Insight Foundation Property Trust Limited Interim Report

Transcription

1 Insight Foundation Property Trust Limited Interim Report Unaudited as at 30 September 2004

2 2 Insight Foundation Property Trust Limited 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. It is intended that the Group will hold a diversified portfolio of UK commercial properties. The Group invests in three commercial property sectors: office, retail and industrial. The Group will not invest in other 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, at least initially, with above average income yields for the property sector with opportunities to enhance value through active management. Investment manager Insight Investment Management Duncan Owen Total assets less current liabilities million at 30th September Shareholders funds million at 30th September Capital structure At launch, Insight Foundation Property Trust Limited had a capital structure comprising approximately 85 per cent ordinary shares and 15 per cent bank debt. As at 30th September 2004 this was approximately 72 per cent ordinary shares and 28 per cent bank debt. Ordinary shareholders are entitled to all dividends declared by the Company and to all the Company s assets after repayment of its borrowings. Borrowings consist of 98 million drawn down. The loan currently carries interest at 104 basis points over LIBOR. The proposed debt securitisation is due to be completed at or around the end of this year at close to 45 basis points above LIBOR including fees. A full explanation of the capital structure will be given in the Annual Report. 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.

3 Insight Foundation Property Trust Limited 3 Financial highlights and performance summary Net asset value per share rose by 4 per cent over the period Share price rose by 10.5 per cent over the period The first dividend of pence per share to be paid on 12th November 2004 Key Statistics 30 September Launch 16 July % Change Net asset value ( m s) Net asset value per ordinary share (pence) Ordinary share price (pence) Peer Group Comparison FTSE All-Share Index Premium to NAV (pence) 9.1 Sources: Insight Investment, Datastream. 1 Net asset value (NAV) is calculated using International Financial Reporting Standards. 2 IFPT total return pre-dividend. 3 Comprising ISIS Property Trust Limited, ISIS Property Trust 2 Limited, The UK Balanced Property Trust Limited, Standard Life Investments Property Income Trust Limited total shareholder return including gross dividends reinvested. Note: All based on returns during the period from 16th July to 30th September 2004.

4 4 Insight Foundation Property Trust Limited Chairman s statement This is the first report and accounts for the Insight Foundation Property Trust Limited (the Company), which was launched on 16th July It gives me great pleasure to welcome all shareholders to the Company. Results This interim report covers the period from 16th July 2004 to 30th September I am pleased to report that the unaudited net asset value has increased from the estimated launch figure of 97.5 pence per share to pence per share. This represents a return of 4% over the Company s first two months of operation. This reflects both the strength of the Company s property portfolio and that of the UK commercial property market over this period. A dividend of pence per share was declared on 21st October Bank borrowing The Company has arranged a 110 million interim debt facility provided by NM Rothschild and Merrill Lynch. There is currently 98 million drawn down under this facility at a margin of approximately 104 basis points above LIBOR. We are finalising a 10 year securitisation facility of 150 million after costs which will re-finance the interim facility and provide the Company with 52 million of capacity to acquire further properties, with the intention of building up to a final portfolio of some 400 million. The Loan to Value ratio for the debt facility will then be in the region of 38%, which is in line with the Board s stated intention at launch. The longer term interest rate environment has improved since the Company s launch and the Board is optimistic that, upon closing the securitisation, suitable hedging will be put in place at a cost which compares favourably with our original assumptions in the prospectus at launch. Shareholder communication The Manager will continue to issue quarterly fact sheets. They are in the process of setting up a bespoke website for the Company. In the meantime, should you have any specific queries, please contact the Investment Team, whose contact details can be found at the rear cover of these interim accounts. Annual and interim accounts will be prepared to 31st March and 30th September, respectively, and will be posted to shareholders shortly thereafter.

5 Insight Foundation Property Trust Limited 5 Chairman s statement We are monitoring the progress of Property Investment Funds (PIFs) and indeed our manager is closely involved directly in industry lobby groups regarding the proposed structure. The Board will consider this matter carefully as matters progress but clearly, under current circumstances, the Company already benefits from most of the proposed advantages which could be offered by the introduction of the new PIFs. Stock Exchange Listing The Company is the first Guernsey based property Investment Company to have a full London Listing within the FTSE All Share Index and is part of the FTSE Small Cap subgroup. At the time of writing, it is approximately the 360th largest company by market capitalisation in the FTSE All Share Index. We are now moving into a market based more closely on the fundamentals of growing tenant demand and constrained supply conditions, particularly in the office sector in London and the South East. This should create the conditions for increased rental growth, and the Company s strategy is, accordingly, to acquire properties with the objective of enhancing their potential through active asset management initiatives. Andrew Sykes, Chairman Insight Foundation Property Trust Ltd 25th November 2004 Outlook The UK property market has already performed strongly so far in Until recently, we have been in an interest rate led property cycle where the cost of borrowing was sufficiently low to attract new market entrants to acquire commercial property. As interest rates have risen and capital values have increased, rental yields have fallen, as have margins for debt-financed investors.

6 6 Insight Foundation Property Trust Limited Investment manager s summary report The property portfolio The Company initially acquired 64 properties valued at a total of million. The initial property portfolio has been revalued by Knight Frank LLP with a 2.36% uplift (i.e. a gross uplift of 6.92million) which reflects strong comparable growth since 16th July We can also report a period of high activity since launch, with the acquisition of another nine properties, which successfully completed on 29th September The new properties provide an income yield of 7% and include 4 offices, 4 industrial properties and a shopping centre. The purchase price was million and there are almost 40 new tenants further adding to the diversity of the Company s portfolio. As at 30th September 2004, the Company has a direct property portfolio of million totalling 73 properties. The Company has approximately 240 tenancies across the portfolio with an average un-expired lease term of 9 years. The portfolio is well balanced and benefits from a very diverse portfolio of assets across most major city and town centres in England and Wales and in all the main sub-sectors of the commercial property market including industrial, retail and office properties. We are now seeking further acquisitions up to a value of 50 million which will take the gross asset value of the Fund to approximately 400 million. Given the strength of the UK property market and the evidence of rising occupational demand from tenants, we will pursue properties with specific asset management opportunities, including creating and upgrading lettable accommodation in order to meet growing tenant demand which will enhance our ability to generate income.

7 Insight Foundation Property Trust Limited 7 Investment manager s summary report We are also considering a small number of possible disposals where we have the opportunity to realise profits well in excess of our own business plans for the assets concerned. Underlying performance of the Company s portfolio will continue to be driven by the income yield of approximately 7% per annum, along with active asset management initiatives which are currently underway. We expect to report further progress on these activities in our quarterly fact sheets and of course in the year end accounts. Geographical analysis Central London 4.4% South East excl. CL 31.9% Rest of South 21.8% Midlands and Wales 22.6% North 19.3% Source: Insight Investment

8 8 Insight Foundation Property Trust Limited Property portfolio statistics Sector analysis Retail 32.9% Offices 32.4% Industrial 34.7% Source: Insight Investment Covenant strength High 7.6% Medium-high 6.5% Low-medium 19.6% Low 23.6% Negligible & Gov t 42.7% Source: Insight Investment

9 Insight Foundation Property Trust Limited 9 Property portfolio statistics Tenure analysis Freehold 80.5% Leasehold (>100 yrs.) 16.6% Mixed 2.9% Source: Insight Investment Lease length (to earlier of Tenant Break / Lease Expiry) % of current rental income % 36.2% 23.1% 14.8% year 5-10 year year 15 year+ Source: Insight Investment

10 10 Insight Foundation Property Trust Limited Property portfolio statistics Ten largest holdings Value ( 000) Value % Reynard Business Park,Brentford 17, /22,Tudor Street,London,EC4 15, The Albion Centre,Bath Street, Ilkeston 13, Union Park,Fifers Lane,Norwich 12, Olympic Office Centre, Wembley 11, Recticel Unit,Alfreton 10, Victoria Plaza,Bolton 9, ,Oxford Road,Uxbridge,Middlesex 9, The Quadrant,Woodlands Lane, Bristol 8, Weldon North Industrial Estate, Corby 8, , Ten largest tenants Rent p.a. ( 000) Rent % Freshfields Services Company 1, The British Broadcasting Corporation Grand Metropolitan Estates Ltd Recticel SA Jarvis Porter (Property Holdings) Ltd Concept Automotive Services Ltd Tucker, Crossland Darke (Irwin Mitchell) Parametric Technology (UK) Ltd Clinton Cards (Essex) Ltd Veale Wasbrough Solicitors ,

11 Insight Foundation Property Trust Limited 11 Consolidated income statement (unaudited) for the period from 16 July 2004 to 30 September 2004 Notes 2004 '000 Rent receivable 4,061 Valuation gain on investment property 8 4,250 8,311 Expenses Investment management fee -604 Administrative fee -41 Valuers' and other professional fees -24 Audit fee -17 Directors' fees -30 Other expenses -113 Total expenses -829 Net operating profit before net finance costs 7,482 Net finance costs Bank interest 143 Interest payable -542 Finance expenses -64 Net finance costs -463 Profit before tax 7,019 Taxation provision -1,082 Profit for the period 5,937 Earnings per ordinary share 2.28p The Company commenced operations on 16 July 2004 following incorporation on 27th May All items in the above statement derive from continuing operations.

12 12 Insight Foundation Property Trust Limited Consolidated statement of changes in equity (unaudited) for the period from 16 July 2004 to 30 September '000 Net profit for the period from operations 5,937 Issue of ordinary share capital 260,000 Issue costs -2, ,624 Net assets at 30 September ,561

13 Insight Foundation Property Trust Limited 13 Consolidated balance sheet (unaudited) as at 30 September '000 Non-current assets Investment properties 349,680 Total non-current assets 349,680 Current assets Debtors and prepayments 6,626 Cash and cash equivalents 16,599 Total current assets 23,225 Total assets 372,905 Equity Issued capital and reserves 263,561 Non-current liabilities Bank loan 97,216 Current liabilities Total current liabilities 12,128 Total liabilities 109,344 Total Equity and liabilities 372,905 Net Asset Value per share p* *Note: The NAV fully reflects the impact of the Trust's set up costs. This Interim Report was approved by the Board of Directors on 25th November 2004 and signed on its behalf by: Name: Andrew Sykes Position: Chairman Name: Paul Smith Position: Director

14 14 Insight Foundation Property Trust Limited Consolidated statement of cash flows (unaudited) for the period from 16 July 2004 to 30 September '000 Operating activities Net operating profit before net finance costs 7,482 Adjustment for: Increase in debtors and prepayments -6,626 Increase in operating creditors and accruals 9,943 Bank interest 143 Valuation gain on investment property -4,250 Net cash inflow from operating activities 6,692 Investing activities Purchases of property -344,940 Sales of property Net cash outflow from investing activities -344,940 Financing activities Proceeds of issue of ordinary shares 260,000 Issue costs paid on issue of ordinary shares -2,352 Draw down of bank loan 98,100 Bank loan arrangement and valuation fees -901 Net cash inflow from financing activities 354,847 Increase in cash to 30 September ,599

15 Insight Foundation Property Trust Limited 15 Accounting policies (a) Basis of accounting The consolidated unaudited financial statements have been prepared in accordance with the International Financial Reporting Standards issued by, or adopted by, the International Accounting Standards Board (the IASB ), interpretations issued by the International Financial Reporting Standards committee, applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority. The consolidated financial statements have been prepared under the historical cost convention, except for the measurement at fair value of investment properties. (b) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and all of its subsidiary undertakings up to 30 September Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. (c) Income Rental income Rental income is accounted for on a straight line basis over the lease 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 Interest receivable derives from cash monies held in current and deposit accounts throughout the period and is accounted for on an accruals basis. (d) Expenses All expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs (including interest on the bank facility) and all other expenses are charged through the Consolidated Income Statement. (e) Taxation The Company is exempt from Guernsey taxation on income derived outside Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, A fixed annual fee of 600 is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation will arise on capital gains. The Directors intend to conduct the Group's affairs such that the management and control of the Group is not exercised in the United Kingdom and so that neither carries on any trade in the United Kingdom. Accordingly, once the restructuring of the Group is completed, the Company and its subsidiaries will not be liable for United

16 16 Insight Foundation Property Trust Limited Accounting policies (continued) Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source. The Company and its subsidiaries are subject to United Kingdom income tax on income arising on the Property Portfolio after deduction of its allowable debt financing costs and its allowable expenses. (f) Investment properties 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. (h) Share issue and formation expenses 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. As further disclosed in note 5 the share premium account has been cancelled and credited as a distributable reserve. (i) Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being that of a property investment business and in one geographical area, the United Kingdom. (j) Cash and cash equivalents Cash in 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 purpose of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash in hand and short-term deposits in banks. (k) Bank loans and borrowings All bank loans and borrowings are initially recognised at cost, the fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

17 Insight Foundation Property Trust Limited 17 Notes to the Interim report 1. The un-audited interim results have been prepared in accordance with International Financial Reporting Standards. 2. The returns per ordinary share are based on 260,000,000 shares, being the average number of shares in issue. 3. Earnings for the period from 16th July to 30th September 2004 should not be taken as a guide to the results of the period to 31st March The first interim dividend of 4,387,500, equivalent to pence per share was declared on 21st October 2004 with an ex-dividend date of 27th October The dividend was paid on 12th November 2004 to those shareholders on the register at close of business on 29th October The net asset value in these accounts is expressed before the dividend payment. and the payments of dividends. As the Directors had approved the reduction in the share premium account prior to 30 September 2004 and due to the materiality of the reduction these accounts have been prepared to reflect the reduction. 6. The Group results consolidate those of Insight Foundation Property Trust Limited and its subsidiary companies, all of which are wholly owned. 7. The interim financial statements were approved at a meeting of the board of directors held on 25th November The net revaluation uplift of 4.25m represents the gross valuation uplift of 6.92m less property acquisition costs of 2.67m. 5. On 1st October 2004 the Royal Court of Guernsey confirmed the reduction of capital by way of a cancellation of the share premium account of Insight Foundation Property Trust Limited. The amount cancelled, being 257.6m has been credited as a distributable reserve established in the Company s books of account and shall be available as distributable profits to be used for all purposes permitted under Guernsey law, including the buyback of shares

18 18 Insight Foundation Property Trust Limited We have been engaged by the company to review the financial information set out on pages 11 to 17 and 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 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 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 which require that the accounting policies and presentation applied to the interim figures should be consistent with those which will be applied in preparing the annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards 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 period ended 30 September KPMG Channel Islands Limited 25th November 2004 Independent review report to Insight Foundation Property Trust Limited

19 Insight Foundation Property Trust Limited 19 Corporate information Directors Andrew Francis Sykes (Chairman) John René Frederiksen Keith Michael Goulborn Graham Anthony Hall Paul Donald Smith (all Non-Executive Directors) Investment Manager Insight Investment Management (Global) Limited 33 Old Broad Street London EC2N 1HZ FAO Duncan Owen Solicitors to the Company as to English Law Herbert Smith Exchange House, Primrose Street London EC2A 2HS as to Guernsey Law Ozannes 1 Le Marchant Street St. Peter Port Guernsey GY1 4HP Fund Administrator RBSI Fund Services (Guernsey) Limited St. Andrew s House Le Bordage St. Peter Port Guernsey GY1 1BR Auditors KPMG Channel Islands Limited 2 Grange Place The Grange St. Peter Port Guernsey GY1 4LD Property Valuers Knight Frank LLP 20 Hanover Square London W1S 1HZ Channel Islands Sponsor Ozannes Securities Limited 1 Le Marchant Street St. Peter Port Guernsey GY1 4HP UK Sponsor and Broker Cazenove & Co. Ltd 20 Moorgate London EC2R 6DA Tax advisers Deloitte & Touche LLP 180 Strand London WC2R 1BL Receiving Agent and UK Transfer/Paying Agent Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 1XZ

20 This document was printed using paper comprising 75% de-inked post consumer waste and a maximum of 25% mill broke and no chlorine was used when it was whitened. We chose a printer with an independently certified "ISO 14001" environmental management system. Please recycle it when you've finished with it. Issued by Insight Investment Management (Global) Limited. Registered office 33 Old Broad Street, London EC2N 1HZ