Interim Results

ING UK Real Estate Income Trust Ltd 08 September 2006 8 September 2006 ING UK Real Estate Income Trust Limited Re: Interim Report and Consolidated Financial Statements for the period from 1 January to 30 June 2006 On 7 September 2006, the Directors of ING UK Real Estate Income Trust Limited approved the Company's Interim Report and Consolidated Financial Statements for the period from 1 January to 30 June 2006. Please find below a full copy of the Interim Report and Consolidated Financial Statement. (a link to a PDF version can be found at the end of the announcement) Group Summary ING UK Real Estate Income Trust Limited ('the Company') is a closed-ended, Guernsey registered, Investment Company. The Company has three subsidiaries; ING UK Real Estate (Property) Limited, ING UK REIT (SPV) Limited and ING (UK) Listed Real Estate, (together 'the Group') whose results are consolidated, and one Special Purpose Entity, ING (UK) Listed Real Estate Issuer Plc, whose results are consolidated under SIC 12. The subsidiaries were incorporated to provide a tax efficient structure. The investment portfolio is managed by ING Real Estate Investment Management (UK) Limited, a member of the ING Group. The Group was listed on the London and Channel Islands' Stock Exchanges on the 25 October 2005 and currently has nearly 800 investors. The Group's aim is to provide shareholders with an attractive level of income together with the potential for capital growth. It will invest both directly and indirectly in an investment portfolio comprising UK, Isle of Man and Channel Islands properties and will focus initially on five principal commercial property sectors: office, retail, industrial, retail warehouse and leisure. It is the present intention that the Group's borrowings will be limited to a maximum of 50% of gross assets. Financial Highlights and Performance Summary > Share price rose by 6% during the period 1 January 2006 to 30 June 2006 from 108.5 pence to 114.75 pence > Two dividends of 1.16 pence per share and 1.5625 pence per share were paid in February and May 2006 respectively > Net asset value per share rose to 117.4 pence, reflecting a gain of 11.6% during the period > Gross property assets increased from GBP 505.6 million to GBP 553.7 million > Shareholders' funds rose to GBP 358.1 million from GBP 320.8 million > The consolidated profit for the period was GBP 45.6 million, including unrealised investment gains of GBP 38.3 million > Net income increased to GBP 7.3 million for the period Chairman's Statement On behalf of the Board, I am pleased to report that the Group has continued to deliver on its objectives. These consolidated accounts show good performance over the six month period ending 30 June 2006. The Net Asset Value per share has increased by 11.6% to 117 pence and, in addition, dividend payments have been made totalling 2.72 pence per share. With increasing interest rates, the Group is fortunate to have fixed its cost of debt until 2013 at an attractive all-in rate of 5.1%. In accordance with recognised accounting practices, the fair value of the interest rate swap used to fix the cost of debt is accounted for through the Income Statement. The property portfolio has now increased in value to over GBP 553 million and has delivered an income return over the period of 3.3%, ahead of the IPD Quarterly All Property Index (at 2.4%), with a total return of 9.3%, on an ungeared basis, marginally behind the index at 9.6%. During the period, the Group made its first acquisition which has further increased its Central London Office weighting. This area of the market is expected to perform strongly in the short/medium term although the 'low yielding' nature of this type of investment makes it more difficult to source opportunities that meet the Group's income objective. In terms of investor relations, I am pleased to announce the launch of the Group's website, which will allow shareholders easy access to information concerning the Group. This is available to view at www.ingreit.co.uk. Conditions in the UK property market remain favourable and on a one, three and ten year basis the sector has outperformed both equities and gilts, whilst continuing to offer the highest income return. In recent years, much of this performance has been through yield compression but this will not continue indefinitely; as this weakens, income growth will play an increasingly important role in delivering strong returns. Investor demand for property assets shows little sign of weakening and tenant demand, particularly in the office sector, is improving. Stock selection and proactive management of any portfolio will be crucial in delivering performance. I am confident that the Group is well positioned on a sector basis and is demonstrating its ability to continue to deliver on its objectives. Nick Thompson Chairman of the Board 7 September 2006 Investment Manager's Commentary THE UK PROPERTY MARKET The IPD Quarterly All-Property Index total return over the six months to June 2006 was 9.6%. Although rental growth continues to improve steadily, yield-driven capital appreciation is still the main driver of total returns. Capital values increased a further 6.9% per annum in the first six months of the year. Offices are currently the best performing property sector with returns averaging 11.6% over the last six months. Total returns in the central London markets are higher than the sector average due to the benefits of significant recent rental value uplifts. Retailer turnover has recently shown renewed life but trading conditions remain tough for occupiers. Nevertheless, rental values have held up well and retail property returns have averaged 8.7% in the year to date. Industrial property returns over the last six months slightly edged ahead of retail at an average 9%. Furthermore industrial stock still offers an income advantage over the other property sectors. UK economic growth increased by 0.8% in the second quarter, taking the annual growth rate back above the long-term trend, generally considered to be around 2.5% per annum. The improvement was primarily on the service side of the economy including distribution, financial & business services but perhaps most surprisingly, as noted above, retail sales. Looking ahead, although concerns exist regarding a possible US and global economic weakening, the vast majority of forecasters still anticipate that the UK economy will continue to see growth at or above trend over the next 18 months. This has highly positive implications for commercial property rental growth. CPI annual inflation, the Government's target measure, rose to 2.5% per annum in June, the highest level since the start of the official series in 1997. Combined with economic growth, surprisingly on the upside this quarter, the interest rate outlook has now shifted upward. This underpinned the Bank of England's decision to increase base rates by 25 basis points to 4.75% in early August. Although property investment is no longer readily self-financing, investors are still prepared to forgo income to gear-up on the capital growth component of total return. Whilst there are signs that investment transactions have slowed in 2006 against last year's levels, investor appetite shows little sign of dissipating. High property investment demand, particularly ahead of the launch of on-shore REITs within the UK in January 2007, has resulted in reduced investment availability and continued strong capital appreciation. Despite increasing rental growth, the capital appreciation has resulted in a further dilution of the income distribution yield available to new property fund investors. However, in the coming years we anticipate that purely yield driven capital appreciation will subside and rents will re-establish themselves as the primary driver of property fund performance. (Source: IPD Quarterly Index, ONS) PORTFOLIO ACTIVITY As at 30 June 2006 the value of the Group's portfolio was GBP 553.7 million with an annual net income of GBP 32.3 million showing a running yield at a property level of 5.8%. The portfolio comprises 56 properties with an average unexpired lease term approaching nine years. The void level at 30 June 2006 represented 4.1% of total income (excluding Watford where the Group benefits from a rent guarantee until August 2007). During the period, the Group made its first acquisition, completing on the purchase of a multi-let office building located within the City of London. The property, known as Boundary House, Jewry Street, London EC3 became the sixth largest asset and was acquired reflecting a net initial yield of 5.2% and a capital value of approximately GBP 360 per sq ft. The property offers significant scope to enhance value from both a recovering central London office market as well as active management and refurbishment initiatives, with a range of lease expiries over the next three years. In our last report, we advised of the fire at the Magna Park property. We are pleased to confirm that the property is fully rebuilt and the tenant, TNT, has now reoccupied the building and recommenced rental payments. The Group's insurers covered the loss of the rental income over the period and the rebuilding costs. The Group has taken a number of surrenders of occupational leases. This has enhanced both value and income, by achieving lettings at rents and timescales ahead of expectations. Proactive management of the portfolio remains critical and we are continually speaking with tenants to ensure that we can maximise opportunities when they arise. The portfolio has a number of lease expiries within the short to medium-term and we are working hard to ensure tenant retention as well as maximising opportunities should units become vacant. Following the period end, the additional debt facility contained within the securitisation structure was utilised. An additional GBP 25 million of debt was issued in the form of AAA rated Reserve Notes which has been fully hedged until 30 January 2013. The total debt on the portfolio has increased to GBP 225 million at an effective all in rate of 5.1%. Subsequent to the period end the Group acquired another central London office - Notcutt House, Southwark Bridge Road, London, SE1. The purchase price of GBP 7 million reflects a net initial yield of 5.75%. The property was refurbished in 2001 and is let to a single tenant until September 2016. The Group also disposed of a retail property at Gorgie Park Road, Edinburgh for GBP 3.6 million, well in excess of the June valuation of GBP 2.98 million. We continue to search for suitable acquisitions that meet the Group's objectives and, where appropriate, disposing of assets that do not. ING Real Estate Investment Management (UK) Limited 7 September 2006 Portfolio Statistics GEOGRAPHICAL As at 30 June 2006 the regional weightings of the property portfolio, as a percentage of current capital value, are summarised as follows: Central London 7.9% South East & Greater London 35.9% Midlands 18.1% South West 4.6% North 17.7% Wales 7.2% Scotland 4.1% Northern Ireland 2.9% Offshore UK 1.6% SECTOR As at 30 June 2006 the sector weightings of the property portfolio, as a percentage of current capital value, are summarised as follows: Offices 41.4% Industrial 21.5% Retail 20.7% Retail Warehouses 9.1% Leisure 7.3% COVENANT STRENGTH The covenant strength as at 31 March 2006 is summarised as follows (based as a percentage of current passing rent): Portfolio IPD Quarterly benchmark Negligible and Government risk 32.2% 37.6% Low risk 32.0% 33.6% Low-medium risk 9.2% 8.5% Medium-high risk 15.9% 8.1% High risk 4.5% 6.5% Ineligible/not matched 6.2% 5.7% Covenant strength data is produced by IPD and, as at 18 August 2006, is not available for 30 June 2006. LEASE EXPIRY As at 30 June 2006 the length of the leases to the first termination is summarised as follows (based as a percentage of current net annual rent): < 5 years 37.7% 5-10 years 23.7% 10-15 years 28.4% 15-25 years 8.2% > 25 years 2.0% LIST OF PROPERTIES BY VALUE BAND Properties in excess of GBP 20 million Predominant Use Colchester Business Park, The Crescent, Colchester Office 36-42 Frodsham Street and Frodsham Square, Chester Retail Unit 5320, Magna Park, Lutterworth Industrial Phase II, Parc Tawe, Link Road, Swansea Retail Warehouse Properties between GBP 15 million and GBP 20 million Scottish Provident Buildings, Donegall Square West, Belfast Retail Regency Wharf, Broad Street, Birmingham Leisure Lincoln Place (Block 2),Farringdon Road, London EC1 Office Boundary House, Jewry Street, London, EC3 Office Scorpio Inns Pub Portfolio Leisure Properties between GBP 10 million and GBP 15 million Scots Corner, High St/Institute Rd, Birmingham Retail Angouleme Way Retail Park, Bury Retail Warehouse Angel Gate Office Village, City Road, London EC1 Office Arena Court, Crown Lane, Maidenhead Office 401 Grafton Gate East, Milton Keynes Office 17/19 Fishergate, Preston Retail Unit 2, Ravensback Business Park, Redditch Industrial The Business Centre, Molly Millars Lane, Wokingham Industrial 171 Bath Road, Slough Office Properties between GBP 5 million and GBP 10 million Downmill Road, Bracknell Industrial Waterside Park, Longshot Lane, Bracknell Office 9/12 St James Parade, Bristol Office Longcross Court, Newport Road, Cardiff Office City Link House & Tolley House, Addiscombe Road, Croydon Office 72/78 Murraygate, Dundee Retail Queens House,17/29 St Vincent Place, Glasgow Office Leys House, 86/88 Woodbridge Road, Guildford Office 6/12 Parliament Row, Hanley Retail Units 1-3, 18/28 Victoria Lane, Huddersfield Retail Provident House, Ballacottier Business Park, Isle Of Man Office Waterside House, Kirkstall Road, Leeds Office 1-3 Chancery Lane, London WC2 Office 134/152 Balham High Road, London, SW12 Retail Strathmore Hotel, Arndale Centre, Luton Leisure Units 1-13 Dencora Way, Sundon Park, Luton Industrial Heron Industrial Estate, Spencers Wood, Reading Industrial Haynes Way, Swift Valley Industrial Estate, Rugby Industrial Trident House, 42/48 Victoria Street, St Albans Office Northampton Business Park, 800 Pavilion Drive, Northampton Office Atlas, Third Avenue, Globe Park, Marlow Office Easter Court, Gemini Park, Warrington Industrial 3 The Boulevard, Croxley Green, Watford Office 1 Boulevard Shire Park, Welwyn Garden City Office Lawson Mardon Buildings, Kettlestring Lane, York Industrial Properties under GBP 5 million Unit 1 Oakwell Park Industrial Estate, Birstall Industrial Riverside Business Centre, Aberdeen Office Wren House, Hedgerows Business Park, Chelmsford Office Merchants House, Crook Street, Chester Office Kwik Save, Gorgie Park Road, Edinburgh Retail 477 Alexandra Parade, Glasgow Retail 593/599 Fulham Road , London SW6 Retail Trafford Park, Ashburton Road East, Manchester Industrial 9/17 Western Road, Mitcham Retail Warehouse 40 Garsington Road, Oxford Industrial 69/75 Queensway, 2-12 Park Place, Stevenage Retail 7&9 Warren Street, Stockport Retail Globe House, Madeira Road, West Byfleet Office Unaudited Consolidated Income Statement for the period from 1 January to 30 June 2006 1 January to 30 June 2006 15 Sept to 31 Dec 2005 (unaudited) Notes Income Capital Total Total GBP 000s GBP 000s GBP 000s GBP 000s Income Rental income 4 14,044 - 14,044 7,152 Service charge recharged to tenants 872 - 872 737 Other operating income 1,750 - 1,750 60 Total operating income 16,666 - 16,666 7,949 Gains and Losses on Investments Unrealised gains on revaluation of investment properties - 32,092 32,092 18,371 Unrealised gain on interest rate swap - 6,230 6,230 - Total gains on investments - 38,322 38,322 18,371 Expenses Property management fee (2,443) - (2,443) (848) Property expenses (1,508) - (1,508) (66) Service charge cost of properties (872) - (872) (737) Amortisation of finance costs (145) - (145) (8) Swap arrangement fee - - - (247) Other (651) - (651) (133) Total operating expenses (5,619) - (5,619) (2,039) Profit before finance costs and tax 11,047 38,322 49,369 24,281 Bank and deposit interest receivable 643 - 643 191 Loan interest expense (4,739) - (4,739) (1,915) Total finance costs (4,096) - (4,096) (1,724) Profit before tax 6,951 38,322 45,273 22,557 Tax 7 300 - 300 (300) Profit for the period 7,251 38,322 45,573 22,257 Dividends (8,304) - (8,304) - Retained earnings (1,053) 38,322 37,269 22,257 Earnings per share 8 Basic (p) - - 14.9 7.3 Diluted (p) - - 14.9 7.3 The total column of this statement represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Trust Companies. All items in the above statement derive from continuing operations. Notes 1 to 21 form part of these financial statements. Unaudited Consolidated Statement of Changes in Equity for the period ended 30 June 2006 Share Share Distributable Retained Total Capital Premium Reserves Earnings GBP 000s GBP 000s GBP 000s GBP 000s GBP 000s Profit for the period from 15 September to 31 December 2005 - - - 22,257 22,257 Issue of share capital - 298,544 - - 298,544 Transfer - (298,544) 298,544 - - Balance as at 31 December 2005 - - 298,544 22,257 320,801 Profit for the period from 1 January to 30 June 2006 - - - 37,269 37,269 Balance as at 30 June 2006 - - 298,544 59,526 358,070 All income is attributable to the equity holders of the parent company. There are no minority interests. By way of a special resolution dated 30 September 2005, the amount standing to the credit of the share premium account was cancelled and transferred to a distributable reserve. See Note 18. Unaudited Consolidated Balance Sheet as at 30 June 2006 Assets Notes 30 June 2006 31 December 2005 GBP 000s (unaudited) GBP 000s Non-current assets Investment properties 10 553,746 505,630 Total non-current assets 553,746 505,630 Current assets Receivables 11 4,809 4,638 Cash and cash equivalents 12 12,999 32,696 Total current assets 17,808 37,334 Total assets 571,554 542,964 Current liabilities Accrued expenses and deferred income 14 (10,962) (11,812) Other payables 15 (8,752) (10,351) Total current liabilities (19,714) (22,163) Non-current liabilities Borrowings 13 (193,770) (200,000) Total non-current liabilities (193,770) (200,000) Total liabilities (213,484) (222,163) Net assets 358,070 320,801 Ordinary share capital 17 - - Distributable Reserve 18 298,544 298,544 Retained earnings 59,526 22,257 Shareholders' funds 358,070 320,801 Net Asset Value per share GBP 1.17 GBP 1.05 The interim report was approved by the Board of Directors on 7 September 2006 and signed on its behalf by: Trevor Ash Robert Sinclair Unaudited Consolidated Cash Flow Statement for the period from 1 January to 30 June 2006 1 January to 30 June 15 Sept to 31 Dec 2006 2005 GBP 000s (unaudited) GBP 000s Profit before tax 45,273 22,557 Adjusted for Interest received (643) (191) Interest paid 4,739 1,656 Amortisation of finance costs 145 8 Realised and unrealised surplus on investment properties and interest rate swap (38,322) (18,371) Operating profit before working capital changes 11,192 5,659 Increase in trade and other receivables (316) (2,689) (Increase)/decrease in trade and other payables (2,907) 21,864 Net cash flows from operating activities 7,969 24,834 Cash flows from investing activities Purchase of investment properties (16,024) (487,259) Interest received 643 191 Net cash flows from investing activities (15,381) (487,259) Cash flows from financing activities Equity raised - 305,000 Proceeds from long term borrowings - 200,000 Issue costs of borrowing and equity raising - (8,414) Interest paid (3,981) (1,656) Dividends paid (8,304) - Net cash flows from financing activities (12,285) 495,121 Net (decrease)/increase in cash and cash equivalents (19,697) 32,696 Cash and cash equivalents at beginning of period 32,696 - Cash and cash equivalents at end of period 12,999 32,696 Notes to the Unaudited Consolidated Financial Statements for the period ended 30 June 2006 1. GENERAL INFORMATION ING UK Real Estate Income Trust Limited was incorporated on 15 September 2005 and is registered as a closed ended Guernsey investment company (The address of the registered office is given on page 28). The interim consolidated financial statements are prepared for the period from 1 January to 30 June 2006. The comparable period is 15 September 2005 to 31 December 2005. The first accounting period and audited financial statements of the Group will be prepared under International Financial Reporting Standards for the period ending 31 December 2006. These financial statements are presented in pounds sterling being the currency of the primary economic environment in which the Group operates. No Company only information has been provided because in the opinion of the Directors this would not give a materially different view than for the Group. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect; and to the extent that they have been adopted by the European Union. At the date of approval of these financial statements, the following standard, which has not been applied in these financial statements, was in issue but not yet effective: IAS34 Interim Financial Reporting. The financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trusts has been issued by the Association of Investment Trust Companies ('AITC') in December 2005 and is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Group and entities controlled by the Group made up to 30 June. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The results of ING (UK) Listed Real Estate Issuer Plc are consolidated in accordance with SIC 12, 'Consolidation-Special Purpose Entities'. Presentation of the income statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AITC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. Investment properties Following the initial recognition at cost, land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation. Fair value is determined by reference to market-based evidence, which are the amounts for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in arm's length transactions as at the valuation date. The fair value of investment property is based on valuation by an independent valuer who holds a recognised and relevant professional qualification and who has recent experience in the location and category of the investment property being valued. Movements in fair value are included in the income statement. An item of investment property is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. Properties are not depreciated. Realised and unrealised gains on investment properties have been presented as capital items within the income statement. The loan from ING (UK) Listed Real Estate Issuer Plc has a first ranking mortgage over all the properties. See Note 13. In line with industry practice, properties are held in nominee companies. Leases An operating lease is a lease other than a finance lease. Lease income is recognised in income on a straight-line basis over the lease term. Indirect costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the lease asset and recognised as an expense over the lease term on the same basis as the lease income. The financial statements reflect the requirements of SIC15, 'Operating Leases - Incentives' to the extent that they are material. Lease income and expenses have been presented as revenue items in the income statement. Income and expenses Income and expenses are included in the income statement on an accruals basis. All of the Group's income and expenses are derived from continuing operations. Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Property operating costs include the costs of professional fees on letting and other nonrecoverable costs. The income charged to tenants for property service charges and the costs associated with such service charges are shown separately in the income statement to reflect that notwithstanding this money is held on behalf of tenants occupying the properties, the ultimate risk for paying and recovering these costs rests with the property owner. Cash and cash equivalents Cash includes cash in hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities in three months' or less and that are subject to an insignificant risk of change in value. Trade receivables Trade receivables are stated at their nominal amount as reduced by appropriate allowances for estimated irrecoverable amounts. Interest bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process. Finance Costs Finance costs incurred relating to the arrangement of the loan are written off to the income statement over the term of the loan. Other assets and liabilities Other assets and liabilities are not interest bearing and are stated at their nominal value. Taxation The Group is exempt from Guernsey taxation on income derived outside Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of GBP 600 is payable to the States of Guernsey income tax authorities in respect of this exemption. No charge to Guernsey taxation will arise on capital gains. The Directors intend to conduct the affairs of the Group such that the management and control of the Group is not exercised in the United Kingdom and that the Group does not carry on a trade in the United Kingdom. Accordingly the Group will not be liable to United Kingdom taxation on its income or capital gains other than certain income deriving from a United Kingdom source. The Group is subject to United Kingdom taxation on income arising on the Property Portfolio after deduction of allowable debt financing costs and allowable expenses. Principles for the cash flow statement The cash flow statement has been drawn up according to the indirect method, separating the cash flows from operating activities, investing activities and financing activities. The net result has been adjusted for amounts in the income statement and movements in the balance sheet which have not resulted in cash income or expenditure in the period. The cash amounts in the cash flow statement include those assets that can be converted into cash without any restrictions and without any material risk of decreases in value as a result of the transaction. Dividends that have been proposed and declared are included in the cash flow from financing activities. 3. RISK MANAGEMENT The Group invests in commercial properties in the United Kingdom, the Isle of Man and the Channel Islands. The following describes the involved risks and the applied risk management. Real estate risks The yields available from investments in real estate depend primarily on the amount of revenue earned and capital appreciation generated by the relevant properties as well as expenses incurred. If properties do not generate sufficient revenues to meet operating expenses, including debt service and capital expenditures, the Group's revenue will be adversely affected. Revenue from properties may be adversely affected by the general economic climate, local conditions such as oversupply of properties or a reduction in demand for properties in the market in which the Group operates, the attractiveness of the properties to tenants, the quality of the management, competition from other available properties and increased operating costs (including real estate taxes). In addition, the Group's revenue would be adversely affected if a significant number of tenants were unable to pay rent or its properties could not be rented on favourable terms. Certain significant expenditure associated with each equity investment in real estate (such as external financing costs, real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in revenue from properties. By diversifying in regions, sectors, risk categories and tenants, the Manager expects to lower the risk profile of the portfolio. Risks of leverage The Group has external borrowings in connection with its investments to increase the potential equity performance. Although the use of leverage may enhance returns and increase the number of investments that can be made, it may also increase the risk of loss. This includes the risk that available funds will be insufficient to meet required payments and the risk that existing indebtedness will not be able to be refinanced or that terms of such refinancing will not be as favourable as the terms of existing indebtedness. Interest rate risk The following table sets out the carrying amount, by maturity, of the Group's financial instruments. Less than one year 1 to 5 years More than 5 years Total GBP 000s GBP 000s GBP 000s GBP 000s Assets Cash and cash equivalents 12,999 - - 12,999 Interest rate swap - - 6,230 6,230 Liabilities Term loan - - 200,000 200,000 Credit risk Credit risks, or the risk of counter parties defaulting, are controlled by the application of credit approvals, limits and monitoring procedures. Where appropriate, the Group obtains collateral in the form of rent deposits. The extent of the Group's credit exposure is represented by the aggregate balance of amounts receivable, reduced by the effect of any netting arrangements with counter parties. Liquidity risk Liquidity risk arises from the possibility that customers may not be able to settle obligations within the normal terms of trade. To manage this risk, the Group periodically assesses the financial viability of customers. 4. RENTAL INCOME Rent receivable is stated exclusively of Value Added Tax and arose wholly from continuing operations in the United Kingdom, the Isle of Man and the Channel Islands. 5. BUSINESS AND GEOGRAPHICAL SEGMENTS The Directors are of the opinion that the Group, through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and across one primary geographical area, namely the United Kingdom, the Isle of Man and the Channel Islands and therefore no segmental reporting is required. The portfolio consists of 55 commercial properties, comprising office, retail, industrial and leisure sectors, and one Public House Portfolio (the 'Pub Portfolio'). 6. STAFF NUMBERS AND COSTS The Group has no employees. 7. TAX The (credit)/charge for the period is: 2006 2005 GBP 000s GBP 000s UK income tax at 22% on UK rental income (300) 300 8. EARNINGS PER SHARE From continuing operations, the calculation of the basic and diluted earnings per share is based on the following data: Earnings for the purposes of basic earnings per share being net GBP 45,573,000 profit attributable to equity holders: The average number of shares in issue during the period: 305,000,000 9. SUBSIDIARIES ING UK Real Estate Income Trust Limited owns 100% of the share capital of: > ING UK Real Estate (Property) Limited, PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL; and > ING (UK) REIT (SPV) Limited, PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL. ING UK Real Estate (Property) Limited and ING (UK) REIT (SPV) Limited own 100% of the units in ING (UK) Listed Real Estate, a Guernsey Property Unit Trust (The 'GPUT'). The subsidiaries and the GPUT were incorporated to provide a tax efficient structure for the Group to invest in the underlying property investments. Under the principles of SIC 12 the Group has consolidated the results of the Special Purpose Entity ('the SPE') detailed below. The Group does not own any share capital of the SPE: ING (UK) Listed Real Estate Issuer Plc, c/o SPV Management Limited, Tower 42 (Level 11), International Financial Centre, 25 Old Broad Street, London EC2N 1HQ. The SPE was incorporated to provide funding to the Group though a securitisation agreement. See note 13. 10. INVESTMENT PROPERTIES 2006 2005 GBP 000s GBP 000s At start of period 505,630 - Additions 16,024 487,259 Surplus on revaluation 32,092 18,371 At end of period 553,746 505,630 The investment properties were valued by King Sturge, Chartered Surveyors, as at 24 June 2006, on the basis of open market value in accordance with the Appraisal and Valuation Manual of the Royal Institute of Chartered Surveyors. The historical cost of investment property included in the valuation above was GBP 503,283,000. The loan facility is secured by a first ranking fixed charge over all properties held. In relation to the Scorpio Inns Pub Portfolio, the tenant has options to purchase one third of the pub properties in 2006, one half in 2011 and the balance in 2016. The option price has been accounted for in the above valuation. The current option has been exercised and will take effect before the end of October 2006. 11. RECEIVABLES 2006 2005 GBP 000s GBP 000s Trade debtors 3,005 2,609 Capitalised finance costs 1,804 1,949 Other receivables - 80 4,809 4,638 The unamortised loan arrangement costs as at 30 June 2006 are GBP 1,804,000. These are amortised over the life of the loan. For the period ended 30 June 2006 GBP 145,000 (period ended 31 December 2005: GBP 8,000) of these costs were written off to the income statement. 12. CASH AND CASH EQUIVALENTS 2006 2005 GBP 000s GBP 000s Cash at bank and in hand 5,277 9,761 Short term deposits 7,722 22,935 12,999 32,696 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents is GBP 12,999,000. 13. INTEREST BEARING LOANS AND BORROWINGS Type Rate 2006 2005 Maturity % GBP 000s GBP 000s Date Fixed 4.805 200,000 200,000 Jan 2013 On 20 December 2005 the Group entered into a seven year fixed rate loan with ING (UK) Listed Real Estate Issuer PLC (the 'Issuer'), a newly set up Special Purpose Vehicle which, back-to-back, issued GBP 200 million of AAA seven year floating rate loan notes to the debt market. The loan has a fixed interest rate of 4.805% and can be repaid at any time. The debt proceeds were used to repay the GBP 200 million bridge loan which was due to expire in April 2006. The Issuer has entered into an interest rate swap in order to fix the interest payable on its loan notes. The fair value of this interest rate swap at 30 June 2006 was GBP 6,230,000 (31 December 2005: GBP nil). Under the terms of the securitisation documents the Group has an obligation to the Issuer in respect of any amounts due or payable under the swap agreement. As the Group consolidates the results of the Issuer under the principles of SIC 12, the Group has accounted for the fair value of the swap. 14. ACCRUED EXPENSES AND DEFERRED INCOME 2006 2005 GBP 000s GBP 000s Property management fees 1,182 848 Other accruals 1,988 3,416 Deferred rental income 7,792 7,548 10,962 11,812 15. OTHER PAYABLES 2006 2005 GBP 000s GBP 000s VAT liability - 2,367 Trade creditors - capital expenses 5,600 7,700 Other 3,152 284 8,752 10,351 16. CONTINGENCIES AND CAPITAL COMMITMENTS There are none as at 30 June 2006. (Period ended 31 December 2005: GBP Nil) 17. ORDINARY SHARE CAPITAL Authorised: 305 million of ordinary shares of nil par value. Issued and fully paid: 305 million ordinary shares of nil par value. 18. SHARE PREMIUM AND DISTRIBUTABLE RESERVE Share Distributable Share Distributable Reserve Premium Reserve Premium 2005 2006 2006 2005 GBP 000s GBP 000s GBP 000s GBP 000s Balance at start of period - 298,544 - - Premium arising on issue of equity shares - - 305,000 - Expenses of issue of equity shares - - (6,456) - Transfer to distributable reserve - - (298,544) 298,544 Balance at end of period - 298,544 - 298,544 By way of a special resolution dated 30 September 2005, the amount standing to the credit of the share premium account was cancelled and transferred to a distributable reserve. 19. DIVIDENDS The dividends paid in the current period are as follows: GBP 3,538,000 (1.16 pence per ordinary share) paid in February 2006 relating to the period 25 October to 31 December 2005, GBP 4,766,000 (1.5625 pence per ordinary share) paid in May 2006 relating to the quarter ended 31 March 2006. (Period ended 31 December 2005: GBP nil). A further interim dividend of 1.5625 pence per ordinary share in respect of the quarter ended 30 June 2006 has been approved and paid in August 2006. Under IFRS these financial statements do not reflect this dividend. 20. RELATED PARTY TRANSACTIONS Under the terms of the Investment Management Agreement, ING Real Estate Investment Management (UK) Limited (the 'Investment Manager') receives remuneration for property management and administration services. The management fee is payable quarterly in arrears and is equal to the aggregate of the following: a) one quarter of 90 basis points of gross property assets up to and including GBP 600 million b) one quarter of 82.5 basis points of gross property assets in excess of GBP 600 million and up to and including GBP 800 million c) one quarter of 75 basis points of gross property assets in excess of GBP 800 million d) one quarter of 40 basis points of cash assets ING Real Estate Investment Management (UK Funds) Limited (the 'Fund Manager') is paid a quarterly fee of GBP 150,000 per annum by the Group in respect of the administration services. This is deducted from the fee referred to above. During the period the Investment Manager and Fund Manager were paid a total of GBP 2,443,000 in respect of the above services. ING UK Real Estate Income Trust Limited has no controlling parties. 21. EVENTS AFTER THE BALANCE SHEET DATE A dividend of GBP 4,766,000 (1.5625 pence per share) was approved by the Board on 10 August 2006. On 6 July 2006 a further GBP 25 million of debt was drawn down under the securitisation structure which was established in December 2005. This was issued in the form of AAA rated Reserve Notes and has been fully hedged until 30 January 2013. INDEPENDENT REVIEW REPORT ING UK REAL ESTATE INCOME TRUST LIMITED ('The Group') Introduction We have been instructed by the Group to review the financial information for the six months ended 30 June 2006 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 21. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Group in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Group those matters we are required to state to them in an independent review 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 Group, for our review work, for this report, or for the conclusions we have formed. Director's responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. As disclosed in note 1, the next annual financial statements of the Fund will be prepared in accordance with International Financial Reporting Standards as adopted for use in the EU. Accordingly, the interim report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) 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 that should be made to the financial information as presented for the six months ended 30 June 2006. Deloitte & Touche Chartered Accountants 7 September 2006 Group Information Directors Nicholas Thompson (Chairman) Trevor Ash David Blight John Gibbon Robert Sinclair Investment and Property Manager ING Real Estate Investment Management (UK) Limited 6th Floor 60 London Wall London EC2M 5TQ Fund Administrator, Registrar and Secretary Northern Trust International Fund Administration Services (Guernsey) Limited PO Box 255, Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3LQ Receiving Agent and UK Transfer/ Paying Agent Computershare Investor Services Plc PO Box 859 The Pavilions Bridgewater Road Bristol BS99 1XZ Tax Advisers Deloitte and Touche LLP Hill House 1 Little New Street London EC4A 3TR Registered Office Trafalgar Court Les Banques St. Peter Port Guernsey Auditors Deloitte & Touche Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3HW Property Valuers King Sturge LLP 30 Warwick Street London W1B 5NH Solicitors to the Group: As to English Law Norton Rose Kempson House Camomile Street London EC3A 7AN As to Guernsey Law Carey Olsen PO Box 98 7 New Street St Peter Port Guernsey GY1 4BZ Please find below a link to the Interim Report and Consolidated Financial Statements of the Company. http://www.rns-pdf.londonstockexchange.com/rns/6728i_-2006-9-7.pdf Enquiries: The Company Secretary Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL 01481 745439 This information is provided by RNS The company news service from the London Stock Exchange

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