7 September
2016
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST
RESULTS IN RESPECT OF THE PERIOD ENDED
30 JUNE 2016
Financial Highlights
- Net asset value (“NAV”) per share of 81.8p as at 30 June 2016 (31 December
2015: 82.2p) resulting in a NAV total return (incl.
dividends) of 2.3% with positive portfolio performance offset by
movement in interest rate swaps;
- Strong performance over the longer term with NAV total return
over five years of 85.1% compared with the FTSE REIT Index (47.6%)
and the FTSE All-Share Index (35.5%);
- Dividend increased by 2.5% in the period with the yield on the
Company’s shares being 5.9% as at 26 August
2016, significantly ahead of the yield on the FTSE REIT
Index (3.5%) and the FTSE All-Share Index (3.5%) and underpinned by
a diversified portfolio of properties and tenants;
- Dividend cover of 111% for the six month period compared to 98%
for 2015 highlighting the income accretive nature of the portfolio
acquired in December 2015;
- Successful refinancing of loan facilities in the period with
£110m seven year term loan and £35m revolving credit facility
(“RCF”), which introduces flexibility into the capital structure,
secured from The Royal Bank of Scotland plc (“RBS”) in April 2016;
- Blended interest rate on refinanced loan facilities of 2.5% as
at 30 June 2016, one of the lowest in
the Company’s peer group with the prudent LTV of 28.4% as at
26 August 2016 providing significant
headroom compared to a covenant of 60%;
- Overall the Company is in a strong financial position.
Property Highlights
- Portfolio valued at £450.1m, reflecting a capital return of
0.8% in the six month period, comparing favourably to the IPD
benchmark of 0.1% driven mainly by industrial and office
sectors;
- Income return for the period was 3.1% again outperforming the
IPD benchmark income return of 2.3%;
- Sales totalling £15.4m, including those made after the period
end, which was 4% above most recent 2016 valuations;
- A number of successful asset management initiatives completed
in the period including;
· Letting of three vacant units at
Budbrooke industrial estate, Warwick adding £92k in rent per annum
after incentives;
· Rent review completed at Denby,
above estimated rental value (“ERV”) and adding an additional £170k
in rent;
· Seven lease renegotiations in the
period securing £812,000 of rental income;
- A void rate of 3.8% at 30 June
2016 compared with a benchmark figure of 7.1% plus strong
rent collection rate of 99% after 28 days, underlining the strong
tenant base and the Investment Manager’s commitment to maintaining
income in an environment where income will be the key driver of
performance going forward.
PERFORMANCE SUMMARY
Capital Values &
Gearing |
|
30 June 2016 |
31 December
2015 |
% Change |
Total Assets |
|
470. 6 |
467.3 |
0.7 |
NAV per share (p) |
|
81.8 |
82.2 |
(0.5) |
Ordinary Share Price (p) |
|
79.3 |
84.5 |
(6.3) |
(Discount)/Premium to NAV (%) |
|
(3.1) |
2.8 |
- |
LTV* |
|
29.4 |
28.1 |
- |
Total Return %
|
6 Month |
1 Year |
3 Year |
5 Year |
NAV** |
2.3 |
10.3 |
70.0 |
85.1 |
Share Price** |
(4.8) |
(0.1) |
56.4 |
66.6 |
FTSE Real Estate Investment Trusts
Index |
(11.8) |
(8.3) |
35.7 |
47.6 |
FTSE All-Share Index
|
4.3 |
2.2 |
18.6 |
35.5 |
Property Returns & Statistics
% |
|
|
6 months to 30 June
2016 |
6 months to 30 June
2015 |
Property income return
|
|
|
3.1 |
3.1 |
IPD property monthly index
|
|
|
2.3 |
2.5 |
Property total return (property
only) |
|
|
3.9 |
5.8 |
IPD property total return monthly
index |
|
|
2.5 |
6.3 |
Void rate |
|
|
3.8 |
2.8 |
Earnings & Dividends |
|
|
30 June
2016 |
30 June
2015 |
Dividends declared per ordinary
share (p) |
|
|
2.351 |
2.322 |
Dividend Yield (%)*** |
|
|
6.0 |
5.5 |
FTSE Real Estate Investment Trusts
Index Yield (%) |
|
|
3.7 |
2.8 |
FTSE All-Share Index Yield (%) |
|
|
3.7 |
3.5 |
European Public Real Estate Association (“EPRA”) NAV at
30 June 2016 (excluding swap
liabilities) – 83.3p (31 Dec 2015 –
82.7p)
* Calculated as bank borrowings less all offset cash as a
percentage of the open market value of the property portfolio as at
30 June 2016.
** Assumes re-investment of dividends excluding transaction
costs.
*** Based on an annual dividend of 4.76p (30 June 2015: 4.644p) and a share price of 79.3p
(30 June 2015: 83.8p).
Sources: Standard Life Investments, Investment Property Databank
(“IPD”)
CHAIRMAN’S STATEMENT
In what has been a volatile period for the UK, I present my
first statement as Chairman of your Company. My predecessor,
Dick Barfield, retired at the AGM in
June after 13 years on the board, the last two as Chairman. He was
a founding director and helped to steer the company successfully
through the Global Financial Crisis. During his Chairmanship he
oversaw the doubling of the gross value of your assets, the
on-shoring of the company for tax purposes and the refinancing of
all the debt leaving the company with low gearing and well
positioned to meet the current challenges.
I am pleased to welcome James
Clifton-Brown to your board with effect from 17 August 2016. He brings many years of
experience in the real estate investment management field. He
joined CBRE Global Investors in 1984 as a fund manager on one of
their pension fund segregated accounts which focused on high income
secondary real estate attaining strong results. He became the
firm's UK Chief Investment Officer in 1996. Since 2004, he has also
been a director on a number of boards relating to CBRE Global
Investors Limited and is a voting member on the USA, European and Asian Investment Committees
and Chairman of CBRE’s Global Separate Accounts team. He has been
appointed chairman of the Property Valuation Committee.
At the time of writing there is an unusual level of uncertainty
following the decision of the UK electorate to leave the EU. This
uncertainty is likely to continue, and although the markets have
shown some stabilisation since the election of a new Conservative
prime minister, it is not yet possible to forecast what the impact
of the decision to leave the EU will mean for UK growth, and in
particular the UK commercial real estate market. In the short term
at least the sentiments are negative. A number of the open ended
property funds have either closed to redemptions or imposed pricing
adjustments within days of the vote as retail investors quickly
sought liquidity. The share prices of REITS and other closed ended
companies were also affected by this negative sentiment with the
FTSE All-Share REIT index falling by 12% in the first week after
the referendum. Your own Company’s share price has been volatile
over this period, with a low of 68p on 6
July 2016, compared to 84.5p on the day of the vote. The
price recovered quickly following the initial shock and the shares
are now trading at 81.25p (as at 26 August
2016) - a discount to net assets of 0.7%.
Performance
Although asset valuations have been caveated for the June
quarter end given their proximity to the referendum, your Company
has performed well over the six month period to 30 June 2016 with a NAV total return of 2.3%.
This performance was driven by continued growth in the property
portfolio and strong income generation with both the capital and
income performance of the Company exceeding that of the IPD
benchmark. It was delivered even after allowing for a negative
movement in the value of the interest rate swap, caused by interest
rate movements as a result of the EU referendum result, resulting
in a swap liability of £5.4m as at 30 June
2016. Performance has also been boosted by the sale of two
assets in the period, both ahead of most recent valuations, raising
£6.25m. This trend was continued post the period end with a further
two assets sold for £9m. The proceeds of these sales have all been
used to reduce the debt of the Company.
Debt
On 28 April 2016 the Company
refinanced its existing debt facilities with RBS. A new £110m seven
year facility was taken out which was hedged to fix the rate on
this loan at 2.725%. In addition, to introduce flexibility
into the capital structure and allow the Company to act quickly
should opportunities arise, a £35m RCF was also taken out with RBS.
Securing these loan facilities as early as possible following the
Pearl Portfolio acquisition was a clear Board strategy and the
timing has turned out to be fortuitous given the current market
environment. The Company is now in a good position of having low
cost debt (all-in rate of 2.6% at the date of this report) along
with a prudent LTV, net of cash, of 28.4%.
Dividends
As part of the fundraising exercise in December 2015 in order to acquire the Pearl
portfolio of 22 assets, the Company announced that it would
increase its dividend by 2.5%. Following the successful completion
of this acquisition the dividend relating to the first quarter of
this year, paid on 31 May 2016, was
increased to 1.19p per share. Based on an annual dividend of 4.76p,
the yield on the Company’s shares as at 26
August 2016 was 5.9%. This compares favourably with the
yield on the FTSE All-Share Index (3.5%) and the FTSE ALL-Share
REIT Index of (3.5%) at a time when attractive, sustainable income
returns are much sought after. It should also be highlighted that
the Company’s dividend cover for the first six months of the year,
even given this increase in dividend, was 111%.
Outlook
The UK economy has now entered a period of heightened
uncertainty which most forecasters predict will impact on future
growth. The International Monetary Fund, for example, recently cut
their forecast for UK economic growth in 2017 down to 1.3%, a fall
of 0.9% from previous forecasts. One key measure that drives
economic performance is confidence and there are early signs that
businesses are now less confident than before the referendum which
may have an impact on future investment plans. How the real economy
reacts to any easing in monetary policy by the Bank of England will be key to the extent of any
downturn as will the Government’s ability to set out more clearly
how the UK will interact with the EU going forward.
The performance of the UK commercial property market has always
been closely linked to that of the economy. Hence there can be no
doubt that any economic downturn will impact capital values which
were already deflated as a result of the 1% increase in stamp duty
land tax in the March budget. However, unlike in previous
downturns, the sector is in better shape with lower gearing, higher
occupancy rates, lower levels of speculative development and a
significant yield premium over other asset classes.
Within this overall framework, the Company exhibits good
defensive qualities. With a diversified portfolio both in terms of
the sectors in which it invests and the area of the country where
the assets are situated the portfolio will not be overly exposed to
the potential underperformance of any one region or sector e.g.
Central London offices. In
addition, the Company has a secure tenant base and low void rate
which, when combined with the proven ability of the asset manager
to implement successful asset management initiatives, should ensure
a sustainable income stream which underpins the high dividend
yield. In an environment where attractive income returns are in
demand this is positive for the Company. Finally, with the rollover
of the debt facility and the introduction of flexibility into the
capital structure through the RCF, the Investment Manager has the
ability to reduce gearing while still having the resources to act
quickly should suitable opportunities arise which is likely in such
a volatile environment. Overall, I am optimistic that your company
is well positioned for the current market.
Robert
Peto
Chairman
6 September
2016
PRINCIPAL RISKS AND UNCERTAINTIES
The Company’s assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general, but also the particular
circumstances of the properties in which it is invested, and their
tenants. The Board and Investment Manager seek to mitigate these
risks through a strong initial due diligence process, continual
review of the portfolio and active asset management initiatives.
All of the properties in the portfolio are insured, providing
protection against risks to the properties and also protection in
case of injury to third parties in relation to the properties.
The Board has also identified a number of other specific risks
that are reviewed at each Board meeting. These are as follows:
- The Company and its objectives become unattractive to
investors. This is mitigated through regular contact with
shareholders, a regular review of share price performance and the
level of the discount or premium at which the shares trade to NAV
and regular meetings with the Company’s broker to discuss these
points and address any issues that arise.
- Poor selection of new properties for investment. A
comprehensive and documented initial due diligence process, which
will filter out properties that do not fit required criteria, is
carried out by the Investment Manager. Where appropriate, this is
followed by detailed review and challenge by the Board prior to a
decision being made to proceed with a purchase. This process is
designed to mitigate the risk of poor property selection.
- Tenant failure or inability to let property. Due diligence work
on potential tenants is undertaken before entering into new lease
arrangements. In addition, tenants are kept under constant review
through regular contact and various reports both from the managing
agents and the Investment Manager’s own reporting process.
Contingency plans are put in place at units that have tenants that
are believed to be in financial trouble. The Company subscribes to
the Investment Property Databank Iris Report which updates the
credit and risk ranking of the tenants and income stream, and
compares it to the rest of the UK real estate market.
- Loss on financial instruments. The company has entered into an
interest rate swap arrangement. The swap instrument is valued and
monitored on a monthly basis by the counterparty bank. The
Investment Manager checks the valuation of the swap instrument
internally to ensure it is accurate. In addition, the credit rating
of the bank that the swap is taken out with is assessed
regularly.
Other risks faced by the Company include the following:
- Strategic – incorrect strategy, including sector and property
allocation and use of gearing, could all lead to poor returns for
shareholders.
- Tax efficiency – the structure of the Company or changes to
legislation could result in the Company no longer being a tax
efficient investment vehicle for shareholders.
- Regulatory – breach of regulatory rules could lead to the
suspension of the Company’s Stock Exchange Listing, financial
penalties or a qualified audit report.
- Financial – inadequate controls by the Investment Manager or
third party service providers could lead to misappropriation of
assets. Inappropriate accounting policies or failure to comply with
accounting standards, including valuations provided by independent
valuers, could lead to misreporting or breaches of
regulations.
- Operational – failure of the Investment Manager’s accounting
systems or disruption to the Investment Manager’s business, or that
of third party service providers, could lead to an inability to
provide accurate reporting and monitoring, leading to loss of
shareholder confidence.
- Economic – inflation or deflation, economic recessions and
movements in interest rates could affect property valuations and
also bank borrowings.
- Geopolitical – geopolitical instability or change could have an
adverse affect on UK real estate and stock markets.
The Board seeks to mitigate and manage all risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company’s property portfolio, levels of
gearing and the overall structure of the Company.
As a result of uncertainty following the UK’s referendum
decision to exit the EU, the Company’s valuers, JLL Limited and
Knight Frank LLP, included the following caveat with their
valuations for the quarter ended 30 June
2016 as they did for all valuations they undertook at that
date:
“Following the Referendum held on 23 June
2016 concerning the UK’s membership of the EU, a decision
was taken to exit. We are now in a period of uncertainty in
relation to many factors that impact the property investment and
letting markets. Since the Referendum date it has not been possible
to gauge the effect of this decision by reference to transactions
in the market place. The probability of our opinion of value
exactly coinciding with the price achieved, were there to be a
sale, has reduced. We would, therefore, recommend that the
valuation is kept under regular review and that specific market
advice is obtained should you wish to effect a disposal.”
The company is aware that JLL Limited and Knight Frank LLP, in
undertaking more current valuations for other organisations,
continue to apply a similarly worded caveat based on a continued
shortage of comparable evidence of arm’s length transactions since
the Referendum.
Going Concern
The Directors have reviewed detailed cash flow, income and
expense projections in order to assess the Company’s ability to pay
its operational expenses, bank interest and dividends for the
foreseeable future. The Directors have examined significant areas
of possible financial risk including cash and cash requirements and
the debt covenants, in particular those relating to LTV and
interest cover. They have not identified any material uncertainties
which cast significant doubt on the ability to continue as a going
concern for a period of not less than 12 months from the date of
the approval of the financial statements. The Directors have
satisfied themselves that the Company has adequate resources to
continue in operational existence for the foreseeable future and
the Board believes it is appropriate to adopt the going concern
basis in preparing the financial statements.
INVESTMENT MANAGER’S REPORT
UK Real Estate Market
The implications of the Referendum have caused a complex
interaction between politics, economics and markets which makes the
situation difficult to predict. Given the political and financial
uncertainties experienced so far, the UK economy is expected to be
affected negatively, although as market volatility rises, safe
haven assets will benefit. It would seem that the negative
sentiment and heightened uncertainty is likely to impact adversely
on UK real estate capital values although this is not reflected in
the June valuations. Unclear messages are emerging in respect of
post referendum transactions with a mixture of deal withdrawals,
price renegotiations but also completions at previously agreed
figures.
Against that background, UK listed real estate equities total
returns fell by nearly 13.3% over the six month period to
30 June 2016. This decline is in
contrast to the FTSE All Share and the FTSE 100 total returns where
the returns were a positive 4.7% and 6.5% respectively. REIT
pricing since the referendum has been volatile, with discounts to
NAV moving to over 25% for some of the majors, before recovering to
around 10% on average. The Company has also suffered from share
price volatility but, more recently, the Company’s share price has
recovered to a 0.7% discount to NAV as at 26
August 2016.
Investment Outlook
The slowdown in UK real estate that was materialising prior to
the referendum has been exacerbated by the vote outcome. The
heightened uncertainties following the result and the subsequent
retreat in business and consumer confidence are likely to impact
negatively on the outlook for the economy. This is likely to have
detrimental consequences for UK real estate given the direct
linkage to economic activity. We therefore anticipate increased
downward pressure on UK commercial real estate capital values. The
magnitude of any declines will depend on the impact on the domestic
economy and the level of interest rates and yields from alternative
investment classes. The impact will vary by sector and geography.
From a sector perspective, we expect Central London offices to be the most
negatively impacted in the near term given the linkages to European
markets via cross border trading. We expect industrial, given its
higher yield, and retail assets to be comparatively resilient,
although not immune. Long income assets should provide most
resilience in any downturn. Despite the negative outlook, UK
real estate continues to provide a higher yield than other assets
and, unlike during the Financial Crisis, lending to the sector is
at a much lower level than in 2007/2008. Furthermore, existing
vacancy rates are at below average levels in most markets and
development remains relatively constrained which should all help
stabilise the market further out. The current “lower for even
longer” interest rate environment coupled with an increasing
investor global search for yield and the retention of the UK’s safe
haven status should all ensure the asset class is reasonably placed
longer term.
Performance
Over the first six months of the year the Company had a NAV
total return of 2.3% and a share price total return (with dividends
reinvested) of -4.8%. The difference in these figures illustrates
the change in sentiment in the sector, particularly at the end of
the period, when property shares were marked down. At an underlying
property level the Company’s portfolio has continued to deliver a
relatively strong performance with a 3.9% total return for the 6
months against the MSCI / IPD benchmark of 2.5%.
Over the last 24 months the Company has witnessed increased
levels of activity with the purchase of several portfolios (the
largest being the Pearl Portfolio for £165m in December 2015) and sales of several assets that
we did not believe would perform as well in the future. Despite the
relatively high level of transaction costs associated with real
estate, performance has been reasonably strong and is supported by
a high income return (6% for the Company’s portfolio versus the
benchmark’s 5%).
In the short term, the share price performance has been
disappointing as the Company moved from a premium to a discount but
the performance is relatively strong compared to peers.
Investment Strategy
The Company remains focused on delivering an attractive income
to investors through investing in a diversified portfolio of UK
commercial real estate assets. We target assets that are well
located, and are in good condition, which we believe will appeal to
occupiers. We aim to actively manage the assets to renew and extend
leases to give the Company a sustainable income for its covered
dividend policy.
It was apparent early in the reporting period that the UK
commercial property market was nearing the end of the capital
cycle, and that returns were not going to be as high in 2016 as
they were in 2014 and 2015. We took the opportunity to sell several
assets, detailed later, that we believed would not perform as well
in the future or provided risk to the Company, and used the
proceeds to reduce leverage. This cautious approach will continue
into the second half of the year, a period with greater
uncertainty. We believe the Company is well positioned for the next
few years, with a relatively high exposure to industrial /
logistics units, and a negligible exposure to core City of London, financial or recruitment
tenants.
Portfolio Valuation
The investment portfolio is valued on a quarterly basis by two
valuers, JLL Limited and Knight Frank LLP. The investment
portfolio comprised a total of 60 assets as at 30 June 2016 valued at £450.1m, with cash of
£18.3m. This compares with £288.4m and £27.3m respectively as at
end June 2015.
Given the proximity of the 30 June
2016 valuation date to the decision of the UK to leave the
EU, and the lack of comparable evidence after that decision, the
valuers issued a caveat with their valuations for the quarter ended
30 June 2016. This is reproduced in
Principal Risks and Uncertainties.
Portfolio Allocation
The Company is invested in Industrial, Office and Retail
properties throughout the UK. With a focus on income the Company is
structurally underweight to retail as prime retail assets are low
yielding, and we believe that secondary retail is going to
underperform generally given the structural shift from sales in
retail premises to internet sales. Instead, we seek to buy
logistics units that meet the needs of modern distribution networks
for retailers, and retail warehouse units that are also efficient
for “click and collect” retail. Although we have had a high
exposure to Greater London offices
we have modest exposure to core City offices or financial tenants
as again that was a low yielding sector.
The main geographic allocation changes since the first half of
2015 are an increase in exposure to the South East whilst reducing
the exposure to Central London and
Scotland. This has reflected our
House View that Central London was
approaching the end of the investment cycle ahead of the rest of
the UK, whilst the South East would continue to benefit from demand
from greater population density.
Investment Activity
Purchases
No purchases were undertaken in the first half of 2016.
Sales
The Company sold two assets in the six month period, and a
further two assets in early July
2016.
1. Turin Court Stockport was sold in March for £2.9m
(valuation at 31 Dec 2015: £2.7m).
The office property was due to become vacant in July 2016, and although we had been marketing it
for a while had almost no demand for leasing. The sale was to a
local occupier for their own occupation.
2. Perry Ellis
Witham was sold in June for £3.4m (valuation at 31 Dec 2015: £3.5m). The industrial unit was let
for a further 6 years, but we felt the value could fall as the
building did not meet the occupier’s current needs, and would be
difficult to relet.
3. Causeway House Teddington was sold in
July for £6.3m (valuation at 31 Dec
2015: £6.0m). The property had lease expiries in 2017 and
was in need of substantial capital expenditure to refurbish it, and
even then we were concerned over the tenant demand. It was sold to
an owner occupier.
4. Ceres Court Kingston was sold in July for £2.75m
(valuation at 31 Dec 2015: £2.5m).
The retail parade with residential above was held on a long
leasehold basis on unattractive terms with the sale being to the
party who held the freehold interest in the asset.
The proceeds from the sales were used to pay down debt under the
RCF.
Asset Management
The Company has actively sought to renew and extend leases to
ensure income continues, and grows, where possible. In a
period of uncertainty, or where capital values are slowing, income
is the main driver of total return.
Four rent reviews were settled, all above the rent passing, and
a further four leases renegotiated to extend the term, along with
three lease renewals and four new lettings.
Voids increased to 3.8% (2.8% at 30 June
2015) on the expiry of a lease on an industrial unit in
Oldham where the tenant vacated.
The Company’s void rate is roughly half the market average, and is
concentrated in two industrial assets, one of which was bought
vacant to be refurbished and has been available for rent since the
end of May, and the other is still being refurbished.
Debt
In April 2016 the Company put in
place a new debt facility with RBS which replaces the short term
facility agreed as part of the Pearl portfolio acquisition in
December 2015. The refinanced
facility provides flexibility by having a term loan for 7 years for
£110m, and a RCF for £35m. During the period the Company repaid
£3.5m with a further £10.5m repaid in July
2016 resulting in the drawn amount on the RCF now being
£21m. The refinanced facility was completed in April and the term
loan was matched with an interest rate swap entered into at the
same time. The swap was entered into to protect shareholders from
the impact of higher interest rates and give certainty on the
interest cost. The all in cost as at 30 June
2016 was 2.5% pa. However, the movement in the interest rate
curve following the vote to leave the EU has led to a negative
movement in the value of the interest rate swap resulting in a swap
liability of £5.4m as at 30 June
2016. It should be highlighted however that at maturity the
value of the swap will be zero. The current LTV is 28.4%, compared
with the maximum LTV covenant in the debt facility of 60%.
Jason
Baggaley
Fund Manager
DIRECTORS’ RESPONSIBILITY
STATEMENT
The Directors are responsible for preparing the Interim
Management Report in accordance with applicable law and
regulations. The Directors confirm that to the best of their
knowledge:
- The condensed Unaudited Consolidated Financial Statements have
been prepared in accordance with IAS 34; and
- The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the Financial Conduct
Authority’s Disclosure and Transparency Rules.
- In accordance with 4.2.9R of the Financial Conduct Authority’s
Disclosure and Transparency Rules, it is confirmed that this
publication has not been audited, or reviewed by the Company’s
auditors.
The Interim Report, for the six months ended 30 June 2016, comprises an Interim Management
Report in the form of the Chairman’s Statement, the Investment
Manager’s Report, the Directors’ Responsibility Statement and a
condensed set of Unaudited Consolidated Financial Statements.
The Directors each confirm to the best of their knowledge
that:
a. the Unaudited Consolidated Financial Statements, prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Group; and
b. the Interim Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties faced.
For and on behalf of the Directors of Standard Life Investments
Property Income Trust Limited
Robert
Peto
Chairman
6 September
2016
UNAUDITED FINANCIAL STATEMENTS
Unaudited Consolidated Statement
of Comprehensive Income |
|
|
|
|
for the period ended
30 June 2016 |
|
1 Jan 16 to 30 Jun
16 |
1 Jan 15 to 30 Jun
15 |
1 Jan 15 to 31 Dec
15 |
|
Notes |
£ |
£ |
£ |
Rental income |
|
14,918,244 |
9,739,210 |
20,142,180 |
Surrender premium income |
|
- |
- |
120,000 |
Valuation gain from investment
properties |
3 |
2,716,962 |
7,529,522 |
17,636,973 |
Costs of business acquisition |
|
- |
- |
(1,942,498) |
(Loss) on asset acquisition |
|
- |
(65,129) |
(75,181) |
Profit/ (Loss) on disposal of
investment properties |
|
94,361 |
(796,363) |
3,024,748 |
Investment management fees |
2 |
(1,620,379) |
(1,121,035) |
(2,105,104) |
Other direct property operating
expenses |
|
(526,659) |
(504,924) |
(929,165) |
Directors’ fees and
expenses |
|
(75,326) |
(62,150) |
(124,296) |
Valuers fees |
|
(53,745) |
(37,809) |
(92,324) |
Auditor’s fee
|
|
(45,714) |
(23,008) |
(82,308) |
Other administration expenses |
|
(226,067) |
(163,143) |
(376,776) |
Operating profit |
|
15,181,677 |
14,495,171 |
35,196,249 |
Finance income |
|
16,103 |
26,256 |
68,186 |
Finance costs |
|
(2,341,813) |
(1,597,490) |
(3,324,782) |
Loss on derecognition of interest
rate swaps |
10 |
(2,735,000) |
- |
- |
Profit for the period |
|
10,120,967 |
12,923,937 |
31,939,653 |
|
|
|
|
|
Other Comprehensive
Income |
|
|
|
|
Net change in fair value of the swap
reclassified to profit and loss |
10 |
2,735,000 |
- |
- |
Valuation (loss)/gain on cash flow
hedge |
|
(6,078,345) |
757,123 |
589,647 |
Total Other Comprehensive
Income |
|
(3,343,345) |
757,123 |
589,647 |
|
|
|
|
|
Total comprehensive income for
the period, net of tax |
|
6,777,622 |
13,681,060 |
32,529,300 |
|
|
|
|
|
Earnings per share: |
|
pence |
pence |
pence |
Basic and diluted
earnings per share |
|
2.66 |
4.84 |
11.39 |
Adjusted (EPRA) earnings per
share |
|
1.92 |
2.34 |
4.05 |
All items in the above Unaudited Consolidated Statement of
Comprehensive Income derive from continuing operations.
Unaudited Consolidated Balance
Sheet |
|
|
|
|
as at 30 June 2016 |
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
Notes |
£ |
£ |
£ |
ASSETS |
|
|
|
|
Non-current
assets |
|
|
|
|
Investment properties |
3 |
437,297,884 |
272,669,703 |
448,616,754 |
Lease incentives |
3 |
3,267,928 |
2,471,229 |
3,457,588 |
|
|
440,565,812 |
275,140,932 |
452,074,342 |
Current assets |
|
|
|
|
Investment properties held for
sale |
4 |
8,886,675 |
13,010,300 |
- |
Trade and other receivables |
|
2,900,839 |
4,884,695 |
2,858,851 |
Cash and cash equivalents |
|
18,257,372 |
27,329,945 |
12,395,516 |
|
|
30,044,886 |
45,224,940 |
15,254,367 |
|
|
|
|
|
Total assets |
|
470,610,698 |
320,365,872 |
467,328,709 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
12,804,358 |
7,485,896 |
12,788,999 |
Interest rate swap |
|
990,627 |
832,034 |
908,751 |
|
|
13,794,985 |
8,317,930 |
13,697,750 |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Bank borrowings |
|
140,389,061 |
84,036,866 |
139,048,848 |
Interest rate swap |
|
4,438,010 |
1,085,782 |
1,176,541 |
Rent deposits due to tenants |
|
434,425 |
525,002 |
622,283 |
|
|
145,261,496 |
85,647,650 |
140,847,672 |
|
|
|
|
|
Total liabilities
|
|
159,056,481 |
93,965,580 |
154,545,422 |
|
|
|
|
|
Net
assets |
|
311,554,217 |
226,400,292 |
312,783,287 |
|
|
|
|
|
EQUITY |
|
|
|
|
Capital and reserves attributable
to Company’s equity holders |
|
|
|
|
Share capital |
|
204,820,219 |
130,589,115 |
204,820,219 |
Retained earnings |
|
5,470,281 |
7,776,524 |
6,167,329 |
Capital reserves |
|
3,425,345 |
(9,803,719) |
3,957,367 |
Other distributable reserves |
|
97,838,372 |
97,838,372 |
97,838,372 |
Total equity |
|
311,554,217 |
226,400,292 |
312,783,287 |
|
|
|
|
|
NAV per share |
|
|
|
|
NAV |
8 |
81.8p |
78.5p |
82.2p |
EPRA NAV |
8 |
83.3p |
79.2p |
82.7p |
Unaudited Consolidated Statement
of Changes in Equity |
|
|
|
|
|
|
for the period ended 30 June
2016 |
|
Share
Capital |
Retained
earnings |
Capital
reserves |
Other distributable
reserves |
Total
equity |
|
Notes |
£ |
£ |
£ |
£ |
£ |
Opening balance 1 January
2016 |
|
204,820,219 |
6,167,329 |
3,957,367 |
97,838,372 |
312,783,287 |
Profit for the period |
|
- |
10,120,967 |
- |
- |
10,120,967 |
Other comprehensive income |
|
- |
- |
(3,343,345) |
- |
(3,343,345) |
Total comprehensive
gain for the period |
|
- |
10,120,967 |
(3,343,345) |
- |
6,777,622 |
Dividends paid |
7 |
- |
(8,006,692) |
- |
- |
(8,006,692) |
Valuation gain from investment
properties |
3 |
- |
(2,716,962) |
2,716,962 |
- |
- |
Profit on disposal of investment
properties |
|
- |
(94,361) |
94,361 |
- |
- |
Balance at 30 June
2016 |
|
204,820,219 |
5,470,281 |
3,425,345 |
97,838,372 |
311,554,217 |
Unaudited Consolidated Statement
of Changes in Equity |
|
|
|
|
|
|
for the period ended
30 June 2015 |
|
Share
Capital |
Retained
earnings |
Capital
reserves |
Other distributable
reserves |
Total
equity |
|
Notes |
£ |
£ |
£ |
£ |
£ |
Opening balance 1 January
2015 |
|
96,188,648 |
7,634,503 |
(17,294,001) |
97,838,372 |
184,367,522 |
Profit for the period |
|
- |
12,923,937 |
- |
- |
12,923,937 |
Other comprehensive income |
|
- |
- |
757,123 |
- |
757,123 |
Total comprehensive
gain for the period |
|
- |
12,923,937 |
757,123 |
- |
13,681,060 |
Dividends paid |
7 |
- |
(6,048,757) |
- |
- |
(6,048,757) |
Ordinary shares issued net of issue
costs* |
|
34,400,467 |
- |
- |
- |
34,400,467 |
Valuation gain from investment
properties |
|
- |
(7,529,522) |
7,529,522 |
- |
- |
Loss on disposal of investment
properties |
|
- |
796,363 |
(796,363) |
- |
- |
Balance at 30 June
2015 |
|
130,589,115 |
7,776,524 |
(9,803,719) |
97,838,372 |
226,400,292 |
* this value represents both the nominal and the premium raised
on issuing the ordinary shares.
Unaudited Consolidated Statement
of Changes in Equity |
|
|
|
|
|
|
for the year ended
31 December 2015 |
|
Share
Capital |
Retained
earnings |
Capital
reserves |
Other distributable
reserves |
Total
equity |
|
Notes |
£ |
£ |
£ |
£ |
£ |
Opening balance 1 January
2015 |
|
96,188,648 |
7,634,503 |
(17,294,001) |
97,838,372 |
184,367,522 |
Profit for the period |
|
- |
31,939,653 |
- |
- |
31,939,653 |
Other comprehensive income |
|
- |
- |
589,647 |
- |
589,647 |
Total comprehensive
gain for the period |
|
- |
31,939,653 |
589,647 |
- |
32,529,300 |
Dividends paid |
7 |
- |
(12,745,106) |
- |
- |
(12,745,106) |
Ordinary shares issued net of issue
costs* |
|
108,631,571 |
- |
- |
- |
108,631,571 |
Valuation gain from investment
properties |
|
- |
(17,636,973) |
17,636,973 |
- |
- |
Profit on disposal of investment
properties |
|
- |
(3,024,748) |
3,024,748 |
- |
- |
Balance at 31
December 2015 |
|
204,820,219 |
6,167,329 |
3,957,367 |
97,838,372 |
312,783,287 |
* this value represents both the nominal and the premium raised
on issuing the ordinary shares.
Unaudited Consolidated Cash Flow
Statement |
|
|
|
|
for the period ended 30 June
2016 |
|
1 Jan 16 to 30 Jun
16 |
1 Jan 15 to 30 Jun
15 |
1 Jan 15 to 31 Dec
15 |
|
Notes |
£ |
£ |
£ |
Cash generated from operating
activities |
|
|
|
|
Profit for the period |
|
10,120,967 |
12,923,937 |
31,939,653 |
Movement in non-current lease
incentives |
|
(189,660) |
19,373 |
270,464 |
Movement in trade and other
receivables |
|
(41,988) |
(2,224,255) |
1,230,084 |
Movement in trade and other
payables |
|
(297,315) |
324,462 |
3,735,996 |
Finance costs |
|
2,341,813 |
1,597,490 |
3,324,782 |
Loss on derecognition of interest
rate swaps
|
10 |
2,735,000 |
- |
- |
Finance income |
|
(16,103) |
(26,256) |
(68,186) |
Valuation gain from investment
properties |
3 |
(2,716,962) |
(7,529,522) |
(17,636,973) |
Loss on asset acquisition
|
|
- |
- |
75,181 |
(Profit)/loss on disposal of
investment properties |
|
(94,361) |
796,363 |
(3,024,748) |
Net cash inflow from operating
activities |
|
11,841,391 |
5,881,592 |
19,846,253 |
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
Interest received |
|
16,103 |
26,256 |
68,186 |
Purchase of investment |
|
- |
(21,441,843) |
(52,198,123) |
Business acquisition net of cash
acquired |
|
- |
- |
(165,060,458) |
Capital expenditure on investment
properties |
3 |
(888,612) |
(593,112) |
(1,144,434) |
Net proceeds from disposal of
investment properties |
|
6,219,361 |
11,303,737 |
57,854,848 |
Net cash used in investing
activities |
|
5,346,852 |
(10,704,962) |
(160,479,981) |
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
Ordinary shares issued net of issue
costs |
|
- |
34,400,467 |
110,462,680 |
Transaction costs of issues of
shares |
|
- |
- |
(1,831,109) |
Bank borrowing |
|
1,340,213 |
- |
55,000,000 |
Bank borrowing arrangement
costs |
|
- |
- |
(173,450) |
Interest paid on bank borrowing |
|
(1,476,865) |
(988,882) |
(1,869,338) |
Payments on interest rate swap |
|
(3,183,043) |
(608,608) |
(1,213,528) |
Dividends paid to the Company’s
shareholders |
7 |
(8,006,692) |
(6,048,757) |
(12,745,106) |
Net cash used in financing
activities |
|
(11,326,387) |
26,754,220 |
147,630,149 |
|
|
|
|
|
Net increase in cash and cash
equivalents in the period |
|
5,861,856 |
21,930,850 |
6,996,421 |
Cash and cash equivalents at
beginning of period |
|
12,395,516 |
5,399,095 |
5,399,095 |
Cash and cash equivalents at end
of period |
|
18,257,372 |
27,329,945 |
12,395,516 |
Notes to the Unaudited Consolidated Financial
Statements
for the period ended 30 June 2016
1 Accounting Policies
The unaudited consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standard (‘IFRS’) IAS 34 ‘Interim Financial Reporting’ and, except
as described below, the accounting policies set out in the
statutory accounts of the Group for the year ended 31 December 2015. The condensed unaudited
consolidated financial statements do not include all of the
information required for a complete set of IFRS financial
statements and should be read in conjunction with the consolidated
financial statements of the Group for the year ended 31 December 2015, which were prepared under full
IFRS requirements.
2 Related Party Disclosures
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
Investment Manager
On 19 December 2003 Standard Life
Investments (Corporate Funds) Limited (“the Investment Manager”)
was appointed as Investment Manager to manage the property assets
of the Group. A new Investment Management agreement (“IMA”) was
entered into on 7 July 2014,
appointing the Investment Manager as the AIFM (“Alternative
Investment Fund Manager”).
Under the terms of the current IMA, the Investment Manager is
entitled to receive fees of 0.75% of total assets up to £200
million; 0.70% of total assets between £200 million and £300
million; and 0.65% of total assets in excess of £300 million. The
total fees charged for the period ended 30
June 2016 amounted to £1,620,379 (period ended 30 June 2015: £1,121,035). The amount due and
payable at the period end amounted to £807,041, excluding VAT
(period ended 30 June 2015: £571,005
excluding VAT).
3 Investment Properties
Country
|
UK |
UK |
UK |
|
Class |
Industrial |
Office |
Retail |
Total |
|
30 Jun 16 |
30 Jun 16 |
30 Jun 16 |
30 Jun 16 |
|
£ |
£ |
£ |
£ |
Market value as at 1 January
2016 |
187,070,000 |
164,065,000 |
100,850,000 |
451,985,000 |
Capital expenditure on investment
properties |
707,905 |
47,372 |
133,335 |
888,612 |
Carrying value of disposed
investment properties |
(3,450,000) |
(2,675,000) |
- |
(6,125,000) |
Valuation gain from investment
properties |
929,022 |
1,585,172 |
202,768 |
2,716,962 |
Costs to sell for investment
properties recognised as held for sale |
- |
111,325 |
198,000 |
309,325 |
Movement in lease incentives
receivable |
263,073 |
(67,869) |
80,897 |
276,101 |
Closing market value
|
185,520,000 |
163,066,000 |
101,465,000 |
450,051,000 |
Investment properties recognised as
held for sale |
- |
(6,296,000) |
(2,900,000) |
(9,196,000) |
|
185,520,000 |
156,770,000 |
98,565,000 |
440,855,000 |
Adjustment for lease
incentives* |
(600,347) |
(2,244,619) |
(712,150) |
(3,557,116) |
Closing carrying value
|
184,919,653 |
154,525,381 |
97,852,850 |
437,297,884 |
*Lease incentives are split between non-current assets of
£3,267,928 and current assets of £289,188.
The valuations were performed by JLL Limited and Knight Frank
LLP, both accredited independent valuers with recognised and
relevant qualifications and recent experience of the location and
category of the investment properties being valued. The valuation
model in accordance with Institute of Chartered
Surveyors (‘RICS’) requirements on disclosure for Regulated Purpose
Valuations has been applied (RICS Valuation – Professional
Standards January 2014 published by
the Royal Institution of Chartered Surveyors). These valuation
models are consistent with the principles in IFRS 13.
The combined market value provided by JLL Limited and Knight
Frank LLP at the period ended 30 June
2016 was £450,051,000 (30 June
2015: £288,390,000) however an adjustment has been made for
lease incentives of £3,557,116 (30 June
2015: £2,195,297) that are already accounted for as an asset
and for costs to sell of £309,325 for the two properties which are
currently held for sale. The valuation at 30
June 2016 of £450,051,000 includes £2,900,000 in relation to
Ceres Court, Kingston Upon Thames
and £6,296,000 in relation to Causeway House, Teddington, two
investment properties held for sale at the Balance Sheet date (see
note 4).
Valuation gains and losses from investment properties are
recognised in profit and loss for the period and are attributable
to changes in unrealised gains or losses relating to investment
property (completed and under construction) held at the end of the
reporting period.
4 Investment Properties Held For
Sale
As at 30 June 2016 the Group held
for sale Ceres Court, Kingston Upon
Thames for £2,900,000 excluding related sale costs and
Causeway House, Teddington for £6,296,000 excluding related sale
costs. The independently assessed market value of each property
held for sale at 30 June 2016 is
detailed below:
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
£ |
£ |
£ |
Portrack Interchange |
- |
1,300,000 |
- |
Windsor Court and Crown Farm |
- |
3,550,000 |
- |
Units 2001 & 2002 Coal Road |
- |
3,725,000 |
- |
140 West George Street |
- |
4,950,000 |
- |
Ceres Court, Kingston Upon
Thames |
2,900,000 |
- |
- |
Causeway House, Teddington |
6,296,000 |
- |
- |
|
9,196,000 |
13,525,000 |
- |
Less: costs to sell |
(309,325) |
(514,700) |
- |
|
8,886,675 |
13,010,300 |
- |
5 Earnings Per Share
The earnings per Ordinary share are based on the net profit for
the period of £10,120,967 (30 June
2015: £12,923,937 and 31 December
2015: £31,939,653) and 380,690,419 (30 June 2015: 267,039,746 and 31 December 2015: 280,330,039) ordinary shares,
being the weighted average number of shares in issue during the
period.
Earnings for the period to 30 June
2016 should not be taken as a guide to the results for the
year to 31 December 2016.
6 Investment In Subsidiary
Undertakings
The Company owns 100 per cent of the issued ordinary share
capital of Standard Life Investments Property Holdings Limited, a
company with limited liability incorporated and domiciled in
Guernsey, Channel Islands, whose principal business is
property investment.
During the year to 31 December
2015 the Group acquired 100% of the units in Aviva Investors
UK Real Estate Recovery II Unit Trust (the “Unit Trust” or “UT”), a
Jersey Property Unit Trust “JPUT”. The acquisition included the
entire issued share capital of a General Partner which holds,
through a Limited Partnership, the new portfolio of 22 UK real
estate assets. The transaction completed on 23 December 2015 and the Group treated the
acquisition as a Business Combination in accordance with IFRS 3.
The Group Undertakings consist of the following entities at the
Balance Sheet date:
- Standard Life Investments Property Holdings Limited, a company
with limited liability incorporated in Guernsey, Channel
Islands.
- Standard Life Investments SLIPIT Unit Trust, a Jersey Property
Unit Trust domiciled in Jersey, Channel
Islands (formerly Aviva Investors UK Real Estate Recovery II
Unit Trust).
- Standard Life Investments (SLIPIT) Limited Partnership, a
limited partnership established in England (formerly Aviva Investors UK Real
Estate Recovery II Limited Partnership).
- Standard Life Investments SLIPIT (General Partner) Limited, a
company with limited liability incorporated in the United Kingdom (formerly Aviva Investors UK
Real Estate Recovery II (General Partner) Limited).
- Standard Life Investments SLIPIT (Nominee) Limited, a company
with limited liability incorporated and domiciled in the
United Kingdom (formerly Aviva
Investors UK Real Estate Recovery II (Nominee) Limited).
- Ceres Court Properties Limited, a company with limited
liability incorporated and domiciled in the United Kingdom (sold on 8 July 2016).
7 Dividends And Property Income
Distribution Gross Of Income Tax
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
£ |
£ |
£ |
Non Property Income
Distributions |
|
|
|
1.161p per ordinary share paid in
February relating to the quarter ending 31 December 2014 |
- |
2,835,350 |
2,835,350 |
0.391p per ordinary share paid in
November relating to the quarter ending 30 September 2015 |
- |
- |
1,127,594 |
0.561p per ordinary share paid in
March relating to the quarter ending 31 December 2015 |
1,679,848 |
- |
- |
Property Income
Distributions |
|
|
|
1.161p per ordinary share paid in
May relating to the quarter ending 31 March 2015
|
- |
3,213,407 |
3,213,406 |
1.161p per ordinary share paid in
August relating to the quarter ending 30 June 2015 |
- |
- |
3,348,175 |
0.770p per ordinary share paid in
November relating to the quarter ending 30 September 2015 |
- |
- |
2,220,581 |
0.600p per ordinary share paid in
March relating to the quarter ending 31 December 2015 |
1,796,628 |
- |
- |
1.19p per ordinary share paid in May
relating to the quarter ending 31 March 2016 |
4,530,216 |
- |
- |
|
8,006,692 |
6,048,757 |
12,745,106 |
A property income dividend of 1.19p per share was declared on
09 August 2016 in respect of the
quarter to 30 June 2016 – a total
payment of £4,530,216. This was paid on 31
August 2016.
8 Reconciliation of Consolidated NAV
To Published NAV
The NAV attributable to ordinary shares is published quarterly
and is based on the most recent valuation of the investment
properties and calculated on a basis which adjusts the underlying
reported IFRS numbers. The adjustment made is to include a
provision for payment of a dividend in respect of the quarter then
ended.
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
Number of
shares |
Number of
shares |
Number of
shares |
Number of ordinary shares at the
reporting date
|
380,690,419 |
288,387,160 |
380,690,419 |
|
|
|
|
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
£ |
£ |
£ |
Total equity per consolidated
financial statements |
311,554,217 |
226,400,292 |
312,783,287 |
NAV per share |
81.8p |
78.5p |
82.2p |
The EPRA publishes guidelines for calculating adjusted NAV. EPRA
NAV represents the fair value of an entity’s equity on a long-term
basis. Items that EPRA considers will have no impact on the long
term, such as fair value of derivatives, are therefore
excluded.
|
30 Jun 16 |
30 Jun 15 |
31 Dec 15 |
|
£ |
£ |
£ |
Total equity per consolidated
financial statements |
311,554,217 |
226,400,292 |
312,783,287 |
Adjustments: |
|
|
|
Add: fair value of derivatives |
5,428,637 |
1,917,816 |
2,085,292 |
|
|
|
|
Published adjusted EPRA NAV |
316,982,854 |
228,318,108 |
314,868,579 |
Published adjusted EPRA NAV per
share |
83.3p |
79.2p |
82.7p |
9 Financial Instruments And Investment
Properties
Fair values
The fair value of financial assets and liabilities is not
materially different from the carrying value in the annual
financial statements.
Fair value hierarchy
The following table shows an analysis of the fair values of
investment properties recognised in the balance sheet by the level
of the fair value hierarchy:
30 June 2016 |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
Investment properties |
- |
- |
437,297,884 |
437,297,884 |
The lowest level of input is the underlying yields on each
property which is an input not based on observable market data.
The following table shows an analysis of the fair values of
financial instruments recognised in the balance sheet by the level
of the fair value hierarchy:
30 June 2016 |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
Loan Facilities |
- |
144,775,064 |
- |
144,775,064 |
The lowest level of input is the interest rate payable on each
borrowing which is a directly observable input.
30 June 2016 |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
Interest rate swap |
- |
5,428,637 |
- |
5,428,637 |
The lowest level of input is the three month LIBOR yield curve
which is a directly observable input.
There were no transfers between levels of the fair value
hierarchy during the six months ended 30
June 2016.
Explanation of the fair value
hierarchy:
Level 1 – Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3 – Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
The fair value of investment properties is calculated using
unobservable inputs as described in the annual report and accounts
for the year ended 31 December
2015.
Sensitivity of measurement to variance
of significant unobservable inputs:
A decrease in the estimated annual rent will decrease the fair
value.
An increase in the discount rates and the capitalisation rates
will decrease the fair value.
There are interrelationships between these rates as they are
partially determined by the market rate conditions.
The fair value of the derivative interest rate swap contract is
estimated by discounting expected future cash flows using current
market interest rates and yield curves over the remaining term of
the instrument.
The fair value of the loan facilities are estimated by
discounting expected future cash flows using the current interest
rates applicable to each loan.
10 Bank Borrowings
On 22 December 2015 the Company
completed the drawdown of an additional £55,000,000 loan with RBS.
The new facility and the existing facility was then repayable on
27 June 2017, which applied to the
fully drawn down balance of £139,432,692. Interest from
22 December 2015 was payable at a
rate equal to the aggregate of 3 month Libor, a margin of
1.25%.
On 28 April 2016 the Company
entered into an agreement to extend £145 million of its existing
£155 million debt facility with RBS. The debt facility consists of
a £110 million seven year term loan facility (the “Term Loan”) and
a £35 million five year RCF. The RCF may by agreement be extended
by one year on two occasions. £145 million has been drawn down by
the Group. Interest is payable on the Term Loan at LIBOR plus
1.375% and on the RCF at LIBOR plus 1.2%. This equates to a rate of
2.725% on the Term Loan and 1.78% on the RCF which together give an
attractive current blended rate of 2.5% (based on the RCF being
fully drawn). As part of this refinancing the existing swaps that
were in place were repaid at a cost of £2.735 million and one new
seven year swap was entered into that covers the £110 million Term
Loan.
The restated facility agreement includes terms that are typical
for a facility of this nature, including LTV (a maximum of 60% for
the first five years and 55% thereafter) and interest cover ratio
covenants (not less than 175% for the term of the facility) and the
ability to substitute properties in the security pool.
11 Events After The Balance Sheet
Date
Property Sales and Purchases
On 1 July 2016 the Company
completed the sale of Causeway House, Teddington for £6.3 million
excluding costs.
On 8 July 2016 the Company
completed the sale of Ceres Court, Kingston Upon Thames for £2.75 million
excluding costs.
Shares and Dividends
A property income dividend of 1.19p per share was declared on
09 August 2016 in respect of the
quarter to 30 June 2016 – a total
payment of £4,530,216. This was paid on 31
August 2016.
End of Notes to the Unaudited
Consolidated Financial Statements for the period ended 30 June 2016
ADDITIONAL NOTES TO THE INTERIM
FINANCIAL REPORT
The Interim Report and Unaudited Consolidated Condensed
Financial Statements for the period from 1
January 2016 to 30 June 2016
will shortly be available for download from the Company’s website
hosted by the Investment Manager
(www.standardlifeinvestments.co.uk/its).
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise. Investors may not get back the
amount they originally invested.
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Jason Baggaley
Standard Life Investments Limited
Tel: 0131 245 2833
Graeme McDonald
Standard Life Investments Limited
Tel: 0131 245 3151
END