28th Jun 2007 07:03
Invista Foundation Property Tst Ltd28 June 2007 28 June 2007 Invista Foundation Property Trust Limited ("IFPT"/ the "Company"/ "Group") Audited Annual Report for the year ended 31 March 2007 IFPT DELIVERS ON LONDON INVESTMENT STRATEGY The Invista Foundation Property Trust has today announced its results for theyear ended 31 March 2007. Financial highlights • Net Asset Value per share of 142.2 pence, up 22.6 pence per share or 18.9% (2006: 119.6p) • Property assets of £717.4 million (2006: £556.3 million) and net assets of £502.7 million (2006: £422.8 million) • Group's underlying property portfolio produced a total return of 22.7%, compared with the peer group Benchmark of 14.7%, placing the Company's portfolio top in its peer group of 63 property funds • Profit before tax increased by 29% to £97.4 million (2006: £74.9 million) • Underlying NAV total return of 25.25%; since inception, shareholders have received an annualised net asset value total return of 22% • Total dividend for the year to 31 March 2007 of 6.75 pence per share • Significant financial firepower to fund the Company's next phase of growth. Operational and strategic highlights • Performance significantly enhanced by strategic decision made in 2005 to upweight the portfolio more heavily to Central London offices. The £165 million invested in the six key Central London offices increased in value to over £254 million including re-finance proceeds • Active asset management initiatives driving capital and income growth • Company is now looking to target defensive income orientated assets in non-traditional UK sectors such as healthcare, residential and real estate backed infrastructure investments to continue to drive returns. Commenting, Andrew Sykes, Chairman of the Board, said: "The Group has had another active and successful year with strong performancefrom the underlying property portfolio. It is positioned to benefit from goodincome growth through its high weighting in Central London combined with itsmajor asset management projects. The UK commercial property market is likely toslow and become more challenging, albeit protected currently by relativelybenign economic conditions. This environment should allow the Group to continueto differentiate itself by offering an attractive dividend yield with assetmanagement led capital growth." For further information: Duncan OwenInvista Real Estate Investment Management 020 7153 9345 Stephanie Highett / Dido LaurimoreFinancial Dynamics 020 7831 3113 Objective To provide Shareholders with an attractive level of income together with thepotential for income and capital growth from investing in UK commercialproperty. Invista Foundation Property Trust Limited and its subsidiaries (the 'Company' /the 'Group') hold a diversified portfolio of UK commercial properties, which ismainly invested in three commercial property sectors; office, retail andindustrial. The Group will also invest in other sectors from time to time. TheGroup will not invest in other listed investment companies. In pursuing theinvestment objective, the Investment Manager concentrates on assets with goodfundamental characteristics, a diverse spread of occupational tenants and withopportunities to enhance value through active management. Financial Highlights • Net Asset Value per share increased by 18.9%• Earnings per share of 27.4 pence• The Company has declared and paid dividends amounting to 6.75 pence per share• Net Asset Value total return of 25.25% 31 March 31 March % Change 2007 2006 Net Asset Value ('NAV')(1) (£'000) £502,652 £422,771 18.9NAV per share published(1) (pence) 141.4 119.6 18.2NAV per share per accounts(1) (pence) 142.2 119.6 18.9Share price (pence) 135.3 129.0 4.9Share price (discount)/premium to NAV (4.8%) 7.9% (12.9)NAV total return 25.25% 22.3% 2.9 FTSE All Share Index 3,283.21 3,047.96 7.7FTSE Real Estate Index 5,674.77 4,743.97 19.6 Total Group assets less current liabilities(2) (£'000) £720,940 £575,480 25.3 Sources: Invista Real Estate Investment Management and Datastream based onreturns during the period 1 April 2006 to 31 March 2007 (1) Net Asset Value is calculated using International Financial Reporting Standards(2) Current liabilities excludes banking facilities Performance Summary Reconciliation of Net Asset Value per accounts to published Net Asset Value 31 March 2007 31 March 2006 Total Total £'000 £'000 Net Asset Value as published 25 April 2007 500,005 422,797Increased performance fee accrual (482) (1,160)Adjustment of tax provision based on results of subsidiaries (586) 602Revaluation of associates 3,528 (100)Revalue hedge reserve on interest rate swap (252) -Reclassification of income 439 632Net Asset Value per financial statements 502,652 422,771 Property performance Value of Property Assets 717,388 556,280Current annualised rental income including rental guarantees 30,911 30,320Estimated open market rental value 36,746 31,740Underlying property performance* 22.70% 22.20%IPD Quarterly Version of Balanced Monthly Index Funds* 14.70% 19.30% * Source: Investment Property Databank ('IPD') Summary consolidated income statement 1 April 2006 1 April 2005 To To 31 March 2007 31 March 2006 £'000 £'000 Net rental and related income 31,278 27,172Realised and unrealised gains on investment property 50,342 56,616Expenses (19,055) (12,535)Net finance costs (9,588) (4,956) Share of profit of associates 44,421 8,582Profit before tax 97,398 74,879Taxation (690) (85)Profit for the year 96,708 74,794 Earnings and dividends Earnings per share (pence) 27.4 23.5Dividends paid per share (pence) 6.75 6.75Annualised dividend yield on 31 March 2007 share price 4.99% 5.23% Bank borrowings at 31 March 2007 On-balance sheet borrowings (£'000's) 221,580 152,500On-balance sheet borrowings as % of total assets less 30.7% 26.3%current liabilitiesGroup's share of off-balance sheet borrowings (£'000's) 186,060 164,400Gearing including off-balance sheet borrowings as % of 45.0% 42.8%total assets less current liabilities (excluding bankingfacilities) Estimated Annualised Total Expense Ratio As % of total assets less current liabilities 1.06%(1) 1.10%As % of equity 1.52%(1) 1.50% (1) The Total Expense Ratio ('TER') for the year to March 2007 excludes theperformance fee of £11.4 million payable to the Investment Manager. Includingthe performance fee in the TER calculation increases the expense ratio from1.06% to 2.64% Chairman's Statement Results The year to 31 March 2007 has seen continued strength in the UK commercialproperty market, and I am pleased to report that your Company has performedwell. The Company's audited Net Asset Value ('NAV') increased by 22.59 pence per shareor 18.89% over the year to 31 March 2007. Including dividends totalling 6.75pence per share, the Company's NAV total return over the period was 25.25%.These results include a provision for a performance fee payable to Invista RealEstate (the 'Investment Manager') in accordance with the Investment ManagementAgreement. The underlying NAV total return prior to the performance fee is 28%and since inception Shareholders have received an annualised NAV total return of21.5% per annum. The Company's NAV growth is a reflection of the strong performance of the UKcommercial property market, but this performance is showing more divergencebetween individual sectors and regions. Central London offices havesignificantly outperformed other market sectors both in terms of capital growthand rental growth, and the Company's 34% weighting in this sector hassignificantly enhanced performance. Since July 2005 the Manager has deployed£164.88 million in these markets which as at March 2007 has a value of £254million, including re-finance proceeds. Notwithstanding this performance andthe current positive fundamentals in Central London, the Board and the Managerare conscious of the historic volatility of the Central London office market andare monitoring these investments closely. The performance of the Group's underlying property portfolio relative to itspeer group benchmark is measured independently by Investment Property Databank('IPD'). For the year to March 2007 the Group's property portfolio produced atotal return of 22.7%, compared with the peer group benchmark of 14.7%. Thisplaced the Company's portfolio at the top of its peer group of 63 propertyfunds. Over the same period the Company produced a slightly higher incomereturn than its peer group and, perhaps more significantly, properties held overthe year benefited from significantly more rental value growth than its peers. Recent market sentiment has, however, prevented this performance at the propertylevel from being fully reflected in the Company's share price. As marketcommentators have become more cautious about the outlook for UK commercialproperty, share prices in our sector have moved from a premium to NAV to adiscount. Over the first five months of 2007 and in common with other peergroup funds, the Company's share price has moved from a 5.5% premium to a 12%discount to the NAV as at 20 June 2007. The Board is monitoring the discountand will consider repurchasing shares if the prospective returns from doing soare expected to exceed the prospective returns which can be generated forshareholders from the Company's property portfolio. Borrowings As at 31 March 2007 the Group had total on-balance sheet borrowings of £221.58million, reflecting 30.7% of total assets less current liabilities. Gearingincluding off-balance sheet borrowings of £186.06 million amounted to 45% oftotal assets less current liabilities (excluding banking facilities) on a fullyconsolidated basis. The on-balance sheet debt of £221.58 million comprises the original securitisedfacility of £152.5 million, together with additional on-balance sheet fundingtotalling £69.08 million. The Group is planning to issue additional securitiseddebt of up to £120 million later this year. These funds will be used tore-finance the £69.08 million on more efficient terms, fund asset managementprojects and make selective new acquisitions. Investment Manager Evaluation The Board reviews the Investment Manager's performance at its quarterly Boardmeetings. In addition the Board paid its annual visit to the InvestmentManager's offices to review its resources and processes and receivepresentations on the UK commercial property market and the wider economicenvironment. Having reviewed this and the Investment Management contract, theBoard believes that the continuing appointment of the Manager, on the termsagreed, is in the interests of the shareholders. Administration After a detailed review, on the 27 June 2007 Board has agreed to appointNorthern Trust International Fund Administration Services (Guernsey) Limited asAdministrator, succeeding RBSI Fund Services (Guernsey) Limited. Market prospects The UK commercial property market produced a total return of 18.1% for the yearto December 2006, as measured by the IPD Annual Index. As highlighted above,the performance between the sectors and geographical regions of the UK isdiverging and the Company is currently benefiting from its relatively highweighting to Central London offices and its relatively low weighting to retail.The Investment Manager expects this market divergence to widen during 2007 andinto 2008, with capital growth slowing and potentially becoming negative in someareas. Strong investment flows from institutional and private investors have supportedthe property market over the past few years. Although these may be slowing asinvestors adopt a more cautious view, the market should remain underpinned byrelatively sound fundamentals in the near term, with sustained growth in GDP andrelatively low long term interest rates and inflation. The principal risk tothis positive outlook would come from any sustained increase in inflationarypressures leading to sustained higher interest rates. With this background, theopportunity and challenge for our Investment Manager will be to concentrate onactive management of assets offering growth potential and good fundamentals andto sell or avoid those secondary assets most vulnerable to weakening demand. My statement last year highlighted the need for an active approach to drivereturns. Whilst the continued strength of the market has meant that this wasprobably less important over 2006, the need is likely to be greater in thefuture. A number of steps have been taken by the Manager to deliver futureasset management led returns, notably in our investments in Hinckley, Uxbridgeand Minerva House in London, as highlighted in the Investment Manager's report. Whilst the Company is unlikely to be as acquisitive over the next year as overthe year under review, the Board expects the Investment Manager to identifycomplementary assets, both to increase dividend cover and also enhance NAV totalreturns. The Investment Manager will target defensive income orientated assets,possibly in traditionally non-institutional areas such as healthcare,infrastructure or residential. Alongside this core income strategy theInvestment Manager will also pursue higher returns on equity through SpecialSituations. These will typically be structured as off-balance sheet jointventures providing the Group with access to a particular niche sector orspecialist, possibly with some development. The first Special Situation at anindustrial estate in Crendon near Oxford combines these elements and iscontributing positively to returns. Other issues The period since the last report has seen the introduction of Real EstateInvestment Trusts ('REITs') in the UK. As highlighted last year, the 2%conversion charge means that there is still no commercial advantage for theCompany to convert. Since my last report, environmental issues associated with occupying and owningcommercial property have become the focus of increasing attention. Landlordshave much to gain and potentially equally to lose from evolving CentralGovernment policy such as the future introduction of Energy PerformanceCertificates for commercial property. Whilst at the early stages, the Manageris beginning to factor in sustainability principles into its investment andmanagement processes as a means of generating future outperformance and hasengaged the industry specialist Upstream to undertake a review of theenvironmental risks associated with specific property types within a portfolio. Conclusion The Group has had another active and successful year with strong performancefrom the underlying property portfolio. The UK commercial property market islikely to slow and become more challenging over the year ahead, but the Group ispositioned to benefit from good income growth through a high weighting inCentral London and the realisation of a number of major asset managementprojects. Andrew Sykes, Chairman27 June 2007 Investment Manager's Report Introduction As detailed in the Chairman's Statement, Invista Foundation Property Trust (the'Company') and its subsidiaries (the 'Group') has continued to provideShareholders with an attractive level of income return together with strong NetAsset Value growth during the year ended 31 March 2007. The performance of theunderlying property portfolio has been strong with the Company coming top in itsInvestment Property Databank ('IPD') peer group of 63 property funds. A majordriver of this performance has been the Group's tactical weighting to theCentral London office markets. Objective and Strategy The Company's objective over the longer term is to produce a NAV total return ofno less than 8% per annum through owning and actively managing a balanced UKproperty portfolio. In its role as Investment Manager, Invista Real EstateInvestment Management Limited's ('Invista') investment philosophy is to buyproperties with strong fundamentals offering an above average income return withlong term income and capital growth potential. A tactical shift into Central London offices during 2005 and 2006 enabled theCompany to access growth stock ahead of the significant yield compression seenin these markets over the past 18 months. Accelerating rents and capital valuesin Central London occurred ahead of our expectations and committing capitalquickly enabled the Group to capture this growth. An innovative approach toacquiring stakes in acquisitions such as MidCity Place, London WC2 andPlantation Place, London EC3 has contributed materially to returns. As at 31March 2007, the £165 million invested in the six key Central London offices isvalued at £254 million. Increased investment in Central London has not been at the expense of holding abalanced portfolio and the Company continues to be well diversified across themain UK commercial property sectors. Recent acquisitions have been assetmanagement-led rather than specific sector-led, and the Company has continued tocrystallise profits from disposals, particularly of smaller retail assets.Since the last report the major focus has been to maximise value through assetmanagement, and there have been some major successes that should contribute tooutperformance in a slowing market. The Market The UK commercial property market has slowed during 2007 with a wideningdifferential in performance between sectors, primary and secondary property andgeographical regions. Whilst total returns over the next few years willinevitably be lower than the previous period, they will be more in line with thelong run UK average of 7% to 9% per annum. Invista is anticipating a totalreturn of approximately 9% for the UK market during 2007 although there islikely to be a significant differential between the sectors, in contrast to thelast few years where different parts of the market performed very similarly.Invista's challenge will be to protect the Group against a more pronouncedslowdown by making tactical overweight positions in the growth sectors, andavoid the sectors likely to underperform. In the near term Invista expects yield driven capital growth to slow and in somecases reverse due to rising interest rates and negative sentiment towards growthprospects in certain sectors. However rental growth should increase during 2007and whilst concentrated towards Central London offices, rents are growing acrossmany markets due to inflationary pressures and differing supply and demanddynamics. In moving from an interest rate cycle to a rental growth cycle,properties with the best fundamentals such as location and specification willbenefit most from this rental growth. Key to delivering outperformance in this environment will be generating incomegrowth. This could be achieved by successfully implementing rent reviews orincreasing income through change of use and development. The existing portfoliois well positioned to deliver income growth and Invista will identify and securenew opportunities with this potential. Finally, the Group's exposure to the Central London office markets should meanthe underlying portfolio continues to perform well relative to the averageBenchmark portfolio over the near term. This structural advantage can befurther extended through pro-active asset management. The Portfolio The table below shows the Group's ten largest properties by value and the tenlargest tenants by income. Investing in Central London office markets hasincreased the average lot size and also increased the overall credit quality ofthe portfolio. It is worth noting that Plantation Place does not feature in theten largest tenancies, as its rental income is applied to the Group's share ofAssociates borrowings. The Group's share of rental income at Plantation Placeis £7.6 million of which 72% is paid by Accenture. Top 10 properties Top 10 Properties Value (£m) %National Magazine House, Broadwick Street, London W1 57.400 7.9%Minerva House, Montague Close, London SE1 57.400 7.9%Plantation Place, Fenchurch Street, London EC3 52.687 7.3%Portman Square House, Portman Square, London W1 31.710 4.4%6-8 Tokenhouse Yard, London EC2 24.750 3.4%Mid City Place, High Holborn, London WC2 22.751 3.1%The Galaxy, Luton 21.750 3.0%Reynard Business Park, Brentford 20.500 2.8%Victory House, Trafalgar Place, Brighton 20.500 2.8%Olympic Office Centre, Fulton Road, Wembley 18.500 2.6%Total 327.948 Top 10 tenancies Top 20 tenancies Rent pa (£m) %The National Magazine Co Ltd 2.301 6.87%Synovate Limited* 1.900 5.67%Mott MacDonald Ltd 1.307 3.90%Reed Smith Services Limited 1.295 3.87%Wickes Building Supplies Ltd** 1.092 3.26%The British Broadcasting Corporation 0.850 2.54%Diageo Limited 0.796 2.38%Recticel SA 0.727 2.17%Total Fitness (UK) Limited 0.679 2.03%Partners of Cushman Wakefield Healey & Baker 0.574 1.71%Total 11.521 * Agreement for lease exchanged with completion due in December 2007** Includes £692,250 per annum at the Basingstoke development Rent expiry profile < 1 year 10.2%1 - 5 years 26.6%5 - 10 years 28.3%10 - 15 years 16.5%15 years+ 18.5% 100%Property tenure Freehold or virtual freehold 89.3%Long leasehold 10.7% As at 31 March 2007, the Group owned a portfolio of 73 assets valued at £717.39million reflecting an average lot size of £9.8 million. In addition, since theyear end the Group has sold or contracted to sell three properties for a totalconsideration of £17.24 million. Acquisitions of £25 million are beingprogressed. This compares with a property portfolio value of £556.28 millionand 72 assets in March 2006. As at 31 March 2007 and excluding joint venture investments, the Group hadapproximately 275 tenancies with an average lease length of 8.9 years.Including the joint venture properties, the number of tenancies increases toover 400, highlighting the significant diversification across the Group'sportfolio. Since acquiring Portman Square House, London W1 in July 2006 for £27.55 million,new acquisitions have been focused on asset management and Special Situations.In December 2006 the Company acquired The Galaxy, a prominent leisure scheme inLuton town centre for £21.2 million. The price reflected a net initial yield of4.7%. The property offered a combination of a long average lease length of 15years and 10% vacancy by floor area. The comprehensive business plan fortransforming the asset involves working with the Local Authority and otherstakeholders to create an attractive family leisure destination. In January 2007 the Company acquired a retail warehouse investment in Salisburyfor £15.02 million, reflecting a net initial yield of 3.3%. The propertycomprises three units adjoining a very successful Waitrose food store, with oneunit vacant. Sector weightings Sector Net* Grossed up**Retail 16.0% 12.8%Retail warehouse 5.0% 4.0%Office 53.7% 61.5%Industrial 20.7% 18.1%Other 4.6% 3.7%Total 100% 100% * Net weighting includes joint ventures and associates at the net asset value** Grossed up weightings includes pro-rata share of non-recourse debt in joint ventures and associates Regional weightings Region Net Grossed upCentral London 34.0% 45.9%South East (excl. Central London) 32.5% 27.5Rest of South 9.5% 7.5%Midlands and Wales 13.7% 10.9%North and Scotland 10.3% 8.2%Total 100% 100% * Net weighting includes joint ventures and associates at the net asset value** Grossed up weightings includes pro-rata share of non-recourse debt in joint ventures and associates Since 31 March 2007 the Group has exchanged or completed contracts on ninedisposals totalling £47.92 million, and these are summarised by sector below. Retail disposals Seven of the disposals were of smaller retail properties where the Group tookadvantage of very strong private investor demand, fuelled by low borrowingrates. Demand in this sector is now weakening in response to rising interestrates. Address Sale date Sale March Acq Acq Comments price 2006 val date price (£m) (£m) (£m) 18 St Anne's Road, July 1.41 1.45 July 1.10 Secondary location.Harrow 2006 2004 Disposal followed successful rent reviewHigh Street, Epsom Sept 3.50 3.20 July 2.00 Forfeited lease of 2006 2004 upper parts and settled retail rent reviews ahead of expectations Pride Hill, Dec 2.42 2.15 July 2004 1.73 Limited rental growthShrewsbury 2006 prospects 20 St Anne's Road, Dec 1.60 1.50 July 2004 1.23 Secondary location.Harrow 2006 Disposal followed successful rent review Bridge Street, Feb 2007 2.35 2.45 July 1.91 Location expected toPeterborough 2004 weaken due to M&S relocatingPost year end Penny Street, April 1.85 1.53 July 1.10 Very strong privateLancaster 2007 2004 investor demand Abingdon Street, May 2.54 2.45 July 1.54 Following assetNorthampton 2007 2004 management success. Strong private investor demand Total - 15.67 14.73 - 10.61 - Office disposals Limited disposals have been carried out in the office sector. The disposal ofTudor Street was motivated by property specific factors. Address Sale date Sale March Acq date Acq Comments price 2006 price (£m) val (£m) (£m) Tudor Street, Oct 2006 19.40 18.20 July 2004 15.20 Opportunistic disposalLondon EC4 in a strong City market. Difficult long leasehold Other disposals The health and fitness unit let to Total Fitness (UK) Limited was acquiredthrough a corporate acquisition in March 2006 for a gross purchase cost of £10.9million. The investment offered a long unexpired lease term with a fixed rentaluplift in November 2007. The Company has taken advantage of an improving tenantcovenant to crystallise a material profit and, since the year end, contractshave been exchanged at a price of £12.85 million. Address Sale date Sale March Acq date Acq Comments price 2006 price (£m) val (£m) (£m) Total Fitness, June 12.85 11.05 Mar 2006 10.75 Covenant vulnerable toSefton (near 2007 weaker economyLiverpool) Performance For the 12 months to March 2007 the Group came top in its IPD peer groupBenchmark of 63 funds, producing a total return of 22.7% relative to theBenchmark of 14.7%. Since inception the Group's property portfolio has produceda total return of approximately 20.3% per annum, relative to the Benchmark of16.6%. The Group's portfolio continues to benefit from an above-average incomereturn of 5.3% relative to the Benchmark of 5%. Financing A summary of the Group's on-balance sheet debt finance arrangements as at 31March 2007 are set out below: Loan Amount Term Hedging Margin Total Security LTV (£m) cost (£m) (%) REC 152.5 07/2014 5.10% to 2014 0.49% 5.59% 467.62 32.7(Foundation)* Rothschild 54.5 07/2007 See below 0.90% 6.40% 102.65 53.1bridge facility Portman 14.58 07/2010 See below 0.95% 5.96% 31.71 46.0Square Loan Total 221.58 * Real Estate Capital (Foundation) Limited - principal securitised loan facility Since the year end the Company has put in place two interest rate swaps setagainst the Revolving facility and Portman Square loans. The first is for £50million expiring in July 2016 at a rate of 5.5% and the second for £19.08million expiring in July 2016 at a rate of 5.69%. This creates a blended rateof 5.56% and will be novated as part of the Reserve Note issuance referred tobelow. Plantation Place Securitisation During 2006 Invista led the securitisation of the £450 million bridging facilityput in place to acquire the Plantation Place investment, of which the Group owns28.08%. Working with NM Rothschild, Merrill Lynch and the rating agencies,Invista sponsored the issue of £435 million of rated notes together with a BNote of £25 million. This enabled £460 million of securitised debt to be issuedagainst the Plantation Place asset at a total blended interest rate of 5.19%,reflecting a loan to value of 82% based on the valuation at the time. Invistasecured very flexible terms including zero prepayment fees and a fullyassignable finance package. This added considerable value to the Group'sinvestment in Plantation Place. Reserve Notes At the time of completing the original securitisation in 2005 which raised£152.5 million at a blended margin including costs of 0.49% per annum,additional Reserve Notes of £150 million were issued but not drawn. The Companyis likely to draw up to £120 million of the £150 million available later thisyear. The proceeds of the Reserve Notes will be directed towards four key areas: • Re-financing existing on-balance debt on more favourable terms• Capital expenditure to enhance existing assets• Funding selective new acquisitions• Providing the Company with additional liquidity Re-finance £69 million will be used to re-finance the existing, non-securitised on-balancesheet debt. Total debt will not exceed more than 50% of total assets lesscurrent liabilities. Capital expenditure The Company's three current major re-development and refurbishment projects atHinckley, Uxbridge and Minerva House, London require total capital expenditureof approximately £30 million. In addition the potential projects at The Galaxy,Luton and Victoria Plaza in Bolton, together with other planned refurbishmentworks across the portfolio, may require up to £10 million. Selective acquisitions Whilst the investment market remains competitive with many investors acceptingreturns significantly below the target return required by the Company, Invistacontinues to source interesting off-market opportunities that will generateun-geared total returns in excess of 8% per annum. Investments are likely tofall into two main categories that are summarised below. The Group seeks a core of long-term, secure rental income. The quality of theGroup's core portfolio has been enhanced through investing in Central London butInvista recognises the need constantly to enhance the credit quality andduration of this income. In order to secure these income streams at yields thatare attractive to the Group, Invista will consider investing in alternativeproperty investment types such as hotels, medical related uses, mixed-use andresidential. These sectors are becoming increasingly institutional and oftenbenefit from attractive leasing structures such as inflation linked rentalincreases. To complement the existing balanced portfolio and the defensive assets referredto above, the Group plans to invest a further £20 million in Special Situations.These will target a minimum return on equity of 20% per annum and are likelyto be structured as joint ventures. Asset Management As well as the major initiatives, examples of which are set out below, theportfolio is being diligently managed to minimise voids and maximise potentialfor income growth. As at March 2007 the portfolio had a void rate of 5.5% as apercentage of rental value relative to the IPD Benchmark of 7%. If theproperty at Hinckley is excluded, where the lease was surrendered in advance ofobtaining planning consent, the void rate falls to 2%. Activity within the Office Sector Minerva House, London SE1- acquired in August 2005 for £42.13 million • Major tenant ANZ surrendered their lease to the Company, paying a £2.4million premium. ANZ were paying a rent of £1.485 million per annum (£31 per sqft) with a tenant break option in 2011. Synovate Limited, guaranteed by AegisGroup PLC, have exchanged a new 15 year lease at £1.9 million per annum on thespace (£42.75 per sq ft), a 28% increase. The Company is providing a highquality refurbishment. Concurrently a major rent review has been settledresulting in a total building income of £3.23 million per annum, a £470,000 or17% increase over the rent paid upon acquisition. The March 2007 valuation is£57.4 million, representing an uplift of £15.27 million or 36% since acquisitionin August 2005 MidCity Place, London WC2 - 19.7% stake acquired in August 2005 for £9.8 million • The Company surrendered the ninth floor lease in June 2006 where thetenant was paying £37.50 per sq ft. The asset management strategy for thebuilding was to undertake a high quality refurbishment and attract a highquality financial tenant. A new lease of the ninth floor to QueenslandInvestment Corporation completed in December 2006 at £60 per sq ft • MidCity Place has seen a 60% increase in rental value growth sinceacquisition, which combined with a very strong investment market has increasedthe value of the Group's investment from £17.6 million as at March 2006 to £31million at March 2007, including re-finance proceeds Hayward House, Cardiff - acquired in July 2004 for £6.05 million • On acquisition the property comprised two adjoining city centreoffices let to National Westminster Bank and Regus until 2012. NatWest leasedone building paying a market rent of £236,000 per annum (£13.20 per sq ft), butsub-let roughly 75%. The Company's asset management strategy was to increasethe rent through re-structuring leases • NatWest paid £350,000 to surrender its lease and simultaneously theCompany agreed direct leases with the sub-tenants. A good quality, functionalrefurbishment has been completed using the surrender proceeds, and a newbenchmark rent has been set. The property is now fully let producing £275,000with a valuation rental value of £284,400, an increase of 20% relative to theacquisition valuation. The Company will be looking to increase rents furtherwith forthcoming rent reviews 106 Oxford Road, Uxbridge - acquired in July 2004 for £8.62 million • The 39,000 sq ft property was let to Diageo until September 2007 witha number of sub-tenants. In June 2007, Diageo's lease was surrendered for apremium of £200,000. In May 2007 the Company obtained outline planning consentto extend and comprehensively refurbish the building to create a highlyspecified, sustainable office refurbishment totalling 70,000 sq ft with 250 carparking spaces. The Company is currently considering whether to implement thedevelopment Activity within the Industrial sector Coventry Road, Hinckley - acquired in July 2004 for £7.25 million • The Company accepted a lease surrender in 2006 for a premium of£750,000, inheriting a substantial sub-tenant paying £38,500 per annum. Thestrategy was to secure planning consent on the site. Following an initialrefusal the Company resubmitted a slightly revised application and, subsequentto the year end, planning consent has been secured for 100,000 sq ft of retailwarehousing, a 3,000 sq ft fast food restaurant and 21,000 sq ft of tradecounter warehousing • The Company is negotiating pre-lets for up to 50% by area and islikely to commence construction during 2007. The budgeted development cost is £9million with an end value of approximately £27 million. As at March 2007, thevalue of the land subject to the consent is £7.5 million Activity within the retail and leisure sector A number of lease extensions or lease surrenders with simultaneous new leases atenhanced rents have been completed. Significant profits have then beencrystallised through disposals Abingdon Street, Northampton - acquired in July 2004 for £1.54 million • The Company's strategy was to take the lease back from a card retailerand re-let the prominent unit to a coffee operator or phone retailer. A new 15year lease has been agreed with Costa Coffee at £121,000 per annum, an increaseof 29%. Contracts have now been exchanged to sell for £2.54 million reflectinga yield of 4.5% Retail Warehouse, Salisbury - acquired in January 2007 for £15.02 million • A 60,000 sq ft terrace of retail warehouse units adjoining a Waitrosestore let at £16 per sq ft, with one 15,000 sq ft vacant unit. Terms wereagreed pre-purchase to let the vacant unit to a toy retailer at £20 per sq ft.The Agreement for Lease has now exchanged on a subject to planning basis with aplanning decision expected shortly. On lease completion the rental value shouldincrease to £925,000, creating a reversionary yield approaching 6% The Galaxy, Luton - acquired in December 2006 for £21.2 million • The Galaxy was acquired with a vacancy rate of 10% by area. The assethas suffered from very poor management in the past. Management and securityhave been comprehensively upgraded and a major rebranding / refurbishment hasbeen agreed requiring capital expenditure of £1 million. The Company has stronginterest in two of the three vacant units Special Situations Crendon Industrial Partnership Limited ('CIPL') - 50% stake acquired in May 2006 • The Group invested £2.9 million for a 50% stake in CIPL, a jointventure company set up to acquire a 250,000 sq ft multi-let industrial estatewith 13.5 acres development land in Long Crendon, Oxfordshire. The property wasacquired for £20.5 million with non-recourse bank debt of £17 million • Since acquisition outline planning consent has been secured for250,000 sq ft of warehousing and distribution space, and shortly afterwards CIPLacquired an adjoining ownership for £5 million. An unconditional Agreement forLease has been exchanged with a good tenant covenant for a 20,000 sq ft pre-let.A separate development facility of £7.5 million is now in place andconstruction of a speculative phase of 80,000 sq ft warehouse has commenced,funded entirely from bank debt. As at 31 March 2007 the Group's £3.57 millioninvestment is valued at £5.4 million, reflecting an annualised internal rate ofreturn over the hold period of 65% Outlook and Future Strategy We are moving into a more challenging phase for the UK commercial propertymarket. The strategy of investing in the Central London office markets hasgenerated superior return and should continue to make a positive contribution toGroup returns over the next twelve to eighteen months. We will seek to realiseprofits from some of these investments. Our strategy is evolving in response to the slowing market and we are likely torevert towards our long term preference for a higher, secure income return overlower yields offering capital growth prospects that are becoming less certain insome parts of the market. To avoid competition in the income markets, we willbe considering alternative property types, whilst overall maintaining a balancedportfolio for long term stability. Duncan Owen, Chief ExecutiveInvista Real Estate Investment Management Limited27 June 2007 Board of Directors Andrew Sykes (Chairman) Aged 49, was a director of Schroders plc from 1998 to 2004, having joinedSchroders in 1978. He was responsible for the group's private banking andalternative investments businesses, including property, private equity,structured products and hedge funds. He is Chairman of Absolute Return TrustLimited and a non-executive director of Schroder Exempt Property Unit Trust, JPMorgan Asian Investment Trust plc and Smith & Williamson Holdings Limited. John Frederiksen Aged 59, is chairman of the Danish Property Federation and several major Danishproperty companies. He established and was Managing Director of Bastionen A/S,one of the largest Danish property investment companies from 1986 to 2001. Hewas also Chairman of ASC, the largest property management company in Denmark,from 1990 to 1998. Keith Goulborn Aged 62, was head of Unilever's UK Property Department for 17 years. In thiscapacity he was responsible for the property investment activities of theUnilever Pension Fund in the UK and operational property advice to the UK groupand its implementation. Prior to that, he was a partner in Debenham, NightingaleChancellors. He is a fellow of the Royal Institution of Chartered Surveyors anda member of the Investment Property Forum. Harry Dick-Cleland Aged 50, is Managing Director of Cleland & Co Limited, Chartered Accountantswhich he founded in 2003. He was previously a partner at Ernst & Young from 1998- 2003, having joined their Guernsey office in 1987. He is a fellow of theInstitute of Chartered Accountants in England & Wales. David Warr Aged 53, is an Executive Director of Fortis Reads International ManagementLimited, a Guernsey based fiduciary services business wholly owned by Fortisplc. He is a fellow of the Institute of Chartered Accountants in England & Walesand specialises in Trust and Corporate work. He is also a non executive directorof Marwyn Value Investors Limited, Marwyn Value Investors II Limited, HemisphereDefensive HF (USD) Limited and UK Select Trust Limited. Peter Atkinson Aged 52, was the Senior Partner of Collas Day Advocates for 14 years where hespecialised in corporate and fiduciary work. He joined Collas Day in 1980 andbecame Senior Partner in 1992. He is now a non-executive of the firm's trustcompany and of a number of listed and unquoted companies. He is an Advocate ofthe Royal Court of Guernsey and a Solicitor of the Supreme Court of England andWales. He is a former Chairman of the Guernsey Bar. The Directors of Invista Foundation Property Trust Limited ("the Company") andits subsidiaries (together "the Group") present their report and the AuditedFinancial Statements of the Company and the Group Financial Statements for theyear ended 31 March 2007. Report of the Directors Business review Business of the Company Invista Foundation Property Trust Limited is a limited liability, closed-ended,Guernsey investment company managed by Invista Real Estate Investment ManagementLimited ('the Investment Manager'). A review of the business during the year iscontained in the Chairman's Statement and the Investment Manager's Report. Investment Objectives and Policies The investment objective of the Company is to provide Shareholders with anattractive level of income return together with the potential for income andcapital growth from investing in UK commercial property. The Group principallyinvests in the three commercial property sectors; office, retail and industrial.The Group will also invest in other sectors from time to time. The Group willnot invest in other listed investment companies. At the time of listing in July2004 the Company's target NAV total return was no less than 8% per annum. TheManager is incentivised to achieve a NAV total return of above 10% per annumwhich is the threshold above which a performance fee is paid, subject to thecriteria set out below. Key Performance Indicators ('KPIs') The Board uses two key financial KPIs to monitor and assess the performance ofthe Company, the absolute NAV total return of the Company and the performanceof the Company's underlying property portfolio relative to a peer groupBenchmark: 1. Net Asset Value total return For the year to 31 March 2007 the Company produced a NAV total return of 25%,after a full accrual of the performance fee payable to the Investment Manager.From inception in July 2004 the Company has produced an annualised NAV totalreturn of 22%. 2. Underlying property portfolio performance relative to peer groupBenchmark The performance of the Company's property portfolio is measured against aspecific benchmark defined as the Investment Property Databank ('IPD') QuarterlyVersion of Balanced Monthly Index Funds. As at 31 March 2007 this Indexcomprised 64 member funds with an aggregate value of £38 billion. For the 12months to 31 March 2007 the Company's property portfolio produced a total returnof 22.7% relative to the Benchmark average of 14.7%, on the first percentile.Since inception in July 2004 the Company's property portfolio has produced atotal return of 20.3% per annum relative to the Benchmark of 16.6% per annum.It should be noted that these returns take account of all property relatedtransaction costs. Dividend During the year the Company has declared and paid the following interimdividends to its ordinary shareholders: Dividend For Quarter Date Declared Rate31 March 2006 27 April 2006 1.6875 pence per share30 June 2006 26 July 2006 1.6875 pence per share30 September 2006 31October 2006 1.6875 pence per share31 December 2006 24 January 2007 1.6875 pence per share All dividends are declared and paid as interim dividends. The Directors do nottherefore recommend a final dividend. A dividend for the quarter ended 31 March2007 of 1.6875 pence was declared on 25 April 2007 and paid on 18 May 2007. Principal Risks With the assistance of the Investment Manager, the Board has drawn up a riskmatrix, which identifies the key risks to the Company. These key risks fallbroadly under the following categories: Investment and strategy: Market circumstances can introduce volatility into investment returns arisingfrom factors such as market sentiment, an excess supply of accommodationrelative to occupier demand, macro economic factors impacting on the capabilityof tenants to pay rents, or fiscal and legislative changes. The InvestmentManager and the Board seek to mitigate these risks through research-basedinvestment decisions, regularly reviewing portfolio strategy, swift executionand through owning a well diversified and balanced portfolio. To enable the Board to ensure that the portfolio does not become overlyconcentrated or reliant on individual assets, sectors or tenants, theInvestment Manager reports quarterly on asset concentration, sector and regionaldiversification and the number of tenants including an independent analysis ofaverage tenant quality. The primary control is that no single asset shouldcomprise more than 15% by value of the whole portfolio and no single tenantaccount for more than 20% of the total rental receipts. The Board also supportsthe Investment Manager's focus on assets with strong fundamentals with, ideally,an above average rental yield where average tenant quality is in line with orbetter than industry averages. A key part of the investment strategy is to grow rental income to contribute tothe NAV total return. Rental income can be at risk due to tenant failure orthrough tenants not renewing leases on expiry and vacating the property. The Investment Manager takes a proactive approach to property management witheach asset having a detailed business plan, reviewed no less than annually,setting out targets to be achieved in all tenant discussions. The aim of thisrigorous process is to ensure that, as far as reasonably possible, opportunitiesto increase net income receivable from the portfolio are maximised together withimprovements in the overall tenant quality. The Board monitors this risk byreceiving minutes of the Investment Manager's bi-monthly investment committeesand through quarterly Board presentations. There are risks inherent in property development, both in terms of a lack ofguaranteed future income when developing speculatively, or factors such asplanning and construction risk. It is therefore unlikely that the Manager willundertake significant new speculative projects, although there may becircumstances where this is considered. The Company will pro-actively undertakerefurbishment or redevelopment of existing properties in the portfolio wherethis is consistent with the Company's objectives. Borrowings: The Company seeks to enhance Net Asset Value total returns through borrowing.There is risk associated with third party borrowings and the Board adopts aprudent approach to mitigate these risks. The principal risk control is tolimit total borrowings (including off-balance sheet debt) to 50% of the Group'stotal assets less current liabilities (excluding banking facilities), on a fullyconsolidated basis. As at 31 March 2007 the Group's gearing on this basis was45% of total assets less current liabilities on a fully consolidated basis. The Company seeks to avoid significant exposure to unforeseen upward interestrate movements, with all third party debt currently hedged. Future additionalshort term facilities may be drawn on a floating interest rate basis but theBoard will only sanction this where there is a clear intention to fix the ratewithin a six to 12 month period. In addition to investments and borrowings in the normal course of business, theBoard has acknowledged that from time to time it may be appropriate for theGroup to invest as a joint venture investor in certain property-owning entitiesin which other investors may participate. This is to enable a particularproperty strategy to be executed more effectively. Accounting, Legal and Regulatory The Company has robust processes in place to ensure that accurate accountingrecords are maintained and that evidence to support the accounts is available tothe auditors upon request. The Investment Manager operates established propertyaccounting systems that are also subject to review by the Company's auditors.Procedures are in place to ensure that the quarterly NAV and Gross Asset Valueare calculated properly, and the Company's property assets are valued quarterlyby specialist property valuation firms who are provided with regular updates onportfolio activity by the Investment Manager. The Board meets with theindependent valuer annually to review their processes. The Administrator monitors legal requirements to ensure that adequateprocedures and reminders are in place to meet the Company's legal requirementsand obligations. The Investment Manager undertakes full legal due diligencewith advisors when transacting and managing the Company's assets. All contractsentered into by the Company are reviewed by the Company's legal and otheradvisors. Processes are in place to ensure that the Company complies with the conditionsapplicable to property investment companies set out in the Listing Rules of theLondon Stock Exchange and the Channel Islands Stock Exchange. The Administratorattends all Board meetings to be aware of all announcements that need to be madeand the Company's advisors are aware of their obligations to advise theAdministrator, and where relevant the Board, of any notifiable events. Finally,the Board is satisfied that the Investment Manager and Administrator haveadequate procedures in place to ensure continued compliance with regulatoryrequirements of the FSA and the Guernsey Financial Services Commission. Management On 31 August 2006 the Board agreed to novate the Investment Management Agreementfrom Insight Investment Management (Global) Limited ('Insight') to Invista RealEstate Investment Management Limited ('Invista'). This followed the de-mergerof Insight's property fund management team as the new Invista business and itsindependent listing on the Alternative Investment Market. HBOS plc, the ParentCompany of Insight, has retained a 55% stake in Invista. As at 15 June 2007Invista has a market capitalisation of £295 million and is the largest listedreal estate fund manager in the UK. There has been continuity in the teamdealing with the Company, and the Board is satisfied that Invista has sufficientresources available to deliver the investment objectives. Management and Performance fees The Investment Manager is entitled to a base fee and a performance fee togetherwith reasonable expenses incurred in the performance of its duties. The basefee is equal to one quarter of 0.95% of the gross assets less currentliabilities of the Group per quarter. The Investment Manager is also entitled to an annual performance fee where thetotal return per Ordinary Share during the relevant financial period exceeds anannual rate of 10% (the 'performance hurdle'). Where the performance hurdle ismet, a performance fee will be payable in an amount equal to 15% of anyaggregate total return over and above the performance hurdle. A performance feewill only be payable where both the following criteria are met. First inrespect of the relevant financial period, the total return of the underlyingassets must meet or exceed the Investment Property Databank Benchmark on a likefor like basis. Secondly, the annualised total return over the period fromadmission of the Company's Ordinary Shares to the end of the relevant financialperiod must be equal to or greater than 10% per annum. The Investment Management Agreement can be terminated by either party on notless than twelve months notice in writing. Administration On 24 June 2004 the Company appointed RBSI Fund Services (Guernsey) Limited ('RBSI') to provide Administration, Registrar, Custodian, Secretarial andAccounting services. RBSI is entitled to a fee of £35,000 per annum togetherwith an additional fee of 3.25 basis points of the gross assets of the Company,subject to an overall minimum of £150,000 per annum and an aggregate maximum feepayable by the Company and its subsidiaries to RBSI of £250,000 per annum. RBSIgave notice on 22 January 2007 to terminate their role. The appointment of Northern Trust International Fund Administration Services(Guernsey) Limited to replace RBSI was approved by the Board on 27 June 2007.Northern Trust will not be providing accounting services which will be carriedout by the Investment Manager under a separate agreement. Going concern The Directors have examined significant areas of possible financial risk andhave satisfied themselves that the Group has adequate resources to continue inoperational existence for the foreseeable future. After due consideration theBoard believes it is appropriate to adopt the going concern basis in preparingthe financial statements. Creditor Payment Policy It is the Company's policy to ensure settlement of supplier invoices inaccordance with stated terms. Directors The Directors of the Company who together with their beneficial interest in theCompany's ordinary share capital, are given below: Director Number of Ordinary Shares Percentage (%)Andrew Sykes 35,292 Less than 0.1Keith Goulborn 9,564 Less than 0.1Harry Dick-Cleland - -David Warr - -Peter Atkinson - -John Frederiksen - - The remuneration of the Directors during the year was as follows:Director £Andrew Sykes (Chairman) 37,500Keith Goulborn 22,500Harry Dick-Cleland#* 32,500David Warr* 27,500Peter Atkinson* 27,500John Frederiksen * 22,500 170,000 * Member of the Transaction Committee # Chairman of the Audit Committee None of the Directors had a service contract with the Company during the year. Directors receive a base fee of £22,500 per annum, and the Chairman receives£37,500 per annum. The Chairman of the Audit Committee receives an additionalfee of £5,000 and members of the Transaction Committee each receive anadditional fee of £5,000, reflecting their additional responsibilities andworkload. Disclosure of Information to Auditors As far as each of the Directors is aware, there is no relevant audit informationof which the Company's auditors are unaware, and each of the Directors has takenall of the steps that they each ought to have taken to be aware of relevantaudit information and to establish that the Company's Directors are aware ofthat information. Substantial Shareholdings At 31 March 2007 the Directors were aware that the following shareholders owned3% or more of the issued Ordinary Shares of the Company. Number of Ordinary Shares Percentage (%) Cazenove Capital Management (UK) 51,154,318 14.47 Rensburg Sheppards Plc 29,752,881 8.42 Newton Investment Management Limited 22,537,071 6.37 Gerrard Limited 22,116,192 6.26 Invista Real Estate Investment 18,254,129 5.16Management Limited Legal & General 13,747,253 3.89Investment Management Limited AXA Financial SA 12,623,308 3.57 HSBC Investments Limited 12,102,838 3.42 Independent Auditors KPMG Channel Islands Limited have expressed their willingness to continue asAuditors to the Company and resolutions proposing their reappointment andauthorising the Directors to determine their remuneration for the coming yearwill be put to Shareholders at the Annual General Meeting. Corporate Governance Principles Statement The Directors are committed to high standards of corporate governance and havemade it Company policy to comply with best practice in this area, insofar as theDirectors believe it is relevant and appropriate to the Company, andnotwithstanding the fact that as a Guernsey registered Company it is not obligedto comply with the 'Combined Code', or the Code of Best Practice published bythe Committee on the Financial Aspects of Corporate Governance. It is the Board's intention to continue to comply with the Association ofInvestment Companies ('AIC') code for Corporate Governance best practice. Role of the Board The Board has determined that its role is to consider and determine thefollowing principal matters which it considers are of strategic importance tothe Company: 1. The overall objectives of the Company as described under InvestmentPolicy above and the strategy for fulfilling those objectives within anappropriate risk framework 2. The strategy it considers may be appropriate in light of marketconditions 3. The capital structure of the company including consideration of anappropriate use of borrowings both for the Company and in any joint ventures inwhich the Company may invest from time to time 4. The appointment of the Investment Manager, Administrator and otherappropriately skilled service providers and monitor their effectiveness throughregular reports and meetings 5. The key elements of the Company's performance including NAV growth andthe payment of dividends Board Decisions At its Board meetings, the Board ensures matters listed under Role of the Boardabove are considered and resolved by the Board. While issues associated withimplementing the Company's strategy are generally considered by the Board to benon-strategic in nature and are delegated either to the Investment Manager orthe Administrator, the Board considers there will be implementation matterssignificant enough to be of strategic importance to the Company and should bereserved to the Board. Generally these are defined as large property decisionsaffecting either 10% or more of the Company's or one of its subsidiary's assets,or 5% or more of the Company's or one of its subsidiary's rental income anddecisions affecting the Company's financial gearing. Board performance evaluation During 2006 the Board commissioned a review of its performance, combined with anindependent third party skills audit carried out by Trust Associates. Thisreview, which was conducted with an independent third party, concluded that theBoard was operating effectively and that the members of the Board had thebreadth of skills required to fill their role. It also recommended theestablishment of a Transactions Committee, recognising that a number oftransactions require ad hoc consideration, sometimes at short notice, when theyfall outside the Manager's delegated authority. The Board approved theestablishment of this Committee. Non Executive Directors, Rotation of Directors and Directors Tenure The Combined Code recommends that Directors should be appointed for a specifiedperiod. The Board has resolved in this instance that Directors' appointmentsneed not comply with this requirement as all Directors are non executive andtheir respective appointments can be terminated at any time without penalty. TheBoard has approved a policy that Directors will stand for re-election everythree years. It has been agreed this will be implemented by two of the threeoriginal directors from May 2004 presenting themselves for re-election at theAGM in 2007. Keith Goulborn and John Frederiksen will stand for re-electionduring the year commencing 1 April 2007. The Board has determined that all the Directors are independent of theInvestment Manager. Keith Goulborn has agreed to be the Senior Independent Director. Board Meetings The Board meets quarterly and as required from time to time to consider specificissues reserved to the Board. At the Board's quarterly meetings it considers papers circulated seven days inadvance including reports provided by the Investment Manager and theAdministrator. The Investment Manager's report comments on the UK commercialproperty market, performance, strategy, transactional and asset management andthe Group's financial position including relationship with its bankers andlenders. The Administrator provides a compliance report. These reports enable the Board to assess the success with which the Group'sproperty strategy and other associated matters are being implemented and also toconsider any relevant risks and how they can be properly managed. The Boardalso considers reports provided from time to time by its various serviceproviders reviewing their internal controls. The table below shows the attendance at Quarterly Board or Audit Committeemeetings during the year to 31 March 2007: Board Audit Committee Nomination CommitteeAndrew Sykes (Chairman) 4 4 1Keith Goulborn 4 2 1Harry Dick-Cleland 4 4 1David Warr 3 3 1Peter Atkinson 4 4 1John Frederiksen 4 3 1No. of meetings during the year 4 4 1 In between its regular quarterly meetings, the Board has also met on a number ofoccasions during the period to consider specific transactions. It has notalways been possible for all Directors to attend these meetings. The Companymaintains liability insurance for its Directors and Officers. Committees of the Board The Audit Committee The Audit Committee is chaired by Mr Dick-Cleland with Mr Sykes, Mr Goulborn, MrFredriksen, Mr Warr and Mr Atkinson as members. The Company considers that MrDick-Cleland's experience makes him suitably qualified to chair the AuditCommittee. The Committee meets no less than twice a year and if requiredmeetings can also be attended by the Investment Manager, the Administrator andthe Independent Auditors. The Committee is responsible for reviewing the half-year and annual financialstatements before their submission to the Board. In addition the Committee isspecifically charged under its terms of reference to advise the Board on theterms and scope of the appointment of the auditors, their remuneration, theindependence and objectivity of the auditors, and reviewing with the auditorsthe results and effectiveness of the audit. During the year the Company's auditors were involved in reviewing the interimfinancial statements. No other audit work was performed. Members of theCommittee may also meet with the Company's valuer to discuss the scope andconclusions of their work. Nomination Committee The Nomination Committee is chaired by Mr Sykes with all other Board Directorsas members. During the year the Nomination Committee instructed TrustAssociates to review the role of individual Directors and to recommend anappropriate level of remuneration having regard to their perspective of anappropriate 'market rate' for the Company's Directors. Based on that advice aresolution was passed at an EGM on 19 December 2006 to increase the maximumtotal annual remuneration of the Board to £200,000. As all the Directors are non-executive the Board have resolved that it is notappropriate to have a Remuneration Committee. Transactions Committee The members of the Transactions Committee are Peter Atkinson, Harry Dick-Clelandand David Warr, with the Chairman elected at each meeting. The TransactionsCommittee reviews transactions requiring Board approval between regularscheduled Board meetings. All transaction proposals are circulated to allDirectors in advance of the meeting, together with a recommendation andexplanatory note from the Manager. Board members not attending may comment inadvance, but only those attending will consider the proposal. Transactions arenoted subsequently at regular quarterly Board meetings. The members of theTransaction Committee are paid a fee of £5,000 per annum, in addition to theirfees as Directors. Shareholder Relations Shareholder communications are a high priority for the Board. The InvestmentManager produces a quarterly fact sheet which is distributed to Shareholders andreleased to the London and Channel Islands Stock Exchanges. Members of theInvestment Manager's Investment Committee make themselves available at allreasonable times to meet with Shareholders and sector analysts. Feedback fromthese sessions is provided by the Investment Manager to quarterly Boardmeetings. The Company website is www.ifpt.co.uk. In addition, the Board is also kept fully appraised of all market commentary onthe Company by the Investment Manager and other professional advisers includingthe Company's brokers. Through this process the Board seeks to monitor theviews of shareholders and to ensure an effective communication programme. Details of the resolutions to be proposed at the Annual General Meeting on 25July 2007 can be found in the Notice of the Meeting. Statement of directors' responsibilities The Directors are responsible for preparing the Directors' Report, Annual Reportand Financial Statements for each financial period which give a true and fairview of the state of affairs of the Group and the Company as at the end of thefinancial period and of the profit or loss of the Group and the Company for thatperiod in accordance with International Financial Reporting Standards and thatthey are in accordance with applicable laws. In preparing those financialstatements the Directors are required to: 1. Select suitable accounting policies and 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 financialstatements 4. Prepare the financial statements on the going concern basis unless itis inappropriate to presume that the Group and Company will continue in business The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theGroup and to enable them to ensure that the financial statements comply with TheCompanies (Guernsey) Law, 1994. They are also responsible for safeguarding theassets of the Group and Company and hence for taking reasonable steps for theprevention and detection of fraud and other irregularities. The Directors are also responsible for: 1. Ensuring that the Report of the Directors and other informationincluded in the Annual Report is prepared in accordance with applicable companylaw 2. Ensuring that the Annual Report includes information required by theListing Rules of the Financial Services Authority 3. The Group's system of internal controls, which is designed to meet theGroup's particular needs and the risks to which it is exposed Internal Control The Combined Code requires the Directors annually to review the effectiveness ofthe Group system of internal controls and to report to shareholders that theyhave done so. The system's key controls reviewed by the Directors are as shown below. TheBoard considers risk management and internal control on a regular basis duringthe year although such a system can only provide reasonable assurance and notabsolute assurance against material misstatement or loss, as it is designed tomanage rather than eliminate the risk of failure. The Board arranges to meet the Investment Manager annually at the InvestmentManager's office in London. This allows the Board to inspect the officearrangements and to meet other members of the Manager's team. The Boardinterrogates the Investment Manager's processes in more detail than is possibleat Board meetings and to gain a perspective on the level of resource that isapplied by the Investment Manager to the Company's business. The Board regularly reviews the Investment Manager's Business ContingencyManagement and is able to discuss this and other matters with the InvestmentManager's Chief Risk Officer. The Board has also reviewed a report prepared byInvista's internal audit team on Invista's property division and has beensatisfied that their approach is appropriate for the Group. The Board meets regularly at the offices of the Administrator for its formalquarterly Board meetings and for ad-hoc Board meetings. The Board is thereforefamiliar with the environment in which the Administrator is operating and hasthe opportunity to meet the staff responsible for providing administrativeservices to the Company. This enables the Board to view at first hand the levelof resources made available to the Company by the Administrator. The Administrator, as a subsidiary of the Royal Bank of Scotland InternationalLimited, is party to the overarching Business Continuity Plan for the Royal Bankof Scotland International Limited which covers all of the Bank's operationsoffshore. The Board is able to discuss the Business Continuity Plan and anyother compliance or risk related matters with the Administrator's ComplianceManager at any time. The Group's system of internal control therefore is substantially reliant onInvista's and RBSI's own internal controls and their internal audit. The key elements designed to provide effective control are as follows: 1. Regular review of relevant financial data including managementaccounts and performance projections 2. Contractual documentation with appropriately regulated entities whichclearly describes responsibilities for the two principal service providers 3. The Manager's system of internal controls is based on clear writtenprocesses, a formal investment committee and clear lines of responsibility andreporting all of which are monitored by Invista's internal risk team. Invistais regulated by the FSA. 4. The Company's strategy is authorised and monitored on a regular basisby the Board The Board carries out a review of significant business risks and formallyconsiders the scope and effectiveness of the Company's system of internalcontrol annually. This review covers all controls, including financial,operational and risk management. Corporate Responsibility - Benefits, Risks and Controls The Board has reviewed the Socially Responsible Policy which has been developedby the Investment Manager and considers this to be an appropriate policy for theCompany. The policy is set out below: "Invista Real Estate Investment Management Limited ('Invista') recognises thathow buildings are designed, built, managed and occupied significantly influencestheir impact on the environment and affected communities. Invista is committed to delivering strong financial returns to our clients whileat the same time delivering positive environmental, social and economicbenefits. We believe it is important to effectively managesustainability-related risks, associated with, for example, climate change (moresevere and regular floods, increasing storm damage costs and energy costs), sitecontamination and remediation, use of hazardous materials, waste management(rising landfill and disposal costs), employee and contractor health and safety,and local community relations. Invista's standard business processes ensure that it obtains an environmentreport as part of the due diligence process for property acquisitions. Inaddition, Invista ensures that its Fund Managers and appointed Managing Agentscomply with all relevant laws and regulation relating to its clients' business.Invista also aims to operate according to established best practice within theindustry on all relevant environmental and social aspects of property managementand development. Invista is committed to working with its clients, business partners, suppliers,local communities, tenants, government agencies, and planning and regulatorybodies constructively to achieve greater sustainability in property developmentand management." Last year the Investment Manager advised that systems were being implemented toreport the evidence of compliance with this policy. The Manager is continuing to work with Upstream Sustainability Consultants aspart of putting in place systems to enable it to implement and monitor itssustainability policy. The main focus is putting in place a set of objectivesand targets for the Invista business, and then for these to be incorporated injob descriptions and personal objectives. As well as the environment, sustainability also covers wider socio-economicissues such as local employment and safety and security. In due course Upstreamwill also work with the Investment Manager to develop a strategy to includethese issues, but the initial brief is to focus on environmental issues and, inparticular the top priorities of energy, waste, transport and pollution. During the year the Company responded to the Carbon Disclosure ProjectGreenhouse Gas Emissions Questionnaire, known as CDP5. Responding to thisquestionnaire raised a number of thought provoking issues in relation to therisks that climate change presents to the Company, and what can be done tomitigate these risks. It has also highlighted areas where the Company canpotentially benefit from having a robust sustainability policy embedded in itsinvestment process. Authority to buy back shares The Company did not purchase any shares for cancellation during the year. TheDirectors have authority to buy back up to 14.99% of the Company's OrdinaryShares and will seek annual renewal of this authority from Shareholders. Anybuyback of Ordinary Shares will be made subject to Guernsey law and within anyguidelines established from time to time by the Board and the making and timingof any buybacks will be at the absolute discretion of the Board. Purchases of Ordinary Shares will only be made through the market for cash atprices below the prevailing NAV of the Ordinary Shares (as last calculated)where the Directors believe such purchases will enhance shareholder value. Suchpurchases will also only be made in accordance with the rules of the UK ListingAuthority which provide that the price to be paid must not be more than 5 percent above the average of the middle market quotations for the Ordinary Sharesfor the five business days before the shares are purchased. Any sharespurchased under this authority will be cancelled. Status for Taxation The Income Tax Administrator in Guernsey has granted the Company exemption fromGuernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance,1989 and the income of the Company may be distributed or accumulated withoutdeduction of Guernsey Income Tax. Exemption under the above mentioned Ordinanceentails the payment by the Company of an annual fee of £600. During the year, the Company's properties have been held in various subsidiariesand associates, the majority of which are subject to UK Income Tax. In eachinstance any tax due is computed after deduction of debt financing costs andother allowances as appropriate. A Sykes, Director (Chairman) Harry Dick-Cleland, Director27 June 2007 27 June 2007 Consolidated Income Statement 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Notes £'000 £'000 Rental income 30,701 28,119Other income 3 1,459 225Property operating expenses 4 (882) (1,172)Net rental and related income 31,278 27,172Profit on disposal of investment property 6,075 2,594 Net valuation gains on investment property 12 44,267 54,022 ExpensesInvestment management fee 2 (6,423) (5,062)Performance fee 2 (11,437) (6,160)Valuers' and other professional fees (525) (416)Administrators fee 2 (261) (227)Auditors' remuneration 5 (163) (47)Directors' fees (177) (98)Other expenses 6 (69) (525)Total expenses (19,055) (12,535) Net operating profit 62,565 71,253 Interest receivable 1,767 3,908Interest payable (10,618) (8,191)Finance expenses (737) (673)Net finance costs (9,588) (4,956) Share of profits of associates 44,109 8,582Income from associate 14 312 - Profit before tax 97,398 74,879 Taxation 9 (690) (85) Profit for the year attributable to the equity 96,708 74,794holders of the parent Basic and diluted earnings per share 10 27.4p 23.5p All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of the financialstatements. Consolidated Balance Sheet 31/03/2007 31/03/2006 Notes £'000 £'000 Investment property 12 629,380 518,180Investment property under development 13 4,337 -Investment in associates and joint ventures 14 83,671 28,313Interest rate swap 3,163 -Loan to associate 14 - 9,787Non-current assets 720,551 556,280 Trade and other receivables 17 7,935 5,832Taxation paid in advance 9 - 231Cash and cash equivalents 24,548 37,608Current assets 32,483 43,671 Total assets 753,034 599,951 Issued capital and reserves 18 502,652 422,771Equity 502,652 422,771 Interest-bearing loans and borrowings 19 149,270 148,833Interest rate swap - 3,875Non-current liabilities 149,270 152,708 Interest-bearing loans and borrowings 19 69,018 -Trade and other payables 21 31,910 21,222Taxation payable 9 184 -Provisions 20 - 3,250Current liabilities 101,112 24,472 Total liabilities 250,382 177,180 Total equity and liabilities 753,034 599,951 Net Asset Value per Ordinary Share 22 142.2p 119.6p The financial statements were approved at a meeting of the Board of Directorsheld on 27 June 2007 and signed on its behalf by: Andrew Sykes, Director (Chairman) Harry Dick-Cleland, Director The accompanying notes 1 to 27 form an integral part of the financialstatements. Consolidated Statement of Changes in Equity Notes Share Hedge Revenue Total premium reserve reserve £'000 £'000 £'000 £'000 Balance as at 31 March 2005 - (1,382) 274,204 272,822 Issued in the year 100,000 - - 100,000Issue costs (1,644) - - (1,644)Loss on cash flow hedge - (2,493) - (2,493)Profit for the year - - 74,794 74,794Dividends paid - - (20,708) (20,708) Balance as at 31 March 2006 98,356 (3,875) 328,290 422,771 Gain on cash flow hedge - 7,038 - 7,038Profit for the year - - 96,708 96,708Dividends paid 11 - - (23,865) (23,865) Balance as at 31 March 2007 98,356 3,163 401,133 502,652 The accompanying notes 1 to 27 form an integral part of the financialstatements. Consolidated Statement of Cash Flows 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006Operating activities Notes £'000 £'000 Profit for the year 96,708 74,794Adjustments for:Profit on disposal of investment property (6,075) (2,594)Net valuation gains on investment property (44,267) (54,022)Share of profits of associates (44,109) (8,582)Net finance costs 9,588 4,956Taxation 690 85Operating profit before changes in working capital andprovisions 12,535 14,637 Increase in trade and other receivables (1,914) (1,135)Increase in trade and other payables 5,554 10,614Cash generated from operations 16,175 24,116 Interest paid (9,827) (6,805)Finance costs paid (673) (4,098)Interest received 1,573 3,901Tax paid (276) (2,035)Cash flows from operating activities 6,972 15,079 Investing Activities Proceeds from sale of investment property 30,394 26,868Acquisition of investment property (94,453) (107,691)Acquisition of associates (7,675) (19,731)Loan to associate - draw down 14 - (9,787)Loan to associate - repayment 14 6,549 -Cash flows from investing activities (65,185) (110,341) Financing ActivitiesProceeds on issue of Shares 18 - 100,000Issue costs paid on issuance of Ordinary Shares - (1,644)Draw down of loan facility 19 69,018 -Dividends paid 11 (23,865) (20,708)Cash flows from financing activities 45,153 77,648 Net decrease in cash and cash equivalents for theyear (13,060) (17,614)Opening cash and cash equivalents 37,608 55,222Closing cash and cash equivalents 24,548 37,608 The accompanying notes 1 to 27 form an integral part of the financialstatements. Company Income Statement 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Notes £'000 £'000 (Restated) Dividend income 25 10,500 -Other income 3 38 18 Income 10,538 18 ExpensesInvestment management fee 2 (3,209) (2,537)Performance fee 2 (11,437) (6,160)Valuers' and other professional fees (130) (125)Administrators fee (280) (206)Auditors' remuneration (103) (40)Directors' fees (177) (98)Other expenses 6 (12) (124) Total expenses (15,348) (9,290) Net operating (loss) (4,810) (9,272) Interest receivable 7 6,430 3,943Finance expenses 8 (1,150) (987)Income from subsidiary 8 - 6,501 Net finance income 5,280 9,457 Profit for the year 470 185 Basic and diluted earnings per share 10 0.1p 0.1p All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of the financialstatements. Company Balance Sheet 31/03/2007 31/03/2006 Restated Notes £'000 £'000 Investments in subsidiary companies 15 370,424 366,595Loans to subsidiary companies 16 84,245 67,988Non-current assets 454,669 434,583 Trade and other receivables 17 13,087 30,628Cash and cash equivalents 10,452 6,677Current assets 23,539 37,305 Total assets 478,208 471,888 Issued capital and reserves 18 338,629 362,024Equity 338,629 362,024 Non interest-bearing loans and borrowings 25 117,610 102,674Non-current liabilities 117,610 102,674 Trade and other payables 21 21,969 7,190Current liabilities 21,969 7,190 Total liabilities 139,579 109,864 Total equity and liabilities 478,208 471,888 The financial statements on pages below were approved at a meeting of the Boardof Directors held on 27 June 2007 and signed on its behalf by: Andrew Sykes, Director (Chairman) Harry Dick-Cleland, Director The accompanying notes 1 to 27 form an integral part of the financialstatements. Company Statement of Changes in Equity Notes Share premium Revenue Total reserve Restated £'000 £'000 £'000 Balance as at 31 March 2005 - 284,191 284,191 Issued in the year 100,000 - 100,000Issue costs (1,644) - (1,644)Profit for the year - 185 185Dividends paid - (20,708) (20,708)Balance as at 31 March 2006 - restated 98,356 263,668 363,105Profit for the year - 470 470Dividends paid 11 - (23,865) (23,865) Balance as at 31 March 2007 98,356 240,273 338,629 The accompanying notes 1 to 27 form an integral part of the financialstatements. Company Statement of Cash Flows 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 RestatedOperating activities Notes £'000 £'000 Profit for the year 470 185Adjustments for:Net finance income (5,280) (9,457)Operating profit before changes in working capital (4,810) (9,272)and provisions Decrease /(increase) in trade and other receivables 33,065 (23,648)Increase in trade and other payables 5,508 6,460Cash generated from operations 33,763 (26,460) Interest received 277 3,943Finance costs paid (1,150) (48)Tax paid - (32)Cash flows from operating activities 32,890 (22,597) Investing ActivitiesAcquisition of subsidiary companies (3,960) (19,131)Intra group loan received 23,033 12,906Intra group loan provided (24,323) (51,501)Cash flows from investing activities (5,250) (57,726) Financing ActivitiesProceeds on issue of shares - 100,000Issue costs paid on issuance of shares - (1,644)Dividends paid 11 (23,865) (20,708)Cash flows from financing activities (23,865) 77,648 Net increase / (decrease) in cash and cash 3,775 (2,675)equivalentsOpening cash and cash equivalents 6,677 9,352Closing cash and cash equivalents 10,452 6,677 The accompanying notes 1 to 27 form an integral part of the financialstatements. Notes to the Financial Statements 1. Significant accounting policies The Invista Foundation Property Trust Limited ('the Company') is a closed-endedinvestment company incorporated in Guernsey. The consolidated financialstatements for the year ended 31 March 2007 comprise the Company, itssubsidiaries and its interests in associates (together referred to as the 'Group'). Statement of compliance The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ('IFRS') issued by, or adopted by, theInternational Accounting Standards Board (the 'IASB'), interpretations issued bythe International Financial Reporting Interpretations Committee, applicablelegal and regulatory requirements of Guernsey Law and the Listing Rules of theUK Listing Authority. As at the date of approval of these financial statements the following Standardsand Interpretations which have not been applied in these financial statementswere in issue but not yet effective: IFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1on capital disclosures. Effective date - periods commencing on or after 1January 2007. This standard requires disclosure of risks relating to financialinstruments for an entity's position and performance. The main additionalinformation will relate to management's objective, policies and processes formanaging the risk relating to financial instruments. IFRIC 8 Scope of IFRS 2. Effective date - periods commencing on or after 1 May2006. This interpretation addresses the accounting for share based paymenttransactions in which some or all of the goods or services cannot bespecifically identified. IFRIC 9 Reassessment of embedded derivatives. Effective date - periodscommencing on or after 1 June 2006. This interpretation requires that areassessment of whether an embedded derivative should be separated from theunderlying host contract be made when there is a change to the contract. IFRS 8 Operating Segments. Effective date - periods commencing on or after 1January 2009. This standard requires disclosure on the Group's operatingsegments. The directors anticipate that the adoption of these standards andinterpretations in future periods will have no material impact on the financialstatement of the Group or Company. Basis of preparation The financial statements are presented in sterling, rounded to the nearestthousand. They are prepared on the historical cost basis except that investmentproperty and derivative financial instruments are stated at their fair value. The accounting policies have been consistently applied to the results, assets,liabilities and cash flows of the entities included in the financial statementsand are consistent with those of the previous year. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and the reported amounts of assets and liabilities,income and expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking judgements about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. Judgements made by Management in the application of IFRS that have a significanteffect on the financial statements and estimates with a significant risk ofmaterial adjustment in the next year are disclosed in notes 19 and 23. Basis of consolidation Subsidiaries The consolidated financial statements comprise the accounts of the Company andall of its subsidiaries drawn up to 31 March each year. Subsidiaries are thoseentities, including special purpose entities, controlled by the Company.Control exists when the Company has the power, directly or indirectly, to governthe financial and operating policies of an entity so as to obtain benefits fromits activities. In assessing control, potential voting rights that presentlyare exercisable are taken into account. The financial statements ofsubsidiaries are included in the consolidated financial statements from the datethat control commences until the date that control ceases. Where properties areacquired by the Group through corporate acquisitions and there are nosignificant assets or liabilities acquired other than the property, theacquisition has been treated as an asset acquisition. Associates Associates are those entities in which the Group has significant influence, butnot control, over the financial and operating policies. The consolidatedfinancial statements include the Group's share of the total recognised gains andlosses of these entities on an equity accounted basis, from the date thatsignificant influence commences to the date that significant influence ceases.When the Group's share of losses exceeds its interest in an entity, the Group'scarrying amount is reduced to nil and recognition of further losses isdiscontinued except to the extent that the Group has incurred legal orconstructive obligations or made payments on behalf of an entity. Joint Ventures Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement. The consolidated financialstatement includes the Group's share of recognised gains and losses of jointlycontrolled entities on an equity accounted basis. Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising fromintra-group transactions are eliminated in preparing the consolidated financialstatements. Unrealised gains arising from transactions with associates areeliminated to the extent of the Group's interest in the entity. Unrealisedlosses are eliminated in the same way as unrealised gains but only to the extentthat there is no evidence of impairment. Investment property Investment property is land and buildings held to earn rental income togetherwith the potential for capital growth. Investment properties are initially recognised on completion of contracts atcost, being the fair value of the consideration given, including transactioncosts associated with the investment property. After initial recognition, investment properties are measured at fair value,with unrealised gains and losses recognised in the Income Statement. Realisedgains and losses on the disposal of properties are recognised in the IncomeStatement. Fair value is based on the open market valuations of the propertiesas provided by Knight Frank LLP, a firm of independent chartered surveyors, atthe balance sheet date. Market valuations are carried out on a quarterly basis. As disclosed in note 24, the Group leases out all properties held on operatingleases. A property held under an operating lease is classified and accounted foras an investment property on a property by property basis when the Group holdsit to earn rentals, capital appreciation, or both. Any such property under anoperating lease classified as an investment property is carried at fair value. Investment property under development Property that is being constructed or developed for future use as investmentproperty is classified as investment property under development and is initiallystated at cost. After initial recognition investment property under developmentis measured at fair value. Any unrealised gains are recognised directly in theequity of the Group, with any unrealised losses recognised in the incomestatement. Fair value is based on the open market valuations of the propertyunder development as provided by Knight Frank LLP at various stages during thedevelopment process. Upon completion of the development the property is reclassified and subsequentlyaccounted for as investment property. Investments in subsidiaries The Company's investments in subsidiaries are valued at cost. Cash and cash equivalents Cash at banks and short-term deposits that are held to maturity are carried atcost. Cash and cash equivalents are defined as cash in hand, demand depositsand short-term, highly liquid investments readily convertible to known amountsof cash and subject to insignificant risk of changes in value. For the purposesof the Cash Flow Statement, cash and cash equivalents consist of cash in handand short-term deposits at banks with a term of no more than three months. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure tointerest rate fluctuations. It is not the Group's policy to trade in derivativefinancial instruments. Derivative financial instruments are recognised initially at fair value and aresubsequently re-measured and stated at fair value. Fair value of interest rateswaps is the estimated amount that the Group would receive or pay to terminatethe swap at the balance sheet date. The gain or loss on re-measurement to fairvalue of cash flow hedges in the form of derivative financial instruments aretaken directly to the Statement of Changes in Equity. Such gains and losses aretaken to a reserve created specifically for that purpose, described as the Hedgereserve. On maturity or early redemption the realised gains or losses arising from cashflow hedges in the form of derivative instruments are taken to the IncomeStatement, with an associated transfer from the Statement of Changes in Equityin respect of unrealised gains or losses arising in the fair value of the samearrangement. The Group considers the terms of its interest rate swap qualify for hedgeaccounting. Share capital Ordinary shares are classified as equity. Incremental external costs directlyattributable to the equity transaction and costs associated with theestablishment of the Company that would otherwise have been avoided are writtenoff against the share premium account. Dividends are recognised in the periodin which they are paid. Provisions A provision is recognised in the Balance Sheet when a legal or constructiveobligation is established as a result of a past event, and it is probable thatan outflow of economic benefits will be required to settle the obligation. Income Rental income from investment properties is accounted for on a straight-linebasis over the term of ongoing leases and is shown gross of any United Kingdomincome tax. Any rent-free periods are spread evenly over the lease term.Finance income is accounted for on an effective interest basis. Interest receivable derives from cash monies held in current and depositaccounts throughout the period and is accounted for on an accruals basis. Expenses All expenses are accounted for on an accruals basis. The investment managementand administration fees, finance costs (including interest on the long termborrowings) and all other expenses are charged through the Income Statement.Attributable transaction costs incurred in establishing credit facilities arededucted from the fair value of borrowings on initial recognition and areamortised over the lifetime of the facilities through the Income Statement.Finance expenses are accounted for on an effective interest basis. Taxation The Company and its subsidiaries are subject to United Kingdom income tax on anyincome arising on investment properties, after deduction of debt financing costsand other allowable expenses. Income tax on the profit or loss for the year comprises current tax and deferredtax. Current tax is the expected tax payable on the taxable income for theyear, using tax rates enacted or substantially enacted at the balance sheetdate, and any adjustment to tax payable in respect of previous periods. Deferred income tax is provided using the liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantially enacted at the balance sheet date. Deferred tax assetsare recognised only to the extent that it is probable that future taxableprofits will be available against which the asset can be utilised. Segmental reporting The Directors are of the opinion that the Company and Group are engaged in asingle segment of business, being property investment business and in onegeographical area, the United Kingdom. Loans and borrowings Borrowings negotiated on an arms length basis are recognised initially at fairvalue of the consideration received, less attributable transaction costs.Subsequent to initial recognition, these interest-bearing borrowings are statedat amortised cost with any difference between cost and redemption value beingrecognised in the income statement over the period of the borrowings on aneffective interest basis. Certain borrowings by the company from subsidiaries have fixed repayment datesand are interest free. These loans are recognised by the company initially atfair value of the future payments discounted at market interest rates. Thedifference between the consideration received and the initial value of the loanis treated as income in the Company's income statement on initial recognition.The discount is subsequently amortised on effective interest rate basis andtreated as a finance expense. 2. Material agreements Under the terms of an appointment made by the Board on 24 June 2004, InsightInvestment Management (Global) Limited was appointed as Investment Manager tothe Company. On 31 August 2006 the Board agreed to novate the Investment Management Agreementto Invista Real Estate Investment Management Limited. This follows the de-mergerof the Investment Manager from Insight Investment and its subsequent independentlisting on the Alternative Investment Market. The Investment Manager is entitled to a base fee and a performance fee togetherwith reasonable expenses incurred by it in the performance of its duties. Thebase fee is equal to one quarter of 95 basis points of the gross assets of theGroup per quarter. In addition, and subject to the conditions below, the Investment Manager isentitled to an annual performance fee where the total return per ordinary shareduring the relevant financial period exceeds an annual rate of 10 per cent (the"performance hurdle"). Where the performance hurdle is met, a performance feewill be payable in an amount equal to 15 per cent of any aggregate total returnover and above the performance hurdle. A performance fee will only be payablewhere: (i) in respect of the relevant financial period, the total return of theunderlying assets meets or exceeds the Investment Property Databank ("IPD")Monthly Index balanced funds benchmark on a like for like basis; and (ii) theannualised total return over the period from admission of the Company's OrdinaryShares to the end of the relevant financial period is equal to or greater than10 per cent per annum. The total charge to the Income Statement during the period was £6,423,000 (2006:£5,062,000) for the base management fee. As the conditions for receipt of aperformance fee were met during the year, a charge of £11,437,000 (2006:£6,160,000) was also made to the income statement in favour of the InvestmentManager. The Investment Management Agreement may not be terminated by either the Companyor the Investment Manager prior to the second anniversary of the agreement but,thereafter, any party may terminate the agreement on not less than twelve monthsnotice in writing. Under the terms of an Administration, Registrar, Custodian and SecretarialAgreement dated 24 June 2004, the Company appointed RBSI Fund Services(Guernsey) Limited to act as administrator, registrar, custodian and corporatesecretary of the Company. The Administrator is entitled to a fee of £35,000 perannum together with an additional fee of 3.25 basis points of the gross assetsof the Company, subject to an overall minimum of £150,000 per annum and anaggregate maximum fee payable by the Company, and its subsidiaries, to theAdministrator, its affiliates and the CREST Service Provider of £250,000 perannum. The Administrator gave notice on 22 January 2007 to terminate the Administrationagreement. The appointment of Northern Trust as Administrator with effect from27 June 2007 was approved by the Board on 24 April 2007, subject to approval ofterms and conditions. 3. Other income 01/04/2006 01/04/2005 to to 31/03/2007 31/03/2006Group £'000 £'000 Insurance commissions 305 (6)Surrender premiums 1,026 213Miscellaneous income 128 18 1,459 225CompanyMiscellaneous income 38 18 38 18 The Group is obliged to arrange insurance on the majority of its property assetsfor which it receives a commission and is stated net of any fees payable toinsurance brokers. 4. Property operating expenses 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 £'000 £'000 Surveyor's fees 300 670Dilapidations (113) (327)Agents' fees 173 100Repairs and maintenance 113 245Advertising 11 21Rates - vacant 64 90Other expenses 334 373 882 1,172 5. Auditors' remuneration During the year the financial statements for certain subsidiaries within theGroup were subject to audit for the first time. This included the financialstatements for prior years. These costs were not accrued within the Groupfinancial statements for the year ended 31 March 2006. 6. Other expenses 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006Group £'000 £'000 Directors' and officers' insurance premium 19 58Printing costs (9) 6Regulatory costs 14 25Marketing (146) 161Bad debts 79 -Other expenses 112 275 69 525CompanyDirectors' and officers' insurance premium 3 53Regulatory costs 3 12Marketing - 14Other expenses 6 45 12 124 7. Interest receivable restatement Company The current year financial statements of the Company include a prior yearadjustment to restate inter-group interest receivable. An amount of £1,081,000was previously accounted for as a receivable to the Company when it should havebeen reflected as a receivable to one of the Company's subsidiaries. This hasno impact on Group financial statements. The effect of the restatement is summarised below. There is no effect in 2007: 31/03/2006 (Decrease) in interest receivable (1,081)(Decrease) in profit (1,081)There is no effect on taxation(Decrease) in trade and other receivables (1,081)(Decrease) in equity (1,081) 8. Income from subsidiary Company In previous years the Company has received interest free loans from a subsidiarywhich are repayable on 30 March 2015. The difference between the fair value ofthese loans, £13,727,000, and the face value of £28,892,000 was recognised asincome in the Company at the date of receipt of these loans. This amount is thenamortised as finance expenses over the period of the loans. The amounts chargedto the income statement as finance expenses for the year was £1,147,000 (2006:£938,000). 9. Taxation 01/04/2006 01/04/2005 To to 31/03/2007 31/03/2006 £'000 £'000Reconciliation of effective tax rateProfit before tax 97,398 74,879Effect of:Income tax using UK income tax rate of 22% 21,428 16,473Capital gains on revaluation not taxable (9,739) (13,773)Share of profits of associates not taxable (9,704) (1,888)Profit on disposal not taxable (1,337) (571)Other net income not taxable (305) (2,044) Current tax expense incurred during the year 343 85Adjust provision for year of charge 2004 / 2005 / 2006 347 (54)Tax expense for year of charge 2006/2007 690 31Payments on account (506) (262) Taxation payable/ (paid in advance) 184 (231) The Company and its Guernsey registered subsidiaries have obtained exemptcompany status in Guernsey under the terms of the Income Tax (Exempt Bodies)(Guernsey) Ordinance, 1989 so that they are exempt from Guernsey taxation onincome arising outside Guernsey and on bank interest receivable in Guernsey.Each company is, therefore, only liable to a fixed fee of £600 per annum. TheDirectors intend to conduct the Group's affairs such that they continue toremain eligible for exemption. 10. Basic and diluted earnings per share The basic and diluted earnings per share for the Group is based on the netprofit for the year of £96,708,000 (2006: £74,794,000) and the weighted averagenumber of Ordinary Shares in issue during the year of 353,560,000 (2006:318,755,945). The basic and diluted earnings per share for the Company is based on the netprofit for the year of £470,000 (2006 restated: £185,000 profit) and theweighted average number of Ordinary Shares in issue during the year of353,560,000 (2006: 318,755,945). 11. Dividends paid 01/04/2006 No. of ToIn respect of Ordinary Rate 31/03/2007 Shares (pence) £'000 Quarter 31 March 2006 dividend paid 26 May 2006 353.56 million 1.6875 5,966Quarter 30 June 2006 dividend paid 25 August 2006 353.56 million 1.6875 5,966Quarter 30 September 2006 dividend paid 24 November 353.56 million 1.6875 5,966 2006Quarter 31 December 2006 dividend paid 18 February 353.56 million 1.6875 5,9662007 6.7500 23,86512. Investment property £'000 Leasehold Freehold TotalAt cost - 31 March 2006 48,307 399,348 447,655Acquisitions 39,515 50,898 90,413Provision for further purchase consideration (note 20) - 790 790Disposals (15,881) (8,389) (24,270)At cost - 31 March 2007 71,941 442,647 514,588 Net valuations gains on investment property - 31 March 7,613 62,912 70,5252006 Net valuations gains on investment property per (2,584) 46,851 44,267Consolidated Income Statement 5,029 109,763 114,792At Valuation - 31 March 2007 76,970 552,410 629,380 £'000 Leasehold Freehold Total At cost - 31 March 2005 48,307 314,640 362,947Acquisitions - 107,691 107,691Provision for further purchase consideration (note 20) - 1,250 1,250Disposals - (24,233) (24,233)At cost - 31 March 2006 48,307 399,348 447,655 Net valuations gains on investment property - 31 March 1,888 14,615 16,5032005Net valuations gains on investment property perConsolidated Income Statement 5,725 48,297 54,022 7,613 62,912 70,525At Valuation - 31 March 2006 55,920 462,260 518,180 The carrying amount of investment property is the fair value of the property asdetermined by Knight Frank LLP, a firm of independent chartered surveyors, whoare a registered independent appraiser. Fair values were determined havingregard to recent market transactions for similar properties in the same locationas the Group's investment property. The Group had no non income generating properties during the year. 13. Investment property under development 31/07/2007 31/03/2006 £'000 £'000 Opening balance - -Additions in the year 4,337 -Closing balance 4,337 - As a result of the Investment property under development having commencedshortly prior to the year end the current valuation is based on the costsincurred as at the balance sheet date. This value is considered to reflect thecurrent fair value. 14. Investment in associates and joint ventures MidCity Place, London WC1 In August 2005, the Group, through Invista Foundation (Mid City) Limited,invested equity and subordinated debt of £9,917,000 for a 19.725% shareholdingin DV3 Mid City Limited, a company incorporated in the British Virgin Islandsand which owns the Mid City Place property in London. This investment is classified as an investment in an associate due to thecompany having the ability to exert significant influence through itsshareholding and representation on the board of directors. The subordinated debtwas advanced on similar terms as the other shareholders of DV3 Mid City Limitedin proportion to their shareholdings. The subordinated debt which was invested in DV3 Mid City Limited of £9,787,000was split into two separate loans. The first loan was for £3,900,000. Thisamount, along with all associated loan interest, was repaid on 11 July 2006. Thesecond loan for £5,887,000 had a partial repayment of £2,649,692, along with allassociated interest as at 11 July 2006. The remaining loan of £3,237,308 wasconverted into equity, along with associated interest of £336,073 on 17 January2007. Plantation Place, London EC3 The Group's 28.08% interest in One Plantation Place Unit Trust is now valued at£ 52,687,000 (2006: £20,500,000). As expected, during the year the Unit Trusthas completed a £463 million securitisation which has re-financed the UnitTrusts previous senior and junior debt facilities. The securitisation achieved ablended margin of 45 bps over a seven year term. The Unit Trust also has thebenefit of a seven year interest rate swap at 4.74% giving a total interest ratepayable of 5.19%. During the year the group received an income distribution, £312,000, and acapital distribution, £81,000, from One Plantation Place Unit Trust. Crendon Industrial Estate In May 2006 the Group acquired a 50% share in a joint venture companyestablished to acquire Crendon Industrial Estate, near Oxford. The jointventure company acquired the property for a gross consideration of £20,000,000which was funded by a combination of a debt facility £16,700,000 and equityfunding from the joint venture partners. Merchant In December 2006 the Group acquired a 19.42% investment in Merchant PropertiesUnit Trust. This investment is classified as an investment in an associate dueto the Company having the ability to exert significant influence through itsunitholding and the associated agreements. Crendon Mid City Plantation IndustrialAs at 31 March 2007 Place Place* Estate # Merchant £'000 £'000 £'000 £'000 Equity interest 19.725% 28.08% 50% 19.42%Total assets 334,103 651,656 32,552 13,586Total liabilities 218,628 464,025 28,281 85Revenues for year / period 13,666 141,049 4,674 1Profit / (loss) for year / period 165 100,712 3,271 (131) Net asset value attributable to 22,751 52,687 2,160 3,000 GroupLoans due to Group - - 3,073 -Total asset value attributable to 22,751 52,687 5,233 3,000 Group * Revenues and profit relate to the period 21 November 2005 to 31 March 2007. # Revenues and profit relate to the period 13 April 2006 to 31 March 2007. Revenues and profit relate to the period 16 November 2006 to 31 March 2007. Plantation Mid City As at 31 March 2006 Place* Place £'000 £'000 Total assets 540,000 269,000Total liabilities 466,994 225,000Revenues for year N/A 13,300Profit / (loss) for year N/A (6,600) Group equity investment 19,600 130Subordinated debt investment - 9,787Net asset value attributable to Group 20,500 7,813 * No audited financial statements were prepared for Plantation Place as at 31March 2006 15. Investment in subsidiary companies 31/03/2007 31/03/2006 £'000 £'000Opening balance 366,595 347,464Additions in the year 3,829 19,131Closing balance 370,424 366,595 The Group's investment properties are held by its subsidiary companies. All ofthe Company's subsidiaries are wholly owned. The principal subsidiaries which hold investment property are as follows: Subsidiary Domicile Ownership Ownership interest interest 2007 2006 Invista Foundation Property Limited Guernsey 100% 100%Invista Foundation Property (No.2) Limited Guernsey 100% 100%LP (Brentford) Limited Guernsey 100% 100%Invista Foundation Property Bootle Limited Isle of Man 100% 100% The principal subsidiaries which have entered into borrowing facilities onbehalf of the Company and its property holding subsidiaries are: Invista Foundation Property (No.2) Limited Guernsey 100% 100% Invista Foundation Holding Company Limited Guernsey 100% 100% Real Estate Capital (Foundation) Limited Guernsey See below See below Real Estate Capital (Foundation) Limited is a special purpose vehicle and itsaccounts have been included within these consolidated financial statements onthe basis that the Company has the power, directly or indirectly, to govern thefinancial and operating policies of that entity so as to obtain benefits fromits activities. 16. Loans to subsidiary companies At 31 March 2007 the Company had outstanding loans of £84,245,000 (2006:£67,988,000) to its subsidiary companies. An initial loan of £15,901,000 has nofixed repayment date and interest is charged on 60% of the outstanding balanceat an annual rate of 3 per cent above the United Kingdom base rate. A secondloan of £60,927,000 has no fixed repayment date and interest is charged on thefull loan amount at an annual rate of 3 per cent above the UK base rate. Theother loans totalling £7,417,000 are interest free and have no fixed repaymentdate. 17. Trade and other receivables 31/03/2007 31/03/2006 £'000 £'000GroupRent receivable 4,424 3,022VAT recoverable 1,694 -Other debtors 1,817 2,810 7,935 5,832 Company RestatedAmounts due from subsidiary companies 13,074 29,694Receivable on portfolio acquisition - 921Other debtors 13 13 13,087 30,628 18. Issued capital and reserves Authorised share capital The authorised share capital of the Company is represented by an unlimitednumber of Ordinary Shares of no par value. Issued share capital The number of issued Ordinary Shares of the Company throughout the year were353,560,000. On 27 July 2005 100,000,000 C Shares were admitted to the London Stock Exchangeand commenced dealing. The amount paid for these shares totalled £100 million.Deducted from these proceeds were costs directly attributable to the issue of£1,644,000. On 5 August 2005 Invista Foundation Property Trust Limited carried out aConversion of the C Shares of the Company. As at that date, the Net Asset Valueper C Share was 97.85p and the net asset value per ordinary share was 104.59p.On this basis, for the purpose of the Conversion, the Conversion Ratio was0.9356 Ordinary Shares for every one C Share. 93,560,000 new Ordinary Shareswere created on Conversion of the C Shares increasing the number of issuedOrdinary Shares of the Company from 260,000,000 to 353,560,000. Dividends On 25 April 2007 the Directors declared a dividend of 1.6875 pence per share,giving a total dividend payable of £5,966,325. The dividend has not beenincluded as a liability. 19. Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group'sinterest-bearing loans and borrowings. For more information about the Group'sexposure to interest rate risk, see note 23. Group 31/03/2007 31/03/2006Non-current liabilities £'000 £'000Class A Secured Floating Rate Notes 139,000 139,000Class B Secured Floating Rate Notes 13,500 13,500 152,500 152,500Less: Finance costs incurred (4,103) (4,077)Add: Amortised finance costs 873 (3,230) 410 (3,667) 149,270 148,833 Current liabilities NMR Loan Facility 69,080 -Less: Finance costs incurred (76)Add: Amortised finance costs 14 (62) - 69,018 - In May 2005 the Group entered into a £152.5 million loan repayable in July 2014with Real Estate Capital (Foundation) Limited, a securitisation facility ('thefacility'), admitted to the Official List of the Irish Stock Exchange.Securitised notes were issued at a blended margin of 20.8 basis points overLIBOR and simultaneously the Company entered into an equivalent maturity swapagreement at 5.1%. The Group is hedging against interest rate movements by fixing the interest itwill pay over the period of the loan with an interest rate swap. The interestrate swap is classified as a cash flow hedge and is stated at fair value. Thecounterparty is liable to pay interest at LIBOR on the loan. As at 31 March 2007the fair value of the swap was £3,163,000. The cash flow relating to this hedge,and determination of any profit or loss, is expected to arise during 2014, onmaturity of the loans with which they are associated. In aggregate, therefore, the effective interest rate is 5.31% per annum. Thereare additional capitalised costs of £4 million incurred in arranging thefacility that are being amortised over the life of the loan which has the effectof adding an additional 28 basis points per annum to the cost of the loan. The facility has first charge security over all the property assets which at 31March 2007 had a value of £467.6 million (2006: £438 million) together with£1.85 million cash (£2006: £2.2 million) (the 'Security Pool'). Assets can besold and bought within this Security Pool without any need to revert to theIssuer or the Rating Agents up to an annual turnover rate of 20%. Variouscovenants apply during the term of the loan although the Facility has beendesigned to provide significant operational flexibility. The principalcovenants however are that the loan should not comprise more than 60% of thevalue of the assets in the Security Pool nor should estimated rental and otherincome arising from assets in the Security Pool comprise less than 150% of theinterest payments (interest cover at 31 March 2007 - 296%, at 31 March 2006 -315%). The Group (via its subsidiary, Invista Foundation Property (No. 2) Limited ('IFP2L')) has entered into two further loan agreements with NM Rothschild & SonsLimited ('NMR'). First a revolving facility of £100 million has been provided,of which £54 million has been drawn. A second facility of £14.58 million hasbeen provided by NMR secured against the Group's interest at Portman Square. 20. Provisions 31/3/2007 31/3/2006Group £'000 £'000 Opening balance 3,250 2,000Provision made in the year 790 1,250Payment made in the year (4,040) -Closing balance - 3,250 At launch the Group acquired two properties from Clerical Medical InvestmentGroup Limited (Wembley and Hinckley) where certain specific asset managementinitiatives that had been started had not reached a conclusion. The Grouptherefore agreed to pay further purchase consideration to Clerical Medicaldependent on the success of these initiatives and calculated as a percentage ofthe potential uplift after certain minimum growth thresholds have been met.These obligations concluded in July 2006 whereby the total provision to be paidwas £4,040,000. 21. Trade and other payables 31/03/2007 31/03/2006 £'000 £'000GroupRent received in advance 7,223 6,698Rental deposits 3,449 2,595VAT payable - 729Other trade payables and accruals 21,238 11,200 31,910 21,222 CompanyTrading account with subsidiary companies 9,371 100Trade payables and accruals 12,598 7,090 21,969 7,190 22. Net asset value per Ordinary Share The net asset value per Ordinary Share is based on the net assets of£502,652,000 (2006: £422,771,000) and 353,560,000 (2006: 353,560,000) OrdinaryShares in issue at the balance sheet date. 23. Financial instruments and properties The Group and the Company hold cash and liquid resources as well as havingdebtors and creditors that arise directly from its operations. The Group hasentered into an interest rate swap contract which is used to limit exposure tointerest rate risks but does not have any other derivative instruments. The main risks arising from the Group's financial instruments and properties aremarket price risk, credit risk, liquidity risk and interest rate risk. The mainrisks arising from the Company's financial instruments are market price risk,credit risk and liquidity risk. The Board regularly reviews and agrees policiesfor managing each of these risks and these are summarised below. Market price risk Rental income and the market value for properties are generally affected byoverall conditions in the local economy, such as changes in gross domesticproduct, employment trends, inflation and changes in interest rates. Changes ingross domestic product may also impact employment levels, which in turn mayimpact the demand for premises. Furthermore, movements in interest rates mayalso affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factorsspecific to the real estate market, such as competition from other propertyowners, the perceptions of prospective tenants of the attractiveness,convenience and safety of properties, the inability to collect rents because ofbankruptcy or the insolvency of tenants or otherwise, the periodic need torenovate, repair and release space and the costs thereof, the costs ofmaintenance and insurance, and increased operating costs. The Directors monitor the market value of investment properties by havingindependent valuations carried out quarterly by Knight Frank LLP. Credit risk Credit risk is the risk that an issuer or counter party will be unable orunwilling to meet a commitment that it has entered into with the Group orCompany. In the event of default by an occupational tenant, the Group willsuffer a rental income shortfall and incur additional costs, including legalexpenses, in maintaining, insuring and re-letting the property. The Managerreviews reports prepared by Experian, or other sources to assess the creditquality of the Group's tenants and aims to ensure there are no excessiveconcentration of risk and that the impact of any default by a tenant isminimised. In respect of credit risk arising from other financial assets, which comprise ofcash and cash equivalents, exposure to credit risk arises from default of thecounterparty with a maximum exposure equal to the carrying amounts of theseinstruments. In order to mitigate such risks cash is maintained with majorinternational financial institutions. During the period and at the balancesheet date the Group and the Company maintained relationships with branches andsubsidiaries of HSBC Bank plc, The Royal Bank of Scotland plc and ING Barings. Liquidity risk Liquidity risk is the risk that the Group and the Company will encounter inrealising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property. Property and propertyrelated assets are inherently difficult to value due to the individual nature ofeach property. As a result, valuations are subject to substantial uncertainty.There is no assurance that the estimates resulting from the valuation processwill reflect the actual sales price even where such sales occur shortly afterthe valuation date. Investments in property are relatively illiquid; however theGroup has tried to mitigate this risk by investing in desirable properties inprime locations. In certain circumstances, the terms of the Group's debt facilities entitle thelender to require early repayment and in such circumstances the Group's abilityto maintain dividend levels and the net asset value attributable to the OrdinaryShares could be adversely affected. Interest rate risk Exposure to market risk for changes in interest rates relates primarily to theGroup's long-term debt obligations. As described in note 19 the Group has entered into an interest rate swapcontract whereby the rate of the Group's long term debt facilities have aneffective fixed interest rate of 5.31% per annum until maturity of the debt. In respect of income-earning financial assets and interest-bearing financialliabilities, the following table indicates their effective interest rates at thebalance sheet date and the periods in which they re-price. Group Effective Total 6 months or More than 5 years Interest less Rate As at 31 March 2007 £'000 £'000 £'000 Cash and cash equivalents 4.5% 24,548 24,548 -Interest-bearing loans and borrowings 5.6% (218,288) (69,018) (149,270) (193,740) (44,470) (149,270) Effective Total 6 months or More than 5 Interest less years As at 31 March 2006 Rate £'000 £'000 £'000 Cash and cash equivalents 4.5% 37,608 37,608 -Interest-bearing loans and borrowings 5.3% (148,833) - (148,833) (111,225) 37,608 (148,833) Company Effective Total 6 months or Interest less Rate As at 31 March 2007 £'000 £'000 Cash and cash equivalents 5.5% 10,452 10,452Interest-bearing loans and borrowings 8.6% 70,468 70,468 80,920 80,920 Effective Total 6 months or Interest less Rate As at 31 March 2006 £'000 £'000 Cash and cash equivalents 4.5% 6,667 6,667Interest-bearing loans and borrowings 7.8% 51,840 51,840 58,507 58,507 Fair Values The fair values of financial assets and liabilities are not materially differentfrom their carrying value in the financial statements. The following summarises the main methods and assumptions used in estimating thefair values of financial instruments and investment property. Investment Property Fair value is based on valuations provided by an independent firm of charteredsurveyors and registered appraisers. These values were determined after havingtaken into consideration recent market transactions for similar properties insimilar locations to the investment properties held by the Group (2006: fairvalues were not significantly different from the carrying amounts). Investment property under development As at the date of the balance sheet fair value is deemed to be costs incurred todate (2006: fair values were not significantly different from the carryingamounts). Derivatives Fair value for the interest rate swap uses the broker quote. This is then testedusing pricing models or discounted cash flow techniques (2006: fair values werenot significantly different from the carrying amounts). Interest bearing loans and borrowings Fair values are based on the amounts which are to be repaid, less any costsincurred in obtaining the borrowings. These costs are then amortised over theperiod of the borrowings (2006: fair values were not significantly differentfrom the carrying amounts). Trade and other receivables / payables All receivables and payables are deemed to be due within one year and as suchthe notional amount is considered to reflect the fair value (2006: fair valueswere not significantly different from the carrying amounts). Non interest bearing loans and borrowings Where non interest bearing loans and borrowings have no fixed repayment datefair value is deemed to be the face value of the borrowings. Where the repayment date of the borrowings are fixed, the carrying value of these loans arediscounted to net present value using a commercial interest rate as at the dateof the drawdown of the loan, as disclosed in note 8. The current carrying valueof such loans is £15,812,000. The fair value of these loans are calculated usingthe commercial interest rate in place as at the balance sheet date. The currentfair value of these loans are £15,177,000 (2006: fair values were notsignificantly different from the carrying amounts). 24. Operating leases The Group leases out its investment property under operating leases. At 31March 2007 the future minimum lease receipts under non-cancellable leases are asfollows: 31/03/2007 31/03/2006 £'000 £'000 Less than one year 30,735 30,328Between one and five years 98,042 102,467More than five years 147,508 128,249 276,285 261,044 The total above comprises the total contracted rent receivable as at 31 March2007. 25. Related party transactions All material transactions between the Group and its associates are disclosed innote 14. As disclosed in note 16 the Company has a series of loans to subsidiarycompanies. The Company has loans from subsidiaries which are non interest bearing. As at31 March 2007 the Company has £117.610 million outstanding to its subsidiaries(2006: £102.674 million). During the year the Company received dividend income from one of itssubsidiaries, Invista Foundation Holding Company Limited, of £10.5 million(2006: nil). Finance income received from a subsidiary, Invista Foundation Holding CompanyLimited, is disclosed in note 8. As disclosed in note 21 the Company also operates an inter-group trading accountfacility with its subsidiaries whereby it may receive income on behalf of itssubsidiaries or pay expenses on their behalf. These balances are non-interestbearing and are settled on demand. 26. Capital commitments As at 31 March 2007 Invista Foundation Property No 2 Limited was contracted toprovide funding of £11.9 million for development of a retail warehouse atChurchill Way, Basingstoke. The commitment was pursuant to a contract exchangedon 3 March 2006 conditional on planning consent being secured for a retaildevelopment on the site. There is also an agreement binding Wickes to take a 25year lease on an initial rent of circa £692,250 per annum on practicalcompletion of the development. The planning consent condition was discharged on6 March 2007. The first payment of £4,377,340 (plus VAT which will be recovered)was subsequently paid on 2 April, including £3,935,000 to Hampshire CountyCouncil for the acquisition of the land. Additional payments to the developerare due throughout the development on a monthly basis. These will be related tothe value of works signed off by the Company's appointed fund monitoringsurveyor, subject to a cap in any given month of £1million. A balancing paymentwill be paid to the developer when the development is deemed to be completed.Since the initial payment, further sums of £157,400 on 5 April 2007 and £835,587(plus VAT which will be recovered) on 4 May have been made, leaving a further£6,529,672 to be paid as the development progresses with completion expected inthe final quarter of 2007. 27. Post balance sheet event On 19 June 2007 the Group disposed of a subsidiary, Insight Foundation PropertyBootle Limited ('IFPBL') for net proceeds of £3.5 million. As at 31 March 2007 IFPBL had assets valued at £12.0 million, liabilities of£9.5 million, revenues for the year of £0.7 million and a loss for the year of£0.1 million. Independent auditors' report to the members of Invista Foundation Property TrustLimited We have audited the group and parent company financial statements (the 'financial statements') of Invista Foundation Property Trust Limited for the yearended 31 March 2007 which comprise Consolidated and Company Income Statements,the Consolidated and Company Balance Sheets, the Consolidated and CompanyStatements of Changes in Equity and the Consolidated and Company Cash FlowStatement and the related notes. These financial statements have been preparedunder the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordancewith section 64 of The Companies (Guernsey) Law, 1994. Our audit work has beenundertaken so that we might state to the company's members those matters we arerequired to state to them in an auditor's report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the company and the company's members as a body, for ouraudit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the Directors' Report and thefinancial statements in accordance with applicable Guernsey law andInternational Financial Reporting Standards (IFRS) as set out in the Statementof Directors' Responsibilities above. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with The Companies(Guernsey) Law, 1994. We also report to you if, in our opinion, the Company hasnot kept proper accounting records, or if we have not received all theinformation and explanations we require for our audit. We read the Directors' Report and consider the implications for our report if webecome aware of any apparent misstatements within it. We read the other information accompanying the financial statements and considerwhether it is consistent with those statements. We consider the implicationsfor our report if we become aware of any apparent misstatements or materialinconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the Directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Independent auditors' report to the members of Invista Foundation Property TrustLimited (continued) Opinion In our opinion the financial statements: • give a true and fair view, in accordance with International FinancialReporting Standards, of the state of the Group's and the parent company'saffairs as at 31 March 2007 and of the Group's and Company's profit for the yearthen ended; and • have been properly prepared in accordance with The Companies (Guernsey)Law, 1994. KPMG Channel Islands LimitedChartered Accountants27 June 2007 Glossary Earnings per share (EPS) is the profit after Interest cover is the number of time Group nettaxation divided by the weighted average number of interest payable is covered by Group net rentalshares in issue during the period. Diluted and income.Adjusted EPS per share are derived as set out underNAV. IPD is the Investment Property Databank Ltd, a Company that produces an independent benchmark ofEstimated rental value (ERV) is the Group's external property returns.valuers' reasonable opinion as to the open marketrent, which on the date of valuation, couldreasonably be expected to be obtained on a newletting or rent review of a property. Net assets per share (NAV) are shareholders' funds, plus the surplus of the open market value over the book value of both development and trading properties, divided by the number of shares in issueGearing is the Group's net debt as a percentage of at the period end.adjusted net assets. Net rental income is the rental income receivable inGroup is Invista Foundation Property Trust Limited the period after payment of ground rents and netand its subsidiaries. property outgoings. Initial yield is the annualized net rents generated Reversionary yield is the anticipated yield, whichby the portfolio expressed as a percentage of the the initial yield will rise to once the rent reachesportfolio valuation. the estimated rental value. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Schroder Real