Interim Results
Insight Foundation Property Tst Ltd
30 November 2006
30 November 2006
Insight Foundation Property Trust Limited Interim Report
Unaudited as at 30 September 2006
Company summary
Objective
To provide Shareholders with an attractive level of income together with the
potential for income and capital growth from investing in UK commercial
property.
Insight Foundation Property Trust Limited and its subsidiaries ('The Group')
holds a diversified portfolio of UK commercial properties and invests in three
commercial property sectors: office, retail and industrial. The Group will not
invest in other listed Investment Companies. In pursuing the investment
objective, the Investment Manager intends to target assets with good fundamental
characteristics, a diverse spread of occupational tenants and with opportunities
to enhance value through active management.
Investment Manager
Invista Real Estate Investment Management Limited, following the de-merger of
the Investment Manager from Insight Investment Management.
Total assets less current liabilities (Group)
£661.50 million at 30 September 2006. £575.5 million at 31 March 2006.
Shareholders' funds
£470 million at 30 September 2006. £422.8 million at 31 March 2006.
Capital structure
At 30 September 2006 the group had a capital structure comprising 70% equity and
30% loan finance. At 31 March 2006 this was also approximately 70% equity and
30% loan finance.
Ordinary shareholders are entitled to all dividends declared by Insight
Foundation Property Trust Limited ('the Company') and to all the Company's
assets after repayment of its borrowings. On-balance sheet loans total £193.58
million at a blended total interest rate of 5.66%. Of this, the principal
securitised loan of £152.5 million currently has an effective interest cost of
5.6% (including annualised costs and expenses in association with its
arrangement) fixed by way of an interest rate swap covering the full amount and
life of the loan agreement.
ISA/PEP status
The Company's shares are eligible for Individual Savings Accounts (ISA's) and
PEP transfers and can continue to be held in existing PEPs.
Website
The Company's website is www.ifpt.co.uk.
For further information, please contact
Stephanie Highett/Dido Laurimore/Adam Leviton
Financial Dynamics
020 7831 3113
Financial highlights and performance summary
• Net asset value per share rose by 11.1%
• Earnings per share of 16 pence
• The Group has declared and paid dividends per share amounting to 3.375 pence
• NAV total return of 14%
31 March
30 September % Change
2006 2006
Net asset value(1) (NAV £m) 470.0 422.8 11.1
Net asset value per ordinary share (pence)(1) 132.9 119.6 11.1
Share price (pence) 133.5 129.0 3.5
Share price premium to NAV (%) 0.60 7.9
NAV total return (%)(2) 14.0 13.0
Underlying property total return (%) 12.4 12.5
Peer group NAV total return(3) 11.7 13.2
IPD Balanced Monthly Index Funds (%) 8.6 9.6
Note: All based on returns for the six month period ending on the date shown.
Sources: Invista Real Estate, DataStream.
(1)Net asset value ('NAV') is calculated using International Financial Reporting
Standards
(2)NAV total return calculated by Invista Real Estate
(3)Peer group NAV total return calculated by DataStream and includes F&C
Commercial Property Trust, UK Balanced Property Trust, ISIS Property Trust, ISIS
Property Trust 2, Standard Life Property Inc, Invesco UK Property, ING UK Real
Estate Income Trust and Teesland Advantage (in the 6 months to September only)
Chairman's Statement
Results
I am pleased to report positive results for the six months ended 30 September
2006. During the period under review, the Company's unaudited Net Asset Value
('NAV') has increased by 13.3 pence per share or 11.1%. Our shareholders have
also received total dividends of 3.375 pence per share, making a NAV total
return of 14% over the six months. Over twelve months shareholders have
received a NAV total return of 28.9%. The results for the six months to 30th
September 2006 include a provision for a performance fee payable to the Manager.
The Company's underlying property portfolio continues to perform well. For the
six months to September 2006, our portfolio registered a total return of 12.4%,
as measured by Investment Property Databank ('IPD'). This compares to a
property level return registered by our IPD peer group of 8.6%.
The UK Property Market
The Company is enjoying the benefits of an increased weighting in the Central
London office markets following the £100 million C Share issue in July 2005.
During the last twelve months the Manager has invested over £160 million in high
quality Central London offices, which have performed ahead of initial
expectations and more significantly, ahead of the wider investment market.
There is now a strong consensus that market conditions in Central London offices
should result in out-performance relative to the property market as a whole over
the next two to three years.
Investor demand has driven yields lower in anticipation of rental growth that is
now being realised, resulting in a widening divergence in total returns between
the main property sectors when compared to the last few years. Whilst the
Company was positioned for this, the divergence has occurred more quickly than
forecast with Central London materially outperforming the other sectors over the
last six months. The Board is aware of the cyclical and potentially volatile
nature of the Central London office markets and reviews the Company's exposure
with the Manager on a regular basis.
The strong performance from London must be contrasted with the potential for
considerably weaker returns in parts of the industrial and retail sectors. The
Manager is forecasting total returns of approximately 7% per annum across the
whole property market over the next few years meaning that effective asset
management will need to be a more important factor in delivering satisfactory
returns than in the recent past.
The Company has continued to pursue acquisitions, asset management and efficient
financing opportunities. Over the last eighteen months the Company has
undertaken 9 acquisitions and 12 disposals totalling £243 million, and arranged
the £460 million debt securitisation of the prime City of London office at
Plantation Place EC3. The Manager is pursuing a number of asset management
projects requiring planning consent, complex lease negotiations and subsequent
major refurbishments. The Manager recognises the importance of successfully
delivering these projects to increase rental income across the portfolio and
provide sustained NAV growth.
Borrowings
As at 30 September 2006 the Group had total on-balance sheet borrowings of
£193.6 million representing 29.3% of total assets less current liabilities.
These borrowings comprise a £152.5 million securitised debt facility that runs
until the Company's continuation vote in 2014 and the loan is fully hedged
against interest rate movements. The remaining on-balance sheet borrowings
comprise two facilities totalling £41 million and are secured against property
assets outside the securitised facility. The total blended interest cost of
these three facilities is currently 5.66%.
The Group also has off-balance sheet, non-recourse borrowings totalling £179.9
million secured against the individual investments at MidCity Place WC2,
Plantation Place EC3 and Crendon Industrial Estate. The total on and
off-balance sheet borrowings as at September 2006 total £373.5 million,
representing 56.5% of total assets less current liabilities.
The Board has agreed that, subject to market conditions, the Manager will work
with NM Rothschild to issue approximately £100 million of additional securitised
debt. This will be used to re-finance the on-balance sheet debt outside the
securitised facility, to fund major asset management projects and for selective
'Special Situation' and other acquisitions. This should take on-balance sheet
borrowings to approximately 40% of total assets less current liabilities.
Change of name
Following the demerger of the Manager from Insight Investment, and its adoption
of the name Invista Real Estate, the Board has considered a proposal to change
the Company's name to Invista Foundation Property Trust. This change will avoid
confusion between Invista and Insight marketing activities, and the Board has
therefore agreed to recommend the change to shareholders. This proposal will be
put to shareholders at the Extraordinary General Meeting to be held on 19
December 2006.
Board
Over the last twelve months, the Board's workload has risen steadily, reflecting
the considerable volume of activity undertaken by the Company, and its
complexity. Looking ahead, it is likely that this will continue, as the Manager
continues to seek to add value through an innovative approach to acquisitions,
disposals and financing.
It has become clear that the current level of Board remuneration does not
reflect this, and we are therefore also putting a resolution to shareholders at
the Extraordinary General Meeting for an increase in the cap on Board
remuneration from £135,000 to £200,000. I am very grateful to all my colleagues
on the Board for their continued commitment to our Company.
Prospects
After the very high returns from property investment over the last few years,
most forecasters are expecting a reduction in returns to something rather more
modest. A large part of recent returns has been attributable to a marked
reduction in yields, and this is unlikely to be repeated. If these forecasts
are correct, future returns will depend more heavily on rental growth, and on
successful asset management. The Board continues to work with the Manager to
pursue a strategy which is designed to provide the best growth opportunities in
these more challenging conditions.
Andrew Sykes
Chairman
Insight Foundation Property Trust Limited
29 November 2006
Investment Manager's report
As at 30 September 2006, Insight Foundation Property Trust Limited ('the
Company') and its subsidiaries ('the Group') owned a property portfolio valued
at £654.3 million comprising 74 assets. Including the Group's share of gross
assets in its joint venture investments, the Group has an exposure to a larger
portfolio valued at £833.8 million. Since the quarter end the Company has sold
an office property on Tudor Street, London EC4 resulting in the property
portfolio now being valued at £635.15 million ('the property portfolio'). The
NAV total return over the half year period has been 14%, taking account of the
dividend and an NAV uplift of 11.1%.
The property portfolio has approximately 340 different tenants let on individual
leases, and an average unexpired lease term of 8 years. The portfolio continues
to be diversified both geographically and across the sectors, although the
successful implementation of our strategy to invest in the Central London office
markets has materially increased the group's exposure to this particular
sub-sector of the U.K. market.
Top 10 Properties (post sale of Tudor Street) Value %
National Magazine House, Carnaby Street, Soho, London W1 £54,500,000 8.6%
Minerva House, 5&6 Montague Close, London SE1 £52,000,000 8.2%
Plantation Place, London EC3 £37,692,000 5.9%
Portman Square House, London W1 £30,089,000 4.7%
6-8,Tokenhouse Yard, London EC2 £23,700,000 3.7%
Reynard Business Park, Brentford £19,600,000 3.1%
Victory House, Trafalgar Place, Brighton £19,500,000 3.1%
MidCity Place, London WC2 £19,130,125 3.0%
Olympic Office Centre, 8 Fulton Road, Wembley £17,800,000 2.8%
Union Park, Fifers Lane, Norwich £16,650,000 2.6%
£290,661,125
Top 10 tenancies Rent pa %
The National Magazine Co Ltd £2,300,587 7.49%
Australia & New Zealand Banking Group Ltd £1,460,000 4.75%
Mott MacDonald Ltd £1,307,148 4.26%
Reed Smith Services £1,295,374 4.22%
The British Broadcasting Corporation £852,250 2.77%
Grand Metropolitan Estates Ltd £795,975 2.59%
Recticel SA £713,538 2.32%
Total Fitness UK Limited £678,540 2.21%
Partners of Cushman Wakefield £574,128 1.87%
Partners of Irwin Mitchell £547,000 1.78%
£10,524,540
Property Portfolio Statistics (September 2006 independent valuations excluding
Tudor Street)
Sector Spread
Sector September 2006 (%) September 2006 (% grossed up)*
Office 57 65
Industrial 22 18
Retail 16 13
Retail Warehouse 1 1
Other 4 3
Total 100 100
Regional Spread
Region September 2006 (%) September 2006 (% grossed up)*
Central London 36 48
South East excl Central London 30 25
Rest of South 8 6
Midlands and Wales 15 12
North and Scotland 11 9
Total 100 100
*The grossed up portfolio analysis includes the Group's share of the off-balance
sheet, non-recourse debt secured against the Associate and Joint Venture
investments at Plantation Place, MidCity Place and Crendon
The contribution of the London office acquisitions following the C Share issue
in 2005 has been a key driver of performance. Investment Property Databank
('IPD') have calculated that the Group's underlying property portfolio produced
a total return over the last six months of 12.4% relative to its IPD peer group
of 8.6%. This places the Group's portfolio top in its peer group of 55 similar
funds. Over 12 months IPD have calculated that the Group's portfolio produced a
total ungeared return of 26.4% relative to its peer group of 18.9%, placing the
Group's portfolio in the top 2% of its peer group. This analysis takes account
of all the transaction costs incurred by the Group in implementing the strategy
over the year.
During the period under review, the Group has made acquisitions and selective
disposals totalling £51.3 million and £4.9 million respectively, resulting in a
total property portfolio valuation of £654.3 million compared with £556.28
million in March 2006 and £439 million as at September 2005. Since the quarter
end the Company has sold an office property on Tudor Street, London EC4
resulting in the property portfolio of 73 assets totalling £635.15 million. The
average individual property is now worth £8.7 million as compared with £6.0
million in September 2005. This is a positive by-product of our strategy to
acquire larger higher quality assets that will typically offer greater asset
management opportunities with a larger number of tenants.
In May the Group acquired the City office building, Tokenhouse Yard, London EC2
for £20.8 million. This newly redeveloped multi-let office property was 40%
vacant at acquisition, but was fully let within two weeks of completion. The
new lettings were at materially higher rents and contribute towards an increased
valuation in September of £23.7 million.
In July the Group acquired a 21.6% stake in Portman Square House, London W1 for
£27.55 million. This is the most recent significant post C Share London office
acquisition. We had considered a number of possible core West End acquisitions,
and subsequently rejected them on the grounds of poor building fundamentals.
For the Group to continue to acquire Central London office buildings we needed
to be as confident as reasonably possible that we could maximise potential to
capture market rental growth at rent review. Portman Square offers that
potential as it is a high quality, modern office building in a core location.
In addition, the multi-let nature of Portman Square House with seven tenants
means that there are a number of opportunities to access the strong rental
growth which is forecast in the West End over the next few years. Portman
Square was acquired in partnership with other Invista client funds and, as with
MidCity Place, London WC2 and Plantation Place, London EC3, illustrates the
advantages of being able to co-invest to acquire large, high quality assets.
Since acquisition the Group's interest in Portman Square has increased in value
to £30.1 million.
The current portfolio rent is £30.7 million reflecting a yield of 5.35%. The
current rental value is £33.5 million reflecting a reversionary yield of 5.8%,
excluding the Group's joint venture investments in MidCity Place, Plantation
Place and Crendon Industrial Park.
The performance of the six key London offices is set out below with reference to
the March 2006 and September 2006 independent valuations.
Property (% and Acquisition Price March 2006 September 2006
type of interest) (£'000) and date Independent Valuation Independent Valuation
(£'000) (£'000)
Minerva House 42,130 47,600 52,000
(100% direct) (August 2005)
National Magazine 45,050 49,500 54,500
House (100% (January 2006)
direct)
MidCity Place 9,800 17,600 27,220*
(19.7% shares in (August 2005)
Single Purpose
Company)
Plantation Place 19,600 20,830 37,692
(28.08% units in (March 2006)
Jersey Unit Trust)
Tokenhouse Yard 20,830 27,500 23,700
(100% direct) (May 2006)
Portman Square 27,550 N/A 30,089
House (21.6% (July 2006)
interest in Trust
for Land)
* The Group received back £8.09 million as re-finance proceeds during the
period. The valuation of the Group's remaining interest in MidCity Place is
£19,130 million
This illustrates the acceleration in capital growth over the period. According
to IPD, over the quarter to September 2006 these properties contributed 2.24% of
the capital uplift of the whole property portfolio of 4.3%. We are very aware
of the cyclical and volatile nature of the Central London office markets and
whilst the strategy has been significantly NAV enhancing we remain vigilant.
Invista's analysis and research into the Central London markets leads us to
conclude that London will continue to outperform over the next two years or so
as supply reduces and tenant demand increases. The reducing supply is most
acute in higher quality 'Grade A' buildings, where the Group's acquisitions have
been focused and this is intended to maximise the prospects for rental growth at
review.
Two of the disposals during the period were small retail properties for a total
consideration of £4.9 million. These followed successful implementation of
asset management initiatives and the combined disposal proceeds reflected a £1.8
million increase over their combined acquisition prices in July 2004 of £3.1
million. More significantly, in October the Company completed the disposal of
its long leasehold single let office building on Tudor Street, London EC2 for
£19.5 million. Whilst well located, the reducing lease term of seven years, an
over-rented occupational lease combined with a relatively high head-lease rent
if the building is vacant led to a decision to sell. The property has performed
well for the Company, having been acquired for £15.2 million in July 2004.
During the period the Group completed its first Special Situation investment at
the 250,000 sq ft Crendon Industrial Estate in Oxfordshire, where the Group
invested £2.9 million for a 50% interest in the property owning joint venture
company. The asset management plan is progressing well with planning consent
received for an additional 250,000 sq ft of warehouse space on the development
land. A pre-let for the first phase has been agreed and the stand alone,
non-recourse banking facility is being re-financed to fund these works and the
acquisition of adjoining ownerships. As at September 2006 the Group's interest
was valued at £4.15 million and we expect asset management driven performance in
future.
Finally, detailed planning consent has been received for the retail warehouse
development in Basingstoke that will trigger the site acquisition by the Group.
The property will be let to Wickes Building Supplies Limited for 25 years at
£692,250 per annum with the Group committing to invest £11.9 million that
reflects a yield of 5.7%. Completion of the development is anticipated towards
the end of 2007.
Significant progress has been made on asset management initiatives over the
period. The most significant of these was the re-financing of the bridging
facility used to acquire Plantation place, London EC3 in March 2006, where the
Group holds a 28.08% stake. Working closely with NM Rothschild and Merrill
Lynch, Invista arranged the securitisation of the £460 million bridging loan to
achieve a blended margin of 45 basis points over a seven year term. This
combined with a seven year interest rate hedge of 4.74% results in a total cost
of funds of 5.19%, excluding set up costs. The securitisation set new
benchmarks in terms of flexibility and allows the securitisation package to be
transferred with the property in the event of a sale, which is potentially
attractive to a prospective purchaser.
At Coventry Road, Hinckley, the Company is awaiting the decision on the planning
application for 100,000 sq ft of retail warehouse space and 50,000 sq ft of
warehouse space. A decision is expected in January 2007. In London, progress is
being made to create additional office accommodation via an extension to Minerva
House, London SE1. We hope to report further progress by the year end. In
terms of other significant projects, reception refurbishments are planned at
Portman Square House and MidCity Place to improve the buildings and their
lettable value.
Asset management is not limited to our larger assets and we are also delivering
performance and rental growth across our retail and industrial assets. Any
vacant units are continuing to be aggressively marketed and as at 30 September
2006 the property portfolio void rate was 3.8%. Approximately 1% of this is
attributable to Hinckley where the major tenant's lease was surrendered for a
significant premium payment to the Group, in anticipation of the possible
redevelopment. The vacancy rate can be compared to approximately 7.3% for the
average portfolio as measured by IPD.
The table below sets out the Group's current on balance sheet and off balance
sheet borrowings.
On-balance Expiry Rating Amount Margin Amortised Hedged Total cost
sheet loan (£'000) costs (p.a.) (p.a.)
REC 2014 AAA 139,000 20 bps 28 bps 5.1% 5.59%
(Foundation) AA 13,500 29 bps
Limited
Bridge loan May 2007 N/A 26,500 90 bps N/A No 5.9%
Portman Square 2010 N/A 14,580 95 bps N/A 5.01% 5.96%
loan 1 year
Sub -total 193,580 Blended rate 5.66%
Off-balance Expiry Rating Amount Margin Amortised Hedged Total cost
sheet loan (£'000) costs (p.a.) (p.a.)
Plantation Place 2013 AAA to B 129,170 45 bps 13 bps 4.74% 5.32%
Note
MidCity Place 2010 N/A 42,420 100 bps N/A 4.95% 5.95%
Crendon
Industrial Estate 2009 N/A 8,350 120 bps N/A 5.22% 6.42%
Sub-total 179,940 Blended rate 5.43%
TOTAL 373,520 Blended rate 5.55%
The Board of the Company has agreed that subject to terms, £100 million of
additional securitised debt, issued as Reserve Notes, may be issued to
re-finance the existing on-balance sheet, non-securitised debt of £41.05
million, with the balance of the proceeds invested in capital intensive asset
management projects in the portfolio and further acquisitions. These
acquisitions will be opportunistic with an emphasis on Special Situations and
assets with longer term income, offering defensive characteristics.
Outlook
We anticipate total returns for the UK property market as a whole of between 15%
and 17% for the 2006 calendar year. We maintain our view stated in previous
reports that returns over the next few years could be more in line with the long
run UK average of closer to 7%. As predicted, we expect the total return
divergence between the sectors to continue to widen which will place increased
emphasis on sector weightings and future stock selection.
Notwithstanding the increases in interest rates over the last 12 months, the
market continues to be supported by strong demand from equity rich investors for
prime assets with good fundamentals. This type of demand is most prevalent in
London and the introduction of UK Real Estate Investment Trust's ('REITs') next
year is expected to sustain this demand further.
We remain more cautious about the secondary property market where yields have
fallen to unsustainably low levels. We are reviewing our portfolio for
situations where we can crystallise profits from the sale of small secondary
retail assets into the private investor market where the impact of rising
interest rates is arguably not yet fully reflected.
We remain very positive about the Group's prospects in what will be a more
challenging market.
Duncan Owen
Invista Real Estate Investment Management Limited
29 November 2006
Consolidated income statement
(unaudited) for the period from 1 April 2006 to 30 September 2006
Notes 01/04/2006 01/04/2005 01/04/2005
To To To
30/09/2006 30/09/2005 31/03/2006
£'000 £'000 £'000
Rental income 14,760 13,023 28,119
Other income 1,019 3 225
Property operating expenses (452) (172) (1,172)
Net rental and related income 15,327 12,854 27,172
Profit on disposal of investment property 1,648 1,862 2,594
Net valuation gains on investment property 25,116 18,493 54,022
Expenses
Investment management fee 2 (3,175) (2,357) (5,062)
Performance fee 2 (3,000) - (6,160)
Valuers' and other professional fees (309) (201) (416)
Administrative fee (111) (127) (227)
Audit fees (86) (13) (47)
Directors' fees (74) (43) (98)
Other expenses - (121) (525)
Total expenses (6,755) (2,862) (12,535)
Net operating profit before net finance 35,336 30,347 71,253
costs
Interest receivable 1,041 1,270 3,908
Interest payable (5,326) (4,133) (8,191)
Finance expenses (375) (472) (673)
Net finance costs (4,660) (3,335) (4,956)
Share of profits of associates 26,110 - 8,582
Profit before tax 56,786 27,012 74,879
Taxation (53) (400) (85)
Profit for the period / year attributable 56,733 26,612 74,794
to the equity holders of the parent
company
Basic and diluted earnings per share 5 16.0p 9.2p 23.5p
All items in the above statement are derived from continuing operations.
Consolidated balance sheet
(unaudited) as at 30 September 2006
Notes 30/09/2006 31/03/2006 30/09/2005
£'000 £'000 £'000
Investment properties 563,211 518,180 428,845
Investment in associates and joint 3 87,825 28,313 131
ventures
Loan to associate 3 3,237 9,787 9,787
Non-current assets 654,273 556,280 438,763
Trade and other receivables 5,066 5,832 5,595
Taxation paid in advance 225 231 -
Cash and cash equivalents 25,404 37,608 112,943
Current assets 30,695 43,671 118,538
Total assets 684,968 599,951 557,301
Issued capital and reserves 470,009 422,771 385,028
Equity 470,009 422,771 385,028
Interest-bearing loans and borrowings 190,050 148,833 148,570
Interest rate swap 1,437 3,875 5,369
Non-current liabilities 191,487 152,708 153,939
Trade and other payables 19,532 21,222 14,298
Provisions 3,940 3,250 2,000
Taxation payable - - 2,036
Current liabilities 23,472 24,472 18,334
Total liabilities 214,959 177,180 172,273
Total equity and liabilities 684,968 599,951 557,301
Net Asset Value per Ordinary Share 6 132.9p 119.6p 108.9p
This Interim Report was approved by the Board of Directors on 29 November 2006
and signed on its behalf by:
Andrew Sykes Harry Dick-Cleland
Chairman Chair of Audit Committee
Consolidated statement of changes in equity
(unaudited) for the period from 1 April 2006 to 30 September 2006
Notes Share Premium Hedge Revenue Total
£'000 Reserve Reserve
£'000 £'000 £'000
Balance as at 31 March 2005 - (1,382) 274,204 272,822
Issued in the period 100,000 - - 100,000
Issue costs (1,644) - - (1,644)
Loss on derivative instruments - (2,493) - (2,493)
Profit for the year - - 74,794 74,794
Dividends paid - - (20,708) (20,708)
Equity at 31 March 2006 98,356 (3,875) 328,290 422,771
Gain on derivative instruments - 2,438 - 2,438
Profit for the period - - 56,733 56,733
Dividends paid 4 - - (11,933) (11,933)
Equity at 30 September 2006 98,356 (1,437) 373,090 470,009
Consolidated statement of cash flows
(unaudited) for the period from 1 April 2006 to 30 September 2006
01/04/2006 01/04/2005 01/04/2005
To To To
Notes 30/09/2006 30/09/2005 31/03/2006
£'000 £'000 £'000
Operating Activities
Profit for the period / year 56,733 26,612 74,794
Adjustments for:
Profit on disposal of investment property (1,648) (1,862) (2,594)
Net valuation gains on investment property (25,116) (18,493) (54,022)
Share of profits of associates (26,110) - (8,582)
Net finance cost 4,660 3,336 4,956
Taxation 53 400 85
Operating profit before changes 8,572 9,993 14,637
in working capital and provisions
Decrease /(Increase) in trade and other 768 (785) (1,135)
receivables
(Decrease)/Increase in trade and other payables (2,640) 710 10,614
Cash generated from operations 6,700 9,918 24,116
Interest paid (4,374) (2,632) (6,805)
Interest received 1,030 1,147 3,901
Tax paid (48) - (2,035)
Cash flows from operating activities 3,308 8,433 19,177
Investing Activities
Proceeds from sale of investment property 5,080 21,020 26,868
Acquisition of investment property (22,450) (58,102) (107,691)
Acquisition of associates (33,401) - (19,731)
Cash flows from investing activities (50,771) (37,082) (100,554)
Financing Activities
Proceeds on issue of Ordinary Shares - - 100,000
Loan to associate 3 6,549 - (9,787)
Cost of issue of conversion - 100,000 -
Issue costs paid on issuance of Ordinary Shares - (1,644) (1,644)
Draw down of long term loans 41,009 - -
Finance costs paid on arrangement of long term (366) (3,211) (4,098)
loan
Dividends paid 4 (11,933) (8,775) (20,708)
Cash flows from financing activities 35,259 86,370 63,763
Net (decrease) / increase in cash (12,204) 57,721 (17,614)
and cash equivalents for the period / year
Opening cash and cash equivalents 37,608 55,222 55,222
Closing cash and cash equivalents 25,404 112,943 37,608
Notes to the Interim Report
1. Significant accounting policies
Insight Foundation Property Trust Limited ('the Company') is a closed-ended
investment company incorporated in Guernsey. The consolidated financial
statements of the Company for the period ended 30 September 2006 comprise the
Company, its subsidiaries, and the Group's interest in associates and jointly
controlled entities (together referred to as the 'Group').
Statement of compliance
These condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim
Financial Reporting. They do not include all of the information required for the
full annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year ended 31
March 2006.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 28 November 2006.
Basis of preparation
The financial statements are presented in sterling, rounded to the nearest
thousand. They are prepared on the historical cost basis except that investment
property and derivative financial instruments are stated at their fair value.
The accounting policies have been consistently applied to the results, assets,
liabilities and cash flows of the entities included in the consolidated
financial statements and are consistent with those of the previous year.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Basis of consolidation
Subsidiaries
The consolidated financial statements comprise the accounts of the Company and
all of its subsidiaries drawn up to 31 March each year. Subsidiaries are those
entities, including special purpose entities, controlled by the Company.
Control exists when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. In assessing control, potential voting rights that presently
are exercisable are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that control ceases.
Associates and Joint Ventures
Associates are those entities in which the Group has significant influence, but
not control, over the financial and operating policies. The consolidated
financial statements include the Group's share of the total recognised gains and
losses of associates on an equity accounted basis, from the date that
significant influence commences to the date that significant influence ceases.
When the Group's share of losses exceeds its interest in an associate, the
Group's carrying amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of an associate. Loans to
associates are stated at their amortised cost less impairment losses.
Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses arising from
intra-group transactions are eliminated in preparing the consolidated financial
statements. Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group's interest in the entity. Unrealised
losses are limited only to the extent that there is no evidence of investment.
Investment property
Investment property is land and buildings held to earn rental income together
with the potential for capital growth.
Investment properties are initially recognised at cost, being the fair value of
the consideration given, including transaction costs associated with the
investment property.
After initial recognition, investment properties are measured at fair value,
with unrealised gains and losses recognised in the Consolidated Income
Statement. Realised gains and losses on the disposal of properties are
recognised in the Consolidated Income Statement. Fair value is based on the
open market valuations of the properties as provided by Knight Frank LLP a firm
of independent chartered surveyors, at the balance sheet date. Market
valuations are carried out on a quarterly basis.
Cash and cash equivalents
Cash at banks and short-term deposits that are held to maturity are carried at
cost. Cash and cash equivalents are defined as cash in hand, demand deposits
and short-term, highly liquid investments readily convertible to known amounts
of cash and subject to insignificant risk of changes in value. For the purposes
of the Consolidated Statement of Cash Flows, cash and cash equivalents consist
of cash in hand and short-term deposits at banks.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to
interest rate fluctuations. It is not the Group's policy to trade in derivative
financial instruments.
Derivative financial instruments are recognised initially at fair value and are
subsequently re-measured and stated at fair value. Fair value of interest rate
swaps is the estimated amount that the Group would receive or pay to terminate
the swap at the balance sheet date. The gain or loss on re-measurement to fair
value of cash flow hedges in the form of derivative financial instruments are
taken directly to the Statement of Changes in Equity. Such gains and losses are
taken to a reserve created specifically for that purpose, described as the Hedge
reserve.
On maturity or early redemption the realised gains or losses arising from cash
flow hedges in the form of derivative instruments are taken to the Income
Statement, with an associated transfer from the Statement of Changes in Equity
in respect of unrealised gains or losses arising in the fair value of the same
arrangement.
The Group considers the terms of its interest rate swap qualify for hedge
accounting.
Share capital
Ordinary shares are classified as equity. Incremental external costs directly
attributable to the equity transaction and costs associated with the
establishment of the Company that would otherwise have been avoided are written
off against the share premium account. Dividends are recognised as a liability
in the period in which they are paid.
Provisions
A provision is recognised in the Balance Sheet when the Group has a legal or
constructive obligation as a result of a past event, and it is probable that an
outflow of economic benefits will be required to settle the obligation.
Income
Rental income from investment properties is accounted for on a straight-line
basis over the term of ongoing leases and is shown gross of any UK income tax.
Any material premiums or rent-free periods are spread evenly over the lease
term.
Interest receivable derives from cash monies held in current and deposit
accounts throughout the period and is accounted for on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. The Group's investment
management and administration fees, finance costs (including interest on the
long term borrowings) and all other expenses are charged through the
Consolidated Income Statement. Attributable transaction costs incurred in
establishing the Group's credit facilities are deducted from the fair value of
borrowings on initial recognition and are amortised over the lifetime of the
facilities through the Consolidated Income Statement.
Taxation
The Company and its subsidiaries are subject to United Kingdom income tax on any
income arising on investment properties, after deduction of debt financing costs
and other allowable expenses.
Income tax on the profit or loss for the year comprises current tax. Current
tax is the expected tax payable on the taxable income for the year, using tax
rates enacted or substantially enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous periods.
Deferred income tax is provided using the liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date. Deferred tax assets
are recognised only to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being property investment business and in one geographical area,
the United Kingdom.
Loans and borrowings
Borrowings are recognised initially at fair value of the consideration received,
less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
2. Investment Management Agreement and performance fee
Under the terms of an appointment made by the Board on 24 June 2004, Insight
Investment Management (Global) Limited was appointed as Investment Manager to
the Company.
On 31 August 2006 the Board agreed to novate the Investment Management Agreement
to Invista Real Estate Investment Management Limited. This follows the de-merger
of the Manager from Insight Investment and its subsequent independent listing on
the Alternative Investment Market.
The Investment Manager is entitled to a base fee and a performance fee together
with reasonable expenses incurred by it in the performance of its duties. The
base fee is equal to one quarter of 95 basis points of the gross assets of the
Group per quarter.
In addition, and subject to the conditions below, the Investment Manager is
entitled to an annual performance fee where the total return per Ordinary Share
during the relevant financial period exceeds an annual rate of 10 per cent (the
'performance hurdle'). Where the performance hurdle is met, a performance fee
will be payable in an amount equal to 15 per cent of any aggregate total return
over and above the performance hurdle. A performance fee will only be payable
where: (i) in respect of the relevant financial period, the total return of the
underlying assets meets or exceeds the Investment Property Databank ('IPD')
Monthly Index balanced funds benchmark on a like for like basis; and (ii) the
annualised total return over the period from admission of the Company's Ordinary
Shares to the end of the relevant financial period is equal to or greater than
10 per cent per annum.
The Board considers that the conditions laid out in the management agreement
regarding the Investment Managers qualification for receipt of a performance fee
may be met for the year. Accordingly, the Board considers it would be prudent
to accrue a provision of £3,000,000 (2005: Nil) to the income statement in
respect of this potential fee.
3. Investments in Associates and Joint Ventures
Mid City Place
In August 2005, the Group, through Insight Foundation (Mid City) Limited,
invested equity and subordinated debt for a 19.725% shareholding in DV3 Mid City
Limited, a company incorporated in the United Kingdom and which owns the Mid
City Place property in London. This investment is classified as an investment in
an associate.
During the period DV3 Mid City Limited refinanced its loan facility which now
stands at £215,000,000. This enabled it to repay to the Group £8,088,000. This
amount comprised all outstanding interest and part repayment of the subordinated
debt, leaving £3,237,308 outstanding to the Group. This debt attracts interest
at a rate of 20% per annum and has no fixed repayment date.
As at 30 September 2006 the value of the Group's original equity investment in
DV3 Mid City Limited is now valued at £15,892,817. As at 30 September 2006 DV3
Mid City Limited had total assets of £314,000,000, total liabilities of
£233,000,000, revenues for the period ended 30 September 2006 were £6,600,000
and a loss was incurred for the same period of £3,600,000.
Plantation Place
The Group's 28.08% interest in One Plantation Place Unit Trust is now valued at
£37,692,000. As expected, during the period the Unit Trust has completed a
£463m securitisation which has re-financed the Unit Trusts previous senior and
junior debt facilities. The securitisation achieved a blended margin of 45bps
over a 7 year term. The Unit Trust also has the benefit of a 7 year interest
rate swap at 4.74% giving a total interest rate payable of 5.19%.
As at 30 September 2006 One Plantation Place Unit Trust had total assets of
£603,648,000, total liabilities of £463,879,000, revenues for the six month
period ended 30 September 2006 were £13,505,000 and a profit was made for the
same period of £1,555,000.
Portman Square House
In July 2006 the Group acquired a 21.6% stake in a trust in land established
amongst 5 client investors of the Investment Manager to acquire Portman Square
House. The Group's purchase consideration comprised £27.55m. At September
2006, the Group's interest was valued at £30,089,000. In order to fund the
acquisition, the Group borrowed £14,580,000 secured on the Group's beneficial
interest in the trust.
Crendon
In May 2006 the Group acquired a 50% share in a joint venture company
established to acquire Crendon Industrial Estate, near Oxford. The joint
venture company acquired the property for a gross consideration of £20,000,000
which was funded by a combination of a debt facility £16,700,000 and equity
funding from the joint venture partners. The Group's equity investment at the
time of acquisition was £2,900,000 which was valued at £4,150,000 at September
2006.
4. Dividends paid
No of 01/04/06 to
In respect of Ordinary Rate 30/09/06
shares (pence) £'000's
Quarter 31 March 2006 dividend, paid 26 May 2006 353.56 million 1.6875 5,967
Quarter 30 June 2006 dividend, paid 25 August 2006 353.56 million 1.6875 5,966
3.375 11,933
A dividend for the quarter ended 30 September 2006, of 1.6875 pence per share,
was declared on 31 October 2006 with an ex-dividend date of 8 November 2006. The
dividend was paid on 24 November 2006 to those shareholders on the register as
at close of business on 10 November 2006.
5. Basic and diluted earnings per ordinary share
The basic and diluted earnings per share for the Group is based on the net
profit for the period of £56,733,000 and the weighted average number of ordinary
shares in issue during the period of 353,560,000.
6. Net asset value per ordinary share
The net asset value per ordinary share is based on the net assets of
£470,009,000 and 353,560,000 ordinary shares in issue at the Balance Sheet date.
Independent review report to Insight Foundation Property Trust Limited
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises Income Statement, Balance
Sheet, Statement of Changes In Equity, Cash Flow Statement and the Notes to the
Interim Report. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. 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 interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the UK. A review consists
principally of making enquiries of management and applying analytical procedures
to the financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
KPMG Channel Islands Limited
Chartered Accountants
20 New Street
St. Peter Port
Guernsey GY1 4AN
29 November 2006
Corporate information
Registered Address Auditors
Royal Bank Place KPMG Channel Islands Limited
1 Glategny Esplanade 20 New Street
St Peter Port St. Peter Port
Guernsey GY1 2HS Guernsey GY1 4AN
Directors
Property Valuers
Andrew Sykes (Chairman)
John Frederiksen Knight Frank LLP
Keith Goulborn 20 Hanover Square
Harry Dick-Cleland London W1S 1HZ
David Warr
Peter Atkinson
(all Non-Executive Directors)
Investment Manager Channel Islands Sponsor
Invista Real Estate Investment Management Limited Ozannes Securities Limited
33 Old Broad Street 1 Le Marchant Street
London EC2N 1HZ St. Peter Port
Guernsey GY1 4HP
Fund Administrator UK Sponsor and Broker
RBSI Fund Services JP Morgan Cazenove Limited
(Guernsey) Limited 20 Moorgate
Royal Bank Place London EC2R 6DA
1 Glategny Esplanade
St Peter Port Tax advisers
Guernsey GY1 2HS
Deloitte & Touche LLP
180 Strand
London WC2R 1BL
Solicitors to the Company Receiving Agent and UK
Transfer/Paying Agent
as to English Law
Herbert Smith Computershare Investor
Exchange House, Services PLC
Primrose Street The Pavilions
London EC2A 2HS Bridgwater Road
Bristol BS99 1XZ
as to Guernsey Law
Ozannes
1 Le Marchant Street
St. Peter Port
Guernsey GY1 4HP
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