KPMG - IERE

currently are not entitled to recover value added taxes. The Group has also been the subject of a
value added tax audit by Spanish tax authorities in connection with its acquisition of the logistics
property near Madrid. The audit concluded that the Group was entitled to be reimbursed fully for
the value added taxes levied on such acquisitions.
Although certain synergies and economies of scale are anticipated from being invested in a large
number of properties, the absolute amount of operating expenses will increase as the Group’s
portfolio expands. Operating expenses generally consist of property management fees, taxes, utilities,
insurance and site maintenance costs to the extent that these are not paid by the tenant. The extent
to which increases in operating expenses are passed on to or paid in full by tenants varies according
to industry practice and market conditions in the logistics, office and retail sectors and in the
Continental European markets where the Group is invested. Properties may be reassessed after the
date of the Prospectus. The amount of property taxes the Group must pay in the future may increase
substantially from the amount paid in the past.
The Group may acquire properties subject to existing mortgage financing and other indebtedness or
new indebtedness may be incurred in connection with acquiring or refinancing such properties.
Historically, the Group has financed its acquisitions with drawdowns from the Bank Facility and
Shareholder Loans. Sources of capital for future acquisitions may include net cash proceeds received
by the Company from the Offer, borrowings under the Bank Facility which has been amended,
conditional upon Admission, securitisation of the properties owned by the Group, proceeds from
future issuances of debt or equity securities, proceeds from sales of properties, assumption of debt
related to the acquired properties or private capital from co-investment partners. Debt service will
have a priority over any dividends with respect to the Shares.
Rental income
The Group derives rental income from leases on its properties. In the near term, rental income is
expected to increase as the Group continues to expand its portfolio. Once the Company is fully
invested, the amount of rental income generated by the properties in the Group’s portfolio will
depend principally on the Group’s ability to maintain the occupancy rates of leased space and to
lease available space on favourable terms. The Group’s acquired properties were approximately 95 per
cent. occupied by area as at the date of this Prospectus. 5,240 sq m of currently available space at
Marseille and 387 sq m of currently available space at Leuven are covered by vendor rental
guarantees that expire in March 2007 and June 2007 respectively. The amount of rental income
generated also depends on the Group’s ability to maintain or increase rental rates and to attract and
retain creditworthy tenants.
Lease indexation provisions are also expected to have an impact on rental income. Substantially all of
the leases on the properties owned by the Group contain indexation provisions that result in rental
adjustments which may be negative as well as positive. Rental adjustments reflect movements in
consumer price indices for properties in Germany, Spain and Belgium and in the consumer price
index or the national construction costs index for properties in France. Under certain leases,
particularly for properties in Germany, indexation adjustments may be made only after a certain
number of years and/or a certain percentage change in the consumer price index. Due to increases in
rental rates as a result of lease indexation provisions, rental rates for the Group’s properties may not
reflect the prevailing market rates.
No property is currently held for redevelopment. In future periods, certain properties may be held for
refurbishment or upgrades upon lease expiries.
Lease termination and rental default
The expiration or termination of a lease to significant tenants, or a default on lease payment
obligations by such tenants, could affect the stability of the Group’s rental income. As at the date of
this Prospectus, approximately 95 per cent. by area of the property owned by the Group was
occupied. The leases scheduled to expire from the date of this Prospectus up to 31 December 2009
represent approximately 5 per cent. of the rental income from the properties owned by the Group.
The Group’s ability to re-let property subject to an expired or terminated lease is affected by general
economic conditions in the relevant Continental European real estate markets, availability of
equivalent space in such markets and competition for tenants as well as the desirability of individual
properties within the Group’s portfolio. As these factors are beyond the Group’s control, the Group
may experience significant fluctuations in its rental income if it cannot re-let properties on favourable
long lease terms to creditworthy tenants on a timely basis or at all.
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