Interim Results

22nd May 2008 07:00



22 May, 2008

INVISTA EUROPEAN REAL ESTATE TRUST SICAF 

ANNOUNCEMENT OF INTERIM RESULTS AND UNAUDITED NAV 

Report for the six month period ENDING 31 March 2008

INVISTA EUROPEAN REAL ESTATE SICAF DELIVERS CONTINUED 

RESILIENT PERFORMANCE

The Invista European Real Estate Trust SICAF (the "Company"/"Group") has today announced its results for the period ended six months to 31 March 2008 including its unaudited Net Asset Value for the last quarter and the interim dividend.

Financial highlights

Unaudited Net Asset Value per share of 231p at 31 March 2008, reflecting an increase of 11p (5.0%) over the quarter. In Euros the unaudited Net Asset Value was EUR2.91 per share reflecting a decrease of €0.07 (2.2%) over the quarter

Property assets of EUR766.0 million (30 September 2007: €736.3 million) comprising 52 properties, including committed assets (30 September 2007: 47 assets)

Property portfolio across seven countries decreased in value on a like-for-like basis by just 0.15% in the quarter and by 0.4% over the last six months

Borrowings as a percentage of total assets less current liabilities of 57.4% (30 September 2007: 54.4%)

Total dividend for the six months to 31 March 2008 of €0.0887 per share

Operational and strategic highlights

Income-oriented asset management strategy has been implemented focusing on increasing average lease length and tenant credit quality and reducing any vacancies

During the period the Company acquired a €33 million portfolio of office assets in Brussels, providing further diversification to the portfolio and the potential to increase value through leasing vacant space

In more challenging market conditions the Company is adopting a back to basics approach of concentrating on property fundamentals

The Company continues to target the more established, liquid and transparent markets in Western Europe as the Investment Manager believes these markets will continue to perform well relative to the average as they remain underpinned by relatively strong leasing markets.

Figures converted into sterling assume a € per STG exchange rate of 1.2636 as at 31 March 2008. Net Asset Value is calculated using International Financial Reporting Standards and adjusted to add back deferred tax

Commenting, Tom Chandos, Chairman of the Invista European Real Estate Trust, said:

"The independent property valuations of the Company's portfolio undertaken during the quarter to 31 March 2008 have demonstrated encouraging resilience compared to the marked falls in property values experienced in the UK markets. 

"The Investment Manager continues to pursue an active investment strategy, which focuses on strong property market fundamentals, opportunities to deliver value through asset management and realising profits from properties that have met business objectives. In parallel with the refinancing and the appropriate use of cash resources, the implementation of such a strategy should ensure that the Company is as well positioned as possible to protect and enhance shareholder value during the year."

For further information:

Tony Smedley / Chris Ludlam 

Invista Real Estate Investment Management  020 7153 9345

Stephanie Highett / Dido Laurimore

Financial Dynamics 020 7831 3113

UNAUDITED NET ASSET VALUE AT 31 MARCH 2008 AND INTERIM DIVIDEND

As at 31 March 2008, the Company's unaudited Net Asset Value (adjusted to add back deferred taxation) was 231p per share, reflecting an increase of 11p (5.0%) over the quarter due to significant translation gains arising from the strengthening of the Euro against sterling over the period. In Euros the unaudited Net Asset Value was EUR2.91 per share reflecting a decrease of EUR0.07 (2.2%) over the quarter. The decrease in value of the mark-to-market valuation of the Company's interest rate swaps reduced this NAV by EUR0.07 per share. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was EUR2.69 per share. 

The Company also announces an interim dividend of EUR0.0887 (approximately 7.0p) per share in respect of the period from 1 October 2007 to 31 March 2008. The dividend payment will be made on 6 June 2008 to shareholders on the Register on 30 May 2008. The ex-dividend date will be 28 May 2008. The dividend will be paid in Sterling at the prevailing exchange rate.

The unaudited Net Asset Value incorporates a number of events and key factors during the quarter ended 31 March 2008 including:

the independent valuation of the property portfolio as at 31 March 2008 was EUR766.0 million and consisted of 52 properties, including a conditional commitment in respect of an asset in Girona, Spain. The portfolio was broadly stable in value terms, decreasing on a like-for-like basis by just 0.15% in the quarter, totalling EUR1.1 million or EUR0.01 per share;

a decrease in the mark-to-market valuation of the Company's interest rate swaps of EUR8.4 million, equating to EUR0.07 per share;

a reversal of estimated accruals relating to previous property acquisitions amounting to EUR0.9 million equating to EUR0.01 per share; and

a reduction of the tax provision made in the previous quarter of EUR0.8 million, equating to EUR0.01 per share.

The Company's unaudited Net Asset Value figures incorporate the external property portfolio valuation as at 31 March 2008. The property portfolio will next be valued by an external valuer as at 30 June 2008 and the next quarterly Net Asset Value per share is expected to be published in August 2008.

Figures converted into Sterling assume a EUR per STG exchange rate of 1.2636 as at 31 March 2008.

CHAIRMAN'S INTERIM RESULTS STATEMENT 

The independent property valuations of the Company's portfolio undertaken during the quarter to 31 March 2008 have demonstrated resilience relative to the greater falls in property values experienced in the UK markets. Despite these stabilising values, the recent downwards revaluation of interest rate swaps and a restructuring tax charge has caused the unaudited NAV, adjusted to add back deferred tax, to fall by €0.20 per share or 6.2% over the six months to 31 March 2008. However, in Sterling NAV growth has been positive, showing an increase of 15p per share or 6.6%. 

Consistent with the dividend policy outlined at IPO, the Board is recommending an interim dividend of €0.0887 per share to be paid in respect of the six month period.

At the current share price of 130.75p and Euro exchange rate of 1.2576 (as at 20 May 2008) the implied Sterling dividend yield is 10.8% which is an exceptional income return given the nature of the portfolio. The high dividend is a reflection of the discount to NAV and the beneficial impact of a strengthening Euro.

Property Fundamentals

The underlying property portfolio owned by the Company and its subsidiaries (the "Group") recorded relatively stable performance during the half year period. As the emphasis on property returns shifts away from capital market driven value growth towards income driven returns, it is important that NAV performance is delivered through an active approach to asset management. The strategy implemented by the Investment Manager has created a well diversified portfolio let on relatively long leases to sound tenants, the combination of which is expected to continue to provide stability to long term performance. For example, decisions taken by the Investment Manager during 2007 to increase the portfolio's exposure to the French property market have had a beneficial effect on property valuations and, ultimately, on NAV total return. 

Capturing growth from the different market cycles operating in Continental Europe remains key to delivering on the objectives of the Company. In facing more challenging market conditions the Board is supportive of a back to basics approach of concentrating on property fundamentals. The re-rating of property as an asset class in recent years created significant value increases across global property markets; however this was largely driven by capital market influences. Our Investment Manager is very much focused on implementing a property market strategy of reducing any vacancies (which currently stand at 3.9% across the portfolio), increasing income security and working together with occupiers to improve asset level performance. Owning good quality assets has meant that the Company is not exposed to significant capital expenditure requirements. 

While current turbulence in the credit markets could impact the occupational markets our Investment Manager has not yet experienced any material change in the vacancy rate or the leasing potential of the properties in the portfolio. This is encouraging although clearly the situation must be monitored closely as there are downside risks to the economic outlook. 

During the period the Group acquired a €33 million portfolio of office assets in Brussels which provides further diversity to the portfolio and the potential to create value through leasing vacancy. The Brussels market is noted for its long term stability and, once the properties are fully let, the income return from these properties will be accretive to cash flow and support dividend distributions. 

The European Real Estate Market

Continental European property performed well in 2007, despite the uncertainty caused by tightening credit markets. According to IPD (Investment Property Databank) total returns of 12.4% were on average only marginally below 2006 levels, with some countries including Germany and Belgium recording increases as rental cycles turned more positive. Leasing market fundamentals in the countries in which the Company is invested were strong throughout 2007, even into the fourth quarter; and letting activity during the year reached a record level (Source: Jones Lang LaSalle). This had a positive impact on rental growth and in turn capital performance across most markets.

Economic growth in Continental Europe is now slowing but remained above trend during 2007, at 2.6%. There is a great deal of uncertainty surrounding the economic forecasts for Continental Europe; however to date the Investment Manager has not seen any material worsening of the economic fundamentals of the key markets in which the Group is invested. Clearly the markets will not be immune from the capital constraints being experienced globally; but the impact on the Continental European property markets is expected to be more muted than that occurring in the UK and the US. 

The Company continues to target the more established, liquid and transparent markets in Western Europe. Against the background of lower property returns across Europe in 2008, the Investment Manager believes these markets will continue to perform well relative to the average, as they remain underpinned by relatively strong leasing markets. Nonetheless, the Investment Manager expects property performance to become more divergent, as those markets facing much slower economic growth and higher risks of over-supply, e.g. Ireland, Spain and the UK, under-perform other markets such as France, Germany and the Benelux countries on a relative basis.

Financing

As at 31 March 2008 the Group had total drawn down borrowings of €445.5 million representing 57.4% of total assets less current liabilities. In addition the Group had €41.3m of cash balances at the close of the same period. The current borrowings comprise a senior debt facility of €460 million with Bank of Scotland that expires on 31 December 2008. The portfolio loan-to-value (gross debt divided by market value of the properties) was 59.1% and the Group's loan-to-value covenant is 70%. All of the debt has been hedged against European interest rate movements at a weighted average rate of 4.053% until January 2013. 

The Board regards the refinancing of the Company's existing facility as a priority. The Investment Manager is already engaged in constructive discussions with banks and provides regular feedback to the Board on progress.

The impact of marking the Group's interest rate swaps to market has added volatility to the quarterly NAV as interest rates have fluctuated. The value of the swaps as at 31 March 2008 was €-0.5 million whereas as at 30 September 2007 it was €7.6 million. Despite this, the NAV increased by 5% in Sterling terms during the last quarter.

Market Conditions

Uncertainty in the capital markets and associated negative sentiment towards property investment has meant that property returns in Continental Europe and the underlying performance of the share price of the Company have diverged. 

The sector continues to be affected by poor market sentiment and as at 20 May 2008 traded at an average 39% discount. The Company's share price traded at a 43% discount to the March NAV of 231p as at the same date. The strengthening of the Euro against Sterling has exacerbated this discount which is the highest since the Company's IPO in December 2006. The current level of the share price is being carefully monitored by the Board who regularly review the options open to the Company to maximise returns on capital. Such options are being considered in parallel with refinancing of the Company's existing facility. 

Outlook

European property markets will continue to digest the impact of challenging credit markets in 2008, a consequence of which will be reduced investment turnover and negative capital value growth in some markets. Property performance is therefore expected to become more divergent across Europe as economic growth slows. The Company's portfolio already provides resilience through its diversified tenant base and geographical spread of assets. In addition, the Investment Manager continues to pursue an active investment strategy which focuses on strong property market fundamentals, opportunities to deliver value through asset management and realising profits from properties that have met business objectives. In parallel with the refinancing and the appropriate use of cash resources, the implementation of such a strategy should ensure that the Company is as well positioned as possible to protect and enhance shareholder value during the year.

Tom Chandos

Chairman

Invista European Real Estate Trust SICAF

Date 21 May 2008

  INVESTMENT MANAGER'S REPORT

Objective and Strategy

The Company's objective is to maximise NAV total return through owning and actively managing a balanced Continental European property portfolio. In its role as Investment Manager, Invista's investment philosophy is to purchase properties with strong fundamental investment characteristics offering an above average income return with longer term income and capital growth potential.

The Market

Total returns across Continental Europe, as recorded by IPD for 2007, averaged 12.4%, compared to 13.4% in 2006. The final benchmarks for European markets are expected to be published by IPD in June 2008. This would represent a good result against the background of the sharp declines in total returns recorded in the UK in 2007 of -3.4%. The positive impact on performance provided by market-driven yield compression has now disappeared although income returns remain attractive in Continental Europe and have a natural hedge against inflation through the mechanics of lease indexation. 

The onset of the global credit crunch in the second half of 2007 caused significant uncertainty in Europe's economic and capital markets which in turn has resulted in lower levels of property investment turnover. Future real estate performance is expected to diverge as the influence of local economies, property supply dynamics and leasing market fundamentals take precedence over capital market influences. There is significant variance between countries in this respect and this presents an opportunity to capture value from different market cycles. The impact of tighter credit conditions and slowing economic growth will cause capital returns to slow or even become negative during 2008, particularly in countries such as Spain, Ireland and parts of Scandinavia, where economic growth is likely to underperform and where property supply risks are highest.

Those markets likely to perform more strongly on a relative basis include France and Germany as they offer opportunities to pursue active asset management strategies and are underpinned by comparatively stable economic growth and real estate supply conditions. France and Germany currently represent 82% of the Company's portfolio and were targeted due to their relative maturity, transparency and liquidity. The tactical decision to increase the Company's exposure to these markets has had a positive impact on NAV performance. 

Portfolio Overview

The Company owns a balanced and well diversified portfolio of commercial properties in three sectors and in seven countries. As at 31 March 2008, the property portfolio was valued at €766.0 million comprising 52 assets (including one asset conditionally committed to acquire in Girona, Spain). The current portfolio has an average lot size of €14.8 million. This compares with a property portfolio as at 30 September 2007 of 47 assets, valued at €736.3 million. The current portfolio generates a gross income of €50.5 million per annum and a gross income yield of 6.59%.

The portfolio has approximately 224 individual leases to 169 tenants which are well diversified by industry, geography, sector and lease duration. The weighted average lease term until expiry is 6.54 years (4.25 years to first break) which is relatively long for Continental Europe and supports the income focussed strategy of the Company. The portfolio credit rating is 68/100 which is "low to medium risk" (Source: Experian December 2007) and places the Company in a sound position to preserve income returns should Continental European markets experience a prolonged economic slowdown. There is an above average exposure to the logistics sector (51% of the portfolio by value) which provides an income return which is accretive to cash flow. The portfolio has a relatively low vacancy level of 3.9% which is reducing through active management and the leasing up of voids, particularly in the French and Belgian properties where lettings have already been achieved in advance of business plan objectives.

Over the six months to 31 March 2008 the portfolio remained relatively stable in value terms. On a like-for-like basis the portfolio valuation decreased by just 0.4% over the six month period. While there is no current evidence of weakening occupational markets as a result of the turmoil in the financial markets it is prudent to implement a more defensive strategy of reducing vacancy and negotiating with tenants to lengthen leases. Preserving the strong income bias of the Company is a sensible method by which to improve NAV total returns and support the dividend. 

There are various asset management initiatives currently being pursued to optimise returns and generate value including the refurbishment and reconfiguration of assets, the re-gearing of existing leases as well as implementing extension and development opportunities. The Company's active approach to asset management is evidenced by the value of the underlying property portfolio having been preserved during the period. This, together with tactical decisions to target certain markets such as France, Germany and Belgium at the right moment in the cycle increases the potential for relative outperformance.  

Top 10 Properties by value

Property Location	Sector	%*
Heusenstamm, Frankfurt, Germany	Office	11.6%
Riesa, Germany	Retail	7.5%
Cergy, Paris, France	Office	4.8%
Lutterberg, Germany	Logistics	4.5%
Ecully, Lyon, France	Office	4.3%
Madrid, Spain	Logistics	3.7%
Monteux, France	Logistics	3.1%
Marseille, France	Logistics	3.0%
Grenoble, France	Office	2.8%
Villeurbanne, Lyon, France	Office	2.8%
Total		48.1%

*Percentage of aggregate asset value plus cash (including committed asset) as at 31 March 2008

Top 10 Tenants by Income

Tenant Name	%**
Norbert Dentressangle	15.3%
Deutsche Telekom	11.1%
DHL	7.1%
Tech Data	3.6%
Valeo	3.3%
Sun Microsystems	3.1%
Merial	3.1%
Carrefour	2.8%
Marktkauf	2.4%
Copal Logistics	2.2%
Total	54.0%

**Percentage of aggregate gross rent (including committed asset) as at 31 March 2008

Sector Spread

Sector	%*
Office	35.7%
Logistics	51.1%
Retail	13.2%
Total	100.0%

*Percentage of aggregate asset value (including committed asset) as at 31 March 2008

Geographic Spread

Country	% *
France	49.4%
Germany	32.2%
Belgium	6.7%
Spain	5.4%
Netherlands	3.4%
Czech Republic	1.7%
Poland	1.2%
Total	100%

*Percentage of aggregate asset value (including committed asset) as at 31 March 2008

Rent Expiry Profile

Term	Expiry
< 1 year	5.6%
1 - 3 years	8.5%
3 - 6 years	26.7%
6 - 9 years	35.9%
9 - 15 years	22.1%
15 + years	1.2%
Total	100.0%

*Percentage of aggregate asset value (including committed asset) as at 31 March 2008

Portfolio Statistics **

	France	Germany	Belgium	Spain	Netherlands	Czech Republic	Poland	Total
Number of Tenants	37	102	24	2	2	1	1	169
ERV (€,000)	25,816	15,887	3,456	2,653	1,595	814	609	50,830
Gross Passing Rent (€,000)	25,776	15,942	2,967	2,528	1,738	918	619	50,488
Over/Under Rent *	0.5%	0.1%	-0.3%	-0.3%	0.3%	0.2%	0.0%	-2.1%
Average Occupancy Rate (%)	94.7%	99.6%	81.8%	100.0%	100.0%	100.0%	100.0%	96.1%
Number of Properties	34	6	6	2	2	1	1	52
Average Lot Size (€,000)	11,141	41,085	8,542	20,615	12,845	13,400	9,150	14,790
Gross Initial Yield (%) *	6.8%	6.5%	5.8%	6.1%	6.8%	6.9%	6.8%	6.6%
Net Initial Yield (%) *	6.4%	5.8%	5.7%	5.7%	6.3%	6.9%	6.7%	6.1%
Lettable Floor Space (sqm)	444,295	198,080	24,556	48,398	30,082	17,147	16,030	778,588
Lettable Floor Space (%)	56.9%	25.5%	3.2%	6.3%	3.9%	2.2%	2.1%	100.0%
Sector Spread (%)
Office	34.1%	37.8%	100.0%	0.0%	0.0%	0.0%	0.0%	35.7%
Logistics	65.9%	21.1%	0.0%	100.0%	100.0%	100.0%	100.0%	51.1%
Retail	0.0%	41.0%	0.0%	0.0%	0.0%	0.0%	0.0%	13.2%

Notes

* weighted average by property

** includes committed asset in Girona, Spain 

Asset Management 

We have reported before that the performance of the Company will be shaped by driving value at property level and we remain of the view that actively managing the assets in the portfolio is key to achieving good returns. 

As well as some major initiatives that have been completed recently, examples of which have been set out below, the portfolio continues to be proactively managed by Invista's experienced teams in order to minimise voids and non-recoverable costs while maximising potential for income and capital growth. The Company is aiming to improve property returns by leasing up vacant accommodation and undertaking selective capital improvements, which will result in higher rents and longer or more secure leases. 

At the 10,000 sqm office building in Grenoble, France, negotiations have been completed with Sun Microsystems and Euromaster to rationalise their accommodation and consolidate leases. This involved a part surrender of the existing lease and new letting at a rent 4% over anticipated market rental level. The net effect of this initiative is a longer unexpired lease term to a multi-national tenant, achieved with little capital expenditure and ahead of schedule. 

In Brussels a new letting of 335 sqm office accommodation has been negotiated with Goodman Management Services at Boechoutlaan. In parallel with these negotiations the Company also secured an extension of their existing lease on 1,882 sqm, thereby ensuring the property is both fully income producing and benefits from increased lease duration.

In Amiens, France we have secured a letting of a 5,000 sqm logistics unit at 6% above market rental levels and some 50% in excess of the historic rent achieved in the building. This effectively means the running yield on purchase cost is now 12.7%.

We continue to identify opportunities within the portfolio to realise gains from those mature assets where we have met business plan objectives. Liquidity is available in the investment markets for the right opportunities and we will target our selection of assets and investor audience carefully to ensure we secure the best terms in the market.

Finance

As noted by the Chairman, we are progressing discussions with European lending banks to refinance the Group's €460m senior debt facility in advance of its expiry on 31 December 2008.

Market Outlook 

Challenging market conditions and lower investment turnover volumes will lead to lower property returns across Continental Europe in 2008. However, we expect performance to become increasingly divergent as the scale of the European property sector continues to offer markets with differing local economic and property fundamental prospects. There is no current evidence of distressed selling in the Continental European markets; however we expect that good value opportunities will become more readily available during the second half of our financial year. Through Invista Real Estate's research team, local operating offices, highly experienced investment team and extensive market contacts we will continue to monitor trends closely in order to capitalise on such opportunities. 

Prospects

Pursuing the refinancing of the portfolio and maximising NAV performance and shareholder value through implementing an active asset management strategy remain the key priorities for the Company. The balanced and well diversified nature of the portfolio places the Company in a favourable position to capture cyclical growth in the countries, regions and sectors in which it is invested. Realising assets that have met business plan objectives will enable the Company to recycle capital in the best interests of shareholders.

The Company has achieved the strategy set out at IPO and in enjoying the benefits of full investment in the Continental European markets. The share price performance has been disappointing during the period however we look forward to continuing our efforts to bridge the gap between NAV and share price through implementing an active strategy.

 

Tony Smedley

Head of European Funds

Invista Real Estate Investment Management Limited

Date 21 May 2008

CONSOLIDATED INCOME STATEMENT

Unaudited for the period from 1 October 2007 to 31 March 2008 

 

	Notes	Six months to 31 March 2008   €’000	Six months to 31 March 2007 €’000	Twelve months to 30 September 2007 €’000
Rental income		23,641	10,584	33,491
Other income		165	93	56
Property operating expenses		(1,125)	(875)	(1,708)
Net rental and related income		22,681	9,766	31,839
Change in value of investments		(749)	10,244	23,071
Expenses
Investment management fees		(3,629)	(2,257)	(5,916)
Performance fees		(54)	(750)	(2,201)
Professional fees		(2,546)	(1,047)	(3,050)
Administrative fees		(1,440)	(594))	(1,694)
Directors' fees		(123)	(68)	(158)
IPO expenses relating to existing shares pre IPO		-	-	(2,591)
Other expenses		(149)	(48)	(888)
Total expenses		(7,941)	(4,764)	(16,498)
Net operating profit		13,991	15,246	38,412
Finance income		1,438	1,151	2,807
Finance expenses		(14,339)	(7,123)	(18,579)
Net finance costs		(12,901)	(5,972)	(15,772)
Profit before tax		1,090	9,274	22,640
Deferred taxation		(1,912)	(7,786)	(10,481)
Other taxation		(5,101)	(198)	(1,959)
Total taxation		(7,013)	(7,984)	(12,440)
(Loss)/Profit for the period attributable to the equity holders of the Company		(5,923)	1,290	10,200
Basic and diluted earnings per share (euro)	7	(0.05)	0.02	0.12

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

The accompanying notes 1 to 11 form an integral part of this consolidated interim report .

  CONSOLIDATED BALANCE SHEET

Unaudited as at 31 March 2008 

	Notes	As at 31 March 2008 €'000	As at 31 March 2007 €'000	As at 30 September 2007 €'000
Assets
Investment properties	4	754,280	445,765	724,270
Deferred tax assets		334	8	727
Total non-current assets		754,614	445,773	724,997
Trade and other receivables		15,722	9,591	14,985
Interest rate swaps		-	-	7,619
Cash and cash equivalents		41,314	134,755	68,687
Total current assets		57,036	144,346	91,291
Total assets		811,650	590,119	816,288
Share capital		142,829	129,845	142,829
Reserves		160,017	155,187	175,696
Retained earnings		4,269	(8)	10,192
Total equity attributable to equity holders of the Company	5	307,115	285,024	328,717
Liabilities
Interest-bearing loans and borrowings		-	257,910	424,500
Deferred tax liabilities		26,238	26,471	27,098
Total non-current liabilities		26,238	284.381	451,598
Interest-bearing loans and borrowings		442,025	-	-
Trade and other payables		26,451	18,877	31,861
Interest rate swap		477	4	-
Taxation payable		9,344	1,833	4,112
Total current liabilities		478,297	20,714	35,973
Total liabilities		504,535	305,095	487,571
Total equity and liabilities		811,650	590,119	816,288
Net Asset Value per share (euro)	6	2.69	2.74	2.88

The interim statements were approved by the Board of Directors on 21 May 2008 and signed on its behalf by:

Tom Chandos Robert DeNormandie

Chairman Chair of Audit Committee

The accompanying notes 1 to 11 form an integral part of this consolidated interim report.

  

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Unaudited as at 31 March 2008 

	Share capital	Share premium	Hedging  reserve	Restricted reserves	Retained  earnings	Total equity
	€'000	€'000	€'000	€'000	€'000	€'000
Balance as at 30 September 2006	6,921	-	854		(8)	7,767
Issue expenses	-	-	-	-	-
Effective portion of changes in fair value of cash flow hedges, net of tax	-	-	1,785	-	-	1,785
Restricted reserve	-	-	-	-	-	-
Other equity	-	-	-	-	440	440
Total income and expense recognised directly in equity	-	-	1,785	-	440	2,225
Profit for the period	-	-	-	-	1,290	1,290
Total recognised income and expense	-	-	1,785	-	1,730	3,515
Issue of shares	122,924	150,818	-	-	-	273,742
Dividends to equity holders	-	-	-	-	-	-
Balance as at 31 March 2007	129,845	150,818	2,639	-	1,722	285,024
Balance as at 30 September 2007	142,829	170,215	5,380	101	10,192	328,717
Issue expenses
Effective portion of changes in fair value of cash flow hedges, net of tax	-	-	(5,716)	-	-	(5,716)
Restricted reserve	-	-	-	64	-	64
Total income and expense recognised directly in equity	-	-	(5,716)	64	-	(5,652)
Profit for the period	-	-	-	-	(5,923)	(5,923)
Total recognised income and expense	-	-	(5,716)	64	(5,923)	(11,575)
Issue of shares	-	-	-	-	-	-
Dividends to equity holders	-	(10,027)	-	-	-	(10,027)
Balance as at 31 March 2008	142,829	160,188	(336)	165	4,469	307,115

The accompanying notes 1 to 11 form an integral part of this consolidated interim report.  

CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited for the period from 1 October 2007 to 31 March 2008 

	Six months to 31 March 2008	Six months to 31 March 2007	Twelve months to 30 September 2007
	€'000	€'000	€'000
Operating Activities
Profit/(loss) for the period before taxation	1,090	9,274	22,640
Adjustments for:
Net valuation gains on investment	749	(10,244)	(23,071)
Net finance costs	12,901	6,003	14,732
Unrealised foreign currency exchange	(28)	-	(67)

Operating profit before changes in working capital and provisions	14,712	5,033	14,234
Increase in trade and other receivables	(523)	(1,328)	(10,476)
Decrease in trade and other payables	(1,108)	18,371	26,804
Cash generated from operations	13,081	22,076	30,562
Interest paid	(11,464)	(1,890)	(11,815)
Interest received	1,223	1,151	2,807
Tax paid	131	(34)	(1,340)
Cash flows from operating activities	2,971	21,303	20,214
Investing Activities
Acquisition of investment properties	(34,786)	(224,931)	(491,348)
Cash flows from investing activities	(34,786)	(224,931)	(491,348)
Financing Activities
Proceeds on issue of shares	-	273,742	318,388
Dividends	(10,027)	-	(5,603)
IPO expenses paid relating to new shares	-	-	(6,662)
Loan from Shareholders	-	(50,218)	(50,218)
Draw down of loans	17,945	114,614	280,614
Finance costs paid on arrangement of long term loan	(3,476)	(4,012)	(955)
Cash flows from financing activities	4,442	334,126	535,564
Net decrease in cash and cash equivalents for the period	(27,373)	130,498	64,430
Opening cash and cash equivalents	68,687	4,257	4,257
Closing cash and cash equivalents	41,314	134,755	68,687

The accompanying notes 1 to 11 form an integral part of this consolidated interim report.  NOTES TO THE CONSOLIDATED INTERIM STATEMENTS AS AT 31 MARCH 2008

1. Significant accounting policies

Statement of compliance

Invista European Real Estate Trust SICAF ("the Company") was incorporated as a "société anonyme" under the laws of Luxembourg on 6 June 2005. On 17 November 2006 the Company was converted into an investment company with fixed capital "société d'investissement à capital fixe" ("SICAF"). Through its subsidiaries (together "the Group") its main activity is to evaluate, make and actively manage direct and indirect investments in real estate in Continental European countries. During the period ended 31 March 2008 the Group has increased its investment portfolio through acquisitions in Belgium.

The Company is a public limited liability company incorporated for an unlimited term. The registered office of the Company is established at 25B, Boulevard Royal, L-2449 Luxembourg.

These consolidated interim statements have been approved for issue by the Board of Directors on 21 May 2008 and have been prepared in accordance with International Financial Reporting Standard (IFRS) issued by, or adopted by, the International Accounting Standards Board (the 'IASB'), interpretations issued by the International Financial Reporting Interpretations Committee. 

Basis of measurement

The consolidated interim statements have been prepared on the historical cost basis except for the following:

Derivative financial instruments measured at fair value

Investment properties measured at fair value

The methods used to measure fair values are discussed further in note 3.

Basis of preparation

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

The accounting policies have been consistently applied to the results, assets, liabilities and cash flows of the entities included in the interim statements and are consistent with those of the previous year/period.

Use of estimates and judgements

The preparation of interim statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the interim statements is included in the note 3 'Determination of fair values'.

Basis of consolidation

The consolidated interim statements comprise the accounts of the Company and all of its subsidiaries drawn up to 31 March 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 purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interests. 

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

Investment property

Investment property is property that is held to earn rental income together with potential for capital growth. Investment property comprises freehold land, freehold buildings and land held under operating leases.

Investment property is initially recognised on completion of contracts at cost, including related transaction costs associated with the investment property. After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Income Statement.

Property acquisitions are recognised in the Balance Sheet at their contractual value where unconditional commitments have been entered into prior to the Balance Sheet date.

Financial Instruments

Non derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through the Consolidated Income Statement, any directly attributable transaction costs. 

Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

Loans and borrowings

Profit participating loans that had been obtained from the Company's shareholders are classified as long term debt because of their repayment and remuneration features.

Borrowings are recognised initially at fair value of the consideration received, less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

Financing costs incurred in obtaining a debt facility are capitalised and amortised over the period of the facility using the effective interest rate method.

Derivative financial instruments

The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities. 

Derivatives are initially recognised at fair value; attributable transaction costs are recognised in the Consolidated Income Statement when incurred. Subsequent to initial recognition, derivative financial instruments are measured and stated at fair value, and changes therein are accounted for as described below: 

Cash flow hedges

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

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

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. Dividends are recognised in the period in which they are paid.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. 

Impairment

Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the Consolidated Income Statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the Consolidated Income Statement.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").

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

Revenue

Rental income

Rental income from investment properties is accounted for on a straight-line basis over the term of the ongoing leases and is shown gross of any income tax. Any material premiums or rent-free periods are spread evenly over the lease term.

Finance income and expenses

Finance income comprises interest income on funds invested and gains on hedging instruments that are recognised in the Consolidated Income Statement. Interest income is recognised on an accruals basis.

Finance expenses comprise interest expense on borrowings, and losses on hedging instruments that are recognised in the Consolidated Income Statement. 

Expenses

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 through 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.

Taxation

According to the Luxembourg regulations regarding SICAF companies the Group is not subject to capital gains taxes in Luxembourg. It is, however, liable to an annual subscription of 0.05% (taxe d'abonnement) of its total net assets, payable quarterly, and assessed on the last day of each quarter.

Real estate revenues, or capital gains derived thereon, may be subject to taxes by assessment, withholding or otherwise in the countries where the real estate is situated.

The subsidiaries 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 bases of assets and liabilities and their carrying amounts in the consolidated interim statements. 

Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Balance Sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 

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

Earnings per share

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

2. New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the reporting period of the Group and have not been applied in preparing these consolidated interim statements: 

IFRS 7 on Financial Instruments: Disclosures and the Amendment to IAS 1 on Presentation of Financial Statements: Capital Disclosures require extensive disclosures about the significance of financial instruments for an entity's financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, which become mandatory for the Company's 30 September 2008 annual report, will require extensive additional disclosures with respect to the Company's financial instruments and share capital. The standard does not affect the consolidated interim report.

IFRS 8 on Operating Segments, IFRIC 7, 8, 9 and 10 on Interim Financial Reporting and Impairment, and IFRIC 11 on Group and Treasury Share Transactions are not expected to have an impact on the Company's consolidated interim statements.

3. Determination of fair values

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Investment property

Fair value is based on the open market valuations of the properties as provided by an independent expert, DTZ Debenham Tie Leung, in accordance with the guidance issued by the Royal Institution of Chartered Surveyors (the "RICS"). Market valuations are carried out on a quarterly basis.

The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

Valuations reflect, when appropriate the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market's general perception of their creditworthiness, the allocation of maintenance and insurance responsibilities between the Group and the lessee and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served validly and within the appropriate time.

Derivatives

The fair value of the Group's derivatives is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

4. Investment properties

	31 March 2008 €'000	31 March 2007 €'000	30 September 2007 €'000
At beginning of period	724,270	210,590	210,590
Acquisitions	33,277	224,931	490,609
Net change in value of investment properties	(3,267)	10,244	23,071
At end of period	754,280	445,765	724,270

At 31 March 2008 all properties of the portfolio were subject to registered mortgages in order to secure bank loans. 

In December 2007, the Group acquired four subsidiaries holding five office assets in Brussels and its surroundings in Belgium valued in total at €33.1 million. 

Investment property comprises a number of commercial properties that are leased to third parties. 

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 rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. 

5. Taxation

A charge of €4.2 million was paid in the period for a tax liability in respect of restructuring of finance leases in a number of French property owning companies. A corresponding net tax benefit of approximately €4.0 million will be recognised in local entity statutory accounts but which cannot be recognised in the consolidated Net Asset Value given the Company's accounting policies which must comply with IFRS.

6. Issued capital and reserves

Share capital 

The Company has an issued share capital of €142,829,093.75 consisting of 114,263,275 shares with a par value of €1.25 per share, all of which have been fully paid up.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

All shares rank equally with regard to the Company's residual assets.

Authorised capital

The Company has an authorised capital of 938,463,133.75 consisting of 750,770,507 shares of a par value of €1.25 euros per share.

Interim dividends

On 29 November 2007 an interim dividend of €0.0887 per share was declared giving a total dividend of €10,135,610, paid out of share premium on 21 December 2007.

Hedging reserve

The hedging reserve comprises 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 occurred, net of deferred taxation.

Restricted reserve

A legal reserve subject to profit of the Subsidiaries and the Company has been allocated in the different jurisdictions where applicable. This reserve is not available for dividend distributions.

7. Net asset value per ordinary share

The net asset value per ordinary share is based on the net assets of €307,114,838 (30 September 2007: €328,716,823) and 114,263,275 (30 September 2007: 114,263,275) ordinary shares in issue at the Balance Sheet date.

8. Earnings per ordinary share

The calculation of basic earnings per share at 31 March 2008 was based on the (loss)/profit attributable to ordinary shareholders of (€5,922,824) (31 March 2007: €1,289,969 and 30 September 2007: €10,199,164), and a weighted average number of ordinary shares outstanding of 114,263,275 (31 March 2007: 58,831,853 and 30 September 2007: 86,940,035), calculated as follows:

	31 March 2008	31 March 2007	30 September 2007
Balance at beginning of the period	114,263,275	692,151	692,151
Issue of new ordinary shares during the period	-	103,183,554	114,263,275
Weighted average number of ordinary shares per period at 31 March 2008	114,263,275	58,831,831	86,940,035

9. Segment reporting

Geographical segments

Segment information is presented in respect of the Group's geographical segments. This primary format is based on the Group's management and internal reporting structure.

Business segments

Business segment reporting has not been prepared because the Group invest predominantly in one business segment which is property investment of commercial properties.

Geographical segments

The Group's business is investing commercial properties. All the existing properties are located in the continental European region.

  

	France	Germany	Other Europe	Total
	€'000	€'000	€'000	€'000
Gross rental income	12,200	7,868	3,573	23,641
Other income	-	1	164	165
Gross revenue	12,200	7,869	3,737	23,806
Property operating expenses	(387)	(496)	(242)	(1,125)
Segment gross profit	11,813	7,373	3,495	22,681
	(1,450)	(1,760)	2,661	(549)
Change in value of investment properties
Finance income	546	376	516	1,438
Finance expenses	(7,874)	(4,510)	(1,955)	(14,327)
Unallocated net expense	(2,309)	(1,288)	(4,344)	(8,077)
Profit before tax	726	191	373	1,290
Taxation	(6,039)	(176)	(798)	(7,013)
Profit after tax	(5,313)	15	(425)	(5,723)
Assets and Liabilities
Segment assets	409,146	254,369	148,135	811,650
Segment liabilities (excluding equity components)	(267,889)	(147,854)	(88,592)	(504,335)

10. Contingencies

Certain subsidiaries of the Group are involved in litigation resulting from operating activities. These legal disputes and claims for damages are routine resulting form the normal course of business. None of these legal disputes and claims are expected to have a material effect on the balance sheet, profits or liquidity of the Group.

11. Post Balance Sheet Events

No significant post balance events occurred after 31 March 2008 which could have a material effect on the balance sheet, profits or liquidity of the Group.  

 

 

 

ENDIR FKDKNOBKDPPB

---

Related Shares:

IERE.L