedge of
variability in cash flows arising from interest rate risk.
As indicated in note 14 future movements in the valuations of the derivative
financial instruments are included in the Income Statement. The related reserve
of EUR9.0 million, which was credited to the Reserves as at 30 September
2008, is being amortised to the Income Statement over the life of the new credit
facility to 31 December 2011.
Restricted reserve
A legal reserve subject to profit of the Company and its Subsidiaries has been
allocated in the different jurisdictions where applicable. This reserve is not
available for dividend distributions.
Shares and warrants transferability
Shares of the Company (i.e., Ordinary Share and Preference Shares, as such terms
are defined in the Articles) are freely transferable subject to article 10 of
the Articles. Warrants issued by the Company are freely transferable subject to
the provisions laid down in Part IV, Section 5. of the Prospectus.
Shareholders' agreements
The Company is not aware of any shareholder's 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').
Voting Rights
Voting rights attached to each share and procedures relating thereto are
described in articles 7, 8 and 26 of the Articles.
+-----+-----------------------------------------------------------------------------+
| 17. | Interest bearing loans and borrowings |
+-----+-----------------------------------------------------------------------------+
| | |
+-----+-----------------------------------------------------------------------------+
The Group contracted a debt facility with Bank of Scotland for EUR450.0 million in
July 2005. Amounts drawn down under the agreement are secured against the
Group's investment properties.
Following the Company's listing on the London Stock Exchange on 20 December 2006
the facility was decreased to EUR420.0 million in order to reduce loan to value
gearing and the maturity was extended to 31 December 2008.
In April 2007 the facility was increased to EUR460.0 million, in part to finance
and secure the acquisition of the portfolio of 27 logistics properties located
in France.
On 28 November 2008, the Group finalised an agreement with the Bank of Scotland
to extend its existing debt facility for a further three years to 31 December
2011. The extension was in respect of a EUR416.5 million senior debt facility and
the margin was 2.75% pa over three month EURIBOR. The facility was subject to an
upfront arrangement fee of 1.5% of the facility amount and an exit fee payable
on expiry of the loan term or subsequent refinancing date of between 1.5 to 3.0%
of the facility amount. The terms provided for an interest cover covenant of
1.30x and a LTV covenant of 75% until 31 December 2009 and 65% thereafter.
One of the French group companies, SAS Trappes, contracted a credit facility
with Credit Foncier de France for EUR12.0 million in July 2009. As at September 30
2009, the amount which has been drawdown is EUR6.1 million with an interest rate
of three month EURIBOR + 2.75% of margin. The maturity date is 31 July 2014. No
LTV and ICR covenants are applicable.
As at 30 September 2009, the Group had EUR394.1 million of outstanding
indebtedness with Bank of Scotland. The Company's loan to value ("LTV") (gross
debt divided by market value of properties) under the Bank of Scotland loan
documentation at that date was 65.6% against a covenant of 75.0%. The LTV was
calculated on the market value of the properties as at 30 September 2008.
+---------------------------+----------+-------------+------------+------------+------------+
| | Note | 30 September 2009 | 30 September 2008 |
| | | EUR'000 | EUR'000 |
+---------------------------+----------+--------------------------+-------------------------+
| Current | | | | | |
+---------------------------+----------+-------------+------------+------------+------------+
| Bank loans | | | 400,165 | | 445,472 |
+---------------------------+----------+-------------+------------+------------+------------+
| Less asset held for sale | 28 | | (12,501) | | (32,523) |
+---------------------------+----------+-------------+------------+------------+------------+
| Total bank loans | | | 387,664 | | 412,949 |
+---------------------------+----------+-------------+------------+------------+------------+
| | | | | | |
+---------------------------+----------+-------------+------------+------------+------------+
| Less finance costs | | | (19,774) | | (12,044) |
| incurred | | | | | |
+---------------------------+----------+-------------+------------+------------+------------+
| Amortised in years | | | 4,881 | | 10,810 |
+---------------------------+----------+-------------+------------+------------+------------+
| Balance to amortise | | | (14,893) | | (1,234) |
+---------------------------+----------+-------------+------------+------------+------------+
| Net bank loans | | | 372,771 | | 411,715 |
+---------------------------+----------+-------------+------------+------------+------------+
Transaction costs incurred in refinancing the above loans are initially deducted
from the above loan balance and are being amortized over the extended period of
the loan. Amortisation of transaction costs recognised as finance costs amounted
to EUR5.9 million for the year ended 30 September 2009. The finance costs include
debt arrangement, structuring, utilisation fees and exit fees paid in arranging
the debt facility.
All borrowings are denominated in Euro.
The weighted average EURIBOR interest rate at 30 September 2009 on the bank
borrowings was 3.735%.
The loan is collateralised by all properties of the portfolio included under
"Investment property" account (see Note 12).
Terms and debt repayment schedule
30 September 200930 September 2008
+----------+----------+----------+------------+----------+----------+------------+----------+
| |Currency | Nominal | Date of | Face |Carrying | Face |Carrying |
| | |interest | maturity | Value | Amount | Value | Amount |
| | | Rate | | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
| | | | | | | | |
+----------+----------+----------+------------+----------+----------+------------+----------+
| Secured | Euro | 3M | 31/12/2011 | 387,664 | 372,771 | 412,949 | 411,715 |
| bank | | Euribor | | | | | |
| loan | | + | | | | | |
| | | 2.75% | | | | | |
+----------+----------+----------+------------+----------+----------+------------+----------+
On the 11 November 2009, the Group entered into revised terms with the Bank of
Scotland which became effective on 12 January 2010 following the pay down of
EUR40.0 million of debt by the Group. The amendment relates to a decreased
facility amount of EUR359.3 million and the margin per annum is calculated as
follows, 3-month EURIBOR by reference to the prevailing LTV on the following
basis; 225 basis points if the LTV is less than 65%; 250 basis points if the LTV
is more than or equal to 65% but less than 70%; 275 basis points if the LTV is
more than or equal to 70% but less than 75%; 300 basis points if the LTV is more
than or equal to 75% but less than 80% and 400 basis points if the LTV is more
than or equal to 80%. The facility has an amendment fee of EUR150,000 and an exit
fee of 2% of the average drawn amount. The maturity date of the loan is now
extended until the 31 December 2013. The terms provide for an interest cover
covenant of 1.30x and the LTV covenant of 85% until 31 December 2010, 82.5%
until 31 December 2011, 80% until 30 June 2012, 75% until 31 December 2012,
72.5% until 30 June 2013 and 70% thereafter.
+-----+-----------------------------------------------------------------------------+
| 18. | Deferred tax assets and liabilities |
+-----+-----------------------------------------------------------------------------+
Deferred tax assets and liabilities are attributable to the following:
+----------------------+----------+----------+-------------+-------------+---------+-----------+
| | Assets | Assets |Liabilities |Liabilities | Net | Net |
| | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+----------------------+----------+----------+-------------+-------------+---------+-----------+
| Investment | - | 1,447 | (6,969) | (18,506) |(6,969) |(17,059) |
| property | | | | | | |
+----------------------+----------+----------+-------------+-------------+---------+-----------+
| Net tax | - | 1,447 | (6,969) | (18,506) |(6,969) | (17,059) |
| assets/(liabilities) | | | | | | |
+----------------------+----------+----------+-------------+-------------+---------+-----------+
Movement in temporary differences during the year
+----------------------------+-----------+--------------+------------+---------------+-----------+
| | Balance |Reclassified |Recognised |Consolidation | Balance |
| | at 30 | to property | in profit | adjustments | at 30 |
| |September | held for | or loss | EUR'000 |September |
| | 2008 | sale | EUR'000 | | 2009 |
| | EUR'000 | EUR'000 | | | EUR'000 |
+----------------------------+-----------+--------------+------------+---------------+-----------+
| Investment property |(17,059) | 3,321 | 6,769 | - | (6,969) |
+----------------------------+-----------+--------------+------------+---------------+-----------+
+----------------------------+----------+----------+----------+----------+----------+
| Investment property | (2,423) | (3,321) | (88) | 2,639 | (3,193) |
| classified as held for | | | | | |
| sale | | | | | |
+----------------------------+----------+----------+----------+----------+----------+
As at 30 September 2008 deferred tax assets of EUR1,446,908 were recognised. In
the opinion of the Directors the loss made in the year ended 30 September 2008
was expected to be compensated by future profits. The Directors have now decided
given the current economic climate and in the interest of prudence from 1
October 2008 onwards no deferred tax asset will be recognised in the accounts of
the Group.
Recognised deferred tax assets/ (liabilities)
+--------------------------------------------+------------------+------------------+
| | 30 September | 30 September |
| | 2009 | 2008 |
| | EUR'000 | EUR'000 |
+--------------------------------------------+------------------+------------------+
| Tax losses | - | 66 |
+--------------------------------------------+------------------+------------------+
| Short term timing differences | (69) | (58) |
+--------------------------------------------+------------------+------------------+
| Fair value of investment property | (6,900) | (17,067) |
+--------------------------------------------+------------------+------------------+
| Total | (6,969) | (17,059) |
+--------------------------------------------+------------------+------------------+
Unrecognised deferred tax assets
+--------------------------------------------+------------------+------------------+
| | 30 September | 30 September |
| | 2009 | 2008 |
| | EUR'000 | EUR'000 |
+--------------------------------------------+------------------+------------------+
| Tax losses | 12,892 | 10,232 |
+--------------------------------------------+------------------+------------------+
| Short term timing differences | 3 | 25 |
+--------------------------------------------+------------------+------------------+
| Fair value of investment property | - | 74 |
+--------------------------------------------+------------------+------------------+
| Total | 12,895 | 10,331 |
+--------------------------------------------+------------------+------------------+
+-----+-----------------------------------------------------------------------------+
| 19. | Trade and other payables |
+-----+-----------------------------------------------------------------------------+
+-------------------------------------+------------------------+--------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+------------------------+--------------------+
| Group | | |
+-------------------------------------+------------------------+--------------------+
| Accounts payable | 1,796 | 2,652 |
+-------------------------------------+------------------------+--------------------+
| Accruals and other creditors | 6,046 | 3,991 |
+-------------------------------------+------------------------+--------------------+
| Deferred income less than 1 year | 4,518 | 4,888 |
+-------------------------------------+------------------------+--------------------+
| Interest payable on bank loans | 5,297 | 5,373 |
+-------------------------------------+------------------------+--------------------+
| Service charges | 140 | - |
+-------------------------------------+------------------------+--------------------+
| Tenant deposits | 4,569 | 5,618 |
+-------------------------------------+------------------------+--------------------+
| Total | 22,366 | 22,522 |
+-------------------------------------+------------------------+--------------------+
+-------------------------------------+------------------------+--------------------+
| Company | | |
+-------------------------------------+------------------------+--------------------+
| | | |
+-------------------------------------+------------------------+--------------------+
| Accounts payable | 392 | 783 |
+-------------------------------------+------------------------+--------------------+
| Accruals and other creditors | 417 | 333 |
+-------------------------------------+------------------------+--------------------+
| Taxes payable | 901 | 1,433 |
+-------------------------------------+------------------------+--------------------+
| Total | 1,710 | 2,549 |
+-------------------------------------+------------------------+--------------------+
Trade and other payables indicated above equal their contractual amounts and are
payable in less than six months except for tenant deposits, which are repayable
upon termination of the related lease contracts.
+-----+-----------------------------------------------------------------------------+
| 20. | Net asset value per ordinary share |
+-----+-----------------------------------------------------------------------------+
The net asset value per ordinary share is based on the net assets of
EUR117,857,385.92 (2008: EUR248,172,928) and 114,263,275 ordinary shares (2008:
114,263,275) in issue at the Balance Sheet date.
+-----+-----------------------------------------------------------------------------+
| 21. | Loss per ordinary share |
+-----+-----------------------------------------------------------------------------+
The calculation of basic loss per share at 30 September 2009 was based on the
loss attributable to ordinary shareholders of EUR127,078,781.41 (2008: loss of
EUR63,198,829), and a weighted average number of ordinary shares outstanding of
114,263,275 (2008: 114,263,275).
+-----+-----------------------------------------------------------------------------+
| 22. | Financial instruments and associated risk |
+-----+-----------------------------------------------------------------------------+
The Group has exposure to the following risks from its use of financial
instruments:
Financial risk
Market price risk
Interest rate risk
Currency risk
Credit risk
Liquidity risk
This note presents information about the Group's exposure to each of the above
risks, the group's objectives, policies and processes for measuring and managing
risk, and the Group's management of capital. Further quantitative disclosures
are included throughout these Consolidated Financial Statements.
Financial risk factors
The Group is exposed by its operations to financial risks, including effects
from change in market prices and interest rates.
The Group holds cash and liquid resources as well as having debtors and
creditors that arise directly from its operations. The Group has entered into
interest-rate swaps which are used to manage the exposure to interest rate risks
but does not have any other derivative instruments.
The main risks arising from the Group's financial instruments and properties are
market price risk, credit risk, liquidity risk and interest rate risk. Market
risk embodies the potential for both losses and gains and includes price risks,
interest rate risk and currency risk.
The nature and extent of the investments and the financial instruments
outstanding at the balance sheet date and the risk management policies employed
by the Group are discussed below.
Market price risk
Rental income and the market value for properties are generally affected by
overall conditions in the local economy, such as changes in gross domestic
product, employment trends, inflation and changes in interest rates. Changes in
gross domestic product may also impact employment levels, which in turn may
impact the demand for premises. Furthermore, movements in interest rates may
also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors
specific to the real estate market, such as competition from other property
owners, the perceptions of prospective tenants of the attractiveness,
convenience and safety of properties, the inability to collect rents because of
bankruptcy or the insolvency of tenants or otherwise, the periodic need to
renovate, repair and re-lease space and the costs thereof, the costs of
maintenance and insurance, and increased operating costs.
The Investment Manager also analyses portfolio and investment risks under the
following categories:
+----------------------------------------+----------------------------------------+
| Criteria | Risk control |
| | |
+----------------------------------------+----------------------------------------+
| Rental income | Ongoing review of income receipt of |
| | rents and progress on leasing vacancy |
| | - at least on a quarterly basis. |
| | |
+----------------------------------------+----------------------------------------+
| Term of rental agreements | Ongoing review at least on a quarterly |
| | basis. |
| | |
+----------------------------------------+----------------------------------------+
| Quality of tenants | Formerly analysed on a semi - annual |
| | basis by means of the credit rating |
| | performed by Experian. Informal |
| | controls performed on an ongoing |
| | basis. |
+----------------------------------------+----------------------------------------+
| | |
+----------------------------------------+----------------------------------------+
| Sector diversification | Quarterly, formal comparison with |
| | strategy and review with the Board of |
| | Directors. |
| | |
+----------------------------------------+----------------------------------------+
| Geographic diversification | Quarterly, formal comparison with |
| | strategy and review with the Board of |
| | Directors. |
| | |
+----------------------------------------+----------------------------------------+
| Sizes of individual properties | Quarterly monitoring of the proportion |
| | of individual properties in the |
| | portfolio in accordance with Stock |
| | Exchange regulations. |
| | |
+----------------------------------------+----------------------------------------+
| Payments in arrears | Ongoing review, supported by quarterly |
| | review of property management reports. |
+----------------------------------------+----------------------------------------+
By monitoring assets under these categories using the risk controls outlined and
by diversifying the portfolio in different property sectors, countries, regions
and tenant industries the Group expects to lower the risk profile of the
portfolio.
Interest rate risk
The Group's exposure to market risk for changes in interest rates relates
primarily to the Group's variable-rate borrowings (see note 17).
The Group has exposure to the effects of fluctuations of market interest rates
on its financial position and cash flows and interest costs may increase as a
result of such changes. This may reduce profits or create losses in the event
unexpected movements in interest rates arise.
The Group adopts a policy of ensuring that all of its exposure to changes in
interest rates on borrowings is on a fixed rate basis. Interest rate swaps,
denominated in euro, have been entered into to achieve this.
The net fair value of the interest rate swaps at 30 September 2009 is
-EUR29,055,644 (2008: EUR8,990,291).
The following table indicates the periods in which the cash flows associated
with the interest rate swaps are expected to occur and how they will impact the
future income statements:
+-----------+----------+----------+----------+----------+----------+------------+----------+
| As at 30 |Carrying |Expected |6 months | 6-12 | 1 - 2 | 2 - 5 | More |
| September | amount | Cash | or less | months | years | years | than 5 |
| 2009 | EUR'000 | Flows | EUR'000 | EUR'000 | EUR'000 | EUR'000 | years |
| | | EUR'000 | | | | | EUR'000 |
+-----------+----------+----------+----------+----------+----------+------------+----------+
| Interest |(29,056) |(29,056) | (6,641) | (6,370) | (8,965) | (7,080) | - |
| rate | | | | | | | |
| swap | | | | | | | |
+-----------+----------+----------+----------+----------+----------+------------+----------+
+-----------+----------+----------+----------+----------+----------+------------+----------+
| As at 30 |Carrying |Expected |6 months | 6-12 | 1 - 2 | 2 - 5 | More |
| September | amount | Cash | or less | months | years | years | than 5 |
| 2008 | EUR'000 | Flows | EUR'000 | EUR'000 | EUR'000 | EUR'000 | years |
| | | EUR'000 | | | | | EUR'000 |
+-----------+----------+----------+----------+----------+----------+------------+----------+
| Interest | 8,990 | 9,404 | 2,117 | 379 | 321 | 6,587 | - |
| rate | | | | | | | |
| swap | | | | | | | |
+-----------+----------+----------+----------+----------+----------+------------+----------+
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have
increased (decreased) equity and profit or loss by the amounts shown below. This
analysis assumes that all other variables remain constant.
+--------------------------------------------+----------+----------+----------+----------+
| | Profit or loss 30 | Profit or loss 30 |
| | September 2009 | September 2008 |
+--------------------------------------------+---------------------+---------------------+
| | 100 bp | 100 bp | 100 bp | 100bp |
| | Increase | decrease | Increase | decrease |
| | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+--------------------------------------------+----------+----------+----------+----------+
| Cash and cash equivalents | 292 | (292) | 299 | (299) |
+--------------------------------------------+----------+----------+----------+----------+
| Weighted average floating secured bank | 68 | (68) | - | - |
| loan | | | | |
+--------------------------------------------+----------+----------+----------+----------+
Currency risk
The Group's exposure to foreign exchange risk is minimal. There are only a small
number of transactions which are not in the Group's reporting currency.
The Group has two subsidiaries which have another functional currency than Euro.
Currency translation differences are directly booked in equity.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. In the
event of default by an occupational tenant, the Group will suffer a rental
income shortfall and incur additional costs, including legal expenses, in
maintaining, insuring and re-letting the property. The Investment Manager
reviews reports prepared by Experian, or other sources, to assess the credit
quality of the Group's tenants and aims to ensure there are no excessive
concentrations of risk and that the impact of any default by a tenant is
minimized.
Investments, other than those in property, are held only in liquid securities
and only with counterparties that have a credit rating equal to or better than
the Group. Transactions involving derivatives are with the counterparty Bank of
Scotland Treasury. The Group does not expect any counterparty to fail to meet
its obligations.
Credit risk for tenants
The Group's income would be adversely affected if a significant number of
tenants were unable to pay rent or its properties could not be rented on
favourable terms. Certain significant expenditure associated with each equity
investment in real estate is generally not reduced when circumstances cause a
reduction in income from properties.
Credit risk management for tenants and property managers
Receivables from tenants are the main credit risk for the group. A credit
evaluation is performed on the financial condition of prospective new tenants
and a deposit is taken depending on the credit worthiness of the tenant.
Credit risk management for financial instruments
The credit risk on liquid funds and on interest rate hedges is limited because
the counterparty is a bank with a high credit rating assigned by international
credit rating agencies.
The carrying amount of financial assets represents the maximum credit exposure.
The maximum exposure to credit risk at the reporting date was:
+----------------------------------+----------+----------+----------+
| As at 30 September 2009 | Note | 2009 | 2008 |
| | | EUR'000 | EUR'000 |
+----------------------------------+----------+----------+----------+
| Loans and receivables | 13 | 17,048 | 17,163 |
+----------------------------------+----------+----------+----------+
| Derivative financial instruments | 14 | - | 8,990 |
+----------------------------------+----------+----------+----------+
| Cash and cash equivalents | 15 | 34,347 | 29,915 |
+----------------------------------+----------+----------+----------+
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or
otherwise raising funds to meet financial commitments.
Investments in property are relatively illiquid. However, the Group has
endeavored to mitigate this risk by investing in properties let to good quality
tenants with the potential for income and capital growth.
Group
+----------------------------------+----------+-----------+-----------+----------+-----------+
| As at 30 September 2009 | | Total | 6 months | 6 months | 1 - 5 |
| | | EUR'000 | or less | to 1 | years |
| | | | EUR'000 | year | EUR'000 |
| | | | | EUR'000 | |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Cash and cash equivalents | | 34,347 | 34,347 | - | - |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Weighted average floating | | (372,771) | - | - | (372,771) |
| secured bank loan | | | | | |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Total | | (338,424) | 34,347 | - | (372,771) |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| As at 30 September 2008 | | | | | - |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Cash and cash equivalents | | 29,915 | 29,915 | - | - |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Weighted average floating | | (411,715) | (411,715) | - | - |
| secured bank loan | | | | | |
+----------------------------------+----------+-----------+-----------+----------+-----------+
| Total | | (381,800) | (381,800) | - | - |
+----------------------------------+----------+-----------+-----------+----------+-----------+
Company
+----------------------------------+----------+----------+----------+----------+----------+
| As at 30 September 2009 | | Total | 6 months | 6 months | 1 - 5 |
| | | EUR'000 | or less | to 1 | years |
| | | | EUR'000 | year | EUR'000 |
| | | | | EUR'000 | |
+----------------------------------+----------+----------+----------+----------+----------+
| Cash and cash equivalents | | 5,206 | 5,206 | - | - |
+----------------------------------+----------+----------+----------+----------+----------+
| Amount due from/to subsidiaries | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| Current assets | | 13,584 | 13,584 | - | - |
+----------------------------------+----------+----------+----------+----------+----------+
| Non-current | | 9,850 | 7,800 | - | 2,050 |
| liabilities | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| Current | | 6,692 | 6,692 | - | - |
| liabilities | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| Total | | 35,332 | 33,282 | - | 2,050 |
+----------------------------------+----------+----------+----------+----------+----------+
| | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| As at 30 September 2008 | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| Cash and cash equivalents | | 2,653 | 2,653 | - | - |
+----------------------------------+----------+----------+----------+----------+----------+
| Amount due from subsidiaries | | | | | |
+----------------------------------+----------+----------+----------+----------+----------+
| Current assets | | 8,173 | 8,173 | - | - |
+----------------------------------+----------+----------+----------+----------+----------+
| Non-current liabilities | | 14,100 | 5,000 | 5,100 | 4,000 |
+----------------------------------+----------+----------+----------+----------+----------+
| Current liabilities | | 9,739 | 9,739 | - | - |
+----------------------------------+----------+----------+----------+----------+----------+
| Total | | 34,665 | 25,565 | 5,100 | 4,000 |
+----------------------------------+----------+----------+----------+----------+----------+
The maturity date of the interest bearing loans in the table above is 31
December 2011.
The contractual cash flows for loans and borrowings presented in the above table
reflect only the expected principal cash flows. Given that these loans and
borrowings bear floating interest rates based on the benchmark rate of EURIBOR,
the Directors deem that an estimate of the associated interest cash flows based
on prevailing interest rates at the balance sheet date, does not provide
additional meaningful information on the liquidity risk.
Fair value determination
Investment property
The portfolio is valued on a quarterly basis by DTZ, an independent valuer. DTZ
undertakes the process by operating within the guidelines issued by the Royal
Institution of Chartered Surveyors and reach an estimation of fair value having
regard to comparable transactions and discounted cash flow projections. Such
projections are based on estimates of future cash flows from the terms of any
existing lease(s) and other contracts and (where possible) from external
evidence such as current market rents for similar properties in the same
location and condition and using discount rates that reflect current market
assessments of the uncertainty in the amount and timing of the cash flows.
If information on current or recent market prices based on recent transactions
is not available, the independent valuer uses the cash flow approach to value
the investment properties.
The Directors have reviewed the above valuation, have accepted the underlying
assumptions as being appropriate in the current market conditions and have
adopted it in the presentation of the consolidated financial statements.
Interest rate swap
An interest rate swap can be viewed as a series of cash flows occurring at known
future dates. The value of the swap is the present value of these cash flows. To
calculate the present value of each cash flow, both the future cash flows and an
appropriate discount factor for each period on which a cash flow occurs are
estimated. Future cash flows are calculated from a forward interest rate curve
constructed using market prices for similar interest rate instruments
independently sourced from mid-market broker quotes for the relevant market. The
discount factor is the factor by which the future cash flow must be adjusted to
obtain the present value. Discount factors are derived from an assessment of
interest rates in the future and are calculated using forward rates such as
EURIBOR. Interest rates used for calculating discount factors are independently
sourced from mid-market broker quotes for the relevant market at the valuation
date.
+-----+----------------------------------------------------------------------------+
| 23. | Operating leases |
+-----+----------------------------------------------------------------------------+
The Group leases out its investment property under operating leases. The future
minimum lease receipts under non-cancellable leases are as follows:
+-------------------------------------+--------------------+------------------+
| | 30 September 2009 | 30 September |
| | EUR'000 | 2008 |
| | | EUR'000 |
| | | |
+-------------------------------------+--------------------+------------------+
| Less than one year | 41,243 | 44,878 |
+-------------------------------------+--------------------+------------------+
| Between one and five years | 103,917 | 122,209 |
+-------------------------------------+--------------------+------------------+
| More than five years | 50,765 | 64,211 |
+-------------------------------------+--------------------+------------------+
| Total | 195,925 | 231,298 |
+-------------------------------------+--------------------+------------------+
The Investment Manager's report referred to in this annual report and accounts
provides further description of the contingent rent recognised and the leasing
arrangements.
During the year ended 30 September 2009 EUR44.9 million was recognised as rental
income in the Income Statement (2008: EUR47.3 million). Repairs and maintenance
expense, recognised in property operating expenses was as follows:
+-------------------------------------+--------------------+------------------+
| | 30 September 2009 | 30 September |
| | EUR'000 | 2008 |
| | | EUR'000 |
| | | |
+-------------------------------------+--------------------+------------------+
| Income-generating property | 471 | 292 |
+-------------------------------------+--------------------+------------------+
| Vacant property | 85 | 77 |
+-------------------------------------+--------------------+------------------+
+-----+----------------------------------------------------------------------------+
| 24. | Related party transactions |
+-----+----------------------------------------------------------------------------+
The Company and the Group have related party transactions with its subsidiaries,
shareholders and Directors.
The Directors of the Company and its subsidiaries were paid a total of EUR199,175
(2008: EUR222,498) in Directors' fees during the year.
Invista Real Estate Investment Management Limited (Invista REIM) acts as the
Investment Manager of the Group. Invista REIM has received an Investment
Management fee of EUR4,684,197 (2008: EUR 7,361,692).
As disclosed in note 7, the conditions for payment of a performance fee to the
Investment Manager were not met during the year. Thus no charge for performance
fees was made during the year in the Consolidated Income Statement.
As disclosed in note 17, the Group has obtained a credit facility from the Bank
of Scotland and has entered into interest swap transactions with Bank of
Scotland Treasury.
The Company also operates an inter-group trading account facility with its
subsidiaries whereby it may receive income on behalf of its subsidiaries or pay
expenses on their behalf. These balances are non-interest bearing and are
settled on demand.
+-----+----------------------------------------------------------------------------+
| 25. | Segment reporting |
+-----+----------------------------------------------------------------------------+
Geographical segments
Segment information is presented in respect of the Group's geographical segments
which is based on the Group's management and internal reporting structure. The
Group's business is investing in commercial properties. All the existing
properties are located in the continental European region.
Business segments
Business segment reporting has not been prepared because the Group invests
predominantly in one business segment which is the investment in commercial
property.
+-------------------------------------+----------+----------+----------+-----------+
| As at 30 September 2009 | France | Germany | Other | Total |
| | EUR'000 | EUR'000 | Europe | EUR'000 |
| | | | EUR'000 | |
| | | | | |
+-------------------------------------+----------+----------+----------+-----------+
| Gross rental income | 20,688 | 15,964 | 8,279 | 44,931 |
+-------------------------------------+----------+----------+----------+-----------+
| Property operating expenses | (2,033) | (1,168) | (681) | (3,882) |
+-------------------------------------+----------+----------+----------+-----------+
| Segment net rental income | 18,655 | 14,796 | 7,598 | 41,049 |
+-------------------------------------+----------+----------+----------+-----------+
| Change in value of derivatives | - | - | (34.741) | (34,741) |
+-------------------------------------+----------+----------+----------+-----------+
| Change in value of investment | (48,231) | (30,359) | (18,675) | (97,265) |
| properties | | | | |
+-------------------------------------+----------+----------+----------+-----------+
| | | | | |
+-------------------------------------+----------+----------+----------+-----------+
| Finance income | 499 | 354 | 361 | 1,214 |
+-------------------------------------+----------+----------+----------+-----------+
| Finance expenses | (15,281) | (10,737) | (8,538) | (34,556) |
+-------------------------------------+----------+----------+----------+-----------+
| Other net expenses | (4,192) | (1,493) | (3,842) | (9,527) |
+-------------------------------------+----------+----------+----------+-----------+
| Loss before tax | (48,550) | (27,439) | (57,837) | (133,826) |
+-------------------------------------+----------+----------+----------+-----------+
| Taxation | 1,191 | 2,103 | 3,453 | 6,747 |
+-------------------------------------+----------+----------+----------+-----------+
| Loss after tax | (47,359) | (25,336) | (54,384) | (127,079) |
+-------------------------------------+----------+----------+----------+-----------+
+-------------------------------------+-----------+-----------+----------+-----------+
| As at 30 September 2009 | France | Germany | Other | Total |
| | EUR'000 | EUR'000 | Europe | EUR'000 |
| | | | EUR'000 | |
| | | | | |
+-------------------------------------+-----------+-----------+----------+-----------+
| Assets and Liabilities | | | | |
+-------------------------------------+-----------+-----------+----------+-----------+
| Segment assets | 166,253 | 217,886 | 201,001 | 585,140 |
+-------------------------------------+-----------+-----------+----------+-----------+
| Segment liabilities (excluding | (246,362) | (142,084) | (78,836) | (467,282) |
| equity components) | | | | |
+-------------------------------------+-----------+-----------+----------+-----------+
+-------------------------------------+-----------+-----------+-----------+-----------+
| As at 30 September 2008 | France | Germany | Other | Total |
| | EUR'000 | EUR'000 | Europe | EUR'000 |
| | | | EUR'000 | |
| | | | | |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Gross rental income | 23,765 | 15,859 | 7,659 | 47,283 |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Property operating expenses | (854) | (857) | (477) | (2,188) |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Segment net rental income | 22,911 | 15,002 | 7,182 | 45,095 |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Change in value of investment | (34,477) | (22,612) | (8,838) | (65,927) |
| properties | | | | |
+-------------------------------------+-----------+-----------+-----------+-----------+
| | | | | |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Finance income | 1,452 | 999 | 991 | 3,442 |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Finance expenses | (16,356) | (9,419) | (4,087) | (29,862) |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Other net expenses | (4,793) | (1,662) | (7,798) | (14,253) |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Loss before tax | (31,263) | (17,692) | (12,550) | (61,505) |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Taxation | (131) | 2,568 | (4,131) | (1,694) |
+-------------------------------------+-----------+-----------+-----------+-----------+
| Loss after tax | (31,394) | (15,124) | (16,681) | (63,199) |
+-------------------------------------+-----------+-----------+-----------+-----------+
+-------------------------------------+------------+-----------+-----------+------------+
| As at 30 September 2008 | France | Germany | Other | Total |
| | EUR'000 | EUR'000 | Europe | EUR'000 |
| | | | EUR'000 | |
| | | | | |
+-------------------------------------+------------+-----------+-----------+------------+
| Assets and Liabilities | | | | |
+-------------------------------------+------------+-----------+-----------+------------+
| Segment assets | 375,695 | 234,237 | 136,711 | 746,643 |
+-------------------------------------+------------+-----------+-----------+------------+
| Segment liabilities (excluding | (253,608) | (144,655) | (100,197) | (498,460) |
| equity components) | | | | |
+-------------------------------------+------------+-----------+-----------+------------+
+-----+----------------------------------------------------------------------------+
| 26. | Commitments |
+-----+----------------------------------------------------------------------------+
As at 30 September 2009 the Group was conditionally contracted to acquire an
investment property in Girona (Spain) for an estimated total gross cost of
EUR10.8 million.
+-----+----------------------------------------------------------------------------+
| 27. | Contingencies |
+-----+----------------------------------------------------------------------------+
Certain subsidiaries of the Group are involved in litigation resulting from
operating activities. These legal disputes and claims for damages are routine
resulting from the normal course of business. None of these legal disputes and
claims are expected to have a material effect on the balance sheet, the result
or liquidity of the Group.
+-----+-----------------------------------------------------------------------------+
| 28. | Non current assets held for sale |
+-----+-----------------------------------------------------------------------------+
As at the 30 September 2009, two assets located in France and Belgium were held
for sale following completion of contractual commitments to sell.
+-------------------------------------+---------------------+---------------------+
| | 30 September 2009 | 30 September 2008 |
| | EUR'000 | EUR'000 |
+-------------------------------------+---------------------+---------------------+
| Assets classified as held for sale | | |
+-------------------------------------+---------------------+---------------------+
| Investment properties | 15,400 | 55,800 |
+-------------------------------------+---------------------+---------------------+
| Trade and other receivables | 255 | 848 |
+-------------------------------------+---------------------+---------------------+
| Cash and cash equivalents | 609 | 911 |
+-------------------------------------+---------------------+---------------------+
| Total | 16,264 | 57,559 |
+-------------------------------------+---------------------+---------------------+
| | | |
+-------------------------------------+---------------------+---------------------+
| Liabilities classified as held for | | |
| sale | | |
+-------------------------------------+---------------------+---------------------+
| Deferred tax liabilities | 3,193 | 2,423 |
+-------------------------------------+---------------------+---------------------+
| Loan and borrowings | 12,501 | 32,523 |
+-------------------------------------+---------------------+---------------------+
| Trade and other payables | 581 | 1,757 |
+-------------------------------------+---------------------+---------------------+
| Current tax payables | 11 | 284 |
+-------------------------------------+---------------------+---------------------+
| Total | 16,286 | 36,987 |
+-------------------------------------+---------------------+---------------------+
Tenant deposits included in "Cash and cash equivalents" was EUR0.4 million
(2008: EUR0.6million).
+-----+-----------------------------------------------------------------------------+
| 29. | Disposal of subsidaries |
+-----+-----------------------------------------------------------------------------+
| | |
+-----+-----------------------------------------------------------------------------+
On 21 October 2008, the Company's subsidiary Invista European Real Estate
Holdings S.a.r.l sold its subsidiaries Invista European RE Lyon Propco S.a.r.l.
and Invista European RE Villeurbanne Propco S.a.r.l. for a consideration of
EUR55.8 million. The related interest bearing bank loan of EUR32.5 million has been
repaid.
On 19 March 2009 the Company's subsidiary Compagnie Francesca sold it's
subsidiary Jerry SCI for a consideration of EUR6.3 million. The related
interest bearing bank loan of EUR5.7 million has been repaid.
+-----+-----------------------------------------------------------------------------+
| 30. | Events after the balance sheet date |
+-----+-----------------------------------------------------------------------------+
Amendment to the Bank of Scotland facility agreement:
As indicated in note 17, on 11 November 2009 the Group entered into an amendment
to the existing loan document whereby inter alia, there is a reduction in the
available term loan facility to EUR359.3 million, an extension of the final
maturity date to 31 December 2013 and a relaxation in the LTV covenant, which is
described in detail in note 17. These terms became effective on 12 January 2010.
Equity increase/refinancing:
On 30 December 2009, the Company raised GBP58.3 million (before expenses), by
way of a Firm Placing and a Placing and open offer of both New Ordinary Shares
and a new class of Preference Shares with Warrants attached. EUR40.0 million of
the net proceeds was applied to the pre-payment of the senior debt with Bank of
Scotland allowing the Group to enter into the revised terms described in note
17, on 12 January 2010. The remainder of the cash proceeds after deduction of
debt and equity issue costs, was held as working capital.
Foreign exchange hedge:
On 13 November 2009, the Company entered into a Sterling:Euro currency swap with
the Bank of Scotland Treasury London. This enabled the Company to fix the
proceeds on 11 January 2010 in relation to the Sterling Capital Raise at EUR:GBP
1.1178 and to hedge the first two years' sterling coupons on the preference
shares of EUR2.9 million per annum at a range of FX between 1.118 and 1.205.
Sale of assets:
On 26 October 2009, SCI Prolog sold its warehouse property located in
Aix-en-Provence (France) for a price of EUR688,000, which enabled the repayment of
EUR456,000 of bank debt.
On the 16 November 2009 Fova Sarl sold a parcel of land for a price of EUR618,000,
which enabled the repayment of EUR350,576 of bank debt.
On the 7 January 2010 Canal Business Park N.V. sold its property in Leuven for a
price of EUR15,670,000, which enabled the repayment of EUR12,210,000 of bank debt.
+-----+-----------------------------------------------------------------------------+
| 31. | Loans to subsidaries |
+-----+-----------------------------------------------------------------------------+
+-----------------------------------+------------------+------------------+
| Subsidiary | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------+------------------+------------------+
| | EUR000 | EUR000 |
+-----------------------------------+------------------+------------------+
| Invista European Real Estate | 256,151 | 275,560 |
| Holdings S.à r.l. | | |
+-----------------------------------+------------------+------------------+
| Invista European Real Estate | 16,459 | 16,459 |
| Finance S.à.r.l. | | |
+-----------------------------------+------------------+------------------+
| Total | 272,610 | 292,019 |
+-----------------------------------+------------------+------------------+
+-----+-----------------------------------------------------------------------------+
| 32. | Long term provision/deferred expenses |
+-----+-----------------------------------------------------------------------------+
As part of the current facility agreement with Bank of Scotland there is an exit
fee payable on the final repayment of the facility, 31 December 2011, which is
being amortised over the three year period to this date. The quantum of the exit
fee has subsequently been reduced according to the reviewed terms put in place
post year end. (see note 17)
+-----------------------------------+------------------+------------------+
| The Group and Company | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------+------------------+------------------+
| | EUR000 | EUR000 |
+-----------------------------------+------------------+------------------+
| Long term provision | 12,495 | - |
+-----------------------------------+------------------+------------------+
+-----------------------------------+------------------+------------------+
| The Company | 30 September | 30 September |
| | 2009 | 2008 |
+-----------------------------------+------------------+------------------+
| | EUR000 | EUR000 |
+-----------------------------------+------------------+------------------+
| Exit fee provision | 12,495 | - |
+-----------------------------------+------------------+------------------+
| Amortised exit fees | (3,124) | - |
+-----------------------------------+------------------+------------------+
| Deferred arrangement fees | - | 5,860 |
+-----------------------------------+------------------+------------------+
| Amortised arrangement Fees | - | (5,627) |
+-----------------------------------+------------------+------------------+
| Total deferred expense | 9,371 | 233 |
+-----------------------------------+------------------+------------------+
+-----+-----------------------------------------------------------------------------+
| 33. | List of the fully consolidated subsidiaries |
+-----+-----------------------------------------------------------------------------+
+-----------------------------------------+---+--------------+----------------------------+
| Subsidiary | Domicile | Ownership interest |
| | | 30 September 2009 |
+---------------------------------------------+--------------+----------------------------+
| Invista European Real Estate Holdings S.à | Luxembourg | 100% |
| r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European Real Estate Finance | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Heusenstamm PropCo | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Marseille PropCo | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Solingen PropCo | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Nanteuil PropCo | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Monheim PropCo S.à.r.l. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Lutterberg PropCo | Luxembourg | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Lutterberg Logistics GmbH | Germany | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Villeurbanne Holdco S.à | Luxembourg | 100% |
| r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Delta Holdco S.à r.l. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Delta Propco S.à r.l. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Delta Propco II S.à | France | 100% |
| r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Grodzisk Sp.zo.o. | Poland | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Riesapark PropCo S.à | Luxembourg | 100% |
| r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Roth PropCo S.àr.l. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Monbonnot HoldCo 1 | Luxembourg | 100% |
| S.àr.l | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Monbonnot HoldCo 2 | France | 100% |
| S.àr.l | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Germany GmbH | Germany | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista RE Dutch Holdings B.V. | The | 100% |
| | Netherlands | |
+---------------------------------------------+--------------+----------------------------+
| Canal Business Park N.V. | Belgium | 100% |
+---------------------------------------------+--------------+----------------------------+
| Centaurus Logistics S.A. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Pocking PropCo S.àr.l. | Luxembourg | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Sun PropCo SARL | France | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Nova PropCo SARL | France | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European RE Spanish PropCo S.L. | Spain | 100% |
+---------------------------------------------+--------------+----------------------------+
| Invista European Real Estate Bel-Air | Luxembourg | 100% |
| Holdings S.àr.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Invista European Bel-Air France S.A.S. | France | 100% |
+---------------------------------------------+--------------+----------------------------+
| Compagnie Francesca S.à.r.l. | France | 100% |
+---------------------------------------------+--------------+----------------------------+
| Fonciere Vauclusienne Fova S.à.r.l. | France | 100% |
+---------------------------------------------+--------------+----------------------------+
| Anjoly Affretement Stockage (Anjolyas) | France | 100% |
| S.à.r.l. | | |
+---------------------------------------------+--------------+----------------------------+
| Trappes SAS | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Cabrimmo S.à.r.l. | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Malabar Societe de Manutention | France | 100% |
| Logistique et d'Affretement Barlantier | | |
| (Malabar) S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Compagnie d'Entrepots et de Magasine | France | 99% |
| Generaux d'Amiens (Cemga) S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Les Merisiers SNC | France | 99% |
+-----------------------------------------+------------------+----------------------------+
| Mirasud S.à.r.l. | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Compagnie Fonciere de Fos Coffos | France | 100% |
| S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Nelson SCI | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Compagnie frigorifique et immobilere de | France | 100% |
| Normandie (Cofrinor) S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Monto'west S.à.r.l. | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Pole Logistique Vanclusien | France | 100% |
| (Poloval) S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Societe du Pole Nord SAS | France | 100% |
+-----------------------------------------+------------------+----------------------------+
| Compagnie Vauclusienne de Distribution | France | 100% |
| (Covadis) S.à.r.l. | | |
+-----------------------------------------+------------------+----------------------------+
| Prolog S.à.r.l. | France | 100% |
| DBA Czech s.r.o. | Czech Republic | 100% |
| Hades Logistics BV | The Netherlands | 100% |
| Atena Logistics BV | The Netherlands | 100% |
| Financiere, Immobiliere et Agricole | Belgium | 100% |
| S.A. | Belgium | 100% |
| KP Image House S.A. | Belgium | 100% |
| KP Rue Royal S.A. | | |
+-----------------------------------------+------------------+----------------------------+
| KP HH SA | Belgium | 100% |
+-----------------------------------------+---+--------------+----------------------------+
Glossary
Adjusted gross assets is the aggregate value of all of the assets of the Group,
including net distributable but undistributed income, less current liabilities
of the Group (excluding from current liabilities any proportion of monies
borrowed for investment whether or not treated under accounting rules as current
liabilities), as shown in the consolidated accounts of the Group.
Articles are the articles of association of the Company as amended and restated
on 29 December 2009.
Earnings per share (EPS) is the profit after taxation divided by the weighted
average number of shares in issue during the period.
Net equivalent yield is the time weighted average yield between the Net initial
yield and the Reversionary yield.
Estimated rental value (ERV) is the Group's external valuers' reasonable opinion
as to the open market rent which, on the date of valuation, could reasonably be
expected to be obtained on a new letting or rent review of a property.
Gearing is the Group's net debt as a percentage of adjusted net assets.
Gross rental income or gross rent is the annualised rental income receivable in
the period, prior to payment of non-recoverable expenditure such as ground rents
and property outgoings.
Gross initial yield (GIY) is the Gross rent expressed as a percentage of the net
valuation of property portfolio.
Group is Invista European Real Estate Trust SICAF and its subsidiaries.
Listing rules are rules made by the UK Listing Authority under section 73A of
the UK Financial Services and Markets Act 2000.
Net asset value (NAV) are shareholders' funds, plus the surplus of the open
market value over the book value of both development and trading properties,
adjusted to add back deferred tax.
Net initial yield (NIY) is the Net rental income expressed as a percentage of
the gross valuation of property portfolio.
Net rental income or net rent is the annualised rental income receivable in the
period after payment of non-recoverable expenditure items such as ground rents
and property outgoings.
Potential rent is the rent achievable if all the remaining vacant space is let
at the estimated rental value and added to the current Gross rental income.
Prospectus is the prospectus of the Company dated 16 November 2009.
Regulated market is a market referred to in article 1, point 13 of the Council
Directive 93/22 EEC on investment services in the securities field, as amended.
Reversionary yield is the anticipated yield, which the Net initial yield will
rise to once the rent reaches the estimated rental value.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BJMJTMBIBTFM
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