RNS Number : 1634C
ING UK Real Estate Income Trust Ltd
28 August 2008
 




ING UK Real Estate Income Trust Limited

HALF YEARLY FINANCIAL REPORT

FOR THE PERIOD FROM 1 JANUARY TO 30 JUNE 2008

28 August 2008


FINANCIAL HIGHLIGHTS

>            Income profit for the period, prior to payment of dividend and excluding revaluation, of £9.1 million.

>                Dividends totalling £10.3 million paid in the period, equivalent to 3.125 pence per ordinary share.

>                Continued high level of dividend cover at 88% for the period.

>                Gain of £3.2 million arising from sale of assets.

 

OPERATIONAL HIGHLIGHTS

>            Ongoing success in strategy to reduce debt with £24.8 million being repaid during the period.

>            Reduction in overall cost of debt to weighted average interest rate of 5.09%.

>            Four disposals over the period for a total value of £41.7 million at a combined yield that is accretive to income.

>                 Outperformance of the underlying property portfolio at income level, generating an income return of 3.3over the period compared with IPD Quarterly Benchmark of 2.5%.

     



Six months to 30 June 2008

Six months to

 30 June 2007

Share price at the end of the period

47.5 pence

106.3 pence

Net asset value

£319.4 million

£442.3 million

Net asset value per share

97 pence

133 pence 

Net income for the period

£9.1 million

£8.3 million

Pre-tax (loss)/profit (including unrealised (losses)/gains)

£(39.8) million

£34.4 million

(Loss)/earnings per share

(15.2) pence

10.4 pence

Gain on swaps

£8.4 million

£9.7 million

(Loss)/gain on revaluation of portfolio

£(60.2) million

£16.2 million

Gearing*

46.9%

41.2%


*calculated as debt as a proportion of gross assets less current liabilities


For further information, please contact:

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey

GY1 3QL

Tel:     01481 745439

Fax:    01481 745085

ING Real Estate Investment Management (UK) Ltd

Helen Stott

Tel: 020 7767 5756

Financial Dynamics

Dido Laurimore / Laurence Jones 

Tel: 020 7831 3113










GROUP SUMMARY

ING UK Real Estate Income Trust Limited is a closed-ended, Guernsey registered investment Company, launched on the London and Channel Islands' Stock Exchanges on 25 October 2005. With approximately 900 investors, the Company, together with several subsidiaries including a Guernsey unit trust and four Jersey unit trusts which beneficially hold title to the properties, comprise "the Group". 


GROUP OBJECTIVE 

The Group aims to provide shareholders with an attractive level of income together with the potential for capital growth. It can invest both directly and indirectly in an investment portfolio comprising UKIsle of Man and Channel Islands properties. The Group's focus is on five principal commercial property sectors: office, retail, retail warehouse, industrial and leisure.  Maximum borrowings are limited to 65% of gross assets.  The investment portfolio is managed by ING Real Estate Investment Management (UK) Limited.


Chairman's Statement 

This Half Yearly Financial Report covers the six month period from 1 January 2008 to 30 June 2008 during which time it has become clear that as far as the UK is concerned, we are operating in very difficult economic conditions. This has continued to further impact on the performance of the commercial real estate market.


Over the period inflationary pressures have increased the cost of debt, despite a reduction in base rates, weakening consumer demand and slowing economic growth. As such we have witnessed rising real estate yields and reducing capital values.


The commercial real estate market, which has in effect been re-pricing since mid 2007, has been further affected by these weakening economic conditions and as such we have seen much reduced bank lending towards the sector and some of the lowest trading activity in the market seen since the start of the decade.


According to the IPD Monthly Index, capital values have re-priced significantly in the UK, down 20% since its peak of last year, a faster rate of decline than was experienced in the last recessionary property cycle of the early 1990's.  Whilst there remains downward pressure on values in the short term, increased opportunities are becoming apparent in the market which is currently polarised with very limited investment activity.


We have seen the FTSE 100 lose 15% of its value since the start of the year with the general retailing and house building sectors in particular having been significantly affected.  Real estate equities, both onshore REITs and the offshore real estate sector have also been affected by this sentiment and your Company is no exception.  The Board is acutely aware of the continued discount between share price and net asset value, which is in part a reflection of the forward looking nature of equity pricing, as opposed to static quarterly valuations within the underlying investment class.


Of primary importance to investors is the management of the Company through these difficult market conditions and as such the Company has continued to reduce its borrowings and make disposals. Over the reporting period, the Company made £41.7 million of disposals from the sale of four assets. The proceeds from the sales were used to repay £24.8 million of debt. Despite the difficult market, these sales realised net gains of £3.2 million having been completed at a weighted average premium of 9.2% against the December 2007 valuation.  


The Company continues to deliver an income profit. For the period the Company has made an income profit of £9.1 million, compared to £8.3 million for the same period last year, which was used to meet dividend payments. This is despite the fact the underlying investment portfolio has been subject to capital value movements, having been adjusted downwards by £60.2 million.


Whilst the short term market outlook continues to be negative, we will continue with this programme of divestment to ensure the Company continues to operate within its principal banking covenants. Full details of the Company's debt position are shown in the Investment Manager's ReportThe disposals made during the period and exchanged after the period end, along with those in solicitor's hands, will enable the Company to fully repay the outstanding higher rate non securitised debt through the transfer of the remaining assets into the securitised pool before the year end.


In this more challenging economic environment, the diversity and stability of the cashflow remain paramount.  The portfolio has a degree of insulation from the wider economic position, benefiting in the main from upwards only rent reviews and an average contractual lease length in excess of 8.75 years. 


Active management continues to play an important role in achieving the level of dividend cover and some significant transactions have been agreed over the period which are detailed further in the Investment Manager's Report.  Of the £10.3 million paid in dividend over the period, only £1.2 million came from capital reserves, reflecting a dividend cover of 88%, and providing support to the current dividend policy.  

The Board is mindful of both the income objective of the Company at launch, together with the overall long term interests of the Company, and will continue to monitor the market conditions in which it is operating.


Overall management fees have reduced by some £0.4 million since the corresponding period last year, although the Total Expense Ratio has increased to 1.38%, from 1.11% at December 2007, as a result of fixed costs which are set against reducing asset values.


The Board, with the support of the Investment Manager, is committed to steering this Company through these difficult market conditions thereby allowing us to enhance investor returns when market pricing provides those opportunities.





Nicholas Thompson

Chairman

27 August 2008

 

Responsibility Statement

We confirm to the best of our knowledge:


 
(a)              the condensed set of Financial Statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;
 
(b)              the interim Investment Manager’s Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
 
(c)               the interim Investment Manager’s Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related parties’ transactions and changes therein).
 


By order of the Board




Nicholas Thompson

Chairman


Economic and Property Market Overview

Economic Overview

The belief that the credit crunch would be short-lived has now faded away, with clear signs of wider economic impact. UK GDP growth slowed over the first and second quarters of 2008 to 0.2% and 0% respectively (in quarter-on-quarter terms); reducing the annual rate of growth to 1.4% in the year to June 2008, below the economy's trend rate of growth.


Recent sentiment surveys from the consumer, business and manufacturing sectors all indicate that the slowdown in the economy is likely to continue. Household consumption has of course been a major driver behind the strength of the economy in recent years and this is now likely to change. The credit crunch has tightened lending conditions significantly, impacting on the mortgage market and therefore accelerating the decline in house prices. Inflation is also acting to increase the outlay on bills and food, therefore reducing consumers' disposable income. Finally, real wages are beginning to fall, further squeezing incomes. As a result, it is likely to be difficult for the consumer and subsequently the UK economy in the short term.


Inflation has now become a key concern, with upward pressure on oil and food prices over the period. Inflation is also being affected by the relative weakness in sterling, which is resulting in increased import prices. CPI, the Government's official measure of inflation, is currently running at 4.4% in the 12 months to July 2008, well above the Bank of England's target of 2%. RPI is currently at 5.0%. Market expectations are for inflationary pressures to persist in the short term, but with a reduction in interest rates thereafter to act as a catalyst to stimulate economic recovery. 


Property Performance

Risk-aversion across all investment markets continues to lead to a re-pricing of assets. This results in a sustained outward movement of property yields. IPD initial yields have moved out from 5.2% at the end of 2007 to their current rate of 5.8%, and total returns fell to -16.1% in the 12 months to July 2008 (IPD Monthly Index July 2008). 


At the average portfolio level, capital values have declined by -20.5% over the last 12 months to July 2008. This is entirely due to upward yield movement, as the rate of rental growth remains in positive territory for now. 


Over the 12 months to the end of July 2008, the Retail sector continued to see the worst total returns of -16.8%. The Office sector saw almost equal returns of -16.5%, while the Industrial sector was close behind with a total return of -14.6% (IPD Monthly Index July 2008).


Figure 1: Monthly Change in IPD All Property Total Returns


Monthly 

Change

Aug 2007

0.0%

Sep 2007

-1.2%

Oct 2007

-1.5%

Nov 2007

-3.6%

Dec 2007

-3.7%

Jan 2008

-1.6%

Feb 2008

-1.0%

Mar 2008

-0.8%

Apr 2008

-0.5%

May 2008

-0.7%

Jun 2008

-1.5%

Jul 2008

-1.3%


Yields continue to move out, partly due to the continued lack of transactions. According to Property Data, transactions in the first half on 2008 totalled £12 billion, almost 60% down on the same period a year ago.  


Rental value growth has slowed significantly since the start of the year, easing from 3.5% in the 12 months to December 2007 to 1.8% in the 12 months to July 2008. This largely reflects the weakening in City and West End rents over the period from double to single-digit growth (IPD Monthly Index July 2008). Furthermore, growth is now dissipating across many sectors of the market as occupier demand starts to ease following the peak of the cycle.


In the underlying real estate market we expect the downturn to continue into 2009/2010, with the strength of future recovery dictated by the eventual depth of the current downswing.


Portfolio Review

Strategy


Set against a market which has continued to undergo a significant pricing correction, we have had a number of successes within the portfolio, both in terms of lettings, active management initiatives, completion of refurbishment projects and settlements of rent reviews or lease renewals. These are detailed further below.


The sharp and continued pricing adjustment to capital values has further focused the team on the need to manage the portfolio effectively, particularly within the covenants of our two debt tranches. 


Our sales program, which has been constrained by the limited market activity in the investment market, has been successful and, in particular, our structured and focused sales have led to some significant gains on sales which have contributed to performance.


The underlying portfolio remains resilient; the occupancy rate has reduced only marginally, principally as a result of a planned surrender. We have continued to be able to deliver an income focused return, whilst delivering a total return broadly in line with the underlying market.


Portfolio Performance


The portfolio is still being managed to provide a strong income focused return to ensure overall performance is at least in line with IPD.  


For the 6 months ending 30 June 2008, at an ungeared level, the underlying property portfolio outperformed the IPD Quarterly Benchmark on an income basis with a return of 3.3%, against the Benchmark of 2.5%.


Over the longer term the portfolio has outperformed the IPD Quarterly Benchmark on a total return basis. Over the previous 12 months the portfolio has shown a total return of -11.5% against -13.7%, and over the previous 24 months a total return of -0.2% against -2.4%.


For the period the overall total return marginally underperformed the IPD Quarterly Benchmark, with a total return of -6.2%, against -6.0%.  


Review of Half Year to June 2008


Offices

The Group has an office weighting of 47.1% as at 30 June 2008, with core City and West End markets representing only 9.4% of the entire portfolio. The weighting increased slightly over the period during which only one office asset disposal was made.


Activity over the period included the re-gear of a lease at Arena Court, Maidenhead, which completed and removed void risk from an expiry in 2009.  The new ten year reversionary lease benefits from fixed uplifts from the current rent of £863,000 per annum to £950,160 per annum in 2009, and £1,108,520 per annum in 2014.


At Chancery Lane, where we agreed a head tenant surrender last year for £450,000, we were pleased to remove our only under-tenant void risk through a lease renewal to an existing sub tenant at £114,712 per annum which was ahead of our rental expectations.


The Group has taken a surrender of the short term lease at Swindonin return for a premium payment of £2.35 million, which represents nearly 90% of all outgoings until lease end including a settlement on dilapidations.  The lease had approximately four years unexpired and the surrender provides the opportunity to re-let the property ahead of this and will stagger the expiry profile on the Park.


Retail

The Group has a retail weighting of 21.3% which is split between high street retail and retail warehouses at 13.8% and 7.5% respectively.


The principal activity was the two disposals in Chester and Stevenage which has led to a reduction in exposure to this sector and significant capital gains.

 

The Group surrendered Blockbuster Entertainment Limited's lease of Unit 1, Western Road in Mitcham on 30 June. Whilst this decreased the occupancy rate in the short term it facilitated the disposal of the unit ahead of valuation after the period end.


Industrial

The Group has a weighting of 27.7% towards the industrial sector, which has increased marginally over the period.


Our principal activity in the sector has been at the Group's largest asset, Riverway Industrial Estate, Harlow where we have achieved full occupancy for the first time since purchase. This followed the letting of Unit G2 at £209,375 per annum which exchanged during the period, but completed following the period end.


We have also achieved a number of good rent review and lease renewal settlements at our estates in Harlow and Luton.


Completion of the sale of our vacant industrial unit in Oxford occurred during the first quarter of 2008.


Acquisitions and Disposals


The significant reduction in investment market transaction volumes limited our ability to make disposals over the period. Despite this, some significant achievements were made with receipts of over £41.7 million from sales in ChesterOxfordStevenage and West Byfleet


By virtue of the closed ended nature of the vehicle, we have been able to manage the disposals process in order to extract best value, even in light of the current market conditions. These disposals were made at an overall premium of over £3.2 million to the December 2007 valuation and at an average weighted yield of 4.5% and as such had a positive effect on the Company's overall dividend cover.


As Manager, we have needed to be more creative in our methods of sale, targeting owner occupiers, using the auction process as well as private treaty sales. This sales programme is continuing, where we believe we can still extract value from assets and in order to ensure we maintain appropriate levels of cash balances in order to manage effectively the debt positions within the vehicle. This is discussed in further detail below.


No acquisitions were made during the first six months of the year.


Occupancy 


The occupancy rate within the portfolio remains strong and, as at the end of June 2008, stood at 94%, ahead of the IPD Quarterly Benchmark at 91.8%.  


This reduced slightly over the period, principally through active management led surrenders, primarily at Swindon and Mitcham. The former resulted in a significant cash settlement from the outgoing tenants, which will be used to enhance the building, and the latter facilitated a potential disposal which exchanged contracts after the period end.  


A particular success was the letting of the second largest void in the portfolio at Harlow, referred to above.  


Debt


A primary objective as Investment Manager is to ensure the effective management of debt and progress has been made to reduce the level of debt over the period


In January 2008, the Company repaid £24.8 million of its higher rate non-securitised debt and continued to make sales throughout the period in order to enhance cash balances, with a view to repaying further debt in the course of 2008.


Through fixing our cost of debt throughout the portfolio the Company benefited from an increase in the mark to market value of the swap over the period. As such the Company was not adversely affected by the increasing cost of finance over the period.


Current borrowings now stand at £282.2 million and the weighted average cost of debt is 5.09%.  


In respect of our £225 million securitised facility, by virtue of the swap, the cost of this debt is fixed at 4.9% until January 2013. There are a number of covenants on this facility with the principal covenants being the Loan to Value (LTV) which should not exceed 50% and Interest Cover Ratio (ICR) which should be a minimum of 1.50. Current LTV is 39% and the ICR is 2.35. LTV is calculated as the total loan less cash held in the proceeds account as a proportion of property values. Consequently, the Manager has flexibility within this covenant and is able to reduce the overall level of LTV by increasing cash reserves through sales. Subject to market conditions it will continue to maintain cash balances through disposals in order to meet this particular covenant.


In respect of our non-securitised debt, the current facility of £57.2 million is due to be repaid in full by December 2009. This loan has a day one reducing LTV ratio, which should not exceed 73.5% for the current period, and the minimum ICR should be a minimum of 1.10 Current LTV is 70% and the ICR is 1.28The overall cost of this facility is currently fixed at 6% until expiry. We envisage that with sales currently in hand, sufficient progress will be made on our disposals to repay the non-securitised tranche of debt before the year end.


Related Party Transactions


Related party transactions are disclosed in note 22 to the condensed set of Financial Statements.


Outlook

At present, the UK property transaction market is still very subdued and yields continue to drift upwards. The forecast for bond yields and interest rates is split between those who consider the expected economic slowdown to be sufficient to reduce inflationary pressures, and those who consider higher interest rates and bond yields necessary to temper inflation. We expect capital values will continue to decline, although by mid 2009 we would expect some stability to have returned to the market.


The Investment Property Forum (IPF) consensus forecasts published in June 2008 suggest a total return of -5.2% for 2008, 4.7% for 2009 and 8.2% in 2009, which now look somewhat optimistic. Following the period end the monthly IPD figures for July were announced. These show an overall capital decline for the month of -1.8% which illustrates the continuing downward pressure on capital values.


During the recent period of capital depreciation, property yields have already overshot what could be termed long term "fair value". Whilst further short-term pain is inevitable, it does presage a more optimistic medium-term outlook. In other words, the further yields move in the short term, the more they will need to rebound to return to fair value in the medium term, providing potential for capital growth following the current downward adjustment.


The primary focus in the management of this portfolio remains the balance of maintaining a high level of income return whilst continuing to manage effectively the debt position in light of market conditions. We will continue to enhance value through tenant engineering and de-risking the portfolio through lease restructuring.




Michael Morris

ING Real Estate Investment Management (UK) Limited

27 August 2008


Portfolio Analysis

Geographical

As at 30 June 2008 the regional weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:

 

£000

% of Portfolio

Central London

50,420

9.4

South East and Greater London

231,919

43.4

South West

28,372

5.3

Midlands

91,145

17.1

North

76,484

14.3

Scotland

15,250

2.9

Wales

32,350

6.1

Offshore UK

8,250

1.5


534,190

100.0


Sector

As at 30 June 2008 the sector weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:


£000

% of Portfolio

Offices

251,847

47.2

Industrial

147,888

27.7

Retail

73,905

13.8

Retail Warehouse

40,075

7.5

Leisure/Other

20,475

3.8

Total

534,190

100.0


Covenant Strength

The covenant strength, based as a percentage of current passing rent by risk ratingas at 30 June 2008 is summarised as follows:


Portfolio %

Negligible and Government risk

48.6

Low risk

25.3

Low-medium risk

9.1

Medium-high risk

4.8

High risk

9.4

Ineligible/not matched

2.8


100.0


Longevity of Income

As at 30 June 2008, based as a percentage of current net annual rent, the length of the leases to the first termination is summarised as follows:

Years

£000

%

Up to 5 

14,136

40.2

to 10 

10,651

30.2

10 to 15 

6,840

19.4

15 to 25 

2,348

6.7

25 and over 

1,244

3.5

Total

35,219

100.0



Top Ten Tenants

The top ten tenants, based as a percentage of current passing rent, as at 30 June 2008 is summarised as follows:


% of Passing Rent

TNT UK Limited

7.6

Merrill Lynch Europe Plc

3.3

Cadence Design Systems Limited

2.8

Sybase (UK) Limited

2.5

Tanfield Group Plc

2.4

Barclays Sharedealing

2.4

Tibbett & Britten Limited

2.4

Menzies Hotels Property No.20 Limited

2.2

Computer Associates UK Limited

2.1

S P Group Limited

1.9


29.6


LIST OF PROPERTIES BY VALUE BAND AT 30 JUNE 2008

Properties in excess of £20million

Sector

Unit 5320, Magna Park, Lutterworth, Leics.

Industrial

Units A-G2 River Way Industrial Estate, HarlowEssex

Industrial

Phase II, Parc Tawe, Link RoadSwansea

Retail Warehouse



Properties between £15million to £20million


Lincoln Place (Block 2), Farringdon RoadLondon EC1

Office

Colchester Business Park, The Crescent, ColchesterEssex

Office

Boundary House, Jewry StreetLondon EC3

Office



Properties between £10million to £15million


Angel Gate Office VillageCity RoadLondon EC1

Office

Westlea Campus, Chelmsford RoadSwindon, Wilts.

Office

Angouleme Way Retail Park, Bury, Greater Manchester

Retail Warehouse

Unit 3220, Magna Park, Lutterworth, Leics.

Industrial

Regency Wharf , Broad StreetBirmingham

Leisure

L'avenir, Opladen Way, Westwick, Bracknell, Berks.

Office

56,Castle Street2/12 English Street and 12-21 St Cuthberts LaneCarlisleCumbria

Retail

1-3 Chancery LaneLondon WC2

Office

Arena Court, Crown Lane, Maidenhead, Berks.

Office

401 Grafton Gate East, Milton Keynes, Bucks.

Office

City Link House & Tolley House, Addiscombe Road, Croydon

Office

Vigo 250, Birtley RoadWashingtonTyne and Wear

Industrial

  

Properties between £5million to £10million


134/152 Balham High RoadLondon, SW12

Retail

Business Centre, Molly Millars Lane, Wokingham, Berks.

  Industrial

171 Bath RoadSlough, Berks.

Office

Sentinel House, Ancells Business Park, Fleet, Hants.

Office

53/55/57 Broadmead, Bristol

Retail

Scots Corner, High Street/Institute Road,  Birmingham

Retail

17/19 Fishergate, Preston

Retail

9/12 St James Parade, Bristol

Office

Units 1-13 Dencora WaySundon ParkLuton, Beds.

Industrial

Unit 2, Ravensbank Business ParkRedditch, Worcs.

Industrial

Lawson Mardon BuildingsKettlestring LaneYork

Industrial

Waterside ParkLongshot LaneBracknell, Berks.

Office

Notcutt House, 36 Southwark Bridge RoadLondon SE1

Office

Longcross Court, Newport RoadCardiff

Office

Trident House, 42/48 Victoria StreetSt Albans, Herts.

Office

Provident House, Ballacottier Business Park,  Isle Of Man

Office

Northampton Business Park800 Pavilion DriveNorthampton

Office

Atlas, Third AvenueGlobe Park, Marlow, Bucks.

Office

3 The Boulevard, Croxley Green, Watford, Herts.

Office

1 Boulevard, Shire ParkWelwyn Garden City, Herts.

Office

Queens House, 17/29 St Vincent PlaceGlasgow

Office

Easter Court, Gemini ParkWarrington

Industrial

Zenith, Downmill RoadBracknell, Berks.

Industrial

Haynes WaySwift Valley Industrial Estate, Rugby, Warwickshire

Industrial

Strathmore Hotel, Arndale Centre, Luton, Beds.

Leisure



Properties under £5million


Heron Industrial Estate, Spencers Wood, Reading 

Industrial

72/78 Murraygate, Dundee

Retail

7&9 Warren StreetStockport

Retail

6/12 Parliament Row, Hanley, Worcs.

Retail

Merchants House, Crook StreetChester

Office

Waterside House, Kirkstall RoadLeeds

Office

Leys House, 86/88 Woodbridge RoadGuildfordSurrey

Office

477 Alexandra Parade, Glasgow

Retail

Units 1- 3, 18/28 Victoria LaneHuddersfieldWest Yorks.

Retail

593/599 Fulham RoadLondon SW6

Retail

9/17 Western Road, Mitcham, Surrey

Retail Warehouse




Risk Management

There are a number of potential risks and uncertainties which could have a material impact on the Group's long term performance and could cause actual results to differ materially from expected and historic results. The main risks and how they are mitigated are shown below;


Issue

Risk

Mitigation




Market risk

The Group operates in the property sector which is known to be cyclical.

The Investment Manager undertakes significant research to ensure that the strategy of the Group can be constantly amended to take account of changes in the prevailing market.

Geographical risk

Property market returns can vary significantly between geographical areas.

By maintaining a geographically diversified portfolio the Investment Manager can minimise exposure to one particular market. 

Investment risk

Identifying good investments ahead of competitors.

The Investment Manager has a dedicated acquisitions team which assists in identifying, negotiating and completing acquisitions and sales according to strict returns criteria.

Letting risk

The risk of being unable to let the majority of lettable space.

The Investment Manager maintains close contact with leasing agents and utilises its research team to ensure exposure to less favourable markets is minimised. 

Valuation risk

The property portfolio is susceptible to fluctuations in property valuations.

By maintaining a diversified portfolio the Investment Manager may spread the risk of a large downturn in a specific class of asset

Expertise risk

The risk of being unable to attract appropriate individuals to manage the portfolio.

The Investment Manager has a policy of ensuring that remuneration is linked to the market. The Investment Manager's agreement is regularly reviewed by the Board.

Liquidity risk

The risk that insufficient funds are available for operating costs, maintenance of debt and asset management initiatives.

Cashflows are regularly reviewed and detailed forecasts prepared to ensure sufficient resources exist. Funding maturities are spread over a range of time scales, and good relationships are maintained with lenders. Covenant requirements are also regularly reviewed and reported regularly to the Board. 

Interest rate risk

The risk of fluctuation of interest rates on loans.

Interest payable on floating rate loans are fixed by way of interest rate swaps to minimise exposure.


Independent Review Report

INDEPENDENT REVIEW REPORT TO ING UK REAL ESTATE INCOME TRUST LIMITED ("The Company")


We have been engaged by the Company to review the condensed set of Financial Statements in the Half Yearly Financial Report for the six months ended 30 June 2008 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cashflow Statement and related notes 1 to 23. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.


This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.


Directors' responsibilities


The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


As disclosed in note 2, the Annual Financial Statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs)The condensed set of Financial Statements included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".


Our responsibility


Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-yearly financial report based on our review.


Scope of Review 


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.


Conclusion


Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Half Yearly Financial Report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.





Deloitte & Touche LLP

Chartered Accountants

St Peter PortGuernsey


Note: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.


Legislation in Guernsey governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.


Financial Statements


Condensed Consolidated Income Statement 

For the period from 1 January to 30 June 2008






1 Jan to 30 June 2008

1 Jan to 30 June 2007

1 Jan to 31 December 2007





Unaudited

Unaudited

Audited


Notes

Income

Capital

Total

Total

Total



£000

£000

£000

£000

£000

Income







Rental income

3,12

17,825

-

17,825

19,862

40,902

Service charges recharged to tenants


1,770

-

1,770

1,729

3,999

Other operating income


2,442

-

2,442

1,128

2,795

Total operating income


22,037

-

22,037

22,719

47,696








Gains and losses on investments







Realised gains arising on disposal of investment properties

12

-

3,243

3,243

179

4,085

Unrealised (losses)/gains on revaluation of investment properties 

12

-

(60,221)

(60,221)

16,202

(46,775)

Unrealised losses on revaluation of finance leases

12

-

(257)

(257)

-

-

Total gains and losses on investments


-

(57,235)

(57,235)

16,381

(42,690)








Expenses







Property operating expenses

12

(1,109)

-

(1,109)

(1,545)

(2,935)

Service charge costs


(1,770)

-

(1,770)

(1,729)

(3,999)

Management expenses    

5

(2,880)

-

(2,880)

(3,259)

(6,496)

Other operating expenses

6

(1,293)

-

(1,293)

(1,011)

(1,669)

Total operating expenses


(7,052)

-

(7,052)

(7,544)

(15,099)








Profit/(loss) before finance costs and tax


14,985

(57,235)

(42,250)

31,556

(10,093)








Financing







Interest receivable

7

1,424

-

1,424

862

1,914

Interest payable

7

(7,335)

-

(7,335)

(7,702)

(16,470)

Unrealised gains/(losses) on revaluation of interest rate swaps

7

-

8,393

8,393

9,653

(3,079)

Total finance costs


(5,911)

8,393

2,482

2,813

(17,635)








Profit/(loss) before tax


9,074

(48,842)

(39,768)

34,369

(27,728)

Tax

8

-

-

-

-

460








Profit/(loss) for the year/period


9,074

(48,842)

(39,768)

34,369

(27,268)








(Loss)/earnings per share







Basic and diluted

10



(15.2)p

10.4p

(8.2)p


The total column of this statement represents the Group's Condensed Consolidated Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary income return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.  


All income is attributable to the equity holders of the parent Company. There are no minority interests. Notes 1 to 23 form part of these Consolidated Financial Statements.  

Condensed Consolidated Statement of Changes in Equity

For the period from 1 January to 30 June 2008



Notes

Share Capital 

Share Premium Account

Distributable Reserve

Retained Earnings

Total



£000

£000

£000

£000

£000








Balance as at 31 December 2006


-

31,389

298,610

88,327

418,326








Net profit for the period


-

-

-

  34,369

  34,369

Dividends paid

9

-

-

-

(10,360)

(10,360)








Balance as at 30 June 2007


-

31,389

298,610

112,336

442,335








Net loss for the period


-

-

-

(61,637)

(61,637)

Dividends paid

9

-

-

-

(10,347)

(10,347)

Repurchase of ordinary shares

18

-

-

(834)

-

(834)








Balance as at 31 December 2007


-

31,389

297,776

40,352

369,517








Net loss for the period


-

-

-

(39,768)

(39,768)

Dividends paid

9

-

-

(1,250)

(9,074)

(10,324)








Balance as at 30 June 2008


-

31,389

296,526

(8,490)

319,425

Notes 1 to 23 form part of these Consolidated Financial Statements.


Condensed Consolidated Balance Sheet

As at 30 June 2008




30 June 2008

30 June 2007

31 Dec 2007



Unaudited

Unaudited

Audited


Notes

£000

£000

£000






Non-current assets 





Investment properties 

12

536,092

715,531

633,206

Total non-current assets


536,092

715,531

633,206






Current assets 





Accounts receivable 

13

6,699

5,175

6,018

Cash and cash equivalents 

14

63,779

33,929

51,150

Total current assets


70,478

39,104

57,168






Total assets 


606,570

754,635

690,374






Current liabilities





Accounts payable and accruals

15

(17,001)

(18,426)

(17,496)

Total current liabilities


(17,001)

(18,426)

(17,496)






Non-current liabilities 





Loans and borrowings

16

(270,144)

(293,874)

(303,361)

Total non-current liabilities 


(270,144)

(293,874)

(303,361)






Total liabilities


(287,145)

(312,300)

(320,857)






Net assets


319,425

442,335

369,517






Equity





Ordinary share capital

18

-

-

-

Share premium account

19

31,389

31,389

31,389

Distributable reserve

19

296,526

298,610

297,776

Retained (losses)/earnings


(8,490)

112,336

40,352






Total equity


319,425

442,335

369,517






Net asset value per share

21

0.97

1.33

1.12

Notes 1 to 23 form part of these Consolidated Financial Statements.


These Consolidated Financial Statements were approved by the Board of Directors on 27 August 2008 and signed on its behalf by:




Robert Sinclair                         Trevor Ash                

Director                                   Director

Condensed Consolidated Cash Flow Statement

For the period from 1 January to 30 June 2008




1 Jan to 30 June 2008

1 Jan to 30 June 2007

1 Jan to 31 December 2007



Unaudited

Unaudited

Audited


Notes

£000

£000

£000






(Loss)/profit before tax


(39,768)

34,369

(27,728)






Adjusted for 





Interest receivable

7

(1,424)

(862)

(1,914)

Interest payable

7

7,335

7,702

16,470

Realised and unrealised gains and losses on investments


48,842

(26,034)

45,712

Amortisation of finance costs

6

260

280

544

Cashflows from operating profit before working capital changes 


15,245

15,455

33,084






(Increase)/decrease in trade and other receivables


(680)

1,981

1,419

Decrease in trade and other payables


(755)

(6,001)

(7,188)






Net cash flows from operating activities


13,810

11,435

27,315






Cash flows from investing activities





Purchase of investment properties

12

(1,791)

(4,018)

(5,913)

Disposal of investment properties

12

41,670

7,035

34,343

Interest received

7

1,424

862

1,847

Net cash flows from investing activities


41,303

3,879

30,277






Cash flows from financing activities





Repurchase of ordinary shares

19

-

-

(834)

Repayment of long term borrowings

16

(24,825)

(1,196)

(6,469)

Interest paid on loans

7

(7,335)

(7,702)

(16,305)

Dividends paid

9

(10,324)

(10,360)

(20,707)

Net cash flows from financing activities


(42,484)

(19,258)

(44,315)






Net increase in cash and cash equivalents


12,629

(3,944)

13,277






Cash and cash equivalents at beginning of year/period


51,150

37,873

37,873






Cash and cash equivalents at end of year/period

14

63,779

33,929

51,150

Notes 1 to 23 form part of these Consolidated Financial Statements.


Notes to the Condensed Consolidated Financial Statements 

For the period from 1 January to 30 June 2008 


1.  General information

ING UK Real Estate Income Trust Limited was incorporated on 15 September 2005 and is registered as a closed-ended Guernsey investment Company


These Half Yearly Financial Statements are prepared for the period from 1 January to 30 June 2008, with unaudited comparatives for the period from 1 January to 30 June 2007. Comparatives are also provided from the audited Financial Statements for the year ended 31 December 2007.


The financial information for the year ended 31 December 2007 is derived from the Financial Statements delivered to the UK Listing Authority and does not constitute statutory accounts.  The Auditors reported on those Financial Statements, their report was unqualified and did not contain a statement under section 64 of The Companies (Guernsey) Law, 2008.


2.  Significant accounting policies

The Annual Financial Statements of ING UK Real Estate Income Trust Limited are prepared in accordance with International Financial Reporting Standards ('IFRS'). The condensed set of Financial Statements included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'.


The same accounting policies, presentation and methods of computation are followed in the condensed set of Financial Statements as applied in the Group's latest annual audited Financial Statements.


At the date of authorisation of these Financial Statements the following Standard applicable to the Group, which has not been applied in these Financial Statements, was in issue but not yet effective:


IFRS 8     Operating Segments

The Directors anticipate that the adoption of the above Standard in future years will not have a material impact on the Financial Statements of the Group when the Standard comes into force for the period commencing 1 January 2009.


3.  Rental income

Rent receivable is stated exclusive of Value Added Tax and arose wholly from continuing operations in the United Kingdom and the Isle of Man.


4.  Business and Geographical segments

The Directors are of the opinion that the Group, through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and across one primary geographical area, namely the United Kingdom and the Isle of Man and therefore no segmental reporting is required. The portfolio consists of 54 commercial properties, which are in the office, retail, retail warehouse, industrial and leisure sectors. 


5.  Management expenses


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Investment Manager's fees

2,880

3,259

6,496


Under the terms of the Investment Management Agreement, ING Real Estate Investment Management (UK) Limited (the "Investment Manager") receives remuneration for property management and administration services. The management fee is payable quarterly in arrears and is equal to the aggregate of the following:

 
a)    one quarter of 90 basis points of gross property assets up to and including £600 million
b)    one quarter of 82.5 basis points of gross property assets in excess of £600 million and up to and including £800 million
c)    one quarter of 75 basis points of gross property assets in excess of £800 million
d)    one quarter of 40 basis points of cash assets
 



6.  Other operating expenses


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Valuation expenses

93

133

201

Audit fees

59

40

85

Amortisation of finance costs (note 13)

260

280

544

Other expenses

881

558

839


1,293

1,011

1,669


During the period £nil was paid to the auditors, Deloitte & Touche LLP, in respect of non-audit services other than for tax services (period ended 30 June 2007: £12,000, year ended 31 December 2007: £14,500).  


£67,000 was paid during the period to the Group's tax advisors, Deloitte & Touche LLP (period ended 30 June 2007: £nil, year ended 31 December 2007: £75,600).


The Group has no employees other than the Directors. 


7.  Finance costs


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Interest receivable from financial assets that are not at fair value through profit and loss 

   1,424

  862

  1,914

Interest payable on loans at amortised cost

(7,335)

(7,702)

(16,470)

Unrealised gains/(losses) on revaluation of interest rate swaps at fair value through profit and loss 

   8,393

  9,653

(3,079)


   2,482

  2,813

(17,635)


8.  Tax 

The credit for the period is:                           


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

UK income tax at 20% on UK rental income (year ended 31 December 2007: 22%)

-

-

 (460)


The Group is exempt from Guernsey taxation. The Directors conduct the affairs of the Group such that the management and control of the Group is not exercised in the United Kingdom and that the Group does not carry on a trade in the United Kingdom. Accordingly the Group will not be liable to United Kingdom taxation on its income or capital gains other than certain income deriving from a United Kingdom source.  The Group is subject to United Kingdom taxation on income arising on the investment properties after deducting allowable debt financing costs and allowable expenses. As tax losses have been incurred, there should be no tax liability in the current period.


9.  Dividends


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 

Declared and paid:

£000

£000

£000

Interim dividend for the period ended 31 December 2006: 1.5625 pence

-

5,180

5,180

Interim dividend for the period ended 31 March 2007: 1.5625 pence

-

5,180

5,180

Interim dividend for the period ended 30 June 2007: 1.5625 pence

-

-

5,180

Interim dividend for the period ended 30 September 2007: 1.5625 pence

-

-

5,167

Interim dividend for the period ended 31 December 2007: 1.5625 pence

5,162

-

-

Interim dividend for the period ended 31 March 2008: 1.5625 pence

5,162

-

-


10,324

10,360

20,707


The interim dividend of 1.5625 pence per ordinary share in respect of the period ended 30 June 2008 has not been recognised as a liability in accordance with IFRS as it was declared after the period end.  A dividend of £5,163,000 will be paid on 29 August 2008.


10.  Earnings per share

Basic earnings per share is calculated by dividing the net (loss)/profit for the period attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares in issue during the period.


The following reflects the income and share data used in the basic and diluted earnings per share calculations:  



1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 





Net (loss)/profit attributable to ordinary shareholders of the Company from continuing operations (£000)

(39,768)


34,369


(27,268)





Weighted average number of ordinary shares for basic and diluted earnings per share


330,401,300


331,500,000


331,350,393


11.  Investments

The Company had the following principal subsidiaries and sub-subsidiaries at 30 June 200830 June 2007 and as at 31 December 2007.


Name

Place of incorporation

Ownership proportion

ING UK Real Estate (Property) Limited

Guernsey

100%

ING (UK) REIT (SPV) Limited

Guernsey

100%

ING (UK) Listed Real Estate

Guernsey

100%

ING UK Real Estate (Property) No.2 Limited

Guernsey

100%

ING (UK) REIT (SPV No.2) Limited

Guernsey

100%

Merbrook Business Property Unit Trust*

Jersey

100%

Merbrook Prime Retail Property Unit Trust*

Jersey

100%

Merbrook Bristol Property Unit Trust*

Jersey

100%

Merbrook Swindon Property Unit Trust*

Jersey

100%

ING (UK) Listed Real Estate Issuer PLC

England & Wales

-

* - ("the JPUTS")


ING UK Real Estate (Property) Limited and ING (UK) REIT (SPV) Limited own 100% of the units in ING (UK) Listed Real Estate, a Guernsey unit trust ("the GPUT").


On 18 January 2008 ING UK Real Estate Trust (Property) No. 2 Limited and ING (UK) REIT (SPV No. 2) Limited sold their units in the Merbrook Bristol Property Unit Trust and Merbrook Prime Retail Property Unit Trust to the GPUT.


The GPUT now owns 99% of the units in Merbrook Swindon Property Unit Trust, Merbrook Prime Retail Property Unit Trust and Merbrook Bristol Property Unit Trust, which are each registered as Jersey unit trusts.  The remaining units are held by ING UK Listed Real Estate Limited, which in turn is owned in equal shares by ING UK Listed Real Estate Nominee (No.1) Limited ("Nominee 1") and the GPUT. Shares in Nominee 1 are held in trust by Admiral Nominees Limited and Nelson Representatives Limited on behalf on The Company. ING UK Real Estate (Property) No.2 Limited and ING (UK) REIT (SPV No.2) Limited own 100% of the units in Merbrook Business Property Unit Trust, Jersey unit trust.


As these transactions were all inter-Group they were not accounted for using acquisition accounting, rather they were accounted for using merger accounting as prescribed for Group reorganisations.


The subsidiaries were incorporated to provide a tax efficient structure for the Company to invest in the underlying property investments.  


Under the principles of SIC 12 the Group has consolidated the results of ING (UK) Listed Real Estate Issuer PLC, a Special Purpose Entity (the "SPE"), that provides funding to the Group. Under the terms of the securitisation documents, the Group has an obligation to the SPE in respect of any amounts due or payable under the swap agreements and hence accounts for movements in the fair value of these swaps through the Income Statement. The Group does not own any of the share capital of the SPE.


12.  Investment properties                                 


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Opening valuation

631,047

702,167

702,167

Additions

1,791

4,018

5,913

Disposals

(41,670)

(7,035)

(34,343)


591,168

699,150

673,737

Gains and losses on investments held at fair value through profit and loss:




Gains on disposals

3,243

179

4,085

(Deficit)/surplus on revaluation    

(60,221)

16,202

(46,775)

Closing valuation

534,190

715,531

631,047

Valuations of assets held under finance leases

1,902

-

2,159

Total investment properties

536,092

715,531

633,206





Historic cost 

585,302

629,949

611,384


The investment properties were valued by King Sturge LLP, Chartered Surveyors, as at 30 June 2008, on the basis of Market Value in accordance with the Royal Institution of Chartered Surveyors Valuation Standards


The Group's borrowings (note 16are secured by a first ranking fixed charge over the investment properties held.


Rental income and property expenses arise from the properties shown above.


13.  Accounts receivable     


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


 £000

 £000

 £000

Tenant debtors    

4,683

2,905

4,011

Prepayments

270

-

-

Capitalised finance costs

1,746

2,270

2,007


6,699

5,175

6,018


The loan arrangement costs as at 30 June 2008 are £2,882,000 (30 June 2007: £2,882,00031 December 2006: £2,882,000). These are amortised over the lives of the loans. For the period ended 30 June 2008 £260,000 of these costs were written off to the Income Statement (period ended 30 June 2007: £280,000, year ended 31 December 2007: £544,000).


The Directors consider that the carrying amount of accounts receivable approximates their fair value.


14.  Cash and cash equivalents        


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Cash at bank and in hand    

7,907

10,358

10,564

Short term deposits

55,872

23,571

40,586


63,779

33,929

51,150


Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.  The carrying amounts of these assets approximate their fair value.


15.  Accounts payable and accruals


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


  £000

  £000

  £000

Accruals    

5,723

5,868

5,867

Deferred rental income

8,177

8,725

8,209

VAT liability

1,348

1,394

1,510

Other tax payable

-

460

-

Trade creditors 

411

963

639

Other creditors

1,211

1,016

1,140

Obligations under finance leases (note 20)

131

-

131


17,001

18,426

17,496


The Directors consider that the carrying amount of accounts payable and accruals approximates their fair value.


16.  Loans and borrowings


Maturity

1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 



  £000

  £000

  £000

Floating rate notes

31 January 2013

225,000

225,000

225,000

Bank loan

4 December 2009

57,156

87,254

81,981

Interest rate swaps


(14,040)

(18,380)

(5,648)

Obligations under finance leases 

(note 20)


2,028

-

2,028



270,144

293,874

303,361


On 20 December 2005 the Group issued £200 million of AAA rated seven year loan notes to the debt market. The interest payable on these notes is fixed at 4.795% by means of an interest rate swap. On 6 July 2006 a further £25 million of loan notes were issued on the same terms, with the interest payable fixed at 5.3804% by means of a further swap. The loan notes are secured over the investment properties held by the GPUT, and are repayable on 31 January 2013. The loan notes were issued by ING (UK) Listed Real Estate Issuer PLC, a Special Purpose Entity that is consolidated under the principles of SIC 12, see Note 11.


On 4 December 2006 the Group entered into a three year term loan with J P Morgan for £93 million. The full amount was drawn down on that date, with £4,550,000 repaid on 11 December 2006, following the disposal of an investment property. Subsequent disposals have lead to further repayments of the loan. Interest on the loan is fixed at 5.20% by a further interest rate swap, plus a margin payment of between 60 and 80 basis points depending on the loan to value ratio at the time. This is currently 80 basis points. The loan is repayable in full on 4 December 2009, and is secured over the units held in the Merbrook Business Property Unit Trust and the investment properties held within that JPUT. 


A repayment of £24.8 million was made towards the bank loan during the period.


The interest rate swaps mature on the same dates as the associated borrowings. 


The weighted average interest rate paid on the Group's borrowings for the period was 5.091% (30 June 2007: 5.1786%, 31 December 2007: 5.1645%).




16.  Loans and borrowings (continued)

The fair value of the loans may be lower than the book value given that, at the present time, lenders are less willing to provide financing for the type of assets held by the Group at the interest annually paid by the Group. However, the Group does not fair value its debt obligations nor is it practical or possible to measure the fair value of the loan due to the current market conditions.


The loan agreement for the floating rate notes states that for the securitised pool of assets the Loan to Value ratio should not exceed 50% and the Interest Cover Ratio should be a minimum of 1.50. The additional JP Morgan loan agreement determines that for the assets falling under this agreement the Loan to Value ratio should not exceed 73.5% and the minimum Interest Cover Ratio should be a minimum of 1.10. The Group has not breached any of the loan covenants either in the current period or in the previous accounting periods.               

 

17.  Contingencies and capital commitments

The Group has entered into contracts at Longcross CourtCardiff with commitments outstanding at 30 June 2008 of approximately £500,000. Other smaller commitments of approximately £100,000 across the portfolio bring the total commitments outstanding at 30 June 2008 to £600,000 (30 June 2007: £nil, 31 December 2007: £1,000,000). There are no other contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements as at 30 June 2008.


18.  Ordinary Share Capital


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 

Authorised:

£000

£000

£000





Unlimited number of ordinary shares of no par value

-

-

-





Issued and fully paid:








330,401,300 ordinary shares of no par value (period end 30 June 2007: 331,500,000, year ended 31 December 2007: 330,401,300)

-

-

-






The Company has one class of ordinary shares which carry no right to fixed income.


The Company issued 252.2 million ordinary shares of no par value at an issue price of £1 per share by means of an initial public offering on 25 October 2005. The Company also issued a further 52.8 million ordinary shares of no par value at £1 per share on the same date as consideration for the GPUT.


The Company issued a further 26.5 million Ordinary Shares of no par value at an issue price of 121.5 pence by means of a placing on 7 November 2006.


During November 2007 the Company repurchased 1,098,700 ordinary shares for cancellation at an average price of 75.76 pence per share, leaving ordinary shares in issue of 330,401,300. Under Guernsey law, a capital redemption reserve is created for the redemption of these ordinary shares. As the nominal value of these shares is £nil the amount to be transferred to this reserve is £nil.


The Directors have authority to buy back up to 14.99% of the Company's ordinary shares in issue subject to the annual renewal of the authority from shareholders. Any buy back of ordinary shares will be made subject to Guernsey law, and the making and timing of any buy backs will be at the absolute discretion of the Board. 


19.  Share Premium and Distributable Reserve


1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000

Opening balance on Distributable Reserve

297,776

298,610

298,610





Repurchase of ordinary shares

-

-

(834)

Dividends paid

(1,250)

-

-





Closing balance on Distributable Reserve

296,526

298,610

297,776









Opening and Closing balance on Share Premium

31,389

31,389

31,389


Distributable reserves may be used for the purpose of paying dividends or buying back shares.


20.  Obligations under finance leases


1 Jan to 30 June 2008

Year ended 31 Dec 2007 


£000

£000

Future minimum payments due



Within one year

139

139

In the second to fifth years inclusive

695

695

After five years

10,998

10,998


11,832

11,832

Less: finance charges allocated to future periods

(9,673)

(9,673)

Present value of minimum lease payments

2,159

2,159


The present value of minimum lease payments is analysed as follows:



1 Jan to 30 June 2008

Year ended 31 Dec 2007 



£000

Within one year

131

131

In the second to fifth years inclusive

653

653

After five years

1,375

1,375


2,159

2,159


Operating leases where the Group is lessor

Property rental income earned during the period was £17.8 million. The investment properties are expected to generate rental yields of 6.2% on an ongoing basis.


At the Balance Sheet date, the Group had contracted with tenants for the following annual lease payments:



1 Jan to 30 June 2008

1 Jan to 30 June 2007

Year ended 31 Dec 2007 


£000

£000

£000





Within one year

34,118

38,353

36,435

In the second to fifth years inclusive

120,046

132,231

152,659

After five years

219,705

230,593

233,448


373,869

401,177

422,542


21.  Net asset value

The net asset value per ordinary share is based on net assets at the period end and on 330,401,300 (30 June 2007: 331,500,000, 31 December 2007: 330,401,300ordinary shares, being the number of ordinary shares in issue at the period end.


At 30 June 2008, the Company had a net asset value per ordinary share of £0.97 (period ended 30 June 2007: £1.33, year ended 31 December 2007: £1.12).  


22.  Related party transactions

During the period the Investment Manager was paid a total of £2,880,000 (30 June 2007: £3,259,000, 31 December 2007£6,496,000) in respect of the property management and administration services. As at 30 June 2008 the Group owed £1,300,000 to the Investment Manager (30 June 20071,400,000, 31 December 2007: £1,300,000).


The Group has one non-independent Director, who is connected with the Investment Manager.  The remuneration in respect of this appointment was waived.


ING UK Real Estate Income Trust Limited has no controlling parties.


23.  Events after the balance sheet date

Following the balance sheet date contracts were exchanged to sell the property in Mitcham for £4.5 million. 


A dividend of £5,163,000 (1.5625 pence per share) was approved by the Board on 13 August 2008 and paid on 29 August 2008.  



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