Final Results

Insight Foundation Property Tst Ltd 21 June 2006 21 June 2006 Insight Foundation Property Trust Limited ('IFPT'/ the 'Company'/'Group') Annual Report and Consolidated Financial Statements For the year ended 31 March 2006 'The Insight Foundation Property Trust Limited aims to provide Shareholders with an attractive level of income together with the potential for income and capital growth from investing in UK commercial property.' Company Summary Objective To provide Shareholders with an attractive level of income together with the potential for income and capital growth from investing in UK commercial property. Insight Foundation Property Trust Limited and its subsidiaries ('the Group') hold a diversified portfolio of UK commercial properties, which is invested in three commercial property sectors: office, retail and industrial. The Group will not invest in other listed Investment Companies. In pursuing the investment objective, the Investment Manager ('the Manager') concentrates on assets with good fundamental characteristics, a diverse spread of occupational tenants and with opportunities to enhance value through active management. Investment Manager Insight Investment Management (Global) Limited. Total assets less current liabilities (group) Â£575.48 million at 31 March 2006. Â£424.69 million at 31 March 2005. Shareholders' funds Â£422.77 million at 31 March 2006. Â£272.82 million as at 31 March 2005. Capital structure At 31 March 2005, the Group had a capital structure comprising approximately 66 per cent equity and 34 per cent loan finance. As at 31 March 2006 this was approximately 70 per cent equity and 30 per cent loan finance. Ordinary shareholders are entitled to all dividends declared by Insight Foundation Property Trust Limited ('the Company') and to all the Group's assets after repayment of its borrowings. Borrowings consist of a Â£152.5 million loan with an effective interest cost of 5.6% per annum (including annualised costs and expenses in association with its arrangement) fixed by way of an interest rate swap covering the full amount and life of the loan agreement. On 27 July 2005 100,000,000 C Shares were admitted to the London Stock Exchange and commenced dealing. On 5 August 2005 the Company carried out a Conversion of the C Shares. As at that date, the net asset value per C Share was 97.85p and the net asset value ('NAV') 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. ISA/PEP status The Company's shares are eligible for Individual Savings Accounts (ISAs) and PEP transfers and can continue to be held in existing PEPs. Website The Company's website is www.ifpt.co.uk. For further information, please contact: Duncan Owen Insight Investment Management Tel: 020 7321 1676 Stephanie Highett or Dido Laurimore Financial Dynamics Tel: 020 7831 3113 Financial Highlights â€¢ Net Asset Value per share rose by 14.01% â€¢ Earnings per share of 23.5 pence â€¢ The Group has declared and paid dividends per share amounting to 6.75 pence â€¢ Net Asset Value total return of 22.3% â€¢ Share price rose by 11.69% 31 March 31 March % Change 2006 2005 Net Asset Value (1) (Â£'000) Â£422,771 Â£272,822 54.96 (2) NAV per share published (1) (pence) 119.6 105.3 13.58 NAV per share per accounts (1) (pence) 119.6 104.9 14.01 Share price (pence) 129.0 115.5 11.69 Share price premium to NAV 7.9% 10.1% (21.78) NAV total return 22.3% (3) 15.5% (4) 43.9 FTSE All Share Index 3,047.96 2,457.73 24.02 FTSE Real Estate Index 4,743.97 3,256.74 45.67 Sources: Insight Investment, Datastream based on returns during the period 1 April 2005 to 31 March 2006 (1) Net asset value (NAV) is calculated using International Financial Reporting Standards. Reconciliation of NAV published to NAV per accounts is shown below (2) Between 1 April 2005 and 31 March 2006 the C Shares were issued and converted to Ordinary Shares. (3) 22.3% is a quarterly capital weighted total return (4) Annualised return for the period 16 July 2004 to 31 March 2005 Note: All based on returns during the period from 1 April 2005 to 31 March 2006. Performance Summary Reconciliation of net asset value per accounts to published net asset value 31 March 2006 31 March 2005 Total Total Â£'000 Â£'000 Net asset value as published 27 April 2006 422,797 273,874 Hedge reserve on interest rate swap - 1,382 Increased performance fee accrual* (1,160) - Reduction in tax provision based on results of 602 - subsidiaries Revaluation of associate (100) - Reclassification of income / (expense) 632 (330) Published net asset value 422,771 272,822 *Performance fee increased following the audit from the Â£5 million estimated in the NAV published on 27 April 2006 Property performance Value of Property Assets 556,280 379,450 Current annualised rental income including rental guarantees 30,320 25,660 Estimated open market rental value 31,740 26,480 Underlying property performance* 22.20%* 7.54%** IPD Balanced Monthly Index Funds* 19.30%* 7.38%** * Source: Investment Property Databank ('IPD') 1 April 2005 to 31 March 2006 ** Source: Investment Property Databank ('IPD') 16 July 2004 to 31 March 2005 Summary consolidated income statement 01April 2005 27 May 2004 To To 31 March 2006 31 March 2005 Â£'000 Â£'000 Net rental and related income 27,172 16,718 Realised and unrealised gains on investment property 56,616 16,893 Expenses (12,535) (3,320) Net finance costs (4,956) (3,180) Share of profit of associates 8,582 - Profit before tax 74,879 27,111 Taxation (85) (1,756) Profit for the year / period 74,794 25,355 Earnings and dividends Earnings per share 23.5p 9.7p Dividends paid per share 6.75p 3.375p Annualised dividend yield on 31 March 2006 share price 5.23% 5.84% Borrowings at 31 March 2006 Drawn down facility 152,500 152,500 Borrowings as % of total assets less current liabilities 26.5% 35.9% Borrowings as a % of asset value in Security Pool (see Note 34.6% 39.6% 16) Net gearing (borrowings less cash as % of non current assets) 20.7% 25.6% Gearing including off balance sheet borrowings as % of total 42.8% 35.9% assets less current liabilities Estimated Annualised Total Expense Ratio As % of total assets less current liabilities 1.11% (1) 1.11% (2) As % of equity 1.51% (1) 1.72% (2) (1)The estimated Total Expense Ratio (TER) for the year to March 2006 excludes the performance fee of Â£6.16m payable to the Manager. Including this expense in the TER calculation increases the % of total assets less current liabilities from 1.11% to 2.18% and the % of equity from 1.51% to 2.97% (2) Annualised for shorter period. Chairman's Statement Results This is the second full report and accounts for the Insight Foundation Property Trust Limited (the 'Company'), covering the period from 1 April 2005 to 31 March 2006. This has been a period of great strength in the UK commercial property market and I am pleased to report that the Company has performed well. The Company's audited Net Asset Value ('NAV') as at 31 March 2006 is 119.6 pence per share, an increase of 14.7 pence per share or 14% over the year. Over the whole period four dividends totalling 6.75 pence per share were paid resulting in a quarterly capital weighted Net Asset Value Total Return to investors over the whole period of approximately 22.3%, These results include a provision for a performance fee payable to the Investment Manager ('the Manager'), in accordance with the Investment Management Agreement. The Company's NAV growth is a reflection of the sustained strong performance of the UK commercial property market but also reflects our Manager's active approach to managing the portfolio held by the Company and its subsidiaries (the 'Group'). Following the C Share issue in July 2005, the Manager has deployed the increased capital in the London and South East office market, and this is starting to have a positive impact. The performance of the Group's property portfolio has been independently measured by Investment Property Databank ('IPD') relative to its peer group benchmark. For the year to March 2006 the portfolio produced a gross underlying ungeared total return of 22.2% relative to the peer group return of 19.3%. At the NAV level, the Group has performed less well than its peers over the period, largely due to lower levels of gearing following the C share issue. After recent transactions, the Group's gearing position is more in line with the objectives of the Board and the Manager. The shares of the Company have continued to enjoy good support and were trading at 129 pence per share on 31 March 2006, reflecting a 7.9% premium to the March NAV. The Company now has a 100% free float following a share placing by Clerical Medical, formerly our largest shareholder. C Share Completion of the C Share issue in July 2005 increased the Company's shareholders funds from Â£273 million to Â£370 million. The rationale for the C share issue was to enable the Manager to increase exposure to the Central London and South East office markets, which are expected to enhance returns to shareholders over the coming years. The Manager anticipated investing Â£100 million before the end of 2005, and a further Â£70 million in the first quarter of 2006. I am pleased to confirm that, in an increasingly competitive Central London investment market, the Manager has invested the proceeds within the timescale, resulting in a significant weighting to Central London This has increased the Group's gross assets to Â£599.95 million as at 31 March 2006, of which Â£556.28 comprised property assets. Since the year end, the Group has committed on four further acquisitions totalling a further Â£63.20 million, which on completion will increase the Group's total property assets to Â£619.48 million. In the relatively short time since completing the C Share issue, the strategy is having a positive impact on the performance of the Group, with the new London acquisitions adding materially to the property portfolio total return since July 2005. In adding to the Group's portfolio, the Manager, with the Board's approval, has concentrated on properties which offer the prospects of high long term returns through rental growth and consequent capital appreciation, rather than focusing on short term income yield. Borrowings As at 31 March 2006 the Group had total borrowings of Â£152.5 million representing 26.5% of total assets less current liabilities. These borrowings are a securitized facility that runs until the Company's continuation vote in 2014 and the loan is fully hedged against interest rate movements. The total interest rate including capitalised arrangement costs is 5.6% per annum. In addition, as at 31 March 2006 the Group had off-balance sheet, non-recourse borrowings totalling Â£164.4 million secured against the individual investments in MidCity Place, London WC2 and Plantation Place, London EC3. The total on and off-balance sheet borrowings as at 31 March 2006 therefore total Â£316.9 million, representing 43% of total assets less current liabilities. Since 31 March 2006 the Group has increased its on-balance sheet borrowings by approximately Â£23 million to fund acquisitions and a further Â£8.5 million off-balance sheet to fund a Joint Venture acquisition. The Board has agreed with the Manager that total direct and indirect borrowings (including off-balance sheet, non-recourse debt) will not exceed 55% of total assets less current liabilities. On-balance sheet debt is not expected to exceed 40% of total assets less current liabilities. Investment Manager Evaluation The Board reviews the Manager's performance at its quarterly Board meetings. In addition, the Board spent a day at the Manager's office in order to review its capabilities in depth and receive presentations on the UK Commercial property market and the wider economic environment. The Board believes that the continuing appointment of the Manager, on the terms agreed, is in the best interests of shareholders. Prospects The UK property market produced a total return of 19.1% for the year to December 2005, as measured by the IPD Annual Index, compared to the Annual Index return in 2004 of 18.3%. For the first quarter of 2006 IPD recorded a total return of 4.4% for the property market. The Manager expects that the total return from the individual commercial property sectors will show wider divergence over the medium term, and believes there is already evidence of this. As a result, the Group has tactically increased its weighting to what the Manager believes to be the strong growth markets in Central London, selectively acquiring high quality, flexible, modern properties with longer leases, believing that, as a general comment, prime property offers better value than secondary. Further investment of approximately Â£50 million is likely to be made over 2006 in assets with these characteristics. The UK Government has now confirmed that the introduction of Real Estate Investment Trusts ('REITs') will take place in January 2007. The proposals enshrined in the 2006 Finance Bill provide greater operational flexibility than was expected and following a favourable stock market reaction to the Government announcement, several of the larger UK listed property companies have stated their intention to convert. While the REIT announcement is positive for the Company as an owner of commercial property, the proposed 2% conversion charge means that there is currently no commercial advantage to our shareholders in converting. We will of course monitor the development of the REIT sector. Board of Directors I am delighted to report that three new Directors have been appointed to the Board. Peter Atkinson, David Warr and Harry Dick-Cleland add considerable knowledge and experience that complements the skills of the other Directors. Between the members of the Board there is a broad range of experience covering the legal and accounting professions, property investment and management, fund administration, and general financial market expertise. I would like to thank our outgoing Directors, Graham Hall and Paul Smith, for their significant contribution since the launch of the Company in 2004. Conclusion The Group has had an active and successful year with strong performance from the underlying property portfolio. It is positioned to benefit from the expected growth in the office market and also from an environment where a more active approach will be required to drive returns. Andrew Sykes, Chairman Insight Foundation Property Trust Limited 20 June 2006 Investment Manager's Report Introduction As detailed in the Chairman's Statement, the Insight Foundation Property Trust Limited and its subsidiaries ('the Group') has continued to provide shareholders with an attractive level of income return coupled with strong capital growth during the year ended 31 March 2006. The property market has continued to deliver strong returns since the last report and the Group's property portfolio has performed well in this environment. To maintain and build on the Net Asset Value total return, the Group has repositioned its portfolio over the last 12 months. Whilst still balanced across the UK's main property sectors, the Group has grown considerably and when all commitments have completed, will have a 33% weighting to London offices. This places the Group in a position to benefit from more divergence between the sectors and sub-sectors in the UK property market. Strategy Our investment philosophy for the Group remains to own a portfolio of assets with strong fundamentals capable of being actively managed to realise outperformance. Upon launch in 2004, the Group tactically held a low weighting in Central London of approximately 4%, and instead favoured the higher yield offered by industrial and offices outside Central London. This was the right strategy in 2004 and early 2005 as performance was realised through a high yield, moderate rental growth and capital value growth. In early 2005 it became clear that the Central London office market was showing signs of a recovery and that the Group, if it was to maintain its strong performance and improve long term returns for shareholders, would need to increase its exposure to the sector. Our preference was to obtain this exposure without having to sell existing, fundamentally strong properties and incur transaction costs. Consistent with this strategy, therefore, in July 2005 the Company raised Â£100 million of new equity through the issue of a new class of C Shares. The intended proceeds of the C Share issue were planned for investment in office properties in Central London and the South East of England offering: â€¢ Good fundamentals; â€¢ Good specification offering occupational flexibility; â€¢ Relatively low rents offering better potential for rental growth as the market improves. The recovery in the Central London market occurred quicker than we expected during 2005 and into 2006, leading us to accelerate our acquisition programme in these markets. The wider South East markets have still not shown signs of a rental recovery due to a larger supply of vacant and unoccupied accommodation and for that reason, the C Share proceeds were allocated almost entirely to the London markets, with the Group attaining a diversified exposure across the main London office sub-markets. The rapid rate of investment meant that the C Shares were merged quickly into the Ordinary shares. Further details of the properties acquired in the successful implementation of the strategy are set out below. The Portfolio 10 Largest Properties Value % of portfolio National Magazine House, 10/20, Carnaby Street, Soho, London Â£49,500,000 8.9% W1 Minerva House, 5&6, Montague Close, London SE1 Â£47,600,000 8.6% Plantation Place, London EC3 Â£20,500,000 3.7% Victory House, Trafalgar Place, Brighton Â£19,100,000 3.4% Reynard Business Park, Brentford Â£18,850,000 3.4% 20/22 Tudor Street, London EC4 Â£18,200,000 3.3% MidCity Place, London WC1 Â£17,600,000 3.2% Olympic Office Centre, 8 Fulton Road, Wembley Â£16,500,000 3.0% Union Park, Fifers Lane, Norwich Â£14,990,000 2.7% The Albion Centre, Bath Street, Ilkeston Â£14,950,000 2.7% Â£237,790,000 Rent pa % 10 Largest Tenancies The National Magazine Company Limited Â£2,270,000 7.24% Australia & New Zealand Banking Group Ltd Â£1,460,000 4.66% Mott MacDonald Ltd Â£1,307,148 4.17% Reed Smith Services Â£1,295,374 4.13% Freshfields Sevices Company Â£1,279,600 4.08% The British Broadcasting Corporation Â£830,750 2.65% Grand Metropolitan Estates Ltd Â£795,975 2.54% Recticel SA Â£713,538 2.28% Jarvis Porter (Property Holdings) Ltd Â£700,000 2.23% Mid City Place Â£680,000 2.17% Â£11,332,385 As at 31 March 2006, the Group owned a property portfolio of 72 assets valued at Â£556.28 million. In addition, since the year end, the Group has committed to acquire four further properties valued at Â£63.20 million, resulting in a total of 76 properties either owned or contractually committed totalling Â£619.50 million. This compares with a property portfolio value of Â£379.45 million and 74 assets in March 2005. The average lot size of the properties owned by the Group will increase from Â£5.13 million to Â£8.15 million on completion of these commitments. As at 31 March 2006 the portfolio had approximately 220 tenancies with an average unexpired lease term of approximately eight and a half years, with the income weighted expiry profile illustrated below. Lease length % of portfolio by income Less than 1 year 3% 1 - 5 years 27% 5 - 10 years 41% 10 - 15 years 21% 15 years+ 8% The Group has exchanged or completed on acquisitions totalling Â£191 million (calculated against price paid) following the C Share issue, of which Â£165 million are located in London. The locations of the London acquisitions are set out below: Due to the lot size of many high quality London office properties, the Group has acquired significant stakes in three high profile prime buildings that are arguably amongst the best buildings in their respective Central London sub-markets. In each case the Group has flexibility to sell its interest and is investing alongside either Insight Clients or parties with whom Insight has an established relationship. The table below sets out the key characteristics of the six key Central London office acquisitions since the C Share issue: Property Valuation Acquisition Rent Â£ per Rental Average Major (% and 31 March Price annum value income tenants type of 2006 (Â£'000) (average (average length (% income) interest) (Â£'000) (NIY%) rate psf) rate psf) (NIY%) Directly held assets acquired prior to 31 March 2006 Minerva Â£47,600 Â£42,130 Â£2.76 m Â£2.54 m 7.8 years 47% Reid House (5.5%) (6.2%) (Â£30.10 psf) (Â£28.50 Smith LLP (100% psf) 53% ANZ direct) Bank National Â£49,500 Â£45,050 Â£2.52 m Â£2.61m 11.2 years 89% Magazine (4.8%) (5.67%) (Â£41.50 psf) (Â£42.50 The House psf) National (100% Magazine direct) Company Ltd Indirect assets acquired prior to 31 March 2006 (Company NAV shown in bold; total value in italics) MidCity Â£17,600 Â£9,800 Â£13.79 m Â£13.58 m 15.2 years 25% Tower Place (Â£41.34 psf) (Â£40.70psf) Perrins (19.7% Â£260,000 Â£215,000 14% EDF shares in (4.50%) (5.0%) Trading Ltd Single 17% Purpose Mitsubishi Company) Corporation UK Ltd Plantation Â£20,500 19,600 Â£27.08 m Â£25.84 m 19.9 72% Place (Â£50.30 psf) (Â£50.00 psf) years Accenture (28.08% Â£540,000 Â£527,000 UK Ltd units in (4.9%) (5.1%) (guarantee Jersey Unit From Trust) Ultimate Parent) Directly held assets acquired post 31 March 2006 Tokenhouse N/A Â£20,830 Â£0.665 m Â£1.27 m 3 years 14% BH2 Yard (3.3%) (Â£37.40 psf) (Â£44.00 14% M3 (100% psf) Consulting direct) 14% Novoco Indirect assets committed post 31 March 2006 (Company beneficial interest shown in bold; total value in italics) Portman N/A Â£27,550 m Â£4.78 m Â£6.86 m 7.6 55% CWHB Square (Â£42.20 psf) (Â£62.50psf) years 17% Aegis House Â£127,550 Group Plc (21.6% (3.6%) interest in Trust in Land) Total Â£183,580* Â£164,960 Â£51.59m Â£52.70 16.2 (Â£40.70 psf) (Â£45.42psf) years * For acquisitions and commitments post 31 March 2006, the purchase price is used This exposure has been achieved with an average rent across the London acquisition of Â£438 per sq m (Â£40.70 per sq ft). The properties all have key tenancy events such as rent reviews or lease renewals between 2006 and 2010 which should capture growth as the market improves. The Group has made further select acquisitions where value has been identified with the strategic objective of maintaining and where possible improving the portfolio average lease length. The Group has contracted on two acquisitions totalling Â£23 million with an average lease length of 23 years. The first transaction involved the funding of a retail warehouse in Basingstoke let to Wickes for 25 years with no tenant break options. The transaction is subject to planning and the purchase price of Â£11.9 million reflected an attractive net initial yield of 5.7%. The second transaction involved the acquisition of a health and fitness club in Sefton, Merseyside. The Group paid Â£10.75 million for the property that as at 31 March 2006 was valued at Â£11.05 million. The purchase price reflected a high net initial yield of 6.2% increasing to 7% in 2007 following a fixed rental uplift. Finally in relation to acquisitions, since the year end the Group has invested Â£2.9 million for a 50% stake in a Joint Venture Company to acquire a multi-let industrial estate in Crendon, Oxfordshire. The co-investors are North Atlantic Smaller Companies Investment Trust PLC and three others. The property offers significant opportunity to add value through active management and development. The Group will consider investing in further what we term 'Special Situations' where we see value. Since March 2005 the Group has also undertaken eight disposals where asset management strategies were successfully implemented and material profits crystallised. Seven of these disposals were of small retail properties acquired in July 2004 for Â£15.66 million, an average price of Â£2.23 million. The aggregate disposal proceeds totalled Â£18.77 million. The only non-retail disposal was of an industrial estate in Corby where the business plan was implemented ahead of expectations and concerns over high supply of land led to an opportunistic sale in August 2005. The disposal price of Â£9.3 million reflected an increase of Â£1.1 million over the purchase price in July 2004. The Group expects to make further disposals where profits can be realised or where there are concerns over the total return prospects. Taking account of the portfolio as at 31 March 2006, but including committed acquisitions pre and post that date the sector and regional spread is shown below relative to the weightings in March 2005. Region 31 March 2006 31 March 2005 SE excl. Central London 32% 43% Rest of South 8% 11% Midlands & Wales 15% 26% North and Scotland 12% 16% Central London 33% 4% Total 100% 100% Sector 31 March 2006 31 March 2005 Offices 54% 35% Retail 20% 32% Retail Warehouse 3% 2% Industrial 21% 31% Other 2% - Total 100% 100% This repositioning is in line with our plans at the time of the C Share issue. While the performance of Central London offices over the last six months has been primarily yield driven, there is now clear evidence of rental growth that we expect to continue through to 2009. Insight forecasts that the Central London office markets will produce significantly higher rental growth than the overall property market average. It is also worth noting the Group's weighting to London has been further enhanced by jointly acquiring stakes in larger assets such as MidCity Place and Plantation Place. If their gross value is considered (i.e. total exposure through the Group's investment and pro-rata share of the non-recourse debt), this further increases the Group's exposure to London's performance. Sector % Offices (including MidCity Place and Plantation 64% Place) Retail 15% Retail Warehouse 3% Industrial 17% Other 1% Total 100% Region % SE excl. Central London 26% Rest of South 6% Midlands & Wales 12% North and Scotland 9% Central London 47% Total 100% IFPT property tenure, expressed as a percentage of value: Tenure % Freehold 92% Long leasehold 8% Total 100% Asset Management The underlying performance of the portfolio continues to be driven not just by stock selection but also by active asset management. This approach is required to ensure that the Group captures rental growth as quickly as possible and consequently maximises all possible opportunities for capital value appreciation. Any vacant units are actively managed. As at 31 March 2006 approximately 3% of the portfolio was vacant, down from 4% in March 2005. This compares to approximately 9% on an average portfolio as measured by the IPD Index. For rent reviews, it is our policy to try always to secure a rental increase irrespective of the potential quantum, and to use specialist advisors where required. This approach has been successful and over the year to 31 March 2006 the average rental uplift secured was 6% ahead of the rental value adopted by the independent valuer in March 2005. Below we have detailed some recent, larger examples of asset management activity: Industrial - The Quadrant, Bristol and The Gate Centre, Brentford All of the Group's properties have detailed business plans. At Bristol, the vacant units at the estate have now been substantially let following a refurbishment programme. Re-launching the estate and incentivising agents secured new lettings quickly to good tenant covenants at a headline rent 20% ahead of the valuation on acquisition. The valuation has increased from Â£9.1 million in March 2005 to Â£10.7 million in March 2006, an increase of 17.6%. At Brentford, following the grant of a new planning consent and a new letting to a car showroom operator last year, the increased rental tone and the strategy of re-positioning the estate as a car showroom and trade park is achieving strong valuation results. The valuation has increased from Â£9.45 million in March 2005 to Â£13.6 million in March 2006, an increase of 44%. Offices - MidCity Place WC2 and Minerva House SE1 A significant restructuring of a major tenant's lease has increased the rent on the retained office space by approximately 20% relative to the rental value on acquisition in August 2005. This asset management combined with an improving Mid-Town office market increased the property valuation from Â£225 million at December 2005 to Â£260 million in March. This in turn increased the Net Asset Value of the Group's investment from Â£10.72 million to Â£17.6 million respectively, an uplift of 64%. The strong valuation performance has led to a refinancing of the debt secured against this asset. Since the year end the Group has received back Â£7.8 million of the Â£9.8 million original equity invested, whilst still retaining a 19.7% ownership. This is very strong performance within nine months of acquiring the asset. Retail - Victoria Plaza Bolton and Coventry Road Hinckley Good progress is being made with retail reconfiguration at Bolton. Following extensive negotiations and receipt of planning consent, a major UK Sports retailer has exchanged contracts to lease the vacant upper parts of the property in a deal that is potentially highly value enhancing. The agreement is conditional on restructuring other retailer leases in the ownership where negotiations are on going. At Hinckley, the Group has applied for planning consent for a mixed use scheme comprising 105,000 sq ft of retail warehouse and 45,000 sq ft of warehouse space. In tandem with this the Group has accepted a lease surrender of the current tenants lease for receipt of a substantial premium. A decision on the planning application is expected over the next two to three months. Our approach is contributing positively to the performance of the underlying property portfolio, which continues to have an above average income yield relative to its IPD peer group benchmark. Financing The Group's securitised loan facility of Â£152.5 million runs until 2014 and is fully hedged against future interest rate movements using an interest rate swap. The total aggregate interest rate including capitalised arrangement and servicing costs is 5.6%. The Group will seek to take advantage of opportunities to raise efficient finance as it expands its portfolio. Outlook and Future Strategy The UK property market produced a total return of 19.1% in 2005, ahead of expectations. This was driven primarily by capital growth caused by low finance costs, the weight of money being invested into the sector and the higher than average yield still offered by property relative to the other main asset classes. We anticipate total returns to the UK commercial property market of approximately 12% to 14% for 2006. Since the year end there has been an increase in both real long bond yields and more significantly for the property market, swap rates. The gap between the market initial yield and the five year swap rate has tightened materially and in May 2006 became a negative yield gap. This factor in isolation does not equate to poor future total return performance, particularly where rents are growing, but the reduced number of debt-driven investors being able to operate in this environment will have an impact. Positively, the significant volumes of institutional investment, driven partly by asset allocation and partly by the creation of a commercially viable UK REIT structure, may counter-balance the impact of reduced debt-driven investment. For the last twelve months we have been repositioning the portfolio to respond to a movement from an interest rate-led cycle to a cycle driven by rental growth and traditional property fundamentals such as location and building quality. A core long term projected total return across the market of 7% to 8% supplemented by additional performance through asset management should still offer an attractive return and this is in line with the property market's long run average. The most important observation to make is that we believe total return performance over the next few years will diverge much more across the main property sectors. As evidenced in the recent shift towards Central London, we will react quickly to these divergences between the sectors and sub-sectors, and also future changes in the market. In addition, to supplement the main portfolio return we will look to invest in more Special Situations such as the multi-let industrial estate in Crendon, Oxfordshire. These will typically be asset management led joint ventures. This will also potentially allow the Group to access non-core but interesting sectors such as healthcare or residential. In summary we are positive about the Company's prospects for 2006 and beyond and look forward to another year of significant activity to add to long term Shareholder value. Duncan Owen Insight Investment Management (Global) Limited 20 June 2006 Board of Directors Andrew Sykes (Chairman) Aged 48, 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 Fleming Asian Investment Trust plc and Smith & Williamson Holdings Limited. John Frederiksen Aged 58, is chairman of the Danish Property Federation and of 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, and was Chairman of ASC, the largest property management company in Denmark, from 1990 to 1998. Keith Goulborn Aged 61, was head of Unilever's UK Property Department for 17 years, in which capacity he was responsible for the property investment activities of the Unilever Pension Fund in the UK and for 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 49, 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. He joined the Board of Directors on 13 March 2006. David Warr Aged 52, 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, Hemisphere Defensive HF (USD) Limited and UK Select Trust Limited. He joined the Board of Directors on 13 March 2006. Peter Atkinson Aged 51, 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 retained as a consultant to the firm and as a non-executive director of the firm's trust company. 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. He joined the Board of Directors on 30 March 2006. Report of the Directors The Directors of Insight Foundation Property Trust Limited ('the Company') and its subsidiaries (together 'the Group') are pleased to submit their report and the Audited Financial Statements of the Company and of the Group for the year ended 31 March 2006. Principal Activity and Status The Company carries on the business of a property investment company and is a Guernsey registered company. A review of the business during the year is contained in the Chairman's Statement and the Manager's Report. Investment Policy The investment objective of the Group is to provide Shareholders with an attractive level of income together with the potential for income and capital growth from investing in UK commercial property. The Group invests in three commercial property sectors: office, retail and industrial. The Group will not invest in other listed investment companies. Listing During the year under review the Company complied with the conditions applicable to property investment companies set out in paragraphs 21.27(e) to 21.27(i) of the Listing Rules of the London Stock Exchange. Share issue At 31 March 2005, there were 260,000,000 Ordinary Shares in issue. On 05 August 2005, 93,560,000 new Ordinary Shares were created on the conversion of C Shares, providing a total of 353,560,000 Ordinary shares in issue at 31 March 2006. Results The results for the year are shown in the Consolidated Income Statement. Dividend During the period the Company has declared and paid the following interim dividends to its ordinary shareholders: Dividend For Quarter Date Declared Rate 31 March 2005 21 April 2005 1.6875 pence per share 30 June 2005 19 July 2005 1.6875 pence per share 30 September 2005 24 October 2005 1.6875 pence per share 31 December 2005 24 January 2006 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 2006 of 1.6875 pence was declared on 27 April 2006 and paid on 26 May 2006. Directors' Interests Paul Smith resigned on 13 March 2006. Harry Dick-Cleland and David Warr were appointed on 13 March 2006. Graham Hall resigned on 30 March 2006. Peter Atkinson was appointed on 30 March 2006. Biographical details of each of the Directors are attached. The following Directors including persons connected with them held the following number of shares at 31 March 2006 (all of which were beneficial): Director Number of Ordinary Shares Percentage (%) A Sykes 35,292 Less than 0.1 K Goulborn 9,564 Less than 0.1 There have been no changes in the above interests between 31 March 2006 and the date of this report. The remuneration of the Directors during the year was as follows: Â£'000 A Sykes (Chairman) 27 J Frederiksen 18 K Goulborn 18 G Hall 18 P Smith 17 H Dick-Cleland (appointed 13 March 2006) - D Warr (appointed 13 March 2006) - P Atkinson (appointed 30 March 2006) - 98 None of the Directors had a service contract with the Company during the period. Substantial Shareholdings At 30 April 2006 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 (%) Greenwood Nominees Limited 26,856,910 7.60 Nortrust Nominees Limited 23,002,000 6.51 Ferlim Nominees Limited 15,658,438 4.43 James Capel (Nominees) Limited 12,599,367 3.56 Waterhouse Nominees Limited 12,342,609 3.49 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 the Company is not obliged to comply with the ' Combined Code' (i.e. the Code of Best Practice published by the Committee on the Financial Aspects of Corporate Governance) as it is a Guernsey registered company. It is the Board's intention to comply with the Association of Investment Trust Companies ('AITC') 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: i) review the overall objectives for the Company as described under Investment Policy above and set the Company's strategy for fulfilling those objectives within an appropriate risk framework; ii) consider any shifts in strategy that it considers may be appropriate in light of market conditions; iii) review the capital structure of the company including consideration of an appropriate use of gearing both for the Company and in any joint ventures in which the Company may invest from time to time; iv) appoint the Investment Manager, Administrator and other appropriately skilled service providers and monitor their effectiveness through regular reports and meetings v) review key elements of the Company's performance including NAV and the payment of dividends. Board Decisions At its Board meetings, the Board ensures that all the strategic matters listed under 'Role of the Board' 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 Manager or the Administrator, the Board considers there are implementation matters that are significant enough to be of strategic importance to the Company and should be reserved to the Board (e.g. large property decisions affecting either 10% or more of the Company's assets or 5% or more of the Company's rental income and decisions affecting the Company's financial gearing). Board performance evaluation (Training & Appraisal) In 2005 the Board commissioned a review of its performance, combined with a ' skills audit' with the assistance of an independent third party. This review concluded that the Board was operating effectively, but noted that it would benefit from the addition of a Director with an accounting background. Following recent Board changes, this has been addressed. Non Executive Directors, Rotation of Directors and Directors Tenure The present membership of the board is shown above. The Combined Code recommends that Directors should be appointed for a specified period. The Board has resolved in this instance that Director 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 3 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. Andrew Sykes will stand for re-election during the year commencing 1 April 2006. The Board has determined that none of its Directors is related to 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 Manager and the Administrator. The Manager's report comments on: â€¢ The UK commercial property market including recommendations for any changes in strategy that the Manager considers may be appropriate; â€¢ Performance of the Group's portfolio and key asset management initiatives; â€¢ Transactional activity undertaken over the previous quarter and being contemplated for the future; â€¢ 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 consider any relevant risks and to consider how they should be properly managed. The Board also considers reports provided from time to time by its various service providers reviewing their internal controls. The below table shows the attendance at Quarterly Board or Audit Committee meetings during the year to 31 March 2006: Board Audit Committee Nomination Committee A Sykes (Chairman) 4 2 1 J Frederiksen 4 1 - K Goulborn 4 2 1 G Hall 4 2 1 P Smith 4 N/A 1 D Warr - - - P Atkinson - - - H Dick-Cleland - - - No. of meetings during the year 4 2 1 In between its regular quarterly meetings, the Board has also met on a number of occasions during the period to approve specific transactions. It has not always been possible for all Directors to attend these meetings. (Note - The Company maintains liability insurance for its Directors and Officers although the Company has no employees and none of its Directors are Executive). Committees of the Board The Audit Committee Chaired during the financial year by Mr Goulborn with Mr Sykes, Mr Frederiksen and Mr Hall as members. Since the end of the financial year and following the new appointments to the Board, the composition of the Audit Committee has changed with the chairmanship passing to Mr Dick-Cleland and 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 not 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 (including 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 not involved in any non audit work for the company. Members of the Committee may also meet with the Company's valuer to discuss the scope and conclusions of their work. Nomination Committee Chaired by Mr Sykes and with all other Board Directors as members. During the year, the Committee sought to identify a new Director with an accounting background, following the result of the Board skills audit and effectiveness review. It also sought two further Directors when Mr Smith and Mr Hall indicated their intention to step down for personal reasons. Following a review of a number of potential candidates, the Committee recommended, and the Board approved the appointment of Mr Dick-Cleland, Mr Warr and Mr Atkinson. In reaching their decision, the Committee noted the experience and skills of the new Directors, which complemented that of the other three Directors. As noted on Page 21 of the 2005 Annual Report, during the financial period ended 31 March 2005, 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 the AGM on 26th July 2005 to increase the maximum total annual remuneration of the Directors to Â£135,000. Investment Management Agreement The Company has entered into an agreement with the Manager. This sets out the Manager's key responsibilities which include proposing a property strategy to the Board and, within certain authority limits, selecting investments for acquisition and disposal and arranging appropriate lending facilities. The Manager is also responsible for all issues pertaining to asset management. Further details of the Manager's appointment are disclosed in note 2 to the financial statements. Going Concern The Directors have examined significant areas of possible financial risk and have satisfied themselves that no material exposures exist. The Directors therefore consider that the Group has adequate resources to continue in operational existence for the foreseeable future and after due consideration believe it is appropriate to adopt the going concern basis in preparing the financial statements. Shareholder Relations Shareholder communications are a high priority for the Board. The Manager produces a quarterly fact sheet which is distributed to shareholders and released to the London and Channel Islands Stock Exchanges. Members of the Manager's Investment Committee make themselves available at all reasonable times to meet with principal shareholders and key sector analysts. Feedback from these sessions is provided by the Manager to quarterly Board meetings. During the year the Company launched its website, www.ifpt.co.uk. In addition, the Board is also kept fully appraised of all market commentary on the Company by the 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 that the Company's communication programme is effective. The Chairman and the Manager are available at the Annual General Meeting to answer any questions that attending shareholders may have. Details of the resolutions to be proposed at the Annual General Meeting on 25 July 2006 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 as at the end of the financial period and of the profit or loss of the Group for that period in accordance with International Financial Reporting Standards and are in accordance with applicable laws. In preparing those financial statements the Directors are required to:- â€¢ Select suitable accounting policies and apply them consistently; â€¢ Make judgements and estimates that are reasonable and prudent; â€¢ State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and â€¢ Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group 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 hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for: â€¢ Ensuring that the Report of the Directors and other information included in the Annual Report is prepared in accordance with applicable company law; â€¢ Ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority; â€¢ 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. Business Strategy and Risk Management Business Strategy The Group's investment objective is to provide Shareholders with an attractive level of income together with the potential for income and capital growth from investing in UK Commercial property. The Board has determined that this will be achieved by holding a diversified portfolio of UK office, retail and industrial properties. The Group will not invest in other listed investment companies. 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 minority 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 (e.g. large Central London office buildings). In those circumstances, and where the entity has non-recourse borrowings, the Board will ensure the total borrowings of the Group including those held off-balance sheet will not exceed 55% of Total assets less current liabilities (at the time of drawdown) and that on balance sheet borrowings will not exceed 40% of Total assets less current liabilities (at the time of drawdown) Given the Group's objective the current strategy accepted by the Board and being executed by the Manager has the following key principles: â€¢ No single asset to comprise more than 15% by value of the whole portfolio and no single tenant to account for more than 20% of the total rental receipts; â€¢ A focus on prime quality assets; â€¢ Assets which generate above average rental yields (in comparison to an IPD based industry average) and where the average tenant quality is in line with industry averages; â€¢ An unexpired lease term across the portfolio in line with or better than industry averages; â€¢ Enhancing property returns through active management; and â€¢ Maximisation of total Net Asset Value returns through financing (including where appropriate using joint venture structures) but always within an overall borrowing strategy with an upper limit of 55% of the Group's total assets less current liabilities. The Board encourages the Manager to be flexible in identifying and recommending trends in the market where stronger relative property performance is anticipated. The Board has resolved to assess the Manager's performance by reference to: 1. The total investment return of the property portfolio by comparison to a peer group index as measured by Investment Property Databank ('IPD'), and; 2. The total NAV return to investors (comprising the aggregate of NAV growth and dividends paid). The performance results for the property portfolio and the Group for this financial period are commented on by the Manager in his report. The Board has identified certain risks inherent in the Group's business which together with the Group's relevant control measure is described below. A more detailed commentary on the property portfolio is described in the Manager's report. RISK MANAGEMENT Property investment risk Investment in commercial property has the potential to create sustainable income and capital growth over the long term. However market circumstances can introduce volatility into investment returns arising in particular from: â€¢ An excess supply of accommodation relative to occupier demand; â€¢ Individual business sectors being affected in different ways by economic circumstances (both national and international) which can influence the capability of tenants to pay their rents in a timely manner; â€¢ Changes in planning legislation affecting individual properties and/or surrounding neighbourhoods; â€¢ Alternative asset classes being considered to be more or less expensive relative to property which can affect the capital flows towards property; â€¢ The relative level of economic growth, interest rates and inflation; â€¢ Construction cost inflation which can alter the viability of refurbishment schemes and affect the capability to bring new supply to market; â€¢ Other relevant legislative changes. For these and other reasons the Board considers that the right approach for achieving the Group's objective is to mandate the Manager to build a broadly based, well diversified portfolio of commercial property investments. To enable the Board to ensure that the portfolio does not become overly concentrated or reliant on individual assets, sectors or tenants, the 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. Income at risk Income can be at risk for two specific reasons: â€¢ Complete tenant failure or a tenant default in paying rent on time; â€¢ A tenant not renewing their lease on expiry and vacating the property. As noted above, the Manager reports quarterly with an independent analysis of average tenant quality. Manager reports also provide a calculation of the average unexpired lease duration in the portfolio by comparison to an IPD based industry average. The Manager takes a proactive approach to property management and ensures that each asset held in the portfolio has a clear written asset plan, updated annually, which sets out targets to be achieved in all tenant discussions. The aim of this rigorous process is to ensure that so far as possible every opportunity is grasped to continually improve net income receivable from the portfolio, overall tenant quality and wherever possible that leases can be renewed before properties become vacant on lease expiry. The Board monitors this risk by receiving from the Manager a summary for each property noting key activities on each property in the portfolio. Property development risk It is unlikely that the Manager will consider a wholesale re-development project given the Group's objective to provide an attractive level of income to shareholders. Occasionally however it can be economically attractive for the Group to commit to a refurbishment or redevelopment scheme of an existing property in the portfolio. However any such scheme would not be commenced in the absence of tenants having entered into contractual agreements to lease 66% or more of the accommodation to be built. The Board monitors this risk through the quarterly reports provided by the Manager. Interest Rate Management The Group's policy is to avoid significant exposure to unforeseen upward interest rate movements. During the year, the Group's principal borrowings comprised a Â£152.5million securitised loan facility. The interest rate on this loan has been swapped into a fixed rate of 5.31% until July 2014. Additional short term facilities may be drawn on a floating interest rate but the Board will only sanction this where there is a clear intention within a 6-12 month period to lock into a longer term fixed rate. The Investment Manager a) Resources and processes The Board arranges to meet the Manager at least annually at the Manager's office in London. This allows the Board to inspect the office arrangements and to meet other members of the Manager's team. Typically the Board would expect to interrogate the Manager's process in more detail than is possible at Board meetings and to gain a perspective on the level of resource that is applied by the Manager to the Company's business. b) Business Contingency Management The Board regularly reviews the Manager's Business Contingency Management and is able to discuss this and other matters with the Manager's Chief Risk Officer. The Administrator a) Resources and processes 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 Group. This enables the Board to view at first hand the level of resources made available to the Group by the Administrator. b) Business Continuity 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. Internal Control The Combined Code requires the Directors at least 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. Investment management services and Administration services are provided to the Group respectively by Insight Investment Management (Global) Limited ('Insight') and Royal Bank of Scotland International Fund Services (Guernsey) Limited ('RBSI'). The Group's system of internal control therefore is substantially reliant on Insight's and RBSI's own internal controls and their internal audit. During the year, the Board has reviewed a report prepared by Insight's internal audit team on Insight's property division and has been satisfied that their approach is appropriate for the Group. The key elements designed to provide effective control are as follows: a) Financial reporting A regular review of relevant financial data including management accounts and performance projections b) Management and Administration Agreements Contractual documentation with appropriately regulated entities which clearly describes responsibilities for the two principal service providers. c) Management Systems 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 Insight's internal risk team. Insight is regulated by the FSA. d) Investment Strategy The Group'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 Group's system of internal control annually. This review covers all controls, including financial, operational and risk management. The Board has received a high level internal controls review of the Administrator. Corporate Responsibility - Benefits, Risks and Controls The Board has reviewed the Socially Responsible Policy which has been developed by the Manager and considers this to be an appropriate policy for the Company to adhere to via the appointment of the Manager through the Investment Management agreement. The Manager's policy is as follows: 'Insight recognises that how buildings are designed, built, managed and occupied significantly influences their impact on the environment and affected communities. Insight 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. Insight's standard business processes ensure that it obtains an environment report as part of the due diligence process for property acquisitions. In addition, Insight ensures that its Fund Managers and appointed Managing Agents comply with all relevant laws and regulation relating to its clients business. Insight also aims to operate according to established best practice within the industry on all relevant environmental and social aspects of property management and development. Insight 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.' The Board has noted that the Manager is in the process of implementing systems which will report the evidence of compliance with this policy. The Manager has recently appointed specialist consultants Upstream to develop comprehensive systems to enable it to implement and monitor its sustainability policy. Working with Upstream, during the coming year the Manager expects to: â€¢ Identify the most significant environmental impacts of the Groups investments, both at the portfolio and asset level; â€¢ Establish a set of objectives, targets and Key Performance Indicators relating to the environmental impacts of the Group's properties; â€¢ Develop appropriate governance, control and management procedures, to be adopted both by Insight and managing agents; â€¢ Develop appropriate training and awareness raising processes for Insight's staff. 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 per cent. 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 net asset value 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 Group'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. Creditor Payment Policy It is the Group's policy to ensure settlement of supplier invoices in accordance with stated terms. Auditors KPMG Channel Islands Limited have indicated their willingness to continue in office as auditors and a resolution proposing their re-appointment will be proposed at the Annual General Meeting. A Sykes, Director (Chairman) Keith Goulborn, Director 20 June 2006 20 June 2006 Consolidated Income Statement 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 Notes Â£'000 Â£'000 Rental income 28,119 16,693 Other income 3 225 318 Property operating expenses 4 (1,172) (293) Net rental and related income 27,172 16,718 Profit on disposal of investment property 2,594 390 Valuation gains on investment property 54,022 18,425 Valuation losses on investment property - (1,922) Net valuation gains on investment property 10 54,022 16,503 Expenses Investment management fee 22 (5,062) (2,418) Performance fee 22 (6,160) - Valuers' and other professional fees (416) (473) Administrators fee 2 (227) (120) Audit fee (47) (50) Directors' fees (98) (72) Other expenses 5 (525) (187) Total expenses (12,535) (3,320) Net operating profit before net finance costs 71,253 30,291 Interest receivable 3,908 430 Interest payable (8,191) (3,477) Finance expenses (673) (133) Net finance costs (4,956) (3,180) Share of profits of associates 8,582 - Profit before tax 74,879 27,111 Taxation 7 (85) (1,756) Profit for the year / period attributable to the 74,794 25,355 equity holders of the parent company Basic and diluted earnings per share 8 23.5p 9.7p Consolidated Balance Sheet 31/03/2006 31/03/2005 Notes Â£'000 Â£'000 Investment property 10 518,180 379,450 Investment in associates 11 28,313 - Loan to associate 11 9,787 - Non-current assets 556,280 379,450 Trade and other receivables 14 5,832 4,694 Taxation paid in advance 7 231 - Cash and cash equivalents 37,608 55,222 Current assets 43,671 59,916 Total assets 599,951 439,366 Issued capital and reserves 15 422,771 272,822 Equity 422,771 272,822 Interest-bearing loans and borrowings 16 148,833 148,482 Interest rate swap 3,875 1,382 Provisions 17 - 2,000 Non-current liabilities 152,708 151,864 Trade and other payables 18 21,222 12,875 Provisions 17 3,250 - Taxation payable 7 - 1,805 Current liabilities 24,472 14,680 Total liabilities 177,180 166,544 Total equity and liabilities 599,951 439,366 Net Asset Value per Ordinary Share 19 119.6p 104.9p The financial statements were approved at a meeting of the Board of Directors held on 20 June 2006 and signed on its behalf by: A Sykes, Director (Chairman) Keith Goulborn, Director 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 27 May 2004 - - - - Issued in the period 260,000 - - 260,000 Issue costs (2,376) - - (2,376) Transfer to distributable reserves (257,624) - 257,624 - Loss on derivative instruments - (1,382) - (1,382) Profit for the period - - 25,355 25,355 Dividends paid - - (8,775) (8,775) Balance as at 31 March 2005 - (1,382) 274,204 272,822 Issued in the period 15 100,000 - - 100,000 Issue costs 15 (1,644) - - (1,644) Loss on derivative instruments - (2,493) - (2,493) Profit for the year - - 74,794 74,794 Dividends paid 9 - - (20,708) (20,708) Balance as at 31 March 2006 98,356 (3,875) 328,290 422,771 Consolidated Statement of Cash Flows 01/04/2005 27/05/2004 To to 31/03/2006 31/03/2005 Operating activities Notes Â£'000 Â£'000 Profit for the year/period 74,794 25,355 Adjustments for: Profit on disposal of investment property (2,594) (390) Net valuation gains on investment (54,022) (16,503) property Share of profits of associates (8,582) - Net finance cost 4,956 3,180 Taxation 85 1,756 Operating profit before changes in 14,637 13,398 working capital and provisions Increase in trade and other receivables (1,135) (4,682) Increase in trade and other payables 10,614 10,860 Cash generated from operations 24,116 19,576 Interest paid (6,805) (3,279) Interest received 3,901 417 Tax paid (2,035) - Cash flows from operating activities 19,177 16,714 Investing Activities Proceeds from sale of investment property 26,868 3,550 Acquisition of investment property (107,691) (364,107) Acquisition of associates (19,731) - Cash flows from investing activities (100,554) (360,557) Financing Activities Proceeds on issue of shares 100,000 260,000 Loan to associate (9,787) - Issue costs paid on issuance of Ordinary (1,644) (2,376) Shares Draw down of short term bank loan - 98,100 Repayment of short term bank loan - (98,100) Draw down of long term loan - 152,500 Finance costs paid on arrangement of (4,098) (2,284) long term loan Dividends paid 9 (20,708) (8,775) Cash flows from financing activities 63,763 399,065 Net (decrease)/increase in cash and (17,614) 55,222 cash equivalents for the year Opening cash and cash equivalents 55,222 - Closing cash and cash equivalents 37,608 55,222 Company Income Statement 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 Notes Â£'000 Â£'000 Restated Other income 3 18 567 Net income 18 567 Profit on disposal of subsidiary - 16,904 company Expenses Investment management fee 22 (2,537) (1,210) Performance fee 22 (6,160) - Valuers' and other professional fees (125) (170) Administrators fee (206) (120) Audit fee (40) (50) Directors' fees (98) (72) Other expenses 5 (124) (165) Total expenses (9,290) (1,787) Net operating (loss) / profit before (9,272) 15,684 net finance costs Interest receivable 5,024 14,306 Interest payable - (3,276) Finance expenses (987) (36) Net finance costs 4,037 10,994 Income from subsidiary 6 6,501 8,664 Profit for the year/ period 1,266 35,342 Basic and diluted earnings per share 8 0.4p 13.6p Company Balance Sheet 31/03/2006 31/03/2005 Restated Notes Â£'000 Â£'000 Investment in subsidiary companies 12 366,595 347,464 Loans to subsidiary companies 13 67,988 16,486 Non-current assets 434,583 363,950 Trade and other receivables 14 31,709 6,981 Cash and cash equivalents 6,677 9,352 Current assets 38,386 16,333 Total assets 472,969 380,283 Issued capital and reserves 15 363,105 284,191 Equity 363,105 284,191 Non interest-bearing loans and borrowings 16 102,674 95,330 Non-current liabilities 102,674 95,330 Trade and other payables 18 7,190 762 Current liabilities 7,190 762 Total liabilities 109,864 96,092 Total equity and liabilities 472,969 380,283 The financial statements were approved at a meeting of the Board of Directors held on 20 June 2006 and signed on its behalf by: A Sykes, Director (Chairman) Keith Goulborn, Director Company Statement of Changes in Equity Notes Share Revenue Total premium reserve (Restated) Â£'000 Â£'000 Â£'000 Balance as at 27 May 2004 - - - Issued in the period 260,000 - 260,000 Issue costs (2,376) - (2,376) Transfer to distributable reserves (257,624) 257,624 - Profit for the period - 35,342 35,342 Dividends paid - (8,775) (8,775) Balance as at 31 March 2005 - Restated - 284,191 284,191 Balance as at 31 March 2005 - previously - 275,527 275,527 reported Prior year adjustment 6 - 8,664 8,664 Balance as at 31 March 2006 - as restated 284,191 284,191 Issued in the period 15 100,000 - 100,000 Issue costs 15 (1,644) - (1,644) Profit for the year - 1,266 1,266 Dividends paid 9 - (20,708) (20,708) Balance as at 31 March 2006 98,356 264,749 363,105 Company Statement of Cash Flows 01/04/2005 27/05/2004 To to 31/03/2006 31/03/2005 Restated Operating activities Notes Â£'000 Â£'000 (Loss)/profit for the year / period 1,266 35,342 Adjustments for: Profit on disposal of subsidiary company - (16,904) Net finance cost (10,538) (19,658) Operating profit before changes in working capital and (9,272) (1,220) provisions Increase in trade and other receivables (24,729) (6,981) Increase in trade and other payables 6,460 762 Cash generated from operations (27,541) (7,439) Interest paid - (3,276) Interest received 5,024 14,306 Tax paid (32) Cash flows from operating activities (22,548) 3,591 Investing Activities Proceeds from sale of subsidiary company - 103,427 Acquisition of subsidiary companies (19,131) (433,987) Cash flows from investing activities (19,131) (330,560) Financing Activities Proceeds on issue of Shares 100,000 260,000 Issue costs paid on issuance of Shares (1,644) (2,376) Intra group loan received 12,906 103,994 Intra group loan provided - subsidiaries (51,501) (16,486) Finance costs paid (48) (36) Dividends paid 9 (20,708) (8,775) Cash flows from financing activities 39,005 336,321 Net (decrease)/increase in cash and cash equivalents at 31 March 2006 (2,675) 9,352 Opening cash and cash equivalents 9,352 - Closing cash and cash equivalents 6,677 9,352 Notes to the Financial Statements 1. Significant accounting policies The Insight Foundation Property Trust Limited ('the Company') is a closed-ended investment company incorporated in Guernsey. The consolidated financial statements of the Company for the year ended 31 March 2006 comprise the Company and its subsidiaries and its interests in associates (together referred to as the 'Group'). Statement of compliance The consolidated 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 Standards Committee, applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority. 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, with the exception of the change in accounting policy disclosed in Note 6, been consistently applied to the results, assets, liabilities and cash flows of the entities included in the consolidated financial statements and are consistent with those of the previous period. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Basis of consolidation Subsidiaries The consolidated financial statements comprise the accounts of the Company and all of its subsidiaries drawn up to 31 March each year. Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences to the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. Loans to associates are stated at their amortised cost less impairment losses. Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group's interest in the entity. Unrealised losses are 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 at cost, being the fair value of the consideration given, including transaction costs associated with the investment property. After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Income Statement. Realised gains and losses on the disposal of properties are recognised in the Consolidated Income Statement. Fair value is based on the open market valuations of the properties as provided by Knight Frank LLP a firm of independent chartered surveyors, at the balance sheet date. Market valuations are carried out on a quarterly basis. As disclosed in note 21, the Group leases out all properties held on operating leases. Cash and cash equivalents Cash at banks and short-term deposits that are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash in hand and short-term deposits at banks. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to interest rate fluctuations. It is not the Group's policy to trade in derivative financial instruments. Derivative financial instruments are recognised initially at fair value and are subsequently re-measured and stated at fair value. Fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date. The gain or loss on re-measurement to fair value of cash flow hedges in the form of derivative financial instruments are taken directly to the Statement of Changes in Equity. Such gains and losses are taken to a reserve created specifically for that purpose, described as the Hedge reserve. On maturity or early redemption the realised gains or losses arising from cash flow hedges in the form of derivative instruments are taken to the Income Statement, with an associated transfer from the Statement of Changes in Equity in respect of unrealised gains or losses arising in the fair value of the same arrangement. The Group considers the terms of its interest rate swap qualify for hedge accounting. Share capital Ordinary shares are classified as equity. Incremental external costs directly attributable to the equity transaction and costs associated with the establishment of the Company that would otherwise have been avoided are written off against the share premium account. Dividends are recognised in the period in which they are paid. Provisions A provision is recognised in the Balance Sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Income Rental income from investment properties is accounted for on a straight-line basis over the term of ongoing leases and is shown gross of any UK income tax. Any material premiums or rent-free periods are spread evenly over the lease term. Interest receivable derives from cash monies held in current and deposit accounts throughout the period and is accounted for on an accruals basis. Expenses All expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs (including interest on the long term borrowings) and all other expenses are charged through the Consolidated Income Statement. Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through the Consolidated Income Statement. Taxation The Company and its subsidiaries are subject to United Kingdom income tax on any income arising on investment properties, after deduction of debt financing costs and other allowable expenses. Income tax on the profit or loss for the year comprises current tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods. Deferred income tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment business and in one geographical area, the United Kingdom. Loans and borrowings Borrowings are recognised initially at fair value of the consideration received, less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. 2. Material agreements (i) Under the terms of an appointment made by the Board on 24 June 2004, Insight Investment Management (Global) Limited was appointed as Manager to the Company. The 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 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 Investment Management Agreement may not be terminated by either the Company or the 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. (ii) 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 Administration, Registrar, Custodian and Secretarial Agreement may be terminated by either party by six months' notice in writing. 3. Other income 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005 Group Â£'000 Â£'000 Insurance commissions (6) 268 Miscellaneous income 231 50 225 318 Company Miscellaneous income 18 567 18 567 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 01/04/2005 27/05/2004 To To 31/03/2006 31/03/2005 Â£'000 Â£'000 Surveyor fees 670 122 Dilapidations (327) - Agents' fees 100 72 Repairs and maintenance 245 51 Advertising 21 29 Rates - Vacant 90 13 Other expenses 373 6 1,172 293 5. Other expenses 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005 Group Â£'000 Â£'000 Directors' and officers' insurance premium 58 60 Printing costs 6 36 Regulatory costs 25 23 Marketing 161 - Other expenses 275 68 525 187 Company Directors' and officers' insurance premium 53 60 Regulatory costs 12 10 Marketing 14 6 Other expenses 45 89 124 165 6. Income from Subsidiary Company On 30 March 2005 the Company received an interest free loan of Â£16,392,000 from a subsidiary which is repayable on 30 March 2015. The fair value of this loan on initial recognition was Â£7,728,000 and the difference of Â£8,664,000 has been treated as a distribution received from the subsidiary. The discount will be amortised over the period of the loan and charged to the income statement of the Company as a finance expense. In the financial statements, this loan was recognised at face value. Accordingly, the current year financial statements include a prior year adjustment to restate the loan in accordance with the accounting treatment shown above. The effect of the prior year adjustment is to reduce the carrying value of the loan at 31 March 2005 by Â£8,664,000 and increase the income for the period ended 31 March by Â£8,664,000. On 14 July 2005 the Company received a further interest free loan from a subsidiary which is repayable on 30 March 2015. The fair value of this loan on recognition was Â£5,999,000 and the difference of Â£6,501,000 has been treated as a distribution received from the subsidiary. 7. Taxation 01/04/2005 27/05/2004 to to 31/03/2006 31/03/2005 Â£'000 Â£'000 Reconciliation of effective tax rate Profit before tax 74,879 27,111 Effect of: Income tax using UK income tax rate of 22% 16,473 5,964 Capital gains on revaluation not taxable (13,773) (3,631) Capital gains on revaluation taxable - 1,121 Profit on disposal not taxable (571) (86) Other net income not taxable (2,044) (1,612) Tax expense incurred during the year 85 1,756 Less : underprovision for year of charge 2004 / 2005 (54) Payment on account for year of charge 2005/2006 (262) - Subsidiary companies' pre-acquisition liabilities - 49 Taxation (paid in advance) / payable (231) 1,805 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. 8. 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£74,794,000 and the weighted average number of Ordinary Shares in issue during the year of 318,755,945. The basic and diluted earnings per share for the Company is based on the net profit for the year of Â£1,266,000 and the weighted average number of Ordinary Shares in issue during the year of 318,755,945. 9. Dividends paid 01/04/2005 No. of to In respect of Ordinary Rate 31/03/2006 Shares (pence) Â£'000 Quarter 31 March 2005 dividend paid 19 May 2005 260 million 1.6875 4,388 Quarter 30 June 2005 dividend paid 12 August 2005 260 million 1.6875 4,388 Quarter 30 September 2005 dividend paid 353.56 million 1.6875 5,966 02 December 2005 Quarter 31 December 2005 dividend paid 16 353.56 million 1.6875 5,966 February 2006 6.7500 20,708 10. Investment property 31/03/2006 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 17) - 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 5,725 48,297 54,022 Consolidated Income Statement 7,613 62,912 70,525 At Valuation - 31 March 2006 55,920 462,260 518,180 31/03/2005 Â£'000 Leasehold Freehold Total At cost - 27 May 2004 Acquisitions 48,307 315,800 364,107 Provision for further purchase consideration (note 15) - 2,000 2,000 Disposals - (3,160) (3,160) At cost - 31 March 2005 48,307 314,640 362,947 Net valuations gains on investment property 1,888 14,615 16,503 for period ended 31 March 2005 At Valuation - 31 March 2005 50,195 329,255 379,450 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. 11. Investment in Associates In August 2005, the Group, through Insight 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 United Kingdom and which owns the MidCity 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 company invested Â£130,000 equity in DV3 Mid City Limited, which at 31 March 2006 was valued at Â£7,813,000. The subordinated debt invested in DV3 Mid City Limited of Â£9,787,000 is split into two separate loans. The first loan is for Â£3,900,000, has no fixed repayment date and attracts interest at a rate of 12% per annum. The second loan is for Â£5,887,000, has no fixed repayment date and attracts interest at a rate of 20% per annum. As at 31 March 2006 the value of the Group's investment in DV3 Mid City Limited has been valued at Â£17,600,000. As at 31 March 2006 DV3 Mid City Limited had total assets of Â£269,000,000, total liabilities of Â£225,000,000, revenues for the period ended 31 March 2006 were Â£13,300,000 and a loss was incurred for the same period of Â£6,600,000. On 21 March 2006 the Group invested Â£19,600,000 to acquire 28.08% of the units in a Jersey incorporated property unit trust, One Plantation Place Unit Trust. The Unit Trust owns the City office building, Plantation Place, London EC3. There are four unit holders who collectively invested Â£69.8 million with the balance of the purchase consideration funded by senior and junior debt totalling Â£463.51 million. The senior loan is a 364 term loan at a margin of 0.8% and the intention is to re-finance both the senior and junior debt through a securitisation issue in July 2006. In expectation of a 5 to 7 year securitised loan term, the Unit Trust has benefit of a 7 year interest rate swap at an all-in rate of 4.74% that was put in place at completion. The interest rate swap can be novated to another lender should the securitisation not proceed. Adopting the independent bank valuation as at completion of Â£540 million, the estimated Net Asset Value of the Group's investment is Â£20,500,000. 12. Investment in subsidiary companies 31/03/2006 31/03/2005 Â£'000 Â£'000 Opening balance 347,464 - Additions in the year/period 19,131 347,464 Closing balance 366,595 347,464 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 2006 2005 Insight Foundation Property Limited Guernsey 100% 100% Insight Foundation Property (No.2) Limited Guernsey 100% 100% LP (Brentford) Limited Guernsey 100% 100% LP (Tudor Street) Limited Guernsey 100% 100% Insight Foundation Property Bootle Limited Isle of Man 100% - The principal subsidiaries which have entered into borrowing facilities on behalf of the Company and its property holding subsidiaries are: Insight Foundation Holding Company Limited Guernsey 100% 100% Real Estate Capital (Foundation) Limited Guernsey See below See below Real Estate Capital (Foundation) Limited is not a wholly owned subsidiary but the accounts of this special purpose vehicle 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. 13. Loans to subsidiary companies At 31 March 2006 the Company had outstanding loans of 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 UK base rate. A second loan of Â£42,300,000 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 third loan is for Â£3,900,000, has no fixed repayment date and attracts interest at a rate of 12% per annum. The final loan is for Â£5,887,000, has no fixed repayment date and attracts interest at a rate of 20% per annum. 14. Trade and other receivables 31/03/2006 31/03/2005 Â£'000 Â£'000 Group Rent receivable 3,022 2,834 Receivable on portfolio acquisition - 921 Other debtors 2,810 939 5,832 4,694 Company Amounts due from subsidiary companies 30,775 6,047 Receivable on portfolio acquisition 921 921 Other debtors 13 13 31,709 6,981 15. 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 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 Insight 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 97.85 pence and the net asset value per ordinary share was 104.59 pence. 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 27 April 2006 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. 16. 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 20. Group 31/03/2006 31/03/2005 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 (4,077) (4,077) Add: Amortised finance costs 410 (3,667) 59 (4,018) 148,833 148,482 Company Non-current liabilities Loans from subsidiaries 102,674 95,330 102,674 95,330 The Company (via its principal subsidiary, Insight Foundation Holding Company Limited) has entered into a long term Â£152.5m loan (repayable as a whole in July 2014) with Real Estate Capital (Foundation) Limited, a single purpose lender, which issued Secured Floating Rate Notes that have been admitted to the Official List of the Irish Stock Exchange. Full details of the Issue were published in an Offering Circular on 18 March 2005. Proceeds of the issue were used to re-finance previous short term borrowings (approximately Â£98m), and the balance to acquire further investment properties. The Notes were issued at a blended margin of 20.8 basis points ('bps') over LIBOR and simultaneously the Company entered into an equivalent maturity swap agreement at 5.1%. In aggregate therefore the Company's long term debt facilities have an effective interest rate of 5.31%. The Company has capitalised costs of Â£4m which it incurred in arranging this facility. These are being amortised over the life of the loan which has the effect of adding an additional 28bps per annum to the cost of the loan. The facility has first charge security over all the property assets which at 31 March 2006 had a value of Â£438m together with Â£2.2m cash (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 (34.6% at 31 March 2006) nor should estimated rental and other income arising from assets in the Security Pool for the next 12 month period comprise less than 150% of the interest payments anticipated to be due over that same period (interest cover at 31 March 2006 - 315%). 17. Provisions 31/3/2006 31/3/2005 Group Â£'000 Â£'000 Opening balance as at 31 March 2005 2,000 - Provision made in the year / period 1,250 2,000 Opening balance at 31 March 2006 3,250 2,000 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 Company 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 both reach a conclusion by July 2006 (or earlier if the assets are sold) but the Directors consider that based on the current valuations of these two assets, it is prudent to increase the provision to Â£3.25 million. 18. Trade and other payables 31/03/2006 31/03/2005 Â£'000 Â£'000 Group Rent received in advance 6,698 5,880 Rental deposits 2,595 2,658 VAT payable 729 995 Other trade payables and accruals 11,200 3,342 21,222 12,875 Company Trading account with subsidiary company 100 100 Trade payables and accruals 7,090 662 7,190 762 19. Net asset value per Ordinary Share The net asset value per Ordinary Share is based on the net assets of Â£422,771,000 and 353,560,000 Ordinary Shares in issue at the balance sheet date. 20. 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 agree 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. 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 Experion, or other sources to be 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 of the Group, which comprise of cash and cash equivalents, the Group's 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 the Group's cash is maintained with major international financial institutions. During the period and at the balance sheet date the Group 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 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 The Group's exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations. As described in note 15 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. Effective Total 6 months or More than 5 Interest less years 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) Fair Values The fair values of financial assets and liabilities are not materially different from their carrying value in the financial statements. The group leases out its investment property under operating leases. At 31 March 2006 the future minimum annual lease receipts under non-cancellable leases are as follows: 31/03/2006 31/03/2005 Â£'000 Â£'000 Less than one year 1,214 981 Between one and five years 8,739 7,427 More than five years 21,411 16,464 31,364 24,872 The total above comprises the total contracted rent receivable as at 31 March 2006 and does not equate to the rent receivable shown in the Consolidated Income Statement. 22. Related parties (i) Insight Investment Management (Global) Limited is entitled to fees for its services as Manager. The total charge to the Income Statement during the period was Â£5,062,000 (2005: Â£2,418,000). As conditions laid out in the management agreement regarding the Managers qualification for receipt of a performance fee were met during the year, a charge of Â£6,160,000 (2005: Nil) was made to the income statement in favour of the Manager Further details of the terms of the Investment Management Agreement, including the basis for the calculation of the performance fee, are disclosed in note 2. (ii) As disclosed in last year's accounts Clerical Medical Investment Group Limited were a substantial shareholder. During the course of the year they have sold down their holding and as at 31 March 2006 were no longer considered to be a related party. 23. Capital commitments At 31 March 2006 Insight Foundation Property (No 2) Limited had, pursuant to a contract dated 17 March 2006, exchanged contracts to invest Â£27.55 million to acquire a 21.6% stake in Portman Square House, 43 - 45 Portman Square London. The Company acquired a beneficial interest in a Trust for Land alongside four other investors. Completion of the acquisition is on 3 July 2006. Independent auditors' report to the members of Insight Foundation Property Trust Limited We have audited the group and parent company financial statements (the ' financial statements') of Insight Foundation Property Trust Limited for the year ended 31 March 2006 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. 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. 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 2006 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 This information is provided by RNS The company news service from the London Stock Exchange FR SEWEDSSMSEDM

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