SLI.L Regulatory News (SLI)

29 AUGUST 2014 STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST RESULTS IN RESPECT OF THE PERIOD ENDED 30 JUNE 2014 Financial Highlights - Net Asset Value total return of 11.7% for the six months ended 30 June 2014. - Share price increased by 9.3% over the six months ended 30 June 2014 to 76.5p. - Dividend yield of 6.1% based on 30 June 2014 share price of 76.5p. - 2 properties purchased for £18.5m excluding costs and 4 properties sold for £27.0m excluding costs. - Share capital increased 3.7% over the six months ended 30 June 2014. - 50m new ordinary shares issued at a price of 72.9p per share on 30 July 2014. Total Returns (with dividends re-invested) 6 months to 30 June 2014 Net Asset Value per share* +11.7%Share Price total return* +12.7%*Source: Morningstar Capital Values 30 June 31 December 2014 2013 % Change Net Asset Value per share 1 70.6p 65.5p +7.8%EPRA* Net Asset Value per share 2 70.7p 65.6p +7.8%Share Price 76.5p 70.0p +9.3%Premium of Share Price to Net Asset 8.4% 6.9% -ValueTotal Assets £204.7m £191.6m +6.8%Loan to Value 3 34.2% 40.9% -Cash Balance £23.2m £12.3m - Dividends 30 June 30 June 2014 2013 Dividends per share 4 2.294p 2.266pDividend yield 5 6.1% 7.5% Property Returns 6 months to 30 12 months to June 31 December 2014 2013 Property income return 6 4.0% 7.7%IPD property income monthly index 7 2.8% 6.1%Property total return (property only) 7.4% 11.7%8IPD property total return monthly 8.4% 9.9%index 7 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 openmarket value of the property portfolio as at 30 June 2014. 4. Dividends paid during the 6 months to 30 June 2014. 5. Calculated using 30 June quarterly dividend compounded over a year. 6. The net income receivable for the period expressed as a percentage of thecapital employed. Quarterly figures are compounded over the period to give therate over six months. 7. Source: IPD quarterly version of the monthly index funds (excludes cash). 8. The sum of capital growth and net income for the period expressed as apercentage of capital employed excluding cash. * The European Public Real Estate Association (EPRA) is a common interestgroup, which aims to promote, develop and represent the European public realestate sector. Strategic Report: Chairman's Statement I have pleasure presenting my first statement as chairman of yourCompany. I would like to pay tribute to my predecessor Paul Orchard Lisle forhis wise counsel and leadership of the Company over the last three years andwish him well in his retirement. Robert Peto joined the Board at the AGM andhas taken over the chairmanship of the Property Valuation Committee, where hisextensive property knowledge is proving extremely useful. Last year Paul predicted that there would be a general increase inproperty values in the next twelve months and I am delighted that this hasindeed been the actual outcome as the recovery in the UK economy has continuedand broadened outside London and the South East. Your Company's income return has been maintained. We were able tocollect 97.8% of the rents due to us within 14 days of the end of eachquarter, excluding administrations. During the period, we increased thequarterly dividend by 2.5% to 1.161p per share reflecting a combination oflower interest costs, improving outlook for rents and lower void rates. Theshares provided a dividend yield of 6.1% on our share price at the end of thesix month period. The Company's net asset value per share ("NAV") rose by 7.8%in the period largely due a strong performance from the London and South Eastoffice properties. The value of our properties rose by 8.2% in the sameperiod, based on the standing portfolio. An important part of our property investment strategy is to buyinto assets where astute asset management can enhance rental and capitalvalues and to buy properties that are out of favour but which we think shouldshow some capital appreciation. With that in mind, we have bought a Grade Aoffice in the Farnborough Aerospace Centre for £14.9m reflecting a yield of8.1% and two industrial units in Livingston for £3.6m with an initial yield of10.65%. On the reverse side, we have a policy of taking profits frominvestments that we consider have served their purpose and, if necessary, incutting losses where the performance has been below our expectations and thepotential for gain looks uncertain. Accordingly we have sold the Company'slargest asset for £16m reflecting a yield of 7.25%. The logistics unit inBolton is let to Tesco until September 2016 and was sold to reduce expiry riskin that year. In addition a portfolio of three retail warehouses was sold fora total of £11.2m. Details of these transactions and of other changes to theproperty portfolio are in the Investment Manager's report. The elimination of all voids was a priority target stated in lastyear's interim report and I am delighted to report that through activemanagement initiatives and the sale of the retail warehouse portfolio the voidrate has been reduced to 0.6%. Other portfolio matters are covered in theInvestment Manager's report. I am pleased to report that the Company's equity base was increasedby 3.7% in the six months ended 30 June 2014 through the issue of 5.7m newordinary shares at a premium to NAV. At 30 June, the Company's shares werepriced at 76.5p in contrast to 70.0p at the start of the reporting year. On 1July 2014 the Company published a prospectus to seek to raise 100m new sharesthrough an initial placing, offer for subscription and placing programme overthe next twelve months. I am pleased to report that the first tranche of 50m shares wasissued on 30 July 2014 and provides additional equity capital of £36.4m. TheManager has identified a pipeline of appropriate UK commercial properties forinvestment. As previously reported the Board agreed to appoint its InvestmentManager as the Company's AIFM and Standard Life Investments (Corporate Funds)Limited received its authorisation on 7 July 2014. There will be additionalexpenses to the Company in the form of depositary costs. However I am pleasedthat the Investment Manager will not be increasing their fees for theiradditional regulatory responsibilities. Indeed as disclosed in the recentprospectus the Board has negotiated a new tiered investment management feestructure that will reduce the total expense ratio ("TER") in future yearsfollowing the successful fund raising referred to above. As stated in the 2013 accounts the Board has concluded that itwould be in the best interests of shareholders if the Company was to convertto a REIT. The Board expects to send details to shareholders in the comingmonths and to put proposals to shareholders in November 2014. Since 30 June 2014, the Company has completed the purchase of threemodern logistics units in the Midlands for a total price of £28.65m,reflecting a yield of 7%. The three units were built in 2008/9 and are fullylet. There are risks to the UK economic recovery but it seems likelythat tenant demand should improve. For some types of property there has beenvery little increase in supply over the last few years so that rents shouldcontinue to rise. There has already been an increase in capital values but UKproperty remains an attractive asset class, given the yield differential overbonds and equities. Richard BarfieldChairman29 August 2014 Strategic Report: Principal Risks and Uncertainties The Company's assets consist of direct investments in UK commercialproperty. Its principal risks are therefore related to the commercial propertymarket in general, but also the particular circumstances of the properties inwhich it is invested, and their tenants. The Board and the Investment Managerseek to mitigate these risks through a strong initial due diligence process,continual review of the portfolio and active asset management initiatives. Allof the properties in the portfolio are insured, providing protection againstrisks to the properties and also protection in case of injury to third partiesin relation to the properties. The Board has also identified a number of other specific risks thatare 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 reviewof share price performance and the level of the discount or premium at whichthe shares trade to net asset value and regular meetings with the Company'sbroker to discuss these points and address any issues that arise. - Poor selection of new properties for investment. A comprehensiveand documented initial due diligence process, which will filter out propertiesthat do not fit required criteria, is carried out by the Investment Managerprior to making a recommendation to the Board in relation to a proposedproperty purchase. This is followed by detailed review and challenge by theBoard prior to a decision being made to proceed with a purchase. This processis designed to mitigate the risk of poor property selection. - Tenant failure or inability to let property. Due diligence workon potential tenants is undertaken before entering into new leasearrangements. In addition, tenants are kept under constant review throughregular contact and various reports both from the managing agents and theManager's own reporting process. Contingency plans are put in place at unitsthat have tenants that are believed to be in financial trouble. The Companysubscribes to the Investment Property Databank Iris Report which updates thecredit and risk ranking of the tenants and income stream, and compares it tothe rest of the UK real estate market. - Loss on financial instruments. The Company has entered into twointerest rate swap arrangements. These swap instruments are valued andmonitored on a monthly basis by the counterparty bank. The Investment Managerchecks the valuation of the swap instruments internally to ensure they areaccurate. In addition, the credit rating of the bank that the swaps are takenout with is assessed regularly. Other risks faced by the Company include the following: - Strategic - incorrect strategy, including sector and propertyallocation and use of gearing, could all lead to a poor return forshareholders. - Tax efficiency - the structure of the Company or changes tolegislation could result in the Company no longer being a tax efficientinvestment vehicle for shareholders. - Regulatory - breach of regulatory rules could lead to thesuspension of the Company's Stock Exchange Listing, financial penalties or aqualified audit report. - Financial - inadequate controls by the Investment Manager orthird party service providers could lead to misappropriation of assets.Inappropriate accounting policies or failure to comply with accountingstandards could lead to misreporting or breaches of regulations. - Operational - failure of the Investment Manager's accountingsystems or disruption to the Investment Manager's business, or that of thirdparty service providers, could lead to an inability to provide accuratereporting and monitoring, leading to loss of shareholder confidence. - Economic - inflation or deflation, economic recessions andmovements in interest rates could affect property valuations and also bankborrowings. The Board seeks to mitigate and manage these risks throughcontinual review, policy setting and enforcement of contractual obligations.It also regularly monitors the investment environment and the management ofthe Company's property portfolio, levels of gearing and the overall structureof the Company. Investment Manager's Report UK Real Estate Market UK real estate continues to benefit from an economy that is growingat its fastest pace since 2007 and a recovery that is becoming increasinglybroad based. Total return according to the IPD index was a healthy 8.4% forthe six months to end June. Capital values rose by 5.8% over the same period.An improvement in capital growth continues to be driven by increased investorallocations to the asset class which shows no sign of abating. Rental growthcontinues to improve at a broad level with rents expected to pick up furtherinto the recovery cycle. Rents rose by 1.3% in the six months to end June. Returns for the UK listed real estate equities sector remainedpositive over the six month period with the FTSE EPRA/NAREIT UK rising by8.4%. By comparison, the FTSE All Share Index rose by 1.6% over the sametimeframe. The UK listed real estate sector was relatively volatile followingchanges in expectations for UK interest rate rises, although performance didrecover towards the end of the period. Over the period, real estate's positive margin over the risk freerate (using gilts as a proxy) remained relatively stable at around 300 basispoints. The margin remains well above the historical average of around 200basis points. The outperformance of the office sector against All Propertyremained in place in this reporting period with offices recording returns of11.6% in the six months to end June against 8.4% for All Property. Theindustrial sector remains marginally behind the office sector returning 11.2%over the same period. The retail sector continues to be the weakest performingsector returning 6.8% in the six months to end June, an improvement on the5.9% in the previous six months to end March. For the second consecutivequarter all sectors experienced positive capital value growth. Offices onceagain recorded the highest growth of 8.6% whilst industrial values experiencedfurther strong upward momentum with growth of 7.5% in the six months to endJune. Retail values continue to recover rising by 3.5% in the latest six monthperiod compared to growth of 2.6% in the six months to end March. The officesector continues to provide the highest rental growth with rents rising by3.4% p.a., exceeding the 1.3% p.a. for All Property. Rental growth in theoffice market is largely driven by London, but there are signs that a recoveryin rental growth is beginning to spread outside the capital. Industrial rentalgrowth improved modestly with rents rising by 1.9% p.a. against 1.1% p.a.previously. Retail rents continued to decline but fell at a slower rate.Retail rents fell by -0.1% p.a., an improvement on the -0.4% decline in theyear to end March. Investment Outlook In the favourable environment of improving confidence and reducingvoid rates, investors are allocating more capital to the sector andconsequently, given the increased weight of capital, risk appetite isincreasing. Our view remains that poorer quality secondary and tertiary assetsremain unattractive at a broad level although there will be opportunities forrepositioning assets or generating reasonably good returns on a comparablebasis from some poorer quality secondary assets. This is likely to involvemuch hard work and effort on the asset management side and the risk of anextended void period continues to be high for these types of assets. In termsof outlook, we expect reasonable positive total returns on a three yearholding period due to the high yield and capital appreciation expectations.The asset class remains attractive from a fundamental point of view because ofthe strengthening economy and a limited pipeline of future new developments.Rising interest rates are an emerging risk although there is a reasonablebuffer in pricing to compensate if the market prices in a further accelerationof rate rises. The retail sector continues to face a series of headwinds thatmay hold back recovery in weaker locations due to oversupply and structuralissues but the prospects for retail towards the South East and Central Londonare expected to improve further as economic recovery gains more traction.Opportunities are arising for reasonable quality secondary buildings wherethese assets can be repositioned as prime. There is also likely to be a shortterm rebound for secondary asset prices due to the elevated margin in pricingbetween prime and secondary reducing as risk appetite improves. We continue toexpect locational choices to be the defining characteristics contributing toreturns over the remainder of 2014. We expect income to be a reasonablecontributor to returns over the latter half of the year although capitalvalues are expected to provide stronger growth over this period. Prime andgood quality secondary assets and selective poorer quality secondary assets instronger locations are likely to provide the best opportunities in theimproving economic environment we anticipate for the rest of 2014. Performance The Company's investment portfolio has continued to provide anattractive income return, ahead of the general UK real estate market. The above average income return is not at the expense of totalreturn from the portfolio. The Company's NAV total return is considered by theBoard to be a key performance indicator. For the 6 months to end June 2014 theCompany had a NAV total return of 11.7%. Investment Strategy The Investment Manager and the Board are focused on providing anattractive level of income to investors, but also on seeking opportunitiesthat will enable growth in the income and capital value of the assets. Webelieve that by investing in good quality buildings in good locations, let togood tenants we can meet this objective, and we take an active approach toasset management and investment activity. We target a covered dividend, and for the first six months of 2014the cover was 115%. Lease Expiry Profile Over the last three years we have targeted short leases on newpurchases where we believed the real estate fundamentals were good, as thisstrategy provided attractive income yields. As a result, the Company has anaverage weighted lease expiry (to earlier of lease end or break) of 5.6 years,lower than the equivalent for IPD of 7.2 years (if leases over 35 years areexcluded). In an environment of low supply levels in most markets andvirtually no new development over the last 5 years, it is possible to retaintenants where the property meets their needs. By early July this year we hadsecured 90% of the income at risk due to lease expiries or breaks in 2014, inline with retention levels over the last few years Portfolio Valuation The investment portfolio is valued on a quarterly basis by JonesLang La Salle. As at 30 June 2014 the real estate portfolio was valued at£178.8m and the Company held cash of £23.2m. This compares to £176.4m and£12.3m respectively at the end of December 2013. After removing the effect ofpurchases and sales, the real estate portfolio increased by 8.2% over theperiod. The investment portfolio has an initial yield of 7.5% and a trueequivalent yield of 7.6% as at 30 June 2014. Investment Activity Purchases During the period the Company acquired the following investments: Cullen Square Livingston: The Company acquired two logistics unitsfor £3.6m at a yield of 10.6%. The units are let to Crown Worldwide and UKMail for just over 5 years. Chester House Farnborough: The Company acquired a grade A officebuilding let to BAE Systems Ltd for a further 9 years. The purchase price of£14.9m reflected an initial yield of 8.1%. After the period end the Company completed the purchase of threeseparate logistics units built in 2008/9 for a price of £28.65m, at an initialnet yield of 7.1%. The three units are Tetron 93 in Swadlincote, let at£431,000 p.a. until 2021, Tetron 141 Swadlincote, let at £670,500 p.a. until2022 (but with a tenant break in 2018), and Denby 242, let at £1,032,000 p.a.until 2025 (with a tenant break in year 15). All three units were built in2008/2009 and provide good quality modern accommodation. At the period end the Company had agreed terms (but notcontractually bound) to purchase two other investments for a total of £24m andis actively looking at a number of opportunities that meet the Companyobjective of investing in good quality assets at an attractive yield. Sales During the reporting period the Company disposed of its largestunit, a logistics unit in Bolton let to Tesco until September 2016 for £16.1m,a yield of 7.25%. The sale was in order to manage expiry risk in 2016. The Company also sold a portfolio of three retail warehouseinvestments for £11m. These assets did not meet our performance expectationsand we had completed asset management initiatives on two of them. Asset Management At the period end the Company had a low void rate of 0.6% (IPD7.6%). This compares to a void rate of 10.3% at the same time last year, and6.5% at year end. During the period the key asset management transactions were: - Letting of Bourne House Staines - In Q1 an agreement for leasewas signed with Ricoh for a new 10 year lease (with a break in year 7), thelease will start in early September once the refurbishment works have beencompleted. - Lease extension at Drakes Way Swindon - In Q2 we extended thelease on Drakes Way Swindon by 12 months. Although the tenant wanted a longerlease we are exploring a redevelopment of the site with solicitors having beeninstructed on a new lease to a food store operator. - St James House Cheltenham - The 4th floor was let to a new tenantand a lease regear completed on part of the 3rd floor, providing new rentalevidence for the upcoming rent reviews. Debt The Company has a debt facility with RBS for £84m which is fullydrawn down. The facility is due to expire in December 2018. The all in cost ofthe debt has been fixed at 3.8% by way of a hedge to the end of the facility.The facility provides for a maximum LTV of 65%. As at 30 June the Company hadan LTV of 34% and an interest cover ratio of 150%. Equity Raise In early July, after the end of the reporting period, the Companyissued a prospectus for the issue of up to a maximum of 100m shares. The firsttranche was oversubscribed and 50m shares were issued on 30 July 2014. The£36.4m of equity raised is being used to fund the acquisitions detailed above(or others in line with the investment strategy if those detailed do notproceed to completion). Further shares, up to the maximum, may be issued underthe prospectus until July 2015 if further investment opportunities areidentified. Jason BaggaleyFund Manager Statement of Directors' Responsibilities The Directors are responsible for preparing the Interim ManagementReport in accordance with applicable law and regulations. The Directorsconfirm that to the best of their knowledge: - The condensed set of Financial Statements have been prepared inaccordance with IAS 34; and - The Interim Management Report includes a fair review of theinformation required by 4.2.7R and 4.2.8R of the Financial ServicesAuthority's Disclosure and Transparency Rules. - In accordance with 4.2.9R of the Financial Services Authority'sDisclosure and Transparency Rules, it is confirmed that this publication hasnot been audited, or reviewed by the Company's auditors. The Interim Report, for the six months ended 30 June 2014,comprises an Interim Management Report in the form of the Chairman'sStatement, the Investment Manager's Report, the Directors' ResponsibilityStatement 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 inaccordance with IFRSs as adopted by the European Union, give a true and fairview of the assets, liabilities, financial position and profit or loss of theGroup; and b. the Interim Report includes a fair review of the development andperformance of the business and the position of the Group, together with adescription of the principal risks and uncertainties faced. For and on behalf of the Directors of Standard Life InvestmentsProperty Income Trust Limited Richard BarfieldChairman29 August 2014 UNAUDITED FINANCIAL STATEMENTS Unaudited Consolidated Statement of Comprehensive Incomefor the period ended 30 June 2014 Notes 1 Jan 14 to 1 Jan 13 to 30 Jun 14 30 Jun 13 £ £ Rental income 7,462,953 6,520,056Surrender premium income 18,154 -Valuation gain / (loss) from investment properties 5 9,176,100 (2,016,259)(Loss) / Profit on disposal of investment properties (2,032,950) 7,232Investment management fees 3 (735,457) (649,986)Other direct property operating expenses (483,017) (588,174)Directors' fees and expenses (68,052) (69,030)Valuer's fee (22,787) (13,771)Auditor's fee (22,900) (19,500)Other administration expenses (110,643) (109,111)Operating profit 13,181,401 3,061,457 Finance income 25,420 30,118Finance costs (1,636,315) (2,685,413)Profit for the period 11,570,506 406,162 Other comprehensive income Valuation (loss) / gain on cash flow hedges (141,937) 3,752,184 Total comprehensive income for the period,net of tax 11,428,569 4,158,346 Earnings per share: pence penceBasic and diluted earnings per share 7.31 0.28Adjusted (EPRA) earnings per share 2.80 1.68 All items in the above Unaudited Consolidated Statement of ComprehensiveIncome derive from continuing operations. Unaudited Consolidated Balance Sheetas at 30 June 2014 Notes 30 Jun 2014 31 Dec 2013 £ £ ASSETSNon-current assetsInvestment properties 5 177,457,102 172,886,556Lease incentives 1,102,407 3,269,593Interest rate swaps 917,670 1,207,299Deferred Tax 587,315 587,315 180,064,494 177,950,763 Current assetsTrade and other receivables 1,447,459 1,305,524Cash and cash equivalents 23,214,217 12,303,310 24,661,676 13,608,834 Total assets 204,726,170 191,559,597 EQUITYCapital and reserves attributableto Company's equity holdersShare capital 35,369,964 31,337,024Retained earnings 7,366,290 6,560,853Capital reserves (27,143,241) (34,144,454)Other distributable reserves 97,838,372 97,838,372Total equity 113,431,385 101,591,795 LIABILITIESNon-current liabilitiesBank borrowings 83,923,001 83,866,594Other liabilities 6,094 6,094Rental deposits due to tenants 588,730 336,596 84,517,825 84,209,284Current liabilitiesTrade and other payables 5,685,856 4,519,722Interest rate swaps 1,090,604 1,238,296Other liabilities 500 500 6,776,960 5,758,518 Total liabilities 91,294,785 89,967,802 Total equity and liabilities 204,726,170 191,559,597 Net Asset Value (NAV) per share NAV 70.6p 65.5pEPRA NAV 70.7p 65.6p Approved by the Board of Directors on 29 August 2014 and signed on its behalfby: Sally-Ann FarnonDirector Unaudited Consolidated Statement of Changes in Equityfor the period ended 30 June 2014 Other Share Retained Capital distributable Notes Capital earnings reserves reserves Total equity £ £ £ £ £ Opening balance1 January 2014 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795 Profit for the period - 11,570,506 - - 11,570,506Valuation loss oncash flow hedges - - (141,937) - (141,937)Total comprehensivegain for the period - 11,570,506 (141,937) - 11,428,569 Dividends paid 7 - (3,621,919) - - (3,621,919)Ordinary sharesissued* 4,032,940 - - - 4,032,940Valuation gain of 5investment properties - (9,176,100) 9,176,100 - -Loss on disposal ofinvestment properties - 2,032,950 (2,032,950) - -Balance at 30 June 2014 35,369,964 7,366,290 (27,143,241) 97,838,372 113,431,385 * this value represents both the nominal and the premium raised on issuing theordinary shares. Unaudited Consolidated Statement of Changes in Equity for the period ended 30 June 2013 Other Share Retained Capital distributable Notes Capital earnings reserves reserves Total equity £ £ £ £ £ Opening balance 1 January 2013 22,280,186 7,711,894 (47,199,621) 97,838,372 80,630,831 Profit for the period - 406,162 - - 406,162Valuation gain on cash flow hedges - - 3,752,184 - 3,752,184Total comprehensive gain for the period - 406,162 3,752,184 - 4,158,346 Dividends Paid 7 - (3,264,892) - - (3,264,892)Ordinary shares issued* 6,709,663 - - - 6,709,663Valuation loss of investment properties - 2,016,259 (2,016,259) - -Profit on disposal of investment properties - (7,232) 7,232 - -Balance at 30 June 2013 28,989,849 6,862,191 (45,456,464) 97,838,372 88,233,948 * this value represents both the nominal and the premium raised on issuing theordinary shares. Unaudited Consolidated Cash Flow Statementfor the period ended 30 June 2014 Notes 1 Jan 14 to 1 Jan 13 to 30 Jun 14 30 Jun 13 £ £ Cash generated from operating activities 9 7,362,202 3,962,710 Cash flows from investing activitiesInterest received 25,420 30,118Purchase of investment properties 5 (19,611,648) (10,354,650)Capital expenditure on investment properties 5 (2,206,823) (287,416)Net proceeds from disposal of investment properties 26,567,050 907,232Net cash used in investing activities 4,773,999 (9,704,716) Cash flows from financing activitiesOrdinary shares issued net of issue costs 4,032,940 6,709,663Interest paid on bank borrowing (1,010,693) (885,749)Payments on interest rate swaps (625,622) (1,743,332)Dividends paid to the Company's shareholders 7 (3,621,919) (3,264,892)Net cash used in financing activities (1,225,294) 815,690 Net increase / (decrease) in cash and cash equivalents in the period 10,910,907 (4,926,316) Cash and cash equivalents at beginning of period 12,303,310 13,527,186Cash and cash equivalents at end of period 23,214,217 8,600,870 Standard Life Investments Property Income Trust Limited Notes to the Unaudited Consolidated Financial Statementsfor the period ended 30 June 2014 1 GENERAL INFORMATION Standard Life Investments Property Income Trust Limited ("the Company") andits subsidiary (together the "Group") carries on the business of propertyinvestment through a portfolio of freehold and leasehold investment propertieslocated in the United Kingdom. The Company is a limited liability companyincorporated and domiciled in Guernsey, Channel Islands. The Company has itslisting on the London Stock Exchange. The address of the registered office is Trafalgar Court, Les Banques, St PeterPort, Guernsey. These Unaudited Consolidated Financial Statements were approved for issue bythe Board of Directors on 29 August 2014. The Audited Consolidated Financial Statements of the company for the yearended 31 December 2013 are available on request from the registered office. 2 ACCOUNTING POLICIES Basis of preparation The Unaudited Consolidated Financial Statements of the Group have beenprepared in accordance with IAS 34 Interim Financial Reporting, and allapplicable requirements of The Companies (Guernsey) Law, 2008. The UnauditedConsolidated Financial Statements have been prepared under the historical costconvention as modified by the measurement of investment property andderivative financial instruments at fair value. The Unaudited ConsolidatedFinancial Statements are presented in pound sterling and all values are notrounded except when otherwise indicated. These statements do not contain all of the information required for fullannual statements and should be read in conjunction with the AuditedConsolidated Financial Statements of the Company for the year ended 31December 2013. The accounting policies adopted in the preparation of theInterim Condensed Consolidated Financial Statements are consistent with thosefollowed in the preparation of the Group's annual consolidated financialstatements for the year ended 31 December 2013, except for the adoption of newstandards and interpretations effective as of 1 January 2014. New standards and amendments apply for the first time in 2014 and are detailedbelow: IFRS 12 Disclosure of Interests in Other Entities IFRS 12 sets out the requirements for disclosures relating to an entity'sinterest in subsidiaries, joint arrangements, associates and structuredentities. The additional disclosure requirements in IFRS 12 are set out inthese Unaudited Condensed Financial Statements (see note 6). Several other new standards and amendments apply for the first time in 2014.However, they do not impact the Interim Condensed Consolidated FinancialStatements of the Group and are listed below: - IFRS 10 Consolidated Financial Statements - IFRS 11 Joint Arrangements - IAS 27 Separate Financial Statements - IAS 28 Investments in Associates and Joint Ventures - IAS 39 Financial Instruments: Recognition and Measurement - Novation ofDerivatives and Continuation of Hedge Accounting (Amendments) - Amendment to IAS 32 Financial Instruments: Presentation - Amendment to IAS 36 Impairment of Assets - Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities - Amendments to IFRS 10, IFRS 11 and IFRS 12 on transitional guidance - IFRIC 21 Levies The Group has not early adopted any other standard, interpretation oramendment that has been issued but is not yet effective. 3 RELATED PARTY DISCLOSURES Parties are considered to be related if one party has the ability to controlthe other party or exercise significant influence over the other party inmaking financial or operational decisions. Investment Manager On 19 December 2003 Standard Life Investments (Corporate Funds) Limited ("theInvestment Manager") was appointed as Investment Manager to manage theproperty assets of the Group. A new Investment Management Agreement ("IMA")was entered into on 7 July 2014, appointing the Investment Manager as theAIFM. Under the terms of the IMA dated 19 December 2003, the Investment Manager wasentitled 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 thetotal assets. The fee applicable to the amount of cash exceeding 10% of totalassets was altered to be 0.20% per annum, payable quarterly in arrears. TheInvestment Manager also agreed to reduce its charge to 0.75% of the totalassets of the Group until such time as the net asset value per share returnsto the launch level of 97p. This was applicable from the quarter ending 31December 2008 onwards and did not affect the reduced fee of 0.20% on cashholdings above 10% of total assets. The total fees charged for the periodended 30 June 2014 amounted to £735,457 (period ended 30 June 2013: £649,986).The amount due and payable at the period end amounted to £373,266 excludingVAT (period ended 30 June 2013: £329,025 excluding VAT). Under the terms of the IMA dated 7 July 2014, the above fee arrangements applyup to 31 July 2014. From 1 August 2014, the fee has been changed to 0.75% oftotal assets up to £200 million, 0.70% of total assets between £200 millionand £300 million and 0.65% of total assets in excess of £300 million. 4 TAXATION Current income tax A reconciliation of the product of accounting profit multiplied bythe applicable tax rate for the period ended 30 June 2014 and 2013 is asfollows: 30 Jun 2014 30 Jun 2013 £ £ Profit before income tax 11,570,506 406,162 Tax calculated at UK statutory income tax 2,314,101 81,232rateof 20% (30 June 2013: 20%)Valuation (gain) / loss from investment (1,428,630) 401,806propertiesnot subject to taxIncome not subject to tax (289,189) (75,539)Expenditure not allowed for income tax 74,720 34,481purposesTax loss utilised (671,002) (441,980)Current income tax charge - - Unaudited Consolidated Unaudited Consolidated Income Balance Sheet Statement 30 Jun 2014 30 Jun 2013 30 Jun 2014 30 Jun 2013 £ £ £ £ Deferred income tax assetsLosses available 587,315 - - -foroffset againstfuturetaxable incomeDeferred income tax asset 587,315 - - - The Group has available deferred tax assets of £2,366,832 (30 June2013: £2,606,977) due to tax losses which arose in Guernsey that are availablefor offset against future taxable profits of the Company in which the lossesarose. A deferred tax asset of £587,315 (30 June 2013: £Nil) has beenrecognised in respect of these losses. The remaining £1,779,517 of deferredtax assets have not been recognised as the Company expects to convert from aGuernsey Investment Company to a Real Estate Investment Trust (REIT) by theend of 2014 and as a result these tax losses would not be utilised. As a REIT,any future profit generated by the Company would not be taxable in theCompany. Due to the expected REIT conversion, the Group plans to amortise thedeferred tax asset of £587,315 over the coming 6 months as a tax charge in theConsolidated Statement of Comprehensive Income. The Company and its subsidiary have obtained exempt company statusin Guernsey so that they are exempt from Guernsey taxation on income arisingoutside Guernsey and bank interest receivable in Guernsey. The Board intend toconduct the Group's affairs such that the Company and its subsidiary continueto remain eligible for exemption. 5 INVESTMENT PROPERTIES Country UK UK UK Total Total 31Class Industrial Office Retail 30 June December 2014 2013 £ £ £ £ £ Market value as at 48,175,000 79,945,000 48,295,000 176,415,000 161,600,0001 JanuaryPurchase of 3,817,040 15,794,608 - 19,611,648 23,840,453investmentpropertyCapital 2,389 2,316,945 (112,511) 2,206,823 326,840expenditure oninvestmentpropertiesCarrying value of (14,550,000) - (14,050,000) (28,600,000) (15,150,000)disposedinvestmentpropertiesValuation gain 1,310,371 6,508,869 1,356,860 9,176,100 5,795,851from investmentpropertiesMovement in lease (24,800) 24,578 (14,349) (14,571) 1,856incentivesreceivableClosing market 38,730,000 104,590,000 35,475,000 178,795,000 176,415,000value Adjustment for (1,344,492) (3,535,038)lease incentives*Adjustment for 6,594 6,594finance leaseobligationsClosing carrying 177,457,102 172,886,556value *Lease incentives are split between non-current of £1,102,407 andcurrent of £242,085. Valuation gains and losses from investment properties arerecognised in profit and loss for the period and are attributable to changesunrealised gains or losses relating to investment property (completed andunder construction) held at the end of the reporting period. 30 June 31 Dec 30 June 31 Dec 2014 2013 2014 2013 Number of properties Number of £ £ properties Freehold 22 25 127,705,000 141,970,000Leasehold 9 8 51,090,000 34,445,000 Closing market value 31 33 178,795,000 176,415,000 The fair value of the Group's completed investment property, apartfrom the industrial estate in Swindon, is determined using the incomecapitalisation method. The income capitalisation method is based on capitalising the netincome stream at an appropriate yield. In establishing the net income streamthe valuer has reflected the current rent (the gross rent) payable to leaseexpiry, at which point the valuer has assumed that each unit will be re-let attheir opinion of ERV. The valuer has made allowances for voids and rent freeperiods where appropriate, as well as deducting non recoverable costs whereapplicable. The appropriate yield is selected on the basis of the location ofthe building, its quality, tenant credit quality and lease terms amongst otherfactors. In the case of Swindon the alternative technique used by the valuerwas the development appraisal approach as this is the technique most suited tovaluing this asset. Although the development appraisal technique was used theproperty in Swindon is not considered to be a development property. Theproperty has development potential in the future but it is still generatingincome for the Group therefore it continues to be categorized as an investmentproperty and is therefore not shown separately as properties underconstruction and has been included as investment property in the table above. In the case of the development appraisal method, estimates ofcapital outlays and construction cost, development costs, and anticipatedsales income are estimated to arrive at a series of net cash flows. Specificdevelopment risks such as planning, zoning, licences, and building permits areseparately valued. Allowances for developers profit and finance costs duringconstruction and marketing periods are also reflected. One property has changed valuation technique since 31 December 2013when Bourne House in Staines was valued using the development appraisalapproach. The change in valuation technique was due to the timing of thecompletion of the refurbishment project and the fact it was close tocompletion at 30 June 2014. The Company appoints a suitable valuer (such appointment isreviewed on a periodic basis) to undertake a valuation of all the direct realestate investments on a quarterly basis. The valuation is undertaken inaccordance with the then current RICS guidelines and requirements as mentionedabove. The Investment Manager meets with the valuer on a quarterly basis toensure the valuer is aware of all relevant information for the valuation andany change in the investment over the quarter. The Investment Manager thenreviews and discusses the draft valuations with the valuer to ensure correctfactual assumptions are made. The Valuer reports a final valuation that isthen reported to the Board. The management group that determines the Company's valuationpolicies and procedures for property valuations is the Property ValuationCommittee. The Committee reviews the quarterly property valuation reportproduced by the Valuer (or such other person as may from time to time providesuch property valuation services to the Company) before its submission to theBoard, focussing in particular on: - significant adjustments from the previous property valuationreport - reviewing the individual valuations of each property - compliance with applicable standards and guidelines includingthose issued by RICS and the UKLA Listing Rules - reviewing the findings and any recommendations or statements madeby the Valuer - considering any further matters relating to the valuation of theproperties The Chairman of the Committee makes a brief report of the findingsand recommendations of the Committee to the Board after each Committeemeeting. The minutes of the Committee meetings are circulated to the Board.The Chairman submits an annual report to the Board summarising the Committee'sactivities during the year and the related significant results and findings. All investment property is classified as Level 3 in the fair valuehierarchy. There were no movements between levels during the period. There are currently no restrictions on the realisability ofinvestment property or the remittance of income and proceeds of disposal. The table below outlines the valuation techniques used to deriveLevel 3 fair values for each class of investment property: - The fair value measurements at the end of the reporting period. - The level of the fair value hierarchy (e.g. Level 3) within whichthe fair value measurements are categorised in their entirety. - A description of the valuation techniques applied. - Fair value measurements, quantitative information about thesignificant unobservable inputs used in the fair value measurement. - The inputs used in the fair value measurement, including theranges of rent charged to different units within the same building. Country & Fair value Valuation Key Unobservable input Range (weightedClass technique average) £ UK Industrial 38,251,429 - Income - Initial Yield - 0% to 10.42% (6.81%)Level 3 Capitalisation - Reversionary Yield - 0% to 10.42% (7.12%) - Equivalent Yield - 4.70% to 9.34% (7.48%) - Estimated rental value per Sq.m - £37.59 to £191.06 (£76.11) - Development - Construction costs per Sq.m - £1,291.68 Appraisal (exclude fees) (Swindon property - Profit on cost % - 30% only) UK Office 104,082,009 - Income - Initial Yield - 0% to 13.48% (7.17%)Level 3 Capitalisation - Reversionary Yield - 5.54% to 14.54% (7.36%) - Equivalent Yield - 5.48% to 10.79% (7.14%) - Estimated rental value per Sq.m - £80.55 to £418.87 (£175.64) - UK Retail 35,123,664 - Income - Initial Yield - 6.05% to 7.61% (7.06%)Level 3 Capitalisation - Reversionary - 6.38% to 7.61% (6.99%) Yield - Equivalent - 6.55% to 7.58% (7.12%) Yield - Estimated - £76.56 to £135.51 (£114.61) rental value per Sq.m 177,457,102 Descriptions and definitions The table above includes the following descriptions and definitionsrelating to valuation techniques and key unobservable inputs made indetermining the fair values: Estimated rental value (ERV) The rent at which space could be let in the market conditionsprevailing at the date of valuation. Equivalent yield The equivalent yield is defined as the internal rate of return ofthe 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 apercentage of the property value. Reversionary yield Reversionary yield is the anticipated yield to which the initialyield 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 Sheetdate. 30 Jun 2014 31 Dec 2013 £ £ ERV p.a. 13,954,522 15,202,884Area sq. ft. 1,449,391 1,734,445Average ERV per sq. ft. £9.63 £8.77Initial Yield 7.50% 7.67%Reversionary Yield 5.33% 6.59% The table below presents the sensitivity of the valuation tochanges in the most significant assumptions underlying the valuation ofcompleted investment property. 30 Jun 2014 31 Dec 2013 £ £ Increase in equivalent yield of 25 (6,460,000) (6,200,000)bpsDecrease in rental rates of 5% (ERV) (6,780,000) (6,700,000) Below is a list of how the interrelationships in the sensitivityanalysis above can be explained. In both cases outlined in the sensitivitytable 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 INVSTMENT IN OTHER ENTITIES The Group, through its subsidiary, owns 100 per cent of the issuedordinary share capital of Huris (Farnborough) Limited, a company incorporatedin the Cayman Islands whose principal business is property investment. 7 DIVIDENDS 30 Jun 2014 30 Jun 2013 £ £ 1.133p per ordinary share paid in 1,756,085 1,599,022Februaryrelating to the quarterending 31 December 2013(30 June 2013: 1.133p) 1.161p per ordinary share paid in May 1,865,834 1,665,870relating to the quarter ending 31March 2014(30 June 2013: 1.133p) 3,621,919 3,264,892 On 22 August 2014 a dividend of £1,865,834, 1.161p per ordinaryshare (30 June 2013: £1,728,043, 1.133p per ordinary share) in respect of thequarter to 30 June 2014 was paid. 8 RECONCILIATION OF CONSOLIDATED NET ASSET VALUE TO PUBLISHED NET ASSET VALUE The net asset value attributable to ordinary shares is publishedquarterly and is based on the most recent valuation of the investmentproperties and calculated on a basis which adjusts the underlying reportedIFRS numbers. The adjustment made is to include a provision for payment of adividend in respect of the quarter then ended. 30 Jun 2014 31 Dec 2013 Number of Number of Shares Shares Number of ordinary shares at the 160,709,237 154,994,237reporting date 30 Jun 2014 31 Dec 2013 £ £ Total equity per consolidated 113,431,385 101,591,795financial statements Net asset value per share 70.6p 65.5p Adjustments:Adjustment for dividend in respect (1,865,834) (1,756,085)of the quarter ending on thereporting date Published adjusted net asset value 111,565,551 99,835,710 Published adjusted net asset value 69.4p 64.4pper share The EPRA publishes guidelines for calculating adjusted NAV. EPRANAV 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 fairvalue of derivatives, are therefore excluded. 30 Jun 2014 31 Dec 2013 £ £ Total equity per consolidated 113,431,385 101,591,795financial statements Adjustments:Less: fair value of 172,934 30,997derivatives Published adjusted EPRA net asset value 113,604,319 101,622,792 Published adjusted EPRA net asset value 70.7p 65.6pper share Adjustments:Adjustment for dividend in (1,865,834) (1,756,085)respectof the quarter ending on thereporting date Published adjusted EPRA net asset 111,738,485 99,866,707value Published adjusted EPRA net asset 69.5p 64.4pvalue per share 9 CASH GENERATED FROM OPERATING ACTIVITIES 1 Jan 14 to 1 Jan 13 to 30 Jun 14 30 Jun 13 £ £ Profit for the period 11,570,506 406,162 Movement in lease incentives (67,274) (11,898)Movement in trade and other (141,935) (670,077)receivablesMovement in trade and other payables 1,533,160 (425,799)Finance costs 1,636,315 2,685,413Finance income (25,420) (30,118)Valuation (gain) / loss from (9,176,100) 2,016,259investment propertiesLoss / (profit) on disposal of 2,032,950 (7,232)investment propertiesCash generated from operations 7,362,202 3,962,710 In the Consolidated Cash Flow Statement, proceeds from disposal ofinvestment properties comprise: 1 Jan 14 to 1 Jan 13 to 30 Jun 14 30 Jun 13 £ £ Carrying value of disposed investment 28,600,000 900,000properties (Note 5)(Loss) / profit on disposal of (2,032,950) 7,232investment propertiesProceeds from disposal of investment 26,567,050 907,232properties 10 SEGMENTAL INFORMATION The board has considered the requirements of IFRS 8 `operatingsegments'. The board is of the view that the Group is engaged in a singlesegment of business, being property investment and in one geographical area,the United Kingdom. 11 EVENTS AFTER THE BALANCE SHEET DATE Property Sales and Purchases On 11 August 2014 the Group completed the purchase of Tetron 93 andTetron 141, two industrial investments in Swadlincote for £14.35m excludingcosts. On 11 August 2014 the Group completed the purchase of Denby 242, anindustrial investment in Derby for £12.9m excluding costs. Shares and Dividends On 22 August 2014 a dividend of £1,865,834 in respect of thequarter to 30 June 2014 was paid. On 30 July 2014 the Group allotted 50m ordinary shares of 1p each,which rank parri passu with the existing shares in issue, at a price of 72.9pper share. End of Notes to the Unaudited Consolidated Financial Statements for the periodended 30 June 2014 Directors and Company Information Directors Richard Arthur Barfield (Chairman) 1 Huw Griffith Evans 2 Sally-Ann Farnon 3 Shelagh Yvonne Mason 4 Robert Peto 5 Registered Office Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL Registered Number 41352 Administrator & Secretary Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court PO Box 255 Les Banques St. Peter Port Guernsey GY1 3QL Registrar Computershare Investor Services (Guernsey) Limited Le Truchot St. Peter Port Guernsey GY1 1WD Investment Manager Standard Life Investments (Corporate Funds) Limited 1 George Street Edinburgh EH2 2LL Telephone: 0845 60 60 062 Independent Auditors Ernst & Young LLP Royal Chambers St Julian's Avenue St Peter Port Guernsey GY1 4AF Solicitors Dickson Minto W.S. Mourant Ozannes 16 Charlotte Square 1 Le Marchant Street Edinburgh EH2 4DF St Peter Port Guernsey GY1 4HP Broker Winterflood Securities Limited The Atrium Building Cannon Bridge 25 Dowgate Hill London EC4R 2GA Principal Bankers The Royal Bank of Scotland plc 135 Bishopsgate London EC2M 3UR Property Valuers Jones Lang LaSalle Limited 22 Hanover Square London W1A 2BN Depositary Citibank International plc Canada Square London E14 5LB 1 Chairman of the Nomination Committee2 Chairman of the Remuneration Committee3 Chairman of the Audit Committee and designated asSenior Independent Director4 Chairman of the Management Engagement Committee5 Chairman of the Property Valuation CommitteeAdditional Notes to the Interim Financial Report The Interim Report and Condensed Financial Statements for the period from 1January 2014 to 30 June 2014 will shortly be available for download from theCompany'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 andthat the value of investments and the income from them may fall as well asrise. Investors may not get back the amount they originally invested. All enquiries to: The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt Peter PortGuernseyGY1 3QLTel: 01481 745001Fax: 01481 745051 Gordon HumphriesStandard Life Investments LimitedTel: 0131 245 2735 Jason BaggaleyStandard Life Investments LimitedTel: 0131 245 2833