Further re Interim Results
ING UK Real Estate Income Trust Ltd
17 May 2006
17 May 2006
ING UK Real Estate Income Trust Limited
Re: Interim Report and Consolidated Financial Statements for the period 15
September to 31 December 2005
Further to the announcement made on the 10 March 2006 there follows the full
text of the Interim Results in respect of the period 15 September to 31 December
2005
Company Summary
The Company was incorporated on 15 September 2005 and was launched on the London
and Channel Islands Stock Exchanges on 25 October 2005. The investment objective
of the Company is to provide shareholders with an attractive level of income
together with the potential for capital growth from directly or indirectly
investing in a diversified portfolio of UK, Isle of Man and Channel Islands
properties.
Investment Manager: ING Real Estate Investment Management (UK) Limited
Total Assets less Current Liabilities: £ 520.8 million
Shareholders' Funds: £ 320.8 million
The Company has three wholly owned subsidiaries which were incorporated to
provide a tax efficient structure for the Company to invest in the underlying
property investments.
Financial Highlights and Performance Summary
•Share price rose by 8% over the period
•Dividend of 1.16 pence declared post year end
•Net asset value per share rose by 5.1% to £1.05 over the period
(equivalent to £1.04 post dividend)
Chairman's Statement
I am pleased to welcome shareholders to the Company following the successful
launch and to report the consolidated interim results and some positive news in
the short time of operation.
Since launch on 25 October 2005 the Company's consolidated net asset value has
grown by 5.1% with a first dividend paid on 28 February 2006 in respect of the
period to 31 December 2005 of 1.16 pence per share. This is in line with the
projected dividend payment equating to 6.25 pence per share per annum but ahead
of the projection in the Prospectus due to the earlier than forecast launch
date.
Strong performance continued in the UK property market throughout 2005 and
particularly in the latter part with the weight of money and competition for
properties driving yields lower and producing strong capital growth. The
majority of the Company's performance in the short period since launch on the
whole reflected capital growth movements.
The fundamentals favouring the UK property market remain positive with the
majority of forecasts predicting continued capital growth during the course of
the forthcoming year, albeit at more subdued levels than of late.
The Company is weighted towards South East offices and it is pleasing to note
that the first signs of an office market rental recovery starting in Central
London were being seen at the end of 2005. The majority of investment houses are
now projecting office returns to be the strongest of all the property sectors
over the course of 2006. The Company is well placed to benefit from this upturn
over the medium term, in our opinion, with the office market recovery spreading
through the South East region.
Business plans have been prepared for each property to identify and maximise
individual asset potential, and to ensure that the Company benefits from the
projected upturn in rental growth. Whilst the asset management initiatives are
in the early stages of implementation, I am confident that they will be
producing positive returns over the course of 2006.
I am also pleased to advise the successful securitisation of the £200 million
debt facility which was concluded prior to the end of the period. This facility
not only provides a very competitive level of interest at marginally over 5% per
annum as an all inclusive cost fixed for 7 years, but also a good degree of
flexibility allowing the manager opportunities to enhance rental and capital
growth from the portfolio going forward.
The forthcoming year promises to be an exciting one for this new Company with
asset management opportunities to be progressed and value extracted from the
recently acquired portfolio.
Nick Thompson
Chairman of the Board
10 March 2006
Investment Manager's Commentary
The UK Property Market
The IPD Monthly Index reports that the All-Property total return for 2005 was
18.8%, comprising an income return of 6% plus capital growth in excess of 12%.
This good performance was due to continued strong investor demand and falling
yields driving up capital values. Across the three main sectors, retail total
returns were best (19.3%), closely followed by offices (18.4%) and industrials
(18.2%).
UK economic growth fell to 1.8% per annum in 2005. This was largely due to
slower consumer spending growth. However, retail rents held up better than might
normally be expected in these circumstances - uplifts averaged 4% per annum last
year. In the office sector, the Central London recovery gathered pace with sharp
falls in the vacancy rate. Rents have been back on an upward trajectory for
sometime in the West End and this is now beginning to occur for the very best
quality space in the City as well. Industrial occupier markets also continued to
recover in 2005. However, the rate of decline in available stock has been slower
than anticipated. Nevertheless, the average rate of rental growth remains
positive at around 1-2% per annum. Looking ahead, we expect commercial property
rents will experience the highest growth in locations where supply conditions
are tightening the fastest.
A considerable weight of capital is still targeting UK commercial property. With
inflation now below its 2% per annum target, the scope for interest rate
reductions exist. Most forecasters expect UK economic growth to recover and are
incorporating modest cuts in base lending rates over the next 12 months. Lower
interest rates are supportive of further yield driven capital appreciation in
2006, albeit probably at a reduced pace compared with the last 2 years.
(Source: Investment Property Databank ('IPD') December 2005 and Office of
National Statistics January 2006)
Portfolio Activity
As at 25 December 2005 the value of the Group's portfolio was £505.6 million
with an annual net income of £31.8 million showing a running yield at a property
level of 6.3%. The portfolio comprises 55 properties with an average unexpired
lease term in excess of 9 years. The void level at 31 December 2005 represented
4.1% of total income (excluding Watford where the Group benefits from a rent
guarantee until August 2007).
During the period the Group completed the securitisation of the £200 million
debt facility and no acquisitions and disposals were made. Asset management
initiatives commenced providing a number of opportunities for lease regearing,
lettings and surrenders, which are expected to continue as we work through the
portfolio.
The largest asset within the Group was subject to a substantial fire in November
2005. The lease remains in place and insurers have accepted the claim. The
Company has already instructed work to demolish and rebuild the existing
building. The valuation of the property remained unchanged at the end of the
period.
The portfolio is weighted positively towards the South East office sector which
also holds a high proportion of the portfolio's lease expiries occurring over
the first five years. A number of discussions are already taking place with
existing tenants regarding potential lease renewals and, against the background
of an improving tenant market in this sector, we are confident of concluding a
number of these transactions during the course of this year and beyond.
The future strategy is to progress and conclude active management initiatives
contained within the individual property business plans, with the focus on
improving the income return of the portfolio. We are also looking to invest the
monies available and are actively seeking investment product which will offer
the potential to improve the capital and rental growth potential of the
portfolio over the medium term.
ING Real Estate Investment Management (UK) Limited
Portfolio Statistics
Geographical
As at 31 December 2005 the regional weightings of the Property Portfolio, as a
percentage of current capital value, are summarised as follows:
Central London 5.1%
South East & Greater London 37.3%
Midlands 18.6%
South West 4.8%
North 17.7%
Wales 7.2%
Scotland 4.4%
Northern Ireland 3.2%
Offshore UK 1.7%
Sector
As at 31 December 2005 the sector weightings of the Property Portfolio, as a
percentage of current capital value, are summarised as follows:
Offices 40.4%
Industrial 22.1%
Retail 20.6%
Retail Warehouses 9.2%
Leisure 7.7%
Covenant Strength
The covenant strength as at 30 September 2005 is summarised as follows (based as
a percentage of current passing rent):
Group IPD Quarterly benchmark
Negligible and Government risk 29.7% 36.5%
Low risk 43.1% 31.0%
Low-medium risk 11.7% 11.5%
Medium-high risk 7.0% 10.6%
High risk 2.6% 5.0%
Ineligible/not matched 5.9% 5.4%
Covenant strength data is produced by IPD and, as at 10 March 2005, is not
available for 31 December 2005.
Lease expiry
As at 31 December 2005 the length of the leases to the first termination is
summarised as follows (based as a percentage of current net annual rent):
0 - 5 years 36.4%
5 - 10 years 26.3%
10 - 15 years 24.8%
15 - 25 years 10.6%
25 + years 1.9%
List of Properties by Value Band
Properties in excess of £20m
Colchester Business Park, The Crescent, Colchester Office
36-42 Frodsham Street and Frodsham Square, Chester Retail
Unit 5320, Magna Park, Lutterworth, Industrial
Phase II, Parc Tawe, Link Road, Swansea Retail Warehouse
Properties between £15m to £20m
Scottish Provident Buildings Donegall Square, Belfast Retail
Regency Wharf II, Broad Street, Birmingham Leisure
Lincoln Place (Block 2),Farringdon Road, London EC1 Office
Properties between £10m to £15m
Scots Corner, High St/Institute Rd, Birmingham Retail
Angouleme Way Retail Park, Bury Retail Warehouse
Angel Gate Office Village, City Road, London EC1 Office
Arena Court, Crown Lane, Maidenhead Office
401 Grafton Gate East, Milton Keynes Office
17/19 Fishergate, Preston Retail
Unit 2, 9 Hedera Road, Ravensbank Back, Redditch Industrial
The Business Centre, Units 2-13, Molly Millars Lane, Wokingham Industrial
Scorpio Inns Pub Portfolio Leisure
Properties between £5m to £10m
Downmill Road, Bracknell Industrial
9/12 St James Parade, Bristol Office
Longcross Court, Newport Road, Cardiff Office
City Link House & Tolley House, Addiscombe Road, Croydon Office
72/78 Murrygate, Dundee Retail
Queens House,17/29 St Vincent Place, Glasgow Office
Leys House, 86/88 Woodbridge Road, Guildford Office
6/12 Parliament Row, Hanley Retail
Units 1- 3, 18/28 Victoria Lane, Huddersfield Retail
Provident House, Ballacottier Business Park, Isle Of Man Office
Waterside House, Kirkstall Road, Leeds Office
1-3 Chancery Lane, London WC2 Office
134/52 Balham High Road, London, SW12 Retail
Strathmore Hotel, Arndale Centre, Luton Leisure
Units 1-13 Dencora Way, Sundon Park, Luton Industrial
Heron Industrial Estate, Spencers Wood, Reading Industrial
Haynes Way, Swift Valley Industrial Estate, Rugby Industrial
171 Bath Road, Slough Office
Trident House, 42/48 Victoria Street, St Albans Office
Northampton Business Park, 800 Pavilion Drive, Northampton Office
Atlas, Third Avenue, Globe Park, Marlow Office
Easter Court, Gemini Park, Warrington Industrial
3 The Boulevard, Croxley Green, Watford Office
1 Boulevard Shire Park, Welwyn Garden City Office
Lawson Mardon Buildings, Kettlestring Lane, York Industrial
Properties under £5m
Unit 1 Oakwell Park Industrial Estate, Birstall Industrial
Riverside Business Centre, Aberdeen Office
Wren House, Hedgerows Business Park, Chelmsford Office
Merchants House, Crook Street, Chester Office
Kwik Save, Gorgie Road, Edinburgh Retail
477 Alexandra Parade, Glasgow Retail
593/599 Fulham Road , London SW6 Retail
Trafford Park, Ashburton Road East, Manchester Industrial
9/17,Western Road, Mitcham Retail Warehouse
40 Garsington Road, Oxford Industrial
69/75 Queensway, 2-12,Park Place, Stevenage Retail
7&9 Warren Street, Stockport Retail
Globe House, Madeira Road, West Byfleet Office
Consolidated income statement
for the period from 15 September to 31 December 2005
Notes Income Capital Total
£000 £000 £000
Income
Rental income 3 7,152 - 7,152
Service charge recharged to tenants 737 - 737
Other operating income 60 - 60
--------- -------- ---------
Total operating income 7,949 - 7,949
Gains and losses on investments
Unrealised gains on revaluation of
investment properties - 18,371 18,371
--------- -------- ---------
- 18,371 18,371
Expenses
Property Management fee (848) - (848)
Property expenses (66) - (66)
Service charge cost of properties (737) - (737)
Amortisation of finance costs (8) - (8)
Swap arrangement fee (247) - (247)
Other (133) - (133)
--------- -------- ---------
Total operating expenses 5 (2,039) - (2,039)
Profit before finance costs and tax 5,910 18,371 24,281
Bank and deposit interest receivable 191 - 191
Loan interest expense (1,915) - (1,915)
--------- -------- ---------
(1,724) - (1,724)
Profit before tax 4,186 18,371 22,557
Tax 6 (300) - (300)
--------- -------- ---------
Profit for the period 3,886 18,371 22,257
========= ======== =========
Earnings per share 7
Basic (p) 7.3
Diluted (p) 7.3
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association of
Investment Trust Companies. All items in the above statement derive from
continuing operations. Notes 1 to 19 form part of these financial statements.
Consolidated statement of changes in equity
for the period from 15 September to 31 December 2005
Share Share Distributable Retained Total
Capital Premium Reserves Earnings
£000 £000 £000 £000 £000
Profit for the
period - - - 22,257 22,257
--------- ------- --------- ---------- ----------
Total
recognised
income and
expenses - - - 22,257 22,257
Issue of share
capital - 298,544 - - 298,544
Transfer - (298,544) 298,544 - -
--------- ------- --------- ---------- ----------
Balance as at
31 December
2005 - - 298,544 22,257 320,801
========= ======= ========= ========== ==========
All income is attributable to the equity holders of the parent company. There
are no minority interests.
By way of a special resolution dated 30 September 2005, the amount standing to
the credit of the share premium account was cancelled and transferred to a
distributable reserve. See Note 17.
Consolidated Balance Sheet
as at 31 December 2005
Assets
Notes £000
Non-current assets
Investment properties 9 505,630
----------
Total non-current assets 505,630
Current assets
Other receivables 10 4,638
Cash and cash equivalents 11 32,696
----------
Total current assets 37,334
Total assets 542,964
Current liabilities
Accrued expenses and deferred income 13 (11,812)
Other payables 14 (10,351)
----------
Total current liabilities (22,163)
Non-current liabilities
Borrowings 12 (200,000)
----------
Total non-current liabilities (200,000)
Total liabilities (222,163)
----------
Net assets 320,801
==========
Ordinary share capital 16 -
Distributable Reserve 17 298,544
Retained earnings 22,257
----------
Net assets 320,801
==========
Net Asset Value per share £1.05
==========
The interim report was approved by the Board of Directors on 10 March 2006 and
signed on its behalf by:
Trevor Ash Robert Sinclair
Consolidated cash flow statement
for the period from 15 September to 31 December 2005
£000
Profit before tax 22,557
Adjusted for
Interest received (191)
Interest paid 1,656
Amortisation of finance costs 8
Realised and unrealised surplus on investment properties (18,371)
------------
Operating profit before working capital changes 5,659
Increase in trade and other receivables (2,689)
Increase in trade and other payables 21,864
------------
Net cash flows from operating activities 24,834
Cash flows from investing activities
Purchase of investment property (487,259)
------------
Net cash from investing activities (487,259)
Cash flows from financing activities
Equity raised 305,000
Proceeds from long term borrowings 200,000
Issue costs of borrowing & equity raising (8,414)
Interest paid (1,656)
Interest received 191
------------
Net cash flows from financing activities 495,121
------------
Net increase in cash and cash equivalents 32,696
============
Cash and cash equivalents at beginning of period -
------------
Cash and cash equivalents at end of period 32,696
============
Notes to the financial consolidated statements
for the period ended 31 December 2005
1. General information
ING UK Real Estate Income Trust Limited was incorporated in 15 September 2005
and is registered as a closed ended Guernsey investment company. The address of
the registered office is given on page 23.
The interim consolidated financial statements are prepared for the period from
15 September to 31 December 2005. The first accounting period and audited
financial statements of the Group will be prepared for the period ending 31
December 2006.
These financial statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Group operates.
2. Significant accounting policies
Basis of accounting
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which comprise standards
and interpretations approved by the International Accounting Standards Board
('IASB'), and International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting Standards
Committee ('IASC') that remain in effect, and to the extent that they have been
adopted by the European Union.
The financial statements have been prepared on the historical cost basis, except
for the revaluation of investment properties. The principal accounting policies
adopted are set out below. Where presentational guidance set out in the
Statement of Recommended Practice ('SORP') for investment trusts has been issued
by the 'Association of Investment Trusts ('AITC') in December 2005 and is
consistent with the requirements of IFRS, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the
SORP.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company made up to 31 December.
Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its
activities. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Presentation of the income statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AITC, supplementary information which
analyses the income statement between items of a revenue and capital nature has
been presented alongside the income statement.
Investment properties
Following the initial recognition at cost, land and buildings are carried at a
revalued amount which is the fair value at the date of the revaluation. Fair
value is determined by reference to market-based evidence, which are the amounts
for which the assets could be exchanged between a knowledgeable willing buyer
and a knowledgeable willing seller in arm's length transactions as at the
valuation date.
The fair value of investment property is based on valuation by an independent
valuer who holds a recognised and relevant professional qualification and who
has recent experience in the location and category of the investment property
being valued. The property subject to fire damage has been valued on the basis
that the capital expenditure provided for within creditors had occurred.
Movements in fair value are included in the income statement.
An item of investment property is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is
included in the income statement in the year the item is derecognised.
Properties are not depreciated.
Realised and unrealised gains in investment properties have been presented as
capital items within the income statement.
The loan has a first ranking mortgage over all the properties. See Note 12.
In line with industry practice, properties are held in nominee companies.
Leases
An operating lease is a lease other than a finance lease. Lease income is
recognised in income on a straight-line basis over the lease term. Indirect
costs incurred in negotiating and arranging an operating lease are added to the
carrying amount of the lease asset and recognised as an expense over the lease
term on the same basis as the lease income.
The financial statements reflect the requirements of SIC15, 'Operating Leases -
Incentives' to the extent that they are material.
Lease income and expenses have been presented as revenue items in the income
statement.
The rental revenue consists of rent charged, exclusive of VAT, in the period
under review.
Service costs charged to tenants
The income charged to tenants for property service charges and the costs
associated with such service charges are shown separately in the profit and loss
account to reflect that notwithstanding this money is held on behalf of tenants
occupying the properties, the ultimate risk for paying and recovering these
costs rests with the property owner.
Income and expenses
Income and expenses are included in the Income Statement on an accruals basis.
All of the Group's income and expenses are derived from continuing operations.
Revenue is recognised to the extent that it is probable that the economic
benefit will flow to the Group and the revenue can be reliably measured.
Property expenses
Property operating costs include the costs of professional fees on letting and
other non-recoverable costs. Active management costs represent the costs of
payments made to enhance property value or income from re-configuring space or
re-gearing leases.
Cash and cash equivalents
Cash includes cash in hand and cash with banks. Cash equivalents are short-term,
highly liquid investments that are readily convertible to known amounts of cash
with original maturities in three months' or less and that are subject to an
insignificant risk of change in value.
Trade receivables
Trade receivables are stated at their nominal amount as reduced by appropriate
allowances for estimated irrecoverable amounts.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value
of the consideration received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate
method. Amortised cost is calculated by taking into account any issue costs, and
any discount or premium on settlement. Gains and losses are recognised in the
income statement when the liabilities are derecognised, as well as through the
amortisation process.
Finance Costs
Finance costs incurred relating to the arrangement of the loan are written off
to the income statement over the term of the loan.
Other assets/payables
Other assets/payables are not interest bearing and are stated at their nominal
value.
Taxation
The Company is exempt from Guernsey taxation on income derived outside Guernsey
under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual
fee of £600 is payable to the States of Guernsey income tax authorities in
respect of this exemption.
No charge to Guernsey taxation will arise on capital gains.
The Directors intend to conduct the affairs of the Group such that the
management and control of the Group is not exercised in the United Kingdom and
that the Group does not carry on a trade in the United Kingdom. Accordingly the
Group will not be liable to United Kingdom taxation on its income or capital
gains other than certain income deriving from a United Kingdom source.
The Group is subject to United Kingdom taxation on income arising on the
Property Portfolio after deduction of allowable debt financing costs and
allowable expenses.
Principles for the cash flow statement
The cash flow statement has been drawn up according to the indirect method,
separating the cash flows from operating activities, investment activities and
financing activities. The net result has been adjusted for amounts in the income
statement and movements in the balance sheet which have not resulted in cash
income or expenditure in the period.
The cash amounts in the cash flow statement include those assets that can be
converted into cash without any restrictions and without any material risk of
decreases in value as a result of the transaction. Dividends that have been
proposed and declared are included in the cash flow from financing activities.
Risk management
The Group invests in commercial properties in the United Kingdom, the Isle of
Man and Northern Ireland. The following describes the involved risks and the
applied risk management.
Real estate risks
The yields available from investments in real estate depend primarily on the
amount of revenue earned and capital appreciation generated by the relevant
properties as well as expenses incurred. If properties do not generate
sufficient revenues to meet operating expenses, including debt service and
capital expenditures, the Group's revenue will be adversely affected. Revenue
from properties may be adversely affected by the general economic climate, local
conditions such as oversupply of properties or a reduction in demand of
properties in the market in which the Group operates, the attractiveness of the
properties to tenants, the quality of the management, competition from other
available properties and increased operating costs (including real estate
taxes).
In addition, the Group's revenue would be adversely affected if a significant
number of tenants were unable to pay rent or its properties could not be rented
on favourable terms. Certain significant expenditure associated with each equity
investment in real estate (such as external financing costs, real estate taxes
and maintenance costs) generally are not reduced when circumstances cause a
reduction in revenue from properties.
By diversifying in regions, sectors, risk categories and tenants, the Manager
expects to lower the risk profile of the portfolio.
Risks of leverage
The Group has external borrowings in connection with its investments to increase
the potential equity performance. There can be no assurance that the Group will
be able to secure the necessary external financing. Although the use of leverage
may enhance returns and increase the number of investments that can be made, it
may also increase the risk of loss. This includes the risk that available funds
will be insufficient to meet required payments and the risk that existing
indebtedness will not be able to be refinanced or that terms of such refinancing
will not be as favourable as the terms of existing indebtedness.
Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group's
financial instruments.
Less than one year 1 to 5 More than 5 years Total
£000 years £000 £000
£000
Cash and cash
equivalents 32,696 - - 32,696
Term loan - - 200,000 200,000
Credit risk
Credit risks, or the risk of counter-parties defaulting, are controlled by the
application of credit approvals, limits and monitoring procedures. Where
appropriate, the Group obtains collateral in the form of rent deposits. The
extent of the Group's credit exposure is represented by the aggregate balance of
amounts receivable, reduced by the effect of any netting arrangements with
counter-parties.
Liquidity risk
Liquidity risk arises from the possibility that customers may not be able to
settle obligations within the normal terms of trade. To manage this risk, the
Group periodically assesses the financial viability of customers.
3. Rental income
Rent receivable is stated exclusively of Value Added Tax and arose wholly from
continuing operations in the United Kingdom, Northern Ireland and the Isle of
Man.
4. Business and Geographical segments
The Directors are of the opinion that the Group, through its subsidiary
undertakings, operates in one reportable industry segment, namely real estate
investment, and across one primary geographical area, namely the United Kingdom,
Northern Ireland and the Isle of Man and therefore no segmental reporting is
required. The portfolio consists of 54 commercial properties, comprising office,
retail and industrial sectors, and one Public House Portfolio (the 'Pub
Portfolio').
5. Staff numbers and costs
The Company has no employees.
6. Tax
2005
£000
UK income tax at 22% on UK rental income 300
7. Earnings per share
From continuing operations, the calculation of the basic and diluted earnings
per share is based on the following data:
Earnings for the purposes of basic earnings per share being net
profit attributable to equity holders: £22,257,000
The average number of share in issue during the period: 305,000,000
8. Subsidiaries
ING UK Real Estate Income Trust Limited owns 100% of the share capital of:
- ING UK Real Estate (Property) Limited, PO Box 255, Trafalgar Court,
Les Banques, St Peter Port, Guernsey GY1 3QL; and
- ING (UK) REIT (SPV) Limited, PO Box 255, Trafalgar Court, Les
Banques, St Peter Port, Guernsey GY1 3QL.
ING UK Real Estate (Property) Limited and ING (UK) REIT (SPV) Limited own 100%
of the units in ING (UK) Listed Real Estate, a Guernsey Property Unit Trust (The
'GPUT')
The subsidiaries and the GPUT were incorporated to provide a tax efficient
structure for the Company to invest in the underlying property investments.
9. Investment properties
2005
£000
Costs of properties as at 15 September -
Additions 487,259
Surplus on revaluation 18,371
At 31 December 505,630
The investment properties were valued by King Sturge, Chartered Surveyors, as at
31 December 2005, applied on the basis of open market value in accordance with
the Appraisal and Valuation Manual of the Royal Institute of Chartered
Surveyors.
The historical cost of investment property included in the valuation above was
£487,259,000.
The loan facility is secured by a first ranking fixed charge over all properties
held.
The Pub Portfolio tenant has an option to purchase one third of the pub
properties in 2006, one half in 2011 and the whole in 2016. This option price is
at market valuation and has been accounted for in the above valuation. The
option has not been exercised to date.
10. Other receivables
2005
£000
Trade debtors 2,609
Capitalised finance costs 1,949
Other receivables 80
4,638
The unamortised loan arrangement costs as at 31 December 2005 are £1,949,000.
These are amortised over the life of the loan. For the period ended 31 December
2005 £8,000 of these costs were written off to the income statement.
11. Cash and cash equivalents
2005
£000
Cash at bank and in hand 9,761
Short term deposits 22,935
32,696
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are made for varying periods of between one
day and one month depending on the immediate cash requirements of the group, and
earn interest at the respective short-term deposit rates. The fair value of cash
and cash equivalents is £32,696,000.
12. Interest bearing loans and borrowings
Type Rate 2005 Maturity
% £000 Date
Fixed 4.805 £200,000 Jan 2013
On 20 December 2005 the Group entered into a seven year fixed rate loan with ING
(UK) Listed Real Estate Issuer PLC, a newly set up Special Purpose Vehicle
which, back-to-back, issued £200 million of AAA seven year loan notes to the
debt market. The loan has a fixed interest rate of 4.805%. The debt proceeds
were used to repay the £200 million bridge loan which was due to expire in April
2006.
13. Accrued expenses and deferred income
2005
£000
Property management fees 848
Other accruals 3,416
Deferred rental income 7,548
11,812
14. Other payables
2005
£000
VAT liability 2,366
Trade creditors - capital expenses 7,700
Other 284
10,350
15. Contingencies and capital commitments
There are none as at 31 December 2005.
16. Ordinary Share Capital
Authorised: 305 million of ordinary shares of nil par value
Issued and fully paid: 305 million ordinary shares of nil par value
17. Share Premium and distributable reserve
Share Distributable
Premium Reserve
2005 2005
£000 £000
Premium arising on issue of equity shares 305,000 -
Expenses of issue of equity shares (6,456) -
298,544 -
Transfer to distributable reserve (298,544) 298,544
- 298,544
By way of a special resolution dated 30 September 2005, the amount standing to
the credit of the share premium account was cancelled and transferred to a
distributable reserve.
18. Related party transactions
Under the terms of the Investment Management Agreement, ING Real Estate
Investment Management (UK) Limited (the 'Investment Manager') receives
remuneration for property management and administration services. The management
fee is payable quarterly in arrears and is equal to the aggregate of the
following:
a) one quarter of 90 basis points of gross property assets up to and
including £600 million
b) one quarter of 82.5 basis points of gross property assets in excess of
£600 million and up to and including £800 million
c) one quarter of 75 basis points of gross property assets in excess of
£800 million
d) one quarter of 40 basis points of cash assets
ING Real Estate Investment Management (UK Funds) Limited (the 'Fund Manager') is
paid a quarterly fee of £150,000 per annum by the Group in respect of the
administration services. This is deducted from the fee referred to above. During
the period the Investment Manager and Fund Manager were paid a total of £842,000
in respect of the above services.
ING UK Real Estate Income Trust Limited acquired the units of the GPUT on 25
October 2005 from Nationale Nederlanden Intervest XII B.V, a member of the ING
Group, and certain discretionary clients of the Investment Manager. Under the
terms of the GPUT Acquisition Agreement (the 'Agreement') the vendors were
entitled to consideration of approximately £55.7 million, satisfied by the issue
of shares in ING UK Real Estate Income Trust Limited and cash. Consideration of
£55.3 million was paid on 25 October 2005, with a further £0.4 million payable
within six months on undertaking an independent completion review. The Agreement
also entitles the Investment Manager to fees for arranging the initial
acquisition (£5.2 million), the financing (£0.8 million) and the onward sales
(£0.8 million), as well as a brokerage fee (£2.0 million). These fees were paid
during the period.
ING UK Real Estate Income Trust Limited has no controlling parties.
19. Events after the balance sheet date
A dividend of £3,538,000 (1.16 pence per share) was approved by the Board on 9
February 2006.
INDEPENDENT REVIEW REPORT ING UK REAL ESTATE INCOME TRUST LIMITED ('The Fund')
Introduction
We have been instructed by the Fund to review the financial information for the
period from 15 September to 31 December 2005 which comprises the Consolidated
Income Statement, the Consolidated Statement of Changes in Equity, the
Consolidated Balance Sheet, the Consolidated Cash Flow Statement and Related
Notes to the Consolidated Financial Information 1 to 19. 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 Fund, in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Fund those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Fund, for our review work, for this report, or for the conclusions we have
formed.
Director's 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. The Directors are also responsible
for ensuring that the accounting policies and presentation applied to the
interim figures are consistent with those which will be applied in preparing the
first annual accounts except where any changes, and the reasons for them, are
disclosed.
International Financial Reporting Standards
The interim report has been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting'.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 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 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 period from 15
September to 31 December 2005.
Deloitte & Touche
Chartered Accountants, 10 March 2006
Company Information
Directors: Registered Office:
Nicholas Thompson (Chairman) Trafalgar Court
Trevor Ash Les Banques
David Blight St. Peter Port
John Gibbon Guernsey
Robert Sinclair
Investment and Property Manager: Auditors:
ING Real Estate Investment Management (UK) Limited Deloitte & Touche
6th Floor Regency Court
60 London Wall Glategny Esplanade
London EC2M 5TQ St Peter Port
Guernsey GY1 3HW
Fund Administrator, Registrar and Secretary: Property Valuers:
Northern Trust International Fund Administration King Sturge LLP
Services (Guernsey) Limited 7 Stratford Place
PO Box 255 London
Trafalgar Court W1C 1ST
Les Banques
St. Peter Port
Guernsey
GY1 3LQ
Receiving Agent and UK Transfer/Paying Agent: Solicitors to the Company:
Computershare Investor Services Plc As to English Law
PO Box 859 Norton Rose
The Pavilions Kempson House
Bridgewater Road Camomile Street
Bristol BS99 1XZ London EC3A 7AN
Tax Advisers: As to Guernsey Law
Deloitte and Touche LLP Carey Olsen
Hill House PO Box 98
1 Little New Street 7 New Street
London EC4A 3TR St Peter Port
Guernsey GY1 4BZ
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