Cromwell European REIT - Annual Report 2021

FOCUS ON STRENGTHS PIVOT TO LOGISTICS 196 Key Audit Matter How the matter was addressed in the audit Fair Valuation and Disclosure of Fair Value for Investment Properties CEREIT owns a portfolio of investment properties as at 31 December 2021, comprising mainly commercial office and light industrial complexes across 10 European countries which includes Czech Republic, Denmark, Finland, France, Germany, Italy, the Netherlands, Poland, Slovakia and United Kingdom. The investment properties represent the single largest category of assets with a carrying amount of €2,449 million as at 31 December 2021. CEREIT has adopted the fair value model under IAS 40 Investment Property which requires all the investment properties to be measured at fair value. CEREIT has engaged external independent valuers (“Valuers”) to perform the fair value assessment for all 112 investment properties except for 4 properties in the United Kingdom and Netherlands whose fair value is based on their acquisition prices in the second half of 2021. Given the insignificant period lapsed from the transaction date to the financial year end, the Directors and Manager considered the transaction prices amounting to €70.0 million to be equal to the fair value of the properties at financial year end. The fair valuation of investment properties is considered to be a matter of significance as the valuation process requires the application of judgement in determining the appropriate valuation methodology to be used, use of subjective assumptions and various unobservable inputs. The fair valuations are sensitive to underlying assumptions applied in deriving the underlying cash flows and capitalisation rates as a small change in these assumptions can result in an increase or decrease in fair valuation of the investment properties. The valuation techniques, their key inputs and the inter- relationships between the inputs and the valuation have been disclosed in Note 9 to the consolidated financial statements. We have assessed CEREIT’s process of appointment and determination of the scope of work of the Valuers, as well as their process of reviewing, and accepting the Valuers’ investment property valuations. We have reviewed the qualifications, competence, independence, and the terms of the engagement of the Valuers with CEREIT to determine whether there were any matters which might affect objectivity of the Valuers or impede their scope of work. We held discussions with management and the Valuers on the valuation reports, and engaged our valuation specialists to assist in: • Assessing the valuation methodologies, assumptions and estimates used by the Valuers against general market practice for similar types of properties; • Comparing valuation assumptions and the underlying cash flows and capitalisation rates to historical rates, and available industry data for comparable markets and properties; • Reviewing the integrity of the valuation calculations, valuation inputs, including review of lease schedules, lease agreements and comparison to the inputs made to the projected cash flows; and • Reviewed management’s considerations on the implications of COVID-19. Based on the audit procedures performed, the fair valuation of the properties and the various inputs used are within a reasonable range of our expectations. We have assessed and validated the adequacy and appropriateness of the overall disclosures. INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF CROMWELL EUROPEAN REAL ESTATE INVESTMENT TRUST