TAMAR EUROPEAN INDUSTRIAL FUND LIMITED ( TEIF / The Fund ) PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

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1 20 March 2013 TAMAR EUROPEAN INDUSTRIAL FUND LIMITED ( TEIF / The Fund ) PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012 GOOD PROGRESSION ON NORDIC SALES WITH FURTHER OPPORTUNISTIC DISPOSALS Tamar European Industrial Fund, a Guernsey registered closed-ended investment company focusing on industrial property assets in Western Europe, today announces preliminary results for the year ended 31 December Highlights: Asset sales for a total gross consideration of 66.07m, at 3.34% in excess of the presale valuations before transaction costs and tax. Disposals comprised 15 assets and a further six individual units. Of these sales, 11 assets were located in the Nordics, demonstrating further progress on the Company s strategy to dispose of its Nordic assets, with these sales achieved at a 0.8% premium to valuation. In December, the Group made its first disposal from the trading portfolio it acquired in October The asset in Trappes was sold at 18% above the September 2012 CBRE valuation and within the projected timeframe. Following asset sales and regular amortisation, debt of 51.2m ( m) was repaid in the year. At the year-end, gearing net of unrestricted cash balances stood at 42.3% ( %). Asset management activities continue to add and protect value with ongoing leasing activity resulting in 33 new leases signed and 78 leases renewed during the year, representing over 130,000 sqm of space and 6.7m of gross annualised income. A high level of tenant retention was achieved during the year at over 73% by floor area. Two dividend payments were made, in April and September 2012 of 0.75p per share each. The Board proposes to pay a further interim dividend of 0.75p per share on 26 April 2013 to shareholders on the register on 12 April Giles Weaver, Chairman, commented: I am pleased to report that the Group has continued to make progress on its Nordic sales programme whilst retaining value through new leasing and the re-gearing of existing leases. Following the sales of Fredrikstad and Moss in December 2012, the entire Norwegian portfolio has now been disposed of with a total of 11 Nordic assets sold over the year at a premium to book value. There are now just four assets remaining (three in Sweden and one in Finland) representing 9% of the Fund s value. Sales have also been made from the wider portfolio, including the ongoing break-up of estates in Belgium and France where units are being sold to owner-occupiers. The sale of vacant units has also had a positive impact on the overall occupancy of the portfolio. The first sale from the portfolio purchased in 2011 proved a notable success with the sale of an asset at

2 an 18% premium to the September 2012 CBRE valuation, following a successful lease up of the whole asset. Overall, gross sale prices have been achieved at prices above valuation but when disposal costs are stripped out including CGT, debt prepayment fees and swap break fees this translates to net proceeds 6.5% lower than valuation. It remains the Board s intention to return excess cash generated from the disposal programme to shareholders and surplus cash is being transferred into sterling to mitigate, as far as is possible, currency fluctuations and facilitate a distribution. With the December 2013 extension to the Deutsche Bank financing coming into focus, the Board are being prudent in looking to satisfy the terms of this extension before any cash is distributed. Discussions are ongoing with the bank to enable the Fund to move forward, notwithstanding that the Board continue to maintain the half yearly dividend in the interim. The Board considers that the pending acquisition of Tamar Financial Services Limited by PATRIZIA AG should be a benefit to the Fund in that the resources of Tamar should be substantially increased and the substance of Tamar as an entity is inherently stronger. For further information: Tamar Financial Services Limited Rob Brook FTI Consulting Stephanie Highett / Dido Laurimore / Daniel O Donnell

3 Tamar European Industrial Fund Limited 2012 Annual report and accounts for the year ended 31 December

4 Contents Company Summary 1 Financial Highlights 2 Performance Summary 3 Chairman s Statement 6 Investment Manager 7 Investment Manager s Review 12 Portfolio Statistics 13 Property Portfolio 14 Board of Directors 15 Report of the Directors 20 Directors Responsibilities for the Financial Statements and Directors Responsibility Statement 21 Independent Auditor s Report 23 Consolidated Statement of Comprehensive Income 24 Consolidated Statement of Financial Position 25 Consolidated Statement of Changes in Equity 26 Consolidated Cash Flow Statement 27 Notes to the Accounts 44 Notice of Annual General Meeting 46 Shareholder Information 47 Corporate Information This document is important and relates to certain matters on which voting action is required. Shareholders who are in any doubt as to what action to take should consult an appropriate independent adviser immediately. If any shareholder has sold or transferred all their shares in the Company, he or she should pass this document to the person through whom the transfer or sale was effected for onwards transmission to the transferee or purchaser.

5 Company Summary The Company Investment Objective and Policy Management Capital Structure and Gearing Status Website Tamar European Industrial Fund Limited (the Company or the Fund and, together with its subsidiaries, the Group ) is a limited liability, closed-ended, Guernsey registered investment company. Its shares have a premium listing on the Official List of the UK Listing Authority and are traded on the London Stock Exchange. It was incorporated on 25 August 2006 and its shares were admitted to listing on 25 September At 31 December 2012 total assets less current liabilities were 168 million and shareholders funds were 80 million. The investment objective of the Company is to provide Ordinary Shareholders with an attractive level of income together with the potential for income and capital growth. At an EGM on 3 August 2011, the investment policy was amended to allow the Group to dispose of its Nordic assets. Its new investment policy is to focus on investments in industrial real estate assets primarily across Western European jurisdictions (but with no investments being made in the United Kingdom and no new investments being made in the Nordic area). The Company will aim to maintain some geographic diversification with the expectation that the Company s investments will be diversified across Western Europe, and primarily in France, Benelux and Germany. The Portfolio is also expected to be diversified by factors such as geography, industry sub-sector and investment size. Details of the 30 largest property holdings are given on page 13 and a full portfolio listing is available on the Company s website detailed below. At launch, the Board appointed Tamar Financial Services Limited as Investment Managers. A new investment management agreement was signed on 14 December Further details of the investment management agreement are provided in the Notes to the Accounts. At admission on 25 September 2006, the Company had a capital structure comprising 140 million Ordinary Shares. Ordinary shareholders are entitled to all dividends declared by the Company and to all the Company s assets after repayment of liabilities including its borrowings. Borrowings consist of bank facilities provided by Deutsche Bank AG, Deutsche Pfandbriefbank AG and BNP. The gearing policy of the Company is that borrowings will not exceed 65% of gross assets. The Company s shares are eligible for ISAs and PEP transfers and for inclusion within SASS and SIPPS. The Company s internet address is:

6 Financial Highlights Asset sales for a total gross consideration of 66.07m, at 3.34% in excess of the pre-sale valuations before transaction costs and tax. Disposals comprised 15 assets and a further six individual units. Of these sales, 11 assets were located in the Nordics, demonstrating further progress on the Company s strategy to dispose of its Nordic assets, with these sales achieved at a 0.8% premium to valuation. In December, the Group made its first disposal from the trading portfolio it acquired in October The asset in Trappes was sold at 18% above the September 2012 CBRE valuation and within the projected timeframe. Following asset sales and regular amortisation, debt of 51.2m ( m) was repaid in the year. At the year-end, gearing net of unrestricted cash balances stood at 42.3% ( %). Asset management activities continue to add and protect value with ongoing leasing activity resulting in 33 new leases signed and 78 leases renewed during the year, representing over 130,000 sqm of space and 6.7m of gross annualised income. A high level of tenant retention was achieved during the year at over 73% by floor area. Two dividend payments were made, in April and September 2012 of 0.75p per share each. The Board proposes to pay a further interim dividend of 0.75p per share on 26 April 2013 to shareholders on the register on 12 April Reconciliation of net asset value per accounts to adjusted net asset value before deferred tax assets and liabilities relating to investment properties: Total Per share Pence Net asset value per accounts 80, p Adjustments: Deferred tax arising from property revaluation (see note 10(a)) 1, p Unrecognised deferred tax adjusted for within initial purchase price consideration (see note 9) 3, p Adjusted net asset value 85, p Reconciliation of net asset value per accounts to adjusted net asset value after unrecognised deferred tax liabilities and contingent deferred tax: Total Per share Pence Net asset value per accounts 80, p Adjustments: Unrecognised deferred tax liabilities (see note 10(b)) (19,623) (14.0)p Unrecognised deferred tax adjusted for within initial purchase price consideration (see note 9) 3, p Adjusted net asset value after unrecognised deferred tax liabilities and contingent deferred tax 64, p The above adjusted net asset values ( NAV ) are based on the NAV per accounts which is calculated in accordance with International Financial Reporting Standards issued by, or adopted by, the International Accounting Standards Board (the IASB ) and interpretations issued by the International Financial Reporting Standards Committee. In order to reconcile these to the published accounts it is necessary to adjust for those items identified above. 1

7 3 Performance Summary Returns (for year ended 31 December 2012) 31 December December 2011 % Change Total assets less current liabilities ( 000 s) 167, ,865 (29.2) Net asset value (pence per share) (20.1) Adjusted net asset value (pence per share) (17.6) Ordinary Share price FTSE All-Share Index 3, , Discount to adjusted net asset value per share (43.3)% (58.8)% - Earnings and Dividends (for year ended 31 December 2012) Basic and diluted loss per Ordinary Share 9.7p Dividends paid per Ordinary Share 1.5p Highs/Lows (during year ended 31 December 2012) High Low Ordinary Share price 38.38p 30.12p 2

8 Chairman s Statement I am pleased to report that the Group has continued to make progress on its Nordic sales programme whilst retaining value through new leasing and the re-gearing of existing leases. Following the sales of Fredrikstad and Moss in December 2012, the entire Norwegian portfolio has now been disposed of with a total of 11 Nordic assets sold over the year at a premium to book value. There are now just four assets remaining (three in Sweden and one in Finland) representing 9% of the Fund s value. Sales have also been made from the wider portfolio, including the ongoing break-up of estates in Belgium and France where units are being sold to owner-occupiers. The sale of vacant units has also had a positive impact on the overall occupancy of the portfolio. The first sale from the portfolio purchased in 2011 proved a notable success with the sale of an asset at an 18% premium to the September 2012 CBRE valuation, following a successful lease up of the whole asset. Overall, gross sale prices have been achieved at prices above valuation but when disposal costs are stripped out including CGT, debt prepayment fees and swap break fees this translates to net proceeds 6.5% lower than valuation. It remains the Board s intention to return excess cash generated from the disposal programme to shareholders and surplus cash is being transferred into sterling to mitigate, as far as is possible, currency fluctuations and facilitate a distribution. With the December 2013 extension to the Deutsche Bank financing coming into focus, the Board are being prudent in looking to satisfy the terms of this extension before any cash is distributed. Discussions are ongoing with the bank to enable the Fund to move forward, notwithstanding that the Board continue to maintain the half yearly dividend in the interim. The Board considers that the pending acquisition of Tamar Financial Services Limited by PATRIZIA AG should be a benefit to the Fund in that the resources of Tamar should be substantially increased and the substance of Tamar as an entity is inherently stronger. Results Since 31 December 2011, net assets per share, excluding deferred tax relating to investment property, decreased by 13.0 pence to 60.8 pence. The table below shows the movement in adjusted net asset value per share for the current financial year and for the period since admission: NAV per share (Pence) Since admission 2012 Opening, excluding deferred tax and after listing costs Movement in portfolio valuations (56.3) (8.0) Expensing of acquisition costs (6.5) - Uplift from balance of retained profits 12.4 (1.6) Movement from mark to market of derivatives (2.7) 0.6 Dividends paid (15.1) (1.5) Foreign exchange movements 28.9 (3.3) Movement on deferred tax compensated for at acquisition As at 31 December 2012, excluding deferred tax relating to investment property After deducting all deferred tax, whether recognised on the balance sheet or not, NAV per share at 31 December 2012 was 46.0 pence (31 December pence). 3

9 Chairman s Statement Loss before tax in the year to 31 December 2012 was 11.7m. Key components of this include: operating profits less interest 2.4m unrealised revaluation losses ( 11.1m) realised loss on disposals ( 3.8m) unrealised gain on derivatives 0.8m The tax charge for the year was 1.8m ( m). Portfolio During the year, the Company successfully sold 15 assets as well as four further units at St Pieters, Belgium and two units at Torcy, France for a total gross consideration of 66.07m, which was 3.34% in excess of the pre-sale valuations. As at the balance sheet date, the Company held 42 properties at a market value of 154m. Further information on the portfolio is contained within the Investment Manager s Review. Gearing As at 31 December 2012, the Company had drawn 85.25m of debt from its total facilities, representing gearing of 55.4% ( %). If all unrestricted cash balances within the Group were to be applied to reduce the drawn debt facilities, gearing would fall to 42.3% ( %). The loan to value covenants on the Company s banking facilities currently range from 70% to 90% (averaging 75% based on debt drawn). The Company has hedged the risk of interest rate increases by the use of interest rate swaps and caps. As at 31 December 2012, a total of 99% of the Company s debt has been protected with interest rate swaps with the rest of the debt covered with caps for a weighted average period of 1.3 years. The blended cost of money based on debt drawn to date is currently 2.08% (6.11% including margin). Dividends An interim dividend of 0.75 pence per share was paid on 30 April 2012 to shareholders on the register at 13 April 2012 and 28 September 2012 to shareholders on the register on 12 September The Board proposes to pay a further interim dividend of 0.75p per share on 26 April 2013 to shareholders on the register on 12 April Shareholder Communication The Board considers it important that shareholders are kept regularly informed of the progress of the Group. The adjusted Net Asset Value per share will continue to be published quarterly. Corporate Governance On 30 September 2011, the Guernsey Financial Services Commission issued a Code of Corporate Governance ( the GFSC Code ) which came into effect on 1 January The Company is a member of the Association of Investment Companies ( AIC ) and applies the principles of the AIC Code of Corporate Governance (the AIC Code ). As the Company already reports against the AIC Code and the UK Corporate Governance Code it is deemed to meet the requirements of the GFSC Code and has therefore not reported further on its compliance with that code. Prospects The first half of 2012 was difficult as the Euro crisis found no resolution and deepened, even within countries already suffering, and consequently the potential Euro break up appeared to gain credibility. As the end of the year approached, the concerns over the Euro were on the wane following strong support from legislators to hold the Euro together. This was subsequently reflected in a considerable strengthening of the Euro currency towards the year end and into

10 Chairman s Statement It is hard to look through and determine whether the strength of the Euro currency is down to the performance of the Euro countries or to the weakness of other countries outside of the Euro, such as the UK. The key is that the current relative stability is maintained to nurture the first signs that investors are willing to consider the secondary markets. However, improvement in liquidity and pricing is largely dependent on the availability of debt which remains scarce for more granular assets. It is anticipated that in the second half of 2013 some of the debt allocation will look to go up the risk curve to finance secondary assets as margins on prime and core assets come in further and debt providers look for better returns with specialist funds also set up to take advantage of the pricing opportunities. Low or non-existent GDP growth in most of the main European markets will continue to put pressure on rents as tenants hesitate before making strategic decisions, with the main driver on occupational decisions being cost-saving. For the Fund, focus will be maintained on concluding the exit from the Nordic region with asset management initiatives to be completed prior to marketing. Negotiations with Deutsche Bank over the debt extension are ongoing with its conclusion determining the next strategic move of the Fund. The Board remains confident that the Investment Manager is well-equipped to provide this focus and to continue to maximise liquidity in the portfolio wherever possible. Giles Weaver Chairman 19 March

11 Investment Manager Tamar Financial Services Limited ( TFSL ) is the Investment Manager of the Company and the Luxembourg Subsidiaries (and their subsidiaries) pursuant to the Investment Management Agreement. The Investment Manager is responsible for advising the Group on the overall management of the Group s investments and for managing the Group s cash in accordance with the Company s investment objective and policy and subject to the overall control and supervision of the Directors. The Directors have satisfied themselves that the Investment Manager has procedures in place to address potential conflicts of interest. On 20 December 2012, the Tamar Group was purchased, subject to FSA approval, by PATRIZIA AG. It is anticipated that the transaction will complete at the end of Q PATRIZIA AG is a German listed real estate investment company mainly focused on Western Europe. It was founded in 1984 and floated on the DAX in 2006 and currently employs 498 people and had nearly 7bn of assets under management at the end of

12 Investment Manager s Review Property Market Overview Overall European industrial investment volumes in 2012 were nearly 13% down from 2011 despite a strong finish to the year, mainly due to a subdued first quarter. Volumes in the second half of 2012 were around 4.0bn, 36% higher than the first half. Investors continue to seek core, low-risk income yielding assets and consequently the focus remains on core markets in Western and Northern Europe. The UK, Germany and France together recorded nearly 70% of the total 2012 industrial volume with 57% of investment coming from foreign buyers compared with 65% in The Jones Lang LaSalle (JLL) weighted European prime warehousing net initial yield remained static at 7.50% for the third consecutive quarter in the fourth quarter. However, the index moved out 10 basis points compared with the end of Prime light industrial yields remained broadly stable quarter-on-quarter but they softened in many secondary markets yearon-year due to increasing investor caution. The continued economic instability and cost pressures kept logistics rents under downward pressure during the last quarter of The JLL pan-european warehousing rental index declined for the second consecutive quarter in the fourth quarter. This led to the index declining by 1.8% on an annual basis, its least impressive result since the fourth quarter of Prime and secondary light industrial rents were stable in most markets over the quarter, sustained by low levels of available modern supply. This has been largely demonstrated in the Company s portfolio with rents generally holding firm, but with a slight increase in tenant incentives. Whilst total occupier take-up volumes were 16% below 2011, the year finished strongly with 6.6m sqm of take up in the second half of 2012, some 10% above the first half of the year. Despite the continued economic slowdown, occupier markets finished 2012 on a high note and overall annual take-up is above the 10 year average, with Germany accounting for nearly one-third of the total. Belgium The Belgian economy slightly contracted by 0.1% during 2012 and marginal GDP growth of less than 0.3% is anticipated for Investment volumes were down 32% over the year compared with 2011, albeit demand was still being expressed for product which was, and is, in short supply. The general picture for yields was a stabile one although an outward drift of 25 basis points for prime light industrial was noted yearon-year due to investors preferences for the logistics sector. Industrial investment activity lost ground during the last quarter of 2012 with volumes reaching 27m, down 60% on the relatively strong previous quarter. Investment volumes were down 32% in 2012 compared to the previous year, however this is not reflective of diminishing investor demand but is primarily driven by a lack of available modern supply and relatively strong activity in Concerns about the economy filtered into the tenant markets with occupier activity down 49% in 2012 compared with 2011 despite a pick-up during the fourth quarter. Around two thirds of takeup was concentrated in the main logistics markets of Antwerp, Brussels, Gent and Liege. New construction starts picked up significantly (off a low base) during the second half of 2012 which relate to pre-let developments. Occupier activity was limited on the Company s Belgian portfolio, reflecting the general slowdown. Whilst more units were sold to owner occupiers at St Pieters Leeuw, demand for the remaining units diminished in the second half of the year reflecting harsher financing conditions for purchasers. 7

13 Investment Manager s Review Finland GDP growth in Finland during 2012 was limited to 0.2% and a similar picture is anticipated for There have been very low levels of real estate sales transactions completed in Finland in 2012 and this was starkly illustrated in the industrial sector with no transactions during the second and third quarters and a total of 24m transacted over the entire year. This is in part is due to a shortage of core assets available for sale but it also reflects contracting economic growth and the constraining effect of tightening debt markets on liquidity. Despite the challenging market conditions, two assets were sold from the Fund during the year with only one remaining. Against the background of limited investment transactions in 2012, prime logistics and light industrial yields softened by 25 basis points in the fourth quarter both on a quarter-on-quarter and a year-on-year basis, reflecting weakening investor sentiment amid the economic uncertainty. Secondary yields also softened 25 basis points in the fourth quarter on a quarterly and annual basis, reflecting slowing investor demand for secondary assets. Overall, occupier activity in 2012 remained at low levels. Activity continued to focus on smaller unit sizes (below 2,000 sqm) in prime locations while larger sites and secondary units continue to receive limited interest from occupiers. Prime and secondary logistics rents in Q have been static since the end of 2009 sustained by low levels of modern supply and prime rents in Helsinki remain 16% below the last peak level. Secondary rents are approximately 8.5% below peak levels. The Company s one remaining asset in Finland is fully let. France GDP in France was stagnant in 2012 and the same or even mild recession is expected for 2013 off the back of tightening fiscal policy and higher unemployment reducing consumer and investor confidence. In the investment market, volumes for 2012 were 38% above those of 2011, primarily due to a strong year end. During the year, France represented the third largest industrial investment market behind the UK and Germany. Prime logistics yields were stable during the second half of the year but JLL report that yields in the prime light industrial sector in Paris improved by 25 basis points following a similar decrease in the first half of the year. In the occupier markets, after a slow start to 2012, activity increased in the second half but overall take-up for the year was 18% below that for A total of 36% of take-up was in the Paris region, down from 54% in Rental levels remained stable in the warehousing sectors but JLL report some upward movement in rental levels in the light industrial market (eg +6.3% in Paris). Experience does not appear to show this and, as indicted by JLL, reflects as much the dearth of transactional evidence. In the Company s French portfolio, tenant demand quietened during the fourth quarter and, whilst rental levels are generally stable, the level of incentives requested by prospective tenants has increased with three or more months rent free now often requested for a 3/6/9 year lease, up from one to two months earlier in the year. Investor demand, particularly from private investors, and especially for small lot sizes, is holding up, as demonstrated by the sale of the Company s Trappes asset at a premium to valuation. 8

14 Investment Manager s Review Germany Overall GDP growth for 2012 was 0.7%, with a similar picture anticipated for This follows 3% growth in Industrial investment volumes in 2012 increased by 44% compared with 2011 figures to 1.35bn, the highest figure since the market downturn in Prime logistics yields were down by 25 basis points year-on-year in markets such as Berlin, Cologne, Hamburg and Munich. However, yields were higher in the light industrial sector by 40 basis points across all markets compared with the end of 2011 due to limited investor interest in this subsector. The occupier market showed activity decreasing by 21% year-on-year, with activity down in all five main regional markets. Despite new space under construction decreasing by 10% during the fourth quarter, overall, new construction increased by 18% year-on-year, of which the majority are pre-let transactions. In terms of rents, small increases in prime warehousing rents were noted by JLL (eg +1.8% in Hamburg, +1.1% in Hanover) which does not appear to correlate with the reported decreases in occupier activity. Such rental increases were limited to new product which was in scarce supply with rents in the secondary warehouse and the light industrial sectors remaining stable. The Company was successful in disposing of a secondary asset with significant void (over 40,000 sqm) to an owner occupier during the year but elsewhere saw reluctance of some existing tenants to commit on a long term basis. Netherlands Economic activity is weak with GDP contracting by 0.5% in 2012 with an anticipated fall of 0.6% in Full year 2012 volumes were significantly behind the level recorded in The decline is due to a lack of prime industrial investment opportunities - investor interest remains strong. Cross border investment activity remained strong in 2012, accounting for 62% of the total volume, a decrease from 68% in Prime logistics yields held firm in Amsterdam, Rotterdam and Tilburg in the fourth quarter of 2012 for the sixth consecutive quarter reflecting persistent investor interest. Meanwhile, prime yields in Utrecht were 10 basis points down in during the fourth quarter compared with last year - following a compression recorded earlier in Secondary logistics yields remained static for the third consecutive quarter in the fourth quarter However, due to an outward movement in the first half of the year, secondary yields in the fourth quarter of 2012 were higher compared with last year across all the Dutch markets. Occupier activity finished 2012 on a high note with take-up reaching 545,000 sqm in the fourth quarter driven by a few large transactions, up from the 230,000 sqm recorded in the third quarter. Second half take-up was 10% higher compared with the first half while full year take-up volume was marginally up by 2% compared with the previous year. Only 19% of the total 2012 take-up was recorded in Amsterdam and Rotterdam with the majority of the occupier demand continuing to focus on the regional markets due to lower costs. Income was stable at the Company s single asset in Vaassen. 9

15 Investment Manager s Review Sweden Sweden has been buffeted by the economic woes of the Euro zone with GDP having grown by 0.9% in 2012 and expected to grow by around 1% in This marks a significant slowdown from the 3.7% growth recorded in Nevertheless, and following three quarters of subdued industrial investment activity, the year ended on a high note. Industrial investment volumes reached 450m during the quarter accounting for 68% of the annual total. As a result of this strong quarter, the full year total was higher by a marginal 2% compared with Prime logistics yields stabilised in the second half of the year across all markets sustained by continued investor interest. However, prime yields at the end of 2012 were 25 basis points higher in Stockholm, Gothenburg and Malmo compared with last year due to an outward shift in during the second quarter. In line with the previous year, occupiers continued to focus on Stockholm, Gothenburg and Malmo due to well established infrastructure and proximity to major seaports. Demand remained strongest for units under 10,000 sqm. Following three quarters of limited development activity, completions rebounded in the fourth quarter and reached around 150,000 sqm. As a result, full year completion volumes were 34% higher compared with However, as most of these completions were delivered on a non-speculative basis, the overall vacancy rate remained stable at between 5% to 7% for modern units throughout Prime and secondary logistics rents remained static in the fourth quarter of 2012 in most markets as limited demand was balanced by moderate supply. The exception is Malmo where a rental increase in the second quarter meant that the prime rents at the end of 2012 were 8.3% higher compared with the same time last year. The Company s assets have experienced stable rents but with slightly larger incentives and lower tenant activity in the face of weaker microeconomic conditions. Portfolio Overview During 2012 the portfolio has seen 33 new leases signed, representing 5.30% of gross income ( 1,158,138) and 6.31% or 34,096 sqm of total area. Furthermore, 78 lease renewals were signed securing 25.34% of gross income ( 5,537,858) and 17.92% or 96,836 sqm of total area. 26 tenants vacated during the year representing 5.98% of ERV ( 1,468,659) and 6.57% or 35,525 sqm of total area. Of the leasing activity undertaken during the year, the more prominent leases signed included: ALD at Ternat (Belgium) for 8,922 sqm with a rent of 219,042 on a six year firm lease and Jungheinrich at Trappes (France) for 9,396 sqm with a rent of 180,039 on a six year firm lease. Major lease renewals included: 17,705 sqm renewed at Drammen (Norway) to Toyota for an annual rent of 1,441,250 on a eight and a half year firm lease and 5,391 sqm at Croissy Beaubourg (France) to Norbert Dentressangle for an annual rent of 194,118. As at 31 December 2012, the Group s total portfolio was valued at 153,925,000. By value this breaks down across six countries as follows: France 58%, Belgium 18%, Germany 12%, Sweden 8%, Netherlands 3% and Finland 1%. 10

16 Investment Manager s Review At the year end, the portfolio comprised 42 properties totalling 366,595 sqm with 223 individual leases. The current anticipated net operating income for 2013 is 13,154,000 reflecting a yield of 7.29% on gross cost. As at December 2012, the void rate was 13.75% by area, 11.95% by market rent and the reversionary yield was 7.92%. Belgium Finland France Germany Netherlands Sweden TOTAL 31/12/12 Number of Assets Number of Tenants Total Area (sqm) 80,224 3, ,234 44,296 16,410 54, ,595 Average Lot Value ( 000's) 4,545 1,379 3,318 6,308 2,111 4,183 3,665 Value (per sqm) Area/Tenancy (sqm) 2,292 1,651 1,100 11,074 16,410 1,933 1,644 Area/Asset (sqm) 13,371 3,301 6,231 14,765 8,205 18,043 8,728 Vacancy (by area) 29.92% 0.00% 7.59% 0.00% 0.00% 25.20% 13.75% Average Lease Term Running Yield 4.10% 2.76% 8.34% 7.17% 9.68% 7.87% 7.29% Outlook 2012 started slowly for many European real estate markets with fears for the stability of the Euro zone prevalent in the early part of the year. These have been assuaged in part by the ECB bond buying scheme which has reduced bond yields to sustainable levels particularly for more peripheral southern economies. As a result investment volumes increased during the second half of the year. The Euro zone as a whole recorded marginal growth but a number of individual countries recorded negative GDP growth for some quarters. Continued focus from investors on prime assets has meant that prime yields stabilised or hardened in some cases, although investment volumes were low due to a dearth of core stock. However, secondary yields moved out further and some secondary markets are now beginning to reflect value for money for more opportunistic investors. Single asset sales have been more successful throughout the year with some portfolio sales struggling to find buyers due to a lack of finance for deals of a larger size, which has in turn lead to heavy discounting. With the tenant market seemingly stabilised and investor sentiment marginally improved, the availability of debt is the crucial ingredient to stimulate activity in the secondary market and halt the gradual slide in values. While there is an anticipation of an increase in the availability of debt, it is likely to have an impact towards the end of 2013 rather than during the first half. Steady and continued progress has been achieved with the stated exit strategy from the Nordics. The Fund is now fully divested from Norway, and only one Finnish and three Swedish assets remain. The Nordic assets now represent just 9% of the Fund s value and once specific asset management activities have been completed full sales initiatives will be commenced for these assets. In the meantime, continued focus will be placed upon tenant retention and new lettings across the whole Fund whilst undertaking sales on both an opportunistic basis and line with the wider strategy. Tamar Financial Services Limited Investment Manager 11

17 Portfolio Statistics Geographical Analysis by fair value as at 31 December % 8% 18% Finland Belgium 12% 1% France 58% Germany Netherlands Sweden Lease Expiry Profile At 31 December 2012 the average lease length until the shorter of the next break clause or expiry for the portfolio was 2.7 years. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-5 yrs 5-10 yrs Top Ten Tenants at 31 December 2012 Tenant Passing Rent s % Total Portfolio Passing Rent CompAir Drucklufttechnik % Distrifresh % Blondie Logistics % Daimler % Parfums Rochas % Black & Decker % AXUS % Gutenberg on Line % V TAB Norrahammar AB % Tenesol % 5, % 12

18 Property Portfolio As at 31 December 2012 Property Countr CBRE Valuation Yield Market Value ( '000) Croissy Beaubourg France 8.80% 10, % Leuvensesteenweg Belgium 8.45% 9, % Simmern Germany 8.25% 9, % Kungsbacka Sweden 8.90% 9, % Aarschot Belgium 9.75% 7, % Nanterre France 7.93% 7, % Sindelfingen Germany 7.70% 6, % Torcy Nord France 9.50% 6, % Gargenville France 10.00% 6, % Ternat Belgium 8.12% 4, % TEN LARGEST PROPERTY HOLDINGS 76, % Lisses Bois Charland France 9.50% 4, % Fontenay Neuilly France 9.00% 4, % Breker Belgium 8.25% 3, % St Michel sur Orge France 9.00% 3, % Lisses Porges France 8.50% 3, % Torcy Coutures France 8.50% 3, % Croissy Beaubourg 17 France 9.00% 3, % Lisses (Leonardo de Vinci) France 8.75% 3, % Villepinte France 8.75% 3, % Fontenay Salengro 1 France 9.25% 3, % TWENTY LARGEST PROPERTY HOLDINGS 112, % Vaassen 1 Netherlands 10.93% 2, % Blanc Mesnil France 8.75% 2, % Pontault Combault (Multi let) France 9.75% 2, % Urbach Germany 8.60% 2, % Collegien France 9.17% 2, % Sucy en Brie France 9.00% 2, % Villefranche/Saône France 8.75% 2, % Fontenay 83 Neuilly France 8.75% 2, % Jonkoping Sweden 11.00% 2, % Bonneuil sur Marne France 8.50% 2, % THIRTY LARGEST PROPERTY HOLDINGS 137, % Other Properties 16,749 10% TOTAL PROPERTY PORTFOLIO 153, % Price adjustment related to deferred tax liabilities (3,691) (2.2%) Other non-current assets and net current assets 17, % Total assets (less current liabilities) 167, % % of Total Assets (less Current Liabilities) 13

19 Board of Directors Giles Weaver (Chairman) Aged 66, Giles is a non-executive director of IRP Holdings Limited and a number of other investment companies. He was formerly chairman of Murray Johnstone Limited. Jonathan Gamble Aged 45, Jonathan is currently a director of Asset Risk Consultants Limited, which provides investment consulting services. He has worked professionally in London, Australia and Singapore as a dealer for Morgan Stanley and Société Générale before moving to Guernsey. He serves on the boards of a number of companies. Helen Green Aged 50, Helen is a chartered accountant and has been employed by Saffery Champness, a UK top 20 firm of chartered accountants, since Since 2000, she has been based in the Guernsey office where she is client liaison director responsible for trust and company administration. Helen is Chairman of Acorn Income Fund Limited and serves on the boards of a number of companies in various jurisdictions. Christopher Spencer Aged 62, Chris qualified as a chartered accountant in London in Following two years post qualification work in Bermuda he moved to Guernsey. Chris, who specialised in audit and fiduciary work, was managing partner/director of the Guernsey Practice of Pannell Kerr Forster (Guernsey) Limited and Praxis Fiduciaries Limited from 1990 until his retirement in May He is a non-executive director of a number of hedge funds, funds of hedge funds and other investment and insurance companies. Robert Lipscomb Aged 68, Robert is a Fellow of the Royal Institution of Chartered Surveyors. Following seven years working with reputable surveyors in London he moved to Paris in 1972 as a partner with Jones Lang (Lasalle). In 1985 Robert joined Healey & Baker's Paris office, where he held various roles including International Managing Partner to the European Partnership, Chairman of the Southern European offices Board and responsibility for industrial property across Europe. These roles were retained following the merger of the company with Cushman & Wakefield in 1998 until his retirement at the end of

20 Report of the Directors The Directors present their report and accounts for the year ended 31 December 2012 (the year ). Results and Dividends The results for the year are set out in the attached financial statements. The Company has paid two interim dividends of 0.75 pence during the year ended 31 December It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend but propose a further interim dividend of 0.75 pence to be paid on 26 April 2013 to shareholders on the register on 12 April Principal Activity and Status The Company is a Guernsey registered company and during the year carried on business as a property investment company. The Group s Investment Policy and a review of the business during the year are contained in the Chairman s Statement and the Investment Manager s Review. Directors The Directors who held office during the year and their interests in the shares of the Company at 31 December 2012 (all of which were beneficial) were: Ordinary Shares CGH Weaver 400,000 JJ Gamble - HF Green 5,000 CP Spencer 39,500 JRP Lipscomb 30,000 There have been no changes to the current directors interests between 31 December 2012 and 19 March Biographical details of each of the Directors are shown on page 14. The Directors are considered to be independent and are elected for fixed terms of three years. In accordance with the Company s Articles of Association (the Articles ) any Director who held office at the two preceding Annual General Meetings shall be required to retire and offer themselves for re-election and as such Helen Green and Jonathan Gamble will retire and offer themselves for reelection at the AGM in May. An evaluation of the performance of individual Directors was carried out and the Board is satisfied that the performance of each Director continues to be effective and demonstrates their commitment to the role. During the year the Directors received the following emoluments in the form of fees (including those for Luxembourg services): CGH Weaver 35,000 JJ Gamble 27,000 HF Green 22,000 CP Spencer 30,000 JRP Lipscomb 22,000 Total 136,000 There are no service contracts in existence between the Company and any Directors but each of the Directors was appointed by a letter of appointment which sets out the main terms of their role as directors of the Company. Management The Investment Manager provides management services to the Company. The Investment Management Agreement was renegotiated with the Investment Manager culminating in a new agreement dated 14 December The Management Engagement Committee has reviewed the appropriateness of the Investment Manager s appointment. In carrying out the review the Committee considered the investment performance of the Company and the capability and resources of the Investment Manager to deliver satisfactory investment performance. It also considered the length of the notice period of the Investment Management Agreement and the fees payable to the Investment Manager, together with the standard of the other services provided. Following this review, it is the Directors opinion that the continuing appointment of the Investment Manager on the terms agreed is in the interests of shareholders as a whole. 15

21 Report of the Directors Substantial Interests in Share Capital At 19 March 2013 the following holdings representing more than 3 per cent of the Company s issued share capital had been notified to the Company: No. of Ordinary Shares Held Percentage Held Credit Suisse Client Nominees (UK) Ltd 41,707, % Vidacos Nominees Ltd 32,159, % The BNY Nominees Ltd 17,528, % BNY (OCS) Nominees Ltd 7,0000, % The BNY Nominees Ltd 6,962, % HSBC Global Custody Nominee (UK) Ltd 4,818, % Corporate Governance On 30 September 2011, the Guernsey Financial Services Commission issued a Code of Corporate Governance ( the GFSC Code ) which came into effect on 1 January The Company is a member of the Association of Investment Companies ( AIC ) and applies the principles of the AIC Code of Corporate Governance (the AIC Code ). As the Company already reports against the AIC Code and the UK Corporate Governance Code it is deemed to meet the requirements of the GFSC Code and has therefore not reported further on its compliance with that code. The AIC Code addresses all the principles and recommendations of The UK Corporate Governance Code issued by the Financial Reporting Council in June 2010, as explained by the AIC Guide. Those provisions of The UK Corporate Governance Code on which the Company does not report in detail in this Report have been excluded because the Company does not consider them to be relevant to it, as explained in the AIC Guide. Except as disclosed below, the Company believes that it complied with the provisions of the AIC Code throughout the period (and, as a consequence, has also complied with the provisions of The UK Corporate Governance Code and paragraph of the Listing Rules). The Board has considered the amendments to the UK Corporate Governance Code which are applicable for accounting periods beginning on or after 1 October 2012 and the Company will comply with the new requirements for the year ending 31 December Mr Weaver is Chairman. To date the Board has not deemed it appropriate to appoint a Deputy Chairman or a Senior Independent Director. In 2010, Mr Lipscomb was appointed to the Board. No other new directors have been appointed to the Board since the Company s launch. New Directors receive an induction from the Investment Manager and Secretary on joining the Board and all Directors are entitled to receive relevant training as necessary upon request. The Company has no executive directors or employees. The Investment Management Agreement sets out the matters over which the Investment Manager has authority and the limits beyond which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing, and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company s investment performance, assets, liabilities and other relevant information in advance of Board meetings. Levels of Directors remuneration were reviewed at the May 2012 board meeting and it was resolved to increase the annual Guernsey board fees of Mrs Green and Messrs Gamble and Lipscomb to 24,000pa each with effect 1 July It was further agreed that should any corporate action present itself in the future, extra per diem fees would be charged for time spent, as well as for the work at the closure of the Fund. As all the Directors are non-executive the Board considers that it is not appropriate to have a Nomination Committee. The Audit Committee, chaired by Mr Spencer, meets at least bi-annually and 16

22 Report of the Directors operates within clearly defined terms of reference and comprises all the Directors except for Mr Weaver. The duties of the Audit Committee include reviewing the Annual and Interim Accounts; the system of internal controls; and the terms of appointment of the auditors together with their remuneration. It is also the forum through which the auditors report to the Board of Directors. The objectivity of the auditors is reviewed by the Audit Committee which also reviews the terms under which the auditors are appointed to perform audit related and non-audit services. The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditors, with particular regard to audit related and non-audit fees. For the year ended 31 December 2012, audit fees amounted to 257,000 (2011: 244,000). Audit related fees amounted to 22,700 (2011: 22,000) for the independent review of the interim financial statements and non-audit fees amounted to 8,801 (2011: 15,000) in relation to a financial control review and a Belgium review (2011: financial controls reviews). The Audit Committee considers KPMG Channel Islands Limited to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit. The Management Engagement Committee, chaired by Mr Weaver, comprises the full Board and reviews the performance of the Investment Manager and the continuing ability of Directors to act independently of any substantial shareholder, and their associates. The table below sets out the number of scheduled Board and Audit Committee meetings held during the year and the number of meetings attended by each Director: Meetings attended Board of Directors Audit Committee Held 4 3 CGH Weaver 4 N/A JJ Gamble 4 3 HF Green 4 3 JRP Lipscomb 4 3 CP Spencer 4 3 Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors and Officers liability insurance. Principal Risks and Uncertainties The Company invests in real estate in Europe and the Nordic area. It is therefore exposed to variations in market conditions for such assets and to responses to market conditions, to local and national economic conditions, changes to the currency and interest rate profiles, tax rates and other future events. In addition the Company will also face risks from breach of laws or regulations, poor selection of assets, failure of systems or procedures in any of the countries in which the Company operates, and actions leading to central management and control of the assets being regarded as taxable in the UK. At an EGM on 3 August 2011, the investment policy was amended to allow the Group to dispose of its Nordic assets. Its new investment policy is to focus on investments in industrial real estate assets primarily across Western European jurisdictions (but with no investments being made in the UK and no new investments being made in the Nordic area). The Investment Manager, through its active management and review processes, will seek to minimise these risks wherever possible, and the Board, through its review of the Investment Manager s work, will seek to identify any additional exposures. The Board uses a number of key performance indicators to assist in measuring the performance of the Company. These are the: 17