the group makes estimates and assumptions concerning the future and such accounting 612413

Rutley European Property Limited (2008)

Notes to the Consolidated Financial Statements [extract]

3. Critical Accounting Estimates and Assumptions [extract]

The Group makes estimates and assumptions concerning the future and such accounting estimates may differ from the actual results. The estimates and assumptions that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year relate primarily to the valuation of investment properties.

The fair value of investment properties in the Consolidated Balance Sheet represents an estimate by independent professional valuers of the open market value of those properties as at 31 December 2008.

In assessing the open market value of investment properties, the professional valuers will consider lettings, tenant”s profiles, future revenue streams, capital values of both fixtures and fittings and plant and machinery, any environmental matters and the overall repair and condition of the property in the context of the local market. Data regarding local market conditions is primarily historic in nature and provides a guide as to current letting values and yields.

The current volatility in the global financial system has created a significant degree of turbulence in commercial real estate markets across the world. There has been a significant reduction in transaction volumes with activity below the levels of recent years. Therefore, in arriving at their estimates of open market values as at 31 December 2008, the valuers have increasingly used their market knowledge and professional judgement and not only relied on historic transactional comparables. In these circumstances, there is a greater degree of uncertainty than that which exists in a more active market in estimating the open market values of investment property.

The lack of liquidity in capital markets also means that, if it was intended to dispose of the property, it may be difficult to achieve a successful sale of the investment property in the short term.

The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 13.

13. Investment Property [extract]

The investment properties were valued at 31 December 2008 at their open market value using an income capitalisation method in accordance with the Royal Institution of Chartered Surveyors Valuation Standards. The property valuations were carried out by CBRE and King Sturge, who are independent, professionally qualified valuers who have recent experience in the location and category of the investment properties being valued. Valuation of property is based on a number of factors including existing lease terms, estimates of market rents and estimates of capitalisation rates using comparable market evidence where available. As set out in note 3, due to a reduction in transaction volumes and therefore market evidence this year, the valuers have increasingly used their market knowledge and professional judgement and not only relied on historic transactional comparables.

The primary judgements made in arriving at the open market values are the yields. The table below sets out the weighted average yields for the initial (as at 31 December 2008) and equivalent yields applied on a country basis: