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Business Overview

The Invista European Real Estate Trust SICAF (which may be referred to as the Company) is a closed ended investment company domiciled in Luxembourg. The Company listed on the main market of the London Stock Exchange by means of an IPO in December 2006.

The Company aims to provide shareholders through investing in a diversified commercial real estate portfolio in Continental Europe with the potential for income and capital growth. The geographical focus remains the Western European countries due to the relative stability, transparency and liquidity of these markets.

The Board has appointed Internos Real Investors as the Investment Manager. Internos took over management of IERET from Invista Real Estate Investment Management on 15 December 2011.

Background

Invista European Real Estate Trust SICAF is a closed-ended, Luxembourg registered investment company with fixed capital which is managed by Internos Real Limited. The Company is invested in a diversified portfolio of commercial real estate across Continental Europe.

Investment Objective

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

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.

Investment Strategy

Presently, the Company will continue to pursue an accelerated, proactive programme of disposals in order to reduce the level of borrowings where this is beneficial to the Group, to maximise returns and to 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.

The Company remains focused on actively managing the existing property portfolio to generate investment performance and maximise return on disposals. This approach will be achieved through implementation of initiatives set out in asset level business plans such as re-negotiating leases, maximising net rent receivable from tenants, extending lease duration to preserve income security, letting up current vacancy and stabilising rent.

Property portfolio

As at 30 September 2011, the Company's property portfolio was valued at €451.1 million and comprised 39 assets (€487.7 million and 41 assets: 30 June 2011). The like-for-like portfolio value decreased by €9.3 million (or 2.03%) during the quarter largely due to the marked downgrade in sentiment in Euro zone markets since June 2011.

As at 30 September 2011, the Company’s portfolio generated gross income of €36.8 million per annum, representing a Gross Income Yield (“GIY”) of 8.16% and a Net Initial Yield (“NIY”) of 7.53%. The portfolio had a void level of 10.2% as at 30 September 2011 which increased by 4.10% over the quarter as a result of sales of fully let investments and tenants vacating three properties in France and the Netherlands.

Since June 2011, the Company has sold two logistics properties in France located at Trappes and Vitrolles having a total value of €27.4 million, with net proceeds from the sales being used to reduce borrowings and reimburse the Credit Foncier senior debt facility in full.

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 in the “low to medium risk band”.

The European Market

Signs of economic recovery in the first half of 2011 in the Euro zone, which had supported the region’s property markets over the past year, began to lose some of its 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 Euro zone 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 Euro zone’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 Euro zone 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.

Finance

As at 30 September 2011, the Company had drawn down a total of €298.0 million of senior debt in respect of its €359.3 million facility with the Bank of Scotland. In addition, the Company had cash balances of €36.2 million (excluding tenant deposits of €4.2 million and escrow accounts of €3.6 million) at that date, giving a net debt position of €261.8 million.

In July 2011, the proceeds from the sale of the logistics assets in Trappes, Paris and Vitrolles, France plus €4.6 million of cash from the Company’s balance sheet were applied to paying down a total of €20.6 million of debt with the Bank of Scotland and all of the outstanding €9.5 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.

Dividend Policy

Given the proposed change in investment objective and strategy, the Board does not yet consider it appropriate to reinstate the ordinary share dividend.

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