Interim Results

RNS Number : 1634C

ING UK Real Estate Income Trust Ltd

28 August 2008

ING UK Real Estate Income Trust Limited

HALF YEARLY FINANCIAL REPORT

FOR THE PERIOD FROM 1 JANUARY TO 30 JUNE 2008

28 August 2008

FINANCIAL HIGHLIGHTS

> Income profit for the period, prior to payment of dividend and excluding revaluation, of £9.1 million.

> Dividends totalling £10.3 million paid in the period, equivalent to 3.125 pence per ordinary share.

> Continued high level of dividend cover at 88% for the period.

> Gain of £3.2 million arising from sale of assets.

OPERATIONAL HIGHLIGHTS

> Ongoing success in strategy to reduce debt with £24.8 million being repaid during the period.

> Reduction in overall cost of debt to weighted average interest rate of 5.09%.

> Four disposals over the period for a total value of £41.7 million at a combined yield that is accretive to income.

> Outperformance of the underlying property portfolio at income level, generating an income return of 3.3% over the period compared with IPD Quarterly Benchmark of 2.5%.

	Six months to 30 June 2008	Six months to 30 June 2007
Share price at the end of the period	47.5 pence	106.3 pence
Net asset value	£319.4 million	£442.3 million
Net asset value per share	97 pence	133 pence
Net income for the period	£9.1 million	£8.3 million
Pre-tax (loss)/profit (including unrealised (losses)/gains)	£(39.8) million	£34.4 million
(Loss)/earnings per share	(15.2) pence	10.4 pence
Gain on swaps	£8.4 million	£9.7 million
(Loss)/gain on revaluation of portfolio	£(60.2) million	£16.2 million
Gearing*	46.9%	41.2%

*calculated as debt as a proportion of gross assets less current liabilities

For further information, please contact:

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey

GY1 3QL

Tel: 01481 745439

Fax: 01481 745085

ING Real Estate Investment Management (UK) Ltd

Helen Stott

Tel: 020 7767 5756

Financial Dynamics

Dido Laurimore / Laurence Jones

Tel: 020 7831 3113

GROUP SUMMARY

ING UK Real Estate Income Trust Limited is a closed-ended, Guernsey registered investment Company, launched on the London and Channel Islands' Stock Exchanges on 25 October 2005. With approximately 900 investors, the Company, together with several subsidiaries including a Guernsey unit trust and four Jersey unit trusts which beneficially hold title to the properties, comprise 'the Group'.

GROUP OBJECTIVE

The Group aims to provide shareholders with an attractive level of income together with the potential for capital growth. It can invest both directly and indirectly in an investment portfolio comprising UK, Isle of Man and Channel Islands properties. The Group's focus is on five principal commercial property sectors: office, retail, retail warehouse, industrial and leisure. Maximum borrowings are limited to 65% of gross assets. The investment portfolio is managed by ING Real Estate Investment Management (UK) Limited.

Chairman's Statement

This Half Yearly Financial Report covers the six month period from 1 January 2008 to 30 June 2008 during which time it has become clear that as far as the UK is concerned, we are operating in very difficult economic conditions. This has continued to further impact on the performance of the commercial real estate market.

Over the period inflationary pressures have increased the cost of debt, despite a reduction in base rates, weakening consumer demand and slowing economic growth. As such we have witnessed rising real estate yields and reducing capital values.

The commercial real estate market, which has in effect been re-pricing since mid 2007, has been further affected by these weakening economic conditions and as such we have seen much reduced bank lending towards the sector and some of the lowest trading activity in the market seen since the start of the decade.

According to the IPD Monthly Index, capital values have re-priced significantly in the UK, down 20% since its peak of last year, a faster rate of decline than was experienced in the last recessionary property cycle of the early 1990's. Whilst there remains downward pressure on values in the short term, increased opportunities are becoming apparent in the market which is currently polarised with very limited investment activity.

We have seen the FTSE 100 lose 15% of its value since the start of the year with the general retailing and house building sectors in particular having been significantly affected. Real estate equities, both onshore REITs and the offshore real estate sector have also been affected by this sentiment and your Company is no exception. The Board is acutely aware of the continued discount between share price and net asset value, which is in part a reflection of the forward looking nature of equity pricing, as opposed to static quarterly valuations within the underlying investment class.

Of primary importance to investors is the management of the Company through these difficult market conditions and as such the Company has continued to reduce its borrowings and make disposals. Over the reporting period, the Company made £41.7 million of disposals from the sale of four assets. The proceeds from the sales were used to repay £24.8 million of debt. Despite the difficult market, these sales realised net gains of £3.2 million having been completed at a weighted average premium of 9.2% against the December 2007 valuation.

The Company continues to deliver an income profit. For the period the Company has made an income profit of £9.1 million, compared to £8.3 million for the same period last year, which was used to meet dividend payments. This is despite the fact the underlying investment portfolio has been subject to capital value movements, having been adjusted downwards by £60.2 million.

Whilst the short term market outlook continues to be negative, we will continue with this programme of divestment to ensure the Company continues to operate within its principal banking covenants. Full details of the Company's debt position are shown in the Investment Manager's Report. The disposals made during the period and exchanged after the period end, along with those in solicitor's hands, will enable the Company to fully repay the outstanding higher rate non securitised debt through the transfer of the remaining assets into the securitised pool before the year end.

In this more challenging economic environment, the diversity and stability of the cashflow remain paramount. The portfolio has a degree of insulation from the wider economic position, benefiting in the main from upwards only rent reviews and an average contractual lease length in excess of 8.75 years.

Active management continues to play an important role in achieving the level of dividend cover and some significant transactions have been agreed over the period which are detailed further in the Investment Manager's Report. Of the £10.3 million paid in dividend over the period, only £1.2 million came from capital reserves, reflecting a dividend cover of 88%, and providing support to the current dividend policy.

The Board is mindful of both the income objective of the Company at launch, together with the overall long term interests of the Company, and will continue to monitor the market conditions in which it is operating.

Overall management fees have reduced by some £0.4 million since the corresponding period last year, although the Total Expense Ratio has increased to 1.38%, from 1.11% at December 2007, as a result of fixed costs which are set against reducing asset values.

The Board, with the support of the Investment Manager, is committed to steering this Company through these difficult market conditions thereby allowing us to enhance investor returns when market pricing provides those opportunities.

Nicholas Thompson

Chairman

27 August 2008

Responsibility Statement

We confirm to the best of our knowledge:

(a) the condensed set of Financial Statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;

(b) the interim Investment Manager’s Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim Investment Manager’s Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related parties’ transactions and changes therein).

By order of the Board

Nicholas Thompson

Chairman

Economic and Property Market Overview

Economic Overview

The belief that the credit crunch would be short-lived has now faded away, with clear signs of wider economic impact. UK GDP growth slowed over the first and second quarters of 2008 to 0.2% and 0% respectively (in quarter-on-quarter terms); reducing the annual rate of growth to 1.4% in the year to June 2008, below the economy's trend rate of growth.

Recent sentiment surveys from the consumer, business and manufacturing sectors all indicate that the slowdown in the economy is likely to continue. Household consumption has of course been a major driver behind the strength of the economy in recent years and this is now likely to change. The credit crunch has tightened lending conditions significantly, impacting on the mortgage market and therefore accelerating the decline in house prices. Inflation is also acting to increase the outlay on bills and food, therefore reducing consumers' disposable income. Finally, real wages are beginning to fall, further squeezing incomes. As a result, it is likely to be difficult for the consumer and subsequently the UK economy in the short term.

Inflation has now become a key concern, with upward pressure on oil and food prices over the period. Inflation is also being affected by the relative weakness in sterling, which is resulting in increased import prices. CPI, the Government's official measure of inflation, is currently running at 4.4% in the 12 months to July 2008, well above the Bank of England's target of 2%. RPI is currently at 5.0%. Market expectations are for inflationary pressures to persist in the short term, but with a reduction in interest rates thereafter to act as a catalyst to stimulate economic recovery.

Property Performance

Risk-aversion across all investment markets continues to lead to a re-pricing of assets. This results in a sustained outward movement of property yields. IPD initial yields have moved out from 5.2% at the end of 2007 to their current rate of 5.8%, and total returns fell to -16.1% in the 12 months to July 2008 (IPD Monthly Index July 2008).

At the average portfolio level, capital values have declined by -20.5% over the last 12 months to July 2008. This is entirely due to upward yield movement, as the rate of rental growth remains in positive territory for now.

Over the 12 months to the end of July 2008, the Retail sector continued to see the worst total returns of -16.8%. The Office sector saw almost equal returns of -16.5%, while the Industrial sector was close behind with a total return of -14.6% (IPD Monthly Index July 2008).

Figure 1: Monthly Change in IPD All Property Total Returns

	Monthly Change
Aug 2007	0.0%
Sep 2007	-1.2%
Oct 2007	-1.5%
Nov 2007	-3.6%
Dec 2007	-3.7%
Jan 2008	-1.6%
Feb 2008	-1.0%
Mar 2008	-0.8%
Apr 2008	-0.5%
May 2008	-0.7%
Jun 2008	-1.5%
Jul 2008	-1.3%

Yields continue to move out, partly due to the continued lack of transactions. According to Property Data, transactions in the first half on 2008 totalled £12 billion, almost 60% down on the same period a year ago.

Rental value growth has slowed significantly since the start of the year, easing from 3.5% in the 12 months to December 2007 to 1.8% in the 12 months to July 2008. This largely reflects the weakening in City and West End rents over the period from double to single-digit growth (IPD Monthly Index July 2008). Furthermore, growth is now dissipating across many sectors of the market as occupier demand starts to ease following the peak of the cycle.

In the underlying real estate market we expect the downturn to continue into 2009/2010, with the strength of future recovery dictated by the eventual depth of the current downswing.

Portfolio Review

Strategy

Set against a market which has continued to undergo a significant pricing correction, we have had a number of successes within the portfolio, both in terms of lettings, active management initiatives, completion of refurbishment projects and settlements of rent reviews or lease renewals. These are detailed further below.

The sharp and continued pricing adjustment to capital values has further focused the team on the need to manage the portfolio effectively, particularly within the covenants of our two debt tranches.

Our sales program, which has been constrained by the limited market activity in the investment market, has been successful and, in particular, our structured and focused sales have led to some significant gains on sales which have contributed to performance.

The underlying portfolio remains resilient; the occupancy rate has reduced only marginally, principally as a result of a planned surrender. We have continued to be able to deliver an income focused return, whilst delivering a total return broadly in line with the underlying market.

Portfolio Performance

The portfolio is still being managed to provide a strong income focused return to ensure overall performance is at least in line with IPD.

For the 6 months ending 30 June 2008, at an ungeared level, the underlying property portfolio outperformed the IPD Quarterly Benchmark on an income basis with a return of 3.3%, against the Benchmark of 2.5%.

Over the longer term the portfolio has outperformed the IPD Quarterly Benchmark on a total return basis. Over the previous 12 months the portfolio has shown a total return of -11.5% against -13.7%, and over the previous 24 months a total return of -0.2% against -2.4%.

For the period the overall total return marginally underperformed the IPD Quarterly Benchmark, with a total return of -6.2%, against -6.0%.

Review of Half Year to June 2008

Offices

The Group has an office weighting of 47.1% as at 30 June 2008, with core City and West End markets representing only 9.4% of the entire portfolio. The weighting increased slightly over the period during which only one office asset disposal was made.

Activity over the period included the re-gear of a lease at Arena Court, Maidenhead, which completed and removed void risk from an expiry in 2009. The new ten year reversionary lease benefits from fixed uplifts from the current rent of £863,000 per annum to £950,160 per annum in 2009, and £1,108,520 per annum in 2014.

At Chancery Lane, where we agreed a head tenant surrender last year for £450,000, we were pleased to remove our only under-tenant void risk through a lease renewal to an existing sub tenant at £114,712 per annum which was ahead of our rental expectations.

The Group has taken a surrender of the short term lease at Swindon, in return for a premium payment of £2.35 million, which represents nearly 90% of all outgoings until lease end including a settlement on dilapidations. The lease had approximately four years unexpired and the surrender provides the opportunity to re-let the property ahead of this and will stagger the expiry profile on the Park.

Retail

The Group has a retail weighting of 21.3% which is split between high street retail and retail warehouses at 13.8% and 7.5% respectively.

The principal activity was the two disposals in Chester and Stevenage which has led to a reduction in exposure to this sector and significant capital gains.

The Group surrendered Blockbuster Entertainment Limited's lease of Unit 1, Western Road in Mitcham on 30 June. Whilst this decreased the occupancy rate in the short term it facilitated the disposal of the unit ahead of valuation after the period end.

Industrial

The Group has a weighting of 27.7% towards the industrial sector, which has increased marginally over the period.

Our principal activity in the sector has been at the Group's largest asset, Riverway Industrial Estate, Harlow where we have achieved full occupancy for the first time since purchase. This followed the letting of Unit G2 at £209,375 per annum which exchanged during the period, but completed following the period end.

We have also achieved a number of good rent review and lease renewal settlements at our estates in Harlow and Luton.

Completion of the sale of our vacant industrial unit in Oxford occurred during the first quarter of 2008.

Acquisitions and Disposals

The significant reduction in investment market transaction volumes limited our ability to make disposals over the period. Despite this, some significant achievements were made with receipts of over £41.7 million from sales in Chester, Oxford, Stevenage and West Byfleet.

By virtue of the closed ended nature of the vehicle, we have been able to manage the disposals process in order to extract best value, even in light of the current market conditions. These disposals were made at an overall premium of over £3.2 million to the December 2007 valuation and at an average weighted yield of 4.5% and as such had a positive effect on the Company's overall dividend cover.

As Manager, we have needed to be more creative in our methods of sale, targeting owner occupiers, using the auction process as well as private treaty sales. This sales programme is continuing, where we believe we can still extract value from assets and in order to ensure we maintain appropriate levels of cash balances in order to manage effectively the debt positions within the vehicle. This is discussed in further detail below.

No acquisitions were made during the first six months of the year.

Occupancy

The occupancy rate within the portfolio remains strong and, as at the end of June 2008, stood at 94%, ahead of the IPD Quarterly Benchmark at 91.8%.

This reduced slightly over the period, principally through active management led surrenders, primarily at Swindon and Mitcham. The former resulted in a significant cash settlement from the outgoing tenants, which will be used to enhance the building, and the latter facilitated a potential disposal which exchanged contracts after the period end.

A particular success was the letting of the second largest void in the portfolio at Harlow, referred to above.

Debt

A primary objective as Investment Manager is to ensure the effective management of debt and progress has been made to reduce the level of debt over the period.

In January 2008, the Company repaid £24.8 million of its higher rate non-securitised debt and continued to make sales throughout the period in order to enhance cash balances, with a view to repaying further debt in the course of 2008.

Through fixing our cost of debt throughout the portfolio the Company benefited from an increase in the mark to market value of the swap over the period. As such the Company was not adversely affected by the increasing cost of finance over the period.

Current borrowings now stand at £282.2 million and the weighted average cost of debt is 5.09%.

In respect of our £225 million securitised facility, by virtue of the swap, the cost of this debt is fixed at 4.9% until January 2013. There are a number of covenants on this facility with the principal covenants being the Loan to Value (LTV) which should not exceed 50% and Interest Cover Ratio (ICR) which should be a minimum of 1.50. Current LTV is 39% and the ICR is 2.35. LTV is calculated as the total loan less cash held in the proceeds account as a proportion of property values. Consequently, the Manager has flexibility within this covenant and is able to reduce the overall level of LTV by increasing cash reserves through sales. Subject to market conditions it will continue to maintain cash balances through disposals in order to meet this particular covenant.

In respect of our non-securitised debt, the current facility of £57.2 million is due to be repaid in full by December 2009. This loan has a day one reducing LTV ratio, which should not exceed 73.5% for the current period, and the minimum ICR should be a minimum of 1.10. Current LTV is 70% and the ICR is 1.28. The overall cost of this facility is currently fixed at 6% until expiry. We envisage that with sales currently in hand, sufficient progress will be made on our disposals to repay the non-securitised tranche of debt before the year end.

Related Party Transactions

Related party transactions are disclosed in note 22 to the condensed set of Financial Statements.

Outlook

At present, the UK property transaction market is still very subdued and yields continue to drift upwards. The forecast for bond yields and interest rates is split between those who consider the expected economic slowdown to be sufficient to reduce inflationary pressures, and those who consider higher interest rates and bond yields necessary to temper inflation. We expect capital values will continue to decline, although by mid 2009 we would expect some stability to have returned to the market.

The Investment Property Forum (IPF) consensus forecasts published in June 2008 suggest a total return of -5.2% for 2008, 4.7% for 2009 and 8.2% in 2009, which now look somewhat optimistic. Following the period end the monthly IPD figures for July were announced. These show an overall capital decline for the month of -1.8% which illustrates the continuing downward pressure on capital values.

During the recent period of capital depreciation, property yields have already overshot what could be termed long term 'fair value'. Whilst further short-term pain is inevitable, it does presage a more optimistic medium-term outlook. In other words, the further yields move in the short term, the more they will need to rebound to return to fair value in the medium term, providing potential for capital growth following the current downward adjustment.

The primary focus in the management of this portfolio remains the balance of maintaining a high level of income return whilst continuing to manage effectively the debt position in light of market conditions. We will continue to enhance value through tenant engineering and de-risking the portfolio through lease restructuring.

Michael Morris

ING Real Estate Investment Management (UK) Limited

27 August 2008

Portfolio Analysis

Geographical

As at 30 June 2008 the regional weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
Central London	50,420	9.4
South East and Greater London	231,919	43.4
South West	28,372	5.3
Midlands	91,145	17.1
North	76,484	14.3
Scotland	15,250	2.9
Wales	32,350	6.1
Offshore UK	8,250	1.5
	534,190	100.0

Sector

As at 30 June 2008 the sector weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
Offices	251,847	47.2
Industrial	147,888	27.7
Retail	73,905	13.8
Retail Warehouse	40,075	7.5
Leisure/Other	20,475	3.8
Total	534,190	100.0

Covenant Strength

The covenant strength, based as a percentage of current passing rent by risk rating, as at 30 June 2008 is summarised as follows:

	Portfolio %
Negligible and Government risk	48.6
Low risk	25.3
Low-medium risk	9.1
Medium-high risk	4.8
High risk	9.4
Ineligible/not matched	2.8
	100.0

Longevity of Income

As at 30 June 2008, based as a percentage of current net annual rent, the length of the leases to the first termination is summarised as follows:

Years	£000	%
Up to 5	14,136	40.2
5 to 10	10,651	30.2
10 to 15	6,840	19.4
15 to 25	2,348	6.7
25 and over	1,244	3.5
Total	35,219	100.0

Top Ten Tenants

The top ten tenants, based as a percentage of current passing rent, as at 30 June 2008 is summarised as follows:

	% of Passing Rent
TNT UK Limited	7.6
Merrill Lynch Europe Plc	3.3
Cadence Design Systems Limited	2.8
Sybase (UK) Limited	2.5
Tanfield Group Plc	2.4
Barclays Sharedealing	2.4
Tibbett & Britten Limited	2.4
Menzies Hotels Property No.20 Limited	2.2
Computer Associates UK Limited	2.1
S P Group Limited	1.9
	29.6

LIST OF PROPERTIES BY VALUE BAND AT 30 JUNE 2008

Properties in excess of £20million	Sector
Unit 5320, Magna Park, Lutterworth, Leics.	Industrial
Units A-G2 River Way Industrial Estate, Harlow, Essex	Industrial
Phase II, Parc Tawe, Link Road, Swansea	Retail Warehouse

Properties between £15million to £20million
Lincoln Place (Block 2), Farringdon Road, London EC1	Office
Colchester Business Park, The Crescent, Colchester, Essex	Office
Boundary House, Jewry Street, London EC3	Office

Properties between £10million to £15million
Angel Gate Office Village, City Road, London EC1	Office
Westlea Campus, Chelmsford Road, Swindon, Wilts.	Office
Angouleme Way Retail Park, Bury, Greater Manchester	Retail Warehouse
Unit 3220, Magna Park, Lutterworth, Leics.	Industrial
Regency Wharf , Broad Street, Birmingham	Leisure
L'avenir, Opladen Way, Westwick, Bracknell, Berks.	Office
56,Castle Street, 2/12 English Street and 12-21 St Cuthberts Lane, Carlisle, Cumbria	Retail
1-3 Chancery Lane, London WC2	Office
Arena Court, Crown Lane, Maidenhead, Berks.	Office
401 Grafton Gate East, Milton Keynes, Bucks.	Office
City Link House & Tolley House, Addiscombe Road, Croydon	Office
Vigo 250, Birtley Road, Washington, Tyne and Wear	Industrial

Properties between £5million to £10million
134/152 Balham High Road, London, SW12	Retail
Business Centre, Molly Millars Lane, Wokingham, Berks.	Industrial
171 Bath Road, Slough, Berks.	Office
Sentinel House, Ancells Business Park, Fleet, Hants.	Office
53/55/57 Broadmead, Bristol	Retail
Scots Corner, High Street/Institute Road, Birmingham	Retail
17/19 Fishergate, Preston	Retail
9/12 St James Parade, Bristol	Office
Units 1-13 Dencora Way, Sundon Park, Luton, Beds.	Industrial
Unit 2, Ravensbank Business Park, Redditch, Worcs.	Industrial
Lawson Mardon Buildings, Kettlestring Lane, York	Industrial
Waterside Park, Longshot Lane, Bracknell, Berks.	Office
Notcutt House, 36 Southwark Bridge Road, London SE1	Office
Longcross Court, Newport Road, Cardiff	Office
Trident House, 42/48 Victoria Street, St Albans, Herts.	Office
Provident House, Ballacottier Business Park, Isle Of Man	Office
Northampton Business Park, 800 Pavilion Drive, Northampton	Office
Atlas, Third Avenue, Globe Park, Marlow, Bucks.	Office
3 The Boulevard, Croxley Green, Watford, Herts.	Office
1 Boulevard, Shire Park, Welwyn Garden City, Herts.	Office
Queens House, 17/29 St Vincent Place, Glasgow	Office
Easter Court, Gemini Park, Warrington	Industrial
Zenith, Downmill Road, Bracknell, Berks.	Industrial
Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire	Industrial
Strathmore Hotel, Arndale Centre, Luton, Beds.	Leisure

Properties under £5million
Heron Industrial Estate, Spencers Wood, Reading	Industrial
72/78 Murraygate, Dundee	Retail
7&9 Warren Street, Stockport	Retail
6/12 Parliament Row, Hanley, Worcs.	Retail
Merchants House, Crook Street, Chester	Office
Waterside House, Kirkstall Road, Leeds	Office
Leys House, 86/88 Woodbridge Road, Guildford, Surrey	Office
477 Alexandra Parade, Glasgow	Retail
Units 1- 3, 18/28 Victoria Lane, Huddersfield, West Yorks.	Retail
593/599 Fulham Road, London SW6	Retail
9/17 Western Road, Mitcham, Surrey	Retail Warehouse

Risk Management

There are a number of potential risks and uncertainties which could have a material impact on the Group's long term performance and could cause actual results to differ materially from expected and historic results. The main risks and how they are mitigated are shown below;

Issue	Risk	Mitigation

Market risk	The Group operates in the property sector which is known to be cyclical.	The Investment Manager undertakes significant research to ensure that the strategy of the Group can be constantly amended to take account of changes in the prevailing market.
Geographical risk	Property market returns can vary significantly between geographical areas.	By maintaining a geographically diversified portfolio the Investment Manager can minimise exposure to one particular market.
Investment risk	Identifying good investments ahead of competitors.	The Investment Manager has a dedicated acquisitions team which assists in identifying, negotiating and completing acquisitions and sales according to strict returns criteria.
Letting risk	The risk of being unable to let the majority of lettable space.	The Investment Manager maintains close contact with leasing agents and utilises its research team to ensure exposure to less favourable markets is minimised.
Valuation risk	The property portfolio is susceptible to fluctuations in property valuations.	By maintaining a diversified portfolio the Investment Manager may spread the risk of a large downturn in a specific class of asset
Expertise risk	The risk of being unable to attract appropriate individuals to manage the portfolio.	The Investment Manager has a policy of ensuring that remuneration is linked to the market. The Investment Manager's agreement is regularly reviewed by the Board.
Liquidity risk	The risk that insufficient funds are available for operating costs, maintenance of debt and asset management initiatives.	Cashflows are regularly reviewed and detailed forecasts prepared to ensure sufficient resources exist. Funding maturities are spread over a range of time scales, and good relationships are maintained with lenders. Covenant requirements are also regularly reviewed and reported regularly to the Board.
Interest rate risk	The risk of fluctuation of interest rates on loans.	Interest payable on floating rate loans are fixed by way of interest rate swaps to minimise exposure.

Independent Review Report

INDEPENDENT REVIEW REPORT TO ING UK REAL ESTATE INCOME TRUST LIMITED ('The Company')

We have been engaged by the Company to review the condensed set of Financial Statements in the Half Yearly Financial Report for the six months ended 30 June 2008 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cashflow Statement and related notes 1 to 23. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company 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 Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the Annual Financial Statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs). The condensed set of Financial Statements included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting'.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Half Yearly Financial Report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte & Touche LLP

Chartered Accountants

St Peter Port, Guernsey

Note: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.

Legislation in Guernsey governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Financial Statements

Condensed Consolidated Income Statement For the period from 1 January to 30 June 2008
				1 Jan to 30 June 2008	1 Jan to 30 June 2007	1 Jan to 31 December 2007
				Unaudited	Unaudited	Audited
	Notes	Income	Capital	Total	Total	Total
		£000	£000	£000	£000	£000
Income
Rental income	3,12	17,825	-	17,825	19,862	40,902
Service charges recharged to tenants		1,770	-	1,770	1,729	3,999
Other operating income		2,442	-	2,442	1,128	2,795
Total operating income		22,037	-	22,037	22,719	47,696

Gains and losses on investments
Realised gains arising on disposal of investment properties	12	-	3,243	3,243	179	4,085
Unrealised (losses)/gains on revaluation of investment properties	12	-	(60,221)	(60,221)	16,202	(46,775)
Unrealised losses on revaluation of finance leases	12	-	(257)	(257)	-	-
Total gains and losses on investments		-	(57,235)	(57,235)	16,381	(42,690)

Expenses
Property operating expenses	12	(1,109)	-	(1,109)	(1,545)	(2,935)
Service charge costs		(1,770)	-	(1,770)	(1,729)	(3,999)
Management expenses	5	(2,880)	-	(2,880)	(3,259)	(6,496)
Other operating expenses	6	(1,293)	-	(1,293)	(1,011)	(1,669)
Total operating expenses		(7,052)	-	(7,052)	(7,544)	(15,099)

Profit/(loss) before finance costs and tax		14,985	(57,235)	(42,250)	31,556	(10,093)

Financing
Interest receivable	7	1,424	-	1,424	862	1,914
Interest payable	7	(7,335)	-	(7,335)	(7,702)	(16,470)
Unrealised gains/(losses) on revaluation of interest rate swaps	7	-	8,393	8,393	9,653	(3,079)
Total finance costs		(5,911)	8,393	2,482	2,813	(17,635)

Profit/(loss) before tax		9,074	(48,842)	(39,768)	34,369	(27,728)
Tax	8	-	-	-	-	460

Profit/(loss) for the year/period		9,074	(48,842)	(39,768)	34,369	(27,268)

(Loss)/earnings per share
Basic and diluted	10			(15.2)p	10.4p	(8.2)p

The total column of this statement represents the Group's Condensed Consolidated Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary income return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the parent Company. There are no minority interests. Notes 1 to 23 form part of these Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity For the period from 1 January to 30 June 2008
	Notes	Share Capital	Share Premium Account	Distributable Reserve	Retained Earnings	Total
		£000	£000	£000	£000	£000

Balance as at 31 December 2006		-	31,389	298,610	88,327	418,326

Net profit for the period		-	-	-	34,369	34,369
Dividends paid	9	-	-	-	(10,360)	(10,360)

Balance as at 30 June 2007		-	31,389	298,610	112,336	442,335

Net loss for the period		-	-	-	(61,637)	(61,637)
Dividends paid	9	-	-	-	(10,347)	(10,347)
Repurchase of ordinary shares	18	-	-	(834)	-	(834)

Balance as at 31 December 2007		-	31,389	297,776	40,352	369,517

Net loss for the period		-	-	-	(39,768)	(39,768)
Dividends paid	9	-	-	(1,250)	(9,074)	(10,324)

Balance as at 30 June 2008		-	31,389	296,526	(8,490)	319,425

Notes 1 to 23 form part of these Consolidated Financial Statements.

Condensed Consolidated Balance Sheet As at 30 June 2008
		30 June 2008	30 June 2007	31 Dec 2007
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000

Non-current assets
Investment properties	12	536,092	715,531	633,206
Total non-current assets		536,092	715,531	633,206

Current assets
Accounts receivable	13	6,699	5,175	6,018
Cash and cash equivalents	14	63,779	33,929	51,150
Total current assets		70,478	39,104	57,168

Total assets		606,570	754,635	690,374

Current liabilities
Accounts payable and accruals	15	(17,001)	(18,426)	(17,496)
Total current liabilities		(17,001)	(18,426)	(17,496)

Non-current liabilities
Loans and borrowings	16	(270,144)	(293,874)	(303,361)
Total non-current liabilities		(270,144)	(293,874)	(303,361)

Total liabilities		(287,145)	(312,300)	(320,857)

Net assets		319,425	442,335	369,517

Equity
Ordinary share capital	18	-	-	-
Share premium account	19	31,389	31,389	31,389
Distributable reserve	19	296,526	298,610	297,776
Retained (losses)/earnings		(8,490)	112,336	40,352

Total equity		319,425	442,335	369,517

Net asset value per share	21	0.97	1.33	1.12

Notes 1 to 23 form part of these Consolidated Financial Statements.

These Consolidated Financial Statements were approved by the Board of Directors on 27 August 2008 and signed on its behalf by:

Robert Sinclair Trevor Ash

Director Director

Condensed Consolidated Cash Flow Statement For the period from 1 January to 30 June 2008
		1 Jan to 30 June 2008	1 Jan to 30 June 2007	1 Jan to 31 December 2007
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000

(Loss)/profit before tax		(39,768)	34,369	(27,728)

Adjusted for
Interest receivable	7	(1,424)	(862)	(1,914)
Interest payable	7	7,335	7,702	16,470
Realised and unrealised gains and losses on investments		48,842	(26,034)	45,712
Amortisation of finance costs	6	260	280	544
Cashflows from operating profit before working capital changes		15,245	15,455	33,084

(Increase)/decrease in trade and other receivables		(680)	1,981	1,419
Decrease in trade and other payables		(755)	(6,001)	(7,188)

Net cash flows from operating activities		13,810	11,435	27,315

Cash flows from investing activities
Purchase of investment properties	12	(1,791)	(4,018)	(5,913)
Disposal of investment properties	12	41,670	7,035	34,343
Interest received	7	1,424	862	1,847
Net cash flows from investing activities		41,303	3,879	30,277

Cash flows from financing activities
Repurchase of ordinary shares	19	-	-	(834)
Repayment of long term borrowings	16	(24,825)	(1,196)	(6,469)
Interest paid on loans	7	(7,335)	(7,702)	(16,305)
Dividends paid	9	(10,324)	(10,360)	(20,707)
Net cash flows from financing activities		(42,484)	(19,258)	(44,315)

Net increase in cash and cash equivalents		12,629	(3,944)	13,277

Cash and cash equivalents at beginning of year/period		51,150	37,873	37,873

Cash and cash equivalents at end of year/period	14	63,779	33,929	51,150

Notes 1 to 23 form part of these Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2008

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.

These Half Yearly Financial Statements are prepared for the period from 1 January to 30 June 2008, with unaudited comparatives for the period from 1 January to 30 June 2007. Comparatives are also provided from the audited Financial Statements for the year ended 31 December 2007.

The financial information for the year ended 31 December 2007 is derived from the Financial Statements delivered to the UK Listing Authority and does not constitute statutory accounts. The Auditors reported on those Financial Statements, their report was unqualified and did not contain a statement under section 64 of The Companies (Guernsey) Law, 2008.

2. Significant accounting policies

The Annual Financial Statements of ING UK Real Estate Income Trust Limited are prepared in accordance with International Financial Reporting Standards ('IFRS'). The condensed set of Financial Statements included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

The same accounting policies, presentation and methods of computation are followed in the condensed set of Financial Statements as applied in the Group's latest annual audited Financial Statements.

At the date of authorisation of these Financial Statements the following Standard applicable to the Group, which has not been applied in these Financial Statements, was in issue but not yet effective:

IFRS 8 Operating Segments

The Directors anticipate that the adoption of the above Standard in future years will not have a material impact on the Financial Statements of the Group when the Standard comes into force for the period commencing 1 January 2009.

3. Rental income

Rent receivable is stated exclusive of Value Added Tax and arose wholly from continuing operations in the United Kingdom and the Isle of Man.

4. 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 and the Isle of Man and therefore no segmental reporting is required. The portfolio consists of 54 commercial properties, which are in the office, retail, retail warehouse, industrial and leisure sectors.

5. Management expenses

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Investment Manager's fees	2,880	3,259	6,496

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 £600 million

b) one quarter of 82.5 basis points of gross property assets in excess of £600 million and up to and including £800 million

c) one quarter of 75 basis points of gross property assets in excess of £800 million

d) one quarter of 40 basis points of cash assets

6. Other operating expenses

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Valuation expenses	93	133	201
Audit fees	59	40	85
Amortisation of finance costs (note 13)	260	280	544
Other expenses	881	558	839
	1,293	1,011	1,669

During the period £nil was paid to the auditors, Deloitte & Touche LLP, in respect of non-audit services other than for tax services (period ended 30 June 2007: £12,000, year ended 31 December 2007: £14,500).

£67,000 was paid during the period to the Group's tax advisors, Deloitte & Touche LLP (period ended 30 June 2007: £nil, year ended 31 December 2007: £75,600).

The Group has no employees other than the Directors.

7. Finance costs

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Interest receivable from financial assets that are not at fair value through profit and loss	1,424	862	1,914
Interest payable on loans at amortised cost	(7,335)	(7,702)	(16,470)
Unrealised gains/(losses) on revaluation of interest rate swaps at fair value through profit and loss	8,393	9,653	(3,079)
	2,482	2,813	(17,635)

8. Tax

The credit for the period is:

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
UK income tax at 20% on UK rental income (year ended 31 December 2007: 22%)	-	-	(460)

The Group is exempt from Guernsey taxation. The Directors 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 investment properties after deducting allowable debt financing costs and allowable expenses. As tax losses have been incurred, there should be no tax liability in the current period.

9. Dividends

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
Declared and paid:	£000	£000	£000
Interim dividend for the period ended 31 December 2006: 1.5625 pence	-	5,180	5,180
Interim dividend for the period ended 31 March 2007: 1.5625 pence	-	5,180	5,180
Interim dividend for the period ended 30 June 2007: 1.5625 pence	-	-	5,180
Interim dividend for the period ended 30 September 2007: 1.5625 pence	-	-	5,167
Interim dividend for the period ended 31 December 2007: 1.5625 pence	5,162	-	-
Interim dividend for the period ended 31 March 2008: 1.5625 pence	5,162	-	-
	10,324	10,360	20,707

The interim dividend of 1.5625 pence per ordinary share in respect of the period ended 30 June 2008 has not been recognised as a liability in accordance with IFRS as it was declared after the period end. A dividend of £5,163,000 will be paid on 29 August 2008.

10. Earnings per share

Basic earnings per share is calculated by dividing the net (loss)/profit for the period attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares in issue during the period.

The following reflects the income and share data used in the basic and diluted earnings per share calculations:

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007

Net (loss)/profit attributable to ordinary shareholders of the Company from continuing operations (£000)	(39,768)	34,369	(27,268)

Weighted average number of ordinary shares for basic and diluted earnings per share	330,401,300	331,500,000	331,350,393

11. Investments

The Company had the following principal subsidiaries and sub-subsidiaries at 30 June 2008, 30 June 2007 and as at 31 December 2007.

Name	Place of incorporation	Ownership proportion
ING UK Real Estate (Property) Limited	Guernsey	100%
ING (UK) REIT (SPV) Limited	Guernsey	100%
ING (UK) Listed Real Estate	Guernsey	100%
ING UK Real Estate (Property) No.2 Limited	Guernsey	100%
ING (UK) REIT (SPV No.2) Limited	Guernsey	100%
Merbrook Business Property Unit Trust*	Jersey	100%
Merbrook Prime Retail Property Unit Trust*	Jersey	100%
Merbrook Bristol Property Unit Trust*	Jersey	100%
Merbrook Swindon Property Unit Trust*	Jersey	100%
ING (UK) Listed Real Estate Issuer PLC	England & Wales	-

* - ('the JPUTS')

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 unit trust ('the GPUT').

On 18 January 2008 ING UK Real Estate Trust (Property) No. 2 Limited and ING (UK) REIT (SPV No. 2) Limited sold their units in the Merbrook Bristol Property Unit Trust and Merbrook Prime Retail Property Unit Trust to the GPUT.

The GPUT now owns 99% of the units in Merbrook Swindon Property Unit Trust, Merbrook Prime Retail Property Unit Trust and Merbrook Bristol Property Unit Trust, which are each registered as Jersey unit trusts. The remaining units are held by ING UK Listed Real Estate Limited, which in turn is owned in equal shares by ING UK Listed Real Estate Nominee (No.1) Limited ('Nominee 1') and the GPUT. Shares in Nominee 1 are held in trust by Admiral Nominees Limited and Nelson Representatives Limited on behalf on The Company. ING UK Real Estate (Property) No.2 Limited and ING (UK) REIT (SPV No.2) Limited own 100% of the units in Merbrook Business Property Unit Trust, a Jersey unit trust.

As these transactions were all inter-Group they were not accounted for using acquisition accounting, rather they were accounted for using merger accounting as prescribed for Group reorganisations.

The subsidiaries were incorporated to provide a tax efficient structure for the Company to invest in the underlying property investments.

Under the principles of SIC 12 the Group has consolidated the results of ING (UK) Listed Real Estate Issuer PLC, a Special Purpose Entity (the 'SPE'), that provides funding to the Group. Under the terms of the securitisation documents, the Group has an obligation to the SPE in respect of any amounts due or payable under the swap agreements and hence accounts for movements in the fair value of these swaps through the Income Statement. The Group does not own any of the share capital of the SPE.

12. Investment properties

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Opening valuation	631,047	702,167	702,167
Additions	1,791	4,018	5,913
Disposals	(41,670)	(7,035)	(34,343)
	591,168	699,150	673,737
Gains and losses on investments held at fair value through profit and loss:
Gains on disposals	3,243	179	4,085
(Deficit)/surplus on revaluation	(60,221)	16,202	(46,775)
Closing valuation	534,190	715,531	631,047
Valuations of assets held under finance leases	1,902	-	2,159
Total investment properties	536,092	715,531	633,206

Historic cost	585,302	629,949	611,384

The investment properties were valued by King Sturge LLP, Chartered Surveyors, as at 30 June 2008, on the basis of Market Value in accordance with the Royal Institution of Chartered Surveyors Valuation Standards.

The Group's borrowings (note 16) are secured by a first ranking fixed charge over the investment properties held.

Rental income and property expenses arise from the properties shown above.

13. Accounts receivable

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Tenant debtors	4,683	2,905	4,011
Prepayments	270	-	-
Capitalised finance costs	1,746	2,270	2,007
	6,699	5,175	6,018

The loan arrangement costs as at 30 June 2008 are £2,882,000 (30 June 2007: £2,882,000, 31 December 2006: £2,882,000). These are amortised over the lives of the loans. For the period ended 30 June 2008 £260,000 of these costs were written off to the Income Statement (period ended 30 June 2007: £280,000, year ended 31 December 2007: £544,000).

The Directors consider that the carrying amount of accounts receivable approximates their fair value.

14. Cash and cash equivalents

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Cash at bank and in hand	7,907	10,358	10,564
Short term deposits	55,872	23,571	40,586
	63,779	33,929	51,150

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 carrying amounts of these assets approximate their fair value.

15. Accounts payable and accruals

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Accruals	5,723	5,868	5,867
Deferred rental income	8,177	8,725	8,209
VAT liability	1,348	1,394	1,510
Other tax payable	-	460	-
Trade creditors	411	963	639
Other creditors	1,211	1,016	1,140
Obligations under finance leases (note 20)	131	-	131
	17,001	18,426	17,496

The Directors consider that the carrying amount of accounts payable and accruals approximates their fair value.

16. Loans and borrowings

	Maturity	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
		£000	£000	£000
Floating rate notes	31 January 2013	225,000	225,000	225,000
Bank loan	4 December 2009	57,156	87,254	81,981
Interest rate swaps		(14,040)	(18,380)	(5,648)
Obligations under finance leases (note 20)		2,028	-	2,028
		270,144	293,874	303,361

On 20 December 2005 the Group issued £200 million of AAA rated seven year loan notes to the debt market. The interest payable on these notes is fixed at 4.795% by means of an interest rate swap. On 6 July 2006 a further £25 million of loan notes were issued on the same terms, with the interest payable fixed at 5.3804% by means of a further swap. The loan notes are secured over the investment properties held by the GPUT, and are repayable on 31 January 2013. The loan notes were issued by ING (UK) Listed Real Estate Issuer PLC, a Special Purpose Entity that is consolidated under the principles of SIC 12, see Note 11.

On 4 December 2006 the Group entered into a three year term loan with J P Morgan for £93 million. The full amount was drawn down on that date, with £4,550,000 repaid on 11 December 2006, following the disposal of an investment property. Subsequent disposals have lead to further repayments of the loan. Interest on the loan is fixed at 5.20% by a further interest rate swap, plus a margin payment of between 60 and 80 basis points depending on the loan to value ratio at the time. This is currently 80 basis points. The loan is repayable in full on 4 December 2009, and is secured over the units held in the Merbrook Business Property Unit Trust and the investment properties held within that JPUT.

A repayment of £24.8 million was made towards the bank loan during the period.

The interest rate swaps mature on the same dates as the associated borrowings.

The weighted average interest rate paid on the Group's borrowings for the period was 5.091% (30 June 2007: 5.1786%, 31 December 2007: 5.1645%).

16. Loans and borrowings (continued)

The fair value of the loans may be lower than the book value given that, at the present time, lenders are less willing to provide financing for the type of assets held by the Group at the interest annually paid by the Group. However, the Group does not fair value its debt obligations nor is it practical or possible to measure the fair value of the loan due to the current market conditions.

The loan agreement for the floating rate notes states that for the securitised pool of assets the Loan to Value ratio should not exceed 50% and the Interest Cover Ratio should be a minimum of 1.50. The additional JP Morgan loan agreement determines that for the assets falling under this agreement the Loan to Value ratio should not exceed 73.5% and the minimum Interest Cover Ratio should be a minimum of 1.10. The Group has not breached any of the loan covenants either in the current period or in the previous accounting periods.

17. Contingencies and capital commitments

The Group has entered into contracts at Longcross Court, Cardiff with commitments outstanding at 30 June 2008 of approximately £500,000. Other smaller commitments of approximately £100,000 across the portfolio bring the total commitments outstanding at 30 June 2008 to £600,000 (30 June 2007: £nil, 31 December 2007: £1,000,000). There are no other contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements as at 30 June 2008.

18. Ordinary Share Capital

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
Authorised:	£000	£000	£000

Unlimited number of ordinary shares of no par value	-	-	-

Issued and fully paid:

330,401,300 ordinary shares of no par value (period end 30 June 2007: 331,500,000, year ended 31 December 2007: 330,401,300)	-	-	-

The Company has one class of ordinary shares which carry no right to fixed income.

The Company issued 252.2 million ordinary shares of no par value at an issue price of £1 per share by means of an initial public offering on 25 October 2005. The Company also issued a further 52.8 million ordinary shares of no par value at £1 per share on the same date as consideration for the GPUT.

The Company issued a further 26.5 million Ordinary Shares of no par value at an issue price of 121.5 pence by means of a placing on 7 November 2006.

During November 2007 the Company repurchased 1,098,700 ordinary shares for cancellation at an average price of 75.76 pence per share, leaving ordinary shares in issue of 330,401,300. Under Guernsey law, a capital redemption reserve is created for the redemption of these ordinary shares. As the nominal value of these shares is £nil the amount to be transferred to this reserve is £nil.

The Directors have authority to buy back up to 14.99% of the Company's ordinary shares in issue subject to the annual renewal of the authority from shareholders. Any buy back of ordinary shares will be made subject to Guernsey law, and the making and timing of any buy backs will be at the absolute discretion of the Board.

19. Share Premium and Distributable Reserve

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000
Opening balance on Distributable Reserve	297,776	298,610	298,610

Repurchase of ordinary shares	-	-	(834)
Dividends paid	(1,250)	-	-

Closing balance on Distributable Reserve	296,526	298,610	297,776


Opening and Closing balance on Share Premium	31,389	31,389	31,389

Distributable reserves may be used for the purpose of paying dividends or buying back shares.

20. Obligations under finance leases

	1 Jan to 30 June 2008	Year ended 31 Dec 2007
	£000	£000
Future minimum payments due
Within one year	139	139
In the second to fifth years inclusive	695	695
After five years	10,998	10,998
	11,832	11,832
Less: finance charges allocated to future periods	(9,673)	(9,673)
Present value of minimum lease payments	2,159	2,159

The present value of minimum lease payments is analysed as follows:

	1 Jan to 30 June 2008	Year ended 31 Dec 2007
		£000
Within one year	131	131
In the second to fifth years inclusive	653	653
After five years	1,375	1,375
	2,159	2,159

Operating leases where the Group is lessor

Property rental income earned during the period was £17.8 million. The investment properties are expected to generate rental yields of 6.2% on an ongoing basis.

At the Balance Sheet date, the Group had contracted with tenants for the following annual lease payments:

	1 Jan to 30 June 2008	1 Jan to 30 June 2007	Year ended 31 Dec 2007
	£000	£000	£000

Within one year	34,118	38,353	36,435
In the second to fifth years inclusive	120,046	132,231	152,659
After five years	219,705	230,593	233,448
	373,869	401,177	422,542

21. Net asset value

The net asset value per ordinary share is based on net assets at the period end and on 330,401,300 (30 June 2007: 331,500,000, 31 December 2007: 330,401,300) ordinary shares, being the number of ordinary shares in issue at the period end.

At 30 June 2008, the Company had a net asset value per ordinary share of £0.97 (period ended 30 June 2007: £1.33, year ended 31 December 2007: £1.12).

22. Related party transactions

During the period the Investment Manager was paid a total of £2,880,000 (30 June 2007: £3,259,000, 31 December 2007: £6,496,000) in respect of the property management and administration services. As at 30 June 2008 the Group owed £1,300,000 to the Investment Manager (30 June 2007:£1,400,000, 31 December 2007: £1,300,000).