TIDMSLI
27 AUGUST 2015
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
RESULTS IN RESPECT OF THE PERIOD ENDED 30 JUNE 2015
Financial Highlights
* Net Asset Value total return of 6.6% for the six months ended 30 June 2015.
* Share price increased by 7.0% over the six months ended 30 June 2015 to
83.8p.
* Dividend yield of 5.5% based on 30 June 2015 share price of 83.8p.
* 2 properties purchased for GBP20.4m excluding costs and 4 properties sold for
GBP11.6m excluding costs.
* GBP34.8m of new equity raised over the six months ended 30 June 2015 at an
average premium to Net Asset Value of 5.4%, increasing the number of shares
in issue by 18.1%.
Total Returns (with dividends re-invested) 6 months to 30
June 2015
Net Asset Value per share* +6.6%
Share Price total return* +10.0%
*Source: Winterfloods
Capital Values 30 June 31 December
2015 2014 % Change
Net Asset Value per share 1 78.5p 75.5p +4.0%
EPRA* Net Asset Value per share 2 79.2p 76.6p +3.4%
Share Price 83.8p 78.3p +7.0%
Premium of Share Price to Net Asset 6.8% 3.7% -
Value
Total Assets GBP320.4m GBP278.7m +15.0%
Loan to Value 3 19.8% 29.2% -
Cash Balance GBP27.3m GBP5.4m -
Dividends 30 June 30 June
2015 2014
Dividends per share 4 2.322p 2.294p
Dividend yield 5.5% 6.1%
Property Returns 6 months to 30 12 months to 31
June 2015 December 2014
Property income return 5 3.1% 7.5%
IPD property income monthly index 6 2.5% 5.6%
Property total return (property 5.8% 18.0%
only) 7
IPD property total return monthly 6.3% 17.9%
index 6
1 Calculated under International Financial Reporting Standards.
2 EPRA NAV represents the value of an entity's equity on a long-term
basis. Some items, such as fair value of derivatives, are therefore excluded.
3 Calculated as bank borrowings less all cash as a percentage of the
open market value of the property portfolio as at 30 June 2015.
4 Dividends paid during the 6 months to 30 June 2015.
5 The net income receivable for the period expressed as a percentage of
the capital employed. Quarterly figures are compounded over the period to give
the rate over six months and twelve months.
6 Source: IPD quarterly version of the monthly index funds (excludes
cash).
7 The sum of capital growth and net income for the period expressed as a
percentage of capital employed excluding cash.
* The European Public Real Estate Association (EPRA) is a common
interest group, which aims to promote, develop and represent the European
public real estate sector.
Chairman's Statement
I have pleasure reporting on another very good period for your Company. The
REIT conversion has taken place successfully; the Company has fully utilised
its capacity to raise additional equity under both the Prospectus and
dis-application of pre emption rights authorities; further investment has been
made in real estate assets and the NAV has continued to grow.
The market capitalisation of the Company increased by 27% during the six months
period to GBP242m with total assets increased to GBP320m. The share price rose by
7.0% and the net asset value per share ('NAV') increased by 4.0%. The NAV total
return to shareholders was 6.6%.
The Property Portfolio and Performance
The Investment Manager's report provides detailed information on the portfolio.
At the end of June 2015, it was valued at GBP288m. Additionally there was
positive cash of GBP27.3m. Total assets were GBP320.4m (31 December 2014: GBP278.7m).
The Company's NAV at period end was 78.5p per share (31 December 2014: 75.5p),
an uplift of 4.0% over the period. The table below sets out the components of
the movement in the NAV.
Pence per % of opening
Share NAV
NAV as at 31 December 2014 75.5 100.0
Increase in valuation of property 2.7 3.6
portfolio
Decrease in interest rate swap 0.3 0.4
liability
NAV as at 30 June 2015 78.5 104.0
The Company completed two purchases totalling GBP20.4m in Preston and Bristol and
subsequent to the half year six further properties have been purchased for GBP
26.2m. There is one purchase in the pipeline that the Managers expect to
complete on over the next month.
The Company has sold four properties in the reporting period for GBP11.6m and
since the period end a further two sales and one part sale for GBP11.9m.
Shares and Share Price
At the half year, there were 288,387,160 shares in issue, an increase of 18.1%
over the period. The share price on 30 June 2015 was 83.8p, an uplift of 7.0%
over the six month period, and represented a premium of 6.8% over NAV at the
period end.
Earnings and Dividends
Earnings for the period increased from GBP11.57m to GBP12.92m, an increase of
11.7%. The shares provided a dividend yield of 5.5% based upon the current
annualised dividend of 4.644p per share and the share price at period end.
REIT Conversion
On 1 January 2015 the Company became resident in the UK for tax purposes and
will now be compliant with the UK REIT regime. Following the conversion to a
REIT the Company can pay dividends as property income dividends (PIDs). Indeed
in order to maintain its tax status as a UK REIT the Company must distribute
90% of its real estate profits in the form of PIDs. The Board has resolved that
the first three dividend payments this year will be by way of a PID and will be
paid net of UK tax unless the registered owner of the shares has completed a
HMRC declaration. A number of shareholders attending the May 2015 AGM
highlighted that the cash dividend received had been 20% less than before. This
is due to the deduction of the UK tax of 20% that the Company is required to
withhold. The Company's Registrar has provided the necessary HMRC declaration
forms to all qualifying registered owners of the Company's shares. However the
Board is aware that a number of investors hold shares via execution only
platforms or with ISA/ SIPP providers and may not have been advised of the
requirement to complete a declaration in order to receive dividends gross.
Investors are advised to seek independent advice and to contact their nominee
company to receive the necessary forms should they be eligible to do so. Where
a tax refund is due from HMRC our tax advisers have confirmed that the relevant
tax wrapper plan manager or administrator would be required to complete the
necessary forms and submit them to HMRC.
Loan to Value ratio
At 30 June 2015, the LTV ratio was 19.8% which will increase once the Company's
cash balance is invested. Our loan agreement with RBS sets out an upper limit
of 65% until December 2016, reducing to 60% for the remaining two years.
The Board and Corporate Governance
It is my intention to retire from the Board at the AGM next June having been a
founder director of your Company since 2003. I am delighted to inform you that
the Board has asked Robert Peto to be your new chairman and he has accepted.
The Board has started a search for a new UK based non-executive director.
Fund Raising
During February 2015 the Company issued all of the remaining shares under its
Prospectus authority bringing the total issued since July 2014 to 100m shares.
In addition, over the period from 20 February 2015 to 18 June 2015 the Company
has fully utilised its powers to issue shares on a non pre-emptive basis
issuing a further 27.7m shares. In total during the half year period the
Company issued new shares for a gross consideration of GBP34.8m. In each case the
new shares were issued at a premium of at least 5% to the prevailing NAV and
the proceeds invested timeously into UK commercial real estate properties at
attractive yields.
As a result of being a larger company together with the lower management fee
instituted in July 2014 the ongoing charges ratio has fallen to 1.4% based on
an average NAV from 1.8% a year earlier.
Outlook
The UK economy is continuing to grow. There are interest rate and geopolitical
risks, with some countries experiencing slower growth, but we expect UK growth
to continue. There is now better demand for space from prospective tenants so
that rents in some sectors are rising. In many areas space is in short supply
because of the lack of building in recent years.
The Managers are active with tenants and in the market and your Board is
optimistic that the Company can continue to show good returns.
Richard Barfield
Chairman
27 August 2015
Principal Risks and Uncertainties
The Company's assets consist of direct investments in UK commercial property.
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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 the 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 net asset value 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 when
necessary challenged 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 a number of
interest rate swap arrangements. These swap instruments are valued and
monitored on a monthly basis by the counterparty bank. The Investment
Manager checks the valuation of the swap instruments internally to ensure
they are accurate. In addition, the credit rating of the bank that the
swaps are 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 a poor return 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.
* The implementation of AIFMD during 2014 and the conversion of the Company
to a UK REIT have introduced new regulatory risks to the Company in the
form of ensuring compliance with the respective regulations. In relation to
AIFMD, the Board has put in place a system of regular reporting from the
AIFM and the depositary to ensure both are meeting their regulatory
responsibilities in respect of the Company. In relation to UK REIT status,
the Board has put in place a system of regular reporting to ensure that the
requirements of the UK REIT regime are being adequately monitored and fully
complied with.
* 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 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.
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.
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 UK economic fundamentals continue to strengthen as the economy is now
estimated to have grown by 0.7% in Q2 according to the first estimate of the
ONS, representing a solid rebound albeit dominated by the service sector's
contribution. Business sentiment and consumer confidence remain buoyant. Over
the six months to 30 June 2015 the All Property total return, as recorded by
the Quarterly version of the IPD Monthly Index, was 6.3% which, although
attractive, lagged the 8.4% total return for the same period in 2014. Capital
values increased by 3.7% in the half year to end June (5.5% in 2014). Rental
growth however continues to improve, and grew by 1.8% in the six months to 30
June 2015, compared to 1.4% for the same period in 2014. It is noticeable that
rental growth is spreading out across the UK and is no longer limited to London
and the South East, although it is less evident in the retail sector on
anything but the best product. This reflects the relative performance of the
three main sectors with offices providing a total return of 8.7% over the
reporting period, industrial 7.8% and retail again lagging the market at 3.7%.
Demand from investors has remained robust over the first half of 2015,
continuing the theme of weight of money driving pricing that was most evident
in 2014. There remains a diverse source of investors from overseas, to private
equity type buyers to UK institutions. This is driven as much by the relative
pricing of real estate (especially compared to gilts) as it is the improving
fundamentals of rental growth resulting from strong occupational demand and
limited supply.
Investment Outlook
UK Commercial Real Estate continues to make steady progress in 2015 although
momentum has reduced compared to the same point last year. We expect positive
total returns for investors on a three year holding period due to the elevated
yield and improving income growth prospects. The sector remains attractive from
a fundamental point of view, i.e., strengthening economic drivers and a limited
pipeline of future new developments. Rising interest rates are an emerging risk
although there is a reasonable buffer in pricing to compensate if the market
prices in a further acceleration of rate rises. The retail sector continues to
face a series of headwinds that may hold back recovery in weaker locations due
to oversupply and structural issues but the prospects for retail towards the
South East and Central London are expected to improve further as economic
recovery gains more traction. Prime, good quality secondary assets and
selective poorer quality secondary assets in stronger locations are likely to
provide the best opportunities in the robust economic environment we anticipate
over the remainder of 2015 and into 2016.
Performance
Over the first 6 months of 2015 the Company had a NAV Total Return of 6.6% and
a share price total return (assuming dividends reinvested) of 10%.
UK listed real estate equities (as measured by the FTSE EPRA/ NAREIT UK index)
provided a total return of 8% over the six months to 30 June 2015, which
compared well to the 1.4% from the FTSE100 over the same period and 3% from the
FTSE All Share.
The portfolio level return has slightly lagged over the reporting period,
influenced heavily by the level of transactions. The NAV total return
demonstrates the benefit of raising new equity at a premium to cover the
transaction costs and protect existing shareholder's returns.
We have also written down some of the valuations based on expected or actual
sale prices as we sold out of our smaller assets with poorer performance
expectations. This includes one asset in particular which has now been sold
(Drakes Way, Swindon) where we had hope value in the valuation for a proposed
food store development which is no longer going to happen. The standing
portfolio (assets held over the period), continued to perform well, with a
total return of 18.7% over the 12 months to end June, compared to the IPD
return of 16.3% for the same period.
Investment Strategy
The Investment Manager and the Board are focussed on providing investors a
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sustainable and attractive level of income by investing in good quality
commercial real estate assets in the UK. We target assets that we believe will
appeal to occupiers, where we can add value and generate rental growth through
actively managing the assets. The Company targets a covered dividend over the
course of each year.
Portfolio Valuation
The property is valued on a quarterly basis by Jones Lang Lasalle. As at 30
June 2015 the investment portfolio comprised a total of 39 assets valued at a
total of GBP288.39m. In addition the Company had cash of GBP27.3m. This compares to
GBP178.8m and GBP23.2m respectively at end June 2014.
Lease Expiry Profile
The Company has an average lease length to earliest of lease end or break
option of 7.1 years. This is similar to the IPD index (with leases over 35
years excluded). We take an active approach to managing lease expiries, and for
2015 we have secured 73% of income at risk thorough lease expiry or break, with
another 10% in solicitors hands for lease regears. 68% of the income at risk in
2016 has also been secured.
As the occupational market improves and supply though development remains
limited, there is increasing opportunity to add value through lease events;
either renewing existing leases, or taking accommodation back to refurbish and
then relet.
Portfolio sector/subsector allocations
The portfolio is invested solely in UK Commercial Real Estate. Retail has been
an underperforming sector and the Company is likely to remain underweight to
retail whilst it believes the current divergence between large prime dominant
retail destinations and smaller more secondary ones will continue. The
exposure the Company has to retail is generally by way of retail warehousing
rather than high street property as we feel more confident in this sub sector.
Geographic distribution
The Company invests throughout the UK to provide a diversified portfolio.
Investment Activity
Purchases
The Company completed two purchases in the first six months of 2015 for a total
of GBP20.4m:
1. DSG Preston GBP15.8m, 7% yield - let for a further 16 years with fixed
uplifts, units adjacent to the prime dominant park.
2. Interplex 16 Bristol GBP4.6m, 8% yield - two industrial units, one of which
is vacant, the other let on a short lease.
A further four purchases were completed in July and August 2015, after the
reporting period end, for a total of GBP26.2m:
1. Office portfolio GBP13.2m, 7.25% yield - three offices, located in York,
Milton Keynes and Dartford - all good quality let to strong tenants.
2. Halfords Bradford GBP5.1m, 8.5% yield - retail warehouse and car showroom
adjacent to the dominant retail park.
3. Office in Kiddlington for GBP4.8m, 8.25% yield - modern single let office in
an area with infrastructure improvement.
4. Industrial unit in Fareham for GBP3.1m, 7% yield - low site cover, asset
management potential.
One other investment is also in solicitors hands:
5. Industrial unit GBP2.9m, 7.2% yield - in the North-East, well specified for
parcel delivery.
As can be seen from the above, the year started with a large investment but
since then we have found more value in small lot sizes.
Sales
The Company has undertaken the sale of a number of assets that are unlikely to
perform well in the future or where there is an opportunity to realise a
capital gain.
The following sales were completed in the first six months of 2015:
1. Weybridge GBP3.2m - sale of over rented office with lease expiry in 2015.
2. Swindon GBP3.5m - sale to tenant after prospective redevelopment as a
foodstore fell through.
3. Swansea GBP1.3m - sale of small short let office out of town.
4. Chelmsford GBP3.6m - sale of over rented office with lease expiries in 2015,
needing capex.
The following sales were completed in July and August of 2015, after the
reporting period end:
1. Mansfield GBP2.6m - part sale of small industrial estate.
2. Leeds GBP3.8m - sale of two industrial units with income at risk.
3. Glasgow GBP5.5m - sale of office off market.
One other sale is also in solicitors hands:
4. Stockton GBP1.3m - sale of small single let industrial unit.
Voids
During the reporting period key asset management transactions included:
1. Ocean Trade Centre Aberdeen: two leases were extended with the existing
tenants, and a major refurbishment undertaken on 7 units (completed mid July).
5 of the units were let on an agreement for lease for 10 years to CCF, and the
other two put in solicitors hands after the reporting period.
2. Explorer Crawley: Lease break with Amey removed to give a further 5 years
term certain.
3. Coal Rd Leeds: Five year lease extension agreed on one unit.
4. St James House Cheltenham: A new 10 year lease agreed on part of the third
floor to the existing tenant reinforced current ERVs and exceeded valuation
assumptions.
Asset Management
The Company has maintained low voids during the period, and as at the period
end they stood at 2.8% of ERV. Lettings in solicitors hands should reduce this
to under 2%, with the main void (1.5% of ERV) being the new purchase in Bristol
where the Company plans a refurbishment before reletting. Maintaining low
voids remains a key aim of the Investment Manager.
Debt
The Company has a debt facility in place with RBS that expires in December
2018. The facility is for GBP84m and is fully drawn down. There is an interest
rate swap in place meaning that the all in cost is 3.7%. As at 30 June the
Company had an LTV of 19.8% (bank covt 65%). The Company is reviewing its debt
strategy as a longer term facility might be more appropriate.
Equity Raise
During the period the Company issued new equity on three occasions to fund new
acquisitions.
February 31.3m shares at 78.1p per share
March 1.3m shares at 80.2p per share
June 11.6m shares at 80.3p per share
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 set of 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 Services Authority's
Disclosure and Transparency Rules.
* In accordance with 4.2.9R of the Financial Services 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 2015, 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
Richard Barfield
Chairman
27 August 2015
UNAUDITED FINANCIAL STATEMENTS
Unaudited Consolidated Statement of Comprehensive Income
for the period ended 30 June 2015
Notes 1 Jan 15 to 1 Jan 14 to
30 Jun 15 30 Jun 14
GBP GBP
Rental income 9,739,210 7,462,953
Surrender premium income - 18,154
Valuation gain from investment 5 7,529,522 9,176,100
properties
Loss on asset acquisition (65,129) -
Loss on disposal of investment (796,363) (2,032,950)
properties
Investment management fees 3 (1,121,035) (735,457)
Other direct property operating (504,924) (483,017)
expenses
Directors' fees and expenses (62,150) (68,052)
Valuer's fee (37,809) (22,787)
Auditor's fee (23,008) (22,900)
Other administration expenses (163,143) (110,643)
Operating profit 14,495,171 13,181,401
Finance income 26,256 25,420
Finance costs (1,597,490) (1,636,315)
Profit for the period 12,923,937 11,570,506
Other comprehensive income
Valuation gain / (loss) on cash flow 757,123 (141,937)
hedges
Total comprehensive income for the 13,681,060 11,428,569
period
Earnings per share: pence pence
Basic and diluted earnings per share 4.84 7.31
Adjusted (EPRA) earnings per share 2.32 2.80
All items in the above Unaudited Consolidated Statement of Comprehensive Income
derive from continuing operations.
Unaudited Consolidated Balance Sheet
as at 30 June 2015
Notes 30 Jun 2015 31 Dec 2014
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GBP GBP
ASSETS
Non-current assets
Investment properties 5 272,669,703 261,672,121
Lease incentives 5 2,471,229 2,436,976
275,140,932 264,109,097
Current assets
Investment properties held for sale 6 13,010,300 6,550,100
Trade and other receivables 4,884,695 2,660,440
Cash and cash equivalents 27,329,945 5,399,095
45,224,940 14,609,635
Total assets 320,365,872 278,718,732
LIABILITIES
Current liabilities
Trade and other payables 7,485,896 7,205,415
Other liabilities - 500
7,485,896 7,205,915
Non-current liabilities
Bank borrowings 84,036,866 83,980,382
Interest rate swaps 1,917,816 2,674,939
Other liabilities - 6,094
Rental deposits due to tenants 525,002 483,880
86,479,684 87,145,295
Total liabilities 93,965,580 94,351,210
Net assets 226,400,292 184,367,522
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital 130,589,115 96,188,648
Retained earnings 7,776,524 7,634,503
Capital reserves (9,803,719) (17,294,001)
Other distributable reserves 97,838,372 97,838,372
Total equity 226,400,292 184,367,522
Net Asset Value (NAV) per Share
NAV 9 78.5p 75.5p
EPRA NAV 79.2p 76.6p
9
Approved by the Board of Directors on 27 August 2015 and signed on its behalf
by:
Richard Barfield
Director
Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2015
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total equity
GBP GBP GBP GBP GBP
Opening balance 1 96,188,648 7,634,503 (17,294,001) 97,838,372 184,367,522
January 2015
Profit for the - 12,923,937 - - 12,923,937
period
Valuation gain on - - 757,123 - 757,123
cash flow hedges
Total comprehensive
gain for the period - 12,923,937 757,123 - 13,681,060
Dividends paid 8 - (6,048,757) - - (6,048,757)
Ordinary 34,400,467 - - - 34,400,467
shares issued*
Valuation gain
of investment 5 - (7,529,522) 7,529,522 - -
properties
Loss on disposal
of investment - 796,363 (796,363) - -
properties
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 period ended 30 June 2014
Share Retained Capital Other
Notes Capital earnings reserves distributable Total equity
reserves
GBP GBP GBP GBP GBP
Opening balance 1 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795
January 2014
Profit for the - 11,570,506 - - 11,570,506
period
Valuation loss on - - (141,937) - (141,937)
cash flow hedges
Total comprehensive - 11,570,506 (141,937) - 11,428,569
gain for the period
Dividends paid 8 - (3,621,919) - - (3,621,919)
Ordinary shares 4,032,940 - - - 4,032,940
issued*
Valuation gain of
investment - (9,176,100) 9,176,100 - -
properties
Loss on disposal of
investment - 2,032,950 (2,032,950) - -
properties
Balance at 30 35,369,964 7,366,290 (27,143,241) 97,838,372 113,431,385
June 2014
* 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 2015
Notes 1 Jan 15 to 1 Jan 14 to
30 Jun 15 30 Jun 14
GBP GBP
Cash generated from operating activities
Profit for the period 12,923,937 11,570,506
Movement in non-current lease incentives 19,373 (67,274)
Movement in trade and other receivables (2,224,255) (141,935)
Movement in trade and other payables 324,462 1,533,160
Finance costs 1,597,490 1,636,315
Finance income (26,256) (25,420)
Valuation gain from investment properties (7,529,522) (9,176,100)
Loss on disposal of investment properties 796,363 2,032,950
Net cash inflow from operating activities 5,881,592 7,362,202
Cash flows from investing activities
Interest received 26,256 25,420
Purchase of investment properties 5 (21,441,843) (19,611,648)
Capital expenditure on investment properties 5 (593,112) (2,206,823)
Net proceeds from disposal of investment 5 11,303,737 26,567,050
properties
Net cash used in investing activities (10,704,962) 4,773,999
Cash flows from financing activities
Ordinary shares issued net of issue costs 34,400,467 4,032,940
Interest paid on bank borrowing (988,881) (1,010,693)
Payments on interest rate swaps (608,609) (625,622)
Dividends paid to the Company's shareholders 8 (6,048,757) (3,621,919)
Net cash used in financing activities 26,754,220 (1,225,294)
Net increase in cash and cash equivalents in the 21,930,850 10,910,907
period
Cash and cash equivalents at beginning of period 5,399,095 12,303,310
Cash and cash equivalents at end of period 27,329,945 23,214,217
Standard Life Investments Property Income Trust Limited
Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2015
1 GENERAL INFORMATION
Standard Life Investments Property Income Trust Limited ("the Company") and its
subsidiary (together the "Group") carries on the business of property
investment through a portfolio of freehold and leasehold investment properties
located in the United Kingdom. The Company is a limited liability company
incorporated and domiciled in Guernsey, Channel Islands. The Company has its
listing on the London Stock Exchange.
On 1 January 2015 the Company became resident in the UK for tax purposes and
will now be compliant with the UK REIT regime.
The address of the registered office is Trafalgar Court, Les Banques, St Peter
Port, Guernsey.
These Unaudited Consolidated Financial Statements were approved for issue by
the Board of Directors on 27 August 2015.
The Audited Consolidated Financial Statements of the company for the year ended
31 December 2014 are available on request from the registered office or from
the Investment Manager's website (www.standardlifeinvestments.com/its).
2 ACCOUNTING POLICIES
Basis of preparation
The Unaudited Consolidated Financial Statements of the Group have been prepared
in accordance with IAS 34 Interim Financial Reporting, and all applicable
requirements of The Companies (Guernsey) Law, 2008. The Unaudited Consolidated
Financial Statements have been prepared under the historical cost convention as
modified by the measurement of investment property and derivative financial
instruments at fair value. The Unaudited Consolidated Financial Statements are
presented in pound sterling and all values are not rounded except when
otherwise indicated.
These statements do not contain all of the information required for full annual
statements and should be read in conjunction with the Audited Consolidated
Financial Statements of the Company for the year ended 31 December 2014. The
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accounting policies adopted in the preparation of the Interim Condensed
Consolidated Financial Statements are consistent with those followed in the
preparation of the Group's Annual Consolidated Financial Statements for the
year ended 31 December 2014, except for the adoption of new standards and
interpretations effective in the European Union as of 1 January 2015.
New standards and amendments apply for the first time in 2015. However, they do
not impact the Unaudited Interim Condensed Consolidated Financial Statements of
the Group and are listed below:
* Annual Improvements to IFRSs 2011-2013 Cycle
3 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 IMA dated 19 December 2003, the Investment Manager was
entitled to receive a fee at the annual rate of 0.85% of the total assets,
payable quarterly in arrears except where cash balances exceed 10% of the total
assets. The fee applicable to the amount of cash exceeding 10% of total assets
was altered to be 0.20% per annum, payable quarterly in arrears. The Investment
Manager also agreed to reduce its charge to 0.75% of the total assets of the
Group until such time as the net asset value per share returns to the launch
level of 97p. This was applicable from the quarter ending 31 December 2008
onwards and did not affect the reduced fee of 0.20% on cash holdings above 10%
of total assets.
Under the terms of the IMA dated 7 July 2014, the above fee arrangements apply
up to 31 July 2014. From 1 August 2014, the fee was changed to 0.75% of total
assets up to GBP200 million; 0.70% of total assets between GBP200 million and GBP300
million; and 0.65% of total assets in excess of GBP300 million. The total fees
charged for the period ended 30 June 2015 amounted to GBP1,121,035 (period ended
30 June 2014: GBP735,457). The amount due and payable at the period end amounted
to GBP571,005, excluding VAT (period ended 30 June 2014: GBP373,266 excluding VAT).
4 TAXATION
Current income tax
A reconciliation of the product of accounting profit multiplied by the
applicable tax rate for the period ended 30 June 2015 and 2014 is, as follows:
30 Jun 2015 30 Jun 2014
GBP GBP
Profit before tax 12,923,937 11,570,506
Tax calculated at UK statutory income tax/
corporation tax 2,584,787 2,314,101
rate of 20% (30 June 2014: 20%)
UK REIT exemption on net income and gains (1,140,949) -
Valuation gain in respect of investment
properties not (1,505,904) (1,835,220)
subject to tax
Loss on disposal of investment properties not
subject to - 406,590
tax
Income not subject to tax - (289,189)
Expenditure not allowed for income tax purposes - 74,720
Tax loss not utilised/(utilised) 62,066 (671,002)
Current income tax charge - -
The Group has not recognised a deferred tax asset of GBP62,066 arising as a
result of revenue tax losses. Tax losses that existed prior to the Group's
election to be treated as a UK Real Estate Investment Trust (REIT) (see below)
have been written off as they cannot be utilised against profits of the Group
arising in the REIT regime.
The Group elected to be treated as a UK Real Estate Investment Trust (REIT)
from 1 January 2015. Under the UK REIT rules, profits of the Group's property
rental business are exempt from the charge to corporation tax. Gains on the
disposal of property assets are also exempt from tax provided they are not held
for trading or, in the case of developed property, sold within three years of
completion of the development. The Group is subject to UK corporation tax on
all other profits and gains.
5 INVESTMENT PROPERTIES
Country UK UK UK
Class Industrial Office Retail Total
GBP GBP GBP GBP
Market value as at 1 January 2015 108,660,000 114,265,100 47,125,000 270,050,100
Purchase of investment properties 4,851,800 - 16,590,043 21,441,843
Capital expenditure on investment 452,089 137,696 3,327 593,112
properties
Carrying value of disposed investment (3,750,000) (8,350,100) - (12,100,100)
properties
Valuation gain/(loss) from investment 3,259,433 4,409,592 (139,503) 7,529,522
properties
Movement in lease incentives receivable 40,395 329,295 (8,867) 360,823
Investment properties recategorised as (8,393,717) (4,616,583) - (13,010,300)
held for sale
Closing market value 105,120,000 106,175,000 63,570,000 274,865,000
Adjustment for lease incentives* (503,068) (1,130,062) (562,167) (2,195,297)
Closing carrying value as at 30 June 104,616,932 105,044,938 63,007,833 272,669,703
2015
*Lease incentives are split between non current assets of GBP2,471,229 and
current liabilities of GBP275,932.
The valuations were performed by Jones Lang Lasalle, an accredited independent
valuer with a recognised and relevant professional qualification and recent
experience of the location and category of the investment properties being
valued. The valuation model in accordance with Royal 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 market value provided by Jones Lang Lasalle at the period ended 30 June
2015 was GBP288,390,000 (30 June 2014: GBP178,795,000) however an adjustment has
been made for lease incentives of GBP2,195,297* (30 June 2014: GBP1,344,492) that
are already accounted for as an asset. The valuation at 30 June 2015 of GBP
288,390,000 includes GBP3,725,000 in relation to Units 2001 & 2002 Coal Road in
Leeds, GBP4,950,000 in relation to 140 West George Street in Glasgow, GBP1,300,000
in relation to Portrack Interchange in Stockton on Tees and GBP3,550,000 in
relation to Windsor Court and Crown Farm in Mansfield, four investment
properties held for sale at the Balance Sheet date (see note 6).
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.
Country UK UK UK
Class Industrial Office Retail Total
GBP GBP GBP GBP
Market value as at 1 January 2014 48,175,000 79,945,000 48,295,000 176,415,000
Purchase of investment properties 72,084,707 15,097,439 10,671,653 97,853,799
Capital expenditure on investment 29,971 2,779,559 (101,508) 2,708,022
properties
Carrying value of disposed investment (14,550,000) - (14,050,000) (28,600,000)
properties
Valuation gain from investment 2,961,019 16,132,344 2,104,506 21,197,869
properties
Movement in lease incentives receivable (40,697) 310,758 205,349 475,410
Investment properties recategorised as - (6,550,100) - (6,550,100)
held for sale
Closing market value 108,660,000 107,715,000 47,125,000 263,500,000
Adjustment for lease incentives* (462,673) (800,767) (571,033) (1,834,473)
Adjustment for financial lease - 6,594 - 6,594
obligations
Closing carrying value as at 31 108,197,327 106,920,827 46,553,967 261,672,121
December 2014
In the Consolidated Cash Flow Statement, proceeds from disposal of investment
properties comprise:
1 Jan 15 1 Jan 14 to
to
30 Jun 15 30 Jun 14
Carrying value of disposed investment 12,100,100 28,600,000
properties
Loss on disposal of investment (796,363) (2,032,950)
properties
Proceeds from disposal of investment 11,303,737 26,567,050
properties
Valuation Methodology
The fair value of completed investment properties are determined using the
income capitalisation method.
The income capitalisation method is based on capitalising the net income stream
at an appropriate yield. In establishing the net income stream the valuer has
reflected the current rent (the gross rent) payable to lease expiry, at which
point the valuer has assumed that each unit will be re-let at their opinion of
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ERV. The valuer has made allowances for voids and rent free periods where
appropriate, as well as deducting non recoverable costs where applicable. The
appropriate yield is selected on the basis of the location of the building, its
quality, tenant credit quality and lease terms amongst other factors.
No properties have changed valuation technique since 31 December 2014.
The Company appoints a suitable valuer (such appointment is reviewed on a
periodic basis) to undertake a valuation of all the direct real estate
investments on a quarterly basis. The valuation is undertaken in accordance
with the then current RICS guidelines and requirements as mentioned above.
The Investment Manager meets with the valuer on a quarterly basis to ensure the
valuer is aware of all relevant information for the valuation and any change in
the investment over the quarter. The Investment Manager then reviews and
discusses the draft valuations with the valuer to ensure correct factual
assumptions are made. The valuer reports a final valuation that is then
reported to the Board.
The management group that determines the Company's valuation policies and
procedures for property valuations is the Property Valuation Committee. The
Committee reviews the quarterly property valuation report produced by the
Valuer (or such other person as may from time to time provide such property
valuation services to the Company) before its submission to the Board,
focussing in particular on:
* significant adjustments from the previous property valuation report.
* reviewing the individual valuations of each property.
* compliance with applicable standards and guidelines including those issued
by RICS and the UKLA Listing Rules.
* reviewing the findings and any recommendations or statements made by the
valuer.
* considering any further matters relating to the valuation of the
properties.
The Chairman of the Committee makes a brief report of the findings and
recommendations of the Committee to the Board after each Committee meeting. The
minutes of the Committee meetings are circulated to the Board. The Chairman
submits an annual report to the Board summarising the Committee's activities
during the year and the related significant results and findings.
All investment properties are classified as Level 3 in the fair value
hierarchy. There were no movements between levels since 31 December 2014.
There are currently no restrictions on the realisability of investment
properties or the remittance of income and proceeds of disposal.
The table below outlines the valuation techniques used to derive Level 3 fair
values for each class of investment properties:
* The fair value measurements at the end of the reporting period.
* The level of the fair value hierarchy (e.g. Level 3) within which the fair
value measurements are categorised in their entirety.
* A description of the valuation techniques applied.
* Fair value measurements, quantitative information about the significant
unobservable inputs used in the fair value measurement.
* The inputs used in the fair value measurement, including the ranges of rent
charged to different units within the same building.
Country & Fair value Valuation Key Range
Class Technique Unobservable (weighted average)
GBP input
· Initial Yield
· Reversionary · 0% to 9.01% (4.97%)
Yield · 5.67% to 10.42% (7.25%)
UK Industrial 113,010,649 · Income · Equivalent · 5.67% to 8.70% (6.98%)
Level 3 Capitalisation Yield · GBP23.68 to GBP86.10 (GBP
· Estimated 53.14)
rental value per
Sq.m
· Initial Yield
· Reversionary · 0% to 11.05% (6.14%)
Yield · 5.72% to 9.89% (6.83%)
UK Office 109,661,521 · Income · Equivalent · 5.34% to 9.60% (6.65%)
Level 3 Capitalisation Yield · GBP137.47 to GBP588.94 (GBP
· Estimated 271.50)
rental value per
Sq.m
· Initial Yield
· Reversionary · 6.13% to 7.46% (6.59%)
Yield · 3.97% to 7.41% (5.78%)
UK Retail 63,007,833 · Income · Equivalent · 6.27% to 7.45% (6.74%)
Level 3 Capitalisation Yield · GBP76.56 to GBP179.90 (GBP
· Estimated 141.32)
rental value per
Sq.m
285,680,003**
**includes the market values of the four properties held for sale as detailed
in note 6.
Descriptions and definitions
The table above includes the following descriptions and definitions relating to
valuation techniques and key unobservable inputs made in determining the fair
values:
Estimated rental value (ERV)
The rent at which space could be let in the market conditions prevailing at the
date of valuation.
Equivalent yield
The equivalent yield is defined as the internal rate of return of the cash flow
from the property, assuming a rise to ERV at the next review, but with no
further rental growth.
Initial yield
Initial yield is the annualised rents of a property expressed as a percentage
of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial yield will
rise (or fall) once the rent reaches the ERV.
The table below shows the ERV per annum, area per square foot, average ERV per
square foot, initial yield and reversionary yield as at the Balance Sheet date.
30 Jun 2015 31 Dec 2014
GBP GBP
ERV p.a. 20,882,883 20,460,185
Area sq. ft. 2,651,764 2,736,927
Average ERV per sq. ft. GBP7.88 GBP7.48
Initial Yield 5.78% 6.59%
Reversionary Yield 5.02% 5.13%
The initial yield moved inwards due to a combination of factors which included
a shift in market yield, the sale of some higher yielding assets with short
leases (income reinvested after the period end was at yields of over 7%) and an
increase in voids from 0.6% in June 2014 to 2.8% June 2015.
Sensitivity analysis
The table below presents the sensitivity of the valuation to changes in the
most significant assumptions underlying the valuation of completed investment
property.
30 Jun 2015 31 Dec 2014
GBP GBP
Increase in equivalent yield of 25 (11,000,000) (10,100,000)
bps
Decrease in rental rates of 5% (ERV) (10,300,000) (10,100,000)
Below is a list of how the interrelationships in the sensitivity analysis above
can be explained. In both cases outlined in the sensitivity table the estimated
Fair Value would increase (decrease) if:
* The ERV is higher (lower)
* Void periods were shorter (longer)
* The occupancy rate was higher (lower)
* Rent free periods were shorter (longer)
* The capitalisation rates were lower (higher)
6 INVESTMENT PROPERTIES HELD FOR SALE
As at 30 June 2015 the Group had exchanged contracts with third parties for the
sale of Portrack Interchange, Stockton for GBP1,300,000 excluding a rent free
reduction on the sale price and excluding related sale costs. The part sale of
Windsor Court and Crown Farm completed on 15 July 2015 for GBP2,610,877 excluding
costs. Units 2001 & 2002 Coal Road, Leeds completed on 31 July 2015 for GBP
3,830,664 excluding costs and 140 West George Street, Glasgow completed on 10
August 2015 for GBP5,525,287 excluding costs. All of these properties were being
actively marketed for sale at 30 June 2015 and meet the criteria of non current
assets held for sale at the Balance Sheet date. The independently assessed
market value of each property held for sale at 30 June 2015 is detailed below:
30 Jun 2015 31 Dec 2014
GBP GBP
De Ville Court - 3,150,000
Chancellors Place - 3,575,000
Portrack Interchange 1,300,000 -
Windsor Court and Crown 3,550,000 -
Farm
Units 2001 & 2002 Coal Road 3,725,000 -
140 West George Street 4,950,000 -
Less: transaction costs (514,700) (174,900)
Closing Adjusted Market 13,010,300 6,550,100
Value
7 INVESTMENT IS 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.
The Group, through its subsidiary, owns 100 per cent of the issued ordinary
share capital of Huris (Farnborough) Limited, a company incorporated in the
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