25th Sep 2007 18:08
Close High Income Properties PLC25 September 2007 Close High Income Properties PLC INTERIM REPORT AND FINANCIAL STATEMENTS For the six month period ended 30 June 2007 HIGHLIGHTS All dividend targets for all share classes have been met for the period. The ongoing dividend target for the Ordinary Shares was raised to 8.5 pence perannum from 7.75 pence. In addition, a special dividend of 20.08 pence per Ordinary Share was paid toall Ordinary Shareholders who were on the Register on 8 June 2007. The merger of the Ordinary Shares and "C" Ordinary Shares was successfullycompleted on 11 June 2007 following approval by shareholders at theExtraordinary General Meeting held on 6 June 2007. At this meeting shareholders also approved changes to the Articles ofAssociation to enable the Directors to initiate the early conversion of the "D"Ordinary Shares to Ordinary Shares if the Directors deem appropriate at a futuredate. CHAIRMAN'S STATEMENT Introduction I present the unaudited interim results of your Company and its subsidiaries(together, the "Group") for the six months to 30 June 2007 (the "period"). During the period the Company has experienced a more difficult market and thishas been reflected in the performance of the Company's Ordinary and "D" OrdinaryShare property portfolios. In line with the UK commercial property market ingeneral, the strong rate of capital growth the Company has witnessed during thelast few years has slowed significantly over the period, as the reduction ofinvestment yields has largely ended. I am pleased to report that all dividend targets for all share classes have beenmet during the period. The ongoing dividend target for the Ordinary Shares wasraised to 8.5p per annum from 7.75p. The target annual dividend for the "D"Ordinary Shares will remain at 6.5p. In addition, a special dividend was paid toall Ordinary Shareholders who were on the Register on 8 June 2007. For the moment, the Directors believe that performance will be driven by activemanagement and, in particular rental growth. Merger of Ordinary Shares and "C" Ordinary Shares The merger of the Ordinary Shares and "C" Ordinary Shares was successfullycompleted on 11 June 2007 following approval by shareholders at theExtraordinary General Meeting held on 6 June 2007. At this meeting shareholdersalso approved changes to the Articles of Association to enable the Directors toinitiate the early conversion of the "D" Ordinary Shares to Ordinary Shares ifthe Directors deem appropriate at a future date. In accordance with the terms of the conversion, "C" Ordinary shareholders wereissued 0.9 Ordinary Shares and 1 Deferred Share for each "C" Ordinary Share heldat the Conversion Record Date. The Deferred Shares have a nominal value of 0.1pper share but give no entitlement to any profit of the Company, and therefore inpractice have no value. Pre-merger Ordinary shareholders received a specialdividend of 20.08 pence on 22 June 2007 for each Ordinary Share they held on theregister at 8 June 2007 in order to align more closely the net asset value pershare of the Ordinary Shares with that of the "C" Ordinary Shares. The Board is satisfied that, in merging the Ordinary and "C" Ordinary Shares,the benefits of increased flexibility in the management of the combinedportfolios, of greater diversification of underlying properties for shareholdersin both the Ordinary and "C" Ordinary Share property portfolios and a small costsaving through lower administrative costs, have been achieved. It was also hoped that by creating one larger class of shares rather than twothat this would improve the stock market liquidity and potentially narrow thebid/offer price spread quoted by market makers. Whilst there was temporaryimprovement in the bid/offer spread, unfortunately this has been short lived. CHAIRMAN'S STATEMENT (continued) Investment Progress As noted above, the UK commercial property market has slowed significantly overthe period. As the Ordinary Share property portfolio is now relatively mature,it is intended that selective disposals will be contemplated where our activemanagement plans have been completed or when assets are expected to no longermeet our total return targets. Proceeds from disposals will be used to reducethe overall debt of the portfolio, until suitable acquisitions can be found. The directors will continue to review the Company's strategy in light of theongoing market conditions referred to in more detail in the Property InvestmentAdviser's report. For example, this may include a greater realisation ofunderlying assets where it can be demonstrated it is in the best interests ofshareholders. Results and dividends The consolidated profit after taxation of the Group for the six months to theend of 30 June 2007 amounted to £2,874,595 (30 June 2006: £7,659,799) During the period the Company paid six interim dividends. In January and April2007, the Company paid quarterly dividends, on an annualised basis, of 7.75pence per Ordinary Share, 7.25 pence per "C" Ordinary Share and 6.5 pence per "D" Ordinary Share. Following the merger of the Ordinary Shares and "C" OrdinaryShares, the annual dividend target per Ordinary Share has been increased to 8.5pence per share. This represents a 9.7 percent increase for original OrdinaryShare shareholders and a 5.5 percent increase for original "C" Ordinary Shareshareholders. This enhanced dividend was paid to Ordinary shareholders inrespect of the second quarter. As previously referred to, a Special Dividend waspaid on 22 June 2007 to the holders of original Ordinary Shares in the amount of20.08 pence per Ordinary Share held. The dividend target for the "D" Ordinary Shares remains unchanged. The targetdividend of 6.5 pence per annum has been paid in each quarter annualised sincethe issue of the shares. Cancellation of Shares The Board believes that it is in the best interests of the shareholders of theCompany to manage the discount to net asset value at which the shares trade witha view to minimising this discount as much as is possible given prevailingmarket conditions. In July 2007, the Board exercised its powers to buy back1,100,000 Ordinary Shares for cancellation, which represented 1.05 percent ofthe number of voting shares before the transaction. This follows a previous buyback in February 2007, in which the Company bought 138,963 Ordinary Shares forcancellation. Following approval by shareholders, the Company is now able to buy back "D"Ordinary Shares. CHAIRMAN'S STATEMENT (continued) Cancellation of Shares (continued) It is the intention of the Company to continue to be active where appropriateacross share classes with a view to providing liquidity for shareholders at areasonable price. In making decisions as to whether to authorise future sharebuy backs, it is the Company's intention to take into account the discounts atwhich comparable funds and UK Real Estate Investments Trusts (REITs) are tradingat against their net asset values to ensure that the Company would be achievingfair value for its shareholders. At 19 September 2007, the Ordinary Shareproperty portfolio and the "D" Ordinary Share property portfolio were trading at11 percent and 7 percent discounts respectively to their net asset values, whichcompare favourably against both competitor funds and REITs. As at 28 August2007, the estimated average discount to net asset value of the propertyinvestment trusts investing in UK property was 16 percent and REITs were tradingat an average discount of 17 percent to net asset value, with Brixton plc, thespecialist industrial REIT, trading at a 35 percent discount. The potential for share buy backs is limited by the introduction of the MarketAbuse Directive. The Company is unable to buy its own shares during closeperiods (the sixty day period before financial results are published in Apriland September). The Directors would like to reiterate that shareholders wishingto sell at any other time should first contact their own adviser, who may wishto contact the Property Investment Adviser, Close Investments Limited. Future Prospects We believe that the Company is set for a more subdued year in line with the restof the UK commercial property market. We concur with the views expressed in the'Outlook' in the Property Investment Adviser's Report. Commercial propertyvaluations are expected to come under pressure from higher interest rates andbond yields. We believe the fall out from the US subprime induced credit marketproblems will also lead to a reduction in investor demand for property. Theresult of this is likely be manifested in the partial reversal of the yieldcompression that was responsible for the strong capital growth enjoyed acrossthe UK commercial property sector during the period 2003 to 2006. The Directors and the Property Investment Adviser continue to review bothproperty portfolios on an ongoing basis. The Directors will continue to reviewthe Company's strategy in light of ongoing market conditions. Jonathan ClagueChairman25 September 2007 DIRECTORS' REPORT The directors present herewith the Report and Financial Statements of theCompany and its subsidiaries (together "the Group") for the six months ended 30June 2007. The Company The Company is an Isle of Man closed-ended investment company. The Company wasincorporated on 10 June 2002 and its principal activity is that of investment incommercial property. The directors confirm that: • no one property represents more than 15% of the gross assets of the Group; • income receivable from any one tenant, or tenants within the same group, in any one financial year does not exceed 20% of the total rental income of the Group; • at least 90% by value of properties are held in the form of freehold or long leasehold; and • the proportion of the Group's property portfolio which is unoccupied or not producing income or which is in the course of substantial redevelopment or refurbishment does not exceed 25% of the value of the portfolio. Results and dividends The consolidated profit after taxation of the Group for the six months ended 30June 2007 amounted to £2,874,595 (30 June 2006: £7,659,799) On 11 June 2007, Ordinary & "C" Ordinary shares merged. Quarterly dividends of1.9375 pence per Ordinary Share (30 June 2006: 1.9375 pence), 1.8125 pence per "C" Ordinary Share (30 June 2006: 1.8125 pence) and 1.625 pence per "D" OrdinaryShare (30 June 2006: 1.625 pence pro-rated) were declared and paid in theperiod. In addition, on 22 June 2007, a special dividend of 20.08 pence per share waspaid to Ordinary Shareholders who were on the register at 8 June 2007. Duringthe period the directors raised the target dividend to 2.125 pence per quarterfor the merged Ordinary Shares. Following the share merger, the first quarterly dividend of 2.125 pence perOrdinary Share was paid to Ordinary Shareholders in July 2007. The quarterlydividend target of 1.625 pence per 'D' Ordinary Share remains unchanged. Company Secretary Martin Katz served as Secretary throughout the period. Going concern The directors confirm that the Group continues to be a going concern. Auditors In accordance with section 12(2) of the Companies Act 1982, Ernst & Young LLChave indicated their willingness to continue in office. Jonathan ClagueChairman25 September 2007 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for eachfinancial period which give a true and fair view of the state of affairs of theCompany and of the Group and of the profit or loss of the Group for that year.In preparing those financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether all applicable accounting standards have been followed; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theGroup and enable them to ensure that the financial statements comply with theCompanies Acts 1931 to 2004. 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. CORPORATE GOVERNANCE STATEMENT In December 1992, the Committee on the Financial Aspects of CorporateGovernance ("the Cadbury Committee") published a Code of Best Practice.This was updated by the issue of The Combined Code: Principles of GoodGovernance and Code of Best Practice ("the Combined Code"). The Combined Codecontains recommendations as to best practice, focusing on the control andreporting functions of boards of directors. The Board of Close High Income Properties PLC, whilst not being under a formalobligation to report to the shareholders regarding the extent to which theCompany complies with the Combined Code, monitors the Company's establishedprocedures. The Board believes that the Company complies with the provisions ofthe Code to the extent which is appropriate to the Company's nature and scale ofoperations. A revised version of the Combined Code has been adopted by the FinancialReporting Council ("The New Code") with effect from the Company's financial yearcommencing 1 January 2005. The Board is taking steps to ensure compliance withThe New Code to the extent which it is appropriate and will report on this inits next annual report. PROPERTY INVESTMENT ADVISER'S REPORT Introduction The Company has found the UK commercial property market a more difficultenvironment in which to operate during the first half of 2007, which has beenreflected in the more subdued performance of the Ordinary Share and "D" OrdinaryShare Property Portfolios. However, both share classes have met their dividendtargets during the six months to the end of June 2007. In addition a specialdividend was paid to holders of original Ordinary Shares prior to the merger ofthe Ordinary Share and the "C" Ordinary Share property portfolios. Capital growth in both portfolios was relatively flat in the six month months tothe end of June 2007. However, as a result of the high dividends paid by bothshare classes, total returns continued to be competitive. It was also hoped that by creating one larger class of shares rather than twothat this would improve the stock market liquidity and potentially narrow thebid/offer price spread quoted by market makers. Whilst there was temporaryimprovement in the bid/offer spread, unfortunately this has been short lived. Both share classes are trading at discounts to their respective net assetvalues, albeit at a smaller discount to most of the comparable propertycompanies quoted on the London Stock Exchange. The Chairman has set out in hisstatement the reasons why this has occurred and the ways in which the Company isprepared to attempt to provide greater liquidity and a fairer exit price forinvestors. The Property Portfolios Ordinary Share Property Portfolio The Ordinary Share property portfolio consists predominantly of secondaryindustrial properties. Its sector weightings have altered slightly since themerger between the Ordinary and "C" Ordinary Shares. During the period the Company sold its properties in Coventry and King's Lynn,Norfolk. In addition, a unit was sold on the industrial estate located inChilton, County Durham. "D" Ordinary Share Property Portfolio The "D" Ordinary Share property portfolio was acquired in March 2006. Theportfolio consists of nine secondary office properties. There have been no salesduring the period. Property classification by sector as at 30 June 2007 Ordinary Share Portfolio (%) "D" Ordinary Share Portfolio Total as a percentage of (%) Market ValueClassification by Sector Industrial 61 - 50Offices 16 100 32Mixed 20 - 15Other 3 - 3Total 100 100 100 PROPERTY INVESTMENT ADVISER'S REPORT (continued) Property classification by region as at 30 June 2007 Ordinary Share Portfolio "D" Ordinary Share Portfolio Total as a percentage of (% of Market Value) (% of Market Value) Market ValueRegionMidlands 26 40 29East of England 17 19 17North East 8 - 6North West 10 29 14South East 13 - 11South West 14 - 11Wales 3 - 2Yorkshire & Humberside 9 12 10Total 100 100 100 The table below summaries some of the property portfolio's key statistics as at30 June 2007. Ordinary Share Portfolio "D" Ordinary Share Portfolio 2007 2007Average annual rental per tenant £20,196 £17,714Average length of lease remaining 3.4 years 1.8 yearsAverage rental per square metre £51.17 £120.69Largest tenant by rental value £245,000 £206,000 (Bedfordshire County Council) (National Express)Average lease length 9.4 years 4.0 yearsLongest unexpired lease term 17 years 13 years Schedule of properties as at 30 June 2007 Property Square Feet Location Use Value at 30 June 2007* all freehold unless otherwise stated Anglia Way, Mansfield 20,459 Midlands Industrial 1,080,000Appleton Court, Wakefield (long leasehold) 26,100 Yorkshire & Offices 5,380,000 HumbersideAscroft Court, Oldham 14,000 North West Offices 1,210,000Ashmead Industrial Estate, Keynsham 38,301 South West Industrial 2,790,000Barbot Hall, Rotherham (long leasehold) 69,129 Yorkshire & Industrial 3,320,000 HumbersideBarshaw Business Park, Leicester 21,000 Midlands Offices 3,900,000Bartlett Park, Yeovil 23,465 South West Industrial 1,565,000Basset Court, Northampton 18,005 Midlands Offices 4,420,000Bellway Industrial Estate, Newcastle-upon-Tyne 75,499 North East Industrial 4,780,000Bumpers Way, Bumpers Farm, Chippenham 11,203 South West Industrial 710,000Chapel Road, Worthing 3,977 South East Retail 780,000Chilton Industrial Estate, Chilton, County Durham 15,142 North East Industrial 615,000Churchfield Court, Barnsley 27,977 Yorkshire & Offices 4,110,000 HumbersideClarendon Court, Warrington 36,526 North West Industrial 3,850,000Cleton Business Park, Tipton 38,318 Midlands Industrial & 2,170,000 OfficeConnaught Business Centre, Mitcham 10,491 South East Industrial 1,420,000 PROPERTY INVESTMENT ADVISER'S REPORT (continued) Schedule of properties as at 30 June 2007 (continued) Property Square Feet Location Use Value at 30 June 2007* all freehold unless otherwise stated Crayford Road, Crayford 6,109 South East Retail 1,620,000Dalton Court, Blackburn 25,780 North West Offices 4,960,000Elizabethan Way, Lutterworth 14,272 Midlands Industrial 730,000Engineer Park, Sandycroft, Deeside 96,776 Wales Industrial 4,740,000Falcon Business Park, Burton-upon-Trent 29,397 Midlands Industrial 1,990,000Faraday Court, Burton-upon-Trent 25,487 Midlands Offices 5,350,000Farrington Place, Burnley 41,511 North West Industrial 2,125,000Farthing Road Industrial Estate, Ipswich 131,506 East of England Industrial 6,100,000Fretherne Road, Welwyn Garden City 9,193 South East Retail 2,780,000Gainsford Drive, Halesowen 14,546 Midlands Industrial 855,000Goodridge Avenue, Gloucester 11,614 South West Industrial 600,000Greenfield Business Centre, Royston 34,451 South East Industrial 2,500,000Groundwell Farm Industrial Estate, Swindon 92,599 South West Industrial 5,940,000Haines Park, Great Avenue, Leeds (long leasehold) 13,143 Yorkshire & Industrial 1,250,000 HumbersideHenwood Business Park, Ashford 29,423 South East Industrial 2,770,000Ikon Trading Estate, Hartlebury 160,168 Midlands Industrial 7,485,000Kendall House, Burgess Hill 27,285 South East Offices 2,915,000Kirkleatham Industrial Estate, Redcar (long 70,493 North East Industrial 3,285,000leasehold)Links Estate, Weymouth 31,304 South West Industrial 1,720,000Lowmoor Industrial Estate, Bradford 24,858 Yorkshire & Industrial 1,130,000 HumbersideMarlborough House, Swindon 8,921 South West Offices 1,025,000Minerva Business Park, Peterborough (long leasehold) 33,030 East of England Offices 5,700,000New England Industrial Estate, Hoddesdon 22,479 South East Industrial 1,410,000Newton Court, Wolverhampton (long leasehold) 23,781 Midlands Offices 3,880,000Nightingale Road, Horsham 23,182 South East Industrial 1,850,000North Seaton Industrial Estate, Ashington 21,272 North East Industrial 1,150,000Oak Tree Park, Redditch 15,086 Midlands Offices 1,520,000Oakhill Trading Estate, Leicester (long leasehold) 57,299 Midlands Industrial 2,365,000Peartree Lane, Dudley 20,678 Midlands Industrial 1,090,000Portland Business Park, Handsworth, Sheffield (long 77,597 Yorkshire & Industrial 3,840,000leasehold) HumbersidePreston Technology Centre, Preston 60,010 North West Industrial & 5,340,000 OfficePriestly Court, Stafford (long leasehold) 10,070 Midlands Offices 1,725,000Quays Reach, Salford 13,116 North West Offices 2,640,000Roseville Business Park, Roseville Road, Leeds (long 29,801 Yorkshire & Industrial 2,120,000leasehold) HumbersideRossendale Road Industrial Estate, Burnley 44,973 North West Industrial & 1,610,000 OfficeRutherford Court, Stafford (long leasehold) 17,734 Midlands Offices 3,470,000 PROPERTY INVESTMENT ADVISER'S REPORT (continued) Schedule of properties as at 30 June 2007 (continued) Property Square Feet Location Use Value at 30 June 2007* all freehold unless otherwise stated Ryan and Leanne Business Park, Wareham (long 43,383 South West Industrial & 3,290,000leasehold) OfficeShadsworth Business Park, Blackburn 34,060 North West Industrial 2,285,000Sheiling Court, Corby 22,834 Midlands Industrial 1,580,000Smead Dean Centre, Sittingbourne 33,857 South East Industrial 2,885,000Spire Road, Washington (long leasehold) 18,772 North East Industrial 1,155,000St. James Mill, Millbrook, Northampton 42,529 Midlands Industrial 4,530,000St Margarets Way, Huntingdon 27,910 East of England Industrial 2,460,000Stadium Court, Cradock Road, Luton 66,223 East of England Industrial 4,890,000Stephenson Court, Bedford (long leasehold) 42,260 East of England Offices 8,220,000Terminus Road, Eastbourne 2,508 South East Retail 715,000Tewkesbury Business Park, Delta Drive, Tewkesbury 59,580 South West Industrial 4,630,000(long leasehold)Trinity Court, Warrington 29,607 North West Industrial 2,380,000Units 13-15, Malmesbury Road, Cheltenham 14,935 South West Industrial 1,105,000Units 16-25, Malmesbury Road, Cheltenham 17,639 South West Industrial 1,390,000Units 5-7, Maxwell Road Industrial Estate, 61,339 East of England Industrial 3,025,000PeterboroughUnits 20-25, Maxwell Road Industrial Estate, 60,051 East of England Industrial 2,775,000PeterboroughVicarage Court, Edgbaston (long leasehold) 16,015 Midlands Offices 3,250,000Walker Riverside, Newcastle 66,628 North East Industrial 3,900,000Warwick House, Solihull 15,470 Midlands Offices 4,360,000Watermark Way, Hertford 26,030 East of England Offices 4,120,000Webb Ellis Business Park, Rugby 82,948 Midlands Industrial & 8,530,000 OfficeWern Industrial Estate, Newport 22,980 Wales Industrial 1,190,000Whitworth Court, Runcorn, Cheshire 25,773 North West Offices 4,480,000Wren Industrial Estate, Maidstone (long leasehold) 19,910 South East Industrial 1,400,000Wyther Lane, Leeds 16,259 Yorkshire & Industrial 1,160,000 HumbersideYale Business Park, Ipswich 30,911 East of England Industrial 1,965,000 Total 2,718,947 225,350,000 Outlook As predicted in the previous annual reports, the slowdown in the UK commercialproperty market has become apparent over the six months to the end of June 2007.Capital growth has slowed significantly in every sector and rental income hastaken over as the primary driver of returns. PROPERTY INVESTMENT ADVISER'S REPORT (continued) Outlook (continued) There are serious concerns that commercial property valuations will come undersustained pressure in the short to medium term from a combination of higherinterest rates and bond yields, weakening investor confidence and thepossibility of a wholesale reassessment of the level of risk premium appropriatefor all asset classes, including commercial property. The removal of businessrelief on empty properties has the potential to damage values, as investors areforced to factor in high void costs. Total returns in the six months to the end of June 2007, as measured by the IPDAll Property Total Return Index, were 4.4 percent. This compares with totalreturns of 9.7 percent in the first half of 2006. Capital growth, which hadaccounted for circa 70 percent of total returns over the period 2003 to 2006,rising by an average of 12 percent a year, has reduced to 1.9 percent in the sixmonths to the end of June 2007. In July 2007, IPD recorded the worst monthlytotal return in 12 years, of 0.2 percent, with the yield impact negative in allsectors except offices. On the positive side, as a result of strong economic growth, the occupier demandappears to be resilient. The Royal Institution of Chartered Surveyors Q2Commercial Market Survey found occupier demand strengthening for the fifthconsecutive quarter and rising at its fastest rate for seven years; surveyorconfidence had also risen to an eight year high. The survey recorded a similarpicture for the office market which, although had slowed slightly from the firstquarter of 2007, still registered strong occupier demand and surveyorconfidence. However, the level of rental growth anticipated by much of themarket has largely not materialised. It is unlikely that rental growth will beable to counter fully any falls in capital value which would result from yieldsmoving out. The Bank of England's decisions to raise its base rate five times between August2006 and July 2007 to 5.75 percent have pushed up bond yields which will placeconsiderable strain on property yields, which at 4.56 percent are firmly belowgilts and therefore seen to be overpriced. It is expected that property yieldswill have to rise to realign themselves with the level at which gilts areyielding. Higher interest rates have made it more difficult for debt backed investors tojustify investing in the UK. This has reduced a key source of demand for UKcommercial property. The recent developments in the financial markets, as a result of the falloutfrom the US subprime market, have the potential to impact on the UK commercialproperty market through higher lending costs and a demand for higher riskpremium. In recent years a significant number of banks lending to the UKcommercial property market had relied heavily on securitising their loan books.However, the demand for commercial mortgage backed securities has largely driedup and banks have raised their margins to compensate for having to keep loans ontheir books. Given that increasingly the value of a property is worked backwardsfrom the rate of a return an investor wishes to receive, higher borrowing costsand a higher risk premium is likely to result in the downward valuation of theasset being sold. We expect total returns from commercial property to continue to moderate overthe remainder of the year. We will recommend selective sales of properties wherewe believe funds will be better used in reducing debt in the short term or toreinvest elsewhere. PROPERTY INVESTMENT ADVISER'S REPORT (continued) Outlook (continued) We are confident the Company has sufficient income and reserves to continue itshigh dividend distribution policy for the foreseeable future. Peter RoscrowClose Investments LimitedProperty Investment Adviser25 September 2007 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF CLOSE HIGH INCOME PROPERTIESPLC For the six month period from 1 January to the 30 June 2007 Introduction We have been instructed by the Company to review the financial information setout on pages 15 to 37 and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies within the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe 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. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with AuditingStandards and therefore provides a lower level of assurance than an audit.Accordingly we do not 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 June 2007. Chartered AccountantsIsle of Man25 September 2007 CONSOLIDATED INCOME STATEMENT For the six month period from 1 January to 30 June 2007 (Audited) 30 June 30 June 31 December 2007 2006 2006 £ £ £INCOMERental income from investment properties 7,603,005 7,095,510 14,879,334Other income 59,108 14,092 14,092 7,662,113 7,109,602 14,893,426EXPENDITUREProperty investment adviser's management fee (855,405) (819,472) (1,764,573)Property investment adviser's incentive fee 142,582 (618,357) (1,104,747)Property expenses (1,078,472) (509,179) (2,033,477)Other expenses (331,442) (184,310) (598,854) (2,122,737) (2,131,318) (5,501,651) Net operating profit for the period 5,539,376 4,978,284 9,391,775before finance costs Interest receivable 350,338 7,511 270,287Interest payable and similar charges (3,226,891) (3,017,950) (6,182,172)Gain on realised SWAP 20,245 - - (2,856,308) (3,010,439) (5,911,885) Gains from investmentsRealised (loss) /gain on disposal of (72,023) 236,221 1,734,440investment propertiesUnrealised gain on revaluation of 263,550 5,455,733 12,514,227investment properties 191,527 5,691,954 14,248,667 Net profit from ordinary activities 2,874,595 7,659,799 17,728,557before taxation Taxation on profit of ordinary - - 121,676activities - - 121,676 Net profit from ordinary activities 2,874,595 7,659,799 17,850,233after taxation attributable to members Dividends - paid Ordinary (9,714,227) (1,282,350) (2,564,700) "C" Ordinary - (1,817,420) (3,634,839) "D" Ordinary (853,729) (30,003) (690,555) (10,567,956) (3,129,773) (6,890,094) CONSOLIDATED BALANCE SHEETAs at 30 June 2007 (Audited) 30 June 30 June 31 December 2006 2007 2006 £ £ £NON-CURRENT ASSETSFixed Investment properties 225,350,000 217,305,000 225,985,000 225,350,000 217,305,000 225,985,000 CURRENT ASSETSTrade and other receivables 4,595,784 6,937,902 5,320,184Cash and cash equivalents 4,326,095 10,218,402 7,904,825 8,921,879 17,156,304 13,225,009 Total Assets 234,271,879 234,461,304 239,210,009 NON-CURRENT LIABILITIESProvision for Incentive fee 2,499,543 2,155,735 2,642,125Bank loans 104,944,044 105,214,607 101,221,452 107,443,587 107,370,342 103,863,577 CURRENT LIABILITIESTrade and other payables 3,052,393 4,434,962 4,155,796 3,052,393 4,434,962 4,155,796 Total liabilities 110,495,980 111,805,304 108,019,373 CAPITAL AND RESERVESShare capital - Ordinary 780,759 330,928 330,928 - "C" Ordinary - 501,357 501,357 - "D" Ordinary 262,686 245,689 262,686 - Deferred shares 50,136 - -Distributable - Ordinary 77,428,597 30,859,127 30,859,127capital reserve - "C" Ordinary - 46,751,511 46,751,511Capital redemption - Ordinary 1,390 - -reserveShare premium - "D" Ordinary 24,475,852 22,890,938 24,475,852Revenue reserves 19,464,813 20,728,063 27,158,174Hedge reserves 1,311,666 348,387 851,001 123,775,899 122,656,000 131,190,636 234,271,879 234,461,304 239,210,009 These financial statements were approved by the Board of Directors on 25September 2007 and signed on its behalf by: J D Clague P P Scales CONSOLIDATED STATEMENT OF CASHFLOW For the six month period from 1 January to 30 June 2007 (Audited) 30 June 30 June 31 December 2006 2007 2006 £ £ £Cash flows from operating activitiesNet operating profit before financing 5,539,376 4,978,284 9,391,775Amortised borrowing costs 61,694 58,530 158,278Decrease/(Increase) in debtors 1,046,865 (3,128,880) (1,116,405)(Decrease)/Increase in creditors (1,145,694) 1,196,079 1,593,050 Cash generated from operating activities 5,502,241 3,104,013 10,026,698 Interest received 350,338 7,511 270,287Interest paid (3,266,608) (2,944,278) (5,867,809)Taxation paid - - (30,466) Net Cash inflow from operations 2,585,971 167,246 4,398,710 Cash flow from investing activitiesPayment for the purchase of properties and (2,871,450) (40,314,477) (49,031,545)subsequent costsProceeds from the sale of properties 3,775,603 5,141,132 11,752,973Property deposit paid - (1,949,701) (138,200) Net cash inflow/(outflow) from investing 904,153 (37,123,046) (37,416,772)activities Cash flow from financingProceeds from the issue of "D" Ordinary - 24,568,948 26,268,589SharesPayment for share buyback (182,041) - -Share issue costs paid - (1,432,319) (1,530,051)Equity dividends paid (10,567,956) (3,129,773) (6,890,094)Proceeds from long term borrowing 3,666,398 25,725,000 21,875,000Issue costs of long term borrowing (5,500) (47,940) (290,843)Proceeds on break of SWAP 20,245 - - Net cash (outflow) / inflow from financing (7,068,854) 45,683,916 39,432,601activities Net (decrease) / increase in cash (3,578,730) 8,728,116 6,414,539 Cash at 1 January 7,904,825 1,490,286 1,490,286 Cash at 30 June/31 December 4,326,095 10,218,402 7,904,825 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six month period from 1 January to 30 June 2007 Share Share Premium Capital Capital Hedge Retained Total Capital Redemption Reserve profit Reserve Reserve £ £ £ £ £ £ £As at 1 January 832,285 77,610,638 - - (608,641) 16,198,035 94,032,3172006 Cancellation of - (77,610,638) 77,610,638 - - - -share premiumNet profit for - - - - - 17,850,233 17,850,233the yearDividends - - - - - (6,890,094) (6,890,094)declared and paidMovement in - - - - 1,459,642 - 1,459,642unrealised gainson revaluation ofinterest rateswapsIssue of "D" 262,686 26,005,903 - - - - 26,268,589Ordinary SharesIssue costs - (1,530,051) - - - - (1,530,051) As at 1 January 1,094,971 24,475,852 77,610,638 - 851,001 27,158,174 131,190,6362007Net profit for - - - - - 2,874,595 2,874,595the periodDividends - - - - - (10,567,956) (10,567,956)declared and paidMovement in - - - - 460,665 - 460,665unrealised gainson revaluation ofinterest rateswapsCancellation of " (501,357) - - 50,136 - - (451,221)C" OrdinaryShares on mergeIssue of new 451,221 - - - - - 451,221Ordinary Sharesarising frommergeIssue of deferred 50,136 - - (50,136) - - -shares arisingfrom mergeBuyback of (1,390) - (182,041) 1,390 - - (182,041)Ordinary sharesAs at 30 June 1,093,581 24,475,852 77,428,597 1,390 1,311,666 19,464,813 123,775,8992007 COMPANY BALANCE SHEET As at 30 June 2007 (Audited) 30 June 2007 30 June 2006 31 December 2006 £ £ £FIXED ASSETSFixed asset investments 18,403,632 18,403,632 18,403,632 18,403,632 18,403,632 18,403,632CURRENT ASSETSTrade and other receivables 90,612,957 92,326,349 97,184,477Cash at bank 4,786,273 8,428,860 5,025,453 95,399,230 100,755,209 102,209,930 TOTAL ASSETS 113,802,862 119,158,841 120,613,562 CURRENT LIABILITIES Trade and other payables 131,728 120,216 91,257 131,728 120,216 91,257 Capital and ReservesShare capital - Ordinary 780,759 330,928 330,928 - "C" Ordinary - 501,357 501,357 - "D" Ordinary 262,686 245,689 262,686 - Deferred shares 50,136 - -Distributable capital - Ordinary 77,428,597 30,859,127 30,859,127reserve - "C" Ordinary - 46,751,511 46,751,511Capital redemption - Ordinary 1,390 - -reserveShare premium - "D" Ordinary 24,475,852 22,890,938 24,475,852Revenue reserves 10,671,714 17,459,075 17,340,844 113,671,134 119,038,625 120,522,305 113,802,862 119,158,841 120,613,562 This financial statement was approved by the Board of Directors on 25 September2007 and signed on its behalf by: J D Clague P P Scales ORDINARY SHARESCONSOLIDATED INCOME STATEMENTFor the sixth month period from 1 January to 30 June 2007 Pro forma Pro forma (Audited ) 30 June 30 June 31 December 2006 2007 2006 £ £ £INCOMERental Income from investment properties 6,028,653 6,043,067 12,154,281Other income 59,108 - - 6,087,761 6,043,067 12,154,281EXPENDITUREProperty investment adviser's management (715,997) (738,830) (1,529,700)feeProperty investment adviser's incentive 142,582 (618,357) (1,104,747)feeProperty expenses (757,140) (414,861) (1,697,573)Other expenses (303,267) (163,810) (477,222) (1,633,822) (1,935,858) (4,809,242) Net operating profit for the period before 4,453,939 4,107,209 7,345,039finance costs Interest receivable 329,863 199,507 410,192Interest payable and similar charges (2,759,235) (2,523,666) (5,112,104) (2,429,372) (2,324,159) (4,701,912) Gains from investmentsRealised (loss) /gain on disposal of (72,023) 236,221 1,734,440investment propertiesUnrealised gain on revaluation of 282,662 6,681,064 11,071,646investment properties 210,639 6,917,285 12,806,086 Net profit from ordinary activities 2,235,206 8,700,335 15,449,213before taxation Taxation on profit from ordinary - - 121,676activities - - 121,676 Net profit from ordinary activities after 2,235,206 8,700,335 15,570,889taxation attributable to members Dividends - paid (9,714,227) (3,099,770) (6,199,539) Basic and diluted earnings per Ordinary 2.71 10.45 18.73Share (pence) ORDINARY SHARES CONSOLIDATED BALANCE SHEET As at 30 June 2007 Pro forma Pro forma (Audited) 30 June 30 June 31 December 2006 2007 2006 £ £ £NON-CURRENT ASSETSFixed investment properties 182,550,000 177,385,000 183,375,000 182,550,000 177,385,000 183,375,000 CURRENT ASSETSTrade and other receivables 3,782,161 7,696,291 4,477,636Cash and cash equivalents 3,341,819 2,974,853 4,504,934 7,123,980 10,671,144 8,982,570 Total Assets 189,673,980 188,056,144 192,357,570 NON-CURRENT LIABILITIESProvision for incentive fee 2,499,543 2,155,735 2,642,125Bank loans 87,161,541 81,782,219 81,571,941 89,661,084 83,937,954 84,214,066 CURRENT LIABILITIESTrade and other payables 2,765,824 3,657,745 3,553,696 2,765,824 3,657,745 3,553,696 Total liabilities 92,426,908 87,595,699 87,767,762 CAPITAL AND RESERVESShare capital 780,759 782,149 782,149Deferred shares 50,136 50,136 50,136Capital reserve 77,428,597 77,610,638 77,610,638Revenue reserves 18,090,364 21,798,602 25,569,385Capital redemption reserve 1,390 - -Hedge reserves 895,826 218,920 577,500 97,247,072 100,460,445 104,589,808 189,673,980 188,056,144 192,357,570 "D" ORDINARY SHARES CONSOLIDATED INCOME STATEMENT For the sixth month period from 1 January to 30 June 2007 (Audited) 30 June 30 June 31 December 2006 2007 2006INCOME £ £ £ Rental Income from investment properties 1,574,352 1,052,443 2,725,053Other income - 14,092 14,092 1,574,352 1,066,535 2,739,145EXPENDITUREProperty investment adviser's fee (139,408) (80,642) (234,873)Property expenses (321,332) (94,318) (335,904)Other expenses (28,175) (20,500) (121,632) (488,915) (195,460) (692,409) Net operating profit for the period before 1,085,437 871,075 2,046,736finance costs Interest receivable 20,475 22,902 74,995Interest payable and similar charges (467,656) (709,184) (1,284,968)Realised gain on SWAP 20,245 - - (426,936) (686,282) (1,209,973) (Losses) / Gains from investmentsRealised gain on disposal of investment - - -propertiesUnrealised (loss ) /gain on revaluation of (19,112) (1,225,331) 1,442,581investment properties (19,112) (1,225,331) 1,442,581 Net profit / (loss) from ordinary 639,389 (1,040,538) 2,279,344activities before taxation Taxation on profit of ordinary activities - - - - - - Net profit / (loss) from ordinary activities 639,389 (1,040,538) 2,279,344after taxation attributable to members Dividends - paid (853,729) (30,003) (690,555) Basic and diluted earnings per "D" 2.43 (4.24) 13.34Ordinary Share (pence) "D" ORDINARY SHARES CONSOLIDATED BALANCE SHEET As at 30 June 2007 (Audited) 30 June 2007 30 June 2006 31 December 2006 £ £ £NON-CURRENT ASSETSFixed Investment properties 42,800,000 39,920,000 42,610,000 42,800,000 39,920,000 42,610,000 CURRENT ASSETSTrade and other receivables 820,331 4,179,374 842,548Cash and cash equivalents 984,276 2,522,111 3,399,891 1,804,607 6,701,485 4,242,439 Total Assets 44,604,607 46,621,485 46,852,439 NON-CURRENT LIABILITIESBank loans 17,782,503 23,432,388 19,649,511 17,782,503 23,432,388 19,649,511CURRENT LIABILITIESTrade and other payables 293,277 993,542 602,100 293,277 993,542 602,100 Total liabilities 18,075,780 24,425,930 20,251,611 CAPITAL AND RESERVESShare capital 262,686 245,689 262,686Share premium 24,475,852 22,890,938 24,475,852Revenue reserves 1,374,449 (1,070,539) 1,588,789Hedge reserves 415,840 129,467 273,501 26,528,827 22,195,555 26,600,828 44,604,607 46,621,485 46,852,439 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
IMPT.L