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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 |
From Jul 2019 to Jul 2024
TIDMIERE
RNS Number : 2006U
Invista European Real Estate Trust
19 December 2011
19 December 2011
INVISTA EUROPEAN REAL ESTATE TRUST SICAF
FULL YEAR RESULTS FOR 12 MONTHS ENDED 30 SEPTEMBER 2011
The Invista European Real Estate Trust SICAF (the "Company"/ "Group") has today announced its results for the year ended 30 September 2011.
Financial Highlights
-- Property assets of EUR451.1 million (30 September 2010: EUR515.7 million) following disposals of EUR50.2 million. Portfolio now comprises 39 properties with over eighty six per cent in the two main European markets, France and Germany
-- Portfolio valuation decreased by 3.16% on a like for like basis over the year
-- Adjusted NAV of EUR0.52 per share (30 September 2010: EUR0.54 per share), reflecting the weakening of property valuations in the second half of the year
-- Earnings on an EPRA basis of EUR4.7 million -- Loss before tax EUR11.5 million (30 September 2010: EUR1.1 million) -- Loss per share of EUR0.045 (30 September 2010: EUR0.0002)
-- Drawn down debt facilities of EUR298.0 million resulting in a loan-to-value ratio of 66.1% (30 September 2010: 66.6%). The Company has repaid over EUR49.7 million of borrowings over the last year
-- Group cash of EUR36.2 million (excluding tenants' deposits and escrow amounts) at year end.
Operational highlights
-- Five properties sold for EUR50.2 million at prices, on average, at 1.3% discount to the prevailing valuation
-- Void levels stabilised at circa 10.2% of income at year end
-- Lease lengths stabilised with a weighted average of 6.25 years as at 30 September 2011 (30 September 2010: 6.22 years)
Investment manager and strategy
-- Post year-end, the Company appointed Internos Real Investors ("Internos"), a leading pan-European property fund manager, to take on the management of the Company's assets, following a rigorous selection & approval process
-- The Company announced in June that it proposed to change its investment objective and policy to a structured realisation. This was approved by Shareholders at a general meeting following the financial year end and discussions continue with the Commission de Surveillance du Secteur Financier on this point.
Commenting, Tom Chandos, Chairman of the Invista European Real Estate Trust, said:
"The appointment of Internos represents a new start for the Company and its key managers worked assiduously to prepare for the assumption of the management role. This makes the Company well placed to face the challenges of the macroeconomic environment in Europe, with financing for commercial real estate becoming once more very restricted and tenants increasingly cautious which will have inevitable impact on both the valuation of the Company's properties and their liquidity."
For further information:
Ludovic Bernard
Internos Real Investors 020 7355 8800
Michael Sandler
Hudson Sandler 020 7796 4133
Invista European Real Estate Trust Company Summary
As at 30 September 2011, Invista European Real Estate Trust SICAF (the "Company") and its subsidiaries (together the "Group") held a diversified real estate portfolio comprising 39 commercial properties across six Continental European countries. The combined aggregate value of these properties was EUR451.1 million.
At the time of IPO on 20 December 2006, the stated long term investment objective of the Company was 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 was France and Germany due to the relative stability, transparency and liquidity of these markets.
On 14 October 2011 an Extraordinary General Meeting ('EGM') of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders subject to approval by the Commission de Surveillance du Secteur Financier ('CSSF'). The CSSF has approved the appointment of Internos Real Limited ("Internos") as investment manager and promoter and discussions continue with the CSSF regarding the proposed new investment objective and policy.
Financial Summary
v Net Asset Value decreased during the year from EUR139.9 million to EUR136.1 million
v Net Asset Value per share decreased by 2.8% to EUR0.52
v Loss per share of EUR0.04503(2)
Hot Features
Premium
Year ended Year ended
30 Sep 11 30 Sep 10
----------------------------------- ----------- -----------
Net Asset Value ("NAV")(1,2) EUR136.1m EUR139.9m
----------------------------------- ----------- -----------
NAV per share (1,2) EUR0.52 EUR0.54
----------------------------------- ----------- -----------
NAV per share (1,2,4) GBP0.46 GBP0.46
----------------------------------- ----------- -----------
NAV per preference shares (5) EUR1.18 EUR1.20
----------------------------------- ----------- -----------
NAV per preference shares (4,5) 102.7p 103.2p
----------------------------------- ----------- -----------
Ordinary share price 28.0p 26.5p
----------------------------------- ----------- -----------
Preference share price 103.88p 107.3p
----------------------------------- ----------- -----------
Warrant price 6.75p 7.5p
----------------------------------- ----------- -----------
Share price discount to NAV (1,2) 39.1% 42.4%
----------------------------------- ----------- -----------
NAV total return -2.8% -52.0%
----------------------------------- ----------- -----------
Total Group assets less current
liabilities (6) EUR494.8m EUR553.4m
----------------------------------- ----------- -----------
Sources: Invista Real Estate Investment Management; Datastream
(1) NAV is calculated using International Financial Reporting Standards and adjusted to add back the change in fair value of the warrants and deferred tax.
(2) As at 30 September 2011, deferred tax liabilities of EUR24.9 million, based upon temporary differences at the time of initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS12. The Group has deferred tax assets of EUR14.2 million which also have not been recognised.
(3) Loss for the period divided by the weighted average number of ordinary shares in the year.
(4) EUR:GBP exchange rate used was EUR1.149 as at 30 September 2011; EUR1.161 as at 30 September 2010.
(5) The NAV for preference share is equal to the nominal value plus accrued interest divided by the total number of preference shares.
(6) Current Liabilities exclude banking facilities.
Performance Summary
Property performance
Year ended Year ended
30 Sep 11 30 Sep 10
EURm EURm
------------------------------------ ----------- -----------
Value of property assets* 451.1 515.7
------------------------------------ ----------- -----------
Current annualised rental income 36.8 42.1
------------------------------------ ----------- -----------
Estimated open market rental value
per annum 36.9 42.2
------------------------------------ ----------- -----------
*The company disposed of five properties valued at EUR50.8 million during the year.
Summary consolidated income statement
Year ended Year ended
30 Sep 11 30 Sep 10
EURm EURm
------------------------------------------- ----------- -----------
Net rental and other income 38.5 39.8
------------------------------------------- ----------- -----------
Net gain on disposal of investment
property 0.5 1.1
------------------------------------------- ----------- -----------
Net valuation gain / (loss) on derivative
financial instruments 0.2 7.4
------------------------------------------- ----------- -----------
Net valuation loss on investment property (16.2) (6.1)
------------------------------------------- ----------- -----------
Expenses (8.0) (9.0)
------------------------------------------- ----------- -----------
Net finance costs (26.5) (34.3)
------------------------------------------- ----------- -----------
Loss before tax (11.5) (1.1)
------------------------------------------- ----------- -----------
Taxation (0.2) 1.1
------------------------------------------- ----------- -----------
Loss for the year (11.7) -
------------------------------------------- ----------- -----------
Earnings and dividends
Year ended Year ended
30 Sep 11 30 Sep 10
--------------------------- ----------- -----------
Loss per share (euro) (1) (0.0450) (0.0002)
--------------------------- ----------- -----------
Bank borrowings
Year ended Year ended
30 Sep 11 30 Sep 10
-------------------------------------------- ----------- -----------
Borrowings EURm 298.0 343.7
-------------------------------------------- ----------- -----------
Borrowings as % of total assets less
current liabilities 60.2% 62.1%
-------------------------------------------- ----------- -----------
Borrowing as % of market value of property
assets 66.1% 66.6%
-------------------------------------------- ----------- -----------
BoS loan covenant of borrowings as
% of market value of property assets 82.5% 85.0%
-------------------------------------------- ----------- -----------
Estimated annualised total expense ratio (2)
Year ended Year ended
30 Sep 11 30 Sep 10
----------------------------------------------- ----------- -----------
As % of total assets less current liabilities
(2) 1.56% 1.63%
----------------------------------------------- ----------- -----------
As % of shareholders' funds (2,3) 5.78% 7.13%
----------------------------------------------- ----------- -----------
(1) Share price converted to Euro at exchange rate of EUR:GBP of 1.149 prevailing at 30 September 2011 and 1.161 prevailing at 30 September 2010. During the 2009 and 2010 financial years no ordinary 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
In a year which has got progressively more difficult, the Company has made steady progress in strengthening its balance sheet, with a programme of disposals generating EUR50.2 million of net proceeds, allowing a reduction in net debt of EUR49.7 million. At the same time, significant strategic changes have been initiated, with the appointment of a new investment manager, Internos Real Limited ("Internos"), having been announced in the summer and implemented on 15(th) December 2011. A new investment objective and policy has been proposed, which, having been approved by shareholders in October 2011, is under discussion with the Luxembourg financial regulator.
Adjusted net asset value declined modestly in the year from EUR 0.538 (46.4p) to a figure of EUR0.52 (45.5p) per share, reflecting the weakening of property valuations in the second half of the year and some further adverse movement in the valuation of interest rate swaps, offset by retained earnings from operations; net earnings (on an EPRA basis) were EUR4.7 million. The proceeds of the property disposals allowed the level of net debt to fall to 60.2% of total assets, compared to 62.1% in the previous year.
As at year end, the Company's property portfolio was valued at EUR451.1 million and comprised 39 commercial property investments across 6 countries (EUR515.7 million, 43 assets and 7 countries as at 30 September 2010). The implementation of a range of asset management initiatives made a positive contribution to the net earnings of the Company with almost a third of portfolio income re-negotiated during the year. Net property income returns and lease lengths have remained stable at 7.53% (7.56%; 30 September 2010) and 6.25 years (6.22 years;30 September 2010) respectively. Internos expects the Company to make further leasing and disposal announcements in due course.
As has been previously reported, the parent company of Invista Real Estate Management ("Invista"), the Company's then investment manager, announced at the beginning of the financial year that it intended to realise its assets. After initially exploring the possibility of jointly acquiring the fund management arm, the Company instead served notice on the manager and began a process of selecting a new manager. Internos, a leading pan-European property fund manager, was selected and, after all the necessary approvals had been obtained, has now, since the financial year end, taken over the management of the Company.
The Company announced at the same time as the selection of the new manager that it proposed to change its investment objective and policy to a structured realisation. This was approved, subject to regulatory approval, by shareholders at a general meeting following the financial year end. The Commission de Surveillance du Secteur Financier ("CSSF"), has approved the appointment of Internos as investment manager and promoter and discussions continue with the CSSF regarding the proposed new investment objective and policy.
In the meantime, the existing investment objective and policy continue to apply, under which the Company has been pursuing an accelerated, proactive programme of disposals (with EUR50.2 million of sales in the past twelve months); Internos will be maintaining this approach, in order to further reduce the Company's borrowings, while discussions continue with the CSSF about the longer term strategy.
The macroeconomic environment in Europe is extremely challenging, with financing for commercial real estate becoming once more very restricted and tenants increasingly cautious. This has an inevitable impact on both the valuation of the Company's properties and their liquidity. The corporate instability at Invista has been very unhelpful to the Company, although at the working level the team that has been responsible for the management of the Company maintained a strong level of focus and commitment; we wish them well in the future.
The appointment of Internos represents a new start for the Company and its key managers worked assiduously to prepare for the assumption of the management role. A number of former employees of Invista have now joined Internos, including the entire Paris-based team, so there should be a useful level of continuity and transfer of knowledge. I therefore look forward to the challenges of the coming years fortified both by the quality of the Company's underlying assets and the commitment and enthusiasm of the new investment manager.
Tom Chandos
16 December 2011
Investment Manager's Report
Invista Real Estate Investment Management ("IREIM") has been the Investment Manager throughout the financial year concerned and until 15(th) December 2011 when management was handed over to Internos. The Investment Manager's Report was prepared by IREIM and reviewed by Internos.
Results
The Company's Adjusted NAV as at 30 September 2011 was EUR0.523 (45.5p) per share. This decreased over the financial year by 2.8% (1.9%) from EUR0.538 (46.4p) due principally to the combined effect of a fall in property valuations of 3.16% and further reductions in the mark-to-market valuation of the Company's interest rate swaps.
Over the 12 months to September 2011, the Company generated net earnings of EUR4.7 million as calculated on an EPRA basis.
In order to meet strategic objectives, the Company completed five sales (including one part sale) totalling EUR50.2 million and reduced borrowings by EUR49.7 million, accessing lower margin financing at below 65% LTV.
Asset management initiatives completed included new lettings on 19,970 sqm of accommodation, generating net additional earnings of EUR1.8 million on an annualised basis. On a like-for-like basis (excluding sales), the weighted average lease length to first break improved by 9.5% to 4.27 years.
The Market
Signs of economic recovery in the first half of 2011 in the Eurozone, which had supported the region's property markets over the past year, began to lose some of their momentum over the summer and as a result GDP growth forecasts for the region have been reduced in recent months.
Within the property market, the 'prime' sub-markets have, according to CB Richard Ellis, experienced rental growth of 2.7% in the 12 months to Q3 2011 (source: CB Richard Ellis Prime Eurozone Index). By contrast, rents in secondary and tertiary sub-markets generally remain weak as a result of high rates of availability in older stock. Overall, investors and tenants are cautious and this has constrained the volume of property leasing and investment activity, particularly in countries on the Eurozone's Periphery.
Property investment turnover has held up best in Europe's most liquid markets (Germany and France) and its strongest economies (Sweden and Central & Eastern Europe), which together accounted for 73% of investment turnover in the 12 months to Q3 2011, compared to a long-term average of 64% (source: CB Richard Ellis, Continental European investment turnover). By contrast, in Benelux, Italy and Iberia, where economic growth is most at threat from public and private sector deleveraging, property investment volumes in the year to Q3 2011 accounted for only 16% of the European total (compared to a long-term average of 22%).
Events in the European sovereign debt market since the end of Q3 2011 have underlined that a sovereign default within the Eurozone remains the most significant risk to economic growth and by extension to future performance in the property market. While the exact consequences of such an event are difficult to predict, the immediate damage to economic growth would inevitably lead to heightened risk aversion among investors, emphasising the need to protect rental income through tenant retention.
Property Portfolio
As at 30 September 2011, the Company's property portfolio was valued at EUR451.1 million and comprised 39 commercial property investments across 6 countries (EUR515.7 million, 43 assets and 7 countries as at 30 September 2010) following disposals of five properties (includes one part sale) of EUR50.2 million during the financial year.
On a like for like basis the portfolio value decreased by 3.16% during the year; 2.03% of this was experienced during the last quarter of the year due to increased uncertainty associated with the Eurozone's sovereign debt crisis.
Top 10 properties by value*- Table 1
Address Sector % --------------------------------- ----------- ------ Heusenstamm, Frankfurt, Germany Office 14.3% --------------------------------- ----------- ------ Riesa, Germany Retail 10.6% --------------------------------- ----------- ------ Lutterberg, Germany Logistics 6.1% --------------------------------- ----------- ------ Cergy, Paris, France Office 5.9% --------------------------------- ----------- ------ Grenoble, France Office 3.7% --------------------------------- ----------- ------ Roth, Germany Retail 3.6% --------------------------------- ----------- ------ Miramas, France Logistics 3.4% --------------------------------- ----------- ------ Monteux, France Logistics 3.4% --------------------------------- ----------- ------ Marseille, France Logistics 3.1% --------------------------------- ----------- ------ Madrid, Spain Logistics 3.1% --------------------------------- ----------- ------ Total 57.2% ---------------------------------------------- ------
* Percentage of aggregate asset value plus cash as at 30 September 2011.
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 2011.
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf
France EUR192,130,000 42.60% ---------------- ---------------- ------- Germany EUR197,050,000 43.69% ---------------- ---------------- ------- Spain EUR21,120,000 4.68% ---------------- ---------------- ------- Netherlands EUR16,270,000 3.61% ---------------- ---------------- ------- Belgium EUR14,920,000 3.31% ---------------- ---------------- ------- Czech Republic EUR9,560,000 2.12% ---------------- ---------------- -------
Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2011
Over 86% of the portfolio is located in the Company's key markets, France and Germany. These are the largest property markets in Continental Europe and account for 55% of the total market (Source: IPD 2010). In line with the stated objective to reduce weighting to non-core markets, the Company sold down its only investment in Poland at a price 2.9% above valuation.
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http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf
Logistics EUR226,500,000 50.22% ----------- --------------- ------- Offices EUR140,250,000 31.09% ----------- --------------- ------- Retail EUR 84,300,000 18.69% ----------- --------------- -------
Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2011
The portfolio is invested in the three main commercial property sectors, logistics, offices and retail. Disposals during the year contributed to the reduction in the logistics weighting from 55.8% as at 30 September 2010 to 50.2% as at 30 September 2011.
Income/Tenancies
As at 30 September 2011 the Company's portfolio generated a gross income of EUR36.8 million per annum (net EUR36.0 million) and a Net Initial Yield at property level ("NIY") of 7.53%. The portfolio void level increased to 10.2% as at 30 September 2011 from 8.4% as at 30 September 2010. This risk was noted in the interim results and reflects a combination of completing sales of fully let properties during the year and continuing weakness in the occupational markets.
The weighted average lease length to expiry has remained relatively stable over the year at 6.25 years as at year end. The weighted average lease length to first break has improved slightly to 4.27 years from 3.86 years as at 30 September 2010. The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in October 2011 was 73 out of 100 which is classified as "low to medium risk". Furthermore, over 61% of the portfolio income is considered to have negligible or low credit risk. This includes our two largest tenants, Deutsche Telekom and Norbert Dentressangle.
Top 10 tenants by income**- Table 2
Tenant % ------------------------------- ------ Deutsche Telekom 15.6% ------------------------------- ------ Norbert Dentressangle 12.0% ------------------------------- ------ DHL Exel Supply Chain 10.1% ------------------------------- ------ Valeo 5.8% ------------------------------- ------ Schenker Logistics 4.8% ------------------------------- ------ Carrefour 4.3% ------------------------------- ------ AVA Marktkauf 3.3% ------------------------------- ------ SDV Logistique Internationale 2.8% ------------------------------- ------ Tech Data 2.8% ------------------------------- ------ Real-SB Warenhaus GmbH 2.8% ------------------------------- ------ Total 64.3% ------------------------------- ------
** Percentage of aggregate gross rent as at 30 September 2011
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 2011.
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2012 8.05% ------- ------- 2013 4.43% ------- ------- 2014 1.42% ------- ------- 2015 13.99% ------- ------- 2016 4.05% ------- ------- 2017 10.19% ------- ------- 2018 7.95% ------- ------- 2019 12.01% ------- ------- 2020 16.61% ------- ------- 2021+ 21.10% ------- -------
Click on, or paste the following link into your web browser, to view the associated PDF document.
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2012 24.03% ------- ------- 2013 9.76% ------- ------- 2014 10.93% ------- ------- 2015 9.91% ------- ------- 2016 3.80% ------- ------- 2017 18.53% ------- ------- 2018 0.09% ------- ------- 2019 1.64% ------- ------- 2020 0.00% ------- ------- 2021+ 21.10% ------- -------
Source: Invista Real Estate Investment Management and DTZ, Debenham Tie Leung valuation as at 30 September 2011
The charts above show the lease expiry and break profile of the Company's portfolio. The percentages represent the proportion of the Group's total annual rental income due to break or expire in each year, as at 30 September 2011. A total of twelve leases have been renegotiated during the year representing 26.5% of portfolio income for a fixed term weighted average 6.3 years. Negotiations are progressing in respect of those leases with breaks occurring during 2012.
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1 As at 30 September 2011
2 Source: Invista Real Estate Investment Management Limited
3 Source: DTZ Debenham Tie Leung Valuation as at 30 September 2011
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 valuation as at 30 September 2011
Disposals
The key strategic objective of the Company has been to reduce the level of borrowings. The principal method by which this has been achieved is through property sales and using cash to access lower margin financing. In a market characterised by risk averse investors it has been necessary to prepare assets for sale by extending leases or completing other asset enhancing initiatives so as to improve saleability and maximise equity return to the Company upon realisation.
During the year, the Company completed sales of five logistics assets (including one part sale) totalling EUR50.2 million and repaid EUR49.7 million of borrowings, including EUR4.6 million of cash to achieve lower margin financing. Sale prices were on average 1.3% below valuation.
Using these sale proceeds the Company achieved an LTV ratio with the Bank of Scotland of below 65%. This triggered a reduction in the loan margin from 2.50% to 2.25% per annum as at 25 July 2011 which on an annualised basis will result in savings of approximately EUR1.8 million in interest charges.
Discussions are progressing with prospective purchasers in respect of further asset sales.
Asset Management Highlights
In addition to preparing assets for potential sale, the key feature of asset level business plans has been to minimise downside risk from lease breaks and expiries and, where possible, grow rental income.
A range of such initiatives have been implemented this year, including notable lease re-negotiations facilitating the sale of the EUR20.7 million logistics asset in Trappes, Paris as well as lease extensions with key occupiers DHL and real SB-Warenhaus GmbH representing 9.1% of portfolio income.
During the year, leases representing over 28.6% of portfolio income were negotiated with new or existing tenants. This included 19,970 sqm of vacant office, logistics and retail space let to new tenants generating additional revenue of EUR1.4 million per annum and service charge savings of EUR0.4 million per annum.
A further EUR6.1 million of rental income (or 16.5% of portfolio revenue) is currently under negotiation, largely in respect of those leases with breaks occurring in 2012. These negotiations have already resulted in agreeing heads of terms on two properties in Belgium and France with a combined annual income of EUR1.9 million. Executing such business plan initiatives to maximise income return and stabilise or improve capital value is key to preserving Group earnings as well as positioning assets for disposal.
Offices
Over 35% of office income has been re-negotiated during the year. The Company's fourth largest tenant Valeo extended their lease at Cergy, France by four years and leased a further 3,100 sqm of accommodation. In Grenoble, France two new leases were agreed with Rolls Royce and Seiitra, representing 2,531 sqm of offices, while existing tenants Oracle and Euromaster extended their leases for an additional average fixed term of four years.
Heads of terms have also been agreed on a lease extension on an office property in central Brussels where the lease has been extended by nine years at a rent 18.0% above ERV.
New office lettings generated additional income of EUR0.8 million per annum and in addition reduced void costs by EUR0.4 million per annum. As a result of such activity, the office sector benefits from a high occupancy rate of 95.2% and a weighted average lease term to break of 6.6 years.
The office portfolio generates an income return (NIY) of 7.74%.
Logistics
Five properties (including one part sale) totalling EUR50.2 million were sold during the year, generating EUR14.8 million of equity proceeds which were applied to reduce borrowings.
The sale of the prime EUR20.7 million logistics property in Trappes, southwest Paris was undertaken at a NIY of 7.41% following the successful completion of a nine year lease extension immediately prior to disposal. Completing this key asset management initiative ensured a competitive sales process and maximised value, realising EUR10.7 million of equity.
In addition to the active sales programme a number of logistics leases were re-negotiated to improve income security and prepare properties for sale. This included a lease with Deutsche Post Immobilien in Lutterberg, Germany which was extended until April 2017 and Norbert Dentressangle in Monteux, France where a three year extension was achieved. The electronics distributor Nissin also extended their lease at the property in Nanteuil, France at an annual rent of EUR0.6 million. Despite challenging occupational markets in Spain, the Company leased 13,839 sqm of warehousing space in Madrid resulting in additional revenue of EUR0.5 million pa.
While the Company has been successful in effecting profitable sales and securing income, the logistics portfolio has nevertheless seen occupancy decline over the year to 84.2%. This reflects the concerns we expressed in the interim results that logistics occupiers continue to consolidate their space requirements in line with the wider market, which we believe reflects the challenging economic environment in which they are operating. It is notable that tenants have not vacated the Company's properties in favour of cheaper or better quality accommodation elsewhere; the rising void level in the logistics portfolio is more of a reflection of occupiers scaling back their operations.
Active marketing campaigns are in place to lease vacant accommodation and consideration is being given to short term letting solutions where this benefits earnings. Continuing to engage with existing occupiers to track business changes and negotiate resolutions ahead of lease break or expiry remains a key initiative to mitigate future risks.
The logistics portfolio generates an income return (NIY) of 7.50%.
Retail
The German retail assets have maintained the highest occupancy rate of the portfolio at 98.0%. This is in part a reflection of the longer leases in the German market and also due to the successful lease re-negotiation with anchor tenant Real-SB Warenhaus GmbH at the shopping centre in Riesa. This lease was extended by 12 years to provide a fixed term until 2024 and marked a very significant step forward in the implementation of the business plan for this property. Agreeing terms with the anchor tenant has meant that negotiations with other new occupiers can progress, including for example, an extension of 250 sqm to be leased to a pharmacy operator, Apo Concept at a rent of EUR60,000 pa. This new letting will generate an estimated IRR of 31.5%.
Income security in the retail portfolio has been extended by 2.25 years on a like for like basis during the year.
The retail portfolio generates an income return (NIY) of 7.24%.
Case Studies
Click on, or paste the following link into your web browser, to view the associated PDF document. http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf
Borrowings
As at 30 September 2011, the Company had drawn down a total of EUR298.0 million of senior debt in respect of its EUR359.3 million facility with the Bank of Scotland. In addition, the Company had cash balances of EUR36.2 million (excluding tenant deposits of EUR4.2 million and escrow accounts of EUR3.6 million) at that date, giving a net debt position of EUR261.8 million.
In July 2011, the proceeds from the sale of the logistics assets in Trappes, Paris and Vitrolles, France plus EUR4.6 million of cash from the Company's balance sheet were applied to paying down a total of EUR20.6 million of debt with the Bank of Scotland and all of the outstanding EUR9.5 million of debt with Credit Foncier. As at the Interest Payment Date on 25 July 2011 therefore, and based on valuations of the property portfolio as at 30 June 2011, the Loan To Value ("LTV") ratio was 64.99% and accordingly the margin on the debt reduced from 2.50% to 2.25% pa. This reduced margin will apply at least until the next Interest Payment Date on 25 January 2012 at which point the LTV will be tested using property valuations as at 31 December 2011.
The Company's gross Loan To Value ("LTV") ratio as at 30 September 2011 was 66.1% and the net debt LTV was 58.0%. As at 30 September 2011, the Company's gross LTV under the Finance Documents with the Bank of Scotland was 64.7%, against an LTV covenant of 82.5% in 2011.
All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.29% per annum at current LTV levels.
Report of the Directors
The Directors of the Company (the 'Directors' or the 'Board') present their report and the Audited Financial Statements of the Company and the Group Financial Statements for the year ended 30 September 2011.
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 (societe d'investissement a 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 ("Invista"). Additional information regarding the Company and Group's 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 as at 30 September 2011 was EUR451.1 million and consisted of 39 properties located in France, Germany, the Netherlands, Spain, Belgium, and Poland.
Disposals
The following disposals took place during the year:
Asset Sale date Consideration Market value (quarter
end prior to sale)
--------------------------- ------------------ -------------- ----------------------
Entraigues-sur-la Sorgue,
France 10 November 2010 EUR490,000 EUR420,800
--------------------------- ------------------ -------------- ----------------------
Grodzisk, Poland 22 June 2011 EUR7,000,000 EUR6,800,000
--------------------------- ------------------ -------------- ----------------------
Fos Distriport, France 27 May 2011 EUR15,450,000 EUR16,250,000
--------------------------- ------------------ -------------- ----------------------
Trappes, France 25 July 2011 EUR20,700,000 EUR20,940,000
--------------------------- ------------------ -------------- ----------------------
Anjolyas, France 1 August 2011 EUR6,550,000 EUR6,420,000
--------------------------- ------------------ -------------- ----------------------
TOTALS EUR50,190,000 EUR50,830,800
----------------------------------------------- -------------- ----------------------
Strategic outlook
As referred to in the Company Summary, on 14 October 2011 an EGM of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders and discussions continue with the Commission de Surveillance du Secteur Financier ('CSSF') regarding the proposed new investment objective.
Presently, the Company will continue to pursue a strategy where it actively manages the existing property portfolio to reduce the level of borrowings through sales where this is beneficial to the Group, improve the income characteristics of the Group, maximise capital returns and enhance NAV performance. This will include regular reviews of the relative performance of the countries, regions and sectors in which the Company has invested and managing asset, country and sector allocation.
Key performance indicator
The Board uses the absolute Net Asset Value ('NAV') return of the Company to monitor and assess the performance of the Company. As at 30 September 2011, the Company's audited NAV (adjusted to add back deferred taxation and the change in the fair market value of warrants) was EUR0.523 per share.
During the year ended 30 September 2011, the Company's audited adjusted NAV has decreased by EUR0.015 per share or 2.8%. The decline in NAV was primarily due to the combined effect of a fall in property valuations and further marked-to-market fall of the Group's interest rate swaps.
An analysis and review of performance of the property portfolio is set out in the Property Portfolio section of the Investment Manager's report.
Important events post year end
The Chairman's Statement and the Investment Manager's Report, where appropriate, both contain information on the important events of the Company occurring since the end of the financial year and the Company's likely future development.
Extraordinary General Meeting
On 14 October 2011, an EGM of the Company's shareholders was held to approve a proposed new investment objective and policy to realise its existing portfolio of properties and return capital to shareholders, subject to the approval of the CSSF.
This resolution was duly passed by shareholders holding Ordinary Shares, currently the Company is in discussions with the CSSF with a view to gaining their approval.
Capital Structure
At 30 September 2011 the Company's issued share capital consisted of 259,980,739 ordinary shares each allotted fully paid, 29,137,134of preference shares and 29,105,344 warrants.
On 29 December 2009 the Company's share capital was reduced from EUR142,829,093.75 to EUR11,426,327.50 (without the cancellation of shares and without any reimbursement or repayment to the shareholders) to accomplish the following:
(i) absorption of the (non consolidated) losses of the Company as at 30 September 2009 of EUR13,089,270 resulting in the reduction of share capital of the Company being reduced to EUR129,739,823.75; and
(ii) creation of a non-distributable reserve of EUR118,313,496.25 was created which would be used exclusively to absorb losses incurred or to increase the share capital of the Company through the capitalisation of the non-distributable reserve
Subsequent to the share capital reduction each ordinary share had an accounting par value of 10 eurocents (EUR0.1).
On the 29 December 2009 the Company issued the following ordinary shares, preference shares and warrants:
-- 145,685,674 Ordinary Shares at GBP0.20 per Ordinary Share, (representing a discount to the current share price and a discount to the NAV as at 30 June 2009)
-- 29,137,134 Preference Shares priced at GBP1 per Preference Share, with a seven year term.
-- One Warrant per Preference Share giving the right to subscribe for an Ordinary Share at GBP0.29 exercisable in May and November of each year during the four year life of the Warrants as set out in the Instrument and the Prospectus of the Company dated 16 November 2010.
The ordinary shares and preference shares were issued pursuant to the terms of the Articles of Incorporation and the terms of Luxembourg Company law while the Warrant Instrument is governed by English law.
On 1 December 2010, 2,937 warrants were converted to Ordinary shares.
On 1 June 2011, 859 warrants were converted to Ordinary shares.
On 6 December 2011, 170 warrants were converted to Ordinary shares.
Since the warrants were issued on 16 November 2009, a total of 31,960 warrants have been converted to 31,960 of ordinary shares.
Voting rights
There are no restrictions on the voting rights attaching to the ordinary shares. The preference shares do not carry voting rights except in circumstances (i) set out in articles 44 to 46(1) of the Company Act, and (ii) where, despite the existence of profits available for that purpose, the preferential cumulative dividends to which the Preference Shareholders are entitled are not paid in their entirety for any reason whatsoever for a period of one financial year, in which case the holders of Preference Shares will have the right to vote in the same manner as other shareholders at all meetings until such time as all such preferential cumulative dividends have been received in full. The Warrants do not carry any voting rights. Voting rights to each share and procedures relating thereto are described in articles 7, 8 and 26 of the Articles of the Company.
Authority to allot shares
Pursuant to article 8 of the Articles, the Board is authorised to issue ordinary shares, and, as the case may be, additional Warrants (if and when required to comply with adjustment mechanisms provided for in the terms and conditions of the Warrants) within the limits of the authorised share capital. The ordinary shares and/or Warrants may be issued in one or several tranches, on such terms and conditions as the Board may approve, and at such price including such share premium as the Board may decide. The authority expires on 29 December 2014.
Pre-emption rights
Pursuant to article 8 of the Articles, pre-emption rights do not apply to shares that are offered for subscription by way of contributions in cash at or above the latest published net asset value, providing such offer is made within the period expiring on 29 December 2014. Where shares are offered for subscription by way of contributions in cash below the latest published net asset value, pre-emption rights apply as described in article 8 of the Articles of the Company.
Repurchase and redemption of own shares
The Company may repurchase its own shares in compliance with the Company Act, the Listing Rules and its Articles. Shares redeemed by the Company may remain in existence and be held in treasury by the Company. Shares which are not cancelled do not have any voting rights or any right to participate in any dividends declared by the Company, or in any distribution paid upon the liquidation or winding-up of the Company. Such shares are also disregarded for purposes of determining Net Asset Value, in each case, for so long as such shares are held by the Company. The price of shares reissued by the Company are determined according to such policy as the Board may determine from time to time.
Under the Articles of Association, all shares are redeemable shares within the meaning of article 49-8 of the Company Act. The Company may redeem its own ordinary shares whenever the Board considers this to be in the best interest of Company, subject to the terms and conditions determined by the Board, within the limitations set forth by the Company Act and by article 9 the Articles of the Company. Preference shares can only be redeemed in the specific circumstances described in article 9 of the Articles, in accordance with the terms of, and subject to the conditions set in, article 49-8 of the Company Act.
Dividend
As at the date of this report, the Company has neither declared nor paid dividends to the holders of ordinary shares during the financial year.
The Payment Dates for the payments of dividends relating to the Preference Shares changed from 31 May and 30 November to the third week of June and the third week of December respectively to be consistent with the ordinary share dividend pay dates previously set in place.
On 25 May 2011, the Company declared the third semi-annual preference dividend of GBP0.04488 per Preference Share in respect of the period from 25 December 2010 to 24 June 2011, which was paid on 24 June 2011 to Preference Shareholders on the Register on 3 June 2011 and the shares were quoted ex-dividend on1 June 2011.
The fourth semi-annual preference share dividend of GBP0.04488 per Preference Share was declared on 30 November 2011 in respect of the period from 25 June to 23 December 2011, which will be paid on 23 December 2011 to Preference Shareholders on the Register on 9 December 2011. The shares were quoted ex-dividend on 7 December 2011.
Warrants
The registered holders of Warrants were in a position to subscribe on 31 May and 30 November for new Ordinary Shares subject to the terms and conditions attaching to the Warrants as set out in the Instrument and the Prospectus of the Company dated 16 November 2010.
Shareholders' agreements
The Company is not aware of any shareholders' agreements which would result in restrictions on the transfer of securities or voting rights within the meaning of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the "Transparency Directive").
Shares and warrants transferability
Shares of the Company (i.e., Ordinary Shares and Preference Shares, as such terms are defined in the Articles) are freely transferable subject to article 10 of the Articles. Warrants issued by the Company are freely transferable subject to the provisions laid down in Part IV, Section 5. of the Prospectus.
Special Control rights
No security holder is vested with special control rights with regard to control of the Company.
Investment objective and policy
Current investment objective and strategy
The Company is currently continuing to implement its long term investment objective to provide shareholder returns through investing in a diversified commercial real estate portfolio in Continental Europe with the potential for income and capital growth. The geographical focus of the Group is primarily France and Germany due to the relative stability, transparency and liquidity of these markets.
The current strategy for the ongoing ownership and management of the Group's properties is to generate investment performance through the implementation of initiatives set out in asset level business plans. These business plans typically require an active asset management approach to generate performance such as re-negotiating leases, maximising net rental income receivable from tenants, extending lease duration to preserve income security, letting up current vacancy, stabilising rents and, amongst other initiatives, developing surplus or ancillary land reserves.
The Investment Manager has acquired a portfolio of commercial property investments which it believes exhibit some or all of the following characteristics:
> well-located for their 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
> a value in excess of EUR10 million and
> opportunity to enhance value through active asset management.
The degree to which the Group's current properties exhibit some or all of these characteristics will depend upon conditions in the local real estate market and the specific property.
Proposed new investment objective and strategy
At an EGM held on 14 October 2011, shareholders approved a proposed new investment objective and policy to realise the existing property portfolio and return capital to shareholders. Discussions continue with the Commission de Surveillance du Secteur Financier ('CSSF') regarding the proposed new investment objective. The Board believes that the proposed new investment objective and policy is the most appropriate course of action for the Company at this time, and is expected to have the following benefits:
-- shareholders should be able to obtain net realisable value (after repayment of borrowings and liabilities) in as short a timescale as practicable;
-- the approach to realisation should achieve the best balance between maximising value (compared to an immediate liquidation) and minimising the time taken to return capital to shareholders;
-- the implementation of the proposed new investment objective and policy should allow the Company to take advantage of buyers' immediate appetites for portfolio assets, at the same time as holding other assets over a longer timescale in order to maximise realisable value. Portfolio sales and corporate transactions, such as the merger or sale of the Company, will also be considered as a means of accelerating the delivery of value to shareholders; and
-- the Company's listing and capacity to trade in the shares will be maintained for as long as practicable.
It is proposed that all property assets will be sold as expeditiously as is consistent with the protection of value, with an initial focus on those properties already optimised for sale and those in markets where the Company has relatively few assets, so as to reduce property management costs.
The sales proceeds would be applied in the first instance to the repayment of debt and thereafter returned to shareholders of the Company within a targeted timescale of approximately three years from 29 September 2011, being the date on which a circular was issued by the Company to its shareholders seeking approval of the new investment policy of the Company.
As the property assets of the Company are sold, the Board would use cash proceeds in excess of the amount that is required to repay allocated loan amounts and related financing costs either for further debt repayment or for return of capital to the shareholders in accordance with its assessment at that time of what will deliver the best time and risk adjusted returns to shareholders.
New property assets would not be acquired unless such an acquisition is deemed by the Board, in consultation with the investment adviser, to be essential to protect or enhance the realisable value of an existing property asset. Where there is an opportunity to accelerate the realisation of optimal value for shareholders of the Company, a corporate transaction, such as the merger or sale of the Company, will be considered.
Diversification
Under the existing investment objective, the Board continues to believe that in order to maximise the stability of the Group's income, the optimal strategy for the Group is to be invested in a portfolio of assets which (a) is diversified by location, sector, asset size, lease length and tenant exposure and (b) has low vacancy rates and (c) creditworthy tenants. While there will be no predefined limit on exposures to location, sector, asset size, vacancy rates and tenant types, the Company's portfolio will be invested and managed, as is currently required by the Listing Rules, in a way which is consistent with its objective of spreading investment risk and taking into account the Company's investment objectives, policies and restrictions.
Asset allocation
The Group currently owns a diversified portfolio of commercial real estate. Its sector focus is logistics, office, retail and light industrial. From time to time the Group may have modest exposure to other types of real estate, for example leisure or residential. There will be no predetermined limits on investment per sector and no predetermined geographical limit on investment. Asset allocation will be determined taking into account current Listing Rule requirements (see below under 'Investment Restrictions'), the objective of spreading risk and the Company's investment objectives, policies and restrictions.
Investment restrictions
As a registered Luxembourg closed ended investment fund company listed on the London Exchange, the Company and, where relevant, its subsidiaries are subject to the UK Listing Rules as well as various rules of the CSSF, the Luxembourg regulator. The Company and where relevant, its subsidiaries will observe the following restrictions in compliance with the current Listing Rules:
* 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 objective 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. This includes observing the following restrictions in compliance with the current Listing Rules for closed-ended investment funds:
-- The borrowings of the Group (excluding intra group loans) are limited by the Articles to 65% of the gross assets of the Group. 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; and
-- 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
In relation to the investment restriction set out in the second bullet point above, the Company has previously received a waiver of this restriction from the UKLA (when this requirement was set out in the Listing Rules) in respect of the initial assembly of the Total Property Portfolio. However, in accordance with Luxembourg regulatory requirements, the Company is now in compliance with restriction.
No more than 20% of the gross assets of the Company may be exposed to the creditworthiness or solvency of any one counterparty (including its subsidiaries or affiliates).
The total amount of loans granted by the Company to entities which are not part of the Group may not represent more than 20% of the gross assets of the Company (consolidated where appropriate) at a time a loan is made.
Ancillary holding of liquid assets by the Group is subject to the following restrictions:
-- the Company may not invest more than 10% of its net assets in money market instruments or debt securities of one single issuer;
-- the Company may not hold more than 10% of any single class of money market instrument or debt security of a single issuer nor may it invest more than 10% of its net assets in money market instruments or debt securities which are neither listed on a stock exchange nor dealt on a Regulated Market.
The above restrictions are, however, not applicable to securities issued by companies which are wholly or partly owned and controlled by the Company.
Where amendments are made to the Listing Rules, the restrictions applying to the Company will, subject to the prior approval of the CSSF, be amended so as to reflect the new Listing Rules. In this instance the Board will consider the revisions applicable to the Company and, if considered suitable, will, subject to the prior approval of the CSSF, adopt the new Listing Rules investment restrictions.
In case of non-compliance with the investment restrictions, corrective and compensatory actions will be undertaken in accordance with the CSSF Circular 02/77 and an announcement of such action shall be made through a regulatory information service.
The proposed new investment objective and strategy of the Company, if approved by the CSSF, will supersede any previously published investment policy and/or restrictions.
Material change to investment objective and policy
In accordance with the requirements of the UK Listing Authority and the CSSF, any material change in the investment objective and policy of the Company may only be made with the approval of shareholders. Following regulatory and shareholder approval such a change will take effect on the quarter end date subsequent to the quarter during which a notice informing the shareholders of such material change was sent.
At an EGM held on 14 October 2011, shareholders approved a proposed new investment objective and policy to realise the existing property portfolio and return capital to shareholders. Discussions continue with the Commission de Surveillance du Secteur Financier ("CSSF") regarding the proposed new investment objective.
Principal risks and Uncertainties
In addition to the various operating risks presented below, the Board has set out and presented risks it considers to be critical to the Company in Note 5 to the Consolidated Financial Statements as at 30 September 2011.
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. Under current strategy, the Investment Manager and the Board seek to mitigate these risks through a business plan led approach, which incorporates a rigorous asset management strategy, research-based investment decisions and regular reviews of portfolio strategy. This approach has led to owning a well diversified and balanced portfolio with opportunities for active asset management.
To enable the Board to ensure that the portfolio does not become overly concentrated or reliant on individual assets, sectors or tenants, the Investment Manager reports quarterly on asset concentration, sector and regional diversification.
On a semi-annual basis the Investment Manager provides an independent analysis of tenant quality to the Board, sourced from Investment Property Databank's tenant credit rating system.
The primary control is that no single property (including all adjacent or contiguous properties) shall represent more than 15% of the gross assets of the Group at the time of purchase.
Borrowings
The Group seeks to enhance NAV total returns through borrowing. There is risk associated with third party borrowings and to mitigate this risk, consistent with the Company's Articles of Incorporation, the Board has adopted 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 that applies at all times in accordance with Luxembourg legal and regulatory requirement.
At 30 September 2011 the Group had access to a EUR359.3 million credit facility from Bank of Scotland of which the Group had drawn down a total of EUR298.0 million. The Company's gross Loan to Value ("LTV") as at that date was 66.1% and the net debt LTV was 58.0%.
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 the administrators maintain accurate accounting records are maintained and that sufficient evidence to support the accounts is available to the auditors upon request. The Administrator also operates established accounting systems that address issues of control and completeness. Procedures are in place to ensure that the quarterly NAV and Gross Asset Value are calculated properly by the Administrator, and the Group's property assets are valued quarterly by an independent specialist property valuation firm which is provided with regular updates on portfolio activity by the Investment Manager.
The Administrator monitors legal requirements in Luxembourg to ensure that adequate procedures and reminders are in place to meet the Group's legal requirements and obligations. The Investment Manager undertakes appropriate legal, tax and structuring due diligence with the assistance of external advisers when transacting and managing the Company's assets. All contracts entered into by the Group are reviewed by the Company's legal and the Group's other advisers. Processes are in place to ensure that the Group complies with the conditions applicable to property investment companies set out in the Listing Rules and the Circulars issued by the Luxembourg financial supervisory authority, the CSSF.
The Administrator attends all Board meetings to be aware of all announcements that need to be made and the Group's advisers are aware of their obligations to advise the Administrator, and where relevant the Board, of any events which require notification be made to the Board.
Finally, the Board is satisfied that the Investment Manager and Administrator have adequate procedures in place to ensure continued compliance with regulatory requirements of the UK Financial Services Authority and the CSSF.
Citco REIF Services (Luxembourg) S.A. has entered into an Administration Agreement with the Company which may be terminated by either party giving to the other not less than 120 days notice in writing. The Administrator is entitled to an annual fee equal to EUR1.1 million pa.
Management
The investment management arrangements with Invista which applied during the financial year reported are set out in an investment management agreement dated 17 November 2006, as subsequently amended, (the 'Invista IMA'). Invista was responsible for advising the Group on the overall management of the Group's investments in accordance with the Group's existing investment objective and policy and subject to the overall supervision of the Directors.
The fund manager was Tony Smedley, who also chaired the European Investment Committee which sat every two weeks or as required. The other members of that Committee were Tim Francis, Guillaume Masset and Chris Ludlam.
Under the terms of the Invista IMA, required to the overall supervision of the Directors, the Investment Manager was subject to provide the Company with such investment advisory, investment management services and administrative services as required by them in relation to the Total Property Portfolio. The Investment Manager also procured the provision of asset management services to the Property Subsidiaries.
On 12 October 2010, Invista Real Estate Investment Management Holdings plc announced that it intended to realise the value of Invista. The Company subsequently entered into negotiations to acquire, jointly with Invista Foundation Property Trust Limited and certain members of Invista's management team, part of the business of Invista. However, those discussions were ultimately terminated, and the Company announced on 18 March 2011 that it had given notice to Invista to terminate the Invista IMA with effect from no later than 18 September 2012 (the "Notice Period"). The Company announced on 15 December 2011 that it has entered into a Termination Agreement with Invista Real Estate Investment Management Limited.
Following consultation with shareholders and the consideration of proposals from a wide range of prospective new investment managers and advisers, the Board concluded that, in light of the substantial discount to net asset value at which the shares of the Company were trading, a structured realisation strategy of the existing assets of the Company would be in the best interests of shareholders.
The Board has appointed Internos Real Limited ("Internos") to execute the proposed new investment objective and policy set out above pursuant to an investment advisory agreement dated 22 September 2011 (the "Internos IAA"). Under the terms of the Internos IAA, Internos would take over the management of the Company and its assets with effect from the date on which the Invista IMA is terminated (which, in any event, will be no later than the end of the Notice Period).
The appointment of Internos has been approved by (i) the CSSF as the Company's regulator (in relation to Internos acting as manager and promoter of the Company); and (iii) Bank of Scotland in its capacity as facility agent in connection with the credit facility provided by it to the Company. The Company announced on 15 December 2011 that Internos has taken on the role of investment manager with effect from 15 December 2011 and that the proposed change of the Company investment objective and policy to implement a structured realisation of its portfolio of assets is subject to regulatory approval. Discussions with the CSSF on this point are still ongoing.
In the meantime, the existing investment objective and policy continue to apply. The Company has appointed Internos under the existing objective and policy, in order to achieve the earliest possible transition for the management of the Company's assets. Under the existing investment objective and policy, the Company has been pursuing an accelerated, proactive programme of disposals (with EUR50 million of sales in the past twelve months) and Internos will be maintaining this approach, in order further to reduce the Company's borrowings.
The Internos IAA (including the transitional arrangements thereunder), may be terminated by either the Company or Internos on 6 months written notice. The Internos IAA may also be terminated immediately by the Company in certain circumstances, such as in the case of the departure of certain key persons of Internos or for regulatory reasons.
Management fees
Under the Invista IMA that applied during the financial year reported on, Invista was 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 GBP3 million. This fee was subject to a cap of an amount equal to 0.95% per annum applied to the Adjusted Gross Assets. The base management fee was 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 provided 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.
Invista was also entitled to an annual performance fee where the total return per ordinary share during the relevant financial period exceeds an annual rate of 10% (the "Performance Hurdle"). Where the Performance Hurdle was met, a performance fee would be payable in an amount equal to 15% of any aggregate total return over and above the Performance Hurdle.
The Performance Hurdle was 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, was equal to or greater than 10% per annum.
Subject to the above conditions, the performance fee was payable by the Company to Invista within 14 days of receipt by the Company of such calculation.
From the 15(th) December 2011, when Internos took on the management of the Company's assets from Invista, the Company agreed to pay Internos pursuant to the Internos IAA a management fee of 1.25% per annum on the Net Asset Value attributable to the Company's ordinary shareholders, subject to a minimum of EUR1.0 million per annum. Assuming an unchanged level of NAV, this would be approximately EUR1.6 million per annum lower than the management fee payable under the Invista IMA, representing a reduction of 47%.
In addition, the Company will pay Internos a realisation fee equal to 12.5% of the amount by which cash returned to ordinary shareholders exceeds EUR82.8 million (being the average market capitalisation in the 30 days preceding this announcement converted at the GBP/EUR exchange rate at the close of business on 29 June 2011), compounded thereafter at 10% per annum.
Between 1 August 2011 and the date on which Internos assumes responsibility for the day-to-day management of the Company from Invista, the Company will pay Internos a transition fee of EUR75,000 per month to conduct a full strategic and operational review of all aspects of the Company's property portfolio, banking facilities and administrative arrangements with a view to achieving additional cost reductions for the Company.
On 15 December 2011 the Company announced that it has agreed under a Termination Agreement to pay to Invista a termination fee of EUR855,000. This compares with an estimated liability of EUR2.4 million if the management fees for the balance of the notice period (to 18 September 2012) were to be paid.
In addition the Company will pay Internos a fee of GBP60,000 in connection with the transition of the entire Invista REIM Paris team.
Significant contracts
Apart from the Invista IMA, Internos IAA and Administration Agreements, other significant contracts are with the following parties:
-- RBC Dexia Investor Services Bank SA as Custodian Bank -- Maitland Luxembourg SA as Registrars -- Capita IRG Trustees Limited as Depository
-- Primexis for accounting and tax compliance with regard to French investment properties/ companies
Other Significant contracts which have been entered into by the Company are listed in Part XII, Section 8 of the Prospectus.
Creditor payment policy
It is the Group's policy to ensure settlement of supplier invoices in accordance with stated terms.
Donations
The Company made no political or charitable donations during the year (2010: nil)
Directors
On 30 September 2011, Duncan Owen resigned as a Director of the Company. This was resolved and passed at the EGM of the Company on 14 October 2011.
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 2011) are listed below:
Director 30 Sep 11 30 Sep 30 Sep 10 30 Sep
11 10
Number of shares % Number of Shares %
Tom Chandos (Chairman) 261,000 ordinary 0.1004 261,000 ordinary 0.1004
shares, and 10,200 shares, and
preference shares, 0.0350 10,200 preference 0.0350
and shares, and
10,200 10,200
warrants warrants
0.0350 0.0350
57,350 ordinary 57,350 ordinary
John Frederiksen shares 0.0221 shares 0.0221
Michael Chidiac - - - -
Robert De Normandie - - - -
Jaap Meijer - - - -
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.
The appointment dates and gross remuneration of the Directors during the current and previous financial year was as follows:
Director Date of appointment EUR Tom Chandos (Chairman) 17 November 2006 52,000 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 do not have service contracts with the Company. The terms of appointment provide that a Director shall retire at every Annual General Meeting.
The Directors receive a base fee of 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.
The Directors are not eligible for bonuses, pension benefits, share options or other incentives or benefits.
Compensation in case of resignation, redundancy or takeover bid.
The Company has not entered into any agreements with the Directors providing for compensation if they resign or are made redundant without valid reason or if their employment cease because of a takeover bid.
Disclosure of information to auditors
As far as each of the Directors is aware, there is no relevant audit information of which has not been disclosed to the Company's external auditors and each of the Directors has taken all of the steps that they each ought to have taken to be aware of relevant audit information and to establish that the Company's Auditors are aware of that information.
Substantial shareholdings - At 30 November 2011 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 52,836,908 20.32
Ironside Partners LLC 31,564,497 12.14
Investec Wealth & Investment 21,219,924 8.16
Bailie Gifford & Co Ltd 13,096,915 5.04
Ashcourt Rowan Investment Management
Ltd 10,219,047 3.93
Legal & General Investment Mgmt Ltd 9,099,305 3.50
Schroder Investment Mgmt Ltd 8,049,737 3.10
-------------------------------------- ----------------- ------
Number of
Preference Shares %
Forum Partners Investment Mgmt LLC 12,188,633 41.83
Spearpoint Limited 6,287,025 21.58
Henderson Global Investors 1,469,489 5.04
Goodbody Stockbrokers 1,388,962 4.77
------------------------------------ ------------------- ------
Number of
Warrant-holders %
Forum Partners Investment Mgmt LLC 12,088,633 41.53
Barclays Stockbrokers Ltd 5,046,989 17.34
Henderson Global Investors 1,469,489 5.05
Ashcourt Rowan Investment Management
Ltd 1,053,651 3.62
-------------------------------------- ----------------- ------
Independent auditors
KPMG Audit S.a.r.l. has been appointed as independent auditor of the Company with effect from 17 November 2006 and for a duration of six years.
Amendment to the Articles
The Articles may be amended in accordance with the rules set out in article 25 of the Articles.
Status for taxation
The Company is not liable for any Luxembourg tax on profits or income, nor are distributions paid by the Company subject to any Luxembourg withholding tax. The Company is, however, liable in Luxembourg to a subscription tax of 0.05% per annum of its Net Asset Value, such tax being payable quarterly on the basis of the value of the aggregate net assets of the Company at the end of the relevant calendar quarter. No stamp duty or other tax is payable in Luxembourg on the issue of Shares. No Luxembourg tax is payable on the realised capital appreciation of the assets of the Company.
Going concern
The Directors have examined significant areas of possible financial risk and have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future. After due consideration the Board believes it appropriate to adopt the going concern basis for the preparation of the financial statements. Please see note 2 to the accounts.
Related Party transactions
This is detailed in Note 28 in the accounts.
Corporate governance
Principles statement
The Directors are committed to high standards of corporate governance and have made it Company policy to comply with best practice in this area and insofar as the Directors believe it is relevant and appropriate to the Company, to comply with the UK Corporate Governance Code published by the Financial Reporting Council or to explain areas of non-compliance.
There is no generally applicable Luxembourg corporate governance code for Luxembourg companies. Whilst the Luxembourg stock exchange has issued a corporate governance code based on international precedents, this code is not applicable to the Company.
The relevant corporate governance rules are the statutory rules of the Luxembourg Companies Act, which are, in essence, reflected in the constitutional documents of the Company. The Company's application of the UK Corporate Governance Code (with which the Company complies, and which is available at www.frc.org.uk/corporate/combinedcode.cfm) is discussed in the following paragraphs.
Composition and Balance of the Board
The Board currently consists of five Directors, four of whom are Non-Executive Directors and one Non-Independent Director.
Tom Chandos is the Chairman of the Board.
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 Listing Rule 15.2.13A.
The remaining Directors (Tom Chandos, Michael Chidiac, Robert DeNormandie and Jaap Meijer) are considered independent as they have no links with the Investment Manager and all have other professional employment.
The Board believes that the Directors have a breadth of property investment, business and financial skills and experience relevant to the Company. Biographical details of all current Board members are set out at the start of this section.
The Board acknowledges the Financial Reporting Council's proposed changes to the UK Corporate Governance Code in relation to the consideration of greater diversity within the boardroom as a whole, including that of gender. The Board remains committed to ensuring that the Directors of the Company possess a broad balance of skills, experience, independence and knowledge and that there is sufficient diversity within the composition of the Board. The matter of Board diversity will be considered at regular intervals and will be an integral part of the annual Board evaluation process, however all appointments will be made on merit
Senior Independent Director
The Board has considered the need to appoint a Senior Independent Director, but believes that this is not appropriate due to the size of the Board. (provision A,4.1)
The Role of the Board
The Board has determined that its role is to consider the following principal matters which it considers are of strategic importance to the Company and to take appropriate decisions thereon:
1. The overall objectives of the Company, as described under Investment Objective and Policy above, and the strategy for fulfilling those objectives within an appropriate risk framework.
2. The strategy followed is appropriate in light of the prevailing market conditions.
3. The capital structure of the company, including consideration of an appropriate use of borrowings is appropriate both for the Company and its shareholders.
4. The appointment and monitoring through regular reports and meetings of the Investment Manager, Administrator and other appropriately skilled service providers to ensure their ongoing effectiveness through regular reports and meetings.
5. Review of the key elements of the Company's performance including NAV growth and the payment of dividends.
Board decisions
At Board meetings, matters listed under the Role of the Board above are considered and resolved by the Board. Some issues associated with implementing the Company's strategy may be delegated by the Board either to the Investment Manager or the Administrator. However matters of strategic importance to
the Company are usually reserved for the Board. Generally these are defined as large property decisions affecting either 5% or more of the Group's assets and decisions affecting the Group's borrowings.
A formal schedule of matters reserved to the Board has been adopted which clearly defines the Directors'
Responsibilities and the powers of the Board are further described in articles 6,9,10 and title III of the Articles. In particular, the Board may decide to issue shares and to redeem the Company's own shares subject to the conditions set out in articles 8 and 9 of the Articles of the Company.
Board performance evaluation
The Board undertakes an annual review of its performance and that of its Committees and individual members during the financial year. The Board's procedure for evaluating the performance of the Board, its Committees and the individual Directors in respect of the year ended 30 September 2011 has occurred 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 upon 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. Following the annual review the Board concluded it was operating effectively and that the Chairman and the members of the Board had the breadth of skills required to fulfil their role.
Accordingly, as the individual performance of the respective Directors continues to be effective and the attendance by all Directors at meetings of the Board during the last financial year (see 'Board meetings') demonstrates the continued commitment of all Directors to their respective roles, the Board therefore considers all Directors standing for re-election at the Annual General Meeting on 24 February 2012 should be re-elected for a period of one year.
Re-appointment of Directors and Directors' tenure
Directors' re-appointment is subject to the Company's Articles and UK Corporate Governance Code and the Listing rules. The Company's Articles require that all Directors stand for re-appointment every year and are appointed for a period of six years.
Directors Training
Directors are provided on a regular basis with key information on the Company's activities, including regulatory and statutory requirements, internal control and operational/portfolio risks.
Conflicts of interest
There are no conflicts of interests between the Directors and the Company. The Prospectus issued in November 2009 discloses the Director's interest in Part XI, Section 3.
Insurance
Directors' and Officers' insurance is currently in place.
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 2011:
Director Board Audit Committee Tom Chandos (Chairman) 4 1 John Frederiksen 4 1 Michael Chidiac 4 4 Robert DeNormandie 4 4 Jaap Meijer 4 4 Number of meetings during the year 4 4
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 Michael Chidiac and Jaap Meijer as voting members. Non-voting members are Tom Chandos and John Frederikson. The Company considers that Robert DeNormandie's experience makes him suitably qualified to chair the Audit Committee. If required, meetings can also be attended by the Investment Manager, the Administrator and the Independent Auditor as well as with the Company's property appraiser to discuss the scope and conclusions of their work.
The primary tasks of the Company's Audit Committee are to assist the Board in fulfilling its oversight responsibilities relating to the integrity of the financial statements of the Company, including:
-- periodic reporting to the Board on its activities;
-- reviewing the half-year and annual financial statements before their submission to the Board;
-- advising the Board on the terms and scope of the appointment of the auditors, their remuneration, the independence and objectivity as well as reviewing with the auditors the results and effectiveness of the semiannual review and the annual audit;
-- performing such other duties imposed by applicable laws and regulations of the markets on which the shares are listed, as well as any other duties entrusted to the Audit Committee by the Board; and
-- any material non-audit or tax services must be considered and approved by the Committee and a recommendation submitted to the Board for final approval.
During the year the Company's auditors were involved in a limited review of the interim financial statements. No other work by the external auditor was performed.
The Audit Committee is satisfied that KPMG s.a.r.l is independent of the Company.
Terms of Reference
The Committee has written terms of reference, which clearly define its responsibilities and duties.
Other Committees
The Company does not have a Remuneration Committee [provision D.2.1] or a Nominations Committee [provision B.2.1], since the Company does not have any executive Directors. New appointments to the Board and remuneration issues are considered by the Board as a whole from time to time.
Review of the Investment Manager's performance and the contractual arrangement with the Investment Manager are conducted by the Board as a whole during its regular quarterly meetings.
Shareholder relations
Shareholder communications are a high priority for the Board. The Investment Manager produces a quarterly fact sheet which is posted on the Company's website at www.ieret.eu; the latest version can be
found at http://www.ieret.eu/quarterly-factsheets. The fund manager and other relevant members of the Investment Manager's Investment Committee make themselves available at all reasonable times to meet with brokers, shareholders and sector analysts. Feedback from these sessions is provided by the Investment Manager to quarterly Board meetings.
In addition, the Board is also kept fully appraised of all market commentary on the Company prepared by the Investment Manager and other professional advisers including the Company's brokers. Through this process the Board seeks to monitor the views of shareholders and to ensure an effective communication programme. The Chairman and Directors also hold meetings with shareholders in response to invitations to do so or as required.
Details of the resolutions to be proposed at the Annual General Meeting on 24 February 2012 can be found in the Notice of the Meeting
Statement of Directors responsibilities
The Directors are responsible for ensuring proper preparation of the financial statements and Report of Directors for each financial period:
i) which give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as of and at the end of the financial period in accordance with International Financial Reporting Standards and the Listing Rules; and
ii) which give a true and fair view of the development and performance of the business and the position of the Group as well as a true and fair description of the principal risks and uncertainties the Group may encounter.
In addition, the Board is responsible to ensure that the Company is in compliance with applicable company law and other UK or Luxembourg applicable laws and to provide a description of the risks and uncertainties the Group may encounter and to put in place an appropriate control framework designed to meet the Group's particular needs and the risks to which it is exposed.
In preparing such financial statements the Directors are responsible for:
-- Selecting suitable accounting policies and applying them consistently. -- Making judgments and estimates that are reasonable and prudent.
-- Stating whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements.
-- Preparing the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.
-- Maintaining proper accounting records which disclose with reasonable accuracy the financial position of the Group and enable them to ensure that the Financial Statements comply with all relevant regulations.
-- Safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Internal control
The Directors are responsible for the determination of the Company's investment objective and related policies and have overall responsibility for the Group's activities including the review of investment activity and performance.
The UK Corporate Governance Code requires the Directors to review the effectiveness of the Group's system of internal controls on an annual basis and to report to shareholders that they have done so. Although such a system can only provide reasonable assurance and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure.
The Board considers risk management and internal control on a regular basis during the year.
The key reviews conducted by the Directors are described as follows:
1. The Board has reviewed a report prepared by Invista's team on Invista (Investment Manager), Citco (Administrator), Primexis (French Accountant), RBC Dexia (Custodian), Capita Registrars (UK Registrar) and Maitland (Luxembourg Registrar) and has been satisfied that their approach is appropriate for the Group.
2. The Board meets regularly at the offices of the Administrator for its formal quarterly Board meetings and for ad-hoc Board meetings. The Board is therefore familiar with the environment in which the Administrator is operating and has the opportunity to meet the staff responsible for providing administrative agency services to the Company. This enables the Board to view at first hand the level of resources made available to the Company by the Administrator.
As the Company has no employees and its operational functions are undertaken by third parties, the Audit Committee does not consider it necessary for the Company to establish its own internal control function. The effectiveness of internal controls is assessed on a regular basis by the Compliance and Risk departments of the Investment Manager and Administrator. Therefore the Company is substantially reliant on the Investment Manager's and Administrators own internal controls and their internal audit. The Board considers risk management and internal control on a regular basis during the year. The processes implemented to identify, evaluate and manage risk that are described in the following paragraphs have been in place throughout the financial year to the date of this document and accord with the Revised Turnbull Guidance issued by the Financial Reporting Council, a guidance document relating to the principles under UK Corporate Governance Code .
The key elements designed to provide effective control are as follows:
1. Regular review of relevant financial data including management accounts and performance projections.
2. Contractual documentation with appropriately regulated entities which clearly describes responsibilities for the two principal service providers concerned.
3. The Investment Manager's system of internal controls is based on clear written processes, a formal investment committee, clear lines of responsibility and reporting all of which are monitored by Invista's internal risk team. Invista is regulated by the Financial Services Authority in the UK.
4. The Company's strategy is authorised by the Board which also monitors the Investment Manager's effectiveness in implementing the strategy.
Responsibility statement
The undersigned, Mr Tom Chandos, Chairman of the Board, and Mr Robert DeNormandie, Chairman of the Audit Committee, both Directors of the Company, state that, to the best of their knowledge:
a) the financial statements which have been prepared in accordance with the International Financial Reporting Standards and the Listing Rules give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
b) the Annual Report includes a fair review of the development and performance of the business and the position of the Group for the financial year ended 30 September 2011, and their impact on the set of financial statements, together with a description of the principal risks and uncertainties for the next financial year.
Signed on behalf of the Board of Directors on 16 December 2011
Tom Chandos, Chairman
16 December 2011
Robert DeNormandie, Chairman of the Audit Committee
16 December 2011
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
Notes EUR000 EUR000
Rental income 6 40,749 41,865
Other income 8 757 235
------------------------------------ ------- ----------- -----------
Total revenue 41,506 42,100
Property operating expenses 7 (2,960) (2,288)
------------------------------------ ------- ----------- -----------
Net rental and related income 38,546 39,812
------------------------------------ ------- ----------- -----------
Investment management fees 9, 27 (3,797) (3,299)
Administration fees 11 (1,986) (2,336)
Professional fees 10 (1,252) (1,777)
Directors' fees 27 (204) (225)
Other expenses 10 (706) (1,377)
------------------------------------ ------- ----------- -----------
Total expenses (7,945) (9,014)
------------------------------------ ------- ----------- -----------
Net gain on disposal of investment
property 12 494 1,077
Net valuation losses on investment
property 12 (16,237) (6,145)
Profit before net financing
costs and tax 14,858 25,730
------------------------------------ ------- ----------- -----------
Finance income 13 675 401
Finance expense 14 (27,196) (34,651)
Net gain on financial instruments 28.5 152 7,408
Net financing costs (26,369) (26,842)
------------------------------------ ------- ----------- -----------
Loss before tax (11,511) (1,112)
------------------------------------ ------- ----------- -----------
Deferred taxation (167) 5,917
Current taxation (29) (1,367)
Other taxes relating to sale
of property - (3,473)
------------------------------------ ------- ----------- -----------
Total taxation 25 (196) 1,077
------------------------------------ ------- ----------- -----------
Loss for the year attributable
to the equity holders of the
Company (11,707) (35)
------------------------------------ ------- ----------- -----------
Basic loss per share (Euro) 20 (0.04503) (0.00016)
Diluted loss per share (Euro) 20 (0.04503) (0.00016)
------------------------------------ ------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
Notes EUR000 EUR000
--------------------------------------- ------ ---------- ----------
Loss for the year (11,707) (35)
--------------------------------------- ------ ---------- ----------
Other comprehensive income
Reversal of currency translation
reserve - (631)
Fair value of warrants exercised
during the year 23 - 3
Amortisation of hedge reserve
for the period 1 October 2009
to 12 January 2010 18 - (632)
Reversal of hedge reserve balance
as at 12 January 2010 to reflect
hedge effectiveness following
refinancing 18 - (5,054)
Effective portion of changes
in fair value of cash flows hedged
from 12 January 2010 to 30 September
2010 18 - (6,751)
Effective portion of changes
in fair value of cash flows hedged
from 1 October 2010 to 30 September
2011 18 7,933 -
--------------------------------------- ------ ---------- ----------
Other comprehensive loss for
the year, net of tax 7,933 (13,065)
--------------------------------------- ------ ---------- ----------
Total other comprehensive loss
for the year attributable to
owners of the Company (3,774) (13,100)
--------------------------------------- ------ ---------- ----------
All items in the above statement are derived from continuing operations.
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2011
30 Sep 11 30 Sep 10
Notes EUR000 EUR000
Assets
Investment property 12 451,050 515,690
Deferred tax assets 25 4,108 3,589
--------------------------------------- ------- ---------- ----------
Total non-current assets 455,158 519,279
--------------------------------------- ------- ---------- ----------
Trade receivables 15 10,326 10,383
Other current assets 16 7,632 10,514
Cash and cash equivalents 17 43,892 42,420
--------------------------------------- ------- ---------- ----------
Total current assets 61,850 63,317
Total assets 517,008 582,596
--------------------------------------- ------- ---------- ----------
Equity
Share capital 25,998 25,998
Share premium 164,992 164,991
Restricted reserves 120,484 120,477
Retained earnings (181,413) (169,699)
Hedge reserve 1,182 (6,751)
Total equity attributable to
equity holders of the Company 18 131,243 135,016
Liabilities
Interest bearing loans and borrowings 21 295,868 340,614
Preference shares 22 30,333 30,134
Warrants 23 2,258 2,535
Long term provision 24 6,626 6,723
Derivative financial instruments 28.5 20,133 30,520
Deferred tax liabilities 25 8,386 7,832
--------------------------------------- ------- ---------- ----------
Total non-current liabilities 363,604 418,358
--------------------------------------- ------- ---------- ----------
Trade and other payables 1,008 2,472
Income tax and other taxes payable 25 6,594 7,304
--------------------------------------- ------- ---------- ----------
Accrued expenses and other current
liabilities 26 10,269 14,208
Deferred income 15 4,290 5,238
--------------------------------------- ------- ---------- ----------
Total current liabilities 22,161 29,222
Total liabilities 385,765 447,580
--------------------------------------- ------- ---------- ----------
Total equity and liabilities 517,008 582,596
--------------------------------------- ------- ---------- ----------
Net Asset Value per ordinary
share (Euro) 19 0.505 0.519
--------------------------------------- ------- ---------- ----------
Diluted Net Asset Value per ordinary
share (Euro) 19 0.488 0.501
--------------------------------------- ------- ---------- ----------
The financial statements were approved by the Board of Directors on 16 December 2011 and signed on its behalf by:
Tom Chandos Robert DeNormandie
Chairman Chairman of Audit Committee
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2011
Share Share Restricted Retained Hedging Currency Total equity
capital premium reserve earnings reserve translation
reserve
Notes EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Balance as at 30
September
2009 142,829 149,304 (506) (180,086) 5,686 631 117,858
Increase in
capital
contributed 18 14,568 17,977 - - - - 32,545
Decrease in
capital
contributed 18 (131,402) - 118,313 13,089 - - -
Warrants
exercised 23 3 7 - - - - 10
Cost of raising
capital 18 - (2,297) - - - - (2,297)
Recapitalisation
of subsidiaries 18 - - 2,667 (2,667) - - -
Total equity
movement (116,831) 15,687 120,980 10,422 - - 30,258
Total
comprehensive
income/(loss) - - 3 (35) (12,437) (631) (13,100)
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Total
comprehensive
income
for the year (116,831) 15,687 120,983 10,387 (12,437) (631) 17,158
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Balance as at 30
September
2010 25,998 164,991 120,477 (169,699) (6,751) - 135,016
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Warrants
exercised - 1 - - - - 1
Recapitalisation
of subsidiaries - - 7 (7) - - -
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Total equity
movement - 1 7 (7) - - 1
Total
comprehensive
income/(loss) - - - (11,707) 7,933 - (3,774)
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Total
comprehensive
income
for the year - 1 7 (11,714) 7,933 - (3,773)
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
Balance as at 30
September
2011 25,998 164,992 120,484 (181,413) 1,182 - 131,243
------------------ ------ ---------- ------------ ----------- ---------- --------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------------- ----- ------------- -------------
Loss before tax (11,511) (1,112)
Adjustment for:
Net gain on disposal of investment
property 12 (494) (1,077)
Net valuation losses on investment
property 12 16,237 6,145
Net loss/(gain) on financial instruments 28.5 109 (8,058)
Unrealised change in fair value
of warrants 28.5 (261) 650
Interest expense 14 25,136 26,362
Interest received 13 (329) (401)
Amortisation of transaction costs
relating to debt 14 1,672 7,436
Net unrealised foreign currency
losses / gains 14 388 853
Changes in working capital:
Decrease/(increase) in current
assets 2,961 (3,585)
(Decrease)/increase in current
liabilities (5,693) 864
------------------------------------------- ----- ------------- -------------
Cash generated from operations 28,215 28,077
Interest paid 14 (26,032) (26,490)
Interest received 13 173 48
Tax paid 25 (739) (4,887)
------------------------------------------- ----- ------------- -------------
Net Cash flows used in Operating
Activities 1,617 (3,252)
------------------------------------------- ----- ------------- -------------
Investing Activities
Acquisition of property 12 - (11,009)
Capital expenditure 12 (539) (5,483)
Net proceeds from disposal of investment
property 12 49,436 26,962
------------------------------------------- ----- ------------- -------------
Net Cash flows from Investing Activities 48,897 10,470
------------------------------------------- ----- ------------- -------------
Financing Activities
Proceeds from bank loans 21
- Gross proceeds 4,973 5,778
- Gross repayments (50,657) (62,282)
- Transaction costs (228) (1,255)
Swap breakage costs 28.5 (2,563) (2,915)
Gain on forward transaction 13 156 369
Proceeds from exercise of warrants 1 -
Net proceeds from preference shares
issue 22 - 30,250
Net proceeds from capital contributed - 30,258
------------------------------------------- ----- ------------- -------------
Net Cash flows (used in) / from
Financing Activities (48,318) 203
------------------------------------------- ----- ------------- -------------
Effects of changes in exchange
rates (724) 42
------------------------------------------- ----- ------------- -------------
Net increase in cash and cash equivalents
for the year 1,472 7,464
------------------------------------------- ----- ------------- -------------
Opening cash and cash equivalents 42,420 34,956
------------------------------------------- ----- ------------- -------------
Closing cash and cash equivalents 17 43,892 42,420
------------------------------------------- ----- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements
COMPANY INCOME STATEMENT
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
Note EUR000 EUR000
------------------------------------ ------ ---------- ----------
Investment management fees (1,405) (1,098)
Professional fees (312) (512)
Administrative fees 11 (746) (861)
Directors' fees (204) (222)
Other expenses (78) (109)
------------------------------------ ------ ---------- ----------
Total expenses (2,745) (2,802)
------------------------------------ ------ ---------- ----------
Losses before net financing cost
and tax (2,745) (2,802)
------------------------------------ ------ ---------- ----------
Finance income 13 16,946 1,489
Finance expenses 14 (6,054) (7,032)
Net gain on derivative instruments 2,714 8,375
------------------------------------ ------ ---------- ----------
Net finance costs 13,606 2,832
Shares and intercompany loans
impairments 33 (22,558) (123,948)
Loss for the year before tax (11,697) (123,918)
------------------------------------ ------ ---------- ----------
Taxation (10) (119)
Loss for the year (11,707) (124,037)
------------------------------------ ------ ---------- ----------
Basic loss per share (Euro) (0.05) (0.55)
Diluted loss per share (Euro) (0.05) (0.55)
------------------------------------ ------ ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements
COMPANY STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
Notes EUR000 EUR000
------------------------------------- ------ ---------- -----------
Loss for the year (11,707) (124,037)
------------------------------------- ------ ---------- -----------
Other comprehensive income
Fair value of warrants exercised
during the year 23 - 3
Amortisation of hedge reserve
for the period 1 October 2009
to 12 January 2010 18 - (632)
Reversal of hedge reserve balance
as at 12 January 2010 following
refinancing 18 - (5,054)
Effective portion of changes
in fair value of cash flows hedged
of the period/year 18 7,933 (6,751)
------------------------------------- ------ ---------- -----------
Other comprehensive gain/(loss)
for the year 7,933 (12,434)
------------------------------------- ------ ---------- -----------
Total other comprehensive loss
for the year attributable to
owners of the Company (3,774) (136,471)
------------------------------------- ------ ---------- -----------
All items in the above statement are derived from continuing operations.
The accompanying notes are an integral part of these consolidated financial statements
COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 September 2011
30 Sep 11 30 Sep 10
Note EUR000 EUR000
Assets
Investment in subsidiaries - -
Loans to subsidiaries 33 172,727 201,587
Deferred expenses 1,313 2,024
---------------------------------- ------ ---------- ----------
Non-current assets 174,040 203,611
---------------------------------- ------ ---------- ----------
Amounts due from subsidiaries 29,390 14,809
Trade and other receivables 141 307
Cash and cash equivalents 17 15,751 19,560
---------------------------------- ------ ---------- ----------
Current assets 45,282 34,676
---------------------------------- ------ ---------- ----------
Total assets 219,322 238,287
---------------------------------- ------ ---------- ----------
Share capital 25,998 25,998
Share premium 164,992 164,991
Restricted reserve 118,316 118,316
Retained earnings (179,245) (167,538)
Hedge reserve 1,182 (6,751)
---------------------------------- ------ ---------- ----------
Total equity attributable to
equity holders of the Company 18 131,243 135,016
---------------------------------- ------ ---------- ----------
Liabilities
Preference shares 22 30,333 30,134
Warrants 23 2,258 2,535
Loans from subsidiaries 17,350 20,950
Long term provision 24 6,626 6,723
Derivative financial instruments 28 20,133 30,519
---------------------------------- ------ ---------- ----------
Non-current liabilities 76,700 90,861
---------------------------------- ------ ---------- ----------
Loans from subsidiaries 9,456 9,390
Trade and other payables 26 1,923 3,020
---------------------------------- ------ ---------- ----------
Current liabilities 11,379 12,410
---------------------------------- ------ ---------- ----------
Total liabilities 88,079 103,271
---------------------------------- ------ ---------- ----------
Total equity and liabilities 219,322 238,287
---------------------------------- ------ ---------- ----------
Net Asset Value per ordinary
share (Euro) 0.505 0.519
The accompanying notes are an integral part of these consolidated financial statements
COMPANY STATEMENT OF CHANGE IN EQUITY
For the year ended 30 September 2011
Share Share premium Restricted Retained Hedging Total equity
capital reserve earnings reserve
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Balance as at 30 September
2009 142,829 149,304 - (56,590) 5,686 241,229
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Increase in capital contributed 14,568 17,977 - - - 32,545
Decrease in capital contributed (131,402) - 118,313 13,089 - -
Warrants exercised 3 7 - - - 10
Cost of raising capital - (2,297) - - - (2,297)
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total equity movement (116,831) 15,687 118,313 13,089 - 30,258
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Effective portion of changes
in fair value of cash flow
hedges - - - - (12,437) (12,437)
Warrants exercised - - 3 - - 3
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total income and expense recognised
directly in equity - - 3 - (12,437) (12,434)
Loss for the year - - - (124,037) - (124,037)
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total income and expense recognised - - 3 (124,037) (12,437) (136,471)
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Balance as at 30 September
2010 25,998 164,991 118,316 (167,538) (6,751) 135,016
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Warrants exercised - 1 - - - 1
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total equity movement - 1 - - - 1
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Effective portion of changes
in fair value of cash flow
hedges - - - - 7,933 7,933
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total income and expense recognised
directly in equity - - - - 7,933 7,933
Loss for the year - - - (11,707) - (11,707)
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Total income and expense recognised - - - (11,707) 7,933 (3,774)
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
Balance as at 30 September
2011 25,998 164,992 118,316 (179,245) 1,182 131,243
------------------------------------- ---------- -------------- ----------- ----------- ---------- -------------
The accompanying notes are an integral part of these consolidated financial statements
COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 September 2011
30 Sep 11 30 Sep 10
Note EUR000 EUR000
----------------------------------- ------- ------------- -----------
Loss before tax (11,697) (123,918)
Adjustment for:
Shares and intercompany loans
impairments 33 22,558 123,948
Net loss/(gain) on financial
instruments 28.5 109 (8,375)
Unrealised change in fair value
of warrants 28.5 (261) -
Net unrealised foreign currency
gain / (loss) 14 381 1,381
Amortisation of transaction costs
relating to debt 14 1,141 1,941
Interest expense 14 4,532 3,710
Interest received 13 (16,946) (1,489)
Changes in working capital:
Decrease/(increase) in current
assets 167 (1,341)
(Decrease)/increase in current
liabilities (370) 2,975
----------------------------------- ------- ------------- -----------
Cash generated from operations (386) (1,168)
Interest paid (4,576) (2,417)
Interest received 2,471 1,164
Tax paid (750) (378)
----------------------------------- ------- ------------- -----------
Net Cash flows from Operating
Activities (3,241) (2,799)
----------------------------------- ------- ------------- -----------
Investing Activities
Investments in subsidiaries - (20,100)
Increase / (decrease) in loans granted
from subsidiaries 2,466 (32,800)
------------------------------------------- ------- ------------ -----------
Net Cash flows (used in) / from Investing
Activities 2,466 (52,900)
------------------------------------------- ------- ------------ -----------
Financing Activities
Increase / (decrease) in loans granted
to subsidiaries - 11,100
Swap breakage 28.5 (2,563) (1,949)
Loan transaction costs 96 -
Gain on forward transaction 13 156 369
Proceeds from exercise of warrants 1 -
Net proceeds from preference share
issue 22 - 30,250
Net proceeds from capital contributed - 30,258
------------------------------------------- ------- ------------ -----------
Net Cash flows (used in) / from Financing
Activities (2,310) 70,028
------------------------------------------- ------- ------------ -----------
Effects of changes in exchange rates (724) 25
Net increase in cash and cash equivalents
for the year (3,809) 14,354
------------------------------------------------ ------------ -----------
Opening cash and cash equivalents 19,560 5,206
Closing cash and cash equivalents 17 15,751 19,560
------------------------------------------- ------- ------------ -----------
The accompanying notes are an integral part of these consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Reporting entity
Invista European Real Estate Trust SICAF ("the Company") was incorporated as a "societe anonyme" under the laws of Luxembourg on 6 June 2005. On 17 November 2006 the Company was converted into an investment company with fixed capital "societe d'investissement a capital fixe" ("SICAF"). Through its subsidiaries (together "the Group") its main activity is to evaluate, make and actively manage direct and indirect investments in real estate in Continental European countries.
The Company is a public limited liability company incorporated for an unlimited term. The address of the registered office of the Company is 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 be deemed to represent statutory annual accounts, which are separately prepared in accordance with International Financial Reporting Standard (IFRS) as adopted by the European Union (EU).
2. Basis of preparation 2.1 Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) as issued by the International Accounting Standard Board (IASB), and adopted by the European Union (EU).
These consolidated financial statements are presented for the year ended 30 September 2011, with comparative figures for the year ended 30 September 2010.
The Company's financial statements and the consolidated financial statements have been approved for issue by the Board of Directors on 16 December 2011.
2.2 Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the Company's presentational and functional currency. All financial information presented in Euro has been rounded to the nearest thousand.
2.3 Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the investment properties, warrants and derivative financial instruments that have been measured at fair value.
The consolidated financial statements and the Company financial statements are prepared on a going concern basis.
2.4 Use of estimates and judgements
The preparation of the financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
2.4 Use of estimates and judgements (continued)
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 4.
2.5 Changes in accounting policy and disclosures (a) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.
IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.
The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed.
IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (revised) has had no impact on the current period, as none of the non-controlling interests have a deficit balance; there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests.
(b) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the group (although they may affect the accounting for future transactions and events)
The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early adopted them.
IFRIC 17, 'Distribution of non-cash assets to owners' (effective on or after 1 July 2009): The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.
2.5 Changes in accounting policy and disclosures (continued)
IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both).
IFRIC 9, 'Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement', effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the 'fair value through profit or loss' category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety.
IFRIC 16, 'Hedges of a net investment in a foreign operation' effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the Group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the Group should clearly document its hedging strategy because of the possibility of different designations at different levels of the Group. IAS 38 (amendment), 'Intangible assets', effective 1 January 2010. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives.
IAS 1 (amendment), 'Presentation of financial statements': The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.
IAS 36 (amendment), 'Impairment of assets', effective 1 January 2010: The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ' Operating segments' (that is, before the aggregation of segments with similar economic characteristics).
IFRS 2 (amendments), 'Group cash-settled share-based payment transactions': effective form 1 January 2010. In addition to incorporating IFRIC 8, 'Scope of IFRS 2', and IFRIC 11, 'IFRS 2 - Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation.
IFRS 5 (amendment), 'Non-current assets held for sale and discontinued operations': The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.
2.5 Changes in accounting policy and disclosures (continued)
(c) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2010 and not early adopted.
The Group's and the Company's assessment of the impact of these new standards and interpretations is set out below.
IFRS 9, 'Financial instruments', issued in November 2009. This standard is the first step in the process to replace IAS 39, "Financial instruments: recognition and measurement". IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Group's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU.
The Group is yet to assess IFRS 9's full impact. However, initial indications are that it may affect the group's accounting for its available-for-sale debt financed assets, as IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss.
Revised IAS 24 (revised), 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. However, the standard has not yet been endorsed by the EU.
The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Group will apply the revised standard beginning 1 October 2011. When the revised standard is applied, the group and the Company will need to disclose any transactions between its subsidiaries and its associates. The Group is currently putting systems in place to capture the necessary information. It is, therefore, not possible at this stage to disclose the impact, if any, of the revised standard on the related party disclosures.
'Classification of rights issues' (amendment to IAS 32), issued in October 2009: The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors'. The Group will apply the amended standard beginning 1 October 2011.
IFRIC 19, 'Extinguishing financial liabilities with equity instruments', effective 1 July 2010. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The Group will apply the interpretation beginning 1 October 2011, subject to endorsement by the EU. It is not expected to have any impact on the Group or the parent entity's financial statements.
2.5 Changes in accounting policy and disclosures (continued)
'Prepayments of a minimum funding requirement' (amendments to IFRIC 14): The amendments correct an unintended consequence of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The Group will apply these amendments for the financial reporting period commencing on 1 October 2011.
On 20 December 2010, the IASB issued amendments to IAS 12, 'Income Taxes', effective from 1 January 2012. IAS 12 requires that deferred tax relating to an asset is measured depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment provides guidance by introducing a presumption that recovery of the carrying amount will, normally, be through sale. However, the standard has not yet been endorsed by the EU.
On 12 May 2011, the following standards were published, applicable to accounting periods beginning on, or after 1 January 2013:
IFRS 10, 'Consolidated financial statements'
IFRS 11, 'Joint arrangements'
IFRS 12, 'Disclosure of interests in other entities'
IFRS 13, 'Fair value measurement'
The Group is currently assessing the impact of the new and revised IFRS standards as adopted by the EU.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all the periods presented in these consolidated financial statements, and have been applied consistently by Group entities except as explained in Note 2.5, which addresses changes in accounting policies.
3.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 September each year. Subsidiaries are those entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date control ceases.
The Group's acquisitions of subsidiaries are primarily accounted for as acquisitions of assets as the subsidiaries are special purpose vehicles established for the sole purpose of owning property. The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
The assets and liabilities of the subsidiaries and their results are fully reflected in the consolidated financial statements. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have also been changed where necessary to ensure consistency with new or revised accounting policies adopted by the Group.
3. Significant accounting policies (continued) 3.2 Related parties
Related parties are defined as parties either directly or indirectly controlled, managed or owned by Invista European Real Estate Trust SICAF. A list of related party transactions is disclosed in Note 27.
3.3 Foreign currency translation
The functional currency of a subsidiary is determined as the principal currency in which the entity's assets, liabilities, income and expenses are denominated.
Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the acquired company and are recorded at the exchange rate at the date of the transaction.
Transactions in currencies other than the presentational currency of the group are recorded at the rate in effect at the date of transaction. Monetary assets and liabilities denominated in such currencies are translated at the date of exchange ruling at the balance date sheet date. All differences are recognized in the Consolidated Income Statement under 'finance income" or "finance expense" (see Notes 13 and 14). The cumulative effect of exchange differences on cash transactions are classified as realised gains and losses in the Consolidated Income Statement in the period in which they are settled. Exchange differences on transactions not yet settled in cash are classified as unrealised gains and losses under "finance expense".
3.4 Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes. Investment property comprises freehold land, freehold buildings and land held under operating leases.
Investment property is initially recognised on completion of contracts at cost, including related transaction and borrowing costs associated with the investment property. Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property are capitalised as part of its costs. Borrowing costs are capitalised while acquisition or construction is actively underway and cease once the asset is substantially completed, or suspended if the development of the asset is suspended.
Where unconditional commitments have been entered into prior to the Balance Sheet date property acquisitions are recognised at their contractual value. After initial recognition, investment properties are measured at fair value as determined by third party independent appraisers. The gains or losses arising from a change in the fair value of the investment property are included in the Consolidated Income Statement under the heading "net valuation gains / (losses) on investment property" in the period in which they arise. Depreciation is not provided on investment properties. Realised gains and losses on the disposal of investment properties are determined as the difference between the disposal proceeds and the carrying value and are included in the Consolidated Income Statement in the period in which they arise.
A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn income or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. This accounting policy is also applied for assets held for sale.
3.5 Investment in subsidiaries (Company only)
Investments in subsidiaries are held at cost less any impairment.
3. Significant accounting policies (continued) 3.6 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 cost, less any impairment losses.
3.7 Financial instruments
Financial assets: Initial recognition
The Company determines the classification of its financial assets at initial recognition. The Company's financial assets include cash and short term deposits, trade and other receivables and financial instruments.
Available-for-sale
After initial measurement, available-for-sale financial assets are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is (i) derecognised, at which time the cumulative gain or loss recorded in equity is recognised in Other Comprehensive Income, or (ii) determined to be impaired, at which time the cumulative loss is recognised in Other Comprehensive Income.
Financial liabilities: Initial recognition
Financial liabilities within the scope of IAS 39 are classified as either financial liability at fair value through profit and loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.
The Company's financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.
The subsequent measurement of financial liabilities depends on their classification:
- Financial liability at fair value recognised through profit and loss
Financial liability at fair value recognised through profit and loss includes financial liabilities held for trading and financial liabilities designated upon the initial recognition at fair value through profit and loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative instruments entered into by the Company that do not meet hedging accounting criteria as defined by IAS 39. Gains and losses on liabilities held for trading are recognised in the Consolidated Income Statement;
- Fair value of financial instruments
The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include recent arm's length market transactions; reference to the current fair value of another instrument that has substantially the same discounted cash flow analysis or other valuation methods;
- Amortised cost of financial instruments
Amortised cost is computed using the effective interest rate method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
3. Significant accounting policies (continued) 3.8 Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities (refer to Note 28). On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedge relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be "highly effective" in offsetting the changes in the fair value of cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent.
Derivatives are initially recognised at fair value with related transaction costs recognised in the Consolidated Income Statement when incurred. Subsequent to initial recognition, derivative financial instruments are measured and stated at fair value on the date on which the derivative contract is entered into and are subsequently revised to reflect their fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge are taken directly to the Consolidated Income Statement. The effectiveness of the hedge is assessed by comparing the value of the hedged item with the notional value implicit in the contractual terms of the financial instrument being used in the hedge. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.
For the purpose of hedge accounting, hedges are classified as either fair value hedges, when they hedge the exposure to changes in the fair value of a recognised asset and liability, or cash flow hedges where they hedge exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the Consolidated Income Statement. Amounts taken to equity are transferred to the Consolidated Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when the related sale occurs.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the Consolidated Income Statement in the same period that the hedged item affects profit or loss.
Prior to the renegotiation of the debt and the interest rate hedging concluded on 12 January 2010, the interest rate swap hedging was not fully effective, and the changes of the fair value were recognised in the Consolidated Income Statement. Subsequent to the renegotiation of the debt due to the matching duration of hedge contracts and debt, the hedging contracts are considered to be effective and the changes of fair value are recognized in the Consolidated Income Statement and Changes in Equity.
3. Significant accounting policies (continued) 3.9 Impairment
Financial assets (including receivables)
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. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the Consolidated Income Statement.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Non Financial assets
The carrying amounts of the Company's non financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates continuing cash flows that are largely independent of the cash flows of other assets or groups of assets (the "cash-generating unit").
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the Consolidated Income Statement.
3.10 Derecognition of financial instrument
Financial assets
A financial asset is derecognised when:
- The rights to receive cash flows from the asset have expired;
- The Company has transferred its rights to receive cash flows or transferred substantially all the risks and rewards and/or has neither transferred nor substantially retained all the risks and rewards of the asset, but has transferred control of the asset;
- If the hedging instrument no longer meets the criteria for hedge accounting then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the related transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the Consolidated Income Statement in the same period as the hedged item affects profit or loss.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a reversal of the original liability and the recognition of a new liability and the difference in the respective carrying amount is recognised in the Consolidated Income Statement.
3. Significant accounting policies (continued) 3.11 Trade receivables
Trade receivables are carried at amortised cost less provision for doubtful debts, if any. The Directors' of the Company assess specific provisions (refer to Note 28) on a customer by customer basis throughout the period.
3.12 Current assets and liabilities
Due to the short time frame in which these transactions are settled, the fair value of other current assets and liabilities due within one year approximates the carrying value disclosed in the consolidated financial statements.
3.13 Non current assets held for sale
Investment property is transferred to non-current assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property and its sale must be highly probable. On reclassification, investment property that is measured at fair value continues to be so measured.
3.14 Cash and cash equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and are subject to an insignificant risk of change in value. The use and disbursement of certain cash deposits are restricted under the terms of various financing agreements. Bank overdrafts that are repayable on demand and that form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash Flows.
3.15 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.
3.16 Issue costs
The cost of raising capital represents direct costs incurred in establishing or increasing the capital of the Company including, amongst others, legal, accounting, financial advisory and equity underwriting fees.
3.17 Preference shares
Preference shares are classified as a financial liability due to the contractual obligation by the issuer to redeem them in cash at a date in the future.
Where the preference shares are classified as a financial liability, external costs directly attributable to issuance of the preference shares are capitalised and amortised over the life of the preference shares.
3. Significant accounting policies (continued) 3.18 Warrants
Preference shares and their related warrants are considered as two separate instruments due to the fact they are detachable and traded separately on the London Stock market. The warrants are considered as a financial derivative liability at fair value through profit and loss. Their recognition as a financial liability is due to the fact the strike price for the warrants is GBP0.29, a different currency (Sterling) than the functional currency of the Fund (Euro) as well as the fact the warrants were not issued on a pro rata basis to the existing shareholders.
3.19 Interest bearing debt
Debt, comprising secured and unsecured bank loans, is reflected in the Consolidated Statement of Financial Position at the fair value of the initial proceeds less the unamortised portion of discounts and transaction costs incurred to acquire the debt. Discounts and transactions costs are amortised over the life of the related debt through finance expenses using the effective interest rate method.
Transaction costs include fees and commission paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include internal administrative or holding costs.
3.20 Taxation and deferred taxation
According to the Luxembourg regulations concerning SICAF companies, the Company is not subject to income taxes in Luxembourg. It is, however, liable to an annual subscription tax of 0.05% (taxe d'abonnement) of its total net assets, payable quarterly, and assessed on the last day of each quarter. Real estate revenues, or capital gains derived thereon, may be subject to taxes by assessment, withholding or otherwise in the countries where the real estate is situated.
The subsidiaries of the Group are subject to taxation in the countries in which they operate. Current taxation is provided for at the current applicable rates on the respective taxable profits.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination which at the time of the transaction affects neither accounting nor taxable profit nor loss. The aggregate amount of such deferred income tax is disclosed as unrecognised deferred income tax (note 25). Deferred income tax is determined with regard to tax laws and rates that have been enacted or substantially enacted into law by the 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 is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilised. Unrecognised deferred tax assets are re-assessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.
3. Significant accounting policies (continued)
Deferred tax assets and deferred tax liabilities are offset, if (i) a legally enforceable right exists to set off current tax assets against current tax liabilities, if (ii) the deferred taxes relate to the same taxable entity and the same taxation authority and if (iii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
3.21 Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
3.22 Deferred income
Deferred income represents rental income which has been billed to customers at the balance sheet date, but which relates to future periods.
3.23 Rental income
Rental income from investment properties is accounted for on a straight-line basis taking account of any rent free periods and other lease incentives, net of any sales taxes, over the term of the ongoing leases.
3.24 Finance income and expenses
Finance income comprises interest income on funds invested and gains on hedging instruments that are recognised in the Consolidated Income Statement. Interest income is recognised using the effective interest rate method.
Finance expenses comprise interest expense on borrowings, amortisation of debt transaction costs and losses on hedging instruments that are recognised in the Consolidated Income Statement.
Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through the Consolidated Income Statement. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in the Consolidated Income Statement using the effective interest rate.
Finance expenses include the effect of unrealised foreign currency gains and losses on monetary assets and liabilities arising in the period plus the effect of the realised foreign currency gains and losses on cash transactions completed during the period.
3.25 Operating Expenses
All expenses are accounted for on an accruals basis. The Group's investment management and administration fees and all other expenses are charged to the Consolidated Income Statement.
3.26 Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants.
3. Significant accounting policies (continued) 3.27 Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly to make decisions about resources to be allocated to the segment and to assess their performance (see Note 29).
3.28 Subsequent events
Post balance sheet date adjustments are disclosed in the notes to the consolidated financial statements when significant.
3.29 Contingencies
Contingent liabilities are not recognised in the consolidated financial statements, unless there is a probable chance of an outflow for which a provision is made. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.
A contingent asset is not recognised in the consolidated financial statement but disclosed when an inflow of economic benefits is probable.
4. Significant accounting estimates and judgements
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements is included in:
Investment property
Fair value is based on the open market valuations of the properties as provided by an independent expert, 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. The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. These estimates are based on local market conditions existing at the reporting date. The experts also used their market knowledge and professional judgment and did not rely solely on historical transactional comparables.
4. Significant accounting estimates and judgements (continued)
Valuations typically reflect all the market and operational risks as described in Note 28.1 It should be noted that the valuation of property and property related assets is inherently subjective due to the nature of each property and the characteristics of local, regional and national real estate markets which change over time. The current economic climate and volatility in the global capital markets creates additional uncertainty and there can therefore be no assurance valuations of the Company's assets will reflect actual sale prices even where such sales occur shortly after the valuation date.
Income and deferred taxes
The Company is subject to income and capital gain taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. The Company recognises liabilities for anticipated taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provision in the period in which the determination is made.
Derivative financial instruments
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.
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. The Company estimates fair value of derivatives by reference to current market conditions compared to the terms of the derivatives agreement using the result of an external appraiser. Refer to Note 28 for the related balances.
Classification of preference shares and the warrants
Judgement is required to determine whether preference shares should be classified as financial liability or equity in accordance with IAS 32 Financial instruments: Presentation. Based on the terms and conditions of the preference shares issued in December 2009 the Company has determined that the preference shares have the characteristics of a financial liability rather than equity. This was primarily based on the fact that the preference shares and the warrants are denominated in sterling whereas the functional currency used by the Company is the Euro. In addition, the preference shares have a right to receive a dividend and are redeemable.
5. Capital Management
The primary objective of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintain a strong credit rating. No changes were made in the objectives, policies or processes during the years ending 30 September 2011 and 30 September 2010. The Group monitors capital primarily using a Loan to Value ratio (LTV), which is calculated as the amount of outstanding debt divided by the valuation of the investment property portfolio. The Group's policy is to keep the average LTV ratio of the Group lower than the LTV requirements in the banking covenants.
The banking covenants require the Group to have a LTV ratio of 85% 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.
During the period the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreement.
For the financial year ended 30 September 2011, the LTV ratio disclosed to the lender was 66.07% (2010: 67.9%)
6. Rental income
The Group leases out its investment properties under operating leases. The future minimum lease receipts under non-cancellable leases are as follows:
30 Sep 11 30 Sep 10
EUR000 EUR000
Less than one year 33,355 40,598
Between one and five years 107,091 104,511
More than five years 42,424 40,777
---------------------------- ---------- ----------
Total 182,870 185,886
---------------------------- ---------- ----------
The Investment Manager's Report referred to in this document provides additional information regarding contingent rent recognised and leasing arrangements. For the year ended 30 September 2011, EUR40.8 million was recognised as rental income in the Consolidated Income Statement (2010: EUR41.9 million).
7. Property operating expenses
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------ ---------- ----------
Insurance 129 183
Property management fees 497 494
Property service charges 551 736
Property maintenance 520 249
Property tax 671 367
Other miscellaneous expenses 592 259
------------------------------ ---------- ----------
Total 2,960 2,288
------------------------------ ---------- ----------
Property operating expenses incurred during the year were attributed to:
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------- ----------------- -----------------
Income-generating property 2,501 1,469
Vacant property 459 819
------------------------------- ----------------- -----------------
Total 2,960 2,288
------------------------------- ----------------- -----------------
8. Other income
30 Sep 11 30 Sep 10
EUR000 EUR000
----------------------------- ---------- ----------
Other property income 398 -
Proceeds from insurance - 83
Adjustments and reversal of
accruals - 152
Refund of VAT 359 -
Total 757 235
----------------------------- ---------- ----------
9. Investment management and performance fees
Invista Real Estate Investment Management Limited (Invista REIM) as the investment manager during the financial year reported on was entitled to a base fee and a performance fee together with reimbursement of 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 prorated 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% of the Net Asset Value of the Company per annum (subject to a minimum threshold of GBP3 million per annum); and
-- A percentage equivalent of the Net Asset Value of the Company per annum which represents 0.95% of the Adjusted Gross Assets of the Company per annum.
In addition, and subject to the conditions below, the Investment Manager was 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 was met, a performance fee would be payable in an amount equal to 15.0% of any aggregate total return over and above the performance hurdle. The performance hurdle was calculated on a three year rolling basis.
9. Investment management and performance fees (continued)
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.
On 22 September 2011, the Board of Directors appointed Internos Real Limited (Internos) as their new investment manager, which took effect upon the final termination of the existing investment management agreement with Invista REIM on 14 December 2011. Under the new management agreement with Internos, the Company will pay a management fee of 1.25% per annum on the Net Asset Value attributable to the Company's shareholders, subject to a minimum of EUR1.0 million per annum. Additionally, the Company will pay Internos a realisation fee equal to 12.5% of the amount by which cash returned to ordinary shareholders exceeds EUR82.8 million, compounded at 10% per annum.
In addition to the above, the Company has also agreed to pay Internos a retention fee of EUR75,000 per month between 1 August 2011 and the date on which Internos assumes responsibility for the day to day management of the Company, in consideration for certain transitional services to be provided by Internos during this period.
The Company will also pay Internos a fee of GBP60,000 in connection with the transition of the entire Invista REIM Paris team.
10. Professional fees and other expenses
The professional fee for audit services for the year ended 30 September 2011 amounted to EUR0.4 million (2010: EUR0.5 million). In 2011 the non-recurring remuneration to the auditors for services other than audit was EUR0.2 million (2010: EUR0.2 million).
Other expenses include the write off of non-recoverable VAT of EUR0.1 million (2010: EUR0.3 million), recoverable service charges of nil (2010: EUR0.4 million) and abortive transaction costs of EUR0.4 million (2010: nil).
11. Administration fees
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------- ----------- -----------
Group
Accounting and administrative
fees 1,323 1,364
Investment property valuation
fees 257 293
Custodian, registrar and other
fees 406 679
-------------------------------- ----------- -----------
Total 1,986 2,336
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------- ---------- ----------
Company
Accounting and administrative
fees 387 389
Registrar and other fees 253 367
Custodian fees 106 105
------------------------------- ---------- ----------
Total 746 861
12. Investment properties
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------------- ---------- ----------
Historic cost
Cost, beginning of the period 664,586 657,759
Acquisition of properties - 11,009
Capital expenditure 539 3,830
Disposals (44,933) (8,012)
------------------------------------------- ---------- ----------
Cost, end of the period 620,192 664,586
------------------------------------------- ---------- ----------
Net unrealised losses related to property
Net unrealised losses, beginning of
the period (148,896) (140,278)
Valuation gains on investment property
during the period 1,831 13,860
Valuation losses on investment property
during the period (18,068) (20,005)
Reversal of accumulated valuation
of disposal (4,009) (2,473)
------------------------------------------- ---------- ----------
Net unrealised losses, end of the
period (169,142) (148,896)
------------------------------------------- ---------- ----------
Fair value, end of the period 451,050 515,690
------------------------------------------- ---------- ----------
Appraised property value subject to
loan security 297,977 343,661
------------------------------------------- ---------- ----------
The fair value of completed investment property has been determined on a market value basis in accordance with the appropriate sections of the current Practice Statements, and United Kingdom Practice Statements contained within the RICS Valuation Standards. The valuation is prepared on an aggregated ungeared basis. As set out in Note 4, in arriving at their estimates of market values, the experts have used their market knowledge and professional judgment and not only relied on historical transactional comparables.
The valuations were performed by DTZ Debenham Tie Leung, an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued.
The net change in the value of the investment property also includes the valuation of assets sold:
30 Sep 11 30 Sep 10
EUR000 EUR000
---------------------------------------- ---------- ----------
Net proceeds (*) from disposal
of investment property 49,436 26,962
Carrying value of investment disposals (48,942) (25,885)
---------------------------------------- ---------- ----------
Net gain on disposal of investment
property 494 1,077
---------------------------------------- ---------- ----------
(*) Includes sale costs
On 10 November 2010, Fova S.a r.l. sold its warehouse property located in Entraigues sur la Sorgue, France for a price of EUR490,000 which enabled the repayment of bank debt of EUR0.3 million.
On 22 June 2011, the Company completed the sale of a warehouse property in Grodzisk, Poland for a price of EUR7 million, which enabled the repayment of bank debt of EUR5.5 million.
On 27 May 2011, the Company completed the sale of a warehouse in Fos Distriport, France for a price of EUR15.5 million, which enabled the repayment of bank debt of EUR13.8 million.
12. Investment properties (continued)
On 25 July 2011, SAS Trappes sold its warehouse property located in Trappes, Paris for a price of EUR20.7 million, which enabled the repayment of EUR9.5 million of bank debt from Credit Foncier de France and EUR 10.6 million from Bank of Scotland.
On 1 August 2011, Anjolyas S. a r.l. sold its warehouse property located in Vitrolles, near Marseille, France for a price of EUR6.55 million which enabled the repayment of bank debt of EUR5.4 million.
13. Finance income
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------- ----------- -----------
Group
Finance income: movements
Interest receivable brought forward - (16)
Interest receivable carried forward - -
Interest received 329 417
-------------------------------------- ----------- -----------
Interest income 329 401
Realised foreign currency gain
on monetary transactions 346 -
-------------------------------------- ----------- -----------
Total finance income 675 401
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------- ----------- -----------
Group
Interest income: breakdown
Interest income on bank deposits 173 25
Interest income swaps - 7
Realised gain on forward transaction 156 369
-------------------------------------- ----------- -----------
Total finance income 329 401
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------- ---------- ----------
Company
Interest income on intra-group
loans 16,388 1,110
Interest income on bank deposits 50 10
Realised foreign currency gain
on monetary transactions 352 -
Realised gain on forward transaction 156 369
-------------------------------------- ---------- ----------
Total finance income 16,946 1,489
14. Finance expense
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------------- ---------- ----------
Group
Finance expense: movements
Interest payable brought forward 5,169 5,297
Interest payable carried forward (4,273) (5,169)
Interest paid (26,032) (26,490)
-------------------------------------------- ---------- ----------
Interest expense (25,136) (26,362)
Amortisation of transaction costs
relating to debt (1,672) (7,436)
Other net unrealised foreign currency
effect on monetary assets and liabilities (731) 553
Unrealised foreign currency loss
on preference shares and warrants 343 (1,406)
-------------------------------------------- ---------- ----------
Total finance expense (27,196) (34,651)
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------- ---------- ----------
Group
Interest expense: breakdown
Interest expense on bank loans (12,585) (12,072)
Interest expense swaps (9,608) (12,059)
Interest on preferred shares (2,943) (2,231)
-------------------------------- ---------- ----------
Total interest expense (25,136) (26,362)
Amortisation of transaction costs incurred in relation to the refinancing of the bank loans and preference shares are disclosed respectively in Notes 21 and 22. Such costs are capitalised and amortised to the maturity date of the bank loans and preference shares.
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------------- ---------- ----------
Company
Interest on intra-group loans (1,307) -
Interest expense on bank loans - (814)
Interest expense swaps (282) (665)
Interest on preferred shares (2,943) (2,231)
Amortisation of transaction costs
relating to debt (1,141) (1,941)
Other net unrealised foreign currency
effect on monetary assets and liabilities (724) 25
Unrealised foreign currency loss
on preference shares and warrants 343 (1,406)
-------------------------------------------- ---------- ----------
Total finance expense (6,054) (7,032)
15. Trade receivables
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------- ---------- ----------
Rent receivable 10,878 10,723
Bad debt provision (552) (340)
-------------------- ---------- ----------
Total 10,326 10,383
The level of accounts receivable from tenants varies due to the timing of the invoices issued and receipt of cash. Of the EUR10.3 million (2010: EUR10.4 million) rent receivable included in the table above, EUR4.3 million (2010: EUR5.2 million) relate to the period after 30 September 2011 (see deferred income in the Consolidated Statement of Financial Position).
Trade and other receivables are analysed as follows:
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------ ----------- -----------
Not past due 4,846 6,021
Past due from 30 to 120 days 1,097 620
Past due from 120 days to one year 2,501 1,744
More than one year 2,434 2,338
------------------------------------ ----------- -----------
Total 10,878 10,723
As at 30 September 2011, the past due rent receivables includes EUR6.1 million (2010: EUR4.2 million) in relation to the Montowest property (refer to Note 31 for further details).
Movements on bad debt provision are set out below:
30 Sep 11 30 Sep 10
EUR000 EUR000
----------------------------------- ---------- ----------
As at 1 October (340) (115)
Bad debt provision for the period (212) (309)
Bad debts written off - 84
----------------------------------- ---------- ----------
As at 30 September (552) (340)
16. Other current assets
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------- ---------- ----------
Tax receivable 4,926 4,771
Prepayments 851 1,289
Other receivables 757 1,658
Service charge advances 1,098 2,796
------------------------- ---------- ----------
Total 7,632 10,514
17. Cash and cash equivalents
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------- ----------- -----------
Group
Bank balances 27,377 32,169
Bank deposits 12,956 6,679
Restricted bank balances 3,559 3,572
-------------------------- ----------- -----------
Total 43,892 42,420
The bank balances mentioned above at the Group level includes a non restricted amount of tenant deposits, held in a separate account, of EUR4.2 million (2010: EUR4.5 million). The Group has EUR3.6 million held in escrow account (2010: EUR3.6 million) which is not available for current use. As at 30 September 2011, EUR1.3 million (2010: EUR1.3 million) of this escrow amount relates to a warranty issued in relation to the disposal of the Villeurbanne and Ecully assets in France which expires on 31 January 2012. The remaining amount of EUR2.3 million (2010: EUR2.3 million) is a deposit required by Bank of Scotland with regards to the forward exchange contract (refer to Note 28.5) to hedge the dividend payment of preference shares (refer to Note 26) until 24 May 2013.
As at the balance sheet date, an amount of EUR36.0 million (2010: EUR40.4 million) has been pledged in favour of Bank of Scotland under the terms of various agreements. These relate 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.
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------- ---------- ----------
Company
Bank balances 500 10,559
Bank deposits 12,953 6,679
Restricted bank balances 2,298 2,322
-------------------------- ---------- ----------
Total 15,751 19,560
The Company has EUR2.3 million (2010: EUR2.3 million) held in an escrow account in respect of a deposit required by Bank of Scotland which is not available for use until 24 May 2013.
18. Issued capital and reserves
Group & Company Number of ordinary Number of warrants
shares
---------------------------------- ------------------- -------------------
In issue at 1 October 2008 114,263,275 -
In issue at 30 September 2009 114,263,275 -
Issued for cash 145,685,674 -
Issuance of warrants - 29,137,134
Exercise of warrants 27,994 (27,994)
---------------------------------- ------------------- -------------------
In issue as at 30 September 2010 259,976,943 29,109,140
---------------------------------- ------------------- -------------------
Exercise of warrants 3,796 (3,796)
---------------------------------- ------------------- -------------------
In issue as at 30 September 2011 259,980,739 29,105,344
---------------------------------- ------------------- -------------------
18. Issued capital and reserves (continued)
Issuance of ordinary shares
The Company has an issued share capital of EUR25,998,074(1) (2010: EUR25,997,694) consisting of 259,980,739 shares (2010: 259,976,943 shares) without indication of nominal value all of which have been fully paid up.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company's residual assets.
On 29 December 2009 the Company reduced its share capital from EUR142,829,093 to EUR11,426,327 through the creation of a non distributable reserve of EUR118,313,496 and by offsetting cumulative prior year losses of EUR13,089,270.
On 30 December 2009 the Company increased its share capital by an amount of EUR32,546,179 through issuance of 145,685,674 new ordinary shares totalling EUR14,568,567 together with share premium of EUR17,977,612. Issuance costs attributed to the increase in the capital contribution amounted to EUR2,296,512 which has been deducted from the capital proceeds.
Restricted reserve
The non-distributable reserve of EUR120,483,765 (2010: EUR120,476,507) can be used to absorb losses incurred or to increase Company's share capital. 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.
The part of the loan conversion to equity (intra-group loan) used to recapitalise French entities (Invista European RE Montbonnot Holdco 2 S.ar.l. and Invista European RE Delta Propco 2 S.ar.l.) have, according to the local jurisdiction, to be recognised as a restricted reserve.
Authorised capital
The Company has an authorised capital of EUR920,980,852 represented by 9,209,808,522 ordinary shares without indication of nominal value.
Hedge reserve
The hedging reserve relates to the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet transpired. On 28 November 2008, the Company finalised an agreement with the Bank of Scotland to extend its existing debt facility for an additional 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 treatment was discontinued, effective 1 October 2008, since the derivative financial instruments no longer met the IFRS accounting criteria for an effective hedge.
(1) Preference shares for Luxembourg company law purpose are treated as equity instruments (part of the share capital) whereas for IFRS purposes they are considered as a financial liability.
18. Issued capital and reserves (continued)
As a result, subsequent movements in the valuation of the derivative financial instruments were reflected in the income statement. The related reserve of EUR9.0m which had been reflected as at 30 September 2008 was to be amortised to the Consolidated Income Statement over the life of the credit facility through 12 January 2010. On 12 January 2010 the Company extended the loan facility to 31 December 2013 bringing the maturity date in line with the swap agreements. Consequently, the swaps once again qualified as effective cash flow hedges and the remaining unamortized hedging reserve was fully reversed in the Consolidated Income Statement. For the year ended 30 September 2011, changes in the fair value of the swaps deemed to be effective in Other Comprehensive Income.
Hedge reserve
30 Sep 11 30 Sep 10
EUR000 EUR000
--------------------------------------- ---------- ----------
Group & Company
Balance, beginning of the period (6,751) 5,686
Amortisation of hedge reserve from
the period 1 October 2009 to 12
January 2010 - (632)
Reversal of hedge reserve balance
as at 12 January 2010 following
refinancing - (5,054)
Effective portion of changes in
fair value of cash flows hedged
from 12 January 2010 to 30 September
2010 - (6,751)
Effective portion of changes in
fair value of cash flows hedged
from 1 October 2010 to 30 September 7,933 -
2011
--------------------------------------- ---------- ----------
Balance, end of the period 1,182 (6,751)
Voting rights
There are no restrictions on the voting rights attached to the ordinary shares. The preference shares will not have the right to vote except in circumstances set out in the articles 44 to 46 (1) of the Company Act. In addition, holders of Preference Shares will have the right to vote in the same manner as other Shareholders at all meetings, if, despite the existence of profits available for that purpose, the Preference Dividends at the Preference Dividend Sterling Equivalent are not paid in their entirely period of one financial year and until Preference Dividends at the Preference Dividend Sterling Equivalent have been received in full. Warrants do not carry any voting rights. Voting rights to each share and procedures relating thereto are described in articles 7, 8 and 26 of the Articles of the Company.
Shareholder's agreements
The Company is not aware of any shareholder agreement which could result in restrictions on the transfer of securities or voting rights within the meaning of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the "Transparency Directive").
Shares and warrant transferability
Shares of the Company (i.e., Ordinary shares and Preference Shares, as such terms are defined in the Articles) are freely transferable subject to articles 10 of the Articles. Warrants issued by the Company are freely transferable subject to provisions laid down in Part IV, section 5 of the Prospectus.
Special Control rights
No shareholder is vested with special control rights with regard to control of the Company.
19. Net asset value per ordinary share
The net asset value per ordinary share is based on net assets of EUR131 million at 30 September 2011 (2010: EUR135 million) and 260 million ordinary shares outstanding at 30 September 2011 (2010: 260 million).
As at 30 Sep 11 As at 30 Sep
EUR000 10
EUR000
----------------------------------- ---- ---------------- ---------------
Net asset value 131,243 135,016
Assuming exercise of all dilutive
potential ordinary shares
Listed warrants(1,2) 9,699 9,801
----------------------------------------- ---------------- ---------------
Fully diluted net asset value 140,942 144,817
----------------------------------------- ---------------- ---------------
Number Number
Number of ordinary shares 259,980,739 259,976,943
Number of warrants 29,105,344 29,109,140
----------------------------------------- ---------------- ---------------
Fully diluted ordinary share
capital 289,086,083 289,086,083
----------------------------------------- ---------------- ---------------
Net asset value per ordinary
share EUR0.505 EUR0.519
Diluted net asset value per
ordinary share EUR0.488 EUR0.501
----------------------------------------- ---------------- ---------------
(1) EUR::GBP exchange rate 1.1492 as at 30 September 2011 (2010: 1.1610)
(2) Exercise price of warrants of GBP0.29 20. Earning per share
The calculation of the basic earnings per share for the financial year ended 30 September 2011 is based on the loss attributable to ordinary shareholders of EUR11.707 million (2010: loss of EUR0.035 million), and the weighted average number of ordinary shares outstanding during the year ended 30 September 2011.
The calculation of diluted earnings per share at 30 September 2011 is based on a diluted loss attributable to ordinary shareholders of EUR11.707 million (2010: loss of EUR0.035 million), and a weighted average number of ordinary shares outstanding during the year ended 30 September 2011 after the adjustment for the effect of all dilutive potential ordinary shares.
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------- ------------ ------------
Loss for the period (11,707) (35)
Loss attributable to ordinary
shareholders (11,707) (35)
------------------------------------- ------------ ------------
Number Number
------------------------------------- ------------ ------------
Issued ordinary shares at 1 October 259,976,943 114,263,275
Effect of shares issued in December
2009 - 109,264,256
Effect of warrants exercised 2,734 9,331
------------------------------------- ------------ ------------
Weighted average number of ordinary
shares 259,979,677 223,536,862
Loss per ordinary share (Euro) (0.04503) (0.00016)
Diluted loss per ordinary share
(Euro) (0.04503) (0.00016)
------------------------------------- ------------ ------------
20. Earning per share (continued)
The conversion and assumed exercise of warrants to ordinary shares are ignored in the calculation of diluted loss per share since these are anti-dilutive.
Furthermore, the warrant share price has been above the exercise price throughout the periods in the report, thus the assumption that warrants are unlikely to be converted to ordinary shares, and hence does not have a dilutive effect on profit/loss.
21. Interest bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to interest rate, foreign currency and liquidity risk see Note 28.
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------ ---------- ----------
Balance at the beginning of the
period 343,661 400,165
Additions during the year 4,973 5,778
Repayment during the year (50,657) (62,282)
------------------------------------ ---------- ----------
Balance at the end of the period 297,977 343,661
------------------------------------ ---------- ----------
Gross book value of bank loans net
of current portion 297,977 343,661
On 12 January 2010, the Group finalised an agreement with the Bank of Scotland to extend the term of its existing debt facility from 31 December 2011 to 31 December 2013. The previous facility related to a EUR416.5 million senior debt facility for which the annual margin was 2.75% over three month EURIBOR.
On 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 was extended until 31 December 2013. The terms provide for an interest cover covenant of 1.30x and a 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.
On 12 October 2010, the Group drew down EUR5.0 million of additional debt from Bank of Scotland to replenish Company cash used to complete the acquisition of the Girona asset in Spain prior to 30 September 2010.
As at 30 September 2011, the Group had EUR298.0 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 66.1% (2010: 67.6%), against a covenant of 82.5% (2010: 85.0%). The LTV is calculated based upon the market value of the properties as at 30 September 2011.
21. Interest bearing loans and borrowings (continued)
In addition to the above financing, one of the French companies, SAS Trappes contracted a credit facility with Credit Foncier de France for EUR12 million in July 2009 which has been fully repaid following the sale of the asset on 25 July 2011.
Terms and debt repayment schedule
30 Sep 11 30 Sep 10
EUR000 EUR000
--------------------------------------------- ---------- ----------
Proceeds
Bank loans maturing beyond five years - -
Bank loans maturing between two to five
years 297,977 343,661
Bank loans maturing within one year - -
--------------------------------------------- ---------- ----------
Total proceeds from long term bank loans 297,977 343,661
--------------------------------------------- ---------- ----------
Transaction costs
Costs
Balance at the beginning of the period 7,978 19,774
Additions during the year 228 1,255
Retirements and amounts written off (294) (13,051)
--------------------------------------------- ---------- ----------
Gross transaction costs balance at the
end of the period 7,912 7,978
--------------------------------------------- ---------- ----------
Amortisation
Balance at the beginning of the period 4,931 4,881
Additions during the year 947 1,809
Retirements and amounts written off (75) (1,759)
--------------------------------------------- ---------- ----------
Accumulated depreciation balance at the
end of the period 5,803 4,931
--------------------------------------------- ---------- ----------
Net book value of transaction costs 2,109 3,047
Net book value of proceeds from bank loans 295,868 340,614
Less current portion of bank loans - -
--------------------------------------------- ---------- ----------
Net book value of bank loans net of current
portion 295,868 340,614
Transaction costs incurred in refinancing the above loans are initially deducted from the loan balance and are being amortised over the extended period of the loan. Amortisation of transaction costs recognised as finance costs amounted to EUR1.1 million for the year ended 30 September 2011 (2010: EUR7.4 million). Finance costs include debt arrangement, structuring, utilisation fees and exit fees paid in arranging the debt facility and the preference shares.
All borrowings are denominated in Euro. The weighted average interest rate at 30 September 2011 on the bank borrowings was 3.656% (2010: 3.296%). The loan is collateralised by all properties of the portfolio included under "Investment property" account (see Note 12).
30 Sep 30 Sep
11 10
------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Currency Nominal Date of Face Carrying Face Carrying
interest maturity Value Amount Value Amount
Rate
EUR000 EUR000 EUR000 EUR000
Bank of Scotland
Secured bank 3M Euribor 31 Dec
loan Euro +2.75% 2013 297,977 295,868 333,241 330,372
Credit Foncier 3M Euribor 31 Dec
Secured loans + 2.75% 2014 - - 10,420 10,242
------------------------------- ------------- ---------- --------- ---------- --------- ----------
22. Preference shares
On 30 December 2009 the Company issued 29,137,134 redeemable preference shares with one warrant attached per preference share. The preference shares confer the right to a cumulative preference share dividend payable semi-annually. As the preference shareholders have a right to receive a dividend and are redeemable, they are treated as a financial liability.
In addition, on 30 December 2009, the Company issued 29,137,134 warrants. A reserve was established by allocating a portion of the proceeds equal to the initial value of the warrants. This reserve is periodically marked to market and is amortised as the warrants are exercised.
30 Sep 30 Sep
11 10
EUR000 EUR000
------------------------------------------ -------- --------
Group and Company
Preference shares at the beginning 30,134 -
of the period
Preference share gross proceeds - 32,547
Cost of raising preference shares
(note 18) - (2,297)
Warrant fair value upon initial issuance - (1,712)
Transaction costs amortisation 526 366
Foreign exchange difference (327) 1,230
------------------------------------------ -------- --------
Preference share value at the end
of the period 30,333 30,134
------------------------------------------ -------- --------
Costs
Transaction costs amortisation represents the amortisation of the cost of raising preference share capital (7 years) and the amortisation of the warrants fair value upon initial recognition (4 years).
The holders of preference shares are entitled to receive a preferential cumulative dividend of 9% per annum of the preference share issue price of GBP1.00. The preference dividend is payable semi-annually in June and December each year from 2010 to 2016 inclusive.
23. Warrants
On 30 December 2009 the Company issued 29,137,134 warrants. Each warrant holder is entitled to exercise their subscription right in cash on any subscription date falling in the years from 2010 to 2013 inclusive. The subscription date in any year is the last business day in May and the last business day in November. The subscription price is GBP0.29 per ordinary share. As the exercise price for the warrants is set in Sterling as opposed to the functional currency of the Company, which is Euro, the warrants have been treated as a financial liability.
30 Sep 30 Sep
11 10
EUR000 EUR000
------------------------------------------- -------- --------
Group and Company
Warrant fair value at the beginning 2,535 -
of the period
Warrants fair value upon initial issuance - 1,712
Warrants exercised during the period
(refer to Consolidated Statement of
Change in Equity) - (3)
Fair value movement of the warrants
(note 28.5) (261) 650
Foreign exchange difference (note
14) (16) 176
------------------------------------------- -------- --------
Warrant fair value at the end of the
period 2,258 2,535
------------------------------------------- -------- --------
On 30 November 2010 and 31 May 2011, 2,937 and 859 warrants were exercised on each respective date.
24. Long term provision
As part of the current facility agreement with Bank of Scotland there is an exit fee payable. The fee is calculated as 2% of the weighted average drawn balance during the period commencing on the issuance date through the final repayment of the facility, 31 December 2013 (or repayment date if earlier). The quantum of the exit fee has subsequently been reduced according to the revised terms.
30 Sep 11 30 Sep 10
EUR000 EUR000
Group & Company
Long term provision 6,626 6,723
---------------------- ---------- ----------
25. Taxation
The Company is an incorporated contractual co-ownership scheme governed by part II of the Luxembourg law on Undertakings for Collective Investments of 20 December 2002.
According to legislation currently in force, the Company is not subject to corporate income or capital gains taxes in Luxembourg. It is however, liable to an annual subscription tax based at 0.05% of its total net asset value. The tax, payable quarterly, is assessed on the last day of each quarter.
Within the Group, real estate revenues, or capital gains derived from real estate, may be subject to taxes by assessment, withholding or otherwise in the countries where the real estate is situated. The Group's subsidiaries depreciate their historical property cost in accordance with applicable tax regulations. Depreciation is deducted from taxable profits in determining current taxable income.
Deferred tax liabilities are calculated according to the full liability method, and mainly arise on timing differences generated by fair value adjustments occurring post acquisition in the case where an acquisition does not qualify as a business combination. In case of acquisitions which are classified as business combinations, deferred tax is recognised on the timing differences between the carrying value of real estate investments in these consolidated financial statements and the respective tax basis at the date of the acquisition, and is subsequently measured in each period.
A deferred tax liability has not been accrued in respect of unremitted profits contained in direct and indirect subsidiaries of the Group as it is unlikely that these profits will be remitted to the parent in a manner which will attract income tax.
25. Taxation (continued)
30 Sep 11 30 Sep 10
EUR000 EUR000
--------------------------------------- ---------- ----------
Income and other current tax payables
Balance brought forward 7,304 7,351
Tax expense 29 4,840
Tax paid (739) (4,887)
--------------------------------------- ---------- ----------
Income and other current tax payables 6,594 7,304
--------------------------------------- ---------- ----------
Income taxes 254 (933)
Other taxes (195) (368)
Subscription taxes (88) (66)
--------------------------------------- ---------- ----------
Current income tax expense (29) (1,367)
--------------------------------------- ---------- ----------
Arising from liabilities (548) 15
Arising from short term differences (201) (878)
Arising from assets 582 6,780
--------------------------------------- ---------- ----------
Deferred tax benefit (167) 5,917
--------------------------------------- ---------- ----------
Other taxes relating to sale of
property - (3.473)
--------------------------------------- ---------- ----------
Benefit for taxation reported in
the consolidated income statement (196) 1,077
--------------------------------------- ---------- ----------
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------- ---------- ----------
Reconciliation of effective tax
rate
Loss for year (11,707) (35)
Total taxation 196 (1,077)
------------------------------------- ---------- ----------
Loss excluding taxation (11,511) (1,112)
------------------------------------- ---------- ----------
Income tax gain/(expense) using
the Company's domestic tax rate,
which is 29.94% (2010: 27.99%) 3,537 311
Tax adjustments (1,546) (618)
Minimum taxable net margin (21) 14
Differences in tax rates 843 1,103
Tax losses arising/used in the year (1,919) (4,385)
Permanent differences (715) 693
Short term differences (3,866) (1,287)
Differences arising due to fair
value adjustments in investment
property 2,529 5,742
Differences due to consolidation (277) (63)
Other taxes 1,239 (433)
Total (196) 1,077
------------------------------------- ---------- ----------
25. Taxation (continued)
25.1 Deferred tax assets and liabilities recognised
Deferred tax liability 30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------------- ---------- ----------
Opening balance
Investment property (7,832) (6,969)
Investment property classified as
non-current asset held for sale - (3,191)
-------------------------------------- ---------- ----------
Effect of revaluations of properties
to fair value post acquisition (465) (869)
-------------------------------------- ---------- ----------
Deferred tax on properties disposed
of 112 4,075
Short timing differences (201) (878)
-------------------------------------- ---------- ----------
Movements on deferred tax liability (554) 2,328
-------------------------------------- ---------- ----------
Closing balance (8,386) (7,832)
Made up of:
Revaluation on investment properties
to fair value (7,240) (6,885)
Short timing differences (1,146) (947)
Total deferred tax liabilities (8,386) (7,832)
-------------------------------------- ---------- ----------
As at 30 September 2011, deferred tax assets of EUR4.1 million (2010: EUR3.6 million) were recognised. The Company has recognised deferred tax assets where the tax losses are likely to be offset by future profits from the sales of the property. In the opinion of the Directors, this compensation approach is substantiated by the current economic environment where real estate prices have started to stabilise.
Long term tax asset mainly related 30 Sep 11 30 Sep 10 to tax losses carried forward EUR000 EUR000 ---------------------------------------- ---------- ---------- Opening balance 3,589 - Relating to tax losses carried forward 519 3,589 ---------------------------------------- ---------- ---------- Deferred tax assets 4,108 3,589 ---------------------------------------- ---------- ---------- 25.2 Deferred tax assets and liabilities unrecognised
As at 30 September 2011 the unrecognised portion of deferred tax assets related to property fair value movements and excess tax losses carried forward was EUR14.2 million (2010: EUR14.8 million).
As at 30 September 2011, deferred tax liabilities of EUR24.9 million, based upon temporary differences at the time of initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS 12.
26. Accrued expenses and other current liabilities
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------- ----------- -----------
Group
Accruals and other creditors 3,324 5,042
Interest payable on bank loans 3,486 4,163
Preference share dividend 787 1,006
Service charges (807) 69
Tenant deposits 3,479 3,928
Total 10,269 14,208
-------------------------------- ----------- -----------
Accruals 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 contract. The Group has signed forward exchange contracts with Bank of Scotland Treasury to protect the Euro payment of the next four sterling dividend payments until May 2013 (the spot rate of between EUR1.00 for GBP0.8437 to EUR1.00 for GBP0.8945 has been agreed).
30 Sep 11 30 Sep 10
EUR000 EUR000
-------------------------------- ----------- -----------
Company
Accounts payables - 273
Accruals and other creditors 916 788
Interest payable on bank loans 6 -
Preference share dividend 787 1,006
Tax payables 214 953
Total 1,923 3,020
-------------------------------- ----------- -----------
27. Related party transactions
The Company and the Group have related party transactions with its subsidiaries, shareholders and certain Directors.
Directors' fees
The Directors of the Company and its subsidiaries were paid a total of EUR204,000 (2010: EUR224,500) in Directors' fees during the year.
Investment management and performance fees
Invista REIM acted as the Investment Manager of the Group. Invista REIM received an Investment Management fee of EUR3.6 million (2010: EUR3.3 million). As disclosed in Note 9, the conditions for payment of a performance fee to the Investment Manager were not met during the year so no charge for performance fees was made during the year in the Consolidated Income Statement.
As disclosed in Note 21, the Group obtained a credit facility from the Bank of Scotland with related interest rate swap agreements with Bank of Scotland's Treasury Group. In addition, as disclosed in Note 26, the Group also entered into a currency rate swap agreement with Bank of Scotland's Treasury.
The Group also operates an inter-group trading account facility with its subsidiaries whereby it may receive income on behalf of its subsidiaries or pay expenses on their behalf. These balances are non-interest bearing and are settled on demand.
28. Financial risk management objectives and policies
The Group's financial liabilities, other than derivatives, are loans and borrowings, warrants and preference shares. The main purpose of the Group's loans and borrowings is to finance the acquisition and the development of the Group's property portfolio. The proceeds from the preference shares were used to repay part of the bank debt the Group contracted with the Bank of Scotland. The Group has trade and other receivables, trade and other payables and cash and short term deposits that arise directly from its operation.
The Group has exposure to the following risks from its use of financial instruments:
- Market and operational risks, - 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.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. A description of the internal controls in place is set out in the Director's report.
28.1 Market and operational risks
Market risk is the risk that changes in market prices, such as rental income, interest rates and property value will affect the Group's income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Interest rate risk
The Group uses derivatives, and also incurs financial liabilities, in order to manage the market risk attributable to the interest rate risk. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.
The interest rate risk of the Group remained fully hedged throughout the year ended 30 September 2011, and as such, there would be no effect on profit before tax due to movements in interest rates.
Risk of concentration
Please refer to the Investment Manager's Report section page 6,7 and 8.
Market 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.
28. Financial risk management objectives and policies (continued) 28.1 Market and operational risks (continued)
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.
Terms of rental agreements Ongoing review at least on a quarterly basis.
Quality of tenants Informal controls performed on an ongoing basis. Formal analysis on a semi - annual basis by means of the credit rating performed by IPD M-RIS. Quarterly reviews with the Board of Directors.
Sector diversification Quarterly, formal comparison of strategy and review with the Board of Directors.
Geographic diversification Quarterly, formal comparison of strategy and review with the Board of Directors.
Sizes of individual properties Quarterly monitoring of the percentage of specific properties in the portfolio in accordance with London Stock Exchange regulations.
Payments in arrears Ongoing reviews, 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.
28.2 Currency risk
The Company obtains financing in currencies other than Euro (preference shares and warrants issued in Sterling, refer to Note 22 and 23) and is exposed to the fluctuations of the exchange rate of that currency.
The Company has entered into currency forward contracts to hedge its exposure to the preference share dividends which are paid in GBP. The table below details the contracts entered into by the Company as at 30 September 2011:
Maturity date CCY bought Amount bought CCY sold Amount sold Fair value
(EUR'000)
24 May 2013 GBP 1,311,000 EUR 1,529,019 13
13 December
2012 GBP 1,311,000 EUR 1,553,928 37
17 May 2012 GBP 1,311,200 EUR 1,524,926 5
16 November
2011 GBP 1,309,050 EUR 1,463,518 (56)
--------------- ------------ -------------- --------- ------------ ------------
28. Financial risk management objectives and policies (continued)
28.2 Currency risk (continued)
As at 30 September 2011, the net exposure of the Company to GBP was as follows:
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------- ---------- ----------
Cash deposits 15,402 17,865
Preference shares (33,483) (33,828)
Warrants (809) (1,043)
------------------- ---------- ----------
Total (18,890) (17,006)
The following table demonstrates the sensitivity to reasonable changes in the sterling exchange rates, with all others variables held constant, to the Group's profit before tax:
As at 30 September 2011 Increase/Decrease Effect on profit
or loss before
tax (EUR000)
------------------------- ------------------ -----------------
Sterling +10% 1,889
Sterling -10% (1,889)
------------------------- ------------------ -----------------
As at 30 September 2010 Increase/Decrease Effect on profit
or loss before
tax (EUR000)
------------------------- ------------------ -----------------
Sterling +10% 1,701
Sterling -10% (1,701)
------------------------- ------------------ -----------------
28.3 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. Credit risk for the Group arises principally from rental receivables from tenants.
Trade and other receivables
In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and may 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 is no excessive concentration of risk and that the impact of any default by a tenant is minimised:
- 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.
The Group establishes a provision for doubtful debt that represents its estimates of potential losses with respect to trade and other receivables.
28. Financial risk management objectives and policies (continued) 28.3 Credit risk (continued)
Investment securities
Investments, other than those in property, are held only in liquid securities and only with counterparties that have a credit rating above or similar to the Group. Transactions involving derivatives are with the counterparty Bank of Scotland Treasury. Credit and counterparty 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 the Group's financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
30 Sep 11 30 Sep 10
Note EUR000 EUR000
--------------------------- ------- ---------- ----------
Loans and receivables 15, 16 13,032 16,126
Cash and cash equivalents 17 43,892 42,420
--------------------------- ------- ---------- ----------
Total 56,924 58,546
--------------------------- ------- ---------- ----------
Further quantitative analysis can be found on page 7 of the Investment Management report.
28.4 Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising its assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid. The Group's approach to managing liquidity exposure is that it will seek to have sufficient liquidity to meet its liabilities and obligations when due.
The Group has endeavoured to mitigate liquidity risk by investing in properties leased to good quality tenants with the potential for income and capital growth.
28. Financial risk management objectives and policies (continued)
28.4 Liquidity risk (continued)
Carrying 6 months 6 months 1 - 5
amount or less to 1 year years
EUR000 EUR000 EUR000 EUR000
30 September 2011
BoS loans outstanding (297,977) - - (297,977)
Preference shares (33,483) - - (33,483)
BoS Interest payable (3,486) (3,486) - -
Preference share coupons (787) (787) - -
--------------------------------- ---------- --------- ----------- ----------
30 September 2010
BoS loans outstanding (333,241) - - (333,241)
Credit Foncier loan outstanding (10,420) - - (10,420)
Preference shares (32,547) - - (32,547)
BoS Interest payable (4,098) (4,098) - -
Credit Foncier interest payable (65) (65) - -
Preference share coupons (1,006) (1,006) - -
--------------------------------- ---------- --------- ----------- ----------
The maturity date of the interest bearing loans in the table above is 31 December 2013. The contractual cash flows for loans and borrowings presented in the above table reflect only the expected principal cash flows.
The following table indicates the periods in which the cash flows associated with the interest rate swaps and the currency rate swaps are expected to occur and how they will impact the future income statements:
Interest Carrying Expected 6 months 6-12 1 - 2 2 - 5 years More
rate swap amount Cash Flows or less months years than
EUR000 EUR000 5 years
EUR000 EUR000 EUR000 EUR000 EUR000
------------ ---------- ------------ --------- --------- --------- ------------ ---------
As at 30
September
2011 (20,134) (20,134) (3,755) (4,326) (8,580) (3,473) -
As at 30
September
2010 (30,650) (30,650) (5,418) (4,980) (9,123) (11,129) -
------------ ---------- ------------ --------- --------- --------- ------------ ---------
Currency Carrying Expected 6 months 6-12 months 1 - 2 2 - 5 More than
swap amount Cash Flows or less years years 5 years
EUR000 EUR000
EUR000 EUR000 EUR000 EUR000 EUR'000
------------ --------- ------------ --------- ------------ -------- -------- ----------
As at 30
September
2011 1 1 56 (5) (50) - -
As at 30
September
2010 130 130 39 42 49 - -
------------ --------- ------------ --------- ------------ -------- -------- ----------
28. Financial risk management objectives and policies (continued)
28.5 Fair value
Set out below is a comparison by class of the carrying amounts versus fair value of the Group's financial instruments.
Carrying amount Fair value
30 Sept 2011 30 Sept 2010 30 Sept 2011 30 Sept 2010
EUR000 EUR000 EUR000 EUR000
--------------------------------------- ------------- ------------- ------------- -------------
Financial assets
Trade and other receivables 17,958 20,897 17,958 20,897
Cash and short-term deposits 43,892 42,420 43,892 42,420
--------------------------------------- ------------- ------------- ------------- -------------
Financial liabilities
Interest-bearing loans and borrowings 295,868 340,614 297,977 343,661
Deposits from tenants 3,479 3,928 3,479 3,928
Derivatives 20,133 30,520 20,133 30,520
Trade and other payables 1,008 2,472 1,008 2,472
Preference shares 30,333 30,134 34,790 36,298
Warrants 2,258 2,535 2,258 2,535
--------------------------------------- ------------- ------------- ------------- -------------
Movements in fair value are:
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------------- ---------- ----------
Group & Company
Balance at the beginning of the period 30,520 29,056
Fair value hedges terminated during
the period (2,470) (2,898)
Movement in fair value on forward
transaction 129 (130)
Movement in fair value of effective
hedges (7,933) 6,751
Movement in fair value of ineffective
hedges (113) (2,259)
------------------------------------------- ---------- ----------
Balance at the end of the period 20,133 30,520
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------------------- ---------- ----------
Movement in fair value of ineffective
hedges 113 2,259
Movement in fair value on forward
transaction (129) 130
Swap breakage cost (2,563) (2,915)
Fair value hedges terminated during
the period 2,470 2,898
Reversal due to ineffective hedge - 5,054
Amortisation of the hedging reserve - 632
------------------------------------------- ---------- ----------
Net gain/ (loss) on financial instruments (109) 8,058
Movement in warrants fair value (refer
Note 23) 261 (650)
------------------------------------------- ---------- ----------
Net gain/ (loss) on financial instruments 152 7,408
------------------------------------------- ---------- ----------
28. Financial risk management objectives and policies (continued)
28.5 Fair value (continued)
The derivative financial instruments are Euro interest rate swaps; transacted to hedge the interest rate risks arising from the floating rate borrowings (see Note 21) and a foreign currency forward exchange contract to hedge the preference shares dividends (see Note 26). As at 30 September 2011, the fair value of the interest rate swaps was a liability of EUR20.1 million (2010: liability of EUR30.5 million) and the fair value of the foreign currency contract an asset of EUR0.0 million (2010: asset of EUR0.1 million). The notional amount of the interest rate swaps amounted to EUR299.4 million (2010: EUR349.1 million). The weighted average Euro interest swap rate on Group debt was 4.041% per annum (2010: 4.076%).
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
i. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
ii. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or the liability, either directly (e.g., as prices) or indirectly (i.e., derived from prices);
iii. Level 3: inputs for the asset or liability that are not based on observable market data.
Level 1 Level 2 Level 3 Total
EUR000 EUR000 EUR000 EUR000
------------------------- -------- --------- -------- ---------
As at 30 September 2011
Warrants (2,258) - - (2,258)
Interest rate swap - (20,133) - (20,133)
As at 30 September 2010
Warrants (2,535) - - (2,535)
Interest rate swap - (30,650) - (30,650)
Currency rate swap - 130 - 130
------------------------- -------- --------- -------- ---------
29. Segment reporting
The Group adopted IFRS 8, 'Operating segments'. This has resulted in an increase in the number of reportable segments presented. In addition, the segments are reported in a manner that is more consistent with the internal reporting provided to the chief operating decision maker. The chief operation decision maker is the person or Group that allocates resources to and assesses the performance of operating segments of an entity. The Group has determined that its chief operating decision maker is the Board of Directors of the Company.
An operating segment is a component of the fund that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components, whose operating results are reviewed regularly by the Board of Directors to make decisions about resources allocated to the segment and assess its performance, and for which discrete financial information is available. Segments' results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
The Board of Directors is of the opinion that the Group is engaged in one single segment of business being property investments and the quarterly reports delivered to the Board are based into geographical segments. In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the domicile country of the properties.
29. Segment reporting (continued)
The operating segments derive their revenue primarily from rental income from lessees. All of the Group's business activities and operating segments are reported within the segments below.
The segment information for the year ended 30 September 2011 is as follows:
Holdings activities
and inter-segmental
France Germany Belgium Others Total
EUR000
EUR000 EUR000 EUR000 EUR000 EUR000
Rental income 18,385 15,822 1,326 5,281 (65) 40,749
Net gain on disposal 605 - - - (111) 494
Earnings before
net financial
cost and tax 10,616 9,924 443 (1,564) (4,561) 14,858
Finance income 645 371 482 28 (920) 606
Finance expense (9,611) (8,977) (1,106) (3,718) (3,715) (27,127)
Net change in
derivatives (173) - (62) (554) 941 152
Taxation (3,232) (473) (41) (78) 3,628 (196)
Gain / (Loss)
for the period (1,755) 845 (284) (5,886) (4,627) (11,707)
Reportable segments'
assets 283,204 236,254 26,429 58,944 (87,823) 517,008
Reportable segments'
liabilities (174,611) (142,164) (21,384) (65,111) 17,505 385,765
The segment information for the year ended 30 September 2010 is as follows:
Holdings
activities
France Germany Belgium Others and inter-segmental Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------------------- ----------- ----------- ---------- ---------- --------------------- ---------
Rental income 19,972 15,588 1,966 4,358 (19) 41,865
Net gain on disposal 816 - 261 - - 1,077
Earnings before
net financial
cost and tax 14,444 18,516 1,516 (2,938) (5,808) 25,730
----------------------- ----------- ----------- ---------- ---------- --------------------- ---------
Finance income 444 177 611 2 (833) 401
Finance expense (10,482) (10,839) (1,915) (3,737) (7,678) (34,651)
Net change in
derivatives (127) - (840) - 8,375 7,408
Taxation (2,239) (424) 1,859 397 1,484 1,077
Gain / (Loss)
for the period 2,040 7,430 1,231 (6,276) (4,460) (35)
----------------------- ----------- ----------- ---------- ---------- --------------------- ---------
Girona acquisition - - - 11,009 - 11,009
---------------------- ------------ ----------- ---------- ---------- --------------------- ---------
Reportable segments'
assets 300,392 237,484 34,419 66,052 (55,751) 582,596
----------------------- ----------- ----------- ---------- ---------- --------------------- ---------
Reportable segments'
liabilities (187,773) (144,240) (22,956) (66,333) (26,278) 447,580
----------------------- ----------- ----------- ---------- ---------- --------------------- ---------
29. Segment reporting (continued)
The Board of Directors assesses the performance of the operating segments based on a measure of earning before financial cost and tax. The earning before financial cost and tax and profit or loss of the Group's reportable segments reported to the Board of Directors is measured in a manner consistent with that in profit or loss. A reconciliation of operating profit to profit before tax is therefore not presented separately.
The amounts provided to the Board of Directors in respect of total assets and total liabilities are measured in a manner consistent with that of the consolidated financial statements. These assets and liabilities are allocated based on the operations of the segment and the physical location of the asset. As all assets and liabilities have been allocated to the reportable segments, reconciliations of reportable segments assets to total assets, and of reportable segments liabilities to total liabilities, are not presented.
30 Sep 11 30 Sep 10
EUR000 EUR000
---------------------------------- ---------- ----------
Analysis of revenue per category
Logistics 25,658 26,736
Office 12,903 12,702
Retail 1,077 1,248
Other 1,111 1,179
---------------------------------- ---------- ----------
Rental income 40,749 41,865
Other Income 757 235
Cost of rental activities (2,960) (2,288)
Net revenue 38,546 39,812
---------------------------------- ---------- ----------
The Company is domiciled in Luxembourg but does not generate revenue and is therefore not an operating segment. The Group's revenues are primarily generated from property assets which are held by Group companies domiciled in the same country as the relevant asset is located. The breakdown of the major components of revenue from external customers by country is disclosed above.
Rental income is derived from a large number of tenants although two single tenants contribute more than 10% of the Group's rental income:
30 Sep 11 30 Sep 10
EUR000 EUR000
----------------------- ---------- ----------
Norbert-Dentressangle 6,041 7,236
Deutsche Telecom 5,720 5,612
Others 28,988 29,017
Rental income 40,749 41,865
----------------------- ---------- ----------
30. Commitments
Foreign exchange hedge/Preference Dividend
The Company has entered into currency forward contracts to hedge its exposure to the next two years' preference share dividends which are paid in GBP (note 28.2). Pursuant to the said hedge agreement, the Company sold on 16 November 2011 GBP1.3 million and acquired EUR1.5 million at the exchange rate of EUR:GBP 1.118.
The fourth (2010: second) interim dividend of GBP0.04488 (2010: GBP0.05203) per Preference Share will be paid on 23 December 2011 to Preference Shareholders on the Register on 9 December 2011. The shares were quoted ex-dividend on 7 December 2011.
31. Contingent assets or liabilities
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. Except for the Montowest litigation, none of these legal disputes and claims is expected to have a material effect on the balance sheet, the result or liquidity of the Group.
Montowest litigation
Total rental debtor as at 30 September 2011 is EUR7.2 million, representing an insurance receivable of EUR 2 million and a tenant debt of EUR5.2 million. A provision of EUR1.1 million has been recorded against the insurance receivable, leaving a net total exposure of EUR6.1 million (including VAT and deferred income). Rents paid by the tenant of EUR4.4 million are currently held in escrow account, pending the completion of the litigation. In April 2010, the court ruled in favour of Montowest, however, the defendants appealed the court decision. The next appeal court hearing is scheduled for September 2012.
32. Subsequent events
Foreign exchange forward contract has been put in place in order to cover the dividend on preference shares which will be paid in December 2013 for GBP1.3m at the exchange rate of EUR:GBP 1.1539.
On 6 December 2011, 170 warrants were converted to 170 ordinary shares.
On 14 October 2011 an Extraordinary General Meeting ("EGM") of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders and the Company is in discussions with the Commission de Surveillance du Secteur Financier ('CSSF'), the Company's regulator, to seek approval for this change.
In connection with the proposed change in investment objective and policy, on 22 September 2011 the Board of Directors appointed Internos as their new investment manager and promoter. The appointment has been approved by the CSSF and Bank of Scotland (in its capacity as facility agent for the credit facility provided by it to the Company) and took effect upon the final termination of the existing investment management agreement with Invista REIM on 15 December 2011. Revised fees will be payable by the Company under the new management arrangements, as more fully set out in note 9 above. In accordance with the Termination Agreement, the Company will pay to Invista REIM an early termination fee of EUR855,000. This compares with an estimated liability of EUR2.4 million if the management fees for the balance of the notice period (to 18 September 2012) were to be paid.
33. Loans to subsidiaries
30 Sep 11 30 Sep 10
EUR000 EUR000
------------------------------ ---------- ----------
Invista European Real Estate
Holding S.a r.l. 156,469 201,587
Invista European Real Estate 16,258 -
Finance S.a r.l.
------------------------------ ---------- ----------
Loans to subsidiaries 172,727 201,587
Loan to subsidiaries are stated net of an impairment of EUR126.4 million (2010: EUR103.8 million).
34. List of the fully consolidated subsidiaries
Subsidiary Domicile Ownership interest
30 September
2011
Invista European Real Estate Holdings
S.a r.l. Luxembourg 100%
Invista European Real Estate Finance
S.a r.l. Luxembourg 100%
Invista European RE Heusenstamm PropCo
S.a r.l. Luxembourg 100%
Invista European RE Marseille PropCo
S.a r.l. Luxembourg 100%
Invista European RE Solingen PropCo
S.a r.l. Luxembourg 100%
Invista European RE Nanteuil PropCo
S.a r.l. Luxembourg 100%
Invista European RE Monheim PropCo S.a
r.l. Luxembourg 100%
Invista European RE Lutterberg PropCo
S.a r.l. Luxembourg 100%
Lutterberg Logistics GmbH Germany 100%
Invista European RE Villeurbanne Holdco
S.a r.l. Luxembourg 100%
Invista European RE Delta Holdco S.a
r.l. Luxembourg 100%
Invista European RE Delta Propco S.a
r.l. Luxembourg 100%
Invista European RE Delta Propco II
S.a r.l. France 100%
Invista European RE Riesapark PropCo
S.a r.l. Luxembourg 100%
Invista European RE Roth PropCo S.a
r.l. Luxembourg 100%
Invista European RE Monbonnot HoldCo
1 S.a r.l. Luxembourg 100%
Invista European RE Monbonnot HoldCo
2 S.ar.l. France 100%
Invista European RE Germany GmbH Germany 100%
Invista RE Dutch Holdings B.V. The Netherlands 100%
Centaurus Logistics S.A. Luxembourg 100%
Invista European RE Pocking PropCo S.a
r.l. Luxembourg 100%
Invista European RE Sun PropCo S.a r.l. France 100%
Invista European RE Nova PropCo S.a
r.l. France 100%
Invista European RE Spanish PropCo S.L. Spain 100%
Invista European Real Estate Bel-Air
Holdings S.a r.l. Luxembourg 100%
Invista European Bel-Air France S.A.S. France 100%
Compagnie Francesca S.a r.l. France 100%
Fonciere Vauclusienne Fova S.a r.l. France 100%
Anjoly Affretement Stockage (Anjolyas)
S.a r.l. France 100%
Trappes S.A.S. France 100%
Malabar Societe de Manutention Logistique
et d'Affretement Barlantier (Malabar)
S.a r.l. France 100%
Compagnie d'Entrepots et de Magasine
Generaux d'Amiens (Cemga) S.a r.l. France 100%
Les Merisiers S.N.C. France 100%
Mirasud S.a r.l. France 100%
Nelson S.C.I. France 100%
Compagnie frigorifique et immobilere
de Normandie
(Cofrinor) S.a r.l. France 100%
Monto'west S.a r.l. France 100%
Pole Logistique Vauclusien (Poloval)
S.a r.l. France 100%
Societe du Pole Nord S.A.S. France 100%
Compagnie Vauclusienne de Distribution
(Covadis) S.a r.l. France 100%
DBA Czech s.r.o. Czech Republic 100%
Hades Logistics B.V. The Netherlands 100%
Atena Logistics B.V. The Netherlands 100%
Financiere, Immobiliere et Agricole
S.A. Belgium 100%
KP Image House S.A. Belgium 100%
KP Rue Royal S.A. Belgium 100%
KP HH S.A. Belgium 100%
Demeter B.V. The Netherlands 100%
Girona Logistics S.L. Spain 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
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