Final Results

ISIS Property Trust 2 Limited 17 September 2007 To: RNS Date: 17 September 2007 From: ISIS Property Trust 2 Limited Results in respect of the Year Ended 30 June 2007 Financial Highlights â€¢ Net asset value total return since launch of 92.5 per cent â€¢ Net asset value per share increased by 12.2 per cent to 159.6 pence â€¢ Dividend yield of 5.6 per cent based on year end share price â€¢ Dividend of 7.0 pence per share for the year, an increase of 3.7 per cent Chairman's Statement The Chairman, Quentin Spicer, stated: The Company had another excellent year, recording a net asset value total return of 17.4 per cent. The Company's property portfolio produced an un-geared total return of 13.2 per cent, which compared favourably against a total return of 12.4 per cent for the Investment Property Databank UK Monthly Index (the 'IPD' Monthly Index) over the same period. The additional returns on net asset value can be attributed to the positive effects of gearing and an increase in the swap valuation. Net asset value total return since launch is 92.5 per cent, significantly ahead of forecasts at that time. However, in a tougher environment for property as an asset class, the Company's share price fell 11.9 per cent over the year from 142.50 pence per share at 30 June 2006 to 125.50 pence at 30 June 2007. This fall resulted in the shares showing a discount of 21.4 per cent, against a premium of 0.2 per cent a year earlier, a trend that has been seen across the peer group and the wider quoted property sector. Interest rates in the UK have increased five times during the last twelve months, by 1.25 per cent in total and the all-property initial yield is now lagging that of risk-free gilts. This has been a key factor behind the widening of discounts. Property Market and Portfolio The UK property market experienced a change in sentiment during the year, as higher interest rates started to slow capital growth. Secondary property in particular is becoming vulnerable to a correction in market values, with town centre retail being the most susceptible. Offices, especially in Central London, are the leading sector and are expected to continue to outperform. Having experienced three years of exceptional capital returns, the possibility of further yield compression to support this seems limited. Despite this change, there has still been considerable activity in direct property, with sizeable sums invested in the first half of 2007, particularly by overseas investors. This interest is mainly in prime property with secondary properties experiencing a weakening demand. The Managers continued with their strategy of repositioning the portfolio away from standard retail units and concentrating further investment in additional high quality properties, with the emphasis on out of town retail and regional offices. Three properties were sold during the year for an aggregate of Â£26.6 million. These sales were all in excess of their market valuations and realised gains of Â£8.8 million against their original purchase price. Although there were no purchases during the year, the Company completed the purchase of an office building, post year end, at a cost of Â£14.4 million. This building is in Edinburgh and offers good prospects of rental growth and some definite opportunities for asset management. The void rate within the Company's property portfolio fell from 3.2 per cent at 30 June 2006 to a very low level of 0.3 per cent at the year end, the Managers having successfully let all but the smallest of vacant space, an indication of the high quality of the portfolio. This level of void sits substantially below the IPD average of 7.0 per cent and is extremely encouraging. The amount of rental income from negligible and low risk tenants was 66.4 per cent as at 30 June 2007, which compares with the industry average of 68.5 per cent, although the recent purchase in Edinburgh will improve the risk profile of the portfolio. The average lease length of the portfolio fell during the year to 9.1 years, assuming all breaks implemented, compared with 10.1 years at 30 June 2006. A number of rent negotiations are ongoing which should increase this figure in the longer term. Dividends Three interim dividends of 1.73 pence per share have been paid during the year. After taking account of rental growth achieved since launch, combined with the interest rate savings achieved from the loan refinancing in January 2007, the Board has taken the decision to increase the fourth interim dividend by 4.6 per cent to 1.81 pence per share, giving a total dividend for the year ended 30 June 2007 of 7.0 pence per share. As previously announced, this dividend will be paid on 28 September 2007 to shareholders on the register on 7 September 2007. In the absence of a material change in circumstances, it is the intention of the Board to maintain the quarterly dividend at 1.80 pence per share, giving a total dividend for the year ending 30 June 2008 of 7.2 pence per share. Borrowings The use of borrowings continued to be an effective strategy during the year in a market of increasing property values, providing enhanced returns to shareholders. The gearing level as at 30 June 2007 was 25.5 per cent, which compares with 30.9 per cent as at 30 June 2006 and 40.0 per cent at launch on 1 June 2004. As described in my interim Chairman's Statement, on 10 January 2007 the Company repaid in full its existing debt facility of Â£70.7 million with The Royal Bank of Scotland plc ('RBS') and entered into a new Â£75 million facility with Lloyds TSB Scotland plc ('LTSB'). The term of this facility is until January 2017. The margin under the new debt facility is 50 basis points over LIBOR for the first three years and 45 basis points over LIBOR for the remaining period. The other terms of the facility are substantially identical to the terms of the previous f acility with RBS. The Company has initially drawn down Â£60 million under the new facility. At the same time, the Company terminated the interest rate swap with RBS and entered into a new interest rate swap transaction with LTSB. Under this agreement, the interest on the amount initially drawn down under the new facility has been fixed at an aggregate interest rate (including margin) of 5.655 per cent per annum for the first three years and 5.605 per cent per annum thereafter. This compares to a fixed rate of interest of 6.265 per cent under the previous facility. The Board is pleased with the fixed rate of interest achieved, which is currently below The Bank of England base rate and the interest rate swap is therefore shown as an asset in the Balance Sheet. The Board is comfortable with the current level of gearing, particularly as the borrowings are on a revolving credit facility, giving the Company additional flexibility to manage the ongoing level of debt in an efficient manner. Outlook The UK commercial property market has already started to show signs of a slowdown so far in 2007 and the Managers forecast is for single digit total returns in the next couple of years. Good property selection, active asset management and strength of tenant covenant will be crucial in driving performance. The Managers are considering various asset enhancing initiatives as they look to refresh the portfolio in the coming months. They will look to sell some targeted properties and repurchase high quality stock over the longer term. They will remain focussed on keeping voids at their current low rate and limiting risk by improving the covenant strength where opportunities arise. The Company is well placed to perform, with flexible borrowings at a low fixed rate of interest in the current market. This takes the pressure off having to reinvest any sales proceeds immediately and the Managers can therefore concentrate on identifying the right type of property, with clear growth prospects and good letting potential. All enquiries to: Ian McBryde F&C Asset Management plc Tel: 0131 465 1000 The Company Secretary Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL Tel: 01481 745001 ISIS Property Trust 2 Limited Consolidated Income Statement for the year ended 30 June 2007 Year ended 30 June 2007 Year ended 30 June 2006 (unaudited) (audited) Â£'000 Â£'000 Revenue Rental income 11,809 12,547 Gains on investment properties 16,832 31,158 --------- --------- Total income 28,641 43,705 --------- --------- Expenditure Investment management fee (2,006) (1,883) Other expenses (956) (913) --------- --------- Total expenditure (2,962) (2,796) --------- --------- Net operating profit before finance costs 25,679 40,909 --------- --------- Net finance costs Interest revenue receivable 747 201 Finance costs (4,024) (4,508) Loss on termination of interest rate swap (1,610) - --------- --------- (4,887) (4,307) --------- --------- Net profit from ordinary activities before taxation 20,792 36,602 Taxation on profit on - - ordinary activities --------- --------- Net profit for the year 20,792 36,602 ========= ========= Earnings per share 18.8p 33.1p ISIS Property Trust 2 Limited Consolidated Balance Sheet as at 30 June 2007 30 June 2007 30 June 2006 (audited) (unaudited) Â£'000 Â£'000 Non-current assets Investment properties 218,025 227,293 Interest rate swap 3,397 - --------- --------- 221,422 227,293 Current assets Trade and other receivables 2,870 2,939 Cash and cash equivalents 16,945 5,051 --------- --------- 19,815 7,990 --------- --------- Total assets 241,237 235,283 ----------- ----------- Non-current liabilities Interest-bearing bank loan (60,326) (71,330) Interest rate swap - (2,652) --------- --------- (60,326) (73,982) Current liabilities Trade and other payables (4,534) (4,165) --------- --------- Total liabilities (64,860) (78,147) --------- --------- --------- --------- Net assets 176,377 157,136 ========= ========= Represented by: Share capital 1,105 1,105 Special distributable reserve 99,648 103,288 Capital reserve 72,227 55,395 Other reserve 3,397 (2,652) --------- --------- Equity shareholders' funds 176,377 157,136 ========= ========= Net asset value per share 159.6p 142.2p ISIS Property Trust 2 Limited Consolidated Statement of Changes in Equity For the year ended 30 June 2007 (unaudited) Special Share Distributable Capital Other Revenue Capital Reserve Reserve Reserve Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ---------------------------------------------------------------- At 1 July 1,105 103,288 55,395 (2,652) - 157,136 2006 Net profit for - - - - 20,792 20,792 the year Dividends - - - - (7,600) (7,600) paid Transfer in respect of gains on investment properties - - 16,832 - (16,832) - Transfer from special distributable reserve - (3,640) - - 3,640 - Realised loss on interest rate swap - - - 1,610 - 1,610 Movement in fair value of interest rate swaps - - - 4,439 - 4,439 ---------------------------------------------------------------- At 30 June 2007 1,105 99,648 77,227 3,397 - 176,377 ================================================================ For the year ended 30 June 2006 (audited) Special Share Distributable Capital Other Revenue Capital Reserve Reserve Reserve Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ---------------------------------------------------------------- As at 1 July 2005 1,105 105,303 24,237 (6,137) - 124,478 Net profit for - - - - 36,602 36,602 the year Dividends - - - - (7,459) (7,459) paid Transfer in respect of investment properties - - 31,158 - (31,158) - Transfer from special distributable reserve - (2,015) - - 2,015 - Loss on interest rate swap - - - 3,515 - 3,515 ---------------------------------------------------------------- At 30 June 2006 1,105 103,288 55,395 (2,652) - 157,136 ================================================================ ISIS Property Trust 2 Limited Consolidated Cash Flow Statement for the year ended 30 June 2007 Year ended Year ended 30 30 June 2007 June 2006 (unaudited) (audited) Â£'000 Â£'000 Cash flows from operating activities 25,679 40,909 Net operating profit for the year before finance costs Adjustments for: Gains on investment properties (16,832) (31,158) Decrease/ (increase) in operating trade and other receivables 176 (1,635) Increase/ (decrease) in operating trade and other payables 207 (326) ------------------------------ 9,230 7,790 ------------------------------ Interest received 702 201 Bank loan interest paid (3,759) (3,927) Payments under interest rate swap agreement (380) (569) ------------------------------ (3,437) (4,295) ------------------------------ Net cash inflow from operating activities 5,793 3,495 ------------------------------ Cash flows from investing activities Capital expenditure (510) (85) Sales of investment properties 26,610 5,000 ------------------------------ Net cash inflow from investing activities 26,100 4,915 ------------------------------ Cash flows from financing activities Repayment of previous bank loan (70,662) - Draw down of new bank loan 60,000 - New loan set-up costs paid (127) - Payment on redemption of interest rate swap (1,610) - Dividends paid (7,600) (7,459) ------------------------------ Net cash outflow from financing activities (19,999) (7,459) ------------------------------ Net increase in cash and cash equivalents 11,894 951 Opening cash and cash equivalents 5,051 4,100 ------------------------------ Closing cash and cash equivalents 16,945 5,051 ============================== ISIS Property Trust 2 Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2007 1. The unaudited results of the Group which were approved by the Board on 17 September 2007 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2007. 2. The fourth interim dividend of 1.81p was declared on 7 August 2007 and will be paid on 28 September 2007 to shareholders on the register on 7 September 2007. The ex-dividend date will be 5 September 2007. 3. There were 110,500,000 Ordinary Shares in issue at 30 June 2007. The earnings per Ordinary Share are based on the net profit for the year of Â£20,792,000 and on 110,500,000 Ordinary Shares, being the weighted average number of shares in issue during the year. 4. Three properties were sold during the year for an aggregate of Â£26.6 million. These sales were all in excess of their market valuations and realised gains of Â£8.8 million against their original purchase price. Although there were no purchases during the year, the Company completed the purchase of an office building, post year end, at a cost of Â£14.4 million. This building is in Edinburgh and offers good prospects of rental growth and some definite opportunities for asset management. 5. The Group results consolidate those of IPT2 Property Holdings Limited, a wholly owned subsidiary which invests in properties. 6. These are not full statutory accounts. The full audited accounts for the year ended 30 June 2007 will be sent to shareholders in September 2007, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company. This information is provided by RNS The company news service from the London Stock Exchange

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