30th Nov 2006 07:03
Insight Foundation Property Tst Ltd30 November 2006 30 November 2006 Insight Foundation Property Trust Limited Interim Report Unaudited as at 30 September 2006 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')holds a diversified portfolio of UK commercial properties and invests in threecommercial property sectors: office, retail and industrial. The Group will notinvest in other listed Investment Companies. In pursuing the investmentobjective, the Investment Manager intends to target assets with good fundamentalcharacteristics, a diverse spread of occupational tenants and with opportunitiesto enhance value through active management. Investment Manager Invista Real Estate Investment Management Limited, following the de-merger ofthe Investment Manager from Insight Investment Management. Total assets less current liabilities (Group) £661.50 million at 30 September 2006. £575.5 million at 31 March 2006. Shareholders' funds £470 million at 30 September 2006. £422.8 million at 31 March 2006. Capital structure At 30 September 2006 the group had a capital structure comprising 70% equity and30% loan finance. At 31 March 2006 this was also approximately 70% equity and30% loan finance. Ordinary shareholders are entitled to all dividends declared by InsightFoundation Property Trust Limited ("the Company") and to all the Company'sassets after repayment of its borrowings. On-balance sheet loans total £193.58million at a blended total interest rate of 5.66%. Of this, the principalsecuritised loan of £152.5 million currently has an effective interest cost of5.6% (including annualised costs and expenses in association with itsarrangement) fixed by way of an interest rate swap covering the full amount andlife of the loan agreement. ISA/PEP status The Company's shares are eligible for Individual Savings Accounts (ISA's) andPEP transfers and can continue to be held in existing PEPs. Website The Company's website is www.ifpt.co.uk. For further information, please contactStephanie Highett/Dido Laurimore/Adam LevitonFinancial Dynamics020 7831 3113 Financial highlights and performance summary • Net asset value per share rose by 11.1%• Earnings per share of 16 pence• The Group has declared and paid dividends per share amounting to 3.375 pence• NAV total return of 14% 31 March 30 September % Change 2006 2006 Net asset value(1) (NAV £m) 470.0 422.8 11.1Net asset value per ordinary share (pence)(1) 132.9 119.6 11.1Share price (pence) 133.5 129.0 3.5Share price premium to NAV (%) 0.60 7.9NAV total return (%)(2) 14.0 13.0Underlying property total return (%) 12.4 12.5 Peer group NAV total return(3) 11.7 13.2IPD Balanced Monthly Index Funds (%) 8.6 9.6 Note: All based on returns for the six month period ending on the date shown. Sources: Invista Real Estate, DataStream. (1)Net asset value ('NAV') is calculated using International Financial ReportingStandards (2)NAV total return calculated by Invista Real Estate (3)Peer group NAV total return calculated by DataStream and includes F&CCommercial Property Trust, UK Balanced Property Trust, ISIS Property Trust, ISISProperty Trust 2, Standard Life Property Inc, Invesco UK Property, ING UK RealEstate Income Trust and Teesland Advantage (in the 6 months to September only) Chairman's Statement Results I am pleased to report positive results for the six months ended 30 September2006. During the period under review, the Company's unaudited Net Asset Value('NAV') has increased by 13.3 pence per share or 11.1%. Our shareholders havealso received total dividends of 3.375 pence per share, making a NAV totalreturn of 14% over the six months. Over twelve months shareholders havereceived a NAV total return of 28.9%. The results for the six months to 30thSeptember 2006 include a provision for a performance fee payable to the Manager. The Company's underlying property portfolio continues to perform well. For thesix months to September 2006, our portfolio registered a total return of 12.4%,as measured by Investment Property Databank ('IPD'). This compares to aproperty level return registered by our IPD peer group of 8.6%. The UK Property Market The Company is enjoying the benefits of an increased weighting in the CentralLondon office markets following the £100 million C Share issue in July 2005.During the last twelve months the Manager has invested over £160 million in highquality Central London offices, which have performed ahead of initialexpectations and more significantly, ahead of the wider investment market.There is now a strong consensus that market conditions in Central London officesshould result in out-performance relative to the property market as a whole overthe next two to three years. Investor demand has driven yields lower in anticipation of rental growth that isnow being realised, resulting in a widening divergence in total returns betweenthe main property sectors when compared to the last few years. Whilst theCompany was positioned for this, the divergence has occurred more quickly thanforecast with Central London materially outperforming the other sectors over thelast six months. The Board is aware of the cyclical and potentially volatilenature of the Central London office markets and reviews the Company's exposurewith the Manager on a regular basis. The strong performance from London must be contrasted with the potential forconsiderably weaker returns in parts of the industrial and retail sectors. TheManager is forecasting total returns of approximately 7% per annum across thewhole property market over the next few years meaning that effective assetmanagement will need to be a more important factor in delivering satisfactoryreturns than in the recent past. The Company has continued to pursue acquisitions, asset management and efficientfinancing opportunities. Over the last eighteen months the Company hasundertaken 9 acquisitions and 12 disposals totalling £243 million, and arrangedthe £460 million debt securitisation of the prime City of London office atPlantation Place EC3. The Manager is pursuing a number of asset managementprojects requiring planning consent, complex lease negotiations and subsequentmajor refurbishments. The Manager recognises the importance of successfullydelivering these projects to increase rental income across the portfolio andprovide sustained NAV growth. Borrowings As at 30 September 2006 the Group had total on-balance sheet borrowings of£193.6 million representing 29.3% of total assets less current liabilities.These borrowings comprise a £152.5 million securitised debt facility that runsuntil the Company's continuation vote in 2014 and the loan is fully hedgedagainst interest rate movements. The remaining on-balance sheet borrowingscomprise two facilities totalling £41 million and are secured against propertyassets outside the securitised facility. The total blended interest cost ofthese three facilities is currently 5.66%. The Group also has off-balance sheet, non-recourse borrowings totalling £179.9million secured against the individual investments at MidCity Place WC2,Plantation Place EC3 and Crendon Industrial Estate. The total on andoff-balance sheet borrowings as at September 2006 total £373.5 million,representing 56.5% of total assets less current liabilities. The Board has agreed that, subject to market conditions, the Manager will workwith NM Rothschild to issue approximately £100 million of additional securitiseddebt. This will be used to re-finance the on-balance sheet debt outside thesecuritised facility, to fund major asset management projects and for selective'Special Situation' and other acquisitions. This should take on-balance sheetborrowings to approximately 40% of total assets less current liabilities. Change of name Following the demerger of the Manager from Insight Investment, and its adoptionof the name Invista Real Estate, the Board has considered a proposal to changethe Company's name to Invista Foundation Property Trust. This change will avoidconfusion between Invista and Insight marketing activities, and the Board hastherefore agreed to recommend the change to shareholders. This proposal will beput to shareholders at the Extraordinary General Meeting to be held on 19December 2006. Board Over the last twelve months, the Board's workload has risen steadily, reflectingthe considerable volume of activity undertaken by the Company, and itscomplexity. Looking ahead, it is likely that this will continue, as the Managercontinues to seek to add value through an innovative approach to acquisitions,disposals and financing. It has become clear that the current level of Board remuneration does notreflect this, and we are therefore also putting a resolution to shareholders atthe Extraordinary General Meeting for an increase in the cap on Boardremuneration from £135,000 to £200,000. I am very grateful to all my colleagueson the Board for their continued commitment to our Company. Prospects After the very high returns from property investment over the last few years,most forecasters are expecting a reduction in returns to something rather moremodest. A large part of recent returns has been attributable to a markedreduction in yields, and this is unlikely to be repeated. If these forecastsare correct, future returns will depend more heavily on rental growth, and onsuccessful asset management. The Board continues to work with the Manager topursue a strategy which is designed to provide the best growth opportunities inthese more challenging conditions. Andrew SykesChairman Insight Foundation Property Trust Limited 29 November 2006 Investment Manager's report As at 30 September 2006, Insight Foundation Property Trust Limited ('theCompany') and its subsidiaries ('the Group') owned a property portfolio valuedat £654.3 million comprising 74 assets. Including the Group's share of grossassets in its joint venture investments, the Group has an exposure to a largerportfolio valued at £833.8 million. Since the quarter end the Company has soldan office property on Tudor Street, London EC4 resulting in the propertyportfolio now being valued at £635.15 million ('the property portfolio'). TheNAV total return over the half year period has been 14%, taking account of thedividend and an NAV uplift of 11.1%. The property portfolio has approximately 340 different tenants let on individualleases, and an average unexpired lease term of 8 years. The portfolio continuesto be diversified both geographically and across the sectors, although thesuccessful implementation of our strategy to invest in the Central London officemarkets has materially increased the group's exposure to this particularsub-sector of the U.K. market. Top 10 Properties (post sale of Tudor Street) Value %National Magazine House, Carnaby Street, Soho, London W1 £54,500,000 8.6%Minerva House, 5&6 Montague Close, London SE1 £52,000,000 8.2%Plantation Place, London EC3 £37,692,000 5.9%Portman Square House, London W1 £30,089,000 4.7%6-8,Tokenhouse Yard, London EC2 £23,700,000 3.7%Reynard Business Park, Brentford £19,600,000 3.1%Victory House, Trafalgar Place, Brighton £19,500,000 3.1%MidCity Place, London WC2 £19,130,125 3.0%Olympic Office Centre, 8 Fulton Road, Wembley £17,800,000 2.8%Union Park, Fifers Lane, Norwich £16,650,000 2.6% £290,661,125 Top 10 tenancies Rent pa %The National Magazine Co Ltd £2,300,587 7.49%Australia & New Zealand Banking Group Ltd £1,460,000 4.75%Mott MacDonald Ltd £1,307,148 4.26%Reed Smith Services £1,295,374 4.22%The British Broadcasting Corporation £852,250 2.77%Grand Metropolitan Estates Ltd £795,975 2.59%Recticel SA £713,538 2.32%Total Fitness UK Limited £678,540 2.21%Partners of Cushman Wakefield £574,128 1.87%Partners of Irwin Mitchell £547,000 1.78% £10,524,540 Property Portfolio Statistics (September 2006 independent valuations excludingTudor Street) Sector Spread Sector September 2006 (%) September 2006 (% grossed up)*Office 57 65Industrial 22 18Retail 16 13Retail Warehouse 1 1Other 4 3Total 100 100 Regional Spread Region September 2006 (%) September 2006 (% grossed up)*Central London 36 48South East excl Central London 30 25Rest of South 8 6Midlands and Wales 15 12North and Scotland 11 9Total 100 100 \* The grossed up portfolio analysis includes the Group's share of the off-balancesheet, non-recourse debt secured against the Associate and Joint Ventureinvestments at Plantation Place, MidCity Place and Crendon The contribution of the London office acquisitions following the C Share issuein 2005 has been a key driver of performance. Investment Property Databank('IPD') have calculated that the Group's underlying property portfolio produceda total return over the last six months of 12.4% relative to its IPD peer groupof 8.6%. This places the Group's portfolio top in its peer group of 55 similarfunds. Over 12 months IPD have calculated that the Group's portfolio produced atotal ungeared return of 26.4% relative to its peer group of 18.9%, placing theGroup's portfolio in the top 2% of its peer group. This analysis takes accountof all the transaction costs incurred by the Group in implementing the strategyover the year. During the period under review, the Group has made acquisitions and selectivedisposals totalling £51.3 million and £4.9 million respectively, resulting in atotal property portfolio valuation of £654.3 million compared with £556.28million in March 2006 and £439 million as at September 2005. Since the quarterend the Company has sold an office property on Tudor Street, London EC4resulting in the property portfolio of 73 assets totalling £635.15 million. Theaverage individual property is now worth £8.7 million as compared with £6.0million in September 2005. This is a positive by-product of our strategy toacquire larger higher quality assets that will typically offer greater assetmanagement opportunities with a larger number of tenants. In May the Group acquired the City office building, Tokenhouse Yard, London EC2for £20.8 million. This newly redeveloped multi-let office property was 40%vacant at acquisition, but was fully let within two weeks of completion. Thenew lettings were at materially higher rents and contribute towards an increasedvaluation in September of £23.7 million. In July the Group acquired a 21.6% stake in Portman Square House, London W1 for£27.55 million. This is the most recent significant post C Share London officeacquisition. We had considered a number of possible core West End acquisitions,and subsequently rejected them on the grounds of poor building fundamentals.For the Group to continue to acquire Central London office buildings we neededto be as confident as reasonably possible that we could maximise potential tocapture market rental growth at rent review. Portman Square offers thatpotential as it is a high quality, modern office building in a core location.In addition, the multi-let nature of Portman Square House with seven tenantsmeans that there are a number of opportunities to access the strong rentalgrowth which is forecast in the West End over the next few years. PortmanSquare was acquired in partnership with other Invista client funds and, as withMidCity Place, London WC2 and Plantation Place, London EC3, illustrates theadvantages of being able to co-invest to acquire large, high quality assets.Since acquisition the Group's interest in Portman Square has increased in valueto £30.1 million. The current portfolio rent is £30.7 million reflecting a yield of 5.35%. Thecurrent rental value is £33.5 million reflecting a reversionary yield of 5.8%,excluding the Group's joint venture investments in MidCity Place, PlantationPlace and Crendon Industrial Park. The performance of the six key London offices is set out below with reference tothe March 2006 and September 2006 independent valuations. Property (% and Acquisition Price March 2006 September 2006type of interest) (£'000) and date Independent Valuation Independent Valuation (£'000) (£'000) Minerva House 42,130 47,600 52,000(100% direct) (August 2005) National Magazine 45,050 49,500 54,500House (100% (January 2006)direct) MidCity Place 9,800 17,600 27,220*(19.7% shares in (August 2005)Single PurposeCompany) Plantation Place 19,600 20,830 37,692(28.08% units in (March 2006)Jersey Unit Trust) Tokenhouse Yard 20,830 27,500 23,700(100% direct) (May 2006) Portman Square 27,550 N/A 30,089House (21.6% (July 2006)interest in Trustfor Land) * The Group received back £8.09 million as re-finance proceeds during theperiod. The valuation of the Group's remaining interest in MidCity Place is£19,130 million This illustrates the acceleration in capital growth over the period. Accordingto IPD, over the quarter to September 2006 these properties contributed 2.24% ofthe capital uplift of the whole property portfolio of 4.3%. We are very awareof the cyclical and volatile nature of the Central London office markets andwhilst the strategy has been significantly NAV enhancing we remain vigilant.Invista's analysis and research into the Central London markets leads us toconclude that London will continue to outperform over the next two years or soas supply reduces and tenant demand increases. The reducing supply is mostacute in higher quality 'Grade A' buildings, where the Group's acquisitions havebeen focused and this is intended to maximise the prospects for rental growth atreview. Two of the disposals during the period were small retail properties for a totalconsideration of £4.9 million. These followed successful implementation ofasset management initiatives and the combined disposal proceeds reflected a £1.8million increase over their combined acquisition prices in July 2004 of £3.1million. More significantly, in October the Company completed the disposal ofits long leasehold single let office building on Tudor Street, London EC2 for£19.5 million. Whilst well located, the reducing lease term of seven years, anover-rented occupational lease combined with a relatively high head-lease rentif the building is vacant led to a decision to sell. The property has performedwell for the Company, having been acquired for £15.2 million in July 2004. During the period the Group completed its first Special Situation investment atthe 250,000 sq ft Crendon Industrial Estate in Oxfordshire, where the Groupinvested £2.9 million for a 50% interest in the property owning joint venturecompany. The asset management plan is progressing well with planning consentreceived for an additional 250,000 sq ft of warehouse space on the developmentland. A pre-let for the first phase has been agreed and the stand alone,non-recourse banking facility is being re-financed to fund these works and theacquisition of adjoining ownerships. As at September 2006 the Group's interestwas valued at £4.15 million and we expect asset management driven performance infuture. Finally, detailed planning consent has been received for the retail warehousedevelopment in Basingstoke that will trigger the site acquisition by the Group.The property will be let to Wickes Building Supplies Limited for 25 years at£692,250 per annum with the Group committing to invest £11.9 million thatreflects a yield of 5.7%. Completion of the development is anticipated towardsthe end of 2007. Significant progress has been made on asset management initiatives over theperiod. The most significant of these was the re-financing of the bridgingfacility used to acquire Plantation place, London EC3 in March 2006, where theGroup holds a 28.08% stake. Working closely with NM Rothschild and MerrillLynch, Invista arranged the securitisation of the £460 million bridging loan toachieve a blended margin of 45 basis points over a seven year term. Thiscombined with a seven year interest rate hedge of 4.74% results in a total costof funds of 5.19%, excluding set up costs. The securitisation set newbenchmarks in terms of flexibility and allows the securitisation package to betransferred with the property in the event of a sale, which is potentiallyattractive to a prospective purchaser. At Coventry Road, Hinckley, the Company is awaiting the decision on the planningapplication for 100,000 sq ft of retail warehouse space and 50,000 sq ft ofwarehouse space. A decision is expected in January 2007. In London, progress isbeing made to create additional office accommodation via an extension to MinervaHouse, London SE1. We hope to report further progress by the year end. Interms of other significant projects, reception refurbishments are planned atPortman Square House and MidCity Place to improve the buildings and theirlettable value. Asset management is not limited to our larger assets and we are also deliveringperformance and rental growth across our retail and industrial assets. Anyvacant units are continuing to be aggressively marketed and as at 30 September2006 the property portfolio void rate was 3.8%. Approximately 1% of this isattributable to Hinckley where the major tenant's lease was surrendered for asignificant premium payment to the Group, in anticipation of the possibleredevelopment. The vacancy rate can be compared to approximately 7.3% for theaverage portfolio as measured by IPD. The table below sets out the Group's current on balance sheet and off balancesheet borrowings. On-balance Expiry Rating Amount Margin Amortised Hedged Total costsheet loan (£'000) costs (p.a.) (p.a.) REC 2014 AAA 139,000 20 bps 28 bps 5.1% 5.59%(Foundation) AA 13,500 29 bpsLimited Bridge loan May 2007 N/A 26,500 90 bps N/A No 5.9% Portman Square 2010 N/A 14,580 95 bps N/A 5.01% 5.96%loan 1 year Sub -total 193,580 Blended rate 5.66% Off-balance Expiry Rating Amount Margin Amortised Hedged Total costsheet loan (£'000) costs (p.a.) (p.a.) Plantation Place 2013 AAA to B 129,170 45 bps 13 bps 4.74% 5.32% Note MidCity Place 2010 N/A 42,420 100 bps N/A 4.95% 5.95%Crendon Industrial Estate 2009 N/A 8,350 120 bps N/A 5.22% 6.42% Sub-total 179,940 Blended rate 5.43% TOTAL 373,520 Blended rate 5.55% The Board of the Company has agreed that subject to terms, £100 million ofadditional securitised debt, issued as Reserve Notes, may be issued tore-finance the existing on-balance sheet, non-securitised debt of £41.05million, with the balance of the proceeds invested in capital intensive assetmanagement projects in the portfolio and further acquisitions. Theseacquisitions will be opportunistic with an emphasis on Special Situations andassets with longer term income, offering defensive characteristics. Outlook We anticipate total returns for the UK property market as a whole of between 15%and 17% for the 2006 calendar year. We maintain our view stated in previousreports that returns over the next few years could be more in line with the longrun UK average of closer to 7%. As predicted, we expect the total returndivergence between the sectors to continue to widen which will place increasedemphasis on sector weightings and future stock selection. Notwithstanding the increases in interest rates over the last 12 months, themarket continues to be supported by strong demand from equity rich investors forprime assets with good fundamentals. This type of demand is most prevalent inLondon and the introduction of UK Real Estate Investment Trust's ('REITs') nextyear is expected to sustain this demand further. We remain more cautious about the secondary property market where yields havefallen to unsustainably low levels. We are reviewing our portfolio forsituations where we can crystallise profits from the sale of small secondaryretail assets into the private investor market where the impact of risinginterest rates is arguably not yet fully reflected. We remain very positive about the Group's prospects in what will be a morechallenging market. Duncan OwenInvista Real Estate Investment Management Limited29 November 2006 Consolidated income statement(unaudited) for the period from 1 April 2006 to 30 September 2006 Notes 01/04/2006 01/04/2005 01/04/2005 To To To 30/09/2006 30/09/2005 31/03/2006 £'000 £'000 £'000Rental income 14,760 13,023 28,119Other income 1,019 3 225Property operating expenses (452) (172) (1,172) Net rental and related income 15,327 12,854 27,172 Profit on disposal of investment property 1,648 1,862 2,594 Net valuation gains on investment property 25,116 18,493 54,022 ExpensesInvestment management fee 2 (3,175) (2,357) (5,062)Performance fee 2 (3,000) - (6,160)Valuers' and other professional fees (309) (201) (416)Administrative fee (111) (127) (227)Audit fees (86) (13) (47)Directors' fees (74) (43) (98)Other expenses - (121) (525)Total expenses (6,755) (2,862) (12,535) Net operating profit before net finance 35,336 30,347 71,253costs Interest receivable 1,041 1,270 3,908Interest payable (5,326) (4,133) (8,191)Finance expenses (375) (472) (673) Net finance costs (4,660) (3,335) (4,956) Share of profits of associates 26,110 - 8,582 Profit before tax 56,786 27,012 74,879 Taxation (53) (400) (85) Profit for the period / year attributable 56,733 26,612 74,794to the equity holders of the parentcompany Basic and diluted earnings per share 5 16.0p 9.2p 23.5p All items in the above statement are derived from continuing operations. Consolidated balance sheet(unaudited) as at 30 September 2006 Notes 30/09/2006 31/03/2006 30/09/2005 £'000 £'000 £'000 Investment properties 563,211 518,180 428,845Investment in associates and joint 3 87,825 28,313 131venturesLoan to associate 3 3,237 9,787 9,787 Non-current assets 654,273 556,280 438,763 Trade and other receivables 5,066 5,832 5,595Taxation paid in advance 225 231 -Cash and cash equivalents 25,404 37,608 112,943 Current assets 30,695 43,671 118,538 Total assets 684,968 599,951 557,301 Issued capital and reserves 470,009 422,771 385,028 Equity 470,009 422,771 385,028 Interest-bearing loans and borrowings 190,050 148,833 148,570Interest rate swap 1,437 3,875 5,369 Non-current liabilities 191,487 152,708 153,939 Trade and other payables 19,532 21,222 14,298Provisions 3,940 3,250 2,000Taxation payable - - 2,036 Current liabilities 23,472 24,472 18,334 Total liabilities 214,959 177,180 172,273 Total equity and liabilities 684,968 599,951 557,301 Net Asset Value per Ordinary Share 6 132.9p 119.6p 108.9p This Interim Report was approved by the Board of Directors on 29 November 2006and signed on its behalf by: Andrew Sykes Harry Dick-ClelandChairman Chair of Audit Committee Consolidated statement of changes in equity(unaudited) for the period from 1 April 2006 to 30 September 2006 Notes Share Premium Hedge Revenue Total £'000 Reserve Reserve £'000 £'000 £'000 Balance as at 31 March 2005 - (1,382) 274,204 272,822 Issued in the period 100,000 - - 100,000Issue costs (1,644) - - (1,644)Loss on derivative instruments - (2,493) - (2,493)Profit for the year - - 74,794 74,794Dividends paid - - (20,708) (20,708) Equity at 31 March 2006 98,356 (3,875) 328,290 422,771 Gain on derivative instruments - 2,438 - 2,438Profit for the period - - 56,733 56,733Dividends paid 4 - - (11,933) (11,933) Equity at 30 September 2006 98,356 (1,437) 373,090 470,009 Consolidated statement of cash flows(unaudited) for the period from 1 April 2006 to 30 September 2006 01/04/2006 01/04/2005 01/04/2005 To To To Notes 30/09/2006 30/09/2005 31/03/2006 £'000 £'000 £'000Operating ActivitiesProfit for the period / year 56,733 26,612 74,794Adjustments for: Profit on disposal of investment property (1,648) (1,862) (2,594) Net valuation gains on investment property (25,116) (18,493) (54,022) Share of profits of associates (26,110) - (8,582) Net finance cost 4,660 3,336 4,956 Taxation 53 400 85 Operating profit before changes 8,572 9,993 14,637in working capital and provisions Decrease /(Increase) in trade and other 768 (785) (1,135)receivables(Decrease)/Increase in trade and other payables (2,640) 710 10,614 Cash generated from operations 6,700 9,918 24,116 Interest paid (4,374) (2,632) (6,805)Interest received 1,030 1,147 3,901Tax paid (48) - (2,035) Cash flows from operating activities 3,308 8,433 19,177 Investing ActivitiesProceeds from sale of investment property 5,080 21,020 26,868Acquisition of investment property (22,450) (58,102) (107,691)Acquisition of associates (33,401) - (19,731) Cash flows from investing activities (50,771) (37,082) (100,554) Financing ActivitiesProceeds on issue of Ordinary Shares - - 100,000Loan to associate 3 6,549 - (9,787)Cost of issue of conversion - 100,000 -Issue costs paid on issuance of Ordinary Shares - (1,644) (1,644)Draw down of long term loans 41,009 - -Finance costs paid on arrangement of long term (366) (3,211) (4,098)loanDividends paid 4 (11,933) (8,775) (20,708) Cash flows from financing activities 35,259 86,370 63,763 Net (decrease) / increase in cash (12,204) 57,721 (17,614) and cash equivalents for the period / year Opening cash and cash equivalents 37,608 55,222 55,222 Closing cash and cash equivalents 25,404 112,943 37,608 Notes to the Interim Report 1. Significant accounting policies Insight Foundation Property Trust Limited ('the Company') is a closed-endedinvestment company incorporated in Guernsey. The consolidated financialstatements of the Company for the period ended 30 September 2006 comprise theCompany, its subsidiaries, and the Group's interest in associates and jointlycontrolled entities (together referred to as the "Group"). Statement of compliance These condensed consolidated interim financial statements have been prepared inaccordance with International Financial Reporting Standard (IFRS) IAS 34 InterimFinancial Reporting. They do not include all of the information required for thefull annual financial statements, and should be read in conjunction with theconsolidated financial statements of the Group as at and for the year ended 31March 2006. These condensed consolidated interim financial statements were approved by theBoard of Directors on 28 November 2006. Basis of preparation The financial statements are presented in sterling, rounded to the nearestthousand. They are prepared on the historical cost basis except that investmentproperty and derivative financial instruments are stated at their fair value. The accounting policies have been consistently applied to the results, assets,liabilities and cash flows of the entities included in the consolidatedfinancial statements and are consistent with those of the previous year. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and the reported amounts of assets and liabilities,income and expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking judgements about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. 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 and Joint Ventures 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 limited only to the extent that there is no evidence of investment. 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. 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 as a liabilityin the period in 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,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. 2. Investment Management Agreement and performance fee Under the terms of an appointment made by the Board on 24 June 2004, InsightInvestment Management (Global) Limited was appointed as Investment Manager tothe Company. On 31 August 2006 the Board agreed to novate the Investment Management Agreementto Invista Real Estate Investment Management Limited. This follows the de-mergerof the Manager from Insight Investment and its subsequent independent listing onthe Alternative Investment Market. The Investment Manager is entitled to a base fee and a performance fee togetherwith reasonable expenses incurred by it in the performance of its duties. Thebase fee is equal to one quarter of 95 basis points of the gross assets of theGroup per quarter. In addition, and subject to the conditions below, the Investment Manager isentitled to an annual performance fee where the total return per Ordinary Shareduring the relevant financial period exceeds an annual rate of 10 per cent (the'performance hurdle'). Where the performance hurdle is met, a performance feewill be payable in an amount equal to 15 per cent of any aggregate total returnover and above the performance hurdle. A performance fee will only be payablewhere: (i) in respect of the relevant financial period, the total return of theunderlying assets meets or exceeds the Investment Property Databank ('IPD')Monthly Index balanced funds benchmark on a like for like basis; and (ii) theannualised total return over the period from admission of the Company's OrdinaryShares to the end of the relevant financial period is equal to or greater than10 per cent per annum. The Board considers that the conditions laid out in the management agreementregarding the Investment Managers qualification for receipt of a performance feemay be met for the year. Accordingly, the Board considers it would be prudentto accrue a provision of £3,000,000 (2005: Nil) to the income statement inrespect of this potential fee. 3. Investments in Associates and Joint Ventures Mid City Place In August 2005, the Group, through Insight Foundation (Mid City) Limited,invested equity and subordinated debt for a 19.725% shareholding in DV3 Mid CityLimited, a company incorporated in the United Kingdom and which owns the MidCity Place property in London. This investment is classified as an investment inan associate. During the period DV3 Mid City Limited refinanced its loan facility which nowstands at £215,000,000. This enabled it to repay to the Group £8,088,000. Thisamount comprised all outstanding interest and part repayment of the subordinateddebt, leaving £3,237,308 outstanding to the Group. This debt attracts interestat a rate of 20% per annum and has no fixed repayment date. As at 30 September 2006 the value of the Group's original equity investment inDV3 Mid City Limited is now valued at £15,892,817. As at 30 September 2006 DV3Mid City Limited had total assets of £314,000,000, total liabilities of£233,000,000, revenues for the period ended 30 September 2006 were £6,600,000and a loss was incurred for the same period of £3,600,000. Plantation Place The Group's 28.08% interest in One Plantation Place Unit Trust is now valued at£37,692,000. As expected, during the period the Unit Trust has completed a£463m securitisation which has re-financed the Unit Trusts previous senior andjunior debt facilities. The securitisation achieved a blended margin of 45bpsover a 7 year term. The Unit Trust also has the benefit of a 7 year interestrate swap at 4.74% giving a total interest rate payable of 5.19%. As at 30 September 2006 One Plantation Place Unit Trust had total assets of£603,648,000, total liabilities of £463,879,000, revenues for the six monthperiod ended 30 September 2006 were £13,505,000 and a profit was made for thesame period of £1,555,000. Portman Square House In July 2006 the Group acquired a 21.6% stake in a trust in land establishedamongst 5 client investors of the Investment Manager to acquire Portman SquareHouse. The Group's purchase consideration comprised £27.55m. At September2006, the Group's interest was valued at £30,089,000. In order to fund theacquisition, the Group borrowed £14,580,000 secured on the Group's beneficialinterest in the trust. Crendon In May 2006 the Group acquired a 50% share in a joint venture companyestablished to acquire Crendon Industrial Estate, near Oxford. The jointventure company acquired the property for a gross consideration of £20,000,000which was funded by a combination of a debt facility £16,700,000 and equityfunding from the joint venture partners. The Group's equity investment at thetime of acquisition was £2,900,000 which was valued at £4,150,000 at September2006. 4. Dividends paid No of 01/04/06 toIn respect of Ordinary Rate 30/09/06 shares (pence) £'000's Quarter 31 March 2006 dividend, paid 26 May 2006 353.56 million 1.6875 5,967Quarter 30 June 2006 dividend, paid 25 August 2006 353.56 million 1.6875 5,966 3.375 11,933 A dividend for the quarter ended 30 September 2006, of 1.6875 pence per share,was declared on 31 October 2006 with an ex-dividend date of 8 November 2006. Thedividend was paid on 24 November 2006 to those shareholders on the register asat close of business on 10 November 2006. 5. Basic and diluted earnings per ordinary share The basic and diluted earnings per share for the Group is based on the netprofit for the period of £56,733,000 and the weighted average number of ordinaryshares in issue during the period of 353,560,000. 6. Net asset value per ordinary share The net asset value per ordinary share is based on the net assets of£470,009,000 and 353,560,000 ordinary shares in issue at the Balance Sheet date. Independent review report to Insight Foundation Property Trust Limited Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprises Income Statement, BalanceSheet, Statement of Changes In Equity, Cash Flow Statement and the Notes to theInterim Report. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the company forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the UK. A review consistsprincipally of making enquiries of management and applying analytical proceduresto the financial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. KPMG Channel Islands LimitedChartered Accountants20 New StreetSt. Peter PortGuernsey GY1 4AN 29 November 2006 Corporate information Registered Address Auditors Royal Bank Place KPMG Channel Islands Limited1 Glategny Esplanade 20 New StreetSt Peter Port St. Peter PortGuernsey GY1 2HS Guernsey GY1 4AN Directors Property ValuersAndrew Sykes (Chairman)John Frederiksen Knight Frank LLPKeith Goulborn 20 Hanover SquareHarry Dick-Cleland London W1S 1HZDavid WarrPeter Atkinson(all Non-Executive Directors) Investment Manager Channel Islands Sponsor Invista Real Estate Investment Management Limited Ozannes Securities Limited33 Old Broad Street 1 Le Marchant StreetLondon EC2N 1HZ St. Peter Port Guernsey GY1 4HP Fund Administrator UK Sponsor and Broker RBSI Fund Services JP Morgan Cazenove Limited(Guernsey) Limited 20 MoorgateRoyal Bank Place London EC2R 6DA1 Glategny EsplanadeSt Peter Port Tax advisersGuernsey GY1 2HS Deloitte & Touche LLP 180 Strand London WC2R 1BL Solicitors to the Company Receiving Agent and UK Transfer/Paying Agentas to English LawHerbert Smith Computershare InvestorExchange House, Services PLCPrimrose Street The PavilionsLondon EC2A 2HS Bridgwater Road Bristol BS99 1XZ as to Guernsey LawOzannes1 Le Marchant StreetSt. Peter PortGuernsey GY1 4HP This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Schroder Real