(ISH) Ishaan Real Estate

Ishaan Real Estate plc

Interim Report

For the six months ended 30 September 2011

Overview

The Directors of Ishaan Real Estate plc announce the Company's unaudited results for the six months ended 30 September 2011.

Overview of the six months ended 30 September 2011

·      Portfolio value of £618 million, down c.1.4 per cent. from £627 million at 31 March 2011. After adjusting for construction expenditure capitalised during the period and exchange translation losses, the underlying portfolio declined in value by 7.0 per cent. (of which exchange translation losses contributed 6.0%), with these items having a similar impact on adjusted net asset value per share over the period.

·      Since the preliminary results announcement of 29 June 2011, net additions of c.1.1 million sq. ft. (c.347,000 sq.  ft. since  the trading update on 20 September 2011) have been made to the aggregate area let or terms agreed.

·      In consultation with the Investment Adviser, in order to optimise the developments as explained in more detail below, the planned development area at Mindspace, Juinagar, has been reduced from c.4.5 million sq. ft. to c.2.25 million sq. ft. and the planned commercial development at Inorbit, Pune, has been reduced from c.0.19 million sq. ft. to c.0.09 million sq. ft.

·      At Commerzone, Bangalore, revision to the development plan has entailed cancellation of the serviced apartments and reduction of the retail area from c.0.37 million sq. ft. to c.0.33 million sq. ft. Consequently the overall development program has been reduced from c.21.4 million sq. ft. to c.18.7 million sq. ft.

·      As at 30 September 2011, rent is being received on c.5 million sq. ft. of the portfolio, with an equivalent annualised rental income of c.£27 million. Rent is being used primarily to repay principal and pay interest on borrowings.

·      Financing of c.INR 33.3 billion (c.£436 million) including debt facilities of c.INR 26.9 billion (c.£352 million) has been secured by Indian SPVs to fund the c.INR 34.3 billion (c.£448 million) cost, of the areas constructed or currently under construction.

·      With the continued increase in interest rates, the borrowing costs of the Indian SPVs have increased by c.100 bps to 13-14 per cent.

·      Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) has been offered restoration of its stake in the Intime Properties Private Limited ('Intime') SPV and the Sundew Properties Private Limited ('Sundew') SPV to 11 per cent., which would result in the dilution of Ishaan's equity interest in Intime and Sundew from 40 per cent. to 38.98 per cent.

·      Base advisory fees payable to the Investment Adviser have been reduced from 2 per cent. per annum to 1.75 per cent. per annum effective from 1 October 2011.

·      The Company had cash deposits of £11.8 million as at 30 September 2011 (£13.6 million as at 31 March 2011).

Ian Henderson, Chairman of Ishaan, commented:

"There remain significant challenges for the Board and the Investment Adviser to overcome in order to crystallise value for shareholders. While we reiterate our confidence in the relative strength of the long-term fundamentals of the Indian economy, market conditions today are substantially different from those envisaged at the time of Ishaan's initial public offering.

We are pleased with the sustained increase in the letting activity at our commercial projects despite the subdued economic environment and the continuing political uncertainty in one of the states where the Company has significant presence. The two malls in the portfolio, which are both now operational, are trading well with over 80% of the space occupied at each of the malls. c.5 million sq. ft. of the portfolio is now yielding rental income. We anticipate that a further c.1 million sq. ft. will be yielding rental income by March 2012.

While progress on developments has been stable at most of the projects in the portfolio, the Mindspace, Juinagar and Pocharam projects, have witnessed poor occupier demand. The reduction in planned development at these projects reflects our pragmatic approach and our focus on preserving value for shareholders.

Overall portfolio value has not mirrored the operational performance on account of the extension of project schedules post the global financial crisis, delays experienced in the receipt of planning approvals in certain projects, cost escalations due to high inflation, poor demand visibility at the projects which are currently on hold and lower than estimated rentals.

Further, the continued increase in policy rates (repo rates) by the Reserve Bank of India, in an effort to contain persisting inflation, has resulted in an increase in interest costs. As a result the borrowing costs of the Indian SPVs have been increasing, together with inflationary increases in other development costs. It is widely anticipated that inflation will peak in the near term, thereby minimizing the likelihood of an increase in interest rate in the next policy review. A high interest rate environment and the limited availability of real estate financing has meant real estate investment markets in India have been subdued with very few significant transactions taking place.

⁽¹⁾Reported NAV per share is not considered the best method of evaluating performance as it excludes valuation surpluses attributable to development properties intended for sale and includes the impact of deferred tax liability on valuation surpluses.  Adjusted NAV per share at 30 September 2011 includes all investments at current valuations in proportion to the Group's shareholdings and a provision for a potential income tax liability in respect of the Vivarea project, but excludes the impact of the deferred tax provision arising on valuation surpluses, on the net assets of the Company and is considered by the Board to be a more appropriate method of evaluating the performance of the Company than Reported NAV per share. 

⁽²⁾Exchange rate used for the purpose of this statement is 1GBP = 76.52 INR, the Reserve Bank of India reference rate at 30 September 2011. Exchange rate at 31 March 2011 was 1GBP =71.93 INR.  

Contacts:

Chairman's Statement 

These results for the six months ended 30 September 2011 cover a period in which we have been faced with an extremely challenging trading environment, record interest rates in India and global economic uncertainty. The loss before tax for the period of £3.5 million (2010: £3.7 million), reflects the cost of investment advisory fees, the share of post-tax losses of associates and the write down of investments in associates, partially offset by write back of investment adviser performance fees.

Valuation

The 100 per cent. interests in the properties in the portfolio have been valued by Cushman & Wakefield (India) Pvt. Limited ('Cushman & Wakefield') at 30 September 2011 at a total of INR 47.2 billion. This represents an increase of 4.9 per cent. against a valuation of INR 45.1 billion reported at 31 March 2011. If construction expenditure capitalised during the period, which broadly reflects physical progress in construction, is adjusted for, the portfolio's value declined by 1.0%. The decline in property value is largely attributable to the extension of certain project completion schedules due to delay in receipt of planning approvals, increase in the estimated property tax at Mindspace, Airoli, Navi Mumbai, revision to the development plan at Commerzone, Bangalore, and lower than estimated rentals.

After conversion to pound Sterling, the 100 per cent. interests  in the properties in the portfolio were valued at £618 million at 30 September 2011, with Ishaan's 40 per cent. interest valued at £247 million, compared to £251 million at 31 March 2011, a decrease of 1.4 per cent (a decrease of 7.0 per cent. after adjusting for construction expenditure capitalised during the period).  This decrease in pound Sterling valuation in part reflects a 6.0 per cent. decrease in value since 31 March 2011 on account of exchange translation loss (the exchange rate moved from INR 71.93 on 31 March 2011 to INR 76.52 on 30 September 2011). 

Net Asset Value

Reported net asset value per share was 70.5p at 30 September 2011 against 75.9p at 31 March 2011.  Reported net asset value per share is calculated based on the Group's reported net assets at period end divided by the number of shares in issue and excludes valuation surpluses attributable to development properties intended for sale.

Adjusted net asset value per share was 87.4p at 30 September 2011 a decrease of 8.4 per cent against 95.4p at 31 March 2011. The decline in adjusted net asset value per share reflects the decrease in the underlying value of the portfolio, the exchange translation loss and reduction in cash deposits with the Company.

Adjusted NAV per share is considered by the Board to be a more appropriate method of evaluating the performance of the Company than Reported NAV per share. Adjusted NAV per share includes all investments at current valuations in proportion to the Group's shareholdings in each project and a provision for a potential income tax liability on the Vivarea project and excludes deferred tax provisions arising on valuation surpluses for all investment properties.

The Board considers it appropriate to exclude deferred tax provisions arising on valuation surpluses for all investment properties in determining Adjusted NAV per share as the Group's exit from its investment in the Indian SPVs holding the Company's projects is not expected to entail the sale of development properties, which should trigger the crystallisation of the deferred tax provision. There have been judicial rulings in India that have upheld the requirement that acquirers of controlling stakes in Indian companies should withhold Indian tax from consideration payable to overseas sellers.  These judicial developments are not considered definitive, particularly in view of certain contrary judicial rulings about the ultimate Indian tax liability of the overseas sellers on gains from the divestment of controlling stakes in Indian companies, and also about their applicability to the divestment by overseas sellers of minority stakes in Indian companies.  Given these uncertainties, the Board considered it premature to include any provision in respect of deferred tax provisions arising on valuation surpluses, in determining Adjusted NAV per share.

Project Progress                 

Since the preliminary results announcement on 29 June 2011, net addition of c.1.1 million sq. ft. (c. 347,000 sq. ft. since the last update on 20 September 2011) has been made to the area let or terms agreed.

As a result, the aggregate area let or under terms agreed across the portfolio has increased to c.8.0 million sq. ft. representing c.78 per cent. of the lettable area constructed or currently under construction and c.46 per cent. of the aggregate lettable area of the portfolio.

Options over c.208,000 sq. ft. have been given up by the tenants. As a consequence the aggregate area under option now stands at c.1.4 million sq. ft. which is in addition to the area let or terms agreed.

Since the last update on 20 September 2011, an additional c.12,000 sq. ft. of residential space has been pre-sold at Vivarea, Mumbai. As a result, a total of c.495,000 sq. ft. has been pre-sold at this project at an average price higher than that estimated at the time of IPO. The area pre-sold represents c.80 per cent. of the saleable residential area currently under construction. Estimated completion of the fourth tower at this project is being extended by a year to Q3 2015 on account of delay in receipt of planning approvals, which are still awaited. Further, the proposed changes to the development regulations shall result in levy of additional premium charges thereby increasing the estimated costs of development of the fourth tower.

To optimise the development at Mindspace, Juinagar, Navi Mumbai and Inorbit, Pune, the development area at Mindspace, Juinagar has been reduced from c.4.5 million sq. ft. to c.2.25 million sq. ft. and the commercial development at Inorbit, Pune, has been reduced from c.0.19 million sq. ft. to c.0.09 million sq. ft. The revisions will reduce the estimated development costs of the project.

At Commerzone, Bangalore, in view of the current demand conditions, the development plan is being revised. The revised plan entails cancellation of development of serviced apartments. Also the area of the planned retail development is being reduced from c.0.37 million sq. ft. to c.0.33 million sq. ft. and that of commercial development from c.0.19 million sq. ft. to c.0.18 million sq. ft. Development of multiplex is currently on hold. The Company expects the mall to be launched by March 2012.

Consequently, the overall development program has been reduced from c.21.4 million sq. ft. to c.18.7 million sq. ft. Of this, the area under construction is now c.11 million sq. ft. comprising c.10 million sq. ft. of office and retail space and c.1 million sq. ft. of hotel and residential space.

In the state of Andhra Pradesh, where the Company has a predominant presence, political unrest over the issue of division of the state continues. This has slowed down the operation of the administrative machinery in the state and delayed the grant of project approvals. This has caused a corresponding slowdown in the pace of development of our SEZ project at Madhapur, Hyderabad. In view of this, the estimated completion of the SEZ project is being extended by a year to Q3 2015.

The revised aggregate area planned for development and the area currently under construction is as follows:

Areas reported above are chargeable / saleable areas.

**Area under construction comprises retail space and future development comprises commercial and multiplex space.

*** Area under construction comprises hotel development.

Updated levels of letting activity in the Company's portfolio are as follows:                                                     

 * Figures are for the retail space at the respective projects

Besides the above letting, options / Rights of First Refusal (ROFRs) have been signed for c.1.4 million sq. ft. at the following projects. These options / ROFRs are due to be exercised over the next 1-2 years.

Rental income has commenced on an aggregate area of c.5 million sq. ft. across six projects in the portfolio. Rent of c.£13 million has been generated from these lettings in the half year ended 30 September 2011. Annualised rent from this area is estimated at c.£27 million. In addition, by March 2012, the Company expects rent to commence on another c.1 million sq. ft. Rent is being used primarily to repay principal and pay interest on borrowings.

Further to the update of 20 September 2011, with a view to maintaining a harmonious relationship with APIIC and the Government of Andhra Pradesh and in the interests of the projects involved, the JV Company (i.e. K Raheja IT Park Pvt Ltd, the entity set-up to develop IT Parks in Hyderabad) has offered to restore APIIC's stake in the JV Company to 11% for a nominal consideration. This also required Intime and Sundew (investee companies of Ishaan), which were demerged from the JV Company, to offer to APIIC restoration of APIIC's stake in these companies to 11%. The restoration of APIIC's stake in these companies will be effected through a transfer of shares owned in Intime and Sundew by K Raheja Corp Group and an issue of new shares to APIIC by Intime and Sundew. The issue of new shares will result in the dilution of Ishaan's equity interest in Intime and Sundew from 40% to 38.98%. K Raheja Corp Group will continue to hold a majority stake in the companies even after dilution by the transfer of shares and issue of new shares. Confirmation from APIIC of its acceptance of the above proposals is awaited.

The impact of this dilution on Ishaan's Net Asset Value per share at 30 September 2011 is estimated to be approximately 0.6p or c.0.7% of the Adjusted NAV per share as at 30 September 2011.

Project details:

Mindspace, Airoli, Navi Mumbai

c.2.9 million sq. ft., representing c.75 per cent of the area constructed or currently under construction, has been let or terms agreed. Further, c.860,000 sq. ft. is under option/ROFR at this project. As at 30 September 2011, rent has commenced from c.1,517,000 sq. ft.

Five buildings, with an aggregate area of c.1.7 million sq. ft., are currently operational. Another c.2.2 million sq. ft. is under construction with finishes and utilities work in progress on two buildings, super structure work in progress on another two buildings and foundation work having commenced on one more building. Property tax for the buildings which are completed and assessed for property tax is higher than estimated earlier. Consequently, the average property tax for the project will be higher than estimated. The valuation of the project factors this increase in property tax.

Mindspace, Pocharam, Hyderabad

One building at this project is completed. Super structure work is partly complete on the second building and further construction is currently on hold. Area let at this project stands at c.26,000 sq. ft.

Mindspace, Madhapur, Hyderabad (SEZ Development)

Since reported in the preliminary results announcement on 29 June 2011, net addition of c.1,023,000 sq. ft. (c.333,000 sq. ft. since the last update on 20 September 2011) has been made to area let or terms agreed. As a result, the aggregate area let or terms agreed is now c.2.1 million sq. ft. representing c.75 per cent of the area constructed or currently under construction at this project. As at 30 September 2011, rent has commenced from an area of c.691,000 sq. ft.

Options over c.208,000 sq. ft. have been given up by the tenants. The total area under options at this project is now c.505,000 sq. ft.

Two buildings at the project are operational, while super structure work is ongoing on another two buildings. A slow down in receipt of approvals has caused extension of the estimated project completion by a year to Q3 2015 from Q3 2014.

Mindspace, Madhapur, Hyderabad (Non-SEZ Development)

All three buildings at this project are completed and operational. Aggregate area let and generating income is c.1.66 million sq. ft., representing c.98 per cent of the project area.

Inorbit, Madhapur, Hyderabad

Since its launch in October 2009 the mall has continued to trade well. c.88 per cent of the retail space (c.690,000 sq. ft.) is currently let and c.83 per cent of the space is currently trading.  The planned IT development at this project is currently on hold.

Inorbit, Pune

Inorbit Pune was launched in March 2011.  Aggregate area let or terms agreed at this project stands at c.498,000 sq. ft., representing c.91 per cent. of the retail space. c.84 per cent of the retail area is currently trading. As on 30 September 2011, rent had commenced on c.456,000 sq. ft. Given the limited demand for IT space in this micro market, the development of the commercial space has been reduced from c.0.19 million sq. ft. to c.0.09 million sq. ft.

Vivarea, Mumbai

Interiors and finishes work is in progress on the three towers. Estimated completion of the fourth tower has been extended by a year to Q3 2015 on account of delays in receipt of planning approvals, which are still awaited. Also the proposed changes to the development regulations will cause the levy of additional premium charges thereby increasing the estimated development cost of the project. These costs have been reflected in the valuation.

c.495,000 sq. ft. has been pre-sold at this project, representing c.80 per cent of the saleable area currently under construction.

Commerzone Bangalore

The development plan of the project has been revised in view of the current demand conditions. Consequently the development of serviced apartments has been cancelled, the area of retail space has been reduced from c.0.37 million sq. ft. to c.0.33 million sq. ft. and the commercial space from c.0.19 million sq. ft. to c.0.18 million sq. ft. The development of multiplex is currently on hold.

Interior and finishes work is in progress at the hotel and retail site. The mall is expected to be launched by March 2012. Terms have been agreed for c.146,000 sq. ft. of the retail area, representing c.54 per cent of the retail space currently under construction.

Mindspace, Juinagar, Navi Mumbai

Development area has been reduced from c.4.5 million sq. ft. to c.2.25 million sq. ft. in order to optimize the development of the project. Foundation work is complete on three buildings and further construction is on hold till the Company sees potential demand.

Cost & Financing

Currently an area of c.10.7 million sq. ft. (excluding Vivarea) is constructed or under construction. The Indian SPVs remain well funded to meet the development requirements of this area. Against the estimated cost of c.INR 34.3 billion (c.£448 million) the Indian SPVs have secured funding of c.INR 33.3 billion (c.£436 million) comprising:

·     shareholders' equity of c.INR 4.2 billion (c.£55 million),

·     debt facilities of c.INR 26.9 billion (c.£352 million) and

·     security deposits received/receivable on areas let or terms agreed of c.INR 2.2 billion (c.£29 million).

Of the above estimated project costs for the area currently under development, c.INR 26.9 billion (c.£352 million) has been incurred up-to 30 September 2011. The Indian SPVs had drawndown debt of c.INR 19.5 billion (c.£254 million) at 30 September 2011, with the unutilised facilities of c.INR 7.4 billion (c.£98 million). In addition, c.80 per cent. of the saleable residential space currently under construction at Vivarea is pre-sold, which will fund the cost of construction of this project. 

The debt facility of c.INR 26.9 billion (c.£352 million) includes debt of c.INR 19 billion (c.£248 million) in the form of long term amortizing loans. The balance debt of c.INR 7.9 billion (c.£104 million) is other construction debt.

Having secured funding for the area currently under development, the Company is confident of meeting its future development requirements through further debt financing.

The Reserve Bank of India has continued to increase the policy rates in an effort to contain the unabated inflation. This has led to a significant increase in the borrowing cost of Indian SPVs. The current interest rates on the funding secured by the Indian SPVs are c.13-14 per cent. p.a.

Reduction to the Investment Advisory fee payable to the Investment Advisor

As announced in the trading update on 20 September 2011, Neerav Investment Advisory Services (Dubai) Limited ('Neerav') has agreed to reduce the base advisory fee payable to Neerav from 2% per annum to 1.75% per annum effective 1 October 2011. The Base advisory fee paid to Neerav totaled £3.04 million in the financial year ended 31 March 2011. On a proforma basis had the new rate of fees been applied in that year the fees would have been £2.64 million.

Dividend

In accordance with the dividend policy set out in the IPO admission document, which stated that it was not anticipated that dividends would be paid in the foreseeable future, as the projects remain in a highly capital intensive stage, the Board is not declaring a dividend for the six months ended 30 September 2011. The Board will consider payment of dividends when it becomes commercially prudent to do so.

Outlook

In line with the global economic slowdown and also due to the continued tightening of monetary policy by the Reserve Bank of India, economic activity in India has slowed. In September 2011, the Index of Industrial Production ("IIP") grew by only 1.9% year on year, the slowest pace of IIP growth since September 2009, reflecting the weakness in both investment and consumption growth in Indian economy. Also, India's GDP growth declined to 6.9 per cent in the quarter ended September 2011.

To contain rising inflation the Reserve Bank of India has since January 2010 raised the policy rate thirteen times by a cumulative 375 basis points which has increased interest costs. It is widely expected that inflation will peak soon which would provide room for monetary policy to address risks to growth and may mean further interest rate increases are not required in the short term.

In the real estate market in India, occupier demand for commercial space has moderated. Pick up in commercial real estate demand will be driven by the global market conditions. Demand for high quality retail space and retail rentals remain stable. Although demand for residential space in many markets has remained stable or has marginally declined, Mumbai residential market has seen a significant decline in volumes and is expected to remain under pressure given the current high interest rate scenario and high residential real estate prices. At our residential project Vivarea, we expect the remaining sales to accelerate once the buildings are completed.

While we have made good letting progress during this period, our plans to return capital to shareholders have inevitably been slowed by the difficult economic environment both in India and globally. We continue to explore ways of realising value from  sale of Ishaan's interest in the completed / near completion assets in the portfolio and  remain confident in the Company's  ability to continue  progressing the development of its high quality assets.

Ian Henderson

Chairman

Review report by KPMG Audit LLC to Ishaan Real Estate plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 September 2011, which comprises the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related explanatory notes.  We have read the other information contained in the half-yearly 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 the terms of our engagement.  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

As disclosed in note 2 the annual financial statements are prepared in accordance with IFRS. The condensed set of financial statements included in this half yearly report have been prepared in accordance with IAS 34 Interim Financial Reporting.

The accounting policies that have been adopted in preparing the condensed set of financial statements are consistent with those applied by the Group in its consolidated financial statements as at and for the year ended 31 March 2011.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly 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.  A review of interim financial information consists of making enquiries, 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 report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with IAS 34 and the AIM Rules.

KPMG Audit LLC

Chartered Accountants

Douglas

Isle of Man

08 December 2011

Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2011

The attached notes 1 to 10 form an integral part of these unaudited consolidated financial statements.

Consolidated Statement of Financial Position

As at 30 September 2011

The attached notes 1 to 10 form an integral part of these unaudited consolidated financial statements

Consolidated Statement of Cash Flows

For the six months ended 30 September 2011

The attached notes 1 to 10 form an integral part of these unaudited consolidated financial statements.

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2011

The attached notes 1 to 10 form an integral part of these unaudited consolidated financial statements

Consolidated Statement of Changes in Equity (continued)

For the six months ended 30 September 2011

The attached notes 1 to 10 form an integral part of these unaudited consolidated financial statements.

Notes to the Consolidated Financial Statements

1      The Company

        The Company was incorporated in the Isle of Man on 11 August 2006 as a public company under the Isle of Man Companies Acts 1931 to 2004 with registered number 117470C.  The Company's Ordinary Shares are traded on AIM.

        The principal activity of the Company and its subsidiaries is that of investment holding.

        The consolidated financial statements of Ishaan Real Estate plc comprises the Company and its subsidiaries (together referred to as the "Group").

        This interim financial information for the period ended 30 September 2011 is unaudited and does not constitute statutory accounts within the meaning of the Companies Acts 1931 to 2004. 

        The statutory accounts for the period from 1 April 2010 to 31 March 2011 which were prepared in accordance with International Financing Reporting Standards (IFRS) have been filed and copies can be obtained from the Registered Office of the Company at Top Floor, 14 Athol Street, Douglas, Isle of Man.  The auditors' report on those accounts was unqualified.  This unaudited interim financial information includes the results of the Company and its wholly owned subsidiaries for the period under review.

2      Significant Accounting Policies

        (a)   Basis of accounting

        The condensed financial statements have been prepared under historical cost convention except for investment properties that have been measured at fair value.

        (b)   Basis of preparation

        The condensed financial statements have been prepared using accounting policies that are consistent with those followed in preparation of the Group's annual financial statements for the period 1 April 2010 to 31 March 2011, and in accordance with International Accounting Standards ("IAS") 34: Interim Financial Reporting. The consolidated financial statements have been prepared in pounds sterling.

        (c)   Other financial liabilities - Investment adviser performance fees

        The provision for performance fees payable to the Investment Adviser represents the Directors' estimate of the present value of the future cash flows payable, discounted using the Directors' estimate of the risk adjusted value of money. These fees are considered to be directly attributable to the acquisition by the Group of its investment in its associates and the amount provided has been included in the cost of the Group's investment in associates. Subsequent to the date of acquisitions, revisions to these provisions are charged to the profit or loss.

        (d)   Investment property

        At 31 March 2009, the Group adopted Amendment to IAS 40 Investment property that amended the definition of investment property to include property that is being constructed or developed for future use as investment property.

        Land and buildings owned by the Group for the purposes of generating rental income or capital  appreciation or both and property that is being constructed or developed for future use as investment property (which includes freehold/leasehold land) are classified as investment properties.

        Investment properties are initially measured at cost, including related transaction costs. Subsequent to initial recognition, investment properties are accounted for using the fair value model under IAS 40. Any gain or loss arising from a change in value is recognized in profit or loss.

        When an item of property, plant and equipment is transferred to investment property following a change in its use, any differences arising at the date of transfer between the carrying amount of the item immediately prior to transfer and its fair value is recognized in other comprehensive income if it is a gain. Upon disposal of the item, the gain is transferred directly to retained earnings to the extent of the revaluation surplus recognized in other comprehensive income. Any loss arising in this manner is recognized in profit or loss immediately.

        If the investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its deemed cost for subsequent accounting.

3      Segment Reporting

        The Directors consider the Group to be operating in one geographic segment and one business segment since all investments are in India and all the operations in India are concerned with property development.  Consequently no segmental disclosures have been presented.

4      Administrative expenses

5      Write-down of investments in associates

        The Group writes-down its investments in associates, including the cost of performance fees payable, to its share of net assets in respect of those associates holding investment properties which were stated at valuation. The investment in one of the associates, which holds properties held for sale, was not written down and is stated at cost plus share of profits/losses and cost of performance fees payable.

6      Investments in associates

6      Investments in associates (continued)

*As detailed in note 5, the Group wrote-down its investments in associates except for one associate which holds properties held for sale. Had the fair value gains on the properties in this associate been recorded in the books, the investment in associate would have been higher by GBP 13.151 million (31 March 2011: GBP 15.228 million).

Properties held by the associates have been valued by Cushman & Wakefield (India) Pvt. Limited at 30 September 2011. All the properties were valued on the basis of market value.  The valuations have been made in accordance with the appropriate sections of both the current Practice Statements and United Kingdom Practice Statements contained within the RICS Appraisal and Valuation Standards, 6^th Edition (the "Red Book").  For development projects, the valuation assumes completion to a high standard and is based on gross development value less future expenditure to be incurred on costs of development.

Summarised financial information extracted from the interim financial statements of associates for six month period ended 30 September 2011 is given below:

Summarised financial information extracted from the interim financial statements of associates for six month period ended 30 September 2010 is given below:

6      Investments in associates (continued)

        Details of the investments in associates are as follows:

        The principal activity of all associates is real estate development.

* The Preference Shares to be compulsorily converted into Equity shares in one tranche at the expiry of a period of three years and ten calendar days from the date of the allotment.  Out of the face value of INR100,000 of each of the preference share upon its conversion, INR10 shall be treated as the face value of each equity share and INR99,990 shall be treated as premium payable in respect of each such equity share.  The Preference Shares shall, till the date of conversion and subject to availability of profits during any financial year, be entitled to nominal non cumulative dividend of INR1 per Preference Share per year.  The preference shares shall not carry any voting rights, even if dividend on the Preference Shares has remained unpaid for any year or dividend has not been declared by the Company for any year. On 15 June 2010, preference shares in Intime Properties Private Limited were converted into equity shares and consequently the percentage of shareholding in equity is now 40% in the associate. On 1 July 2010, preference shares in Sundew Properties Private Limited were converted into equity shares and consequently the percentage of shareholding in equity is now 40% in the associate.

** The Preference Shares shall be compulsorily converted into Equity shares in one tranche at the expiry of a period of three years and ten calendar days from the date of the allotment.  Out of the face value of INR1,000,000 of each of the preference share upon its conversion, INR10 shall be treated as the face value of each equity share and INR999,990 shall be treated as premium payable in respect of each such equity share.  The Preference Shares shall, till the date of conversion and subject to availability of profits during any financial year, be entitled to nominal non cumulative dividend of INR1 per Preference Share per year.  The preference shares shall not carry any voting rights, even if dividend on the Preference Shares has remained unpaid for any year or dividend has not been declared by the Company for any year. On 9 August 2010, preference shares in Genext Hardware and Parks Private Limited were converted into equity shares and consequently the percentage of shareholding in equity is now 40% in the associate. On 23 November 2010, preference shares in Newfound Properties and Leasing Private Limited were converted into equity shares and consequently the percentage of shareholding in equity is now 40% in the associate.

7      Share capital

8      Loss per share

        Basic and diluted (loss)/earnings per share                        

        Basic (loss)/earnings per share is calculated by dividing the net (loss)/profit attributable to the equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted (loss)/earnings per share is calculated by dividing the net (loss)/profit attributable to ordinary equitable holders of the parent by the weighted average number of Ordinary Shares outstanding during the period, plus the weighted average number of ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.

9      Related party transactions

        Investment Adviser Fees

        The Investment Adviser is entitled to a performance fee in respect of each Mauritian SPV which is designed to encourage the Investment Adviser to seek the highest returns on the underlying projects.  Pursuant to the performance fee arrangements, if the Mauritian SPVs achieve an SPV level IRR in respect of the partial or total realisation of an investment in excess of 10 per cent, then the Investment Adviser will be entitled to a performance fee of 20 per cent of the realised proceeds which exceeds the proceeds required to achieve a 10 per cent SPV level IRR (with such participation increasing to 30 per cent for that portion of the realised proceeds from an investment which exceeds the proceeds required to achieve a 20 per cent SPV level IRR).  The fair value of the total performance fee payable to the Investment Adviser at 30 September 2011 is £2.410 million (31 March 2011: £3.011 million).

        In addition, the annual base fee paid to the Investment Adviser for the period in accordance with the terms of the agreement is £1,519,800 (for the period ended 30 September 2010: £1,519,800). The annual base fee is calculated on a quarterly basis based on the agreed formula of 2% on committed capital less an allowance of £150,000 per annum pro-rated per quarter less a further deduction of £500,000 per annum pro-rated per quarter up to 31 December 2007.

        Directors' Interests

        Neel Raheja is a shareholder and director of various K Raheja Corp entities.  These entities include the Indian Investment Vehicles, which are 40% owned by the Company and K Raheja Corporate Services Private Limited which is contracted to provide services to the Indian Investment Vehicles. 

        The amount charged to the Indian Investment Vehicles by K Raheja Corporate Services Private Limited during the period towards project support service and royalty was £0.787 million (September 2010: £1.076million) and other amounts paid to other K Raheja Corp entities were £ 0.567 million (30 September 2010: £0.090 million).

As at 30 September 2011, the amounts of loan receivable by associate companies from K Raheja Corp entities totaled £84.060 million (31 March 2011: £90.585 million). The loans were interest bearing and as at 30 September 2011 interest owing totaled £5.997 million (31 March 2011: £9.916 million). In addition, as at 30 September 2011, the associate companies had loan balances owing to K Raheja Corp entities of £39.404 million (31 March 2011 of £36.446 million) and interest payable in relation to these loans of £2.278 million (31 March 2011: £3.355 million).

9      Related party transactions(continued)

The amount paid to K Raheja Corp Private Limited during the period was £1.724 million (September 2010: £5.076 million) towards deferred consideration for transfer of development rights for a project developed by one of the Indian Investment Vehicles.

        Neel Raheja indirectly co-owns the Investment Adviser - Neerav Investment Advisory Services (Dubai) Limited. As at 30 September 2011, Neerav Investment Advisory Services (Cyprus) Private Limited, the parent company of the investment adviser, held 7,493,811 shares of the Company (31 March 2011: 6,643,811 shares).

10.   Comparatives

Certain comparative figures have been reclassified to conform to the presentation adopted in these consolidated financial statements.