21st Jun 2006 07:02
Insight Foundation Property Tst Ltd21 June 2006 21 June 2006 Insight Foundation Property Trust Limited ("IFPT"/ the "Company"/"Group") Annual Report and Consolidated Financial Statements For the year ended 31 March 2006 "The Insight Foundation Property Trust Limited aims to provide Shareholders withan attractive level of income together with the potential for income and capitalgrowth from investing in UK commercial property." Company Summary Objective To provide Shareholders with an attractive level of income together with thepotential for income and capital growth from investing in UK commercialproperty. Insight Foundation Property Trust Limited and its subsidiaries ('the Group')hold a diversified portfolio of UK commercial properties, which is invested inthree commercial property sectors: office, retail and industrial. The Group willnot invest in other listed Investment Companies. In pursuing the investmentobjective, the Investment Manager ('the Manager') concentrates on assets withgood fundamental characteristics, a diverse spread of occupational tenants andwith opportunities to enhance value through active management. Investment Manager Insight Investment Management (Global) Limited. Total assets less current liabilities (group) £575.48 million at 31 March 2006. £424.69 million at 31 March 2005. Shareholders' funds £422.77 million at 31 March 2006. £272.82 million as at 31 March 2005. Capital structure At 31 March 2005, the Group had a capital structure comprising approximately 66per cent equity and 34 per cent loan finance. As at 31 March 2006 this wasapproximately 70 per cent equity and 30 per cent loan finance. Ordinary shareholders are entitled to all dividends declared by InsightFoundation Property Trust Limited ('the Company') and to all the Group's assetsafter repayment of its borrowings. Borrowings consist of a £152.5 million loanwith an effective interest cost of 5.6% per annum (including annualised costsand expenses in association with its arrangement) fixed by way of an interestrate swap covering the full amount and life of the loan agreement. On 27 July 2005 100,000,000 C Shares were admitted to the London Stock Exchangeand commenced dealing. On 5 August 2005 the Company carried out a Conversion ofthe C Shares. As at that date, the net asset value per C Share was 97.85p andthe net asset value ('NAV') per ordinary share was 104.59p. On this basis, forthe purpose of the Conversion, the Conversion Ratio was 0.9356 Ordinary Sharesfor every one C Share. 93,560,000 new Ordinary Shares were created on Conversionof the C Shares increasing the number of issued Ordinary Shares of the Companyfrom 260,000,000 to 353,560,000. ISA/PEP status The Company's shares are eligible for Individual Savings Accounts (ISAs) and PEPtransfers and can continue to be held in existing PEPs. Website The Company's website is www.ifpt.co.uk. For further information, please contact: Duncan Owen Insight Investment Management Tel: 020 7321 1676 Stephanie Highett or Dido Laurimore Financial Dynamics Tel: 020 7831 3113 Financial Highlights • Net Asset Value per share rose by 14.01% • Earnings per share of 23.5 pence • The Group has declared and paid dividends per share amounting to 6.75 pence • Net Asset Value total return of 22.3% • Share price rose by 11.69% 31 March 31 March % Change 2006 2005 Net Asset Value (1) (£'000) £422,771 £272,822 54.96 (2)NAV per share published (1) (pence) 119.6 105.3 13.58NAV per share per accounts (1) (pence) 119.6 104.9 14.01Share price (pence) 129.0 115.5 11.69Share price premium to NAV 7.9% 10.1% (21.78)NAV total return 22.3% (3) 15.5% (4) 43.9 FTSE All Share Index 3,047.96 2,457.73 24.02FTSE Real Estate Index 4,743.97 3,256.74 45.67 Sources: Insight Investment, Datastream based on returns during the period 1April 2005 to 31 March 2006 (1) Net asset value (NAV) is calculated using International Financial ReportingStandards. Reconciliation of NAV published to NAV per accounts is shown below (2) Between 1 April 2005 and 31 March 2006 the C Shares were issued andconverted to Ordinary Shares. (3) 22.3% is a quarterly capital weighted total return (4) Annualised return for the period 16 July 2004 to 31 March 2005 Note: All based on returns during the period from 1 April 2005 to 31 March 2006. Performance Summary Reconciliation of net asset value per accounts to published net asset value 31 March 2006 31 March 2005 Total Total £'000 £'000Net asset value as published 27 April 2006 422,797 273,874Hedge reserve on interest rate swap - 1,382Increased performance fee accrual* (1,160) -Reduction in tax provision based on results of 602 -subsidiariesRevaluation of associate (100) -Reclassification of income / (expense) 632 (330)Published net asset value 422,771 272,822 *Performance fee increased following the audit from the £5 million estimated inthe NAV published on 27 April 2006 Property performance Value of Property Assets 556,280 379,450Current annualised rental income including rental guarantees 30,320 25,660Estimated open market rental value 31,740 26,480Underlying property performance* 22.20%* 7.54%**IPD Balanced Monthly Index Funds* 19.30%* 7.38%** * Source: Investment Property Databank ('IPD') 1 April 2005 to 31 March 2006 ** Source: Investment Property Databank ('IPD') 16 July 2004 to 31 March 2005 Summary consolidated income statement 01April 2005 27 May 2004 To To 31 March 2006 31 March 2005 £'000 £'000Net rental and related income 27,172 16,718Realised and unrealised gains on investment property 56,616 16,893Expenses (12,535) (3,320)Net finance costs (4,956) (3,180) Share of profit of associates 8,582 -Profit before tax 74,879 27,111Taxation (85) (1,756)Profit for the year / period 74,794 25,355 Earnings and dividends Earnings per share 23.5p 9.7pDividends paid per share 6.75p 3.375pAnnualised dividend yield on 31 March 2006 share price 5.23% 5.84% Borrowings at 31 March 2006 Drawn down facility 152,500 152,500Borrowings as % of total assets less current liabilities 26.5% 35.9%Borrowings as a % of asset value in Security Pool (see Note 34.6% 39.6%16)Net gearing (borrowings less cash as % of non current assets) 20.7% 25.6%Gearing including off balance sheet borrowings as % of total 42.8% 35.9%assets less current liabilities Estimated Annualised Total Expense Ratio As % of total assets less current liabilities 1.11% (1) 1.11% (2)As % of equity 1.51% (1) 1.72% (2) (1)The estimated Total Expense Ratio (TER) for the year to March 2006 excludesthe performance fee of £6.16m payable to the Manager. Including this expense inthe TER calculation increases the % of total assets less current liabilitiesfrom 1.11% to 2.18% and the % of equity from 1.51% to 2.97% (2) Annualised for shorter period. Chairman's Statement Results This is the second full report and accounts for the Insight Foundation PropertyTrust Limited (the 'Company'), covering the period from 1 April 2005 to 31 March2006. This has been a period of great strength in the UK commercial propertymarket and I am pleased to report that the Company has performed well. The Company's audited Net Asset Value ('NAV') as at 31 March 2006 is 119.6 penceper share, an increase of 14.7 pence per share or 14% over the year. Over thewhole period four dividends totalling 6.75 pence per share were paid resultingin a quarterly capital weighted Net Asset Value Total Return to investors overthe whole period of approximately 22.3%, These results include a provision fora performance fee payable to the Investment Manager ('the Manager'), inaccordance with the Investment Management Agreement. The Company's NAV growth is a reflection of the sustained strong performance ofthe UK commercial property market but also reflects our Manager's activeapproach to managing the portfolio held by the Company and its subsidiaries (the'Group'). Following the C Share issue in July 2005, the Manager has deployedthe increased capital in the London and South East office market, and this isstarting to have a positive impact. The performance of the Group's property portfolio has been independentlymeasured by Investment Property Databank ('IPD') relative to its peer groupbenchmark. For the year to March 2006 the portfolio produced a gross underlyingungeared total return of 22.2% relative to the peer group return of 19.3%. Atthe NAV level, the Group has performed less well than its peers over the period,largely due to lower levels of gearing following the C share issue. Afterrecent transactions, the Group's gearing position is more in line with theobjectives of the Board and the Manager. The shares of the Company have continued to enjoy good support and were tradingat 129 pence per share on 31 March 2006, reflecting a 7.9% premium to the MarchNAV. The Company now has a 100% free float following a share placing byClerical Medical, formerly our largest shareholder. C Share Completion of the C Share issue in July 2005 increased the Company'sshareholders funds from £273 million to £370 million. The rationale for the Cshare issue was to enable the Manager to increase exposure to the Central Londonand South East office markets, which are expected to enhance returns toshareholders over the coming years. The Manager anticipated investing £100million before the end of 2005, and a further £70 million in the first quarterof 2006. I am pleased to confirm that, in an increasingly competitive CentralLondon investment market, the Manager has invested the proceeds within thetimescale, resulting in a significant weighting to Central London This has increased the Group's gross assets to £599.95 million as at 31 March2006, of which £556.28 comprised property assets. Since the year end, the Grouphas committed on four further acquisitions totalling a further £63.20 million,which on completion will increase the Group's total property assets to £619.48million. In the relatively short time since completing the C Share issue, the strategy ishaving a positive impact on the performance of the Group, with the new Londonacquisitions adding materially to the property portfolio total return since July2005. In adding to the Group's portfolio, the Manager, with the Board's approval, hasconcentrated on properties which offer the prospects of high long term returnsthrough rental growth and consequent capital appreciation, rather than focusingon short term income yield. Borrowings As at 31 March 2006 the Group had total borrowings of £152.5 millionrepresenting 26.5% of total assets less current liabilities. These borrowingsare a securitized facility that runs until the Company's continuation vote in2014 and the loan is fully hedged against interest rate movements. The totalinterest rate including capitalised arrangement costs is 5.6% per annum. In addition, as at 31 March 2006 the Group had off-balance sheet, non-recourseborrowings totalling £164.4 million secured against the individual investmentsin MidCity Place, London WC2 and Plantation Place, London EC3. The total on andoff-balance sheet borrowings as at 31 March 2006 therefore total £316.9 million,representing 43% of total assets less current liabilities. Since 31 March 2006 the Group has increased its on-balance sheet borrowings byapproximately £23 million to fund acquisitions and a further £8.5 millionoff-balance sheet to fund a Joint Venture acquisition. The Board has agreed with the Manager that total direct and indirect borrowings(including off-balance sheet, non-recourse debt) will not exceed 55% of totalassets less current liabilities. On-balance sheet debt is not expected to exceed40% of total assets less current liabilities. Investment Manager Evaluation The Board reviews the Manager's performance at its quarterly Board meetings. Inaddition, the Board spent a day at the Manager's office in order to review itscapabilities in depth and receive presentations on the UK Commercial propertymarket and the wider economic environment. The Board believes that thecontinuing appointment of the Manager, on the terms agreed, is in the bestinterests of shareholders. Prospects The UK property market produced a total return of 19.1% for the year to December2005, as measured by the IPD Annual Index, compared to the Annual Index returnin 2004 of 18.3%. For the first quarter of 2006 IPD recorded a total return of4.4% for the property market. The Manager expects that the total return from the individual commercialproperty sectors will show wider divergence over the medium term, and believesthere is already evidence of this. As a result, the Group has tacticallyincreased its weighting to what the Manager believes to be the strong growthmarkets in Central London, selectively acquiring high quality, flexible, modernproperties with longer leases, believing that, as a general comment, primeproperty offers better value than secondary. Further investment ofapproximately £50 million is likely to be made over 2006 in assets with thesecharacteristics. The UK Government has now confirmed that the introduction of Real EstateInvestment Trusts ('REITs') will take place in January 2007. The proposalsenshrined in the 2006 Finance Bill provide greater operational flexibility thanwas expected and following a favourable stock market reaction to the Governmentannouncement, several of the larger UK listed property companies have statedtheir intention to convert. While the REIT announcement is positive for the Company as an owner ofcommercial property, the proposed 2% conversion charge means that there iscurrently no commercial advantage to our shareholders in converting. We will ofcourse monitor the development of the REIT sector. Board of Directors I am delighted to report that three new Directors have been appointed to theBoard. Peter Atkinson, David Warr and Harry Dick-Cleland add considerableknowledge and experience that complements the skills of the other Directors.Between the members of the Board there is a broad range of experience coveringthe legal and accounting professions, property investment and management, fundadministration, and general financial market expertise. I would like to thankour outgoing Directors, Graham Hall and Paul Smith, for their significantcontribution since the launch of the Company in 2004. Conclusion The Group has had an active and successful year with strong performance from theunderlying property portfolio. It is positioned to benefit from the expectedgrowth in the office market and also from an environment where a more activeapproach will be required to drive returns. Andrew Sykes, Chairman Insight Foundation Property Trust Limited 20 June 2006 Investment Manager's Report Introduction As detailed in the Chairman's Statement, the Insight Foundation Property TrustLimited and its subsidiaries ('the Group') has continued to provide shareholderswith an attractive level of income return coupled with strong capital growthduring the year ended 31 March 2006. The property market has continued todeliver strong returns since the last report and the Group's property portfoliohas performed well in this environment. To maintain and build on the Net Asset Value total return, the Group hasrepositioned its portfolio over the last 12 months. Whilst still balancedacross the UK's main property sectors, the Group has grown considerably and whenall commitments have completed, will have a 33% weighting to London offices.This places the Group in a position to benefit from more divergence between thesectors and sub-sectors in the UK property market. Strategy Our investment philosophy for the Group remains to own a portfolio of assetswith strong fundamentals capable of being actively managed to realiseoutperformance. Upon launch in 2004, the Group tactically held a low weighting in Central Londonof approximately 4%, and instead favoured the higher yield offered by industrialand offices outside Central London. This was the right strategy in 2004 andearly 2005 as performance was realised through a high yield, moderate rentalgrowth and capital value growth. In early 2005 it became clear that the Central London office market was showingsigns of a recovery and that the Group, if it was to maintain its strongperformance and improve long term returns for shareholders, would need toincrease its exposure to the sector. Our preference was to obtain this exposurewithout having to sell existing, fundamentally strong properties and incurtransaction costs. Consistent with this strategy, therefore, in July 2005 theCompany raised £100 million of new equity through the issue of a new class of CShares. The intended proceeds of the C Share issue were planned for investment in officeproperties in Central London and the South East of England offering: • Good fundamentals; • Good specification offering occupational flexibility; • Relatively low rents offering better potential for rental growth as the market improves. The recovery in the Central London market occurred quicker than we expectedduring 2005 and into 2006, leading us to accelerate our acquisition programme inthese markets. The wider South East markets have still not shown signs of arental recovery due to a larger supply of vacant and unoccupied accommodationand for that reason, the C Share proceeds were allocated almost entirely to theLondon markets, with the Group attaining a diversified exposure across the mainLondon office sub-markets. The rapid rate of investment meant that the C Shares were merged quickly intothe Ordinary shares. Further details of the properties acquired in thesuccessful implementation of the strategy are set out below. The Portfolio 10 Largest Properties Value % of portfolioNational Magazine House, 10/20, Carnaby Street, Soho, London £49,500,000 8.9%W1Minerva House, 5&6, Montague Close, London SE1 £47,600,000 8.6%Plantation Place, London EC3 £20,500,000 3.7%Victory House, Trafalgar Place, Brighton £19,100,000 3.4%Reynard Business Park, Brentford £18,850,000 3.4%20/22 Tudor Street, London EC4 £18,200,000 3.3%MidCity Place, London WC1 £17,600,000 3.2%Olympic Office Centre, 8 Fulton Road, Wembley £16,500,000 3.0%Union Park, Fifers Lane, Norwich £14,990,000 2.7%The Albion Centre, Bath Street, Ilkeston £14,950,000 2.7% £237,790,000 Rent pa % 10 Largest TenanciesThe National Magazine Company Limited £2,270,000 7.24%Australia & New Zealand Banking Group Ltd £1,460,000 4.66%Mott MacDonald Ltd £1,307,148 4.17%Reed Smith Services £1,295,374 4.13%Freshfields Sevices Company £1,279,600 4.08%The British Broadcasting Corporation £830,750 2.65%Grand Metropolitan Estates Ltd £795,975 2.54%Recticel SA £713,538 2.28%Jarvis Porter (Property Holdings) Ltd £700,000 2.23%Mid City Place £680,000 2.17% £11,332,385 As at 31 March 2006, the Group owned a property portfolio of 72 assets valued at£556.28 million. In addition, since the year end, the Group has committed toacquire four further properties valued at £63.20 million, resulting in a totalof 76 properties either owned or contractually committed totalling £619.50million. This compares with a property portfolio value of £379.45 million and74 assets in March 2005. The average lot size of the properties owned by theGroup will increase from £5.13 million to £8.15 million on completion of thesecommitments. As at 31 March 2006 the portfolio had approximately 220 tenancies with anaverage unexpired lease term of approximately eight and a half years, with theincome weighted expiry profile illustrated below. Lease length % of portfolio by incomeLess than 1 year 3%1 - 5 years 27%5 - 10 years 41%10 - 15 years 21%15 years+ 8% The Group has exchanged or completed on acquisitions totalling £191 million(calculated against price paid) following the C Share issue, of which £165million are located in London. The locations of the London acquisitions are setout below: Due to the lot size of many high quality London office properties, the Group hasacquired significant stakes in three high profile prime buildings that arearguably amongst the best buildings in their respective Central Londonsub-markets. In each case the Group has flexibility to sell its interest and isinvesting alongside either Insight Clients or parties with whom Insight has anestablished relationship. The table below sets out the key characteristics ofthe six key Central London office acquisitions since the C Share issue: Property Valuation Acquisition Rent £ per Rental Average Major(% and 31 March Price annum value income tenantstype of 2006 (£'000) (average (average length (% income)interest) (£'000) (NIY%) rate psf) rate psf) (NIY%) Directly held assets acquired prior to 31 March 2006Minerva £47,600 £42,130 £2.76 m £2.54 m 7.8 years 47% ReidHouse (5.5%) (6.2%) (£30.10 psf) (£28.50 Smith LLP(100% psf) 53% ANZdirect) Bank National £49,500 £45,050 £2.52 m £2.61m 11.2 years 89%Magazine (4.8%) (5.67%) (£41.50 psf) (£42.50 TheHouse psf) National(100% Magazinedirect) Company Ltd Indirect assets acquired prior to 31 March 2006 (Company NAV shown in bold;total value in italics) MidCity £17,600 £9,800 £13.79 m £13.58 m 15.2 years 25% TowerPlace (£41.34 psf) (£40.70psf) Perrins(19.7% £260,000 £215,000 14% EDFshares in (4.50%) (5.0%) Trading LtdSingle 17%Purpose MitsubishiCompany) Corporation UK Ltd Plantation £20,500 19,600 £27.08 m £25.84 m 19.9 72%Place (£50.30 psf) (£50.00 psf) years Accenture(28.08% £540,000 £527,000 UK Ltdunits in (4.9%) (5.1%) (guaranteeJersey Unit FromTrust) Ultimate Parent) Directly held assets acquired post 31 March 2006Tokenhouse N/A £20,830 £0.665 m £1.27 m 3 years 14% BH2Yard (3.3%) (£37.40 psf) (£44.00 14% M3(100% psf) Consultingdirect) 14% Novoco Indirect assets committed post 31 March 2006 (Company beneficial interest shownin bold; total value in italics)Portman N/A £27,550 m £4.78 m £6.86 m 7.6 55% CWHBSquare (£42.20 psf) (£62.50psf) years 17% AegisHouse £127,550 Group Plc(21.6% (3.6%)interest inTrust inLand) Total £183,580* £164,960 £51.59m £52.70 16.2 (£40.70 psf) (£45.42psf) years * For acquisitions and commitments post 31 March 2006, the purchase price isused This exposure has been achieved with an average rent across the Londonacquisition of £438 per sq m (£40.70 per sq ft). The properties all have keytenancy events such as rent reviews or lease renewals between 2006 and 2010which should capture growth as the market improves. The Group has made further select acquisitions where value has been identifiedwith the strategic objective of maintaining and where possible improving theportfolio average lease length. The Group has contracted on two acquisitionstotalling £23 million with an average lease length of 23 years. The first transaction involved the funding of a retail warehouse in Basingstokelet to Wickes for 25 years with no tenant break options. The transaction issubject to planning and the purchase price of £11.9 million reflected anattractive net initial yield of 5.7%. The second transaction involved theacquisition of a health and fitness club in Sefton, Merseyside. The Group paid£10.75 million for the property that as at 31 March 2006 was valued at £11.05million. The purchase price reflected a high net initial yield of 6.2%increasing to 7% in 2007 following a fixed rental uplift. Finally in relation to acquisitions, since the year end the Group has invested£2.9 million for a 50% stake in a Joint Venture Company to acquire a multi-letindustrial estate in Crendon, Oxfordshire. The co-investors are North AtlanticSmaller Companies Investment Trust PLC and three others. The property offerssignificant opportunity to add value through active management and development.The Group will consider investing in further what we term 'Special Situations'where we see value. Since March 2005 the Group has also undertaken eight disposals where assetmanagement strategies were successfully implemented and material profitscrystallised. Seven of these disposals were of small retail properties acquiredin July 2004 for £15.66 million, an average price of £2.23 million. Theaggregate disposal proceeds totalled £18.77 million. The only non-retaildisposal was of an industrial estate in Corby where the business plan wasimplemented ahead of expectations and concerns over high supply of land led toan opportunistic sale in August 2005. The disposal price of £9.3 millionreflected an increase of £1.1 million over the purchase price in July 2004. The Group expects to make further disposals where profits can be realised orwhere there are concerns over the total return prospects. Taking account of the portfolio as at 31 March 2006, but including committedacquisitions pre and post that date the sector and regional spread is shownbelow relative to the weightings in March 2005. Region 31 March 2006 31 March 2005SE excl. Central London 32% 43%Rest of South 8% 11%Midlands & Wales 15% 26%North and Scotland 12% 16%Central London 33% 4%Total 100% 100% Sector 31 March 2006 31 March 2005Offices 54% 35%Retail 20% 32%Retail Warehouse 3% 2%Industrial 21% 31%Other 2% -Total 100% 100% This repositioning is in line with our plans at the time of the C Share issue.While the performance of Central London offices over the last six months hasbeen primarily yield driven, there is now clear evidence of rental growth thatwe expect to continue through to 2009. Insight forecasts that the CentralLondon office markets will produce significantly higher rental growth than theoverall property market average. It is also worth noting the Group's weighting to London has been furtherenhanced by jointly acquiring stakes in larger assets such as MidCity Place andPlantation Place. If their gross value is considered (i.e. total exposurethrough the Group's investment and pro-rata share of the non-recourse debt),this further increases the Group's exposure to London's performance. Sector %Offices (including MidCity Place and Plantation 64%Place)Retail 15%Retail Warehouse 3%Industrial 17%Other 1%Total 100% Region %SE excl. Central London 26%Rest of South 6%Midlands & Wales 12%North and Scotland 9%Central London 47%Total 100% IFPT property tenure, expressed as a percentage of value: Tenure %Freehold 92%Long leasehold 8%Total 100% Asset Management The underlying performance of the portfolio continues to be driven not just bystock selection but also by active asset management. This approach is requiredto ensure that the Group captures rental growth as quickly as possible andconsequently maximises all possible opportunities for capital valueappreciation. Any vacant units are actively managed. As at 31 March 2006 approximately 3% ofthe portfolio was vacant, down from 4% in March 2005. This compares toapproximately 9% on an average portfolio as measured by the IPD Index. For rentreviews, it is our policy to try always to secure a rental increase irrespectiveof the potential quantum, and to use specialist advisors where required. Thisapproach has been successful and over the year to 31 March 2006 the averagerental uplift secured was 6% ahead of the rental value adopted by theindependent valuer in March 2005. Below we have detailed some recent, larger examples of asset managementactivity: Industrial - The Quadrant, Bristol and The Gate Centre, Brentford All of the Group's properties have detailed business plans. At Bristol, thevacant units at the estate have now been substantially let following arefurbishment programme. Re-launching the estate and incentivising agentssecured new lettings quickly to good tenant covenants at a headline rent 20%ahead of the valuation on acquisition. The valuation has increased from £9.1million in March 2005 to £10.7 million in March 2006, an increase of 17.6%. At Brentford, following the grant of a new planning consent and a new letting toa car showroom operator last year, the increased rental tone and the strategy ofre-positioning the estate as a car showroom and trade park is achieving strongvaluation results. The valuation has increased from £9.45 million in March 2005to £13.6 million in March 2006, an increase of 44%. Offices - MidCity Place WC2 and Minerva House SE1 A significant restructuring of a major tenant's lease has increased the rent onthe retained office space by approximately 20% relative to the rental value onacquisition in August 2005. This asset management combined with an improvingMid-Town office market increased the property valuation from £225 million atDecember 2005 to £260 million in March. This in turn increased the Net AssetValue of the Group's investment from £10.72 million to £17.6 millionrespectively, an uplift of 64%. The strong valuation performance has led to arefinancing of the debt secured against this asset. Since the year end the Grouphas received back £7.8 million of the £9.8 million original equity invested,whilst still retaining a 19.7% ownership. This is very strong performance withinnine months of acquiring the asset. Retail - Victoria Plaza Bolton and Coventry Road Hinckley Good progress is being made with retail reconfiguration at Bolton. Followingextensive negotiations and receipt of planning consent, a major UK Sportsretailer has exchanged contracts to lease the vacant upper parts of the propertyin a deal that is potentially highly value enhancing. The agreement isconditional on restructuring other retailer leases in the ownership wherenegotiations are on going. At Hinckley, the Group has applied for planning consent for a mixed use schemecomprising 105,000 sq ft of retail warehouse and 45,000 sq ft of warehousespace. In tandem with this the Group has accepted a lease surrender of thecurrent tenants lease for receipt of a substantial premium. A decision on theplanning application is expected over the next two to three months. Our approach is contributing positively to the performance of the underlyingproperty portfolio, which continues to have an above average income yieldrelative to its IPD peer group benchmark. Financing The Group's securitised loan facility of £152.5 million runs until 2014 and isfully hedged against future interest rate movements using an interest rate swap. The total aggregate interest rate including capitalised arrangement andservicing costs is 5.6%. The Group will seek to take advantage of opportunitiesto raise efficient finance as it expands its portfolio. Outlook and Future Strategy The UK property market produced a total return of 19.1% in 2005, ahead ofexpectations. This was driven primarily by capital growth caused by low financecosts, the weight of money being invested into the sector and the higher thanaverage yield still offered by property relative to the other main assetclasses. We anticipate total returns to the UK commercial property market ofapproximately 12% to 14% for 2006. Since the year end there has been an increase in both real long bond yields andmore significantly for the property market, swap rates. The gap between themarket initial yield and the five year swap rate has tightened materially and inMay 2006 became a negative yield gap. This factor in isolation does not equateto poor future total return performance, particularly where rents are growing,but the reduced number of debt-driven investors being able to operate in thisenvironment will have an impact. Positively, the significant volumes ofinstitutional investment, driven partly by asset allocation and partly by thecreation of a commercially viable UK REIT structure, may counter-balance theimpact of reduced debt-driven investment. For the last twelve months we have been repositioning the portfolio to respondto a movement from an interest rate-led cycle to a cycle driven by rental growthand traditional property fundamentals such as location and building quality. Acore long term projected total return across the market of 7% to 8% supplementedby additional performance through asset management should still offer anattractive return and this is in line with the property market's long runaverage. The most important observation to make is that we believe total returnperformance over the next few years will diverge much more across the mainproperty sectors. As evidenced in the recent shift towards Central London, we will react quicklyto these divergences between the sectors and sub-sectors, and also futurechanges in the market. In addition, to supplement the main portfolio return wewill look to invest in more Special Situations such as the multi-let industrialestate in Crendon, Oxfordshire. These will typically be asset management ledjoint ventures. This will also potentially allow the Group to access non-corebut interesting sectors such as healthcare or residential. In summary we are positive about the Company's prospects for 2006 and beyond andlook forward to another year of significant activity to add to long termShareholder value. Duncan Owen Insight Investment Management (Global) Limited 20 June 2006 Board of Directors Andrew Sykes (Chairman) Aged 48, 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 Fleming Asian Investment Trust plc and Smith & Williamson HoldingsLimited. John Frederiksen Aged 58, is chairman of the Danish Property Federation and of several majorDanish property companies. He established and was Managing Director of BastionenA/S, one of the largest Danish property investment companies from 1986 to 2001,and was Chairman of ASC, the largest property management company in Denmark,from 1990 to 1998. Keith Goulborn Aged 61, was head of Unilever's UK Property Department for 17 years, in whichcapacity he was responsible for the property investment activities of theUnilever Pension Fund in the UK and for operational property advice to the UKgroup and its implementation. Prior to that he was a partner in Debenham,Nightingale Chancellors. He is a fellow of the Royal Institution of CharteredSurveyors and a member of the Investment Property Forum. Harry Dick-Cleland Aged 49, 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. He joined the Board ofDirectors on 13 March 2006. David Warr Aged 52, 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, Hemisphere Defensive HF (USD) Limited and UKSelect Trust Limited. He joined the Board of Directors on 13 March 2006. Peter Atkinson Aged 51, 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 retained as a consultant to the firmand as a non-executive director of the firm's trust company. He is an Advocateof the Royal Court of Guernsey and a Solicitor of the Supreme Court of Englandand Wales. He is a former Chairman of the Guernsey Bar. He joined the Board ofDirectors on 30 March 2006. Report of the Directors The Directors of Insight Foundation Property Trust Limited ("the Company") andits subsidiaries (together "the Group") are pleased to submit their report andthe Audited Financial Statements of the Company and of the Group for the yearended 31 March 2006. Principal Activity and Status The Company carries on the business of a property investment company and is aGuernsey registered company. A review of the business during the year is contained in the Chairman'sStatement and the Manager's Report. Investment Policy The investment objective of the Group is to provide Shareholders with anattractive level of income together with the potential for income and capitalgrowth from investing in UK commercial property. The Group invests in threecommercial property sectors: office, retail and industrial. The Group will notinvest in other listed investment companies. Listing During the year under review the Company complied with the conditions applicableto property investment companies set out in paragraphs 21.27(e) to 21.27(i) ofthe Listing Rules of the London Stock Exchange. Share issue At 31 March 2005, there were 260,000,000 Ordinary Shares in issue. On 05 August2005, 93,560,000 new Ordinary Shares were created on the conversion of C Shares,providing a total of 353,560,000 Ordinary shares in issue at 31 March 2006. Results The results for the year are shown in the Consolidated Income Statement. Dividend During the period the Company has declared and paid the following interimdividends to its ordinary shareholders: Dividend For Quarter Date Declared Rate31 March 2005 21 April 2005 1.6875 pence per share30 June 2005 19 July 2005 1.6875 pence per share30 September 2005 24 October 2005 1.6875 pence per share31 December 2005 24 January 2006 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 March2006 of 1.6875 pence was declared on 27 April 2006 and paid on 26 May 2006. Directors' Interests Paul Smith resigned on 13 March 2006. Harry Dick-Cleland and David Warr wereappointed on 13 March 2006. Graham Hall resigned on 30 March 2006. PeterAtkinson was appointed on 30 March 2006. Biographical details of each of theDirectors are attached. The following Directors including persons connected with them held the followingnumber of shares at 31 March 2006 (all of which were beneficial): Director Number of Ordinary Shares Percentage (%)A Sykes 35,292 Less than 0.1K Goulborn 9,564 Less than 0.1 There have been no changes in the above interests between 31 March 2006 and thedate of this report. The remuneration of the Directors during the year was as follows: £'000A Sykes (Chairman) 27J Frederiksen 18K Goulborn 18G Hall 18P Smith 17H Dick-Cleland (appointed 13 March 2006) -D Warr (appointed 13 March 2006) -P Atkinson (appointed 30 March 2006) - 98 None of the Directors had a service contract with the Company during the period. Substantial Shareholdings At 30 April 2006 the Directors were aware that the following shareholders owned3% or more of the issued Ordinary Shares of the Company. Number of Ordinary Shares Percentage (%)Greenwood Nominees Limited 26,856,910 7.60Nortrust Nominees Limited 23,002,000 6.51Ferlim Nominees Limited 15,658,438 4.43James Capel (Nominees) Limited 12,599,367 3.56Waterhouse Nominees Limited 12,342,609 3.49 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 the Company is not obliged to comply with the 'Combined Code' (i.e. the Code of Best Practice published by the Committee on theFinancial Aspects of Corporate Governance) as it is a Guernsey registeredcompany. It is the Board's intention to comply with the Association of Investment TrustCompanies ('AITC') 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: i) review the overall objectives for the Company asdescribed under Investment Policy above and set the Company's strategy forfulfilling those objectives within an appropriate risk framework; ii) consider any shifts in strategy that it considers may beappropriate in light of market conditions; iii) review the capital structure of the company includingconsideration of an appropriate use of gearing both for the Company and in anyjoint ventures in which the Company may invest from time to time; iv) appoint the Investment Manager, Administrator and otherappropriately skilled service providers and monitor their effectiveness throughregular reports and meetings v) review key elements of the Company's performance includingNAV and the payment of dividends. Board Decisions At its Board meetings, the Board ensures that all the strategic matters listedunder 'Role of the Board' are considered and resolved by the Board. Whileissues associated with implementing the Company's strategy are generallyconsidered by the Board to be non strategic in nature and are delegated eitherto the Manager or the Administrator, the Board considers there areimplementation matters that are significant enough to be of strategic importanceto the Company and should be reserved to the Board (e.g. large propertydecisions affecting either 10% or more of the Company's assets or 5% or more ofthe Company's rental income and decisions affecting the Company's financialgearing). Board performance evaluation (Training & Appraisal) In 2005 the Board commissioned a review of its performance, combined with a 'skills audit' with the assistance of an independent third party. This reviewconcluded that the Board was operating effectively, but noted that it wouldbenefit from the addition of a Director with an accounting background.Following recent Board changes, this has been addressed. Non Executive Directors, Rotation of Directors and Directors Tenure The present membership of the board is shown above. The Combined Code recommends that Directors should be appointed for a specifiedperiod. The Board has resolved in this instance that Director appointments neednot comply with this requirement as all Directors are non executive and theirrespective appointments can be terminated at any time without penalty. The Boardhas approved a policy that Directors will stand for re-election every 3 years.It has been agreed this will be implemented by two of the three originaldirectors from May 2004 presenting themselves for re-election at the AGM in2007. Andrew Sykes will stand for re-election during the year commencing 1April 2006. The Board has determined that none of its Directors is related to the InvestmentManager. 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 Manager and the Administrator. TheManager's report comments on: • The UK commercial property market including recommendations for anychanges in strategy that the Manager considers may be appropriate; • Performance of the Group's portfolio and key asset managementinitiatives; • Transactional activity undertaken over the previous quarter and beingcontemplated for the future; • The Group's financial position including relationship with its bankersand lenders. 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 alsoconsider any relevant risks and to consider how they should be properly managed. The Board also considers reports provided from time to time by its variousservice providers reviewing their internal controls. The below table shows the attendance at Quarterly Board or Audit Committeemeetings during the year to 31 March 2006: Board Audit Committee Nomination Committee A Sykes (Chairman) 4 2 1J Frederiksen 4 1 -K Goulborn 4 2 1G Hall 4 2 1P Smith 4 N/A 1D Warr - - -P Atkinson - - -H Dick-Cleland - - -No. of meetings during the year 4 2 1 In between its regular quarterly meetings, the Board has also met on a number ofoccasions during the period to approve specific transactions. It has not alwaysbeen possible for all Directors to attend these meetings. (Note - The Company maintains liability insurance for its Directors and Officersalthough the Company has no employees and none of its Directors are Executive). Committees of the Board The Audit Committee Chaired during the financial year by Mr Goulborn with Mr Sykes, Mr Frederiksenand Mr Hall as members. Since the end of the financial year and following thenew appointments to the Board, the composition of the Audit Committee haschanged with the chairmanship passing to Mr Dick-Cleland and with Mr Sykes, MrGoulborn, Mr Fredriksen, Mr Warr and Mr Atkinson as members. The Company considers that Mr Dick-Cleland's experience makes him suitablyqualified to chair the Audit Committee. The Committee meets not less than twice a year and if required meetings can alsobe attended by the Investment Manager, the Administrator and the IndependentAuditors. 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 (including theirremuneration), the independence and objectivity of the auditors, and reviewingwith the auditors the results and effectiveness of the audit. During the year the Company's auditors were not involved in any non audit workfor the company. Members of the Committee may also meet with the Company's valuer to discuss thescope and conclusions of their work. Nomination Committee Chaired by Mr Sykes and with all other Board Directors as members. During the year, the Committee sought to identify a new Director with anaccounting background, following the result of the Board skills audit andeffectiveness review. It also sought two further Directors when Mr Smith and MrHall indicated their intention to step down for personal reasons. Following areview of a number of potential candidates, the Committee recommended, and theBoard approved the appointment of Mr Dick-Cleland, Mr Warr and Mr Atkinson. Inreaching their decision, the Committee noted the experience and skills of thenew Directors, which complemented that of the other three Directors. As noted on Page 21 of the 2005 Annual Report, during the financial period ended31 March 2005, the Nomination Committee instructed Trust Associates to reviewthe role of individual Directors and to recommend an appropriate level ofremuneration having regard to their perspective of an appropriate 'market rate'for the Company's Directors. Based on that advice a resolution was passed atthe AGM on 26th July 2005 to increase the maximum total annual remuneration ofthe Directors to £135,000. Investment Management Agreement The Company has entered into an agreement with the Manager. This sets out theManager's key responsibilities which include proposing a property strategy tothe Board and, within certain authority limits, selecting investments foracquisition and disposal and arranging appropriate lending facilities. TheManager is also responsible for all issues pertaining to asset management.Further details of the Manager's appointment are disclosed in note 2 to thefinancial statements. Going Concern The Directors have examined significant areas of possible financial risk andhave satisfied themselves that no material exposures exist. The Directorstherefore consider that the Group has adequate resources to continue inoperational existence for the foreseeable future and after due considerationbelieve it is appropriate to adopt the going concern basis in preparing thefinancial statements. Shareholder Relations Shareholder communications are a high priority for the Board. The Managerproduces a quarterly fact sheet which is distributed to shareholders andreleased to the London and Channel Islands Stock Exchanges. Members of theManager's Investment Committee make themselves available at all reasonable timesto meet with principal shareholders and key sector analysts. Feedback fromthese sessions is provided by the Manager to quarterly Board meetings. Duringthe year the Company launched its website, www.ifpt.co.uk. In addition, the Board is also kept fully appraised of all market commentary onthe Company by the Manager and other professional advisers including theCompany's brokers Through this process the Board seeks to monitor the views of shareholders and toensure that the Company's communication programme is effective. The Chairman and the Manager are available at the Annual General Meeting toanswer any questions that attending shareholders may have. Details of the resolutions to be proposed at the Annual General Meeting on 25July 2006 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 as at the end of the financial periodand of the profit or loss of the Group for that period in accordance withInternational Financial Reporting Standards and are in accordance withapplicable laws. In preparing those financial statements the Directors are required to:- • Select suitable accounting policies and apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group 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 hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities. The Directors are also responsible for: • Ensuring that the Report of the Directors and other information included in the Annual Report is prepared in accordance with applicable company law; • Ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority; • The Group's system of internal controls, which is designed to meet the Group's particular needs and the risks to which it is exposed. Business Strategy and Risk Management Business Strategy The Group's investment objective is to provide Shareholders with an attractivelevel of income together with the potential for income and capital growth frominvesting in UK Commercial property. The Board has determined that this will beachieved by holding a diversified portfolio of UK office, retail and industrialproperties. The Group will not invest in other listed investment companies. 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 minority investor in certain property owning entities inwhich other investors may participate. This is to enable a particular propertystrategy to be executed more effectively (e.g. large Central London officebuildings). In those circumstances, and where the entity has non-recourseborrowings, the Board will ensure the total borrowings of the Group includingthose held off-balance sheet will not exceed 55% of Total assets less currentliabilities (at the time of drawdown) and that on balance sheet borrowings willnot exceed 40% of Total assets less current liabilities (at the time ofdrawdown) Given the Group's objective the current strategy accepted by the Board and beingexecuted by the Manager has the following key principles: • No single asset to comprise more than 15% by value of the whole portfolio and no single tenant to account for more than 20% of the total rental receipts; • A focus on prime quality assets; • Assets which generate above average rental yields (in comparison to an IPD based industry average) and where the average tenant quality is in line with industry averages; • An unexpired lease term across the portfolio in line with or better than industry averages; • Enhancing property returns through active management; and • Maximisation of total Net Asset Value returns through financing (including where appropriate using joint venture structures) but always within an overall borrowing strategy with an upper limit of 55% of the Group's total assets less current liabilities. The Board encourages the Manager to be flexible in identifying and recommendingtrends in the market where stronger relative property performance isanticipated. The Board has resolved to assess the Manager's performance by reference to: 1. The total investment return of the property portfolio by comparison to a peer group index as measured by Investment Property Databank ('IPD'), and; 2. The total NAV return to investors (comprising the aggregate of NAV growth and dividends paid). The performance results for the property portfolio and the Group for thisfinancial period are commented on by the Manager in his report. The Board has identified certain risks inherent in the Group's business whichtogether with the Group's relevant control measure is described below. A moredetailed commentary on the property portfolio is described in the Manager'sreport. RISK MANAGEMENT Property investment risk Investment in commercial property has the potential to create sustainable incomeand capital growth over the long term. However market circumstances canintroduce volatility into investment returns arising in particular from: • An excess supply of accommodation relative to occupier demand; • Individual business sectors being affected in different ways by economic circumstances (both national and international) which can influence the capability of tenants to pay their rents in a timely manner; • Changes in planning legislation affecting individual properties and/or surrounding neighbourhoods; • Alternative asset classes being considered to be more or less expensive relative to property which can affect the capital flows towards property; • The relative level of economic growth, interest rates and inflation; • Construction cost inflation which can alter the viability of refurbishment schemes and affect the capability to bring new supply to market; • Other relevant legislative changes. For these and other reasons the Board considers that the right approach forachieving the Group's objective is to mandate the Manager to build a broadlybased, well diversified portfolio of commercial property investments. To enable the Board to ensure that the portfolio does not become overlyconcentrated or reliant on individual assets, sectors or tenants, the Managerreports quarterly on asset concentration, sector and regional diversificationand the number of tenants including an independent analysis of average tenantquality. The primary control is that no single asset should comprise more than15% by value of the whole portfolio and no single tenant account for more than20% of the total rental receipts. Income at risk Income can be at risk for two specific reasons: • Complete tenant failure or a tenant default in paying rent on time; • A tenant not renewing their lease on expiry and vacating the property. As noted above, the Manager reports quarterly with an independent analysis ofaverage tenant quality. Manager reports also provide a calculation of theaverage unexpired lease duration in the portfolio by comparison to an IPD basedindustry average. The Manager takes a proactive approach to property management and ensures thateach asset held in the portfolio has a clear written asset plan, updatedannually, which sets out targets to be achieved in all tenant discussions. Theaim of this rigorous process is to ensure that so far as possible everyopportunity is grasped to continually improve net income receivable from theportfolio, overall tenant quality and wherever possible that leases can berenewed before properties become vacant on lease expiry. The Board monitorsthis risk by receiving from the Manager a summary for each property noting keyactivities on each property in the portfolio. Property development risk It is unlikely that the Manager will consider a wholesale re-development projectgiven the Group's objective to provide an attractive level of income toshareholders. Occasionally however it can be economically attractive for theGroup to commit to a refurbishment or redevelopment scheme of an existingproperty in the portfolio. However any such scheme would not be commenced inthe absence of tenants having entered into contractual agreements to lease 66%or more of the accommodation to be built. The Board monitors this risk throughthe quarterly reports provided by the Manager. Interest Rate Management The Group's policy is to avoid significant exposure to unforeseen upwardinterest rate movements. During the year, the Group's principal borrowingscomprised a £152.5million securitised loan facility. The interest rate on thisloan has been swapped into a fixed rate of 5.31% until July 2014. Additional short term facilities may be drawn on a floating interest rate butthe Board will only sanction this where there is a clear intention within a 6-12month period to lock into a longer term fixed rate. The Investment Manager a) Resources and processes The Board arranges to meet the Manager at least annually at the Manager's officein London. This allows the Board to inspect the office arrangements and to meetother members of the Manager's team. Typically the Board would expect tointerrogate the Manager's process in more detail than is possible at Boardmeetings and to gain a perspective on the level of resource that is applied bythe Manager to the Company's business. b) Business Contingency Management The Board regularly reviews the Manager's Business Contingency Management and isable to discuss this and other matters with the Manager's Chief Risk Officer. The Administrator a) Resources and processes 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 Group. This enables the Board to view at first hand the levelof resources made available to the Group by the Administrator. b) Business Continuity 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. Internal Control The Combined Code requires the Directors at least annually to review theeffectiveness of the Group system of internal controls and to report toshareholders that they have 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. Investment management services and Administration services are provided to theGroup respectively by Insight Investment Management (Global) Limited ('Insight')and Royal Bank of Scotland International Fund Services (Guernsey) Limited('RBSI'). The Group's system of internal control therefore is substantiallyreliant on Insight's and RBSI's own internal controls and their internal audit. During the year, the Board has reviewed a report prepared by Insight's internalaudit team on Insight's property division and has been satisfied that theirapproach is appropriate for the Group. The key elements designed to provide effective control are as follows: a) Financial reporting A regular review of relevant financial data including management accounts andperformance projections b) Management and Administration Agreements Contractual documentation with appropriately regulated entities which clearlydescribes responsibilities for the two principal service providers. c) Management Systems The Manager's system of internal controls is based on clear written processes, aformal investment committee and clear lines of responsibility and reporting allof which are monitored by Insight's internal risk team. Insight is regulated bythe FSA. d) Investment Strategy The Group's strategy is authorised and monitored on a regular basis by theBoard. The Board carries out a review of significant business risks and formallyconsiders the scope and effectiveness of the Group's system of internal controlannually. This review covers all controls, including financial, operational andrisk management. The Board has received a high level internal controls review of theAdministrator. Corporate Responsibility - Benefits, Risks and Controls The Board has reviewed the Socially Responsible Policy which has been developedby the Manager and considers this to be an appropriate policy for the Company toadhere to via the appointment of the Manager through the Investment Managementagreement. The Manager's policy is as follows: "Insight recognises that how buildings are designed, built, managed and occupiedsignificantly influences their impact on the environment and affectedcommunities. Insight 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. Insight's standard business processes ensure that it obtains an environmentreport as part of the due diligence process for property acquisitions. Inaddition, Insight ensures that its Fund Managers and appointed Managing Agentscomply with all relevant laws and regulation relating to its clients business.Insight also aims to operate according to established best practice within theindustry on all relevant environmental and social aspects of property managementand development. Insight 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." The Board has noted that the Manager is in the process of implementing systemswhich will report the evidence of compliance with this policy. The Manager has recently appointed specialist consultants Upstream to developcomprehensive systems to enable it to implement and monitor its sustainabilitypolicy. Working with Upstream, during the coming year the Manager expects to: • Identify the most significant environmental impacts of the Groups investments, both at the portfolio and asset level; • Establish a set of objectives, targets and Key Performance Indicators relating to the environmental impacts of the Group's properties; • Develop appropriate governance, control and management procedures, to be adopted both by Insight and managing agents; • Develop appropriate training and awareness raising processes for Insight's staff. Authority to buy back shares The Company did not purchase any shares for cancellation during the year. The Directors have authority to buy back up to 14.99 per cent. of the Company'sOrdinary Shares and will seek annual renewal of this authority fromShareholders. Any buyback of Ordinary Shares will be made subject to Guernseylaw and within any guidelines established from time to time by the Board and themaking and timing of any buybacks will be at the absolute discretion of theBoard. Purchases of Ordinary Shares will only be made through the market forcash at prices below the prevailing net asset value of the Ordinary Shares (aslast calculated) where the Directors believe such purchases will enhanceshareholder value. Such purchases will also only be made in accordance with therules of the UK Listing Authority which provide that the price to be paid mustnot be more than 5 per cent above the average of the middle market quotationsfor the Ordinary Shares for the five business days before the shares arepurchased. Any shares purchased 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) Ordinance1989 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 Group'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. Creditor Payment Policy It is the Group's policy to ensure settlement of supplier invoices in accordancewith stated terms. Auditors KPMG Channel Islands Limited have indicated their willingness to continue inoffice as auditors and a resolution proposing their re-appointment will beproposed at the Annual General Meeting. A Sykes, Director (Chairman) Keith Goulborn, Director20 June 2006 20 June 2006 Consolidated Income Statement 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 Notes £'000 £'000 Rental income 28,119 16,693Other income 3 225 318Property operating expenses 4 (1,172) (293) Net rental and related income 27,172 16,718 Profit on disposal of investment property 2,594 390 Valuation gains on investment property 54,022 18,425Valuation losses on investment property - (1,922)Net valuation gains on investment property 10 54,022 16,503 ExpensesInvestment management fee 22 (5,062) (2,418) Performance fee 22 (6,160) -Valuers' and other professional fees (416) (473)Administrators fee 2 (227) (120)Audit fee (47) (50)Directors' fees (98) (72)Other expenses 5 (525) (187) Total expenses (12,535) (3,320) Net operating profit before net finance costs 71,253 30,291 Interest receivable 3,908 430Interest payable (8,191) (3,477)Finance expenses (673) (133) Net finance costs (4,956) (3,180) Share of profits of associates 8,582 - Profit before tax 74,879 27,111 Taxation 7 (85) (1,756) Profit for the year / period attributable to the 74,794 25,355equity holders of the parent company Basic and diluted earnings per share 8 23.5p 9.7p Consolidated Balance Sheet 31/03/2006 31/03/2005 Notes £'000 £'000 Investment property 10 518,180 379,450Investment in associates 11 28,313 -Loan to associate 11 9,787 - Non-current assets 556,280 379,450 Trade and other receivables 14 5,832 4,694Taxation paid in advance 7 231 -Cash and cash equivalents 37,608 55,222Current assets 43,671 59,916 Total assets 599,951 439,366 Issued capital and reserves 15 422,771 272,822Equity 422,771 272,822 Interest-bearing loans and borrowings 16 148,833 148,482Interest rate swap 3,875 1,382Provisions 17 - 2,000Non-current liabilities 152,708 151,864 Trade and other payables 18 21,222 12,875Provisions 17 3,250 -Taxation payable 7 - 1,805Current liabilities 24,472 14,680 Total liabilities 177,180 166,544 Total equity and liabilities 599,951 439,366 Net Asset Value per Ordinary Share 19 119.6p 104.9p The financial statements were approved at a meeting of the Board of Directorsheld on 20 June 2006 and signed on its behalf by: A Sykes, Director (Chairman) Keith Goulborn, Director Consolidated Statement of Changes in Equity Notes Share Hedge Revenue Total premium reserve reserve £'000 £'000 £'000 £'000 Balance as at 27 May 2004 - - - -Issued in the period 260,000 - - 260,000Issue costs (2,376) - - (2,376)Transfer to distributable reserves (257,624) - 257,624 -Loss on derivative instruments - (1,382) - (1,382)Profit for the period - - 25,355 25,355Dividends paid - - (8,775) (8,775) Balance as at 31 March 2005 - (1,382) 274,204 272,822 Issued in the period 15 100,000 - - 100,000Issue costs 15 (1,644) - - (1,644)Loss on derivative instruments - (2,493) - (2,493)Profit for the year - - 74,794 74,794Dividends paid 9 - - (20,708) (20,708) Balance as at 31 March 2006 98,356 (3,875) 328,290 422,771 Consolidated Statement of Cash Flows 01/04/2005 27/05/2004 To to 31/03/2006 31/03/2005Operating activities Notes £'000 £'000Profit for the year/period 74,794 25,355Adjustments for:Profit on disposal of investment property (2,594) (390)Net valuation gains on investment (54,022) (16,503)propertyShare of profits of associates (8,582) -Net finance cost 4,956 3,180Taxation 85 1,756Operating profit before changes in 14,637 13,398working capital and provisions Increase in trade and other receivables (1,135) (4,682)Increase in trade and other payables 10,614 10,860Cash generated from operations 24,116 19,576 Interest paid (6,805) (3,279)Interest received 3,901 417Tax paid (2,035) -Cash flows from operating activities 19,177 16,714 Investing ActivitiesProceeds from sale of investment property 26,868 3,550Acquisition of investment property (107,691) (364,107)Acquisition of associates (19,731) -Cash flows from investing activities (100,554) (360,557) Financing ActivitiesProceeds on issue of shares 100,000 260,000Loan to associate (9,787) -Issue costs paid on issuance of Ordinary (1,644) (2,376)SharesDraw down of short term bank loan - 98,100Repayment of short term bank loan - (98,100)Draw down of long term loan - 152,500Finance costs paid on arrangement of (4,098) (2,284)long term loanDividends paid 9 (20,708) (8,775)Cash flows from financing activities 63,763 399,065 Net (decrease)/increase in cash and (17,614) 55,222cash equivalents for the yearOpening cash and cash equivalents 55,222 -Closing cash and cash equivalents 37,608 55,222 Company Income Statement 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 Notes £'000 £'000 Restated Other income 3 18 567 Net income 18 567 Profit on disposal of subsidiary - 16,904company ExpensesInvestment management fee 22 (2,537) (1,210) Performance fee 22 (6,160) -Valuers' and other professional fees (125) (170)Administrators fee (206) (120)Audit fee (40) (50)Directors' fees (98) (72)Other expenses 5 (124) (165) Total expenses (9,290) (1,787) Net operating (loss) / profit before (9,272) 15,684net finance costs Interest receivable 5,024 14,306Interest payable - (3,276) Finance expenses (987) (36) Net finance costs 4,037 10,994 Income from subsidiary 6 6,501 8,664 Profit for the year/ period 1,266 35,342 Basic and diluted earnings per share 8 0.4p 13.6p Company Balance Sheet 31/03/2006 31/03/2005 Restated Notes £'000 £'000 Investment in subsidiary companies 12 366,595 347,464Loans to subsidiary companies 13 67,988 16,486Non-current assets 434,583 363,950 Trade and other receivables 14 31,709 6,981Cash and cash equivalents 6,677 9,352Current assets 38,386 16,333 Total assets 472,969 380,283 Issued capital and reserves 15 363,105 284,191Equity 363,105 284,191 Non interest-bearing loans and borrowings 16 102,674 95,330Non-current liabilities 102,674 95,330 Trade and other payables 18 7,190 762Current liabilities 7,190 762 Total liabilities 109,864 96,092 Total equity and liabilities 472,969 380,283 The financial statements were approved at a meeting of the Board of Directorsheld on 20 June 2006 and signed on its behalf by: A Sykes, Director (Chairman) Keith Goulborn, Director Company Statement of Changes in Equity Notes Share Revenue Total premium reserve (Restated) £'000 £'000 £'000 Balance as at 27 May 2004 - - -Issued in the period 260,000 - 260,000Issue costs (2,376) - (2,376)Transfer to distributable reserves (257,624) 257,624 -Profit for the period - 35,342 35,342Dividends paid - (8,775) (8,775) Balance as at 31 March 2005 - Restated - 284,191 284,191 Balance as at 31 March 2005 - previously - 275,527 275,527reportedPrior year adjustment 6 - 8,664 8,664Balance as at 31 March 2006 - as restated 284,191 284,191 Issued in the period 15 100,000 - 100,000Issue costs 15 (1,644) - (1,644)Profit for the year - 1,266 1,266Dividends paid 9 - (20,708) (20,708) Balance as at 31 March 2006 98,356 264,749 363,105 Company Statement of Cash Flows 01/04/2005 27/05/2004 To to 31/03/2006 31/03/2005 RestatedOperating activities Notes £'000 £'000(Loss)/profit for the year / period 1,266 35,342Adjustments for:Profit on disposal of subsidiary company - (16,904) Net finance cost (10,538) (19,658)Operating profit before changes in working capital and (9,272) (1,220)provisions Increase in trade and other receivables (24,729) (6,981)Increase in trade and other payables 6,460 762Cash generated from operations (27,541) (7,439) Interest paid - (3,276)Interest received 5,024 14,306Tax paid (32)Cash flows from operating activities (22,548) 3,591 Investing ActivitiesProceeds from sale of subsidiary company - 103,427Acquisition of subsidiary companies (19,131) (433,987)Cash flows from investing activities (19,131) (330,560) Financing ActivitiesProceeds on issue of Shares 100,000 260,000Issue costs paid on issuance of Shares (1,644) (2,376)Intra group loan received 12,906 103,994Intra group loan provided - subsidiaries (51,501) (16,486)Finance costs paid (48) (36)Dividends paid 9 (20,708) (8,775)Cash flows from financing activities 39,005 336,321 Net (decrease)/increase in cash and cash equivalentsat 31 March 2006 (2,675) 9,352Opening cash and cash equivalents 9,352 -Closing cash and cash equivalents 6,677 9,352 Notes to the Financial Statements 1. Significant accounting policies The Insight Foundation Property Trust Limited ('the Company') is a closed-endedinvestment company incorporated in Guernsey. The consolidated financialstatements of the Company for the year ended 31 March 2006 comprise the Companyand its subsidiaries and its interests in associates (together referred to asthe 'Group'). Statement of compliance The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ('IFRS') issued by, or adopted by,the International Accounting Standards Board (the 'IASB'), interpretationsissued by the International Financial Reporting Standards Committee, applicablelegal and regulatory requirements of Guernsey Law and the Listing Rules of theUK Listing Authority. 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, with the exception of the change in accountingpolicy disclosed in Note 6, been consistently applied to the results, assets,liabilities and cash flows of the entities included in the consolidatedfinancial statements and are consistent with those of the previous period. 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. 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. 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 associates 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 associate, theGroup's carrying 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 associate. Loans toassociates are stated at their amortised cost less impairment losses. 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 at cost, being the fair value ofthe consideration given, including transaction costs associated with theinvestment property. After initial recognition, investment properties are measured at fair value,with unrealised gains and losses recognised in the Consolidated IncomeStatement. Realised gains and losses on the disposal of properties arerecognised in the Consolidated Income Statement. Fair value is based on theopen market valuations of the properties as provided by Knight Frank LLP a firmof independent chartered surveyors, at the balance sheet date. Marketvaluations are carried out on a quarterly basis. As disclosed in note 21, the Group leases out all properties held on operatingleases. 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 Consolidated Statement of Cash Flows, cash and cash equivalents consistof cash in hand and short-term deposits at banks. 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 the Group has a legal orconstructive obligation as a result of a past event, and it is probable that anoutflow 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 UK income tax.Any material premiums or rent-free periods are spread evenly over the leaseterm. 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 Group's investmentmanagement and administration fees, finance costs (including interest on thelong term borrowings) and all other expenses are charged through theConsolidated Income Statement. Attributable transaction costs incurred inestablishing the Group's credit facilities are deducted from the fair value ofborrowings on initial recognition and are amortised over the lifetime of thefacilities through the Consolidated Income Statement. 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. Currenttax is the expected tax payable on the taxable income for the year, using taxrates enacted or substantially enacted at the balance sheet date, and anyadjustment 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 Group is engaged in a single segmentof business, being property investment business and in one geographical area,the United Kingdom. Loans and borrowings Borrowings are recognised initially at fair value of the consideration received,less attributable transaction costs. Subsequent to initial recognition,borrowings are stated at amortised cost with any difference between cost andredemption value being recognised in the income statement over the period of theborrowings on an effective interest basis. 2. Material agreements (i) Under the terms of an appointment made by the Board on 24 June 2004, InsightInvestment Management (Global) Limited was appointed as Manager to the Company.The Manager is entitled to a base fee and a performance fee together withreasonable expenses incurred by it in the performance of its duties. The basefee is equal to one quarter of 95 basis points of the gross assets of the Groupper quarter. In addition, and subject to the conditions below, the Manager is entitled to anannual performance fee where the total return per Ordinary Share during therelevant 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 Investment Management Agreement may not be terminated by either the Companyor the Manager prior to the second anniversary of the agreement but, thereafter,any party may terminate the agreement on not less than twelve months notice inwriting. (ii) 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 Administration, Registrar, Custodian and Secretarial Agreement may beterminated by either party by six months' notice in writing. 3. Other income 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005Group £'000 £'000Insurance commissions (6) 268Miscellaneous income 231 50 225 318 CompanyMiscellaneous income 18 567 18 567 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 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 £'000 £'000Surveyor fees 670 122Dilapidations (327) - Agents' fees 100 72Repairs and maintenance 245 51Advertising 21 29Rates - Vacant 90 13Other expenses 373 6 1,172 293 5. Other expenses 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005Group £'000 £'000Directors' and officers' insurance premium 58 60Printing costs 6 36Regulatory costs 25 23Marketing 161 -Other expenses 275 68 525 187 CompanyDirectors' and officers' insurance premium 53 60Regulatory costs 12 10Marketing 14 6Other expenses 45 89 124 165 6. Income from Subsidiary Company On 30 March 2005 the Company received an interest free loan of £16,392,000 froma subsidiary which is repayable on 30 March 2015. The fair value of this loan oninitial recognition was £7,728,000 and the difference of £8,664,000 has beentreated as a distribution received from the subsidiary. The discount will beamortised over the period of the loan and charged to the income statement of theCompany as a finance expense. In the financial statements, this loan was recognised at face value.Accordingly, the current year financial statements include a prior yearadjustment to restate the loan in accordance with the accounting treatment shownabove. The effect of the prior year adjustment is to reduce the carrying valueof the loan at 31 March 2005 by £8,664,000 and increase the income for theperiod ended 31 March by £8,664,000. On 14 July 2005 the Company received a further interest free loan from asubsidiary which is repayable on 30 March 2015. The fair value of this loan onrecognition was £5,999,000 and the difference of £6,501,000 has been treated asa distribution received from the subsidiary. 7. Taxation 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005 £'000 £'000Reconciliation of effective tax rateProfit before tax 74,879 27,111Effect of:Income tax using UK income tax rate of 22% 16,473 5,964Capital gains on revaluation not taxable (13,773) (3,631)Capital gains on revaluation taxable - 1,121Profit on disposal not taxable (571) (86) Other net income not taxable (2,044) (1,612)Tax expense incurred during the year 85 1,756 Less : underprovision for year of charge 2004 / 2005 (54) Payment on account for year of charge 2005/2006 (262) - Subsidiary companies' pre-acquisition liabilities - 49Taxation (paid in advance) / payable (231) 1,805 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. 8. 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 £74,794,000 and the weighted average number of OrdinaryShares in issue during the year of 318,755,945. The basic and diluted earnings per share for the Company is based on the netprofit for the year of £1,266,000 and the weighted average number of OrdinaryShares in issue during the year of 318,755,945. 9. Dividends paid 01/04/2005 No. of toIn respect of Ordinary Rate 31/03/2006 Shares (pence) £'000 Quarter 31 March 2005 dividend paid 19 May 2005 260 million 1.6875 4,388Quarter 30 June 2005 dividend paid 12 August 2005 260 million 1.6875 4,388Quarter 30 September 2005 dividend paid 353.56 million 1.6875 5,96602 December 2005Quarter 31 December 2005 dividend paid 16 353.56 million 1.6875 5,966 February 2006 6.7500 20,708 10. Investment property 31/03/2006 £'000 Leasehold Freehold TotalAt cost - 31 March 2005 48,307 314,640 362,947Acquisitions - 107,691 107,691Provision for further purchase consideration (note 17) - 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 per 5,725 48,297 54,022Consolidated Income Statement 7,613 62,912 70,525At Valuation - 31 March 2006 55,920 462,260 518,180 31/03/2005 £'000 Leasehold Freehold TotalAt cost - 27 May 2004Acquisitions 48,307 315,800 364,107Provision for further purchase consideration (note 15) - 2,000 2,000Disposals - (3,160) (3,160)At cost - 31 March 2005 48,307 314,640 362,947 Net valuations gains on investment property 1,888 14,615 16,503for period ended 31 March 2005 At Valuation - 31 March 2005 50,195 329,255 379,450 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. 11. Investment in Associates In August 2005, the Group, through Insight 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 United Kingdom and whichowns the MidCity 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 company invested £130,000 equity in DV3 Mid City Limited, which at 31 March2006 was valued at £7,813,000. The subordinated debt invested in DV3 Mid City Limited of £9,787,000 is splitinto two separate loans. The first loan is for £3,900,000, has no fixedrepayment date and attracts interest at a rate of 12% per annum. The second loanis for £5,887,000, has no fixed repayment date and attracts interest at a rateof 20% per annum. As at 31 March 2006 the value of the Group's investment in DV3 Mid City Limitedhas been valued at £17,600,000. As at 31 March 2006 DV3 Mid City Limited hadtotal assets of £269,000,000, total liabilities of £225,000,000, revenues forthe period ended 31 March 2006 were £13,300,000 and a loss was incurred for thesame period of £6,600,000. On 21 March 2006 the Group invested £19,600,000 to acquire 28.08% of the unitsin a Jersey incorporated property unit trust, One Plantation Place Unit Trust.The Unit Trust owns the City office building, Plantation Place, London EC3.There are four unit holders who collectively invested £69.8 million with thebalance of the purchase consideration funded by senior and junior debt totalling£463.51 million. The senior loan is a 364 term loan at a margin of 0.8% and theintention is to re-finance both the senior and junior debt through asecuritisation issue in July 2006. In expectation of a 5 to 7 year securitisedloan term, the Unit Trust has benefit of a 7 year interest rate swap at anall-in rate of 4.74% that was put in place at completion. The interest rateswap can be novated to another lender should the securitisation not proceed.Adopting the independent bank valuation as at completion of £540 million, theestimated Net Asset Value of the Group's investment is £20,500,000. 12. Investment in subsidiary companies 31/03/2006 31/03/2005 £'000 £'000Opening balance 347,464 -Additions in the year/period 19,131 347,464Closing balance 366,595 347,464 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 2006 2005 Insight Foundation Property Limited Guernsey 100% 100%Insight Foundation Property (No.2) Limited Guernsey 100% 100%LP (Brentford) Limited Guernsey 100% 100%LP (Tudor Street) Limited Guernsey 100% 100%Insight Foundation Property Bootle Limited Isle of Man 100% - The principal subsidiaries which have entered into borrowing facilities onbehalf of the Company and its property holding subsidiaries are: Insight Foundation Holding Company Limited Guernsey 100% 100%Real Estate Capital (Foundation) Limited Guernsey See below See below Real Estate Capital (Foundation) Limited is not a wholly owned subsidiary butthe accounts of this special purpose vehicle have been included within theseconsolidated financial statements on the basis that the Company has the power,directly or indirectly, to govern the financial and operating policies of thatentity so as to obtain benefits from its activities. 13. Loans to subsidiary companies At 31 March 2006 the Company had outstanding loans of £67,988,000 to itssubsidiary companies. An initial loan of £15,901,000 has no fixed repaymentdate and interest is charged on 60% of the outstanding balance at an annual rateof 3 per cent above the UK base rate. A second loan of £42,300,000 has no fixedrepayment date and interest is charged on the full loan amount at an annual rateof 3 per cent above the UK base rate. The third loan is for £3,900,000, has nofixed repayment date and attracts interest at a rate of 12% per annum. The finalloan is for £5,887,000, has no fixed repayment date and attracts interest at arate of 20% per annum. 14. Trade and other receivables 31/03/2006 31/03/2005 £'000 £'000GroupRent receivable 3,022 2,834Receivable on portfolio acquisition - 921Other debtors 2,810 939 5,832 4,694CompanyAmounts due from subsidiary companies 30,775 6,047Receivable on portfolio acquisition 921 921Other debtors 13 13 31,709 6,981 15. 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 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 Insight 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 97.85 pence and the net asset value per ordinary share was104.59 pence. On this basis, for the purpose of the Conversion, the ConversionRatio was 0.9356 Ordinary Shares for every one C Share. 93,560,000 new OrdinaryShares were created on Conversion of the C Shares increasing the number ofissued Ordinary Shares of the Company from 260,000,000 to 353,560,000. Dividends On 27 April 2006 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. 16. 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 20. Group 31/03/2006 31/03/2005Non-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 (4,077) (4,077)Add: Amortised finance costs 410 (3,667) 59 (4,018) 148,833 148,482CompanyNon-current liabilitiesLoans from subsidiaries 102,674 95,330 102,674 95,330 The Company (via its principal subsidiary, Insight Foundation Holding CompanyLimited) has entered into a long term £152.5m loan (repayable as a whole in July2014) with Real Estate Capital (Foundation) Limited, a single purpose lender,which issued Secured Floating Rate Notes that have been admitted to the OfficialList of the Irish Stock Exchange. Full details of the Issue were published inan Offering Circular on 18 March 2005. Proceeds of the issue were used tore-finance previous short term borrowings (approximately £98m), and the balanceto acquire further investment properties. The Notes were issued at a blended margin of 20.8 basis points ("bps") overLIBOR and simultaneously the Company entered into an equivalent maturity swapagreement at 5.1%. In aggregate therefore the Company's long term debtfacilities have an effective interest rate of 5.31%. The Company hascapitalised costs of £4m which it incurred in arranging this facility. Theseare being amortised over the life of the loan which has the effect of adding anadditional 28bps per annum to the cost of the loan. The facility has first charge security over all the property assets which at 31March 2006 had a value of £438m together with £2.2m cash (the "Security Pool").Assets can be sold and bought within this Security Pool without any need torevert to the Issuer or the Rating Agents up to an annual turnover rate of 20%.Various covenants apply during the term of the loan although the Facility hasbeen designed 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 (34.6% at 31 March 2006) nor shouldestimated rental and other income arising from assets in the Security Pool forthe next 12 month period comprise less than 150% of the interest paymentsanticipated to be due over that same period (interest cover at 31 March 2006 -315%). 17. Provisions 31/3/2006 31/3/2005Group £'000 £'000 Opening balance as at 31 March 2005 2,000 -Provision made in the year / period 1,250 2,000Opening balance at 31 March 2006 3,250 2,000 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 Companytherefore 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 both reach a conclusion by July 2006 (or earlier if the assetsare sold) but the Directors consider that based on the current valuations ofthese two assets, it is prudent to increase the provision to £3.25 million. 18. Trade and other payables 31/03/2006 31/03/2005 £'000 £'000GroupRent received in advance 6,698 5,880Rental deposits 2,595 2,658VAT payable 729 995Other trade payables and accruals 11,200 3,342 21,222 12,875 CompanyTrading account with subsidiary company 100 100Trade payables and accruals 7,090 662 7,190 762 19. Net asset value per Ordinary Share The net asset value per Ordinary Share is based on the net assets of£422,771,000 and 353,560,000 Ordinary Shares in issue at the balance sheet date. 20. 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 agree 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. In theevent of default by an occupational tenant, the Group will suffer a rentalincome shortfall and incur additional costs, including legal expenses, inmaintaining, insuring and re-letting the property. The Manager reviews reportsprepared by Experion, or other sources to be assess the credit quality of theGroup's tenants and aims to ensure there are no excessive concentration of riskand that the impact of any default by a tenant is minimised. In respect of credit risk arising from other financial assets of the Group,which comprise of cash and cash equivalents, the Group's exposure to credit riskarises from default of the counterparty with a maximum exposure equal to thecarrying amounts of these instruments. In order to mitigate such risks theGroup's cash is maintained with major international financial institutions.During the period and at the balance sheet date the Group maintainedrelationships with branches and subsidiaries of HSBC Bank plc, The Royal Bank ofScotland plc and ING Barings. Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise 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 The Group's exposure to market risk for changes in interest rates relatesprimarily to the Group's long-term debt obligations. As described in note 15 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. Effective Total 6 months or More than 5 Interest less years 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) Fair Values The fair values of financial assets and liabilities are not materially differentfrom their carrying value in the financial statements. The group leases out its investment property under operating leases. At 31March 2006 the future minimum annual lease receipts under non-cancellable leasesare as follows: 31/03/2006 31/03/2005 £'000 £'000 Less than one year 1,214 981Between one and five years 8,739 7,427More than five years 21,411 16,464 31,364 24,872 The total above comprises the total contracted rent receivable as at 31 March2006 and does not equate to the rent receivable shown in the Consolidated IncomeStatement. 22. Related parties (i) Insight Investment Management (Global) Limited is entitled to fees for itsservices as Manager. The total charge to the Income Statement during the periodwas £5,062,000 (2005: £2,418,000). As conditions laid out in the managementagreement regarding the Managers qualification for receipt of a performance feewere met during the year, a charge of £6,160,000 (2005: Nil) was made to theincome statement in favour of the Manager Further details of the terms of theInvestment Management Agreement, including the basis for the calculation of theperformance fee, are disclosed in note 2. (ii) As disclosed in last year's accounts Clerical Medical Investment GroupLimited were a substantial shareholder. During the course of the year they havesold down their holding and as at 31 March 2006 were no longer considered to bea related party. 23. Capital commitments At 31 March 2006 Insight Foundation Property (No 2) Limited had, pursuant to acontract dated 17 March 2006, exchanged contracts to invest £27.55 million toacquire a 21.6% stake in Portman Square House, 43 - 45 Portman Square London.The Company acquired a beneficial interest in a Trust for Land alongside fourother investors. Completion of the acquisition is on 3 July 2006. Independent auditors' report to the members of Insight Foundation Property TrustLimited We have audited the group and parent company financial statements (the 'financial statements') of Insight Foundation Property Trust Limited for the yearended 31 March 2006 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. 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. 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 2006 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 Limited Chartered Accountants This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Schroder Real