EUROPEAN REAL ESTATE INVESTMENT TRUST …EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 3 CHAIRMAN’S STATEMENT Update With one property asset remaining at year end, the Company

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2016

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 2 CONTENTS

Page Chairman’s Statement 3

Investment Manager’s Report 4-5

Board of Directors 6

Directors’ Report 7-9

Corporate Governance 10-11

Independent Auditor’s Report 12

Statements of Financial Position 13

Statements of Comprehensive Income 14

Statements of Changes in Equity 15

Statements of Cash Flows 16

Notes to the Financial Statements 17-34

Company Information 35

Information for Shareholders 36

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 3

CHAIRMAN’S STATEMENT

Update

With one property asset remaining at year end, the Company and its advisers have been focussed on its sale and the maximisation of resulting distributions that can be made to shareholders. At the same time work continues to simplify the Group structure so that costs and liabilities may be reduced. During 2016 the Panrico assets were sold realising €24.6 million and enabling the return of £22.7 million to shareholders via distributions in July and August. The Company’s announcement on 5 April 2017 confirming that terms had been agreed to sell La Gaude for a net price of €5.75 million represented a significant step towards completion of the realisation process. Whilst the disposal price is at a discount to the last valuation, the asset was proving difficult to sell and had become a net liability given its high maintenance costs. As at 31 December 2016, cash balances stood at £8.7 million. Net other assets total £0.2 million. Additionally we are appealing a €2.2 million tax payment made in 2015 to the French authorities; no date has been set for the court hearing. No asset has been recognised in the Statement of Financial Position for any amounts the Group might receive as a result of this claim. Once the sale of La Gaude completes, the immediate tasks are the collection of proceeds and other receivables, the continuing simplification of our structure, the work out of indemnities given on property sales and an assessment of our path to reclaim monies paid to the French tax authorities which we believe we are due. We will look to make a further distribution to shareholders when the proceeds of a sale of La Gaude are received. The Board appreciates the shareholders patience during this realisation process.

Stephen Coe

Chairman

10 April 2017

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 4 INVESTMENT MANAGER’S REPORT

Forward looking statement This report has been prepared solely to provide additional information to enable shareholders to assess the Group’s strategies and the potential for these strategies to succeed. The report should not be relied on by any other party or for any other purpose. This report contains certain forward looking statements with respect to the financial condition, results of operations and businesses of the Group. These statements are made in good faith based on the information available to the Investment Manager up to the time of its approval of this report. However, such statements should be treated with caution as they involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements. The continuing uncertainty in global economic outlook inevitably increases the economic and business risks to which the Group is exposed. Nothing in this report should be construed as a profit forecast.

Investment objective The Company’s investment objectives reflect the Board’s intention to dispose of all of the Group’s assets.

The assets of the Group will be realised in an orderly manner, that is, with a view to achieving a balance between:

(i) returning cash to shareholders at such times and in such manner as the Board may (in its absolute discretion) determine;

(ii) reducing the Group’s existing liabilities;

(iii) maximising the disposal value of the Group’s assets.

The Group may no longer make new acquisitions of real estate assets except where required to preserve and/or enhance the disposal value of its existing assets.

Performance The Company returned a total of £22.7 million to shareholders during 2016, representing 58% of shareholder equity at the date of the distribution. This was made possible as a result of the disposal of the industrial properties in Spain at a premium of 9.1% over the valuation as at 30 June 2016. As at 31 December 2016 the Group’s Net Asset Value (“NAV”) was £13.9 million, reflecting a decrease of £17.4 million over the year. The table below provides a reconciliation over the financial year 2016:

£mNAV attributable to equity shareholders as at 31 December 2015 31.3 Valuation change on investment property (2.9) Realised profit on disposal of investment properties 0.9 Return of capital to investors (22.7) Exchange differences on translation of foreign operations 5.3 Other income 3.7 Net income (1.7) NAV attributable to equity shareholders as at 31 December 2016 13.9

The valuation change on investment property reflects the write down in the value of the La Gaude asset to the post year-end sale price of €5.75 million.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 5 INVESTMENT MANAGER’S REPORT (CONTINUED)

Portfolio Update and Realisation Process Following the sale of the three properties in Spain to the tenant Panrico in July 2016 at a price of €24.6 million, the Group recently announced that terms had been agreed on 5 April 2017 to dispose of its remaining real estate asset in La Gaude, Nice, France. The completion of the sale is subject to a waiver of statutory pre-emption rights from the city of La Gaude. Subject to this, the transaction is expected to complete at the end of June 2017. The property was formerly occupied by IBM and had been vacant since September 2015. The insurance and maintenance costs of the property were approximately €700,000 per annum; a material net cost and ongoing liability for the Company as a proportion of its market capitalisation. Various options for a potential change of use or redevelopment had been considered during the last 3 years and the Group had been working closely with a development partner, an architect and the local development authority to progress these initiatives. Progress was however slow and, as a result of the continuing uncertainty concerning future use, the buyer audience was small and the asset illiquid.

Subject to completion, the net sale proceeds to the Group will be €5.75 million. This represents a 38% discount to the last reported valuation. Given the mandate of the Company to sell and the material costs of operating the property, it was appropriate to execute an early disposal and progress liquidation as soon as possible.

Outlook Consistent with the current investment objective, the realisation process is nearing completion. The disposal of the Spanish assets during 2016 and the recent agreement to sell La Gaude completes the structured disposal of the property portfolio commenced in 2011 and assumed by Schroders as Investment Manager in 2012. The Group can now progress the final stages of rationalisation and will make further announcements with regard to that process in due course.

Schroder Real Estate Investment Management Limited Investment Manager 10 April 2017

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 6 BOARD OF DIRECTORS

Stephen Coe, aged 51, Chairman

Stephen is currently Chairman of European Real Estate Investment Trust Limited and TOC Property Backed Lending Trust plc. He is also director (and Chairman of the Audit Committee) of Raven Russia Limited, Leaf Clean Energy Company, Weiss Korean Opportunities Fund Limited and Trinity Capital PLC.

He has been involved with offshore investment funds and managers since 1990 with significant exposure to property, debt, emerging markets and private equity investments.

He qualified as a Chartered Accountant with Price Waterhouse Bristol in 1990 and remained in audit practice, specialising in financial services, until 1997. From 1997 to 2003 he was a director of the Bachmann Group of fiduciary companies and Managing Director of Bachmann Fund Administration Limited, a specialist third party fund administration company. From 2003 to 2006 Stephen was a director with Investec in Guernsey and Managing Director of Investec Trust (Guernsey) Limited and Investec Administration Services Limited. He became self employed in August 2006 providing services to financial services clients.

Wessel Hamman, aged 44, Non-executive Director, Chairman of Audit Committee

Mr Hamman is the founder and Chief Executive of Clearance Capital Limited, which specialises in the management of European real estate securities funds. Prior to this, Mr Hamman was the Chief Financial Officer of the Equities Division and Head of the Corporate Arbitrage business unit at Rand Merchant Bank, a division of FirstRand Bank Limited.

He is also a director of the following listed companies: Karoo Investment Fund S.C.A. SICAV-SIF, Clearance Segura Fund, Sirius Real Estate Limited and Capital & Regional Plc.

Jan van der Vlist, aged 62, Non-executive Director

Mr van der Vlist is currently Principal of Klockensteijn B.V. a Dutch consultancy company. The company has received mandates from European Real Estate Investment Trust Limited, NIBC Bank N.V. and Barrage Vastgoed B.V.

He is a board member of Bouwinvest Real Estate Investment Management B.V. He is also chairman of the Supervisory Board of Holland Property Group B.V and non-executive director of Aventicum Real Estate Partners Europe GP Limited.

Until 1 January 2012, he was Managing Director of NIBC Bank N.V. and head of Investment Management, a business unit of the bank that focuses on Private Equity, Real Estate, Infrastructure and Leveraged Loans.

Previously Mr van der Vlist was director of Structured Investments of PGGM. Prior to that he was director of Real Estate, as well as Deputy Director of Real Estate and head of investments in real estate funds, of PGGM and also served PGGM as Chief Financial Officer of Investments. Before joining PGGM in 1982, Mr van der Vlist headed the accounting department and real estate management department of a subsidiary of Verenigde Bedrijven Bredero N.V., which was a major international real estate development and construction company.

His former board positions and membership of Advisory Committees include a board seat with Equity Office Properties Trust, the largest US office REIT, a board seat with Societe Fonciere des Pimonts, a French office fund, a board seat with Amvest, a Dutch private real estate company, a membership of the managing board of the European Public Real Estate Association (EPRA) and a membership of the Advisory Board of Real Estate Publishers.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 7 DIRECTORS’ REPORT

The Directors present their annual report and audited Financial Statements of the Company and the Group for the year ended 31 December 2016.

Business Review

Business of the Group

The Company was incorporated on 21 December 2005 as an open-ended collective investment scheme and on 8 May 2006, an unlimited number of participating redeemable preference shares of no par value were admitted to the Official List of the Channel Islands Securities Exchange Limited, (“CISE”). The Company was converted to a closed-ended Guernsey registered investment company with limited liability on 25 April 2007. Subsequently, the shares were also admitted to the Official List of the United Kingdom Listing Authority (“UKLA”) on 4 June 2007 and are now traded on the London Stock Exchange.

The Company’s shares were de-listed from the Luxembourg Stock Exchange on 7 August 2015 and from the CISE on 1 September 2015. The Company continues to be listed and traded on the London Stock Exchange.

A review of the business during the year is contained in the Chairman’s Statement and the Investment Manager’s Report.

Investment objective

Prior to 5 August 2011, the Group’s underlying objective was to provide shareholders with an attractive level of income return, together with the potential for income and capital growth, through investment in European property.

At an Extraordinary General Meeting held on 5 August 2011, shareholders approved a change in investment policy to enable the Group to effect an orderly disposal programme and return surplus capital to shareholders.

Investment Manager

On 5 September 2012, Schroder Real Estate Investment Management Limited (formerly known as Schroder Property Investment Management Limited) (the “Investment Manager”) was appointed, for a two year period, to manage the Group. Under the terms of an Investment Management Agreement (‘IMA’), the Investment Manager is responsible for advising the Group on the overall management of the Group’s investments and for managing those investments in accordance with the Group’s investment objective and policy, subject to the overall supervision of the Directors.

On 8 October 2014, and subsequently on 23 November 2016, the IMA was extended. It now terminates on 31 December 2017, save that it may be extended by mutual agreement.

Principal risks and uncertainties

The Group considers its strategic, operational and financial risks and identifies actions to mitigate these risks and uncertainties.

The principal risks and uncertainties which faced the Group during the year are summarised below and are primarily referred to in the

Chairman’s Statement, Investment Manager’s Report and note 5 of the Consolidated Financial Statements:

• Property values; • Risks associated with movements in exchange rates; • Risks associated with credit exposure to tenants.

With the exception of the risk associated with credit exposure to tenants, the Group expects the same risks and uncertainties to apply in 2017 and has not identified any new principal risks or uncertainties.

Results, dividends and return of capital

The results for the year are set out in the Financial Statements.

No dividends were paid in the 2016 calendar year (2015: £nil).

During the year the Group returned capital of £22.7m (2015: £21.6m) to shareholders via the redemption of 9,763,806 (2015: 12,149,146) of the Company’s issued shares.

Investment Management fees

Details regarding the fees payable to the Investment Manager are given in note 26.

Administrator

On 2 May 2006 the Company entered into an Administration agreement with Investec Administration Services Limited (“Investec”) for the provision of administrative and secretarial services.

Following the sale of Investec to the Praxis Group in March 2009, Investec changed its name to Praxis Property Fund Services Limited. On 1 May 2011 Praxis Property Fund Services Limited merged with Praxis Fund Services Limited.

The Administration Agreement may be terminated by either party giving not less than 90 days’ written notice.

Going Concern

As the Directors intend to return all capital to shareholders of the Company they have not prepared the Financial Statements on a going concern basis.

This has not had any impact on the carrying value of the Group’s assets or liabilities.

Following the sale of the Spanish properties during the year and the French property post year-end, the Group no longer has any properties. The Group will retain sufficient cash to meet its ongoing administrative and liquidation costs.

Creditor payment policy

It is the Group’s policy to ensure settlement of supplier invoices in accordance with stated terms.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 8 DIRECTORS’ REPORT (CONTINUED)

Anti-Bribery policy

The Board acknowledge that the Group's international operations may give rise to possible claims of bribery and corruption. In considering The Bribery Act 2010, enacted in the UK in 2012, at the date of this report the Board had conducted an assessment of the perceived risks to the Group arising from bribery and corruption to identify aspects of business which may be improved to mitigate such risks. The Board has adopted a zero tolerance policy towards bribery and has reiterated its commitment to carry out business fairly, honestly and openly.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (“FATCA”) became effective on 1 January 2013. The legislation is aimed at determining the ownership of US assets in foreign accounts and improving US tax compliance with respect to those assets. On 13 December 2013, the States of Guernsey entered into an intergovernmental agreement (“IGA”) with US Treasury, in order to facilitate the requirements under FATCA. The Company registered with the Internal Revenue Service (“IRS”) on 22 December 2014 as a Foreign Financial Institution (“FFI”) and a Sponsoring Entity.

United Kingdom-Guernsey Intergovernmental Agreement

On 22 October 2013 the Chief Minister of Guernsey signed an intergovernmental agreement with the United Kingdom ("UK-Guernsey IGA") under which certain disclosure requirements may be imposed in respect of certain shareholders in the Company who are, or are entities that are controlled by one or more, residents of the United Kingdom. The UK-Guernsey IGA is implemented through Guernsey’s domestic legislation, in accordance with guidance which is currently published in draft form.

Common Reporting Standard

The Common Reporting Standard (“CRS”), formally the Standard for Automatic Exchange of Financial Account Information, became effective on 1 January 2016, it is an information standard for the automatic exchange of information developed by the Organisation for Economic Co-operation and Development (“OCED”). CRS is a measure to counter tax evasion and it builds upon other information sharing legislation, such as FACTA, the UK – Guernsey Inter-Governmental Agreement for the Automatic Exchange of Information and the European Union Savings Directive. The first reporting under CRS for Guernsey will be during 2017.

Directors

The Directors of the Company are detailed below:

Appointed Stephen Coe 21.12.05 Jan van der Vlist 26.02.08 Wessel Hamman 16.11.11 At each annual general meeting of the Company, any Director who was elected or last re-elected a Director at or before the annual general meeting held in the third calendar year before the current year shall retire by rotation. A retiring Director shall be eligible for reappointment.

Stephen Coe, whose term expired last year, was re-elected at the Annual General Meeting held on 18 May 2016.

Jan van der Vlist’s term expires this year and he has chosen to stand for re-election at this year’s Annual General Meeting.

No Director shall be required to vacate his office at any time by reason of the fact that he has attained any specific age.

Directors’ interests

The beneficial interest held by the Directors, who held office as at 31 December 2016, in the shares of the Company is detailed below:

31 December 2016

31 December 2015

Stephen Coe 1,121 2,534Jan van der Vlist 5,377 12,166Wessel Hamman - -

There have been no changes to the Directors’ shareholdings since 31 December 2016. Clearance Capital (Cayman) Limited, an entity controlled by Wessel Hamman, a Director of the Company, holds 4.32% of the Company’s shares. Clearance Cantara Fund, a mutual fund managed by Clearance Capital Limited, an entity controlled by Wessel Hamman, holds 4.32% of the Company’s shares. Jan van der Vlist is the beneficial owner of Klockensteijn B.V. which provided consultancy services to the Group until the contract expired on 8 October 2016(see below).

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 9 DIRECTORS’ REPORT (CONTINUED)

Directors’ remuneration

During the year the Directors received the following emoluments in the form of fees from the Group:

31 December 2016

31 December 2015

£’000 £’000Stephen Coe 52.2 53.3Jan van der Vlist* 40.0 40.0Wessel Hamman - - ––––– ––––– 92.2 93.3 ––––– –––––

* In October 2011 the Group engaged Klockensteijn B.V, a company of which Jan van der Vlist is the beneficial owner, to provide consultancy services. During the year the Group paid Klockensteijn B.V £18,833 (2015: £21,768). Further details regarding this engagement are given in note 26.

Substantial shareholding

Shareholders with holdings of more than 3 per cent of the issued shares of the Company as at 8 March 2017 were as follows:

Name of Investor No. of shares

% held

Vidacos Nominees Limited* 2,038,315 26.35%Hero Nominees Limited 534,665 6.91%Forest Nominees Limited 476,333 6.16%Goldman Sachs Securities* (Nominees) Limited

340,694 4.40%

Wealth Nominees Limited* 311,960 4.03%Pershing Nominees Limited* 275,562 3.56%Barclayshare Nominees Limited 244,736 3.16%Roy Nominees Limited* 240,707 3.11%

* These holdings are for various different beneficial owners.

Disclosure of information to Auditor

All of the current Directors have taken all steps that they ought to have taken to make themselves aware of any information needed by the Group’s auditor for the purposes of their audit and to establish that the auditor is aware of that information. The Directors are not aware of any relevant audit information of which the auditor is unaware.

Independent Auditor

BDO Limited has expressed its willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

Directors’ responsibilities statement

Company law requires the Directors to prepare Financial Statements for each financial year, which give a true and fair view of the state of affairs of the Company and Group at the end of the year and of the profit or loss of the Company and Group for that period. In preparing those Financial Statements, the Directors are required to:

(1) select suitable accounting policies and then apply them consistently;

(2) make judgements and estimates that are reasonable and prudent;

(3) state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

(4) prepare the Financial Statements on the going concern basis unless it is appropriate to assume that the Group will not continue in business (as detailed in the Going Concern paragraph above, and also note 2 of the Financial Statements, these Financial Statements have not been prepared on a going concern basis).

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the Company and of the Group and enable them to ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008. The Directors are also responsible for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.

Each of the Directors, whose names and functions are listed on page 6, confirms that to the best of each person’s knowledge and belief:

(1) the Financial Statements, prepared in accordance with the International Financial Reporting Standards, as adopted by the EU (“IFRS”) in accordance with the requirements of the London Stock Exchange (“LSE”), give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and

(2) the Investment Manager’s Report and the Chairman’s Statement

include a fair review of the development and performance of the business and the position of the Group and Company together with a description of the principal risks and uncertainties they face.

In common with many other externally managed funds of similar size and nature to European Real Estate Investment Trust Limited, the Group depends substantially on the external functions provided by Schroder Real Estate Investment Management Limited (“Schroders”), MGR Weston Kay LLP (“MGR”), Praxis Fund Services Limited (“Praxis”) and Saltgate S.A (“Saltgate”), amongst others in the provision of effective systems of internal controls and procedures.

On behalf of the Board Stephen Coe Director 10 April 2017

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 10 CORPORATE GOVERNANCE

As a Guernsey registered company with a standard LSE listing, the Company is not required to comply with the UK Corporate Governance Code. However, the Company complies with the Code of Corporate Governance issued by the Guernsey Financial Services Commission (“GFSC”) which became effective on 1 January 2012. Copies of the GFSC Code of Corporate Governance can be found at www.gfsc.gg.

As a self-managed non European Economic Area (“EEA”) Authorised Investment Fund, the Alternative Investment Fund Managers Directive is not relevant to the Company due to it not being marketed within the EEA.

Role of the Board

The Board, which consists entirely of non-executive directors, has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance to the Group:

• Review the overall objectives of the Group and the strategy for fulfilling those objectives;

• The capital structure of the Group and;

• The appointment of the Investment Manager, Administrators and other appropriately skilled service providers and monitor their effectiveness through regular reports and meetings.

Board decisions

The Board makes decisions on, amongst other things, the principal matters set out under the paragraph headed ‘Role of the Board’. Issues associated with implementing the Group’s strategy are generally considered by the Board to be non-strategic in nature and are delegated to either the Investment Manager or Administrator unless the Board considers there will be implementation matters significant enough to be of strategic importance to the Group and should be reserved to the Board.

Board performance evaluation

During 2016 the Board undertook a review of its performance. The review concluded that the performance and composition of the Board remained sufficient and adequate at this time in respect of a fund in the process of an orderly realisation of assets.

Board meetings and attendance

The Board meets no less than quarterly and as required from time to time to consider specific issues reserved for the Board. During the financial year it met on seven occasions.

The table below shows the attendance at Board and Audit Committee meetings for the year to 31 December 2016.

Board Audit

Committee

Stephen Coe 7 2Jan van der Vlist 7 2Wessel Hamman 5 2

Audit Committee

The Audit Committee, which is chaired by Wessel Hamman, meets a minimum of two times a year and consists of non-executive directors. During the financial year it met on two occasions.

The Audit Committee is responsible for:

• Monitoring the integrity of the Financial Statements of the Group, including reviewing significant financial reporting issues and judgements which they contain;

• Reviewing the effectiveness of the Group’s internal controls and risk management systems, and any statements included in the annual report concerning internal controls and risk management;

• Considering and making recommendations to the Board in relation to appointment, re-appointment and removal of the Group’s external auditor; and

• Overseeing the relationship with the external auditor, including approval of their remuneration, terms of engagement, audit plan, reviewing the findings of the audit and assessing annually the effectiveness of the audit process.

The Board has not established a Nominations or Remuneration Committee as it does not consider them to be appropriate for the size and nature of the Group. Information flows

All Directors receive, in a timely manner, relevant management, regulatory and financial information and are provided on a regular basis, with key information on the Group’s policies, regulatory requirements and internal controls. The Board receives and considers reports regularly from the Investment Manager and other key advisors. Ad hoc reports and information are supplied to the Board as required. Directors’ liability insurance

During the year, the Group has maintained insurance cover for its Directors under a liability insurance policy.

Relations with shareholders

The Board places great importance on communication with Shareholders and the representatives of the Board make themselves available at all reasonable times to meet with key shareholders and sector analysts.

The Board is also kept appraised of market commentary on the Group by the Investment Manager and other professional advisors.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 11 CORPORATE GOVERNANCE (CONTINUED)

The Chairman and the Investment Manager will ordinarily be available at the Annual General Meeting to answer any questions that shareholders attending may wish to raise.

Property Valuer

The Group gives the valuer and external auditor access to each other. These advisers have a dialogue and exchange of information which is entirely independent of the Group.

In line with the Carlsberg Committee report the Group has a fixed fee arrangement with the valuer CBRE Limited. The proportion of total fees paid by the Group to total fee income of the valuer was less than 5%.

Audit and internal controls

The Group depends substantially on the systems and controls of its key service providers: Schroders, MGR, Praxis and Saltgate. The Board discusses with these service providers the results of their own audits and regulatory inspections to determine if there are any matters arising from those audits and inspections that are relevant to the activities of the Group.

The Board has not established an Internal Audit function as it does not consider it to be appropriate for the size and nature of the Group, as an externally managed property fund.

Risk management

The Board reviews key risks and associated mitigation on a quarterly basis. External Auditor

The Group has policies and procedures in place to monitor and maintain the objectivity and independence of the external auditor, BDO Limited. The policy requires regular review by the Audit Committee of all non-audit services provided by BDO Limited.

The external auditor reported to the Audit Committee that they remained independent and had maintained internal safeguards to ensure their objectivity.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 12

INDEPENDENT AUDITOR’S REPORT To the members of European Real Estate Investment Trust Limited

We have audited the financial statements of European Real Estate Investment Trust Limited for the year ended 31 December 2016 which comprise the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statements of Changes in Equity, the Group and Parent Company Statements of Cash Flows and the related notes 1 to 27. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Parent Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work is undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Directors and auditor

As explained more fully in the Directors' Responsibilities Statement within the Directors' Report, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent misstatements or inconsistencies we consider the implications for our report.

Opinion on the financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2016 and of the Group and the Parent Company's loss for the year then ended;

• have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

Emphasis of matter - going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 2 to the financial statements concerning the Group’s ability to continue as a going concern and the basis on which the financial statements have been prepared. As the Group’s investment policy has been revised to effect an orderly disposal programme and return capital to shareholders, the financial statements have not been prepared on a going concern basis.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

• proper accounting records have not been kept by the Parent Company; or • the financial statements are not in agreement with the accounting records; or • we have failed to obtain all the information and explanations, which, to the best of our knowledge and belief, are necessary for the

purposes of our audit.

.......................................................

Justin Marc Hallett FCA

For and on behalf of BDO Limited

Chartered Accountants and Recognised Auditor

Place du Pré, Rue du Pré

St Peter Port., Guernsey

Date: 10 April 2017

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 13 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

Group Group Company Company

2016 2015 2016 2015Notes £’000 £’000 £’000 £’000

Non-current assetsInvestment property portfolio 16 4,923 23,365 - -Investments in subsidiary undertakings 17 - - 7,640 23,785

Total non-current assets 4,923 23,365 7,640 23,785

Current assetsTrade and other receivables 19 4,535 1,775 4 286Cash and cash equivalents 20 8,729 12,515 6,363 7,463

13,264 14,290 6,367 7,749

Total assets 18,187 37,655 14,007 31,534

Current liabilitiesTrade and other payables 21 527 3,238 137 204Income tax payable 22 3,790 3,085 - -

Total current liabilities 4,317 6,323 137 204

Total liabilities 4,317 6,323 137 204

Net assets 13,870 31,332 13,870 31,330

Equity attributable to owners of the parentShare capital 24 - - - -Special reserve 24 163,125 185,837 163,125 185,837Translation reserve 24 17,510 12,171 47,185 41,844Revenue reserve 24 (166,765) (166,677) (196,440) (196,351)

Total equity attributable to owners of the parent 13,870 31,331 13,870 31,330Non-controlling interests 24 - 1 - -

Total equity 13,870 31,332 13,870 31,330

Net asset value per share (basic) (pence) 15 179 179

The notes on pages 17 to 34 form an integral part of these Financial Statements.

The Financial Statements have been authorised for issue and approved by the Board on 10 April 2017 and were signed on its behalf by:

Stephen Coe Director

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 14STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

Group Group Company Company2016 2015 2016 2015

Notes £’000 £’000 £’000 £’000Revenue

Property income 1,211 6,166 - -Management fee within the group - - 137 284

Property operating expenditure (686) (992) - -Net income 7 525 5,174 137 284

Administrative expenses 10 (2,018) (1,568) (1,727) (1,120)Exchange rate differences 10 (283) (246) (282) (245)Reversal of impairment of investments in subsidiaries 17 - - 1,783 3,415Total administrative expenses 10 (2,301) (1,814) (226) 2,050Profit on disposal of investment properties 915 1,578 - -Net deficit on revaluation of investment properties 16 (2,910) (675) - -Operating (loss)/profit (3,771) 4,263 (89) 2,334Other income 11 3,674 - - -Finance income 28 30 - 4(Loss)/profit before tax (69) 4,293 (89) 2,338Tax 12 (20) (1,975) - -(LOSS)/PROFIT FOR THE YEAR (89) 2,318 (89) 2,338

Other comprehensive income:Items that will be re-classified to profit or loss:Exchange differences on translation of foreign operations 5,339 (3,154) 5,341 (3,154)

Other comprehensive income/(loss) for the year, net of tax 5,339 (3,154) 5,341 (3,154)

TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 5,250 (836) 5,252 (816)

(Loss)/profit attributable to:Owners of the parent (88) 2,337 (89) 2,338Non-controlling interests (1) (19) - -

(89) 2,318 (89) 2,338Total comprehensive income/(loss) attributable to:Owners of the parent 5,251 (817) 5,252 (816)Non-controlling interests (1) (19) - -

5,250 (836) 5,252 (816)

Earnings per share - Basic and diluted (pence) 14 (1) 8 The notes on pages 17 to 34 form an integral part of these Financial Statements.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 15 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016


A description of the nature and purpose of each reserve is included within note 24.

Group Share

capital

Special

reserve

Translation

reserve

Revenue

reserve

Sub Total Non- controlling

interest

Total Equity

£’000 £’000 £’000 £’000 £’000 £’000 £’000

At 31 December 2014 - 207,450 15,325 (169,014) 53,761 20 53,781

Return of capital - (21,613) - - (21,613) - (21,613)Profit for the year - - - 2,337 2,337 (19) 2,318Other comprehensive loss - - (3,154) - (3,154) - (3,154)

At 31 December 2015 - 185,837 12,171 (166,677) 31,331 1 31,332

Return of capital - (22,712) - - (22,712) - (22,712)Loss for the year - - - (88) (88) (1) (89)Other comprehensive income - - 5,339 - 5,339 - 5,339

At 31 December 2016 - 163,125 17,510 (166,765) 13,870 - 13,870

Company Share

capital

Special

reserve

Translation

reserve

Revenue

reserve

Total Equity

£’000 £’000 £’000 £’000 £’000

At 31 December 2014 - 207,450 44,998 (198,689) 53,759

Return of capital - (21,613) - - (21,613)Profit for the year - - - 2,338 2,338 Other comprehensive loss - - (3,154) - (3,154)

At 31 December 2015 - 185,837 41,844 (196,351) 31,330

Return of capital - (22,712) - - (22,712)

Loss for the year - - - (89) (89)

Other comprehensive income - - 5,341 - 5,341

At 31 December 2016 - 163,125 47,185 (196,440) 13,870

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 16STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016

Group Group Company Company

2016 2015 2016 2015

£’000 £’000 £’000 £’000

(Loss)/profit for the year (89) 2,318 (89) 2,338

Income tax charge 20 1,975 - -

(Loss)/profit before tax (69) 4,293 (89) 2,338

Finance income (28) (30) - (4)

Operating (loss)/profit (97) 4,263 (89) 2,334

Profit on disposal of investment properties (915) (1,578) - -

Exchange rate differences 283 246 282 245

Adjustments for:

Finance income 28 30 - 4

Other income (3,674) - - -

Reversal of impairment of investments in subsidiaries - - (1,783) (3,415)

Net deficit on revaluation of property portfolio 2,910 675 - -

Changes in working capital:

Decrease in trade and other receivables 1,323 1,832 338 187

(Decrease)/increase in trade and other payables (3,099) 73 (96) 63

(3,241) 5,541 (1,348) (582)

Tax refunded/(paid) 162 (1,794) - -

Net cash (outflow)/inflow used in operating activities (3,079) 3,747 (1,348) (582)

Cash flows from investing activities

Payments to enhance properties (25) (466) - -

Cash proceeds from sale of properties 19,329 17,131 - -

Proceeds on disposal of investments - - 20,935 20,317

Net cash inflow from investing activities 19,304 16,665 20,935 20,317

Cash flows from financing activities

Return of capital (22,712) (21,613) (22,712) (21,613)

Net cash outflow used in financing activities (22,712) (21,613) (22,712) (21,613)

Net decrease in cash and cash equivalents (6,487) (1,201) (3,125) (1,878)

Opening cash and cash equivalents 12,515 14,653 7,463 10,267

Effects of exchange rate changes on cash and cash equivalents 2,701 (937) 2,025 (926)

Closing cash and cash equivalents 8,729 12,515 6,363 7,463


Included within the Group’s closing cash and cash equivalents is £nil million (2015: £2.2 million) held as rent guarantees against future rental receipts which are refundable to tenants. The corresponding creditor at 31 December 2015 was shown within trade and other payables in note 21.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 17 NOTES TO THE FINANCIAL STATEMENTS

1. General information

European Real Estate Investment Trust Limited (“EREIT” or the “Company”) is a company incorporated and registered in Guernsey. The consolidated and Company Financial Statements for the year ended 31 December 2016 were approved and authorised for issue by the Board of Directors on 10 April 2017.

2. Basis of preparation

The consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee (“IFRIC”), interpretations as endorsed by the European Union (“EU”) and with those applicable parts of the Companies (Guernsey) Law, 2008. The Financial Statements have been rounded to the nearest thousand and prepared in sterling, which is the presentation currency of EREIT and all its subsidiaries (the “Group”). The entities of the Group use a different functional currency, being the currency in the primary economic environment in which the entity operates.

The Financial Statements are prepared under the historical cost convention, as modified by the revaluation of land and buildings.

In these Financial Statements, Income tax payable has been separated from Trade and other payables and shown as a separate item in the Statements of Financial Position (the amount in 2014 was £3.08 million). This is a presentational change and has no other impact.

Note 3 sets out a description of the significant accounting policies of the Group. The accounting policies are consistent with those applied in the year ended 31 December 2015, as amended to reflect the adoption of the new standards, amendments to standards or interpretations which are mandatory for the first time for the financial year ended 31 December 2016.

(a) Going Concern

Following the Extraordinary General Meeting held on 5 August 2011, the Group’s investment policy was revised to effect an orderly disposal programme and return surplus capital to shareholders.

Following the sale of the Spanish properties during the year and the French property post year-end, the Group no longer has any properties. The Group will retain sufficient cash to meet its ongoing administrative and liquidation costs.

As the Directors intend to return all capital to shareholders of the Company they have not prepared the Financial Statements on a going concern basis. This has not had any impact on the carrying value of the Group’s assets or liabilities.

(b) Standards, interpretations and amendments to published standards adopted in the year

There have been various amendments and interpretations to published standards during the year but none have had an impact on the Group.

(c) Standards, amendments and interpretations to published standards not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning after 1 January 2017 or later periods and whilst the Directors are considering these, initial indications are that these changes will have no material impact, especially given the operations are being run down.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 18 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. Significant accounting policies

(a) Basis of consolidation

The consolidated Financial Statements incorporate the Financial Statements of the Company and the subsidiary undertakings controlled by the Company, made up to 31 December each year. Control is achieved where the Company has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect the amount of the investor’s returns.

The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal as appropriate.

When necessary, adjustments are made to the financial statements of subsidiary undertakings to bring accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(b) Investment properties

Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.

Investment properties are measured initially at cost, including directly attributable costs of acquisition. After initial recognition at cost, investment properties are carried at their fair value based on professional valuation at each reporting date representing the ‘market value’ assuming an asset sale of each property. Properties are treated as acquired at the point when the Group assumes the significant risks and returns of ownership and as disposed when these are transferred to the buyer.

The difference between the fair value of an investment property at the reporting date and its carrying amount prior to re-measurement is included in profit or loss in the Statement of Comprehensive Income as a valuation gain or loss.

(c) Properties held for sale

Properties are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. For this to be the case, the asset must be available for immediate sale in its present condition; management must be committed to and have initiated a plan to sell the asset (and such a plan is unlikely to have significant changes made to it or be withdrawn); an active programme to locate a buyer has been initiated; the asset is being marketed at a reasonable price in relation to its fair value, and the asset is expected to sell within twelve months. Property assets that are classified as held for sale are measured at fair value.

(d) Investments in subsidiary undertakings in the Company Financial Statements

Investments in subsidiary undertakings are stated at cost less any provision for impairment in value.

(e) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently at amortised cost. An allowance for impairment is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables concerned.

(f) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less from inception.

(g) Trade and other payables

Trade and other payables are stated initially at fair value and subsequently at amortised cost.


3. Significant accounting policies (continued)

(h) Share capital

Ordinary shares are classified as equity.

(i) Revenue

The Group recognises revenue on an accruals basis, and when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Group. Group revenue is comprised of rental income, service charges and dilapidations income from tenants of the Group’s investment properties. The Company’s revenue is comprised of management fees receivable from its subsidiary undertakings.

Rental income from investment property leased out under an operating lease is recognised in profit or loss in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the net consideration for the use of the property and are therefore recognised on the same, straight-line basis.

(j) Impairment

The carrying amount of the Company’s investments in each of its subsidiary undertakings is compared at each reporting date to the fair value of those subsidiaries. Any impairment loss or reversal of impairment loss is recognised in profit or loss in the Statement of Comprehensive Income.

(k) Income tax

Income tax on the profit for the year comprises current and deferred tax. Current tax is the tax payable on the taxable income for the year and any adjustments in respect of previous years. Deferred tax is provided in full using the liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the asset is realised or the liability is settled.

No provision is made for temporary differences arising on the initial recognition of assets or liabilities, other than on a business combination, that affect neither accounting nor taxable profit nor for differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future.

(l) Dividends

Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s Financial Statements in the period in which the dividends are approved by the Company’s shareholders, except that interim dividends are recognised when paid.

(m) Foreign currency translation

The functional currency of all the entities in the Group is the euro, as this is the currency in which the majority of investment takes place and in which the majority of income and expenses are incurred. The Financial Statements are presented in sterling (the “presentation currency”) as the shares of the Company are sterling denominated and are listed on the full list of the London Stock Exchange.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss in the Statement of Comprehensive Income.

Income and expenses are translated into the presentation currency at an average rate for the period. Assets and liabilities held at the end of the reporting period are translated into the presentation currency at the exchange rate prevailing at that date. Foreign exchange differences arising on translation to the presentation currency are recognised in other comprehensive income in the Statement of Comprehensive Income.


4. Significant judgments, key assumptions and estimates

The Group’s significant accounting policies are stated in note 3. Not all of these significant accounting policies required the Directors to make difficult, subjective or complex judgements or estimates. The following is intended to provide an understanding of the policies that the Directors consider critical because of the level of complexity, judgement or estimation involved in their application and their impact on the Financial Statements. These judgements involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

(a) Income and deferred taxes

The Group is subject to income and capital gains taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. As an example judgment may be required to determine the allowability of certain expenses, the utilisation of tax losses against taxable profits and the use of merger relief provisions.

As part of routine tax enquiries, the Group will periodically have certain open items. Judgement is required in determining the likelihood of any additional tax liabilities arising from these open items.

The French tax authorities undertook an audit with respect to the property held at La Gaude and raised an assessment of €2.2 million which was paid in 2015. The Group has commenced legal proceedings to recover this amount from the French tax authorities. These legal proceedings are on-going; however a court date has not been set. As recovery is uncertain the amount has not been treated as a debtor.

5. Financial risk management

The Group’s activities expose it to a variety of financial risks: interest rate risk, currency risk, credit risk, liquidity risk and capital risk management. The Group’s overall risk management programme focuses on the unpredictability of the Western European property market and seeks to minimise potential adverse effects on the Group’s financial performance. Once considered appropriate, the Group uses derivative financial instruments to hedge certain risk exposures.

As at 31 December 2016, the Group was exposed to interest rate risk, currency risk, credit risk, liquidity risk and capital risk management.

(a) Interest rate risk

The Group and the Company is exposed to interest rate risk on its interest bearing cash balances. Any changes in interest rates will have an impact on the interest income the Group and Company will earn. At 31 December 2016 the Group had interest bearing cash balances of £4.8 million (2015: £0.5 million). As both Sterling and Euro interest rates are currently at a low level, interest earned in the year on the Group’s cash balances was only £305 (2015: £4,000).


5. Financial risk management (continued)

(b) Currency risk

A strengthening or weakening in the euro or sterling rate would not have a significant impact on the reported profit and losses. However, as the Group’s investments will typically be made in currencies other than sterling and generate non-sterling revenue, with the Net Asset Value being stated in sterling, the Group will be exposed to currency fluctuations between the Group’s presentation currency and other currencies (primarily the euro). Movements in the exchange rate between sterling and any currencies in which the Group transacts may have an unfavourable effect on the Group’s returns. These movements in the exchange rate may be influenced by factors such as trade imbalances, levels of short term interest rates, differences in relative values of similar assets in different currencies, long term opportunities for investment and capital appreciation and political developments.

As the Group's policy is for group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency, the Group’s exposure to foreign exchange risk in this regard is insignificant. Where group entities have liabilities in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already in that currency will, where possible, be transferred from elsewhere within the Group.

The functional currency of the Company and its subsidiaries is the euro. The table below details the Group’s exposure to foreign currencies at the year-end date:


£’000 £’000 £’000 £’000Net assetsEuros 9,205 30,888 9,205 30,886Sterling 4,665 444 4,665 444

13,870 31,332 13,870 31,330

The table below shows the effect on the net assets of the Group and Company at 31 December 2016 if the euro had strengthened or weakened against sterling by various amounts, with all other variables held constant.

Group Company£’000 £’000

Net assets Net assets

Sterling to euro exchange rateExchange rate: £1:€1.05 15,428 15,428 Exchange rate: £1:€1.10 14,727 14,727 Year-end closing rate: £1:€1.1679 13,870 13,870 Exchange rate: £1:€1.20 13,499 13,499 Exchange rate: £1:€1.25 12,959 12,959


5. Financial risk management (continued)

(c) Credit risk

The Group is exposed to credit risk from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposure to tenants.

The credit risk on cash and cash equivalents is limited due to the high proportion of funds being held with high rated banking institutions. The table below shows the balance of cash and cash equivalents held with various financial institutions at the end of the reporting period.

Bank Ratings atGroup

balance at Company

balance at Ratings at Group

balance at Company

balance at

31/12/2016 31/12/2016 31/12/2016 31/12/2015 31/12/2015 31/12/2015£’000 £’000 £’000 £’000

Barclays Bank A 6 - A 8,540 6,294Royal Bank of Scotland A 6,363 6,363 A 1,169 1,169Bankinter - - - BBB- * 1,373 - BBVA A- 1,223 - - - -Santander A - - A 1 -Dexia A 1,092 - A 1,385 -ABN Amro A+ 45 - A+ 47 -

8,729 6,363 12,515 7,463

NB: These ratings are obtained from Fitch Ratings (* except for Bankinter which was obtained from S & P Ratings).

When the Group has tenants, the Group is exposed to loss of rental income and increase in costs, such as legal fees, if tenants fail to meet their payment obligations under their leases. The Group seeks to mitigate default risk by assessing the credit worthiness of potential and current tenants on an ongoing basis.

The Group may also require deposits or guarantees from banks, parent companies or tenants where there is a perceived credit risk or in accordance with prevailing market practice. During 2015, and as at 31 December 2015, the Group had enforced rental guarantees of £2.2 million against future rental receipts from one of its tenants. The amount was included within cash and cash equivalents and as the amounts were deemed refundable to the tenant a corresponding creditor was shown in trade and other payables.

When the Group has tenants, the Investment Manager reviews reports prepared by an independent credit rating agent, or other sources, to assess the credit quality of the tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised.

However, there is no guarantee that credit risk management procedures will be able to limit potential loss of revenues and income from tenants who default on their lease obligations. If any or all of the Group’s tenants are unable to pay against their receivable accounts, the Group’s revenues and profitability will be adversely affected. In addition the loss of income is likely to negatively affect the market value of the properties and hence the net asset value.

The Group currently has no tenants (as at 31 December 2015 the Group had one tenant, Panrico, with annual rent of £1.8 million). During the year, the Group entered into an insurance policy to mitigate the likelihood of certain potential liabilities crystallising.

(d) Liquidity risk

Liquidity risk is the risk that the Group or Company will be unable to meet its financial commitments when they fall due.

As at 31 December 2016 trade and other payables of the Group were £0.5 million (2015: £3.2million) and of the Company £0.1 million (2015: £0.2 million). These amounts are standard trade creditors with payment terms all less than one year from the reporting date. These amounts are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of discounting is not significant.

The Group retains sufficient cash balances to meet these financial commitments and its ongoing administrative and liquidation costs.

(e) Capital risk management

The Group’s investment policy is to effect an orderly disposal programme and return surplus capital to shareholders. The Group’s policy is to minimise capital risk primarily through active property asset management.


There was no change in the Group’s approach to capital management during the year.

6. Segmental reporting

IFRS 8, Operating Segments, requires operating segments to be identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group’s case is the Board of Directors) in order to allocate resources to the segments and to assess their performance. The internal financial reports received by the Board of Directors contain financial information at a Group level and there are no reconciling items between the results contained in these reports and the amounts reported in the Financial Statements. The Group’s investment property portfolio is comprised of a property in France. In prior periods, information was provided to the Board of Directors showing gross rental income and investment property valuation by individual property. For the purposes of IFRS 8, each individual property was considered to be a separate operating segment in that its performance was monitored individually. The Board of Directors considered it appropriate to aggregate these individual operating segments into geographical reportable segments, as properties within each of these geographical segments demonstrated similar long-term financial performance and economic characteristics. However, at the Extraordinary General Meeting held on 5 August 2011, the Group’s investment policy was revised to effect an orderly disposal programme. As a result of this decision, the Group’s internal reporting is more focused on the progress of the disposal programme and the returning of funds to shareholders as opposed to individual property valuation and rental income as was the case in the prior periods. As a consequence, the Board of Directors considers that the Group now has a single operating segment.

Disclosure regarding the Group’s major customers is given in note 5 (c).

Following the sale of the Spanish properties during the year, and the French property post year-end, the Group no longer has any properties or customers.

One (2015: two) customer(s) individually contributed ten percent or more to the Group’s revenue. The total contribution to revenue of the customer was £1.2 million (2015: two customers: £5.1 million).

7. Net income

2016 2015£’000 £’000

Tenant rents 1,136 4,119Dilapidations - 1,814Service charge income 75 233

Property income 1,211 6,166

Property operating expenditure (686) (992)

Net property income 525 5,174

Service charge income 75 233 Property operating expenditure (686) (992)

Non-recoverable property operating expenditure (611) (759)

Details of the operating lease arrangements are given in note 25.

Of the £0.7 million property expenditure, £0.6 million relates to the French property which has not generated any rental income in the year.

The Company earns its net income through management fees receivable from its subsidiary undertakings.

8. Employee costs

The Group has no employees (2015: nil).


9. Directors’ emoluments

2016 2015

£’000 £’000

Aggregate emoluments (Directors' fees) 92 93

The Group had three directors as at 31 December 2016 (2015: three).

The Directors are the key management of the Group, whose emoluments represent only short-term employee benefits.

10. Administrative expenses

Group Group Company Company2016 2015 2016 2015£’000 £’000 £’000 £’000

Management fee and expense reimbursements (note 26) 363 415 363 415 Legal, consultancy and tax services 564 512 295 278 Accountancy and administration 494 447 191 216 Audit fees 45 49 45 49 Other 552 145 833 162

2,018 1,568 1,727 1,120

Exchange rate differences 283 246 282 245 Reversal of impairment of investments in subsidiaries (note 17) - - (1,783) (3,415)

Total administrative expenses 2,301 1,814 226 (2,050)

Other administrative expenses include bad debts, directors’ fees, insurance, office rental, valuation, registrar and regulatory fees and sundry costs.

11. Other income


Other income 3,674 - - -

Other income relates to insurance recoverable (see note 19).


12. Income tax expense


Current tax charge 20 1,975 - -

The French tax authorities undertook an audit with respect to the property held at La Gaude and raised an assessment of €2.2 million which was paid in 2015. The Group has commenced legal proceedings to recover this amount from the French tax authorities. These legal proceedings are on-going; however a court date has not been set. As recovery is uncertain the amount has not been treated as a debtor.


(Loss)/profit before tax (69) 4,293 (89) 2,338

Tax charge at average corporate rate of 30.67% (2015: 19.65% ) (21) 844 (27) 701 Income and expenses not accountable for tax purposes (883) (120) 27 (701) Non-taxable adjustments on disposal of properties (4,605) (178) - Current tax losses not utilised 4,661 - - - Deferred tax asset on valuation deficits not recognised 850 (280) - - Utilisation of previously unrecognised tax losses - (210) - - Other adjustments 18 323 - - Payment of La Gaude tax assessment - 1,596 - -

Tax charge 20 1,975 - -

13. Dividends

The Company paid no dividends during the year (2015: £nil).

14. (Loss)/earnings per share

Group Group2016 2015

(Loss)/earnings per share – Basic and diluted (pence) (1) 8

(Loss)/earnings for the year attributable to owners of the parent (£’000) (88) 2,337

Weighted average number of shares in issue 13,672,748 27,889,131

As the Company does not have any instruments that may dilute earnings per share, the same basic and diluted (loss)/earnings per share is reported.


15. Net assets per share

Group Group2016 2015

Net assets per share (pence) 179 179

Net assets (£'000) 13,870 31,332

Number of shares in issue 7,735,321 17,499,127

16. Investment property portfolio

Group

Non currentassets

Current assets

Investmentproperties

Propertiesheld for sale

Propertyportfolio total

£’000 £’000 £’000

Book value at 31 December 2014 25,709 16,006 41,715

Capital expenditure 197 269 466Disposals - (15,107) (15,107)Movements on revaluation of properties- recognised in the statement of comprehensive income (1,048) 373 (675)Exchange differences on translation of foreign currencies (1,493) (1,541) (3,034)

Book value at 31 December 2015 23,365 - 23,365

Capital expenditure 25 - 25Disposals (18,994) - (18,994)Movements on revaluation of properties- recognised in the statement of comprehensive income (2,910) - (2,910)Exchange differences on translation of foreign currencies 3,437 - 3,437

Book value at 31 December 2016 4,923 - 4,923

Property portfolio analysis

Freehold Total

£’000 £’000 £’000

At 31 December 2016 - 4,923 4,923

At 31 December 2015 - 23,365 23,365

Leasehold


16. Investment property portfolio (continued)

Investment properties and properties held for sale require measurement at fair value.

IFRS 13 requires the categorisation of fair value measurements by the fair value hierarchy.

Fair value measurement utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the following ‘fair value hierarchy’):

- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or

indirectly (that is, derived from prices); - Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The fair value of investment properties is based on unobservable inputs and it is therefore disclosed as level 3.

As at 31 December 2016, the fair value was based on the post year-end sale price of the French asset, La Gaude on the basis that the Directors believe this was indicative of the fair value at the year-end.

As at 31 December 2015, the fair value was arrived at on the basis of valuations carried out by the Group’s external valuers CBRE Limited. The valuation basis was “Market Value” in accordance with the Royal Institution of Chartered Surveyors (“RICS”) Appraisal and Valuation Standards.

The valuation was based upon assumptions including future rental income, anticipated maintenance costs, expected vacancy rates and future development costs. The valuers also made reference to market evidence of transaction prices for similar properties.

The table below shows quantitative information about the fair value measurement of the investment properties as at 31 December 2015 using unobservable inputs:

Fair value at 31 Dec 2015

Valuation technique Unobservable inputs Range (weighted average)

€31.8m Income capitalisation Rent per sqm €0 - €54 (€32)Estimated rental value (‘ERV’) per sqm €18 - €76 (€41)Equivalent yield 10.0% - 12.6% (11.0%)

The fair value was sensitive to the assumptions made with regard to the rent, ERV and the equivalent yield. As an example, a decrease in the ERV will decrease the fair value.

The historic cost of the property portfolio translated at reporting date exchange rate is £32.2 million (December 2015: £62.0 million).


17. Investments in subsidiary undertakings

Company 2016 2015£’000 £’000

At the beginning of the year 23,785 43,136Disposals (20,935) (20,317)Reversal of impairment charge 1,783 3,415Exchange differences on translation of foreign currencies 3,007 (2,449)

At the end of the year 7,640 23,785

The extent of impairment of the Company’s investments in subsidiary undertakings has been determined by comparing the Company’s cost of investment in subsidiaries with the fair value of the subsidiaries’ assets and liabilities.

The reversal of impairment charge in 2015 and 2016 is due to profits made by the subsidiary entities during the year and the resultant increase in the underlying net assets of the subsidiary entities.

The Group undertakings which are owned either directly by the Company or through a fellow subsidiary undertaking are:

Country of Proportion ofIncorporation ownership

Matrix European Portfolio LP England & Wales 100%European Portfolio (General Partner) Limited England & Wales 100%Matrix EPH LLC Delaware, USA 100%Matrix EPH 2 Sarl Luxembourg 100%Matrix EPH Sarl Luxembourg 100%Matrix La Gaude Property Sarl Luxembourg 100%Matrix European Property Espana 2 SL Spain 100%Matrix European Property Espana 3 SL Spain 100%Matrix German Portfolio No 1 GmbH & Co KG Germany 100%Matrix German Portfolio No.1 Frankfurt Sarl Luxembourg 100%

During the year Matrix German Portfolio No.1 Kaiserslautern Sarl, Matrix German Portfolio No.1 Frankfurt Sarl, MEP Netherlands I BV and Matrix German Portfolio No.1 Verwaltungs GmbH were merged into Matrix EPH Sarl.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 29 NOTES TO THE FINANCIAL STATEMENTS

18. Financial instruments by category


Loans and receivables




£'000 £'000 £'000 £'000

Assets as per Statement of Financial PositionTrade and other receivables Rent receivable - 17 - - Monies held by property managers 64 257 - - Amounts due from subsidiary undertakings - - - 281 Amounts held in escrow - 976 - - Other debtors 175 - - -

239 1,250 - 281

Cash and cash equivalents 8,729 12,515 6,363 7,463

8,968 13,765 6,363 7,744


Liabilities held at

amortised cost

Liabilities held at

amortised cost

Liabilities held at

amortised cost

Liabilities held at

amortised cost

£'000 £'000 £'000 £'000

Liabilities as per Statement of Financial PositionTrade and other payables Trade payables 195 207 8 9 Amounts due to related parties 50 34 50 34 Accruals 244 591 78 161 Rent guarantees - 2,166 - - Other payables - 134 1 -

489 3,132 137 204


19. Trade and other receivables


Rent receivable - 17 - -Monies held by property managers 64 257 - -VAT recoverable 219 426 - -Amounts due from subsidiary undertakings - - - 281Amounts held in escrow - 976 - -Insurance recoverable 3,852 - - - Other 400 99 4 5

4,535 1,775 4 286

Amounts held in escrow related to cash held in escrow in connection with property sales. The amounts were held for a specific period to cover potential claims from purchasers. The outstanding balances as at 31 December 2015 were received in May and December 2016. The associated income from the Insurance recoverable has been shown as Other income (note 11).

The table below shows the trade and other receivables past due but not impaired:


Rent receivable - 17 - -Monies held by property managers 64 257 - -Other 272 31 - -

336 305 - -

The Group’s and Company’s trade and other receivables are denominated in euros.

There is no significant difference between the fair value and carrying value of trade and other receivables at the Statement of Financial Position date.

Trade and other receivables are reviewed for recoverability on an on-going basis. When the Group had tenants, the Investment Manager regularly monitored reports prepared by an independent credit rating agent, or other sources, to assess the credit quality of the tenants.


20. Cash and cash equivalents


Cash at bank and in hand 8,729 12,515 6,363 7,463

Included within the Group’s cash and cash equivalents was £nil million (2015: £2.2 million) held as rent guarantees against future rental receipts, which were refundable to tenants. The corresponding creditor at 31 December 2015 was shown within trade and other payables in note 21.

The Group and Company’s cash and cash equivalents are denominated in euros and sterling. As at 31 December 2016 the Group had sterling cash balances of £4.8 million and euro cash balances of €4.6 million (2015: sterling £0.5 million; euro €16.4 million). As at 31 December 2016 the Company had sterling cash balances of £4.8 million and euro cash balances of €1.8 million (2015: sterling £0.5 million; euro €9.5 million).

21. Trade and other payables


Trade payables 195 207 8 9Amounts due to related parties 50 34 50 34Accruals 244 591 78 161VAT payable 38 106 - -Rent guarantees - 2,166 - -Other payables - 134 1 -

527 3,238 137 204

Rent guarantees were refundable to tenants, as referred to in note 20.

The Group’s and Company’s trade and other payables are denominated in euros and sterling. There is no significant difference between the fair value and carrying value of trade and other payables at the Statement of Financial Position date.

22. Income Tax payable


Income tax 3,790 3,085 - -


23. 2Deferred tax

Group

The Group has no deferred tax liabilities.

Deferred tax assets in respect of trading losses have not been recognised where their future recovery is uncertain or not currently anticipated. At 31 December 2016 the unrecognised deferred tax asset was £5.4 million (2015: £0.8 million).

Company

The Company has no deferred tax liabilities or assets.

24. Share Capital and Reserves

2016 2015No. No.

Issued and fully paid Participating shares

Opening balance 17,499,127 29,648,273

Redemption of shares (9,763,806) (12,149,146)

Closing balance 7,735,321 17,499,127

During the year the Group returned capital of £22.7 million (2015: £21.6 million) to shareholders via the redemption of 9,763,806 (2015: 12,149,146) of the Company’s issued shares.

2016 2016 2015 2015No. £ No. £

Authorised share capitalManagement shares of £1 100 100 100 100Participating shares with no par value unlimited - unlimited -

Issued and fully paidManagement sharesOpening balance - - 2 2Redemption - - (2) (2)Closing balance - - - -

Share Capital:

On the 20 August 2015 the management shares were redeemed in full for consideration of £5,000.

The Management shares ranked pari passu with the Participating shares in the event of liquidation but only for the return of the nominal paid up capital. They carried no voting rights, unless there were no Participating shares in issue, and carried no rights to dividends. The following describes the nature and purpose of each reserve within equity: Special reserve On 15 December 2006 the Royal Court of Guernsey confirmed the reduction of the Company’s share capital by cancellation of its share premium at that time and creation of a separate special reserve, which is an additional distributable reserve to be used for all purposes permitted under Guernsey company law, including the buy-back of shares and the payment of dividends.


24. Share Capital and Reserves (continued)

Translation reserve The amount of any gains and losses arising on the translation of net assets of foreign operations into Sterling. Revenue reserve The cumulative amount of any profits or losses. Non-controlling interests The share of net assets attributable to non-controlling interests in subsidiary undertakings.

25. Operating lease arrangement

At the end of the reporting year, the Group had contracted with tenants to receive the following future minimum lease payments:

2016 2015£’000 £’000

Not later than one year - 1,805Later than one year but no more than five years - 7,219More than five years - 33,705

- 42,729

26. Related party transactions

On 5 September 2012, Schroder Real Estate Investment Management Limited (the “Investment Manager”) was appointed, for a two year period, to manage the Group. On 8 October 2014, and subsequently on 23 November 2016, the appointment was extended. The Investment Management Agreement (‘IMA’) now terminates on 31 December 2017, save that it may be extended by mutual agreement.

Under the terms of the IMA, the Investment Manager is responsible for advising the Group on the overall management of the Group’s investments and for managing those investments in accordance with the Group’s investment objective and policy, subject to the overall supervision of the Directors.

In October 2014, under the terms of the extension, the base management fee was reduced to £400,000 per annum. In addition, for the Panrico properties, the Investment Manager was entitled to a fee of 0.25% of the gross sales price plus an additional 0.50% of the gross sales price (if no external sales brokerage fees were paid), an additional 0.25% of the gross sales price if such sales price was greater than the value of that property as at 30 June 2014, and a discretionary bonus paid at the absolute discretion of the Board.

Under the November 2016 extension, the base management fee has been reduced to £200,000 per annum. Following the sale of the French asset this will reduce to £75,000 per annum. The Investment Manager is entitled to a fee of 0.25% of the gross sales price of the French asset.


26. Related party transactions (continued)

The figures below show the related party transactions with the Investment Manager at the reporting date.

2016 2015£’000 £’000

Statement of Comprehensive IncomeManagement fee (352) (400)Disposal fees * (297) (44)Expense reimbursements (11) (15)

(660) (459)

2016 2015£’000 £’000

Statement of Financial PositionManagement fee accrual 50 32Disposal fees - 44

50 76

* The disposal fees relate to the Investment Manager’s entitlement to a fee on the Panrico disposal. The fee is based on 1% of the gross sales price and a £0.1 million discretionary bonus.

In October 2011 the Group engaged Klockensteijn B.V, a company of which the director J van der Vlist is the beneficial owner, to provide consultancy services. Klockensteijn’s engagement terminated on 8 October 2016. Up until termination, Klockensteijn was entitled to a consultancy fee of €30,000 (£25,687) per annum with no entitlement to performance fees.

During the year Klockensteijn charged the Group £18,833 (2015: £21,768) and at the year-end the Group owed Klockensteijn £nil (2015: £1,835).

Details regarding the fees paid to Directors are shown in note 9 and in the Directors’ report on page 9.

During the year the Directors received the following capital redemptions.

2016 2015£’000 £’000

S Coe 3 3J van der Vlist 16 15W Hamman - -

19 18

27. Events after the balance sheet date

On 6 April 2017, the Group announced the notarisation of the sale of its property in La Gaude, France. The property is to be sold for €5.75 million with completion by end of June 2017.

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 35 COMPANY INFORMATION

Directors: Stephen Coe (Chairman) Jan van der Vlist

Wessel Hamman Registered office: Sarnia House Le Truchot St. Peter Port

Guernsey GY1 1GR

Investment Manager: Schroder Real Estate Investment Management Limited 31 Gresham Street London EC2V 7QA

Administrator and Secretary: Praxis Fund Services Limited Sarnia House Le Truchot St. Peter Port Guernsey GY1 1GR

Luxembourg Administrator: Saltgate.S.A. 40 Avenue Monterey L-2163 Luxembourg Grand Duchy of Luxembourg

Broker: Cenkos Securities Limited 6.7.8 Tokenhouse Yard London EC2R 7AS

Independent Valuer: CBRE Limited Henrietta House Henrietta Place

London W1G 0NB Independent Auditor: BDO Limited PO Box 180 Place du Pré Rue du Pré St Peter Port Guernsey GY1 3LL Accountants: MGR Weston Kay LLP 55 Loudoun Road London NW8 0DL Tax Advisor: KPMG LLP Fifteen Canada Square London E14 SGL

Legal Advisor: Stephenson Harwood One, St Paul’s Churchyard London EC4M 8SH

Registrar: Computershare Investor Services (Jersey) Ltd Queensway House Hilgrove Street St. Helier Jersey JE1 1ES

EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 36 INFORMATION FOR SHAREHOLDERS

Financial calendar Annual General Meeting May 2017

Half year report August 2017

Share price Share price at 31 December 2016 163p High during the year ended 31 December 2016 (1 August 2016) 203p Low during the year ended 31 December 2016 (6 June 2016) 127p

Other (€:£) Average exchange rate for the year 1.2247 Closing exchange rate for the year 1.1679

Investor relations and general enquiries

For all investor relations and general enquiries about EREIT, including requests for copies of the Report and Accounts, please contact: Praxis Fund Services Limited Sarnia House Le Truchot St. Peter Port Guernsey GY1 1GR Or visit our investor relations website, www.ereit.co.uk, for full up-to-date investor relations information including the latest share price, recent annual and interim reports, results presentations and financial news. Communications with shareholders are mailed to the addresses held on the share register. For all shareholder administration enquires, including changes of address, please contact: Computershare Investor Services (Jersey) Ltd Queensway House Hilgrove Street St. Helier Jersey JE1 1ES

Documents

EUROPEAN REAL ESTATE INVESTMENT TRUST …EUROPEAN REAL ESTATE INVESTMENT TRUST LIMITED PAGE 3 CHAIRMAN’S STATEMENT Update With one property asset remaining at year end, the Company