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Germany/Austria Property Portfolio

The Germany/Austria Property Portfolio ("the portfolio") was acquired in stages, commencing in December 2004 and completing in June 2005, to provide investors with an opportunity to benefit from the attractive yields offered by investment in commercial property in Austria and Germany.

The following acquisitions were made:

  • 15 December 2004 - 6 GWB shopping centres in Germany ("GWB");

  • 25 January 2005 - 15 Netto Marken Discount retail supermarkets in Germany ("Netto");

  • 23 June 2005 - 30% of the equity in Nadiv Investments SA, which acquired a portfolio of 19 Auto Teiler Unger properties in Germany ("ATU Germany"); and

  • 23 June 2005 - 30% of the equity in Peter Unger GmbH Co. KG, which acquired a portfolio of 9 Auto Teiler Unger properties in Austria ("ATU Austria");
The equity invested has been allocated between these four investments in the ratio of 40% GWB, 30% Netto, 20% ATU Germany and 10% ATU Austria.

The GWB and Netto components of the portfolio were sold in August 2007 generating a 17% IRR to investors on the combined sale.

ATU Austria was recently revalued externally by CB Richard Ellis (a leading commercial property adviser) as part of a potential sale. The sale which was under offer at a price slightly below this valuation was put on hold by the purchaser. After taking account of the amortisation of the bank loan and sales costs, the value of the initial investment has increased by 34%. The valuation done by CB Richard Ellis proves the investment has held its value despite difficult market conditions.

The investment in ATU Germany was revalued internally by the Directors resulting in an increase of 35%.

We anticipate holding these within the next reporting period.

Distributions

We are pleased to report that a dividend of 4.67% for the period ended February 2008 will be paid from ATU Austria in April 2008.

Distributions from ATU Germany are treated as a repayment of capital. We are pleased to report that a repayment of loan capital €81,000 will be paid from ATU Germany in April 2008.

The price of the portfolio was adjusted from €1 to 34c to reflect the capital repaid in August 2007 as a result of the sale of GWB and Netto. The price remains 34c following the latest valuations.

Market commentary

The Austrian and German real estate market has performed in a similar way to that of most of Western Europe over the last two years, with capital growth being achieved by decreasing cap rates. The timing of these off market transactions - having been negotiated in late 2004 and completed in June 2005 - has therefore enabled this investment to achieve a significant increase in value.

The current bank credit crisis should have no immediate effect on the performance of the remaining ATU portfolios as the bank loan interest rate is fixed, and the loan maturity is October 2012 and January 2013.

Tenant

ATU is Germany’s largest auto spare parts and servicing business. It operates 460 stores throughout Germany and 9 in Austria. As Germany’s leading specialist non–affiliated car
parts stockist, with registered vehicle services centres, ATU’s core business is the retail sale of car parts and accessories for all common cars and models and immediate fitting of those parts in its own workshops. The company sells a range of approximately 45,000 products and employs over 12,000 people.

ATU was established by Peter Unger in 1985. In 2001, Mr Unger sold the majority shareholding in the company to Doughty Hanson & Co, a large US fund manager. Doughty Hanson sold their shareholding to Kohlberg Kravis Roberts (KKR) on 30 June 2004 in a deal valued at U$1.75b. Due to December 2007 EBITDA underperforming expectations, a financial restructuring exercise took place in which KKR/ Doughty Hanson injected €140m by way of equity.

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Germany/Austria Property Portfolio Properties


Important Notice

The investment is suitable for those investors who understand the risks involved and who are able and willing to withstand loss of investment. Investors are referred to the summary of risks listed in the Private Placement Memorandum before making an investment.

Investors should be aware that the shares are not listed and are regarded as non-readily realisable investments. Any investment should be intended to be long term. It may be difficult to sell the shares at a reasonable price and, in some circumstances, it may be difficult to sell the shares at any price. Although the Company has the power to purchase or redeem its shares in certain circumstances it is not obliged to do so and investors should not expect that it will do so.

Market movements may cause the value of the investment and the income thereon to up or down and you may not get back the amount invested. Past performance is not a guide to future performance.

Investors should not invest in the shares unless they have carefully considered whether or not such investment is suitable depending upon their circumstances and they should take advice before investing.