9th Jun 2005 07:01
Insight Foundation Property Tst Ltd09 June 2005 9 June 2005 Insight Foundation Property Trust Limited("IFPT/the "Company") Results and Consolidated Financial Statements for the period from 27 May 2004 to 31 March 2005 CHAIRMAN'S STATEMENT Results I am pleased to report on a very positive set of results for our Company's firstfinancial period ending 31 March 2005. The Company was incorporated on 27 May2004 and commenced full operations on 16 July 2004. The Company's net assetvalue per share (NAV) has increased by over 7.5% over the period from 16 July2004, and shareholders have received total dividends of 3.375 pence per share,making a total return of almost 11.0% over eight and a half months. TheCompany's share price continues to trade at a premium to net asset value, as ithas done since the launch of the Company. The audited NAV has increased from the estimated launch NAV of 97.5 pence pershare to 104.90 pence per share. Over the same period, dividends were paid onthe 12 November 2004 and 11 February 2005 (each at 1.6875 pence per share). The NAV growth is clearly a reflection of the strength of the UK commercialproperty market but it also reflects the manager's active approach in terms oftransactional activity, intensive asset management and innovative financing.Each of these areas has made an important contribution to the Company's progressin this initial period, both in terms of adding value to our asset base, and inreducing the potentially high costs of execution in the property market. The shares of the Company have enjoyed good levels of support since launch andwere trading at 115.5 pence per share on the 31 March 2005, reflecting a 10%premium to the March NAV. Borrowings In March the Company successfully closed a £152.5 million debt securitisationfacility. This financing structure is the first in the Property InvestmentTrust sector and provides keenly priced debt finance for the Company whilepreserving operational flexibility. The Company refinanced the £98 millioninterim facility it had arranged at launch and in addition the securitisationprovides additional 'reserve note' capacity which provides significant financialflexibility for acquiring further properties. The securitised facility runs until the Company's continuation vote in 2014 andis fully hedged against interest rate movements. The total aggregate interestrate including annualised costs is 5.6% compared to our original assumption of6.3% when the Company was launched. Expanded Shareholder Base In February, the Company announced that 50 million of the shares held byClerical Medical With Profits Fund, equating to 19% of the issued share capital,were placed at a price of 108 pence per share. This sale was very well receivedand as a result, Clerical Medical's shareholding was reduced from approximately61% to 42% of the issued share capital. The broader investor base, togetherwith an enlarged free float should enhance the liquidity of our shares and is apositive step for the Company and its Shareholders. Shareholder Communication The Investment Manager, Insight Investment Management (Global) Limited (the "Manager"), continues to issue quarterly Fact Sheets and a bespoke website forthe Company will be launched during July. It is the Board's intention, with thesupport of the Manager, to continue to enhance the quality and transparency ofour communication with shareholders. Manager Evaluation In March 2005, the Board spent a full day with the Manager, reviewing itsinvestment processes, including the use of detailed asset business plans toachieve the Company's objectives. The Board believes that the continuedappointment of the Manager, on the terms agreed, is in the interests of theCompany and its shareholders as a whole. Corporate Governance The Board takes a prudent and proactive approach to corporate governance, withrisk assessment and controls regularly reviewed by the Board. The Board'sapproach to this subject will be described in the Company's Annual Report. Board The Company's first period has been characterised by intense activity, with ourproperty acquisitions and debt financing all entailing a high degree ofcomplexity, in order to produce results which have been of great benefit to theCompany both financially and structurally. I am grateful to my colleagues on theBoard for their considerable efforts over this time The Directors recently commissioned a review by Trust Associates of the level ofboard remuneration, in the light of the workload which is entailed in a Companyof this size and complexity. The review indicated that some adjustment would beappropriate, and the Report of the Directors in the Annual Report will containdetails of these proposals, which will be put to shareholders at the AnnualGeneral Meeting. Prospects The UK property market produced a total return of 19.0% during 2004, as measuredby the IPD Monthly Index (compared to 11.2% in 2003). This return has beendriven largely by the recent decline in property income yields, with a fall inthe income yield on the IPD Index from 7.4% to 6.5% in the 12 month period to 31March 2005. Looking ahead, returns from property are likely to be moredependent on good levels of rental growth, rather than further falls in yields. In 2005, the Manager anticipates a full year return in the region of 10% to 11%.This return after adjustment for inflation, will compare very favourably withlong run averages from the market. The property market continues to attractsubstantial cash inflows from a broad range of investors, and the challenge formany property investors will be to secure attractive assets at reasonableprices. In this regard, the Board continues to be confident that the Manager'shighly active approach to asset management will position the Company's portfoliofor good performance on both an absolute basis and in comparison with recognisedproperty indices. The recent Budget met with a mixed response from the property industry. Thewithdrawal of Stamp Duty Land Tax relief for disadvantaged areas was not widelyexpected and had a material effect on values in some parts of the country. I ampleased to report that the Company had a below average exposure to such areasand therefore the impact on the Company's NAV was modest. The Budget also confirmed that the Inland Revenue will be pressing ahead withplans for UK REIT's (Real Estate Investment Trusts), potentially to be launchedin 2006. The Board will continue to monitor the consultation process,particularly in relation to the significant tax issues, and the Manager remainsclosely involved in the Industry lobby groups. In the meantime, your Board will continue to consider and review the best formand size for the Company in order to generate the best risk adjusted returns forshareholders and to meet the Company's core objectives. With the Company'sstrong portfolio, increased financial flexibility and specialist propertymanagement, the Board views the future with confidence. Andrew SykesChairman8 June 2005 For further information, please contact: Enquiries:Duncan Owen (Insight Investment Management)Tel: 020 7321 1676 Paul Smith / Jeff Lanyon (RBSI)Tel: 01481 740 820 Stephanie Highett / Dido Laurimore (Financial Dynamics)Tel: 020 7831 3113 Financial Highlights • Net asset value per share rose by 7.6%• Share price rose by 15.5%• Earnings per Share of 9.7p• The Group has declared and paid dividends per share amounting to 3.375 pence. 31 March 2005 Launch 16 July % Change 2004 Net asset value (NAV) £272.82M £253.5M 7.6NAV per share published (pence) 105.3NAV per share per accounts (pence) Note 1 104.9 97.5 7.6Share price (pence) 115.5 100.0 15.5Share Price premium to NAV 10.1% - -Peer Group Share Price Index Comparison Note 2 113.3 100.0 13.3FTSE All Share Index 2457.73 2165.42 13.5FTSE Real Estate Index 3256.74 2849.79 14.3 Note 1 Net asset value (NAV) is calculated using International FinancialReporting Standards. NAV shown for 16 July 2004 is shown as original prospectusestimate. Note 2 Comprising ISIS Property Trust Limited, ISIS Property Trust 2 Limited,The UK Balanced Property Trust Limited, Standard Life Investments PropertyIncome Trust Limited, Invesco UK Property Income Trust, Teesland AdvantageProperty Trust. Reconciliation of net asset value per accounts to published net asset value Total Per share £,000 PenceNet asset value per accounts 272,822 104.9Hedge reserve on interest rate swap 1,382 0.5Expenses re-classified (330) (0.1) ------------ ------------Published net asset value 273,874 105.3 ------------ ------------ Performance Summary Property Performance 31 March 2005 30 Sept 2004Value of Investment Properties £379.45M £349.68MCurrent annualised rental income including rental guarantees £25.66M £23.91MEstimated open market rental value £26.48M £25.09MUnderlying property performance* 7.54% -IPD Balanced Monthly Index Funds* 7.38% - * Source - Investment Property Databank. Period 30 September 2004 to 31 March2005 Summary Consolidated Income Statement Net Rental and Related income £16.718MRealised and Unrealised Gains on Investment Property £16.893MExpenses (£3.320M)Net Finance costs (£3.180M)Profit before Tax £27.111MTaxation (£1.756M)Profit for the period £25.355M Earnings and Dividends since Launch Earnings per Share 9.7pDividends paid per Share 3.375pAnnualised Dividend Yield on 31 March 2005 share price 5.84% Bank Borrowings at 31 March 2005 Drawn down Facility £152.5MGearing - borrowings as % of Total assets less Current Liabilities 35.9%Gearing - borrowings as % of asset value in Security Pool (see Note 14) 39.6%Net Gearing - borrowings less cash as % of Non Current Assets 25.6% Estimated Annualised Total Expense Ratio since Launch As % of Total Assets less Current Liabilities 1.11%As % of Equity 1.72% INVESTMENT MANAGER'S SUMMARY REPORT The Company Insight Foundation Property Trust Limited (the 'Company') was launched in July2004 as a newly established Guernsey Domiciled Investment Company. TheCompany's strategy is to assemble and manage a portfolio of UK commercialproperty to provide Shareholders with an attractive level of income togetherwith potential for income and capital growth. Our property strategy continuesto be based on careful stock picking and selecting assets where we believe weare able to generate above average income returns through active management. The Investment Manager Insight Investment Management (Global) Limited ('Insight') is the Company'sInvestment Manager. Insight is one of the UK's largest and fastest growingproperty investment houses with commercial property assets of over £6 billionunder management. Insight's investment strategy is research-led but based uponstock picking fundamentally sound assets which are well located and thenenhancing them through asset management. Insight Investment has a strongperformance track record and is both an innovative as well as pro-activeproperty investment manager. The property division has over 50 professionalsfocused on the property sector. The Team Insight Investment's principal team for the Company's portfolio comprises theInvestment Committee, which has worked closely together for a number of years onother high performing property investment funds and companies. The InvestmentCommittee adheres to robust processes and rigorously reviews the propertyactivity and all other associated matters when it meets every fortnight. Duncan Owen is Chairman of the Investment Committee and leads on investmentmatters, Philip Gadsden is the lead on financial and debt associated matters.Nick Montgomery runs the day to day asset management across the portfolio andMark Long acts in preparing property forecasts and an economic overviewincluding what this could mean for the Company's portfolio. The Portfolio's Performance As at 31 March 2005, the Company owned a direct property portfolio valued at£379.45 million comprising 74 assets. The portfolio has approximately 240tenancies (with 180 different tenants as companies) with an average unexpiredlease term of approximately eight and a half years. The portfolio isdiversified both geographically and across the main sub-sectors of the UKproperty market. Sector Spread Type of Asset % Industrial 31Office 35Retail 34 Regional Spread Location % Central London 4South East (excluding London) 43Rest of South 11Midlands and Wales 26North and Scotland 16 Property tenure, expressed as a percentage of value: Type of tenure % Freehold 86.77Virtual freehold (999 year leasehold at a peppercorn rent) 5.45Long leasehold 7.77 As at 31 March 2005, the portfolio has shown a total valuation uplift of 6.5%since launch. The revaluation uplifts for the preceding quarters on a like forlike basis are 2.36% for the two and a half months to 30 September 2004, 1.8%for the three months to 31 December 2004 and 2.2% to 31 March 2005. The performance of the properties is independently measured by the InvestmentProperty Databank (IPD) on a like-for-like basis consistently against the mainbalanced monthly property index. For the period from launch to March 2005 theportfolio produced annualised returns broadly in line with this IPD benchmark.In the light of the fact that all the assets have been acquired in this firstaccounting period with the resulting costs, this is a very good period ofperformance compared with the IPD benchmark which reflects an average turnoverrate equating to only 15% of assets by value. The Company now has in place the foundation of the core portfolio picked for thelong term which is extremely encouraging for the prospective performance of theportfolio in 2005 to 2006 as the Company will be trading less and consequentlywill incur materially lower transactional costs. This has been borne out in theIPD measured returns for the quarter ending 31 March 2005 where the Company'sportfolio produced a total return (i.e. valuation uplift and rental income) of3.8% compared with the IPD index return of 2.7%, placing the Company in the topdecile of its benchmark group. The Property Portfolio From launch to the 31 March 2005, the Company has made total acquisitions of£361.24 million and a selective disposal of £3.55m. This compares with thevaluation of the property portfolio (as at 31 March 2005) of £379.45 million.The portfolio now produces a total income, including rental guarantees, of£25.66 million per annum and results in a yield of approximately 7.1% on thetotal purchase price, after all acquisition costs. The estimated open marketrental value as at 31 March 2005 according to the Valuer was £26.48m per annumand therefore the reversionary yield on the total purchase price is higher at7.3%. Including the period up to May 2005 additional portfolio activity is such thatsince launch, total purchases now total £366.735 million and following threefurther sales, total disposals have increased to £15.285 million. At launch, we identified two separate portfolios comprising 64 properties andacquired these for a total purchase price of £293.25 million, producing anincome yield of 7%. The portfolios were chosen as they met the Company's coreobjectives, benefiting from good fundamental characteristics and with strongprospects for growth. They initially had approximately 240 tenancies, anexcellent geographical and sector spread and a weighted income expiry term ofabout nine years. In addition to the strong diversification, the propertiesoffered considerable active asset management opportunities and had a lowexposure to the London office sector which was a proactive choice for thisperiod of investment. The acquisitions were in a form that resulted in lowacquisition costs. As a result there was a high opening Net Asset Value perOrdinary Share, estimated at 97.5p per share. The period immediately post launch was also characterised by significantactivity. We assembled a strong team with systems necessary to implement thebusiness plans for every asset. During the first period and as noted in theinterim accounts, the Company also acquired a further nine properties for £49.51million, again producing a net income yield of 7%. This acquisition includedfour offices, four industrial properties and a shopping centre with a total of40 occupational tenants, adding further to the diversity of the portfolio. Since the Interim Report, the Company has acquired a distribution warehouse inManchester and an office building in Brighton for a total consideration of£18.475 million. The yield for these acquisitions was 7.7%, after all purchasecosts. These acquisitions met our principal objectives with above averageincome yield and good quality investments in strong locations well placed forgrowth. Since the quarter we have also completed the acquisition of a cash andcarry warehouse property in Acton, West London for £5.5 million (which providesa yield of 6% which we expect to grow quickly to almost 9%). This again met ourcore objectives of acquiring well located assets with the ability to grow rentalincome via active asset management initiatives. The Company has also completed a limited number of disposals where a materialpremium over valuation has been achieved. We disposed of an industrial propertyin Newton Aycliffe in December 2004 for a price of £3.55 million, equating to an18% capital uplift over the purchase price just two months earlier. Since theperiod end, lower yielding retail assets in Hemel Hempstead, Chichester andChester have also been sold. In aggregate the three retail disposals achieved apremium of £1.15 million or 11% over the purchase prices paid in July 2004 andthis represented a combined yield of 5.45% on the price achieved. Thesedisposals again exceeded our core objective of selling lower yielding assetswhere there is a material profit to crystallise and to facilitate re-investmentin high growth properties. We are using all efforts to ensure that the Company is substantially invested,whilst not having to compromise on our key investment principles. We have anintensive approach to stock selection and this is a strategy that is helping tosecure mis-priced stock even in a today's competitive market. The matrix below provides a guide to our current view on value in the UK market. We consider this to be only a guide and it is subject to regular review: Short term Medium termAccumulate Yield 6%+ Retail warehousing Central London and SE offices Regional offices Value retail warehousing SE business parks Urban & SE industrialAvoid Market town shops Highly rented SE offices Highly rented provincial Highly rented rest of UK offices offices Secondary shops Prime low yield industrial High land supply areas High depreciation assets Additional Property Portfolio statistics at 31 March 2005 Ten largest properties Asset Value % Reynard Business Park, Brentford £17,300,000 4.6%Victory House, Trafalgar Place, Brighton £16,500,000 4.3%20/22,Tudor Street,London, EC4 £16,400,000 4.3%The Albion Centre, Ilkeston £13,600,000 3.6%Union Park, Fifers Lane, Norwich £12,510,000 3.3%Olympic Office Centre, Wembley £12,500,000 3.3%Rectical, Bluebell Close, Alfreton £10,150,000 2.7%Victoria Plaza, Bolton £9,710,000 2.6%The Gate Centre, Brentford £9,450,000 2.5%106 Oxford Road, Uxbridge £9,250,000 2.4%Totals £127,370,000 33.6% Ten largest tenancies Tenant Value % Mott MacDonald Ltd £1,307,148 5.19%Freshfields Sevices Company £1,279,600 5.08%Grand Metropolitan Estates Ltd £795,975 3.16%The British Broadcasting Corporation £733,500 2.91%Recticel SA £713,538 2.83%Jarvis Porter (Property Holdings) Ltd £700,000 2.78%Concept Automotive Services Ltd £515,970 2.05%Tucker, Crossland Darke (Irwin Mitchell) £506,638 2.01%Parametric Technology (UK) Ltd £486,200 1.93%CRP Print & Packaging Ltd £481,406 1.91%Totals £7,519,975 29.85% Unexpired occupational lease lengths, expressed as a percentage of current rent: Lease length % Less than 1 year 40 to 5 years 305 to 10 years 3610 to 15 years 1915+ years 11 Income risk analysis, expressed as a percentage of current rent: Income risk %Negligible & Government 47Low 22Low to medium 11 Asset Management Activity The underlying performance of the portfolio has been driven not just by stockselection but also by our pro-active and diligent approach to active assetmanagement in a strong property market. This approach is required to ensurethat the Company captures rental growth as fast as possible and consequentlymaximises all possible opportunities for capital value appreciation. Any vacant units are aggressively managed, and this is delivering strong resultsas well as low relative voids in the income across the portfolio. As at 31March 2005 approximately 4% of the portfolio was vacant, down from 7% in July2004. If leases currently under offer complete as anticipated, the void ratewill be further reduced to approximately 2% of rental value. This compares toapproximately 9% on an average portfolio (as measured by the IPD Index). For rent reviews, it is the Company's policy to always try to secure a rentaluplift irrespective of the potential quantum of increase in the rent. Thisapproach has been very successful for example, at a shop in Market Street, York,we pursued a settlement by reference to a third party expert and achieved a newrent of £285,000 per annum. Whilst this was a relatively small uplift of 3.6%on the previous rent payable, the valuation did not previously account for anyuplift. As we secure a number of these types of uplifts across the portfolio,the cumulative effect of the approach across the portfolio becomes significant. Below we have detailed some recent, larger examples of asset managementactivity: The Gate Centre, The Great West Road (A4), Brentford Insight secured a detailed planning consent for change of use from industrialwarehousing to a car showroom as well as simultaneously agreeing a new lettingto HR Owen for a BMW car dealership. This initiative increases the rent fromthe units by 50%, and extends the average length of unexpired lease term for themulti-let industrial estate from four years to eleven years. This is having amaterial positive impact on the value of the property. The Company is also in the process of making further planning applications forchanges of use to higher value uses at other properties. Olympic Office Centre, Fulton Road, Wembley We initiated a successful letting campaign on its 73,955 sq ft office in Wembleyresulting in the property being fully let within four months of acquisition.The yield on the property book cost has increased from 1.6% to 8.4%.Additionally, this property should benefit considerably from the significantdevelopment and infrastructure improvements around the new Wembley stadium thatis due to open in mid 2007. Ilkeston At the Company's shopping centre in Ilkeston, our focused approach following theacquisition of the centre has resulted in a key new letting to a multipleretailer at a level 10% ahead of the independent valuation. This sets amaterially higher rental value for the entire centre. Financing In March the Company successfully closed a debt securitisation and has drawndown £152.5M from the facility. This innovative financing structure is thefirst for the property Investment Trust sector and is indicative of theproactive approach adopted by the Company both prior to and since launch. TheCompany re-financed the £98 million interim facility it previously had in placeand the securitisation provides additional capacity to acquire furtherproperties as part of the pool of assets over which the lender has security. More importantly, the Company has also secured the ability to use up to £30million of the amount drawn down for any purpose including acquiring assets thatneed not be charged to the lender. Together with the broader levels offlexibility that exist in the loan documentation, the Company therefore hassignificant room for manoeuvre in acquiring new properties quickly andefficiently and in managing the portfolio in line with our stated objectives. The loan facility runs until the Company's continuation vote in 2014 and theamount drawn down is fully hedged against future interest rate movements. Thetotal aggregate interest rate including annualised costs is 5.6% compared to theoriginal Prospectus assumption of 6.3%. It is also worth recording that the securitisation included an additional £150million facility of reserve notes which can be drawn down in the future veryefficiently (subject to Rating Agency consent). Outlook We anticipate returns to the UK commercial property market of between 10%-11%for 2005 and reducing to closer to 7%-8% over the foreseeable future. Prime yields continue to reflect strong real estate fundamentals withexpectations for rental growth, but it is a more mixed picture for secondarystock. The yield gap between prime and secondary has reduced significantlyrelative to historical levels. Our view therefore is that secondary stock isnow relatively less attractive. The principal focus for 2005 and 2006 will be to target and acquire propertiesin London and the South East, especially where they involve larger lot sizesoffering active management opportunities and flexibility for potentialoccupiers. In summary, our focus for property activity will be to: Be substantially fully invested and pursue new investment in high growth assetsand segments of the market • Consider the sale of lower yielding retail properties and properties where a significant premium to valuation can be crystallised • Pursue active management initiatives set to make a significant impact on valuation • Maintain and enhance the current portfolio to ensure a continued broad diversity of properties and tenants. Insight's strong market coverage continues to identify and secure value acrossdifferent sectors and types of property. We will always be prepared to act where we see opportunities to unlock valuethrough selective new acquisitions and asset management solutions.Additionally, we will consider all other options for the Company to furtherimprove returns and growth. Duncan OwenInsight Investment Management8 June 2005 Consolidated Income StatementFor the period to 31 March 2005 27/5/2004 To 31/03/2005 Notes £'000Rent receivable 16,693Other income 3 318Property operating expenses 4 (293) ------------Net rental and related income 16,718 ------------ Profit on disposal of investment property 390 Valuation gains on investment property 18,425Valuation losses on investment property (1,922) ------------Net valuation gains on investment property 9 16,503 ------------ ExpensesInvestment management fee (2,418)Valuers' and other professional fees (473)Administrative fee (120)Audit fee (50)Directors' fees (72)Other expenses 5 (187) ------------Total Expenses (3,320) ------------ Net operating profit before net finance costs 30,291 Interest receivable 430Interest payable (3,477)Finance expenses (133) ------------Net finance costs (3,180) ------------ Profit before tax 27,111 Taxation 6 (1,756) ------------Profit for the period 25,355 ======= Basic and diluted earnings per share 7 9.7p ======= All items in the above statement are derived from continuing operations. The accompanying notes form an integral part of the financial statements. Consolidated Balance SheetAt 31 March 2005 31/03/2005 Notes £'000Investment properties 9 379,450 ------------Non-current assets 379,450 ------------ Trade and other receivables 12 4,694Cash and cash equivalents 55,222 - ------------Current assets 59,916 ------------ Total assets 439,366 ======= Issued capital and reserves 13 272,822 ------------Equity 272,822 ------------ Interest-bearing loans and borrowings 14 148,482Interest rate swap 1,382Provisions 15 2,000 ------------Non-current liabilities 151,864 ------------ Trade and other payables 16 12,875Taxation payable 6 1,805 ------------Current liabilities 14,680 ------------ Total liabilities 166,544 ------------ Total equity and liabilities 439,366 ======= Net Asset Value per Ordinary Share 17 104.9p ======= The financial statements were approved at a meeting of the Board of Directorsheld on 8 June 2005 and signed on its behalf by: Andrew SykesDirector (Chairman) Paul SmithDirector Company Balance SheetAt 31 March 2005 31/03/2005 Notes £'000Investment in subsidiary companies 10 347,464Loans to subsidiary companies 11 16,486 ------------Non-current assets 363,950 ------------ Trade and other receivables 12 6,981Cash and cash equivalents 9,352 ------------Current assets 16,333 ------------ Total assets 380,283 ======= Issued capital and reserves 13 275,527 ------------Equity 275,527 ------------ Non interest-bearing loans and borrowings 14 103,994 ------------Non-current liabilities 103,994 ------------ Trade and other payables 16 762 ------------Current liabilities 762 ------------ Total liabilities 104,756 ------------ Total equity and liabilities 380,283 ======= Consolidated Statement of Changes in Equity 27/5/2004 To Notes 31/03/2005 £'000 Profit for the period 25,355Dividends paid 8 (8,775) Issue of Ordinary Shares 13 260,000Issue costs 13 (2,376) Hedge reserve 13 (1,382) ------------Equity at 31 March 2005 272,822 ======= Consolidated Statement of Cash Flows 27/5/2004 to 31/03/2005Operating activities £'000Profit for the period 25,355Adjustments for:Profit on disposal of investment property (390)Net valuation gains on investment property (16,503)Net finance cost 3,180Taxation 1,756 ------------Operating profit before changes in working capital and provisions 13,398 Increase in trade and other receivables (4,682)Increase in trade and other payables 10,860 ------------Cash generated from operations 19,576 Interest paid (3,279)Interest received 417 ------------Cash flows from operating activities 16,714 ------------ Investing ActivitiesProceeds from sale of investment property 3,550Acquisition of investment property (364,107) ------------Cash flows from investing activities (360,557) ------------ Financing ActivitiesProceeds on issue of Ordinary Shares 260,000Issue costs paid on issuance of Ordinary Shares (2,376)Draw 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 to date on arrangement of long term loan (2,284)Dividends paid (8,775) ------------Cash flows from financing activities 399,065 ------------ Net increase in cash and cash equivalents at 31 March 2005 55,222 ======= Notes to the Financial Statements 1. Significant accounting policies The Insight Foundation Property Trust Limited is a closed-ended investmentcompany incorporated in Guernsey. The consolidated financial statements of theCompany for the period ended 31 March 2005 comprise the Company and itssubsidiaries (together referred to as the "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 investmentproperties are stated at their fair value. The accounting policies have been consistently applied to the results, assets,liabilities and cash flows of the entities included in the consolidatedfinancial statements. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgement, 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 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. Intra-group balances and any unrealised gains and losses arising fromintra-group transactions are eliminated in preparing the consolidated financialstatements. Investment property 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. Cash and cash equivalents Cash in 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 in 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 cost 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 Incremental external costs directly attributable to the equity transaction andcosts associated with the establishment of the Company that would otherwise havebeen avoided are written off against the share premium account. Dividends arerecognised as a liability in the period in which they are declared. 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. Expenses incurred in establishing the Group'scredit facilities have been capitalised and are amortised over the lifetime ofthe facilities and charged through the Consolidated Income Statement. Taxation 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. The Company and its subsidiaries are subject to United Kingdom income tax onincome arising on investment properties, after deduction of debt financing costsand other allowable expenses. Income tax on the profit or loss for the period comprises current tax. Currenttax is the expected tax payable on the taxable income for the period, using taxrates enacted or substantially enacted at the balance sheet date, and anyadjustment to tax payable in respect of previous periods. Capital gains tax is provided for where properties held by UK subsidiaries havebeen sold at prices over and above their initial purchase prices. 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. Interest-bearing loans and borrowings Interest-bearing borrowings are recognised initially at the fair value of theconsideration received less attributable transaction costs. Subsequent toinitial recognition, interest-bearing borrowings are stated at amortised costwith any difference between cost and redemption value being recognised in theincome statement over the period of the borrowings on an effective interestbasis. 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 Investment Manager tothe Company. The Investment Manager is entitled to a base fee and a performancefee together with reasonable expenses incurred by it in the performance of itsduties. The base fee is equal to one quarter of 95 basis points of the grossassets of the Company per quarter. In addition, and subject to the conditions below, the Investment Manager isentitled to an annual performance fee where the total return per Ordinary Shareduring the relevant financial period exceeds an annual rate of 10 per cent (the"performance hurdle"). Where the performance hurdle is met, a performance feewill be payable in an amount equal to 15 per cent of any aggregate total returnover and above the performance hurdle. A performance fee will only be payablewhere: (i) in respect of the relevant financial period, the total return of theunderlying assets meets or exceeds the Investment Property Databank ("IPD")Monthly Index balanced funds benchmark on a like for like basis; and (ii) theannualised total return over the period from admission of the Company's OrdinaryShares to the end of the relevant financial period is equal to or greater than10 per cent per annum. The Investment Management Agreement may not be terminated by either the Companyor the Investment Manager prior to the second anniversary of the agreement but,thereafter, any party may terminate the agreement on not less than twelve monthsnotice in writing. (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 Agreement may be terminated by either party by six month'snotice in writing. 3. Other income 27/05/2004 to 31/03/2005 £'000Insurance commissions 268Miscellaneous income 50 ------------ 318 ------------Related Shares:
Schroder Real