Half Yearly Report

RNS Number : 6529R

ING UK Real Estate Income Trust Ltd

26 August 2010

 



ING UK Real Estate Income Trust Limited ('IRET')

26 August 2010

ING UK Real Estate Income Trust Limited

GROUP SUMMARY

ING UK Real Estate Income Trust Limited ("the Company") is a closed-ended, Guernsey registered investment company, launched on the London and Channel Islands' Stock Exchanges on the 25 October 2005. With approximately 900 investors, the Company, together with several subsidiaries including a Guernsey unit trust ("the GPUT"), four Jersey unit trusts ("the JPUTs") and a UK group of companies, 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.

FINANCIAL HIGHLIGHTS

>            Increase in Net Asset Value to £203.0 million or 59 pence per share.

>             EPRA diluted NAV £218.5 million or 63 pence per share.

>             Profit for the period of £20.8 million driven by income profit of £9.0 million and capital profit of £11.8 million in the period.

>            Dividends totalling £6.6 million, or 2 pence per share, paid over the period.

>             Maintained fully covered dividend at 1.36 times.

OPERATIONAL HIGHLIGHTS

>             Successful NAV accretive acquisition of Rugby Estates Investment Trust Plc.

>             Non dilutive equity issuance of 14.9 million new shares.

>             Additional cashflow flexibility provided to capital structure through issuance of zero dividend preference shares.

>             Repayment of £15 million of securitised debt at a discount to par value during the period.

>             Selective disposals during and after the period at a 16.8% premium to preceding valuation.

FOR FURTHER INFORMATION

All Enquiries

David Sauvarin

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey

GY1 3QL

Tel:      [phone]

Fax:     [phone]

ING Real Estate Investment Management (UK) Limited

Helen Stott, 020 7767 5648 [e-mail]

Financial Dynamics

Dido Laurimore, 020 7269 7144, [e-mail] 

Laurence Jones, 020 7269 7261, [e-mail]

Facts and Figures

	Six Months to 30 June 2010	Year ended 31 Dec 2009	Six Months to 30 June 2009
Net asset value	£203.0 million	£181.1 million	£162.0 million
Net asset value per share	59 pence	55 pence	49 pence
Dividends paid	£6.6 million	£9.9 million	£3.3 million
Net income for the period/year	£9.0 million	£12.0 million	£4.7 million
Pre-tax profit / (loss) including unrealised gains / (losses)	£20.8 million	£(19.3) million	£(45.0) million
Earnings / (loss) per share	6.0 pence	(5.9) pence	(13.6) pence
(Loss) / gain on interest rate swaps	£(4.0) million	£0.6 million	£2.8 million
Gain/(loss) on revaluation of portfolio	£7.2 million	£(25.3) million	£(48.5) million
Gearing*	46.0%	43.5%	48.7%
Share price	47.5 pence	53.8 pence	30.5 pence
EPRA earnings per share**	3 pence	4 pence	1 pence
EPRA net asset value per share***	63 pence	58 pence	52 pence

*        Calculated as total debt less cash deposits as a proportion of the property asset value.

**      EPRA (European Public Real Estate Association) earnings per share excludes capital gains (losses) during the period. 

***    EPRA diluted NAV ignores mark to market swap liability or gains.

NET ASSET VALUE AND SHARE PRICE FROM INCEPTION

Quarter	Share Price (P)	NAV per Share
Q4 2005	108.2	104
Q1 2006	120.2	110
Q2 2006	114.7	115.44
Q3 2006	122.5	123
Q4 2006	118	126
Q1 2007	121	129
Q2 2007	106.3	131.44
Q3 2007	101.5	124
Q4 2007	69.5	110.28
Q1 2008	69	102
Q2 2008	47.5	95.14
Q3 2008	46	82.8
Q4 2008	22.5	62.65
Q1 2009	19	52
Q2 2009	29.5	48
Q3 2009	42.5	48
Q4 2009	53.7	53.8
Q1 2010	48	55
Q2 2010	47.5	58

Chairman's Statement

Your Company has had a strong start to 2010, reporting a 7% rise in underlying Net Asset Value per share over the period.  In addition, and differentiating it from many of its competitors, the emphasis on cashflow has ensured that we have delivered a fully covered dividend over the period, despite the ongoing challenging conditions of the underlying occupier markets.

Most notably, during the period we announced and completed the successful takeover of Rugby Estates Investment Trust Plc, the first takeover of a REIT by an offshore company since the UK REIT legislation was introduced.  This transaction has further enhanced the underlying property portfolio, in a manner that was accretive to Net Asset Value for our existing shareholders, and as a result of the transaction I am also pleased to be able to welcome new shareholders to our register.

The acquisition has provided the Company with exposure to a number of quality assets, with existing finance arrangements in place and at a price that reflected an approximate 19% discount to the Net Asset Value.  We believe this was a more attractive entry route for the Company than the direct market, which has seen considerable competition for good quality assets.  In addition, the consideration, which included innovative zero dividend preference share financing, has provided cashflow benefits to the Company during a time when a flexible capital structure is needed to manage the risks remaining within the occupier and wider capital markets.

The Company has, where possible, been looking to reduce its securitised borrowings and the Board is cogniscent of the refinancing required prior to the expiration of the Company's securitised loan notes in 2013.  At the start of the year the Company acquired £15 million of its loan notes in the secondary market at a discount, and, following cancellation, improved both Net Asset Value and dividend cover.  A similar, but smaller, transaction of £3.45 million has also been concluded following the period end.

It would appear that the strong rebound in property values was short term and this has now largely run its course. We believe a further improvement in the underlying economic position within the UK is required to improve occupier demand and rental growth. There are however signs of stability in terms of rental levels in some markets, but this is not yet widespread or consistent across the UK. Wider economic issues remain at the forefront, with the degree of impact of the 'austerity budget' not yet clear.

It is likely that the income component of returns will become more dominant as capital growth subsides.  There might even be some short term risks to capital values and the ability to maintain or create value will be primarily driven by continuity or growth of cashflows.  In the meantime, the Company remains focussed on maintaining strong occupancy, improving the income profile through asset management and ensuring that, looking forward, medium term value-add initiatives and opportunities can be pursued on behalf of shareholders. 

Following our recent AGM I am pleased to report the widening of the Company's Investment Policy to allow a proportion of funds to be invested in either real estate debt or real estate derivatives.  This will give the Company greater flexibility and enable it to consider new investment propositions that are provided by virtue of current market dynamics.

Finally, I think it is important to recognise that despite the progress made at an underlying level, the Board is mindful that the Company's share price continues to trade at a discount to its Net Asset Value and remains focussed on creating further value for shareholders.  

Nicholas Thompson, Chairman, 25 August 2010

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

Investment Manager's Report

ECONOMIC OVERVIEW

Following the dramatic decline in economic output, the worst since the 1930's, we have just witnessed three consecutive quarters of positive economic growth.

Despite this, there remains much uncertainty within the financial markets and in recent months this has been impacted by the European Sovereign debt crises, the formation of the new UK coalition government, its plans for fiscal tightening and further stress testing on European banks.

Base rates remain at historic lows and the need for fiscal tightening remains a perceived threat to any economic recovery.  The outlook for both the occupier and capital markets is likely to be influenced by a number of macro factors and as such there is little short term clarity on market movements. 

PROPERTY MARKET REVIEW

During the first six months of 2010, the property market as measured by the IPD Quarterly Index recorded capital growth of 6.2%.  All Property delivered a total return for the period of 9.6%.

The strong capital gains recorded at the end of 2009 and beginning of 2010 have subsided, but all sectors recorded positive gains over the period.  Of the main sectors, Offices were the best performing subsector delivering capital growth of 7.1% followed by Retail (6.6%) and Industrial (3.3%).

Rental growth continued to be negative across all core sectors, albeit there are signs of positive rental growth in the central London office subsector following significant write downs in previous years.

As a whole, markets appear to be risk adverse with well-let, secure income producing assets having seen significant valuation gains whereas assets with shorter term income have seen far less yield compression and consequent movement in pricing. 

UNDERLYING PERFORMANCE

At an underlying ungeared property level, as measured by IPD, the portfolio delivered a total return of 8.5%.  Consistent with the Company's objectives, the income return was 4.3%, approximately 40% ahead of IPD Benchmark, albeit capital growth was 4.0%, which lagged IPD.

By virtue of lower capital growth over the period, performance lagged the IPD benchmark and therefore no performance fee was accrued or paid.

Over a longer term time horizon, on a rolling three year basis (the Manager's performance threshold), the underlying portfolio has exceeded its benchmark, delivering a total return of -5.1% per annum against -7.1% per annum.

STRATEGY

Operationally, the strategy remains focused on delivering strong income returns from the commercial property portfolio, balanced with a need to maintain or enhance capital values wherever possible.

In particular, with weaker occupier markets in which the Company has been operating, there is a focus on maintaining cashflow and mitigating costs associated with holding vacant property.

Whilst the overall improvement in capital values appears to have stabilised, the need to remain compliant with banking covenants still remains a priority looking forwards.  Where possible, consideration will be given to reducing the Company's securitisedborrowings with a view to improving its position relative to any refinancing ahead of 2013.

REVIEW OF HALF YEAR TO JUNE 2010

The focus for the first six months of the year was 'occupier driven', in terms of retaining tenants and attracting new occupiers to the portfolio, and progress has been made across all sectors as detailed below. 

The most significant event over the period was the acquisition of Rugby Estates Investment Trust Plc ('Rugby REIT'). At a time when the property market was constrained by limited supply and strong demand, the Company has been able to source an attractive portfolio of assets with existing finance in place.  The pricing of the acquisition, at a significant discount to Rugby REIT's stated Net Asset Value, was the principal driver of capital growth during the period.  In addition, as this was a corporate acquisition, it enabled the Company to purchase a portfolio of assets, in a financially efficient manner.

Occupier markets remain fragile and tenants recognise the value of their occupation, with incentive packages reflecting this.  To this end, the Company has secured a number of lettings over recent months and, combined with fixed rental uplifts, this will add approximately £0.7 million per annum of rental income by the year end and a further £1.3 million per annum of rental income over the course of 2011.

Like for like rental income has grown by 1.7% over the period and as at 30 June the rental income was £31.5 million per annum, albeit the portfolio's estimated rental value reduced by -2.1% over the period to £35.6 million per annum, reflecting weaker rental evidence within the occupier markets.  As at 30 June the portfolio had a net initial yield of 7.02% and a net reversionary yield of 7.95%.

OFFICES

During the period, lettings were completed at 800 Pavilion Drive in Northampton to Ricoh UK Limited at an annual rent of £350,000 per annum, Stanford House, London, WC2 to Gorkana Data Systems LLP at a rent of £129,745 per annum and two leases were renewed at 401 Grafton Gate in Milton Keynes at a rent of £337,859 per annum.

Other notable transactions include the surrender of Merrill Lynch's lease of 50 Farringdon Road, London, EC1 the tenant paying the Company a surrender premium in excess of £4 million. The building is now to be refurbished to provide Grade A office accommodation.  The refurbishment is expected to be completed by the end of 2010, which we believe will be good timing in terms of attracting a tenant in an improving central London occupier market.

INDUSTRIAL

At one of our larger industrial holdings in Harlow, an existing tenant was relocated to a larger unit where they will pay a stepped rent to £109,650 per annum on a new ten year lease. The relocation allows the Company to refurbish two of the newer units on the estate which have greater letting prospects.

At Datapoint, Cody Road, London E16, the lease to Risk Free Retail Limited was renewed, increasing the rent to £59,750 per annum and securing the income for a further five years.

In Luton, at Dencora Way, we leased one of our longer term vacancies to Gas Logic Limited at a rent of £37,692 per annum.

RETAIL

Notable transactions over the first six months of 2010 included the successful letting of the former Roseby's unit at Parc Tawe in Swansea to T J Morris Limited, trading as Home Bargains, on a 15 year term at £80,000 per annum.

In Stockport, following the administration of the previous occupier in 2009, a letting to The Entertainer (Amersham) Limited at a rental of £80,000 per annum on 10.5 year term has been completed.

ACQUISITIONS & DISPOSALS

No acquisitions were made in the direct market in the first six months of 2010, however the Company chose to effect a corporate purchase in pursuit of more accretive terms.  The Rugby REIT portfolio was acquired for consideration of £38 million, reflecting approximately a 19% discount to its stated Net Asset Value.  The portfolio, which comprised 33 assets, has provided the Company with improved exposure to some well located retail and industrial assets, and a greater London and South East bias. 

Some 75% of the Rugby portfolio's value was reflected in the 10 largest assets and it is the Manager's intention to exit the smaller assets in the near term as market conditions allow, and in particular once active management initiatives have been completed.  As part of this process, three assets were sold following the period end for £1.68 million at a modest premium to their June valuation.

The Company has made one disposal from its portfolio since the start of the year.  It sold an office building in Slough for £8.9 million at a £1.4 million premium to its December valuation.  Furthermore, one unit at Lancing which was acquired as part of the Rugby REIT portfolio was disposed of in line with valuation for £165,000.

OCCUPANCY

The occupancy levels within the portfolio remain in line with the market as a whole (IPD Quarterly Index 91%).  The portfolio occupancy rate reduced over the period from 93% to 91% principally as the result of asset management initiatives and the surrender of the lease at the Farringdon asset where the Company is seeking to take advantage of the improvement in the central London office market.

DEBT

As at 30 June the Company had total borrowings of £229 million, excluding the liquidity facility and the interest rate swaps.  Under IFRS Accounting, the fair value of the interest rate swaps is a liability of approximately £15 million or equivalent to 4 pence per share.

The borrowings are split between a mixture of securitised loan notes, Zero Dividend Preference shares, bank loans and loan stock.  The latter two forms of financing were acquired through the purchase of Rugby REIT.  Full details of the borrowings are included in Note 11 to the accounts. 

As at 30 June, the Group had £175 million of AAA rated loan notes in the debt market with interest payable on £150 million at 4.795% and £25 million at 5.3804%, both fixed by way of interest rate swaps.  These loan notes are repayable on 31 January 2013. 

The principal covenants in respect of the securitised loan notes are that currently the loan-to-value ratio must not exceed 60%, and the interest cover must be greater than 1.75 times.  As at the 30 June testing date, the loan-to-value was 46.3% and the interest cover was 2.4 times.

The restructuring of the securitised loan notes which took place in 2009 has provided the Group with the ability to repay debt through a purchase and cancellation of loan notes in the secondary market.  £15 million of debt was repaid in January with the notes being purchased at a 5% discount to their nominal value.  A further £3.45 million was purchased and cancelled following the period end at a 6.5% discount.  Both of these transactions were accretive to Net Asset Value and improved the Company's cashflow position and dividend cover. 

OUTLOOK

With slowing capital growth across all sectors of the market, it would appear that the strong rebound in capital valuation movements has subsided.  In a market with few sellers, the big question is in respect of 'bank' led disposals and the extent to which supply of investment product exceeds demand and adversely affects pricing.

In the absence of rental growth, we see active management and the ability to grow, maintain or extend security of income as the principal driver of valuation growth in the short term.  There may well be areas of the market where pricing softens, but equally there are still areas of the market where pricing remains subdued and close to replacement cost.

In some specific markets or subsectors where supply is constrained there are tentative signs of rental growth, but it may be some time before this becomes widespread across the market as a whole.  Whilst it is likely that there may be short term downwards pressure in rental levels, over the medium term this constrained supply is likely to be a driver of rental growth.

Base rates continue to remain well below long term trend with both the gilts yield and swap curve indicating that the market expects interest rates to remain at low levels for a number of years.  Against this backdrop, the yield from commercial real estate remains attractive, despite short term risks.  The sustainability of values in the short term is likely to depend on a number of macro driven factors including the effects of the reduction in government spending.  Consensus forecasts indicate the possibility of a 'double dip' in values in 2011, but bearing in mind the current low base, this is likely to be considerably more muted than recent volatility.

The portfolio has latent reversionary potential through the letting of vacant units combined with significant income improvement through rent free periods expiring in the coming months.  In the markets we are operating in, the cashflow driven approach remains key, whilst at the same time remaining focussed on exploiting medium term added value opportunities.

Michael Morris

ING Real Estate Investment Management (UK) Limited

25 August 2010

Portfolio Analysis

Geographical

As at 30 June 2010 the regional weightings of the Property Portfolio, which comprised 74 assets, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
Central London	51,060	12.1
Greater London	30,430	7.2
South East	133,060	31.4
Midlands	72,970	17.2
South West	20,660	4.9
North	78,470	18.5
Wales	23,280	5.5
Scotland	11,000	2.6
Northern Ireland	2,660	0.6
Total	423,590	100%

Sector

As at 30 June 2010 the sector weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
Offices	142,995	33.8
Industrial	145,350	34.3
Retail	85,310	20.1
Retail Warehouse	30,550	7.2
Leisure/Other	19,385	4.6
Total	423,590	100%

Covenant Strength

The covenant strength, based as a percentage of current passing rent by risk rating, as at 30 March 2010 is summarised as follows:

	Portfolio %
Negligible and Government risk	53.7
Low risk	27.3
Low-medium risk	4.1
Medium-high risk	1.1
High risk	10.8
Ineligible/not matched	3.0
Total	100%

Covenant strength data is produced by Investment Property Databank (IPD).

The Group held a total of £1.6 million of rental deposits at 30 June 2010.

Longevity of Income

As at 30 June 2010, 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	14,741	47.3
5 to 10	10,711	34.4
10 to 15	2,534	8.2
15 to 25	2,244	7.2
25 and over	908	2.9
Total	31,138	100%

Top Ten Tenants

The top ten tenants, based as a percentage of current passing rent, as at 30 June 2010 is summarised as follows:

	% of Passing Rent
TNT UK Limited	9.1%
Cadence Design Systems Limited	3.1%
Tanfield Group Plc	2.7%
Menzies Hotels Property No.20 Ltd	2.7%
Exel UK Limited	2.7%
BT Telecommunications Plc	2.5%
Edward Stanford Limited	2.1%
Asda Stores Ltd	1.9%
Alcan Packaging UK Ltd	1.8%
RHM Group Ltd	1.5%
	30.1%

Valuation Schedule as at 30 June 2010

Properties Valued in Excess of £20 million	Sector
Unit 5320, Magna Park, Lutterworth, Leics.	Industrial
Units A-G2 River Way Industrial Estate, Harlow, Essex	Industrial
Properties Valued Between £15 million to £20 million
Stanford House, 12/14 Long Acre, London WC2	Retail
Phase II, Parc Tawe, Link Road, Swansea	Retail Warehouse
Properties Valued Between £10 million to £15 million
Colchester Business Park, The Crescent, Colchester, Essex	Offices
Angouleme Way, Bury, Greater Manchester	Retail Warehouse
56 Castle Street, 2/12 English Street and 12-21 Street Cuthbert's Lane, Carlisle, Cumbria	Retail
401 Grafton Gate East, Milton Keynes, Bucks.	Offices
Boundary House, Jewry Street, London EC3	Offices
Vigo 250, Birtley Road, Washington, Tyne and Wear	Industrial
Properties Valued Between £5million to £10million
City Link House & Tolley House, Addiscombe Road, Croydon	Offices
1 Chancery Lane, London WC2	Offices
L'Avenir, Opladen Way, Westwick, Bracknell, Berks.	Offices
Unit 3220, Magna Park, Lutterworth, Leics.	Industrial
50 Farringdon Road, London EC1	Offices
Strathmore Hotel, Arndale Centre, Luton, Beds.	Leisure
17/19 Fishergate, Preston	Retail
Angel Gate Office Village, City Road, London EC1	Offices
Regency Wharf, Broad Street, Birmingham	Leisure
53/55/57 Broadmead, Bristol	Retail
The Business Centre, Molly Millars Lane, Wokingham, Berks.	Industrial
Units 1-13 Dencora Way, Sundon Park, Luton, Beds.	Industrial
Westlea Campus, Chelmsford Road, Swindon, Wilts.	Offices
Queens House, 17/29 St Vincent Place, Glasgow	Offices
Scots Corner, High St/Institute Road, Birmingham	Retail
Northampton Business Park, 800 Pavilion Drive, Northampton	Offices
Datapoint, Cody Road, London E16	Industrial
Lawson Mardon Buildings, Kettlestring Lane, York	Industrial
Sentinel House, Ancells Business Park, Fleet, Hants.	Offices
Nonsuch Industrial Estate, 1-25 Kiln Lane, Epsom, Surrey	Industrial
78-80 Briggate, Leeds	Retail
Waterside Park, Longshot Lane, Bracknell, Berks.	Offices
Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire	Industrial
Longcross Court, Newport Road, Cardiff	Offices
Easter Court, Gemini Park, Warrington	Industrial

Properties Valued Under £5million
Zenith, Downmill Road, Bracknell, Berks.	Industrial
Trident House, 42/48 Victoria Street, St Albans, Herts.	Offices
Waterside House, Kirkstall Road, Leeds	Offices
6/12 Parliament Row, Hanley, Worcs.	Retail
Units 1- 3, 18/28 Victoria Lane, Huddersfield, West Yorks.	Retail
Atlas House, Third Avenue, Globe Park, Marlow, Bucks.	Offices
72/78 Murraygate, Dundee	Retail
Merchants House, Crook Street, Chester	Offices
123 High Street, Guildford, Surrey	Retail
Heron Industrial Estate, Spencers Wood, Reading	Industrial
7&9 Warren Street, Stockport	Retail
28 Austin Friars, London EC2	Offices
Abbey Business Park, Mill Road, Newtownabbey, Belfast	Industrial
Middleton Trade Park, Oldham Road, Manchester	Industrial
2/2a George Street, Richmond, Surrey	Retail
2 Bath Street, Bath	Retail
Magnet Trade Centre, Winnersh, Reading	Industrial
8-9 College Place, Southampton	Offices
Accrington Trade Park, Accrington, Lancs.	Industrial
Thistle Complex, Units 1 & Le Pavillion, Brighton	Leisure
Highgrove Industrial Estate, Quatremaine Road, Portsmouth	Industrial
113 High Street, Sutton	Retail
Spur Road, Quarry Lane, Chichester	Industrial
Nuffield Industrial Centre, Nuffield Road, Poole	Industrial
119-121 High Street, Epsom, Surrey	Retail
Churchfields Industrial Estate, St. Leonards-on-Sea, Sussex	Industrial
BT Unit, Eagle Trading Estate, Blackpool	Industrial
Marshall Building, 122-124 Donegall Street, Belfast, Antrim	Offices
Manchester Road/Drury Lane, Oldham, Lancs.	Industrial
Eastern Industrial Estate, Jackson Close, Farlington, Portsmouth	Industrial
13/15 Richmond Road, Kingston Upon Thames, Surrey	Retail
6 Argyle Street, Bath	Retail
34 High Street, Banstead, Surrey	Retail
47 Merchant Street, Bristol	Retail
3 Lower Borough Walls, Bath	Retail
Cloisters, Orchard Street, Dartford	Offices
Winston Business Centre, Lancing, Sussex	Industrial
Repton Court, 12 Burnt Mills Industrial Estate, Basildon, Essex	Industrial
10 Margaret Street, Canterbury, Kent	Retail

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 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 and experienced 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.	Cash flows are continuously monitored and detailed forecasts prepared to ensure sufficient resources exist. Covenant requirements are also continually monitored and reported regularly to the Board.
Interest rate risk	The risk of fluctuation of interest rates on loans.	The majority of interest payable on floating rate loans is fixed by way of interest rate swaps to minimise exposure.
Credit risk	The risk of default by tenants.	The Investment Manager has a policy of only dealing with creditworthy counterparties.  Counterparty limits are regularly reviewed. Trade debtors consist of a large number of tenants spread across diverse industries and geographical areas.
Cash flow  risk	The risk of a shortfall in funds to operate the Group.	The Investment Manager monitors cash flows and assesses all capital and operational expenditure. The Board are regularly updated on major cash flows.

Independent Review Report

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

Introduction

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 2010 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and the related explanatory notes. 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 the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

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 DTR of the UK FSA.

As disclosed in note 2, the Annual Financial Statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this Half Yearly Financial Report has been prepared in accordance with IAS 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 UK. A review of interim financial information consists of making enquiries, 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 2010 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FSA.

Ewan McGill

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

Guernsey

25 August 2010

Financial Statements

Condensed Consolidated Statement of Comprehensive Income For the period from 1 January to 30 June 2010
				1 Jan to 30 June 2010	1 Jan to 30 June 2009	1 Jan to 31 Dec 2009
				Unaudited	Unaudited	Audited
	Notes	Income	Capital	Total	Total	Total
		£000	£000	£000	£000	£000
Income
Rental income	3	14,448	-	14,448	16,054	31,949
Service charges recharged to tenants		2,208	-	2,208	2,897	5,219
Other operating income		4,875	-	4,875	5	779
Total operating income		21,531	-	21,531	18,956	37,947
Gains and losses on investments
Realised gains/(losses) arising on disposal of investment properties	9	-	1,365	1,365	(3,986)	(6,580)
Unrealised gains/(losses) on revaluation of investment properties	9	-	7,205	7,205	(48,510)	(25,339)
Negative goodwill arising on acquisition of subsidiary	5	-	8,761	8,761	-	-
Total gains and losses on investments		-	17,331	17,331	(52,496)	(31,919)
Expenses
Property operating expenses		(3,127)	-	(3,127)	(2,073)	(4,481)
Service charge costs		(2,208)	-	(2,208)	(2,897)	(5,219)
Acquisition costs of subsidiary	5	-	(2,259)	(2,259)	-	-
Management expenses	6	(1,269)	-	(1,269)	(1,927)	(3,172)
Other operating expenses	7	(1,340)	-	(1,340)	(2,015)	(3,019)
Total operating expenses		(7,944)	(2,259)	(10,203)	(8,912)	(15,891)
Profit/(loss) before finance costs and tax		13,587	15,072	28,659	(42,452)	(9,863)
Financing
Interest receivable		120	-	120	126	311
Interest payable		(4,722)	-	(4,722)	(5,426)	(10,399)
Realised (losses)/gains on disposal of interest rate swaps		-	(209)	(209)	-	259
Realised gains on cancellation of loan notes		-	750	750	-	-
Unrealised (losses)/gains on revaluation of interest rate swaps		-	(3,789)	(3,789)	2,779	363
Total finance costs		(4,602)	(3,248)	(7,850)	(2,521)	(9,466)
Profit/(loss) before tax		8,985	11,824	20,809	(44,973)	(19,329)
Tax		(15)	-	(15)	-	(8)
Profit/(loss) for the period/year		8,970	11,824	20,794	(44,973)	(19,337)
Earnings/(loss) per share
Basic and diluted		2.6p	3.4p	6.0p	(13.6)p	(5.9)p

There is no comprehensive income other than the profit for the period.

The total column of this statement represents the Group's Condensed Consolidated Statement of Comprehensive Income.  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 15 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity For the period from 1 January to 30 June 2010
	Notes	Share Capital	Share Premium Account	Distributable Reserve	Retained Earnings	Total
		£000	£000	£000	£000	£000
Balance as at 31 December 2008		-	31,389	296,883	(117,962)	210,310
Net loss for the period		-	-	-	(44,973)	(44,973)
Dividends paid	8	-	-	-	(3,304)	(3,304)
Balance as at 30 June 2009		-	31,389	296,883	(166,239)	162,033
Net profit for the period		-	-	-	25,636	25,636
Dividends paid	8	-	-	-	(6,608)	(6,608)
Balance as at 31 December 2009		-	31,389	296,883	(147,211)	181,061
Net profit for the period		-	-	-	20,794	20,794
Dividends paid	8	-	-	-	(6,608)	(6,608)
Issue of ordinary shares		-	8,420	-	-	8,420
Issue costs		-	(660)	-	-	(660)
Balance as at 30 June 2010		-	39,149	296,883	(133,025)	203,007

Notes 1 to 15 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Balance Sheet As at 30 June 2010
		30 June 2010	30 June 2009	31 Dec 2009
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000
Non-current assets
Investment properties	9	422,752	357,349	352,599
Total non-current assets		422,752	357,349	352,599
Current assets
Accounts receivable	10	10,895	5,358	8,810
Cash and cash equivalents		45,133	51,398	50,569
Total current assets		56,028	56,756	59,379
Total assets		478,780	414,105	411,978
Current liabilities
Accounts payable and accruals		(18,490)	(14,094)	(13,562)
Loans and borrowings	11	-	(35,000)	-
Total current liabilities		(18,490)	(49,094)	(13,562)
Non-current liabilities
Loans and borrowings	11	(241,791)	(191,728)	(205,778)
Interest rate swaps	11	(15,492)	(11,250)	(11,577)
Total non-current liabilities		(257,283)	(202,978)	(217,355)
Total liabilities		(275,773)	(252,072)	(230,917)
Net assets		203,007	162,033	181,061
Equity
Ordinary share capital		-	-	-
Share premium account		39,149	31,389	31,389
Distributable reserve		296,883	296,883	296,883
Retained earnings		(133,025)	(166,239)	(147,211)
Total equity		203,007	162,033	181,061
Net asset value per share	13	0.59	0.49	0.55

These Condensed Consolidated Financial Statements were approved by the Board of Directors on 25 August 2010 and signed on its behalf by:

Robert Sinclair                                                              Roger Lewis                                        

Director                                                                        Director

Notes 1 to 15 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Cash Flow Statement For the period from 1 January to 30 June 2010
		1 Jan to 30 June 2010	1 Jan to 30 June 2009	1 Jan to 31 Dec 2009
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000
Profit/(Loss) before tax		20,809	(44,973)	(19,329)
Adjusted for
Interest receivable		(120)	(126)	(311)
Interest payable		4,722	5,426	10,399
Realised and unrealised (gains) and losses		(11,824)	49,717	31,297
Amortisation of finance costs		210	163	479
Income tax expense		(15)	-	(8)
Cash flows from operating profit before working capital changes		13,782	10,207	22,527
(Increase)/decrease in trade and other receivables		(1,096)	2,968	2,575
Increase/(decrease) in trade and other payables		1,124	905	708
Net cash flows from operating activities		13,810	14,080	25,810
Cash flows from investing activities
Subsidiary cash at acquisition	5	2,563	-	-
Net acquisition costs of subsidiary		(1,794)	-	-
Purchase of investment properties	9	(1,588)	(476)	(1,701)
Disposal of investment properties	9	9,005	26,314	49,492
Interest received		120	126	311
Net cash flows from investing activities		8,306	25,964	48,102
Cash flows from financing activities
Proceeds from long term borrowings		851	-	14,000
Repayment of long term borrowings	11	(17,358)	-	(34,950)
Disposal of interest rate swaps		(1,090)	-	(1,830)
Interest paid on loans		(2,687)	(5,426)	(10,735)
Equity issue costs		(660)	-	-
Dividends paid	8	(6,608)	(3,304)	(9,912)
Net cash flows from financing activities		(27,552)	(8,730)	(43,427)
Net increase in cash and cash equivalents		(5,436)	31,314	30,485
Cash and cash equivalents at beginning of period/year		50,569	20,084	20,084
Cash and cash equivalents at end of period/year		45,133	51,398	50,569

Notes 1 to 15 form part of these Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2010

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 2010, with unaudited comparatives for the period from 1 January to 30 June 2009. Comparatives are also provided from the audited financial statements for the year ended 31 December 2009.

The financial information for the year ended 31 December 2009 is derived from the Financial Statements delivered to the UK Listing Authority and does not constitute statutory accounts. 

2.      Significant accounting policies

These Half Yearly Financial Statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Financial Statements of the Company as at and for the year ended 31 December 2009.

Except as described below, the accounting policies applied by the Company in these Half Yearly Financial Statements are the same as those applied by the Company in its Financial Statements as at and for the year ended 31 December 2009.

The Annual Financial Statements of the Company are prepared in accordance with International Financial Reporting Standards ('IFRS').

Presentation of financial statements

The Company applies revised IAS 1: 'Presentation of Financial Statements (2007)', which became effective as of 1 January 2009. As a result, the Company presents in the Condensed Consolidated Statement of Changes in Equity all owner changes in equity, whereas all non-owner changes in equity are presented in the Consolidated Statement of Comprehensive Income.

Business combinations

From 1 January 2010 the Company has applied IFRS 3 Business Combinations (2008) in accounting for business combinations. For acquisitions after 1 January 2010 goodwill is measured as the fair value of the consideration transferred less the net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, this is recognised immediately in the Statement of Comprehensive Income.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.

See note 5 for the application of the new policy to the business combination that occurred during the period.

Share Capital

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

3.      Rental income

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

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

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 therefore no segmental reporting is required.  The portfolio consists of 74 commercial properties, which are in the office, retail, retail warehouse, industrial and leisure sectors.

5.      Acquisition of subsidiary          

On 14 May 2010 the Group obtained control of Rugby Estates Investment Trust Plc, a diversified Real Estate Investment Trust listed on the London Stock Exchange, by acquiring the entire share capital by means of a public offer.

In the period from 14 May 2010 to 30 June 2010 Rugby contributed rental income of £762,000 and a net loss of £632,000, after deducting one off termination costs. If the acquisition had occurred on 1 January 2010 the Directors estimate that the Group's consolidated rental income would have been £15.7 million, and the Group's consolidated profit for the period would have been £14.3 million. In determining these amounts the Directors have assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2010.

The following summarises the classes of consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.

Fair value of consideration paid

	£000
Equity instruments	8,420
Zero dividend preference shares	29,797
	38,217

The Group incurred acquisition-related costs of £2.3 million relating to external professional advisors and due diligence costs. These costs have been included in the Group's Condensed Consolidated Statement of Comprehensive Income.

The fair value of the ordinary shares issued was based on the net asset value of the Company at 31 March 2010 of £0.5638 per share. The Directors consider the net asset value of the Company was not materially different at the date of acquisition.  A total of 14,934,818 ordinary shares and 46,556,800 zero dividend preference shares were issued by the Group.

Identifiable assets acquired and liabilities assumed

	£000
Investment properties	69,000
Accounts receivable	1,199
Cash and cash equivalents	2,563
Accounts payable	(2,044)
Loans and borrowings	(22,733)
Interest rate swaps	(1,007)
	46,978

The Directors consider that the acquired receivables above are stated at fair value. The gross contractual amounts receivable were £1.54 million at the date of acquisition.

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

5.      Acquisition of subsidiary (continued)

Goodwill

Negative goodwill has been recognised as a result of the acquisition as follows:

	£000
Total consideration transferred	38,217
Less fair value of identifiable assets and liabilities	(46,978)
Negative goodwill	(8,761)

The negative goodwill has been recognised in the Condensed Consolidated Statement of Comprehensive Income.

6.      Management expenses

	1 Jan to 30 June 2010	1 Jan to 30 June 2009	Year ended 31 Dec 2009
	£000	£000	£000
Investment Manager's fees	1,269	1,927	3,172

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.  For the first half of 2009, the management fee was payable quarterly in arrears and was 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

With effect from 1 July 2009 a revised management fee was agreed between the Directors and the Investment Manager. The agreed revised terms are as follows;

·      The base management fees will be payable quarterly in arrears and will be equal to one quarter of 145 basis points of the Net Asset Value;

·      A performance fee will be calculated and payable annually (as at 31 December), calculated on the basis on which the property assets have outperformed the IPD All Quarterly and Monthly Valued Funds Benchmark on a rolling three year basis. The percentage outperformance will be multiplied to the base management fee to calculate the performance element. The performance fee in the first year will be determined by reference to the entire calendar year (but calculated at 50%), and for the second year on the average of the first and second year results. In the event that the Investment Management Agreement is terminated in a quarter other than ending on 31 December in any year, the performance fee will be calculated on the average of the two preceding years and annualised in the year that contract is terminated and a pro rata adjustment made in that relevant year;

·      Administration services will no longer be paid for by the Investment Manager;

·      The notice period will remain the same meaning that the contract may be determined by either party on not less than 12 months notice in writing; and

·      The fees payable will not exceed those calculated in accordance with the Investment Management Agreement and summarised above.

With effect from the date of acquisition of Rugby Estates Investment Trust Plc the base management fee payable to the Investment Manager was revised as follows;

·      The base management fees will be payable quarterly in arrears and will be equal to one quarter of 72.5 basis points of net asset value represented by the value of the ZDP shares issued, calculated on the basis of the issue price of the ZDP shares, being 65 pence per ZDP share; and

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

6.  Management expenses (continued)

·      One quarter of 145 basis points of the Group's net asset value (but excluding the net asset value represented by the value of the ZDP shares).

7.   Other operating expenses

	1 Jan to 30 June 2010	1 Jan to 30 June 2009	Year ended 31 Dec 2009
	£000	£000	£000
Valuation expenses	70	61	117
Audit fees	23	45	108
Amortisation of finance costs	210	163	479
Other expenses	1,037	1,746	2,315
	1,340	2,015	3,019

Other expenses for the period ended June 2009 include costs of £1.4m relating to the amendment to the loan documents and loan prepayment (see note 11).

The Group has no employees other than the Directors.

8.      Dividends

	1 Jan to 30 June 2010	1 Jan to 30 June 2009	Year ended 31 Dec 2009
Declared and paid:	£000	£000	£000
Interim dividend for the period ended 31 December 2008: 1pence	-	3,304	3,304
Interim dividend for the period ended 30 June 2009: 1pence	-	-	3,304
Interim dividend for the period ended 30 September 2009: 1 pence	-	-	3,304
Interim dividend for the period ended 31 December 2009: 1 pence	3,304	-	-
Interim dividend for the period ended 31 March 2010: 1 pence	3,304	-	-
	6,608	3,304	9,912

The interim dividend of 1 pence per ordinary share in respect of the period ended 30 June 2010 has not been recognised as a liability as it was declared after the period end.  A dividend of £3,453,000 will be paid on 31 August 2010.

9.     Investment properties

	1 Jan to 30 June 2010	1 Jan to 30 June 2009	Year ended 31 Dec 2009
	£000	£000	£000

Balance at start of period	352,599	436,005	436,005
Additions	1,588	476	1,701
Acquisitions through business combinations	69,000	-	-
Disposals	(9,005)	(26,636)	(53,188)
Realised gains/(losses) on disposal	1,365	(3,986)	(6,580)
Change in fair value	7,205	(48,510)	(25,339)
Balance at end of period	422,752	357,349	352,599
Historic cost at end of period	547,664	521,204	488,321

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

9.     Investment properties (continued)

The carrying value of investment properties reconciles to the Market Value at 30 June 2010 as follows:

	30 June 2010	30 June 2009	31 Dec 2009
	£000	£000	£000
Appraised value	423,590	356,280	352,700
Valuation of assets held under finance leases	1,671	1,439	1,643
Lease incentives held as debtors	(2,509)	(370)	(1,744)
	422,752	357,349	352,599

The investment properties were valued by King Sturge LLP and CB Richard Ellis Ltd, Chartered Surveyors, as at 30 June 2010, on the basis of Market Value in accordance with the RICS Valuation Standards.

The Group's borrowings (note 11) are secured by a first ranking fixed charge over the investment properties held.

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

10.        Accounts receivable        

	30 June 2010	30 June 2009	31 Dec 2009
	£000	£000	£000
Tenant debtors	1,633	3,677	4,613
Other debtors	4,690	172	1,631
Capitalised finance costs	2,063	1,139	822
Lease incentives	2,509	370	1,744
	10,895	5,358	8,810

The loan arrangement costs as at 30 June 2010 are £3,746,000 (30 June 2009: £2,296,000, 31 December 2009: £2,296,000). These are amortised over the lives of the loans.  For the period ended 30 June 2010 £210,000 of these costs were written off to the Statement of Comprehensive Income (period ended 30 June 2009: £163,000, year ended 31 December 2009: £479,000).

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

11.   Loans and borrowings

	Maturity	30 June 2010	30 June 2009	31 Dec 2009
Current		£000	£000	£000
Floating rate notes - due in less than one year	31 January 2013	-	35,000	-
		-	35,000	-
Non-current
Floating rate notes - due in more than one year	31 January 2013	175,050	190,000	190,050
Liquidity facility	31 January 2013	10,892	-	14,000
Bank loan	20 October 2013	20,270	-	-
Unsecured guaranteed loan stock	30 September 2012	734	-	-
Unsecured loan stock	30 September 2012	2,580	-	-
Zero dividend preference shares	31 October 2012	30,537	-	-
Interest rate swaps		15,492	11,250	11,577
Obligations under finance leases		1,728	1,728	1,728
		257,283	202,978	217,355

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

11.    Loans and borrowings (continued)

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 interest rate swaps mature on the same dates as the associated borrowings. A total of £35 million of the loan notes were prepaid on 31 July 2009, and a further £15 million were prepaid on 30 January 2010.

The loan notes are secured over the investment properties held by the GPUT and the JPUTs, 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.

A repayment of £3.1 million of the liquidity facility was made on 30 January 2010.

During the period the Group issued 46.6 million zero dividend preference shares ('ZDPs') at 65 pence per share as consideration for the acquisition of Rugby Estates Investment Trust plc, see note 5. The ZDPs have an entitlement to receive a fixed cash amount on 31 October 2012 but do not receive any dividends or income distributions. Additional capital accrues to the ZDPs at a rate of 6.875% per annum resulting in a final capital entitlement of approximately 77 pence per share on maturity.

The Group acquired a bank loan and loan stock as a result of the acquisition of Rugby Estates Investment Trust Plc. The bank loan is for a principal amount of £23.5 million of which £20.3 million had been drawn down at 30 June 2010. The interest payable on the loan is charged at LIBOR plus 175 basis points. However interest on £12.0 million is fixed by means of an interest rate swap at 5.10%. Additionally the Group pays a commitment fee of 0.75% per annum on any unutilised part of the facility.

The unsecured guaranteed loan stock pays interest at the rate of 0.75% below the base rate of Royal bank of Scotland Plc. The final date of repayment to the holders is 30 September 2012.

The unsecured loan stock pays interest at the rate of 0.5% above the six month LIBOR rate.

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 4.94% (30 June 2009: 4.86%, 31 December 2009: 4.87%).

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. The Board do not believe the difference between fair value and book value to be materially different.

On 30 July 2010 the Group repaid £3.45 million of loan notes and £0.2 million of the liquidity facility, see note 15.

12.        Contingencies and capital commitments

The Group has entered into contracts of approximately £810,000 across the portfolio at 30 June 2010 (30 June 2009: £100,000, 31 December 2009: £1.7 million). There are no other contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements as at 30 June 2010.

13.   Net asset value

The net asset value per ordinary share is based on net assets at the period end and on 345,336,118 (30 June 2009: 330,401,300, 31 December 2009: 330,401,300) ordinary shares, being the number of ordinary shares in issue at the period end.

At 30 June 2010, the Company had a net asset value per ordinary share of £0.59 (30 June 2009: £0.49, 31 December 2009: £0.55). 

Notes to the Condensed Consolidated Financial Statements

For the period ended 1 January to 30 June 2010 (continued)

14.   Related party transactions

During the period the Investment Manager was paid a total of £1,269,000 (30 June 2009: £1,927,000, 31 December 2009: £3,172,000) in respect of the property management and administration services. As at 30 June 2010 the Group owed £678,000 to the Investment Manager (30 June 2009:£900,000, 31 December 2009:£655,000).

The Group paid £691,000 to ING Bank N.V. during the period for services provided in connection with the acquisition of Rugby Estates Investment Trust Plc (see note 5).

The Group has one non-independent Director, who is connected with the Investment Manager.  The remuneration in respect of this appointment was waived.

ING UK Real Estate Income Trust Limited has no controlling parties.

15.   Events after the balance sheet date

Following the balance sheet date property sales totalling £1.68 million have exchanged contracts.

On 30 July 2010 a payment of £3.2 million was made to loan note holders to repay £3.45 million loan notes at a discount to par value. £0.2 million of the liquidity facility was also repaid on that date. Swap break costs of £0.3 million were paid in relation to the loan note repayment.

A dividend of £3,453,000 (1 pence per share) was approved by the Board on 29 July 2010 and will be paid on 31 August 2010. 

 

END

 

 

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