Final Results

Invista Foundation Property Tst Ltd 28 June 2007 28 June 2007 Invista Foundation Property Trust Limited ("IFPT"/ the "Company"/ "Group") Audited Annual Report for the year ended 31 March 2007 IFPT DELIVERS ON LONDON INVESTMENT STRATEGY The Invista Foundation Property Trust has today announced its results for the year ended 31 March 2007. Financial highlights â€¢ Net Asset Value per share of 142.2 pence, up 22.6 pence per share or 18.9% (2006: 119.6p) â€¢ Property assets of Â£717.4 million (2006: Â£556.3 million) and net assets of Â£502.7 million (2006: Â£422.8 million) â€¢ Group's underlying property portfolio produced a total return of 22.7%, compared with the peer group Benchmark of 14.7%, placing the Company's portfolio top in its peer group of 63 property funds â€¢ Profit before tax increased by 29% to Â£97.4 million (2006: Â£74.9 million) â€¢ Underlying NAV total return of 25.25%; since inception, shareholders have received an annualised net asset value total return of 22% â€¢ Total dividend for the year to 31 March 2007 of 6.75 pence per share â€¢ Significant financial firepower to fund the Company's next phase of growth. Operational and strategic highlights â€¢ Performance significantly enhanced by strategic decision made in 2005 to upweight the portfolio more heavily to Central London offices. The Â£165 million invested in the six key Central London offices increased in value to over Â£254 million including re-finance proceeds â€¢ Active asset management initiatives driving capital and income growth â€¢ Company is now looking to target defensive income orientated assets in non-traditional UK sectors such as healthcare, residential and real estate backed infrastructure investments to continue to drive returns. Commenting, Andrew Sykes, Chairman of the Board, said: "The Group has had another active and successful year with strong performance from the underlying property portfolio. It is positioned to benefit from good income growth through its high weighting in Central London combined with its major asset management projects. The UK commercial property market is likely to slow and become more challenging, albeit protected currently by relatively benign economic conditions. This environment should allow the Group to continue to differentiate itself by offering an attractive dividend yield with asset management led capital growth." For further information: Duncan Owen Invista Real Estate Investment Management 020 7153 9345 Stephanie Highett / Dido Laurimore Financial Dynamics 020 7831 3113 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. Invista Foundation Property Trust Limited and its subsidiaries (the 'Company' / the 'Group') hold a diversified portfolio of UK commercial properties, which is mainly invested in three commercial property sectors; office, retail and industrial. The Group will also invest in other sectors from time to time. The Group will not invest in other listed investment companies. In pursuing the investment objective, the Investment Manager concentrates on assets with good fundamental characteristics, a diverse spread of occupational tenants and with opportunities to enhance value through active management. Financial Highlights â€¢ Net Asset Value per share increased by 18.9% â€¢ Earnings per share of 27.4 pence â€¢ The Company has declared and paid dividends amounting to 6.75 pence per share â€¢ Net Asset Value total return of 25.25% 31 March 31 March % Change 2007 2006 Net Asset Value ('NAV')(1) (Â£'000) Â£502,652 Â£422,771 18.9 NAV per share published(1) (pence) 141.4 119.6 18.2 NAV per share per accounts(1) (pence) 142.2 119.6 18.9 Share price (pence) 135.3 129.0 4.9 Share price (discount)/premium to NAV (4.8%) 7.9% (12.9) NAV total return 25.25% 22.3% 2.9 FTSE All Share Index 3,283.21 3,047.96 7.7 FTSE Real Estate Index 5,674.77 4,743.97 19.6 Total Group assets less current liabilities(2) (Â£'000) Â£720,940 Â£575,480 25.3 Sources: Invista Real Estate Investment Management and Datastream based on returns during the period 1 April 2006 to 31 March 2007 (1) Net Asset Value is calculated using International Financial Reporting Standards (2) Current liabilities excludes banking facilities Performance Summary Reconciliation of Net Asset Value per accounts to published Net Asset Value 31 March 2007 31 March 2006 Total Total Â£'000 Â£'000 Net Asset Value as published 25 April 2007 500,005 422,797 Increased performance fee accrual (482) (1,160) Adjustment of tax provision based on results of subsidiaries (586) 602 Revaluation of associates 3,528 (100) Revalue hedge reserve on interest rate swap (252) - Reclassification of income 439 632 Net Asset Value per financial statements 502,652 422,771 Property performance Value of Property Assets 717,388 556,280 Current annualised rental income including rental guarantees 30,911 30,320 Estimated open market rental value 36,746 31,740 Underlying property performance* 22.70% 22.20% IPD Quarterly Version of Balanced Monthly Index Funds* 14.70% 19.30% * Source: Investment Property Databank ('IPD') Summary consolidated income statement 1 April 2006 1 April 2005 To To 31 March 2007 31 March 2006 Â£'000 Â£'000 Net rental and related income 31,278 27,172 Realised and unrealised gains on investment property 50,342 56,616 Expenses (19,055) (12,535) Net finance costs (9,588) (4,956) Share of profit of associates 44,421 8,582 Profit before tax 97,398 74,879 Taxation (690) (85) Profit for the year 96,708 74,794 Earnings and dividends Earnings per share (pence) 27.4 23.5 Dividends paid per share (pence) 6.75 6.75 Annualised dividend yield on 31 March 2007 share price 4.99% 5.23% Bank borrowings at 31 March 2007 On-balance sheet borrowings (Â£'000's) 221,580 152,500 On-balance sheet borrowings as % of total assets less 30.7% 26.3% current liabilities Group's share of off-balance sheet borrowings (Â£'000's) 186,060 164,400 Gearing including off-balance sheet borrowings as % of 45.0% 42.8% total assets less current liabilities (excluding banking facilities) Estimated Annualised Total Expense Ratio As % of total assets less current liabilities 1.06%(1) 1.10% As % of equity 1.52%(1) 1.50% (1) The Total Expense Ratio ('TER') for the year to March 2007 excludes the performance fee of Â£11.4 million payable to the Investment Manager. Including the performance fee in the TER calculation increases the expense ratio from 1.06% to 2.64% Chairman's Statement Results The year to 31 March 2007 has seen continued strength in the UK commercial property market, and I am pleased to report that your Company has performed well. The Company's audited Net Asset Value ('NAV') increased by 22.59 pence per share or 18.89% over the year to 31 March 2007. Including dividends totalling 6.75 pence per share, the Company's NAV total return over the period was 25.25%. These results include a provision for a performance fee payable to Invista Real Estate (the 'Investment Manager') in accordance with the Investment Management Agreement. The underlying NAV total return prior to the performance fee is 28% and since inception Shareholders have received an annualised NAV total return of 21.5% per annum. The Company's NAV growth is a reflection of the strong performance of the UK commercial property market, but this performance is showing more divergence between individual sectors and regions. Central London offices have significantly outperformed other market sectors both in terms of capital growth and rental growth, and the Company's 34% weighting in this sector has significantly enhanced performance. Since July 2005 the Manager has deployed Â£164.88 million in these markets which as at March 2007 has a value of Â£254 million, including re-finance proceeds. Notwithstanding this performance and the current positive fundamentals in Central London, the Board and the Manager are conscious of the historic volatility of the Central London office market and are monitoring these investments closely. The performance of the Group's underlying property portfolio relative to its peer group benchmark is measured independently by Investment Property Databank ('IPD'). For the year to March 2007 the Group's property portfolio produced a total return of 22.7%, compared with the peer group benchmark of 14.7%. This placed the Company's portfolio at the top of its peer group of 63 property funds. Over the same period the Company produced a slightly higher income return than its peer group and, perhaps more significantly, properties held over the year benefited from significantly more rental value growth than its peers. Recent market sentiment has, however, prevented this performance at the property level from being fully reflected in the Company's share price. As market commentators have become more cautious about the outlook for UK commercial property, share prices in our sector have moved from a premium to NAV to a discount. Over the first five months of 2007 and in common with other peer group funds, the Company's share price has moved from a 5.5% premium to a 12% discount to the NAV as at 20 June 2007. The Board is monitoring the discount and will consider repurchasing shares if the prospective returns from doing so are expected to exceed the prospective returns which can be generated for shareholders from the Company's property portfolio. Borrowings As at 31 March 2007 the Group had total on-balance sheet borrowings of Â£221.58 million, reflecting 30.7% of total assets less current liabilities. Gearing including off-balance sheet borrowings of Â£186.06 million amounted to 45% of total assets less current liabilities (excluding banking facilities) on a fully consolidated basis. The on-balance sheet debt of Â£221.58 million comprises the original securitised facility of Â£152.5 million, together with additional on-balance sheet funding totalling Â£69.08 million. The Group is planning to issue additional securitised debt of up to Â£120 million later this year. These funds will be used to re-finance the Â£69.08 million on more efficient terms, fund asset management projects and make selective new acquisitions. Investment Manager Evaluation The Board reviews the Investment Manager's performance at its quarterly Board meetings. In addition the Board paid its annual visit to the Investment Manager's offices to review its resources and processes and receive presentations on the UK commercial property market and the wider economic environment. Having reviewed this and the Investment Management contract, the Board believes that the continuing appointment of the Manager, on the terms agreed, is in the interests of the shareholders. Administration After a detailed review, on the 27 June 2007 Board has agreed to appoint Northern Trust International Fund Administration Services (Guernsey) Limited as Administrator, succeeding RBSI Fund Services (Guernsey) Limited. Market prospects The UK commercial property market produced a total return of 18.1% for the year to December 2006, as measured by the IPD Annual Index. As highlighted above, the performance between the sectors and geographical regions of the UK is diverging and the Company is currently benefiting from its relatively high weighting to Central London offices and its relatively low weighting to retail. The Investment Manager expects this market divergence to widen during 2007 and into 2008, with capital growth slowing and potentially becoming negative in some areas. Strong investment flows from institutional and private investors have supported the property market over the past few years. Although these may be slowing as investors adopt a more cautious view, the market should remain underpinned by relatively sound fundamentals in the near term, with sustained growth in GDP and relatively low long term interest rates and inflation. The principal risk to this positive outlook would come from any sustained increase in inflationary pressures leading to sustained higher interest rates. With this background, the opportunity and challenge for our Investment Manager will be to concentrate on active management of assets offering growth potential and good fundamentals and to sell or avoid those secondary assets most vulnerable to weakening demand. My statement last year highlighted the need for an active approach to drive returns. Whilst the continued strength of the market has meant that this was probably less important over 2006, the need is likely to be greater in the future. A number of steps have been taken by the Manager to deliver future asset management led returns, notably in our investments in Hinckley, Uxbridge and Minerva House in London, as highlighted in the Investment Manager's report. Whilst the Company is unlikely to be as acquisitive over the next year as over the year under review, the Board expects the Investment Manager to identify complementary assets, both to increase dividend cover and also enhance NAV total returns. The Investment Manager will target defensive income orientated assets, possibly in traditionally non-institutional areas such as healthcare, infrastructure or residential. Alongside this core income strategy the Investment Manager will also pursue higher returns on equity through Special Situations. These will typically be structured as off-balance sheet joint ventures providing the Group with access to a particular niche sector or specialist, possibly with some development. The first Special Situation at an industrial estate in Crendon near Oxford combines these elements and is contributing positively to returns. Other issues The period since the last report has seen the introduction of Real Estate Investment Trusts ('REITs') in the UK. As highlighted last year, the 2% conversion charge means that there is still no commercial advantage for the Company to convert. Since my last report, environmental issues associated with occupying and owning commercial property have become the focus of increasing attention. Landlords have much to gain and potentially equally to lose from evolving Central Government policy such as the future introduction of Energy Performance Certificates for commercial property. Whilst at the early stages, the Manager is beginning to factor in sustainability principles into its investment and management processes as a means of generating future outperformance and has engaged the industry specialist Upstream to undertake a review of the environmental risks associated with specific property types within a portfolio. Conclusion The Group has had another active and successful year with strong performance from the underlying property portfolio. The UK commercial property market is likely to slow and become more challenging over the year ahead, but the Group is positioned to benefit from good income growth through a high weighting in Central London and the realisation of a number of major asset management projects. Andrew Sykes, Chairman 27 June 2007 Investment Manager's Report Introduction As detailed in the Chairman's Statement, Invista Foundation Property Trust (the 'Company') and its subsidiaries (the 'Group') has continued to provide Shareholders with an attractive level of income return together with strong Net Asset Value growth during the year ended 31 March 2007. The performance of the underlying property portfolio has been strong with the Company coming top in its Investment Property Databank ('IPD') peer group of 63 property funds. A major driver of this performance has been the Group's tactical weighting to the Central London office markets. Objective and Strategy The Company's objective over the longer term is to produce a NAV total return of no less than 8% per annum through owning and actively managing a balanced UK property portfolio. In its role as Investment Manager, Invista Real Estate Investment Management Limited's ('Invista') investment philosophy is to buy properties with strong fundamentals offering an above average income return with long term income and capital growth potential. A tactical shift into Central London offices during 2005 and 2006 enabled the Company to access growth stock ahead of the significant yield compression seen in these markets over the past 18 months. Accelerating rents and capital values in Central London occurred ahead of our expectations and committing capital quickly enabled the Group to capture this growth. An innovative approach to acquiring stakes in acquisitions such as MidCity Place, London WC2 and Plantation Place, London EC3 has contributed materially to returns. As at 31 March 2007, the Â£165 million invested in the six key Central London offices is valued at Â£254 million. Increased investment in Central London has not been at the expense of holding a balanced portfolio and the Company continues to be well diversified across the main UK commercial property sectors. Recent acquisitions have been asset management-led rather than specific sector-led, and the Company has continued to crystallise profits from disposals, particularly of smaller retail assets. Since the last report the major focus has been to maximise value through asset management, and there have been some major successes that should contribute to outperformance in a slowing market. The Market The UK commercial property market has slowed during 2007 with a widening differential in performance between sectors, primary and secondary property and geographical regions. Whilst total returns over the next few years will inevitably be lower than the previous period, they will be more in line with the long run UK average of 7% to 9% per annum. Invista is anticipating a total return of approximately 9% for the UK market during 2007 although there is likely to be a significant differential between the sectors, in contrast to the last few years where different parts of the market performed very similarly. Invista's challenge will be to protect the Group against a more pronounced slowdown by making tactical overweight positions in the growth sectors, and avoid the sectors likely to underperform. In the near term Invista expects yield driven capital growth to slow and in some cases reverse due to rising interest rates and negative sentiment towards growth prospects in certain sectors. However rental growth should increase during 2007 and whilst concentrated towards Central London offices, rents are growing across many markets due to inflationary pressures and differing supply and demand dynamics. In moving from an interest rate cycle to a rental growth cycle, properties with the best fundamentals such as location and specification will benefit most from this rental growth. Key to delivering outperformance in this environment will be generating income growth. This could be achieved by successfully implementing rent reviews or increasing income through change of use and development. The existing portfolio is well positioned to deliver income growth and Invista will identify and secure new opportunities with this potential. Finally, the Group's exposure to the Central London office markets should mean the underlying portfolio continues to perform well relative to the average Benchmark portfolio over the near term. This structural advantage can be further extended through pro-active asset management. The Portfolio The table below shows the Group's ten largest properties by value and the ten largest tenants by income. Investing in Central London office markets has increased the average lot size and also increased the overall credit quality of the portfolio. It is worth noting that Plantation Place does not feature in the ten largest tenancies, as its rental income is applied to the Group's share of Associates borrowings. The Group's share of rental income at Plantation Place is Â£7.6 million of which 72% is paid by Accenture. Top 10 properties Top 10 Properties Value (Â£m) % National Magazine House, Broadwick Street, London W1 57.400 7.9% Minerva House, Montague Close, London SE1 57.400 7.9% Plantation Place, Fenchurch Street, London EC3 52.687 7.3% Portman Square House, Portman Square, London W1 31.710 4.4% 6-8 Tokenhouse Yard, London EC2 24.750 3.4% Mid City Place, High Holborn, London WC2 22.751 3.1% The Galaxy, Luton 21.750 3.0% Reynard Business Park, Brentford 20.500 2.8% Victory House, Trafalgar Place, Brighton 20.500 2.8% Olympic Office Centre, Fulton Road, Wembley 18.500 2.6% Total 327.948 Top 10 tenancies Top 20 tenancies Rent pa (Â£m) % The National Magazine Co Ltd 2.301 6.87% Synovate Limited* 1.900 5.67% Mott MacDonald Ltd 1.307 3.90% Reed Smith Services Limited 1.295 3.87% Wickes Building Supplies Ltd** 1.092 3.26% The British Broadcasting Corporation 0.850 2.54% Diageo Limited 0.796 2.38% Recticel SA 0.727 2.17% Total Fitness (UK) Limited 0.679 2.03% Partners of Cushman Wakefield Healey & Baker 0.574 1.71% Total 11.521 * Agreement for lease exchanged with completion due in December 2007 ** Includes Â£692,250 per annum at the Basingstoke development Rent expiry profile < 1 year 10.2% 1 - 5 years 26.6% 5 - 10 years 28.3% 10 - 15 years 16.5% 15 years+ 18.5% 100% Property tenure Freehold or virtual freehold 89.3% Long leasehold 10.7% As at 31 March 2007, the Group owned a portfolio of 73 assets valued at Â£717.39 million reflecting an average lot size of Â£9.8 million. In addition, since the year end the Group has sold or contracted to sell three properties for a total consideration of Â£17.24 million. Acquisitions of Â£25 million are being progressed. This compares with a property portfolio value of Â£556.28 million and 72 assets in March 2006. As at 31 March 2007 and excluding joint venture investments, the Group had approximately 275 tenancies with an average lease length of 8.9 years. Including the joint venture properties, the number of tenancies increases to over 400, highlighting the significant diversification across the Group's portfolio. Since acquiring Portman Square House, London W1 in July 2006 for Â£27.55 million, new acquisitions have been focused on asset management and Special Situations. In December 2006 the Company acquired The Galaxy, a prominent leisure scheme in Luton town centre for Â£21.2 million. The price reflected a net initial yield of 4.7%. The property offered a combination of a long average lease length of 15 years and 10% vacancy by floor area. The comprehensive business plan for transforming the asset involves working with the Local Authority and other stakeholders to create an attractive family leisure destination. In January 2007 the Company acquired a retail warehouse investment in Salisbury for Â£15.02 million, reflecting a net initial yield of 3.3%. The property comprises three units adjoining a very successful Waitrose food store, with one unit vacant. Sector weightings Sector Net* Grossed up** Retail 16.0% 12.8% Retail warehouse 5.0% 4.0% Office 53.7% 61.5% Industrial 20.7% 18.1% Other 4.6% 3.7% Total 100% 100% * Net weighting includes joint ventures and associates at the net asset value ** Grossed up weightings includes pro-rata share of non-recourse debt in joint ventures and associates Regional weightings Region Net Grossed up Central London 34.0% 45.9% South East (excl. Central London) 32.5% 27.5 Rest of South 9.5% 7.5% Midlands and Wales 13.7% 10.9% North and Scotland 10.3% 8.2% Total 100% 100% * Net weighting includes joint ventures and associates at the net asset value ** Grossed up weightings includes pro-rata share of non-recourse debt in joint ventures and associates Since 31 March 2007 the Group has exchanged or completed contracts on nine disposals totalling Â£47.92 million, and these are summarised by sector below. Retail disposals Seven of the disposals were of smaller retail properties where the Group took advantage of very strong private investor demand, fuelled by low borrowing rates. Demand in this sector is now weakening in response to rising interest rates. Address Sale date Sale March Acq Acq Comments price 2006 val date price (Â£m) (Â£m) (Â£m) 18 St Anne's Road, July 1.41 1.45 July 1.10 Secondary location. Harrow 2006 2004 Disposal followed successful rent review High Street, Epsom Sept 3.50 3.20 July 2.00 Forfeited lease of 2006 2004 upper parts and settled retail rent reviews ahead of expectations Pride Hill, Dec 2.42 2.15 July 2004 1.73 Limited rental growth Shrewsbury 2006 prospects 20 St Anne's Road, Dec 1.60 1.50 July 2004 1.23 Secondary location. Harrow 2006 Disposal followed successful rent review Bridge Street, Feb 2007 2.35 2.45 July 1.91 Location expected to Peterborough 2004 weaken due to M&S relocating Post year end Penny Street, April 1.85 1.53 July 1.10 Very strong private Lancaster 2007 2004 investor demand Abingdon Street, May 2.54 2.45 July 1.54 Following asset Northampton 2007 2004 management success. Strong private investor demand Total - 15.67 14.73 - 10.61 - Office disposals Limited disposals have been carried out in the office sector. The disposal of Tudor Street was motivated by property specific factors. Address Sale date Sale March Acq date Acq Comments price 2006 price (Â£m) val (Â£m) (Â£m) Tudor Street, Oct 2006 19.40 18.20 July 2004 15.20 Opportunistic disposal London EC4 in a strong City market. Difficult long leasehold Other disposals The health and fitness unit let to Total Fitness (UK) Limited was acquired through a corporate acquisition in March 2006 for a gross purchase cost of Â£10.9 million. The investment offered a long unexpired lease term with a fixed rental uplift in November 2007. The Company has taken advantage of an improving tenant covenant to crystallise a material profit and, since the year end, contracts have been exchanged at a price of Â£12.85 million. Address Sale date Sale March Acq date Acq Comments price 2006 price (Â£m) val (Â£m) (Â£m) Total Fitness, June 12.85 11.05 Mar 2006 10.75 Covenant vulnerable to Sefton (near 2007 weaker economy Liverpool) Performance For the 12 months to March 2007 the Group came top in its IPD peer group Benchmark of 63 funds, producing a total return of 22.7% relative to the Benchmark of 14.7%. Since inception the Group's property portfolio has produced a total return of approximately 20.3% per annum, relative to the Benchmark of 16.6%. The Group's portfolio continues to benefit from an above-average income return of 5.3% relative to the Benchmark of 5%. Financing A summary of the Group's on-balance sheet debt finance arrangements as at 31 March 2007 are set out below: Loan Amount Term Hedging Margin Total Security LTV (Â£m) cost (Â£m) (%) REC 152.5 07/2014 5.10% to 2014 0.49% 5.59% 467.62 32.7 (Foundation)* Rothschild 54.5 07/2007 See below 0.90% 6.40% 102.65 53.1 bridge facility Portman 14.58 07/2010 See below 0.95% 5.96% 31.71 46.0 Square Loan Total 221.58 * Real Estate Capital (Foundation) Limited - principal securitised loan facility Since the year end the Company has put in place two interest rate swaps set against the Revolving facility and Portman Square loans. The first is for Â£50 million expiring in July 2016 at a rate of 5.5% and the second for Â£19.08 million expiring in July 2016 at a rate of 5.69%. This creates a blended rate of 5.56% and will be novated as part of the Reserve Note issuance referred to below. Plantation Place Securitisation During 2006 Invista led the securitisation of the Â£450 million bridging facility put in place to acquire the Plantation Place investment, of which the Group owns 28.08%. Working with NM Rothschild, Merrill Lynch and the rating agencies, Invista sponsored the issue of Â£435 million of rated notes together with a B Note of Â£25 million. This enabled Â£460 million of securitised debt to be issued against the Plantation Place asset at a total blended interest rate of 5.19%, reflecting a loan to value of 82% based on the valuation at the time. Invista secured very flexible terms including zero prepayment fees and a fully assignable finance package. This added considerable value to the Group's investment in Plantation Place. Reserve Notes At the time of completing the original securitisation in 2005 which raised Â£152.5 million at a blended margin including costs of 0.49% per annum, additional Reserve Notes of Â£150 million were issued but not drawn. The Company is likely to draw up to Â£120 million of the Â£150 million available later this year. The proceeds of the Reserve Notes will be directed towards four key areas: â€¢ Re-financing existing on-balance debt on more favourable terms â€¢ Capital expenditure to enhance existing assets â€¢ Funding selective new acquisitions â€¢ Providing the Company with additional liquidity Re-finance Â£69 million will be used to re-finance the existing, non-securitised on-balance sheet debt. Total debt will not exceed more than 50% of total assets less current liabilities. Capital expenditure The Company's three current major re-development and refurbishment projects at Hinckley, Uxbridge and Minerva House, London require total capital expenditure of approximately Â£30 million. In addition the potential projects at The Galaxy, Luton and Victoria Plaza in Bolton, together with other planned refurbishment works across the portfolio, may require up to Â£10 million. Selective acquisitions Whilst the investment market remains competitive with many investors accepting returns significantly below the target return required by the Company, Invista continues to source interesting off-market opportunities that will generate un-geared total returns in excess of 8% per annum. Investments are likely to fall into two main categories that are summarised below. The Group seeks a core of long-term, secure rental income. The quality of the Group's core portfolio has been enhanced through investing in Central London but Invista recognises the need constantly to enhance the credit quality and duration of this income. In order to secure these income streams at yields that are attractive to the Group, Invista will consider investing in alternative property investment types such as hotels, medical related uses, mixed-use and residential. These sectors are becoming increasingly institutional and often benefit from attractive leasing structures such as inflation linked rental increases. To complement the existing balanced portfolio and the defensive assets referred to above, the Group plans to invest a further Â£20 million in Special Situations. These will target a minimum return on equity of 20% per annum and are likely to be structured as joint ventures. Asset Management As well as the major initiatives, examples of which are set out below, the portfolio is being diligently managed to minimise voids and maximise potential for income growth. As at March 2007 the portfolio had a void rate of 5.5% as a percentage of rental value relative to the IPD Benchmark of 7%. If the property at Hinckley is excluded, where the lease was surrendered in advance of obtaining planning consent, the void rate falls to 2%. Activity within the Office Sector Minerva House, London SE1- acquired in August 2005 for Â£42.13 million â€¢ Major tenant ANZ surrendered their lease to the Company, paying a Â£2.4 million premium. ANZ were paying a rent of Â£1.485 million per annum (Â£31 per sq ft) with a tenant break option in 2011. Synovate Limited, guaranteed by Aegis Group PLC, have exchanged a new 15 year lease at Â£1.9 million per annum on the space (Â£42.75 per sq ft), a 28% increase. The Company is providing a high quality refurbishment. Concurrently a major rent review has been settled resulting in a total building income of Â£3.23 million per annum, a Â£470,000 or 17% increase over the rent paid upon acquisition. The March 2007 valuation is Â£57.4 million, representing an uplift of Â£15.27 million or 36% since acquisition in August 2005 MidCity Place, London WC2 - 19.7% stake acquired in August 2005 for Â£9.8 million â€¢ The Company surrendered the ninth floor lease in June 2006 where the tenant was paying Â£37.50 per sq ft. The asset management strategy for the building was to undertake a high quality refurbishment and attract a high quality financial tenant. A new lease of the ninth floor to Queensland Investment Corporation completed in December 2006 at Â£60 per sq ft â€¢ MidCity Place has seen a 60% increase in rental value growth since acquisition, which combined with a very strong investment market has increased the value of the Group's investment from Â£17.6 million as at March 2006 to Â£31 million at March 2007, including re-finance proceeds Hayward House, Cardiff - acquired in July 2004 for Â£6.05 million â€¢ On acquisition the property comprised two adjoining city centre offices let to National Westminster Bank and Regus until 2012. NatWest leased one building paying a market rent of Â£236,000 per annum (Â£13.20 per sq ft), but sub-let roughly 75%. The Company's asset management strategy was to increase the rent through re-structuring leases â€¢ NatWest paid Â£350,000 to surrender its lease and simultaneously the Company agreed direct leases with the sub-tenants. A good quality, functional refurbishment has been completed using the surrender proceeds, and a new benchmark rent has been set. The property is now fully let producing Â£275,000 with a valuation rental value of Â£284,400, an increase of 20% relative to the acquisition valuation. The Company will be looking to increase rents further with forthcoming rent reviews 106 Oxford Road, Uxbridge - acquired in July 2004 for Â£8.62 million â€¢ The 39,000 sq ft property was let to Diageo until September 2007 with a number of sub-tenants. In June 2007, Diageo's lease was surrendered for a premium of Â£200,000. In May 2007 the Company obtained outline planning consent to extend and comprehensively refurbish the building to create a highly specified, sustainable office refurbishment totalling 70,000 sq ft with 250 car parking spaces. The Company is currently considering whether to implement the development Activity within the Industrial sector Coventry Road, Hinckley - acquired in July 2004 for Â£7.25 million â€¢ The Company accepted a lease surrender in 2006 for a premium of Â£750,000, inheriting a substantial sub-tenant paying Â£38,500 per annum. The strategy was to secure planning consent on the site. Following an initial refusal the Company resubmitted a slightly revised application and, subsequent to the year end, planning consent has been secured for 100,000 sq ft of retail warehousing, a 3,000 sq ft fast food restaurant and 21,000 sq ft of trade counter warehousing â€¢ The Company is negotiating pre-lets for up to 50% by area and is likely to commence construction during 2007. The budgeted development cost is Â£9 million with an end value of approximately Â£27 million. As at March 2007, the value of the land subject to the consent is Â£7.5 million Activity within the retail and leisure sector A number of lease extensions or lease surrenders with simultaneous new leases at enhanced rents have been completed. Significant profits have then been crystallised through disposals Abingdon Street, Northampton - acquired in July 2004 for Â£1.54 million â€¢ The Company's strategy was to take the lease back from a card retailer and re-let the prominent unit to a coffee operator or phone retailer. A new 15 year lease has been agreed with Costa Coffee at Â£121,000 per annum, an increase of 29%. Contracts have now been exchanged to sell for Â£2.54 million reflecting a yield of 4.5% Retail Warehouse, Salisbury - acquired in January 2007 for Â£15.02 million â€¢ A 60,000 sq ft terrace of retail warehouse units adjoining a Waitrose store let at Â£16 per sq ft, with one 15,000 sq ft vacant unit. Terms were agreed pre-purchase to let the vacant unit to a toy retailer at Â£20 per sq ft. The Agreement for Lease has now exchanged on a subject to planning basis with a planning decision expected shortly. On lease completion the rental value should increase to Â£925,000, creating a reversionary yield approaching 6% The Galaxy, Luton - acquired in December 2006 for Â£21.2 million â€¢ The Galaxy was acquired with a vacancy rate of 10% by area. The asset has suffered from very poor management in the past. Management and security have been comprehensively upgraded and a major rebranding / refurbishment has been agreed requiring capital expenditure of Â£1 million. The Company has strong interest in two of the three vacant units Special Situations Crendon Industrial Partnership Limited ('CIPL') - 50% stake acquired in May 2006 â€¢ The Group invested Â£2.9 million for a 50% stake in CIPL, a joint venture company set up to acquire a 250,000 sq ft multi-let industrial estate with 13.5 acres development land in Long Crendon, Oxfordshire. The property was acquired for Â£20.5 million with non-recourse bank debt of Â£17 million â€¢ Since acquisition outline planning consent has been secured for 250,000 sq ft of warehousing and distribution space, and shortly afterwards CIPL acquired an adjoining ownership for Â£5 million. An unconditional Agreement for Lease has been exchanged with a good tenant covenant for a 20,000 sq ft pre-let. A separate development facility of Â£7.5 million is now in place and construction of a speculative phase of 80,000 sq ft warehouse has commenced, funded entirely from bank debt. As at 31 March 2007 the Group's Â£3.57 million investment is valued at Â£5.4 million, reflecting an annualised internal rate of return over the hold period of 65% Outlook and Future Strategy We are moving into a more challenging phase for the UK commercial property market. The strategy of investing in the Central London office markets has generated superior return and should continue to make a positive contribution to Group returns over the next twelve to eighteen months. We will seek to realise profits from some of these investments. Our strategy is evolving in response to the slowing market and we are likely to revert towards our long term preference for a higher, secure income return over lower yields offering capital growth prospects that are becoming less certain in some parts of the market. To avoid competition in the income markets, we will be considering alternative property types, whilst overall maintaining a balanced portfolio for long term stability. Duncan Owen, Chief Executive Invista Real Estate Investment Management Limited 27 June 2007 Board of Directors Andrew Sykes (Chairman) Aged 49, was a director of Schroders plc from 1998 to 2004, having joined Schroders in 1978. He was responsible for the group's private banking and alternative investments businesses, including property, private equity, structured products and hedge funds. He is Chairman of Absolute Return Trust Limited and a non-executive director of Schroder Exempt Property Unit Trust, JP Morgan Asian Investment Trust plc and Smith & Williamson Holdings Limited. John Frederiksen Aged 59, is chairman of the Danish Property Federation and several major Danish property companies. He established and was Managing Director of Bastionen A/S, one of the largest Danish property investment companies from 1986 to 2001. He was also Chairman of ASC, the largest property management company in Denmark, from 1990 to 1998. Keith Goulborn Aged 62, was head of Unilever's UK Property Department for 17 years. In this capacity he was responsible for the property investment activities of the Unilever Pension Fund in the UK and operational property advice to the UK group and its implementation. Prior to that, he was a partner in Debenham, Nightingale Chancellors. He is a fellow of the Royal Institution of Chartered Surveyors and a member of the Investment Property Forum. Harry Dick-Cleland Aged 50, is Managing Director of Cleland & Co Limited, Chartered Accountants which he founded in 2003. He was previously a partner at Ernst & Young from 1998 - 2003, having joined their Guernsey office in 1987. He is a fellow of the Institute of Chartered Accountants in England & Wales. David Warr Aged 53, is an Executive Director of Fortis Reads International Management Limited, a Guernsey based fiduciary services business wholly owned by Fortis plc. He is a fellow of the Institute of Chartered Accountants in England & Wales and specialises in Trust and Corporate work. He is also a non executive director of Marwyn Value Investors Limited, Marwyn Value Investors II Limited, Hemisphere Defensive HF (USD) Limited and UK Select Trust Limited. Peter Atkinson Aged 52, was the Senior Partner of Collas Day Advocates for 14 years where he specialised in corporate and fiduciary work. He joined Collas Day in 1980 and became Senior Partner in 1992. He is now a non-executive of the firm's trust company and of a number of listed and unquoted companies. He is an Advocate of the Royal Court of Guernsey and a Solicitor of the Supreme Court of England and Wales. He is a former Chairman of the Guernsey Bar. The Directors of Invista Foundation Property Trust Limited ("the Company") and its subsidiaries (together "the Group") present their report and the Audited Financial Statements of the Company and the Group Financial Statements for the year ended 31 March 2007. Report of the Directors Business review Business of the Company Invista Foundation Property Trust Limited is a limited liability, closed-ended, Guernsey investment company managed by Invista Real Estate Investment Management Limited ('the Investment Manager'). A review of the business during the year is contained in the Chairman's Statement and the Investment Manager's Report. Investment Objectives and Policies The investment objective of the Company is to provide Shareholders with an attractive level of income return together with the potential for income and capital growth from investing in UK commercial property. The Group principally invests in the three commercial property sectors; office, retail and industrial. The Group will also invest in other sectors from time to time. The Group will not invest in other listed investment companies. At the time of listing in July 2004 the Company's target NAV total return was no less than 8% per annum. The Manager is incentivised to achieve a NAV total return of above 10% per annum which is the threshold above which a performance fee is paid, subject to the criteria set out below. Key Performance Indicators ('KPIs') The Board uses two key financial KPIs to monitor and assess the performance of the Company, the absolute NAV total return of the Company and the performance of the Company's underlying property portfolio relative to a peer group Benchmark: 1. Net Asset Value total return For the year to 31 March 2007 the Company produced a NAV total return of 25%, after a full accrual of the performance fee payable to the Investment Manager. From inception in July 2004 the Company has produced an annualised NAV total return of 22%. 2. Underlying property portfolio performance relative to peer group Benchmark The performance of the Company's property portfolio is measured against a specific benchmark defined as the Investment Property Databank ('IPD') Quarterly Version of Balanced Monthly Index Funds. As at 31 March 2007 this Index comprised 64 member funds with an aggregate value of Â£38 billion. For the 12 months to 31 March 2007 the Company's property portfolio produced a total return of 22.7% relative to the Benchmark average of 14.7%, on the first percentile. Since inception in July 2004 the Company's property portfolio has produced a total return of 20.3% per annum relative to the Benchmark of 16.6% per annum. It should be noted that these returns take account of all property related transaction costs. Dividend During the year the Company has declared and paid the following interim dividends to its ordinary shareholders: Dividend For Quarter Date Declared Rate 31 March 2006 27 April 2006 1.6875 pence per share 30 June 2006 26 July 2006 1.6875 pence per share 30 September 2006 31October 2006 1.6875 pence per share 31 December 2006 24 January 2007 1.6875 pence per share All dividends are declared and paid as interim dividends. The Directors do not therefore recommend a final dividend. A dividend for the quarter ended 31 March 2007 of 1.6875 pence was declared on 25 April 2007 and paid on 18 May 2007. Principal Risks With the assistance of the Investment Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories: Investment and strategy: Market circumstances can introduce volatility into investment returns arising from factors such as market sentiment, an excess supply of accommodation relative to occupier demand, macro economic factors impacting on the capability of tenants to pay rents, or fiscal and legislative changes. The Investment Manager and the Board seek to mitigate these risks through research-based investment decisions, regularly reviewing portfolio strategy, swift execution and through owning a well diversified and balanced portfolio. To enable the Board to ensure that the portfolio does not become overly concentrated or reliant on individual assets, sectors or tenants, the Investment Manager reports quarterly on asset concentration, sector and regional diversification and the number of tenants including an independent analysis of average tenant quality. The primary control is that no single asset should comprise more than 15% by value of the whole portfolio and no single tenant account for more than 20% of the total rental receipts. The Board also supports the Investment Manager's focus on assets with strong fundamentals with, ideally, an above average rental yield where average tenant quality is in line with or better than industry averages. A key part of the investment strategy is to grow rental income to contribute to the NAV total return. Rental income can be at risk due to tenant failure or through tenants not renewing leases on expiry and vacating the property. The Investment Manager takes a proactive approach to property management with each asset having a detailed business plan, reviewed no less than annually, setting out targets to be achieved in all tenant discussions. The aim of this rigorous process is to ensure that, as far as reasonably possible, opportunities to increase net income receivable from the portfolio are maximised together with improvements in the overall tenant quality. The Board monitors this risk by receiving minutes of the Investment Manager's bi-monthly investment committees and through quarterly Board presentations. There are risks inherent in property development, both in terms of a lack of guaranteed future income when developing speculatively, or factors such as planning and construction risk. It is therefore unlikely that the Manager will undertake significant new speculative projects, although there may be circumstances where this is considered. The Company will pro-actively undertake refurbishment or redevelopment of existing properties in the portfolio where this is consistent with the Company's objectives. Borrowings: The Company seeks to enhance Net Asset Value total returns through borrowing. There is risk associated with third party borrowings and the Board adopts a prudent approach to mitigate these risks. The principal risk control is to limit total borrowings (including off-balance sheet debt) to 50% of the Group's total assets less current liabilities (excluding banking facilities), on a fully consolidated basis. As at 31 March 2007 the Group's gearing on this basis was 45% of total assets less current liabilities on a fully consolidated basis. The Company seeks to avoid significant exposure to unforeseen upward interest rate movements, with all third party debt currently hedged. Future additional short term facilities may be drawn on a floating interest rate basis but the Board will only sanction this where there is a clear intention to fix the rate within a six to 12 month period. In addition to investments and borrowings in the normal course of business, the Board has acknowledged that from time to time it may be appropriate for the Group to invest as a joint venture investor in certain property-owning entities in which other investors may participate. This is to enable a particular property strategy to be executed more effectively. Accounting, Legal and Regulatory The Company has robust processes in place to ensure that accurate accounting records are maintained and that evidence to support the accounts is available to the auditors upon request. The Investment Manager operates established property accounting systems that are also subject to review by the Company's auditors. Procedures are in place to ensure that the quarterly NAV and Gross Asset Value are calculated properly, and the Company's property assets are valued quarterly by specialist property valuation firms who are provided with regular updates on portfolio activity by the Investment Manager. The Board meets with the independent valuer annually to review their processes. The Administrator monitors legal requirements to ensure that adequate procedures and reminders are in place to meet the Company's legal requirements and obligations. The Investment Manager undertakes full legal due diligence with advisors when transacting and managing the Company's assets. All contracts entered into by the Company are reviewed by the Company's legal and other advisors. Processes are in place to ensure that the Company complies with the conditions applicable to property investment companies set out in the Listing Rules of the London Stock Exchange and the Channel Islands Stock Exchange. The Administrator attends all Board meetings to be aware of all announcements that need to be made and the Company's advisors are aware of their obligations to advise the Administrator, and where relevant the Board, of any notifiable events. Finally, the Board is satisfied that the Investment Manager and Administrator have adequate procedures in place to ensure continued compliance with regulatory requirements of the FSA and the Guernsey Financial Services Commission. Management On 31 August 2006 the Board agreed to novate the Investment Management Agreement from Insight Investment Management (Global) Limited ('Insight') to Invista Real Estate Investment Management Limited ('Invista'). This followed the de-merger of Insight's property fund management team as the new Invista business and its independent listing on the Alternative Investment Market. HBOS plc, the Parent Company of Insight, has retained a 55% stake in Invista. As at 15 June 2007 Invista has a market capitalisation of Â£295 million and is the largest listed real estate fund manager in the UK. There has been continuity in the team dealing with the Company, and the Board is satisfied that Invista has sufficient resources available to deliver the investment objectives. Management and Performance fees The Investment Manager is entitled to a base fee and a performance fee together with reasonable expenses incurred in the performance of its duties. The base fee is equal to one quarter of 0.95% of the gross assets less current liabilities of the Group per quarter. The Investment Manager is also entitled to an annual performance fee where the total return per Ordinary Share during the relevant financial period exceeds an annual rate of 10% (the 'performance hurdle'). Where the performance hurdle is met, a performance fee will be payable in an amount equal to 15% of any aggregate total return over and above the performance hurdle. A performance fee will only be payable where both the following criteria are met. First in respect of the relevant financial period, the total return of the underlying assets must meet or exceed the Investment Property Databank Benchmark on a like for like basis. Secondly, the annualised total return over the period from admission of the Company's Ordinary Shares to the end of the relevant financial period must be equal to or greater than 10% per annum. The Investment Management Agreement can be terminated by either party on not less than twelve months notice in writing. Administration On 24 June 2004 the Company appointed RBSI Fund Services (Guernsey) Limited (' RBSI') to provide Administration, Registrar, Custodian, Secretarial and Accounting services. RBSI is entitled to a fee of Â£35,000 per annum together with an additional fee of 3.25 basis points of the gross assets of the Company, subject to an overall minimum of Â£150,000 per annum and an aggregate maximum fee payable by the Company and its subsidiaries to RBSI of Â£250,000 per annum. RBSI gave notice on 22 January 2007 to terminate their role. The appointment of Northern Trust International Fund Administration Services (Guernsey) Limited to replace RBSI was approved by the Board on 27 June 2007. Northern Trust will not be providing accounting services which will be carried out by the Investment Manager under a separate agreement. Going concern The Directors have examined significant areas of possible financial risk and have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future. After due consideration the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. Creditor Payment Policy It is the Company's policy to ensure settlement of supplier invoices in accordance with stated terms. Directors The Directors of the Company who together with their beneficial interest in the Company's ordinary share capital, are given below: Director Number of Ordinary Shares Percentage (%) Andrew Sykes 35,292 Less than 0.1 Keith Goulborn 9,564 Less than 0.1 Harry Dick-Cleland - - David Warr - - Peter Atkinson - - John Frederiksen - - The remuneration of the Directors during the year was as follows: Director Â£ Andrew Sykes (Chairman) 37,500 Keith Goulborn 22,500 Harry Dick-Cleland#* 32,500 David Warr* 27,500 Peter Atkinson* 27,500 John Frederiksen * 22,500 170,000 * Member of the Transaction Committee # Chairman of the Audit Committee None of the Directors had a service contract with the Company during the year. Directors receive a base fee of Â£22,500 per annum, and the Chairman receives Â£37,500 per annum. The Chairman of the Audit Committee receives an additional fee of Â£5,000 and members of the Transaction Committee each receive an additional fee of Â£5,000, reflecting their additional responsibilities and workload. Disclosure of Information to Auditors As far as each of the Directors is aware, there is no relevant audit information of which the Company's auditors are unaware, and each of the Directors has taken all of the steps that they each ought to have taken to be aware of relevant audit information and to establish that the Company's Directors are aware of that information. Substantial Shareholdings At 31 March 2007 the Directors were aware that the following shareholders owned 3% or more of the issued Ordinary Shares of the Company. Number of Ordinary Shares Percentage (%) Cazenove Capital Management (UK) 51,154,318 14.47 Rensburg Sheppards Plc 29,752,881 8.42 Newton Investment Management Limited 22,537,071 6.37 Gerrard Limited 22,116,192 6.26 Invista Real Estate Investment 18,254,129 5.16 Management Limited Legal & General 13,747,253 3.89 Investment Management Limited AXA Financial SA 12,623,308 3.57 HSBC Investments Limited 12,102,838 3.42 Independent Auditors KPMG Channel Islands Limited have expressed their willingness to continue as Auditors to the Company and resolutions proposing their reappointment and authorising the Directors to determine their remuneration for the coming year will be put to Shareholders at the Annual General Meeting. Corporate Governance Principles Statement The Directors are committed to high standards of corporate governance and have made it Company policy to comply with best practice in this area, insofar as the Directors believe it is relevant and appropriate to the Company, and notwithstanding the fact that as a Guernsey registered Company it is not obliged to comply with the 'Combined Code', or the Code of Best Practice published by the Committee on the Financial Aspects of Corporate Governance. It is the Board's intention to continue to comply with the Association of Investment Companies ('AIC') code for Corporate Governance best practice. Role of the Board The Board has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance to the Company: 1. The overall objectives of the Company as described under Investment Policy above and the strategy for fulfilling those objectives within an appropriate risk framework 2. The strategy it considers may be appropriate in light of market conditions 3. The capital structure of the company including consideration of an appropriate use of borrowings both for the Company and in any joint ventures in which the Company may invest from time to time 4. The appointment of the Investment Manager, Administrator and other appropriately skilled service providers and monitor their effectiveness through regular reports and meetings 5. The key elements of the Company's performance including NAV growth and the payment of dividends Board Decisions At its Board meetings, the Board ensures matters listed under Role of the Board above are considered and resolved by the Board. While issues associated with implementing the Company's strategy are generally considered by the Board to be non-strategic in nature and are delegated either to the Investment Manager or the Administrator, the Board considers there will be implementation matters significant enough to be of strategic importance to the Company and should be reserved to the Board. Generally these are defined as large property decisions affecting either 10% or more of the Company's or one of its subsidiary's assets, or 5% or more of the Company's or one of its subsidiary's rental income and decisions affecting the Company's financial gearing. Board performance evaluation During 2006 the Board commissioned a review of its performance, combined with an independent third party skills audit carried out by Trust Associates. This review, which was conducted with an independent third party, concluded that the Board was operating effectively and that the members of the Board had the breadth of skills required to fill their role. It also recommended the establishment of a Transactions Committee, recognising that a number of transactions require ad hoc consideration, sometimes at short notice, when they fall outside the Manager's delegated authority. The Board approved the establishment of this Committee. Non Executive Directors, Rotation of Directors and Directors Tenure The Combined Code recommends that Directors should be appointed for a specified period. The Board has resolved in this instance that Directors' appointments need not comply with this requirement as all Directors are non executive and their respective appointments can be terminated at any time without penalty. The Board has approved a policy that Directors will stand for re-election every three years. It has been agreed this will be implemented by two of the three original directors from May 2004 presenting themselves for re-election at the AGM in 2007. Keith Goulborn and John Frederiksen will stand for re-election during the year commencing 1 April 2007. The Board has determined that all the Directors are independent of the Investment Manager. Keith Goulborn has agreed to be the Senior Independent Director. Board Meetings The Board meets quarterly and as required from time to time to consider specific issues reserved to the Board. At the Board's quarterly meetings it considers papers circulated seven days in advance including reports provided by the Investment Manager and the Administrator. The Investment Manager's report comments on the UK commercial property market, performance, strategy, transactional and asset management and the Group's financial position including relationship with its bankers and lenders. The Administrator provides a compliance report. These reports enable the Board to assess the success with which the Group's property strategy and other associated matters are being implemented and also to consider any relevant risks and how they can be properly managed. The Board also considers reports provided from time to time by its various service providers reviewing their internal controls. The table below shows the attendance at Quarterly Board or Audit Committee meetings during the year to 31 March 2007: Board Audit Committee Nomination Committee Andrew Sykes (Chairman) 4 4 1 Keith Goulborn 4 2 1 Harry Dick-Cleland 4 4 1 David Warr 3 3 1 Peter Atkinson 4 4 1 John Frederiksen 4 3 1 No. of meetings during the year 4 4 1 In between its regular quarterly meetings, the Board has also met on a number of occasions during the period to consider specific transactions. It has not always been possible for all Directors to attend these meetings. The Company maintains liability insurance for its Directors and Officers. Committees of the Board The Audit Committee The Audit Committee is chaired by Mr Dick-Cleland with Mr Sykes, Mr Goulborn, Mr Fredriksen, Mr Warr and Mr Atkinson as members. The Company considers that Mr Dick-Cleland's experience makes him suitably qualified to chair the Audit Committee. The Committee meets no less than twice a year and if required meetings can also be attended by the Investment Manager, the Administrator and the Independent Auditors. The Committee is responsible for reviewing the half-year and annual financial statements before their submission to the Board. In addition the Committee is specifically charged under its terms of reference to advise the Board on the terms and scope of the appointment of the auditors, their remuneration, the independence and objectivity of the auditors, and reviewing with the auditors the results and effectiveness of the audit. During the year the Company's auditors were involved in reviewing the interim financial statements. No other audit work was performed. Members of the Committee may also meet with the Company's valuer to discuss the scope and conclusions of their work. Nomination Committee The Nomination Committee is chaired by Mr Sykes with all other Board Directors as members. During the year the Nomination Committee instructed Trust Associates to review the role of individual Directors and to recommend an appropriate level of remuneration having regard to their perspective of an appropriate 'market rate' for the Company's Directors. Based on that advice a resolution was passed at an EGM on 19 December 2006 to increase the maximum total annual remuneration of the Board to Â£200,000. As all the Directors are non-executive the Board have resolved that it is not appropriate to have a Remuneration Committee. Transactions Committee The members of the Transactions Committee are Peter Atkinson, Harry Dick-Cleland and David Warr, with the Chairman elected at each meeting. The Transactions Committee reviews transactions requiring Board approval between regular scheduled Board meetings. All transaction proposals are circulated to all Directors in advance of the meeting, together with a recommendation and explanatory note from the Manager. Board members not attending may comment in advance, but only those attending will consider the proposal. Transactions are noted subsequently at regular quarterly Board meetings. The members of the Transaction Committee are paid a fee of Â£5,000 per annum, in addition to their fees as Directors. Shareholder Relations Shareholder communications are a high priority for the Board. The Investment Manager produces a quarterly fact sheet which is distributed to Shareholders and released to the London and Channel Islands Stock Exchanges. Members of the Investment Manager's Investment Committee make themselves available at all reasonable times to meet with Shareholders and sector analysts. Feedback from these sessions is provided by the Investment Manager to quarterly Board meetings. The Company website is www.ifpt.co.uk. In addition, the Board is also kept fully appraised of all market commentary on the Company by the Investment Manager and other professional advisers including the Company's brokers. Through this process the Board seeks to monitor the views of shareholders and to ensure an effective communication programme. Details of the resolutions to be proposed at the Annual General Meeting on 25 July 2007 can be found in the Notice of the Meeting. Statement of directors' responsibilities The Directors are responsible for preparing the Directors' Report, Annual Report and Financial Statements for each financial period which give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial period and of the profit or loss of the Group and the Company for that period in accordance with International Financial Reporting Standards and that they are in accordance with applicable laws. In preparing those financial statements the Directors are required to: 1. Select suitable accounting policies and apply them consistently 2. Make judgements and estimates that are reasonable and prudent 3. State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements 4. Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 1994. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for: 1. Ensuring that the Report of the Directors and other information included in the Annual Report is prepared in accordance with applicable company law 2. Ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority 3. The Group's system of internal controls, which is designed to meet the Group's particular needs and the risks to which it is exposed Internal Control The Combined Code requires the Directors annually to review the effectiveness of the Group system of internal controls and to report to shareholders that they have done so. The system's key controls reviewed by the Directors are as shown below. The Board considers risk management and internal control on a regular basis during the year although such a system can only provide reasonable assurance and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure. The Board arranges to meet the Investment Manager annually at the Investment Manager's office in London. This allows the Board to inspect the office arrangements and to meet other members of the Manager's team. The Board interrogates the Investment Manager's processes in more detail than is possible at Board meetings and to gain a perspective on the level of resource that is applied by the Investment Manager to the Company's business. The Board regularly reviews the Investment Manager's Business Contingency Management and is able to discuss this and other matters with the Investment Manager's Chief Risk Officer. The Board has also reviewed a report prepared by Invista's internal audit team on Invista's property division and has been satisfied that their approach is appropriate for the Group. The Board meets regularly at the offices of the Administrator for its formal quarterly Board meetings and for ad-hoc Board meetings. The Board is therefore familiar with the environment in which the Administrator is operating and has the opportunity to meet the staff responsible for providing administrative services to the Company. This enables the Board to view at first hand the level of resources made available to the Company by the Administrator. The Administrator, as a subsidiary of the Royal Bank of Scotland International Limited, is party to the overarching Business Continuity Plan for the Royal Bank of Scotland International Limited which covers all of the Bank's operations offshore. The Board is able to discuss the Business Continuity Plan and any other compliance or risk related matters with the Administrator's Compliance Manager at any time. The Group's system of internal control therefore is substantially reliant on Invista's and RBSI's own internal controls and their internal audit. The key elements designed to provide effective control are as follows: 1. Regular review of relevant financial data including management accounts and performance projections 2. Contractual documentation with appropriately regulated entities which clearly describes responsibilities for the two principal service providers 3. The Manager's system of internal controls is based on clear written processes, a formal investment committee and clear lines of responsibility and reporting all of which are monitored by Invista's internal risk team. Invista is regulated by the FSA. 4. The Company's strategy is authorised and monitored on a regular basis by the Board The Board carries out a review of significant business risks and formally considers the scope and effectiveness of the Company's system of internal control annually. This review covers all controls, including financial, operational and risk management. Corporate Responsibility - Benefits, Risks and Controls The Board has reviewed the Socially Responsible Policy which has been developed by the Investment Manager and considers this to be an appropriate policy for the Company. The policy is set out below: "Invista Real Estate Investment Management Limited ('Invista') recognises that how buildings are designed, built, managed and occupied significantly influences their impact on the environment and affected communities. Invista is committed to delivering strong financial returns to our clients while at the same time delivering positive environmental, social and economic benefits. We believe it is important to effectively manage sustainability-related risks, associated with, for example, climate change (more severe and regular floods, increasing storm damage costs and energy costs), site contamination and remediation, use of hazardous materials, waste management (rising landfill and disposal costs), employee and contractor health and safety, and local community relations. Invista's standard business processes ensure that it obtains an environment report as part of the due diligence process for property acquisitions. In addition, Invista ensures that its Fund Managers and appointed Managing Agents comply with all relevant laws and regulation relating to its clients' business. Invista also aims to operate according to established best practice within the industry on all relevant environmental and social aspects of property management and development. Invista is committed to working with its clients, business partners, suppliers, local communities, tenants, government agencies, and planning and regulatory bodies constructively to achieve greater sustainability in property development and management." Last year the Investment Manager advised that systems were being implemented to report the evidence of compliance with this policy. The Manager is continuing to work with Upstream Sustainability Consultants as part of putting in place systems to enable it to implement and monitor its sustainability policy. The main focus is putting in place a set of objectives and targets for the Invista business, and then for these to be incorporated in job descriptions and personal objectives. As well as the environment, sustainability also covers wider socio-economic issues such as local employment and safety and security. In due course Upstream will also work with the Investment Manager to develop a strategy to include these issues, but the initial brief is to focus on environmental issues and, in particular the top priorities of energy, waste, transport and pollution. During the year the Company responded to the Carbon Disclosure Project Greenhouse Gas Emissions Questionnaire, known as CDP5. Responding to this questionnaire raised a number of thought provoking issues in relation to the risks that climate change presents to the Company, and what can be done to mitigate these risks. It has also highlighted areas where the Company can potentially benefit from having a robust sustainability policy embedded in its investment process. Authority to buy back shares The Company did not purchase any shares for cancellation during the year. The Directors have authority to buy back up to 14.99% of the Company's Ordinary Shares and will seek annual renewal of this authority from Shareholders. Any buyback of Ordinary Shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board and the making and timing of any buybacks will be at the absolute discretion of the Board. Purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing NAV of the Ordinary Shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent above the average of the middle market quotations for the Ordinary Shares for the five business days before the shares are purchased. Any shares purchased under this authority will be cancelled. Status for Taxation The Income Tax Administrator in Guernsey has granted the Company exemption from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey Income Tax. Exemption under the above mentioned Ordinance entails the payment by the Company of an annual fee of Â£600. During the year, the Company's properties have been held in various subsidiaries and associates, the majority of which are subject to UK Income Tax. In each instance any tax due is computed after deduction of debt financing costs and other allowances as appropriate. A Sykes, Director (Chairman) Harry Dick-Cleland, Director 27 June 2007 27 June 2007 Consolidated Income Statement 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Notes Â£'000 Â£'000 Rental income 30,701 28,119 Other income 3 1,459 225 Property operating expenses 4 (882) (1,172) Net rental and related income 31,278 27,172 Profit on disposal of investment property 6,075 2,594 Net valuation gains on investment property 12 44,267 54,022 Expenses Investment management fee 2 (6,423) (5,062) Performance fee 2 (11,437) (6,160) Valuers' and other professional fees (525) (416) Administrators fee 2 (261) (227) Auditors' remuneration 5 (163) (47) Directors' fees (177) (98) Other expenses 6 (69) (525) Total expenses (19,055) (12,535) Net operating profit 62,565 71,253 Interest receivable 1,767 3,908 Interest payable (10,618) (8,191) Finance expenses (737) (673) Net finance costs (9,588) (4,956) Share of profits of associates 44,109 8,582 Income from associate 14 312 - Profit before tax 97,398 74,879 Taxation 9 (690) (85) Profit for the year attributable to the equity 96,708 74,794 holders of the parent Basic and diluted earnings per share 10 27.4p 23.5p All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of the financial statements. Consolidated Balance Sheet 31/03/2007 31/03/2006 Notes Â£'000 Â£'000 Investment property 12 629,380 518,180 Investment property under development 13 4,337 - Investment in associates and joint ventures 14 83,671 28,313 Interest rate swap 3,163 - Loan to associate 14 - 9,787 Non-current assets 720,551 556,280 Trade and other receivables 17 7,935 5,832 Taxation paid in advance 9 - 231 Cash and cash equivalents 24,548 37,608 Current assets 32,483 43,671 Total assets 753,034 599,951 Issued capital and reserves 18 502,652 422,771 Equity 502,652 422,771 Interest-bearing loans and borrowings 19 149,270 148,833 Interest rate swap - 3,875 Non-current liabilities 149,270 152,708 Interest-bearing loans and borrowings 19 69,018 - Trade and other payables 21 31,910 21,222 Taxation payable 9 184 - Provisions 20 - 3,250 Current liabilities 101,112 24,472 Total liabilities 250,382 177,180 Total equity and liabilities 753,034 599,951 Net Asset Value per Ordinary Share 22 142.2p 119.6p The financial statements were approved at a meeting of the Board of Directors held on 27 June 2007 and signed on its behalf by: Andrew Sykes, Director (Chairman) Harry Dick-Cleland, Director The accompanying notes 1 to 27 form an integral part of the financial statements. Consolidated Statement of Changes in Equity Notes Share Hedge Revenue Total premium reserve reserve Â£'000 Â£'000 Â£'000 Â£'000 Balance as at 31 March 2005 - (1,382) 274,204 272,822 Issued in the year 100,000 - - 100,000 Issue costs (1,644) - - (1,644) Loss on cash flow hedge - (2,493) - (2,493) Profit for the year - - 74,794 74,794 Dividends paid - - (20,708) (20,708) Balance as at 31 March 2006 98,356 (3,875) 328,290 422,771 Gain on cash flow hedge - 7,038 - 7,038 Profit for the year - - 96,708 96,708 Dividends paid 11 - - (23,865) (23,865) Balance as at 31 March 2007 98,356 3,163 401,133 502,652 The accompanying notes 1 to 27 form an integral part of the financial statements. Consolidated Statement of Cash Flows 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Operating activities Notes Â£'000 Â£'000 Profit for the year 96,708 74,794 Adjustments for: Profit on disposal of investment property (6,075) (2,594) Net valuation gains on investment property (44,267) (54,022) Share of profits of associates (44,109) (8,582) Net finance costs 9,588 4,956 Taxation 690 85 Operating profit before changes in working capital and provisions 12,535 14,637 Increase in trade and other receivables (1,914) (1,135) Increase in trade and other payables 5,554 10,614 Cash generated from operations 16,175 24,116 Interest paid (9,827) (6,805) Finance costs paid (673) (4,098) Interest received 1,573 3,901 Tax paid (276) (2,035) Cash flows from operating activities 6,972 15,079 Investing Activities Proceeds from sale of investment property 30,394 26,868 Acquisition of investment property (94,453) (107,691) Acquisition of associates (7,675) (19,731) Loan to associate - draw down 14 - (9,787) Loan to associate - repayment 14 6,549 - Cash flows from investing activities (65,185) (110,341) Financing Activities Proceeds on issue of Shares 18 - 100,000 Issue costs paid on issuance of Ordinary Shares - (1,644) Draw down of loan facility 19 69,018 - Dividends paid 11 (23,865) (20,708) Cash flows from financing activities 45,153 77,648 Net decrease in cash and cash equivalents for the year (13,060) (17,614) Opening cash and cash equivalents 37,608 55,222 Closing cash and cash equivalents 24,548 37,608 The accompanying notes 1 to 27 form an integral part of the financial statements. Company Income Statement 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Notes Â£'000 Â£'000 (Restated) Dividend income 25 10,500 - Other income 3 38 18 Income 10,538 18 Expenses Investment management fee 2 (3,209) (2,537) Performance fee 2 (11,437) (6,160) Valuers' and other professional fees (130) (125) Administrators fee (280) (206) Auditors' remuneration (103) (40) Directors' fees (177) (98) Other expenses 6 (12) (124) Total expenses (15,348) (9,290) Net operating (loss) (4,810) (9,272) Interest receivable 7 6,430 3,943 Finance expenses 8 (1,150) (987) Income from subsidiary 8 - 6,501 Net finance income 5,280 9,457 Profit for the year 470 185 Basic and diluted earnings per share 10 0.1p 0.1p All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of the financial statements. Company Balance Sheet 31/03/2007 31/03/2006 Restated Notes Â£'000 Â£'000 Investments in subsidiary companies 15 370,424 366,595 Loans to subsidiary companies 16 84,245 67,988 Non-current assets 454,669 434,583 Trade and other receivables 17 13,087 30,628 Cash and cash equivalents 10,452 6,677 Current assets 23,539 37,305 Total assets 478,208 471,888 Issued capital and reserves 18 338,629 362,024 Equity 338,629 362,024 Non interest-bearing loans and borrowings 25 117,610 102,674 Non-current liabilities 117,610 102,674 Trade and other payables 21 21,969 7,190 Current liabilities 21,969 7,190 Total liabilities 139,579 109,864 Total equity and liabilities 478,208 471,888 The financial statements on pages below were approved at a meeting of the Board of Directors held on 27 June 2007 and signed on its behalf by: Andrew Sykes, Director (Chairman) Harry Dick-Cleland, Director The accompanying notes 1 to 27 form an integral part of the financial statements. Company Statement of Changes in Equity Notes Share premium Revenue Total reserve Restated Â£'000 Â£'000 Â£'000 Balance as at 31 March 2005 - 284,191 284,191 Issued in the year 100,000 - 100,000 Issue costs (1,644) - (1,644) Profit for the year - 185 185 Dividends paid - (20,708) (20,708) Balance as at 31 March 2006 - restated 98,356 263,668 363,105 Profit for the year - 470 470 Dividends paid 11 - (23,865) (23,865) Balance as at 31 March 2007 98,356 240,273 338,629 The accompanying notes 1 to 27 form an integral part of the financial statements. Company Statement of Cash Flows 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Restated Operating activities Notes Â£'000 Â£'000 Profit for the year 470 185 Adjustments for: Net finance income (5,280) (9,457) Operating profit before changes in working capital (4,810) (9,272) and provisions Decrease /(increase) in trade and other receivables 33,065 (23,648) Increase in trade and other payables 5,508 6,460 Cash generated from operations 33,763 (26,460) Interest received 277 3,943 Finance costs paid (1,150) (48) Tax paid - (32) Cash flows from operating activities 32,890 (22,597) Investing Activities Acquisition of subsidiary companies (3,960) (19,131) Intra group loan received 23,033 12,906 Intra group loan provided (24,323) (51,501) Cash flows from investing activities (5,250) (57,726) Financing Activities Proceeds on issue of shares - 100,000 Issue costs paid on issuance of shares - (1,644) Dividends paid 11 (23,865) (20,708) Cash flows from financing activities (23,865) 77,648 Net increase / (decrease) in cash and cash 3,775 (2,675) equivalents Opening cash and cash equivalents 6,677 9,352 Closing cash and cash equivalents 10,452 6,677 The accompanying notes 1 to 27 form an integral part of the financial statements. Notes to the Financial Statements 1. Significant accounting policies The Invista Foundation Property Trust Limited ('the Company') is a closed-ended investment company incorporated in Guernsey. The consolidated financial statements for the year ended 31 March 2007 comprise the Company, its subsidiaries and its interests in associates (together referred to as the ' Group'). Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') issued by, or adopted by, the International Accounting Standards Board (the 'IASB'), interpretations issued by the International Financial Reporting Interpretations Committee, applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority. As at the date of approval of these financial statements the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1 on capital disclosures. Effective date - periods commencing on or after 1 January 2007. This standard requires disclosure of risks relating to financial instruments for an entity's position and performance. The main additional information will relate to management's objective, policies and processes for managing the risk relating to financial instruments. IFRIC 8 Scope of IFRS 2. Effective date - periods commencing on or after 1 May 2006. This interpretation addresses the accounting for share based payment transactions in which some or all of the goods or services cannot be specifically identified. IFRIC 9 Reassessment of embedded derivatives. Effective date - periods commencing on or after 1 June 2006. This interpretation requires that a reassessment of whether an embedded derivative should be separated from the underlying host contract be made when there is a change to the contract. IFRS 8 Operating Segments. Effective date - periods commencing on or after 1 January 2009. This standard requires disclosure on the Group's operating segments. The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statement of the Group or Company. 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 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. Judgements made by Management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in notes 19 and 23. 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. Where properties are acquired by the Group through corporate acquisitions and there are no significant assets or liabilities acquired other than the property, the acquisition has been treated as an asset acquisition. Associates 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 these entities 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 entity, 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 entity. Joint Ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statement includes the Group's share of recognised gains and losses of jointly controlled entities on an equity accounted basis. 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 eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. 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 on completion of contracts 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 Income Statement. Realised gains and losses on the disposal of properties are recognised in the 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. As disclosed in note 24, the Group leases out all properties held on operating leases. A property held under an operating lease is classified and accounted for as an investment property on a property by property basis when the Group holds it to earn rentals, capital appreciation, or both. Any such property under an operating lease classified as an investment property is carried at fair value. Investment property under development Property that is being constructed or developed for future use as investment property is classified as investment property under development and is initially stated at cost. After initial recognition investment property under development is measured at fair value. Any unrealised gains are recognised directly in the equity of the Group, with any unrealised losses recognised in the income statement. Fair value is based on the open market valuations of the property under development as provided by Knight Frank LLP at various stages during the development process. Upon completion of the development the property is reclassified and subsequently accounted for as investment property. Investments in subsidiaries The Company's investments in subsidiaries are valued at cost. 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 Cash Flow Statement, cash and cash equivalents consist of cash in hand and short-term deposits at banks with a term of no more than three months. 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 in the period in which they are paid. Provisions A provision is recognised in the Balance Sheet when a legal or constructive obligation is established 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 United Kingdom income tax. Any rent-free periods are spread evenly over the lease term. Finance income is accounted for on an effective interest basis. 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 investment management and administration fees, finance costs (including interest on the long term borrowings) and all other expenses are charged through the Income Statement. Attributable transaction costs incurred in establishing credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through the Income Statement. Finance expenses are accounted for on an effective interest basis. 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 and deferred 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 Company and Group are engaged in a single segment of business, being property investment business and in one geographical area, the United Kingdom. Loans and borrowings Borrowings negotiated on an arms length basis are recognised initially at fair value of the consideration received, less attributable transaction costs. Subsequent to initial recognition, these 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. Certain borrowings by the company from subsidiaries have fixed repayment dates and are interest free. These loans are recognised by the company initially at fair value of the future payments discounted at market interest rates. The difference between the consideration received and the initial value of the loan is treated as income in the Company's income statement on initial recognition. The discount is subsequently amortised on effective interest rate basis and treated as a finance expense. 2. Material agreements 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 Investment 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 total charge to the Income Statement during the period was Â£6,423,000 (2006: Â£5,062,000) for the base management fee. As the conditions for receipt of a performance fee were met during the year, a charge of Â£11,437,000 (2006: Â£6,160,000) was also made to the income statement in favour of the Investment Manager. The Investment Management Agreement may not be terminated by either the Company or the Investment Manager prior to the second anniversary of the agreement but, thereafter, any party may terminate the agreement on not less than twelve months notice in writing. Under the terms of an Administration, Registrar, Custodian and Secretarial Agreement dated 24 June 2004, the Company appointed RBSI Fund Services (Guernsey) Limited to act as administrator, registrar, custodian and corporate secretary of the Company. The Administrator is entitled to a fee of Â£35,000 per annum together with an additional fee of 3.25 basis points of the gross assets of the Company, subject to an overall minimum of Â£150,000 per annum and an aggregate maximum fee payable by the Company, and its subsidiaries, to the Administrator, its affiliates and the CREST Service Provider of Â£250,000 per annum. The Administrator gave notice on 22 January 2007 to terminate the Administration agreement. The appointment of Northern Trust as Administrator with effect from 27 June 2007 was approved by the Board on 24 April 2007, subject to approval of terms and conditions. 3. Other income 01/04/2006 01/04/2005 to to 31/03/2007 31/03/2006 Group Â£'000 Â£'000 Insurance commissions 305 (6) Surrender premiums 1,026 213 Miscellaneous income 128 18 1,459 225 Company Miscellaneous income 38 18 38 18 The Group is obliged to arrange insurance on the majority of its property assets for which it receives a commission and is stated net of any fees payable to insurance brokers. 4. Property operating expenses 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Â£'000 Â£'000 Surveyor's fees 300 670 Dilapidations (113) (327) Agents' fees 173 100 Repairs and maintenance 113 245 Advertising 11 21 Rates - vacant 64 90 Other expenses 334 373 882 1,172 5. Auditors' remuneration During the year the financial statements for certain subsidiaries within the Group were subject to audit for the first time. This included the financial statements for prior years. These costs were not accrued within the Group financial statements for the year ended 31 March 2006. 6. Other expenses 01/04/2006 01/04/2005 To To 31/03/2007 31/03/2006 Group Â£'000 Â£'000 Directors' and officers' insurance premium 19 58 Printing costs (9) 6 Regulatory costs 14 25 Marketing (146) 161 Bad debts 79 - Other expenses 112 275 69 525 Company Directors' and officers' insurance premium 3 53 Regulatory costs 3 12 Marketing - 14 Other expenses 6 45 12 124 7. Interest receivable restatement Company The current year financial statements of the Company include a prior year adjustment to restate inter-group interest receivable. An amount of Â£1,081,000 was previously accounted for as a receivable to the Company when it should have been reflected as a receivable to one of the Company's subsidiaries. This has no impact on Group financial statements. The effect of the restatement is summarised below. There is no effect in 2007: 31/03/2006 (Decrease) in interest receivable (1,081) (Decrease) in profit (1,081) There is no effect on taxation (Decrease) in trade and other receivables (1,081) (Decrease) in equity (1,081) 8. Income from subsidiary Company In previous years the Company has received interest free loans from a subsidiary which are repayable on 30 March 2015. The difference between the fair value of these loans, Â£13,727,000, and the face value of Â£28,892,000 was recognised as income in the Company at the date of receipt of these loans. This amount is then amortised as finance expenses over the period of the loans. The amounts charged to the income statement as finance expenses for the year was Â£1,147,000 (2006: Â£938,000). 9. Taxation 01/04/2006 01/04/2005 To to 31/03/2007 31/03/2006 Â£'000 Â£'000 Reconciliation of effective tax rate Profit before tax 97,398 74,879 Effect of: Income tax using UK income tax rate of 22% 21,428 16,473 Capital gains on revaluation not taxable (9,739) (13,773) Share of profits of associates not taxable (9,704) (1,888) Profit on disposal not taxable (1,337) (571) Other net income not taxable (305) (2,044) Current tax expense incurred during the year 343 85 Adjust provision for year of charge 2004 / 2005 / 2006 347 (54) Tax expense for year of charge 2006/2007 690 31 Payments on account (506) (262) Taxation payable/ (paid in advance) 184 (231) The Company and its Guernsey registered subsidiaries have obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable in Guernsey. Each company is, therefore, only liable to a fixed fee of Â£600 per annum. The Directors intend to conduct the Group's affairs such that they continue to remain eligible for exemption. 10. Basic and diluted earnings per share The basic and diluted earnings per share for the Group is based on the net profit for the year of Â£96,708,000 (2006: Â£74,794,000) and the weighted average number of Ordinary Shares in issue during the year of 353,560,000 (2006: 318,755,945). The basic and diluted earnings per share for the Company is based on the net profit for the year of Â£470,000 (2006 restated: Â£185,000 profit) and the weighted average number of Ordinary Shares in issue during the year of 353,560,000 (2006: 318,755,945). 11. Dividends paid 01/04/2006 No. of To In respect of Ordinary Rate 31/03/2007 Shares (pence) Â£'000 Quarter 31 March 2006 dividend paid 26 May 2006 353.56 million 1.6875 5,966 Quarter 30 June 2006 dividend paid 25 August 2006 353.56 million 1.6875 5,966 Quarter 30 September 2006 dividend paid 24 November 353.56 million 1.6875 5,966 2006 Quarter 31 December 2006 dividend paid 18 February 353.56 million 1.6875 5,966 2007 6.7500 23,865 12. Investment property Â£'000 Leasehold Freehold Total At cost - 31 March 2006 48,307 399,348 447,655 Acquisitions 39,515 50,898 90,413 Provision for further purchase consideration (note 20) - 790 790 Disposals (15,881) (8,389) (24,270) At cost - 31 March 2007 71,941 442,647 514,588 Net valuations gains on investment property - 31 March 7,613 62,912 70,525 2006 Net valuations gains on investment property per (2,584) 46,851 44,267 Consolidated Income Statement 5,029 109,763 114,792 At Valuation - 31 March 2007 76,970 552,410 629,380 Â£'000 Leasehold Freehold Total At cost - 31 March 2005 48,307 314,640 362,947 Acquisitions - 107,691 107,691 Provision for further purchase consideration (note 20) - 1,250 1,250 Disposals - (24,233) (24,233) At cost - 31 March 2006 48,307 399,348 447,655 Net valuations gains on investment property - 31 March 1,888 14,615 16,503 2005 Net valuations gains on investment property per Consolidated Income Statement 5,725 48,297 54,022 7,613 62,912 70,525 At Valuation - 31 March 2006 55,920 462,260 518,180 The carrying amount of investment property is the fair value of the property as determined by Knight Frank LLP, a firm of independent chartered surveyors, who are a registered independent appraiser. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The Group had no non income generating properties during the year. 13. Investment property under development 31/07/2007 31/03/2006 Â£'000 Â£'000 Opening balance - - Additions in the year 4,337 - Closing balance 4,337 - As a result of the Investment property under development having commenced shortly prior to the year end the current valuation is based on the costs incurred as at the balance sheet date. This value is considered to reflect the current fair value. 14. Investment in associates and joint ventures MidCity Place, London WC1 In August 2005, the Group, through Invista Foundation (Mid City) Limited, invested equity and subordinated debt of Â£9,917,000 for a 19.725% shareholding in DV3 Mid City Limited, a company incorporated in the British Virgin Islands and which owns the Mid City Place property in London. This investment is classified as an investment in an associate due to the company having the ability to exert significant influence through its shareholding and representation on the board of directors. The subordinated debt was advanced on similar terms as the other shareholders of DV3 Mid City Limited in proportion to their shareholdings. The subordinated debt which was invested in DV3 Mid City Limited of Â£9,787,000 was split into two separate loans. The first loan was for Â£3,900,000. This amount, along with all associated loan interest, was repaid on 11 July 2006. The second loan for Â£5,887,000 had a partial repayment of Â£2,649,692, along with all associated interest as at 11 July 2006. The remaining loan of Â£3,237,308 was converted into equity, along with associated interest of Â£336,073 on 17 January 2007. Plantation Place, London EC3 The Group's 28.08% interest in One Plantation Place Unit Trust is now valued at Â£ 52,687,000 (2006: Â£20,500,000). As expected, during the year the Unit Trust has completed a Â£463 million securitisation which has re-financed the Unit Trusts previous senior and junior debt facilities. The securitisation achieved a blended margin of 45 bps over a seven year term. The Unit Trust also has the benefit of a seven year interest rate swap at 4.74% giving a total interest rate payable of 5.19%. During the year the group received an income distribution, Â£312,000, and a capital distribution, Â£81,000, from One Plantation Place Unit Trust. Crendon Industrial Estate 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 Â£20,000,000 which was funded by a combination of a debt facility Â£16,700,000 and equity funding from the joint venture partners. Merchant In December 2006 the Group acquired a 19.42% investment in Merchant Properties Unit Trust. This investment is classified as an investment in an associate due to the Company having the ability to exert significant influence through its unitholding and the associated agreements. Crendon Mid City Plantation Industrial As at 31 March 2007 Place Place* Estate # Merchant Â£'000 Â£'000 Â£'000 Â£'000 Equity interest 19.725% 28.08% 50% 19.42% Total assets 334,103 651,656 32,552 13,586 Total liabilities 218,628 464,025 28,281 85 Revenues for year / period 13,666 141,049 4,674 1 Profit / (loss) for year / period 165 100,712 3,271 (131) Net asset value attributable to 22,751 52,687 2,160 3,000 Group Loans due to Group - - 3,073 - Total asset value attributable to 22,751 52,687 5,233 3,000 Group * Revenues and profit relate to the period 21 November 2005 to 31 March 2007. # Revenues and profit relate to the period 13 April 2006 to 31 March 2007. Revenues and profit relate to the period 16 November 2006 to 31 March 2007. Plantation Mid City As at 31 March 2006 Place* Place Â£'000 Â£'000 Total assets 540,000 269,000 Total liabilities 466,994 225,000 Revenues for year N/A 13,300 Profit / (loss) for year N/A (6,600) Group equity investment 19,600 130 Subordinated debt investment - 9,787 Net asset value attributable to Group 20,500 7,813 * No audited financial statements were prepared for Plantation Place as at 31 March 2006 15. Investment in subsidiary companies 31/03/2007 31/03/2006 Â£'000 Â£'000 Opening balance 366,595 347,464 Additions in the year 3,829 19,131 Closing balance 370,424 366,595 The Group's investment properties are held by its subsidiary companies. All of the Company's subsidiaries are wholly owned. The principal subsidiaries which hold investment property are as follows: Subsidiary Domicile Ownership Ownership interest interest 2007 2006 Invista Foundation Property Limited Guernsey 100% 100% Invista Foundation Property (No.2) Limited Guernsey 100% 100% LP (Brentford) Limited Guernsey 100% 100% Invista Foundation Property Bootle Limited Isle of Man 100% 100% The principal subsidiaries which have entered into borrowing facilities on behalf of the Company and its property holding subsidiaries are: Invista Foundation Property (No.2) Limited Guernsey 100% 100% Invista Foundation Holding Company Limited Guernsey 100% 100% Real Estate Capital (Foundation) Limited Guernsey See below See below Real Estate Capital (Foundation) Limited is a special purpose vehicle and its accounts have been included within these consolidated financial statements on the basis that the Company has the power, directly or indirectly, to govern the financial and operating policies of that entity so as to obtain benefits from its activities. 16. Loans to subsidiary companies At 31 March 2007 the Company had outstanding loans of Â£84,245,000 (2006: Â£67,988,000) to its subsidiary companies. An initial loan of Â£15,901,000 has no fixed repayment date and interest is charged on 60% of the outstanding balance at an annual rate of 3 per cent above the United Kingdom base rate. A second loan of Â£60,927,000 has no fixed repayment date and interest is charged on the full loan amount at an annual rate of 3 per cent above the UK base rate. The other loans totalling Â£7,417,000 are interest free and have no fixed repayment date. 17. Trade and other receivables 31/03/2007 31/03/2006 Â£'000 Â£'000 Group Rent receivable 4,424 3,022 VAT recoverable 1,694 - Other debtors 1,817 2,810 7,935 5,832 Company Restated Amounts due from subsidiary companies 13,074 29,694 Receivable on portfolio acquisition - 921 Other debtors 13 13 13,087 30,628 18. Issued capital and reserves Authorised share capital The authorised share capital of the Company is represented by an unlimited number of Ordinary Shares of no par value. Issued share capital The number of issued Ordinary Shares of the Company throughout the year were 353,560,000. On 27 July 2005 100,000,000 C Shares were admitted to the London Stock Exchange and commenced dealing. The amount paid for these shares totalled Â£100 million. Deducted from these proceeds were costs directly attributable to the issue of Â£1,644,000. On 5 August 2005 Invista Foundation Property Trust Limited carried out a Conversion of the C Shares of the Company. As at that date, the Net Asset Value per C Share was 97.85p and the net asset value per ordinary share was 104.59p. On this basis, for the purpose of the Conversion, the Conversion Ratio was 0.9356 Ordinary Shares for every one C Share. 93,560,000 new Ordinary Shares were created on Conversion of the C Shares increasing the number of issued Ordinary Shares of the Company from 260,000,000 to 353,560,000. Dividends On 25 April 2007 the Directors declared a dividend of 1.6875 pence per share, giving a total dividend payable of Â£5,966,325. The dividend has not been included as a liability. 19. Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate risk, see note 23. Group 31/03/2007 31/03/2006 Non-current liabilities Â£'000 Â£'000 Class A Secured Floating Rate Notes 139,000 139,000 Class B Secured Floating Rate Notes 13,500 13,500 152,500 152,500 Less: Finance costs incurred (4,103) (4,077) Add: Amortised finance costs 873 (3,230) 410 (3,667) 149,270 148,833 Current liabilities NMR Loan Facility 69,080 - Less: Finance costs incurred (76) Add: Amortised finance costs 14 (62) - 69,018 - In May 2005 the Group entered into a Â£152.5 million loan repayable in July 2014 with Real Estate Capital (Foundation) Limited, a securitisation facility ('the facility'), admitted to the Official List of the Irish Stock Exchange. Securitised notes were issued at a blended margin of 20.8 basis points over LIBOR and simultaneously the Company entered into an equivalent maturity swap agreement at 5.1%. The Group is hedging against interest rate movements by fixing the interest it will pay over the period of the loan with an interest rate swap. The interest rate swap is classified as a cash flow hedge and is stated at fair value. The counterparty is liable to pay interest at LIBOR on the loan. As at 31 March 2007 the fair value of the swap was Â£3,163,000. The cash flow relating to this hedge, and determination of any profit or loss, is expected to arise during 2014, on maturity of the loans with which they are associated. In aggregate, therefore, the effective interest rate is 5.31% per annum. There are additional capitalised costs of Â£4 million incurred in arranging the facility that are being amortised over the life of the loan which has the effect of adding an additional 28 basis points per annum to the cost of the loan. The facility has first charge security over all the property assets which at 31 March 2007 had a value of Â£467.6 million (2006: Â£438 million) together with Â£1.85 million cash (Â£2006: Â£2.2 million) (the 'Security Pool'). Assets can be sold and bought within this Security Pool without any need to revert to the Issuer or the Rating Agents up to an annual turnover rate of 20%. Various covenants apply during the term of the loan although the Facility has been designed to provide significant operational flexibility. The principal covenants however are that the loan should not comprise more than 60% of the value of the assets in the Security Pool nor should estimated rental and other income arising from assets in the Security Pool comprise less than 150% of the interest payments (interest cover at 31 March 2007 - 296%, at 31 March 2006 - 315%). The Group (via its subsidiary, Invista Foundation Property (No. 2) Limited (' IFP2L')) has entered into two further loan agreements with NM Rothschild & Sons Limited ('NMR'). First a revolving facility of Â£100 million has been provided, of which Â£54 million has been drawn. A second facility of Â£14.58 million has been provided by NMR secured against the Group's interest at Portman Square. 20. Provisions 31/3/2007 31/3/2006 Group Â£'000 Â£'000 Opening balance 3,250 2,000 Provision made in the year 790 1,250 Payment made in the year (4,040) - Closing balance - 3,250 At launch the Group acquired two properties from Clerical Medical Investment Group Limited (Wembley and Hinckley) where certain specific asset management initiatives that had been started had not reached a conclusion. The Group therefore agreed to pay further purchase consideration to Clerical Medical dependent on the success of these initiatives and calculated as a percentage of the potential uplift after certain minimum growth thresholds have been met. These obligations concluded in July 2006 whereby the total provision to be paid was Â£4,040,000. 21. Trade and other payables 31/03/2007 31/03/2006 Â£'000 Â£'000 Group Rent received in advance 7,223 6,698 Rental deposits 3,449 2,595 VAT payable - 729 Other trade payables and accruals 21,238 11,200 31,910 21,222 Company Trading account with subsidiary companies 9,371 100 Trade payables and accruals 12,598 7,090 21,969 7,190 22. Net asset value per Ordinary Share The net asset value per Ordinary Share is based on the net assets of Â£502,652,000 (2006: Â£422,771,000) and 353,560,000 (2006: 353,560,000) Ordinary Shares in issue at the balance sheet date. 23. Financial instruments and properties The Group and the Company hold cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group has entered into an interest rate swap contract which is used to limit exposure to interest rate risks but does not have any other derivative instruments. The main risks arising from the Group's financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The main risks arising from the Company's financial instruments are market price risk, credit risk and liquidity risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below. Market price risk Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of bankruptcy or the insolvency of tenants or otherwise, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. The Directors monitor the market value of investment properties by having independent valuations carried out quarterly by Knight Frank LLP. Credit risk Credit risk is the risk that an issuer or counter party will be unable or unwilling to meet a commitment that it has entered into with the Group or Company. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Manager reviews reports prepared by Experian, or other sources to assess the credit quality of the Group's tenants and aims to ensure there are no excessive concentration of risk and that the impact of any default by a tenant is minimised. In respect of credit risk arising from other financial assets, which comprise of cash and cash equivalents, exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amounts of these instruments. In order to mitigate such risks cash is maintained with major international financial institutions. During the period and at the balance sheet date the Group and the Company maintained relationships with branches and subsidiaries of HSBC Bank plc, The Royal Bank of Scotland plc and ING Barings. Liquidity risk Liquidity risk is the risk that the Group and the Company will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property. Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Investments in property are relatively illiquid; however the Group has tried to mitigate this risk by investing in desirable properties in prime locations. In certain circumstances, the terms of the Group's debt facilities entitle the lender to require early repayment and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the Ordinary Shares could be adversely affected. Interest rate risk Exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations. As described in note 19 the Group has entered into an interest rate swap contract whereby the rate of the Group's long term debt facilities have an effective fixed interest rate of 5.31% per annum until maturity of the debt. In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they re-price. Group Effective Total 6 months or More than 5 years Interest less Rate As at 31 March 2007 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 4.5% 24,548 24,548 - Interest-bearing loans and borrowings 5.6% (218,288) (69,018) (149,270) (193,740) (44,470) (149,270) Effective Total 6 months or More than 5 Interest less years As at 31 March 2006 Rate Â£'000 Â£'000 Â£'000 Cash and cash equivalents 4.5% 37,608 37,608 - Interest-bearing loans and borrowings 5.3% (148,833) - (148,833) (111,225) 37,608 (148,833) Company Effective Total 6 months or Interest less Rate As at 31 March 2007 Â£'000 Â£'000 Cash and cash equivalents 5.5% 10,452 10,452 Interest-bearing loans and borrowings 8.6% 70,468 70,468 80,920 80,920 Effective Total 6 months or Interest less Rate As at 31 March 2006 Â£'000 Â£'000 Cash and cash equivalents 4.5% 6,667 6,667 Interest-bearing loans and borrowings 7.8% 51,840 51,840 58,507 58,507 Fair Values The fair values of financial assets and liabilities are not materially different from their carrying value in the financial statements. The following summarises the main methods and assumptions used in estimating the fair values of financial instruments and investment property. Investment Property Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment properties held by the Group (2006: fair values were not significantly different from the carrying amounts). Investment property under development As at the date of the balance sheet fair value is deemed to be costs incurred to date (2006: fair values were not significantly different from the carrying amounts). Derivatives Fair value for the interest rate swap uses the broker quote. This is then tested using pricing models or discounted cash flow techniques (2006: fair values were not significantly different from the carrying amounts). Interest bearing loans and borrowings Fair values are based on the amounts which are to be repaid, less any costs incurred in obtaining the borrowings. These costs are then amortised over the period of the borrowings (2006: fair values were not significantly different from the carrying amounts). Trade and other receivables / payables All receivables and payables are deemed to be due within one year and as such the notional amount is considered to reflect the fair value (2006: fair values were not significantly different from the carrying amounts). Non interest bearing loans and borrowings Where non interest bearing loans and borrowings have no fixed repayment date fair value is deemed to be the face value of the borrowings. Where the repayment date of the borrowings are fixed, the carrying value of these loans are discounted to net present value using a commercial interest rate as at the date of the drawdown of the loan, as disclosed in note 8. The current carrying value of such loans is Â£15,812,000. The fair value of these loans are calculated using the commercial interest rate in place as at the balance sheet date. The current fair value of these loans are Â£15,177,000 (2006: fair values were not significantly different from the carrying amounts). 24. Operating leases The Group leases out its investment property under operating leases. At 31 March 2007 the future minimum lease receipts under non-cancellable leases are as follows: 31/03/2007 31/03/2006 Â£'000 Â£'000 Less than one year 30,735 30,328 Between one and five years 98,042 102,467 More than five years 147,508 128,249 276,285 261,044 The total above comprises the total contracted rent receivable as at 31 March 2007. 25. Related party transactions All material transactions between the Group and its associates are disclosed in note 14. As disclosed in note 16 the Company has a series of loans to subsidiary companies. The Company has loans from subsidiaries which are non interest bearing. As at 31 March 2007 the Company has Â£117.610 million outstanding to its subsidiaries (2006: Â£102.674 million). During the year the Company received dividend income from one of its subsidiaries, Invista Foundation Holding Company Limited, of Â£10.5 million (2006: nil). Finance income received from a subsidiary, Invista Foundation Holding Company Limited, is disclosed in note 8. As disclosed in note 21 the Company also operates an inter-group trading account facility with its subsidiaries whereby it may receive income on behalf of its subsidiaries or pay expenses on their behalf. These balances are non-interest bearing and are settled on demand. 26. Capital commitments As at 31 March 2007 Invista Foundation Property No 2 Limited was contracted to provide funding of Â£11.9 million for development of a retail warehouse at Churchill Way, Basingstoke. The commitment was pursuant to a contract exchanged on 3 March 2006 conditional on planning consent being secured for a retail development on the site. There is also an agreement binding Wickes to take a 25 year lease on an initial rent of circa Â£692,250 per annum on practical completion of the development. The planning consent condition was discharged on 6 March 2007. The first payment of Â£4,377,340 (plus VAT which will be recovered) was subsequently paid on 2 April, including Â£3,935,000 to Hampshire County Council for the acquisition of the land. Additional payments to the developer are due throughout the development on a monthly basis. These will be related to the value of works signed off by the Company's appointed fund monitoring surveyor, subject to a cap in any given month of Â£1million. A balancing payment will be paid to the developer when the development is deemed to be completed. Since the initial payment, further sums of Â£157,400 on 5 April 2007 and Â£835,587 (plus VAT which will be recovered) on 4 May have been made, leaving a further Â£6,529,672 to be paid as the development progresses with completion expected in the final quarter of 2007. 27. Post balance sheet event On 19 June 2007 the Group disposed of a subsidiary, Insight Foundation Property Bootle Limited ('IFPBL') for net proceeds of Â£3.5 million. As at 31 March 2007 IFPBL had assets valued at Â£12.0 million, liabilities of Â£9.5 million, revenues for the year of Â£0.7 million and a loss for the year of Â£0.1 million. Independent auditors' report to the members of Invista Foundation Property Trust Limited We have audited the group and parent company financial statements (the ' financial statements') of Invista Foundation Property Trust Limited for the year ended 31 March 2007 which comprise Consolidated and Company Income Statements, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Changes in Equity and the Consolidated and Company Cash Flow Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with section 64 of The Companies (Guernsey) Law, 1994. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's 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 and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable Guernsey law and International Financial Reporting Standards (IFRS) as set out in the Statement of Directors' Responsibilities above. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 1994. We also report to you if, in our opinion, the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit. We read the Directors' Report and consider the implications for our report if we become aware of any apparent misstatements within it. We read the other information accompanying the financial statements and consider whether it is consistent with those statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Independent auditors' report to the members of Invista Foundation Property Trust Limited (continued) Opinion In our opinion the financial statements: â€¢ give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the Group's and the parent company's affairs as at 31 March 2007 and of the Group's and Company's profit for the year then ended; and â€¢ have been properly prepared in accordance with The Companies (Guernsey) Law, 1994. KPMG Channel Islands Limited Chartered Accountants 27 June 2007 Glossary Earnings per share (EPS) is the profit after Interest cover is the number of time Group net taxation divided by the weighted average number of interest payable is covered by Group net rental shares in issue during the period. Diluted and income. Adjusted EPS per share are derived as set out under NAV. IPD is the Investment Property Databank Ltd, a Company that produces an independent benchmark of Estimated rental value (ERV) is the Group's external property returns. valuers' reasonable opinion as to the open market rent, which on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property. Net assets per share (NAV) are shareholders' funds, plus the surplus of the open market value over the book value of both development and trading properties, divided by the number of shares in issue Gearing is the Group's net debt as a percentage of at the period end. adjusted net assets. Net rental income is the rental income receivable in Group is Invista Foundation Property Trust Limited the period after payment of ground rents and net and its subsidiaries. property outgoings. Initial yield is the annualized net rents generated Reversionary yield is the anticipated yield, which by the portfolio expressed as a percentage of the the initial yield will rise to once the rent reaches portfolio valuation. the estimated rental value. This information is provided by RNS The company news service from the London Stock Exchange

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