Annual Report and Accounts

6 April 2018

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2017

Financial Highlights

-NAV total return of 14.5% in the year, driven by strong portfolio performance due to overweight exposure to outperforming Industrial sector.

-Strong share price total return over the year of 13.7% compared to the total return on the FTSE All-Share REIT Index of 12.2% and the FTSE All-Share Index of 13.1% with the Company’s shares trading at a premium to NAV of 6.4% as at 31 December 2017.

-The Company has continued to reduce gearing with an LTV of 18.0% at year end (31 Dec 2016: 26.0%) at an attractive interest rate of 2.7%.

-Dividend cover of 104% over the year as the Company continued to pay a covered dividend. 

-The yield on the Company’s share price as at 31 December 2017 stood at 5.1% which compares favourably to the FTSE All-Share REIT Index (3.6%) and FTSE All-Share Index (3.4%) at the same date.

-Since 1 January 2017 to date a total of 22.425 million shares were issued under the Company’s blocklisting facility generating net proceeds of £20 million for investment into the portfolio.

-Overall, the Company, with a market capitalisation of £368 million as at 31 December 2017, has a secure and growing balance sheet, significant financial resources and a portfolio of assets that continues to underpin an attractive and covered dividend for shareholders.

Property Highlights

-As at 31 December 2017, the portfolio was valued at £433.2 million following an exercise that repositioned the portfolio into assets that offer more secure income and reduce risk.

-Property total return for the period was 12.1%, significantly ahead of the IPD Quarterly version of Monthly Index total return of 10.5%. The income return of 6.3% from the portfolio continued to outperform the comparative benchmark figure of 4.8% with a capital return of 5.5% in line with that of the benchmark.

-A number of successful asset management initiatives, contributing to income and capital values, completed during the year including:

-8 new lettings generating £512,000 per annum of income during the year

-14 lease renegotiations/rent reviews securing £740,000 per annum of income

-Void rate of 7.7% as at year end with majority of voids being in the Company’s favoured industrial sector.

-Positive rent collection rates of 99% within 21 days highlighting the continued strength of tenant covenants in an environment where income will be the key component of returns going forward.

PERFORMANCE SUMMARY

Earnings & Dividends			31 December 2017	31 December 2016
Revenue earnings per share (excluding capital items & swap movements) (p)			4.99	5.56
Dividends declared per ordinary share (p)			4.76	4.76
Dividend cover (%)*			104	117
Dividend yield (%)**			5.1	5.5
FTSE Real Estate Investment Trusts Index Yield (%)			3.6	3.7
FTSE All-Share Index Yield (%)			3.4	3.5
Ongoing Charges***
As a % of average net assets including direct property costs			1.7	1.7
As a % of average net assets excluding direct property costs			1.2	1.3

Capital Values & Gearing		31 December 2017	31 December 2016	Change %
Total Assets (£million)		468.8	445.7	5.0
Net asset value per share (p) (note 20)		87.6	81.0	8.1
Ordinary Share Price (p)		93.25	86.50	7.8
Premium to NAV (%)		6.4	6.8
Loan to value (%)****		18.0	26.0

Total Return		1 Year % Return	3 Year % Return	5 Year % Return
NAV*****		14.5	38.1	112.9
Share Price****		13.7	40.5	115.8
FTSE All-Share REIT Index		12.2	15.4	70.8
FTSE All-Share Index		13.1	33.3	63.0

Property Returns & Statistics %			31 December 2017	31 December 2016
Property income return			6.3	6.5
IPD benchmark income return			4.8	4.8
Property total return			12.1	5.8
IPD benchmark total return			10.5	2.2
Void rate			7.7	3.3

* Calculated as revenue earnings per share (excluding capital items & swaps breakage costs) as a percentage of dividends declared per ordinary share.

** Based on an annual dividend of 4.76p and the share price at 31 December.

*** Calculated as investment manager fees, auditor’s fees, directors’ fees and other administrative expenses divided by the average NAV for the year.

**** Calculated as bank borrowings less all cash (including cash held at solicitors) as a percentage of the open market value of the property portfolio as at the end of each year.

***** Assumes re-investment of dividends excluding transaction costs.

Sources: Standard Life Investments, Investment Property Databank (“IPD”)

CHAIRMAN’S STATEMENT

I am pleased to report that your Group has continued to produce strong returns at both a NAV and shareholder level over the year. These returns have been underpinned by a portfolio that has been significantly re-positioned in the year, with investment into assets in favoured sectors that offer more secure income and reduce risk in the portfolio.

Background

The shadow of increasing political uncertainty, initially created by the unknowns of Brexit, but further increased by the worrying development of trade wars and the rising tensions with Russia, are hanging over the UK.  Brexit, in particular, has resulted in a slowdown in the growth of the UK economy which remains positive if unspectacular. GDP grew by 1.7% in 2017, ahead of many forecasts at the start of the year but lower than in 2016. This contrasts with the strong pick-up in growth in both the US and the Eurozone. There are many reasons for the slowdown in the UK economy but commentators generally agree that there are two main causes. The first is the squeeze on disposable incomes resulting from the pick-up in inflation stemming from the 2016 Brexit vote and the subsequent fall in the value of the pound. The second, and potentially more worrying, is the fact that business investment has been much weaker than expected with many companies delaying new projects until the outcome of any Brexit deal becomes clear.

In this uncertain environment, the performance of the real estate market has surprised on the upside. The Group’s benchmark (IPD quarterly version of IPD Monthly Index Funds) produced a total return of 10.5% in 2017, coming in ahead of the IPF Consensus expectations for the year of 3.2%. Capital growth was robust over the year with values rising by 5.5%, driven by the buoyant performance of the industrial sector. On the income side, rental growth was recorded in all sectors resulting in overall rental growth of 1.9% and an income return of 4.8%.

Performance

The Group has performed well in the year. The portfolio total return was 12.1% representing a significant margin over the benchmark return. This outperformance was driven by an above benchmark portfolio income return of 6.3% and a capital return of 5.5%. The capital return was achieved despite the drag of transaction costs resulting from a total turnover in the portfolio during the year of £122 million. This positive portfolio performance, combined with a conservative level of gearing, helped the Group achieve an attractive NAV total return of 14.5%.

The Company’s shares continued to trade at a premium, which stood at 6.4% to NAV at the year end, underlining investors’ appetite for attractive, secure income returns. This continued demand for the Company’s shares allowed the Company to undertake NAV accretive share issuances under its blocklisting authority. Up to 5 April 2018, a total of 22.425 million shares have been issued from the beginning of the blocklisting facility at an average premium to NAV of 6.4% raising £20 million for investment into the portfolio. The premium at the end of the year was marginally less than the premium at the end of the previous financial year which meant that the total shareholder return for the year was slightly lower than the NAV total return at 13.7%.

Over the longer term the Group has also delivered good performance with a NAV and share price total return over five years of 112.9% and 115.8% respectively. By comparison, the FTSE All-Share REIT Index returned 70.8% and the FTSE All-Share Index returned 63.0% over the same period.

Dividends

Dividends totalling 4.76p were paid to shareholders in the year. This represents a yield of 5.1% based on the share price at 31 December 2017 which compares favourably to the yield on the FTSE All-Share REIT and FTSE All-Share Indices (3.6% and 3.4% respectively).

Importantly, the dividend was more than fully covered by earnings for the year (104%) which was achieved despite net disposals of £22 million and the resultant loss in income. The Board is fully aware of the importance to shareholders of paying out an attractive income, with the maintenance of an appropriate dividend cover being a key focus in the year ahead.

Financial Resources

As at the year end, the Group had a prudent Loan to Value ratio of 18% reflecting the relatively cautious outlook going forward. The Group has in place a term loan which is not due to expire until 2023 at a fixed interest rate of 2.73%. This compares to the net initial yield on the portfolio of 5.5%, highlighting the income accretive nature of this debt. The Group also had significant firepower still available for investment with £35 million of its revolving credit facility to utilise and uncommitted cash of £18.3 million at the year end. Overall, the board believes the Group is in a good financial position with a strong balance sheet and significant resources still available for investment.

Dick Barfield

It is with great sadness that I have to report that my predecessor as Chairman, Mr Dick Barfield, recently passed away after a short illness. Dick, who retired at the AGM in June 2016, was a man of great character, leadership and integrity and he will be sorely missed.

Outlook

The expectation for the next year is for more moderate economic growth. However the extent of this moderation will be largely dependant on the perceived success or otherwise of the Brexit negotiations which, in turn, will impact on the level of business investment. In addition, the extent of any rise in interest rates, which the Bank of England has indicated may rise more rapidly than forecast, will also influence the performance of the economy and the property market in the upcoming year.

In terms of the UK real estate market, values are now in excess of the level before the Brexit vote in 2016 with strong fundamentals in place. The yields generated by UK real estate are still significantly higher than the other mainstream asset classes. In addition, unlike in previous cycles, the leverage in the sector is prudent and the market is still fairly liquid. Finally, by historical standards, limited development and lower than average vacancy rates should all provide a solid foundation for future positive returns, albeit more geared towards income in the immediate future.

In this environment, your Board believes the Group is in a good position. While it is anticipated there may be more volatility in secondary assets going forward, the portfolio of 54 assets at the year-end is well diversified both by geography and sector. In terms of the latter, the Group had a 49.2% exposure to Industrials which our Investment Manager forecasts will remain the top performing sector in 2018. The repositioning exercise, which has continued into 2018, has also helped de-risk the portfolio by selling assets that had limited future return prospects, particularly in the retail sector, which the Company had a 16.1% exposure to at year end (benchmark 35.7%), and reinvesting the proceeds into assets in stronger sectors, such as well-located offices and industrial units, which offer more secure income. Also, as highlighted, it is anticipated that income will be the main driver of future returns. In this respect the Group has a strong and diverse tenant base which underpins the high income return and the attractive, covered dividend the Group continues to pay. Finally, the Group has a strong balance sheet, prudent gearing and significant cash resources still available to invest, boosted by ongoing NAV accretive share issues. Combining these factors, I believe your Company is well set up to continue to deliver attractive relative returns in the future.

Robert Peto
Chairman

5 April 2018

STRATEGIC OVERVIEW

Objective

The objective of the Group is to provide shareholders with an attractive level of income together with the prospect of income and capital growth.

Investment Policy and Business Model

The Board intends to achieve the investment objective by investing in a diversified portfolio of UK commercial properties. The majority of the portfolio will be invested in direct holdings within the three main commercial property sectors of retail, office and industrial although the Group may also invest in other commercial property such as hotels, nursing homes and student housing. Investment in property development and investment in co-investment vehicles, where there is more than one investor, is permitted up to a maximum of 10% of the property portfolio.

In order to manage risk, without compromising flexibility, the Board applies the following restrictions to the property portfolio, in normal market conditions:

-No property will be greater by value than 15% of total assets.

-No tenant (excluding the Government) will be responsible for more than 20% of the Group’s rent roll.

-Gearing, calculated as borrowings as a percentage of gross assets, will not exceed 65%. The Board’s current intention is that the Group’s loan to value ratio (calculated as borrowings less all cash as a proportion of property portfolio valuation) will not exceed 45%.

As part of its strategy, the Board has contractually delegated the management of the property portfolio, and other services, to Standard Life Investments (Corporate Funds) Limited (“Investment Manager”).

Strategy

Each year the Board undertakes a strategic review, with the help of its Investment Manager and other advisers.

The overall intention is to continue to distribute an attractive income return alongside growth in the NAV and a good overall total return relative to the peer group.

At property level, it is intended that the Group remains primarily invested in the commercial sector, while keeping a watching brief on other classes such as student accommodation and care homes. The Group is principally invested in office, industrial and retail properties and intends to remain so.

The Board’s preference is to buy into good but not necessarily prime locations, where it perceives there will be good continuing tenant demand, and to seek out properties where the asset management skills within the Investment Manager can be used to beneficial effect. The Board will continue to have very careful regard to tenant profiles.

The Board continues to seek out opportunities for further, controlled growth in the Group. During 2017 and up to 5 April 2018, the Group raised an additional £22.425 million through new share issues, as detailed in the Chairman’s Statement.

The Group continues to maintain a tax efficient structure, having migrated its tax residence to the UK and becoming a UK REIT on 1 January 2015.

The Board

The Board currently consists of a non-executive Chairman and four non-executive Directors, with a range of property, investment, commercial and financial experience. There is also a commitment to achieve the proper levels of diversity. At the date of this report, the Board consisted of one female and four male Directors. The Group does not have any employees.

Key Performance Indicators

The Board meets quarterly and at each meeting reviews performance against a number of key measures:

Property income and total return against the Quarterly Version of the IPD Balanced Monthly Funds Index (“the Index”).

The Index provides a benchmark for the performance of the Group’s property portfolio and enables the Board to assess how the portfolio is performing relative to the market. A comparison is made of the Group’s property returns against the Index over a variety of time periods (quarter, annual, three years and five years).

Property voids.

Property voids are unlet properties. The Board reviews the level of property voids within the Group’s portfolio on a quarterly basis and compares the level to the market average, as measured by the IPD. The Board seeks to ensure that, when a property becomes void, the Investment Manager gives proper priority to seeking a new tenant to maintain income.

Rent collection dates.

The Board assesses rent collection by reviewing the percentage of rents collected within 21 days of each quarter end.

Net asset value total return.

The net asset value total return reflects both the net asset value growth of the Group and also the dividends paid to shareholders. The Board regards this as the best overall measure of value delivered to shareholders. The Board assesses the net asset value total return of the Group over various time periods (quarter, annual, three years, five years) and compares the Group’s returns to those of its peer group of listed, closed-ended property investment companies.

Premium or discount of the share price to net asset value.

The Board closely monitors the premium or discount of the share price to the NAV and believes that a key driver to the level of the premium or discount is the Group’s long term investment performance. However, there can be short term volatility in the premium or discount and the Board takes powers at each Annual General Meeting (“AGM”) to enable it to issue or buy back shares with a view to limiting this volatility.

Dividend per share and dividend cover.

A key objective of the Group is to provide an attractive, sustainable level of income to shareholders and the Board reviews, at each Board meeting, the level of dividend per share and the dividend cover, in conjunction with detailed financial forecasts, to ensure that this objective is being met and is sustainable.

The Board considers the performance measures both over various time periods and against similar funds.

A record of these measures is disclosed in the Financial and Property Highlights, Chairman’s Statement and Investment Manager’s Report.

Principal Risks and Uncertainties

The Board ensures that proper consideration of risk is undertaken in all aspects of the Group’s business on a regular basis. During the year, the Board carried out an assessment of the risk profile of the Group, including consideration of risk appetite, risk tolerance and risk strategy. The Board regularly reviews the principal risks of the Group, seeking assurance that these risks are appropriately rated and ensuring that appropriate risk mitigation is in place.

The Group’s assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested, and their tenants. The Board and Investment Manager seek to mitigate these risks through a strong initial due diligence process, continual review of the portfolio and active asset management initiatives. All of the properties in the portfolio are insured, providing protection against risks to the properties and also protection in case of injury to third parties in relation to the properties.

The Board has also identified a number of other specific risks that are reviewed at each Board meeting. These are as follows:

The Group and its objectives become unattractive to investors, leading to widening of the discount.

This risk 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 Group’s broker to discuss these points and address any issues that arise.

Net revenue falls such that the Group cannot sustain its level of dividend, for example due to tenant failure or inability to let properties.

This risk is mitigated through regular review of forecast dividend cover and regular review of tenant mix, risk and profile. Due diligence work on potential tenants is undertaken before entering into new lease arrangements and 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 Group 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.

Uncertainty or change in the macroeconomic environment results in property becoming an undesirable asset class, causing a decline in property values.

This risk is managed through regular reporting from, and discussion with, the Investment Manager and other advisers. Macroeconomic conditions form part of the decision making process for purchases and sales of properties and for sector allocation decisions. Macroeconomic uncertainty continued during 2017, particularly in relation to the UK’s decision to leave the EU. The Board continues to closely monitor the effect of this on property values and also the impact of any resultant regulatory changes that may impact the Group.

Breach of loan covenants.

This risk is mitigated by the Investment Manager monitoring the loan covenants on a regular basis and providing a quarterly certificate to the bank confirming compliance with the covenants. Compliance is also reviewed by the Board each quarter and there is regular dialogue between the Investment Manager and the bank on Group activity and performance.

Loss on financial instruments.

The Group has entered into an interest rate swap arrangement. This swap instrument is valued and monitored on a daily basis by the counterparty bank. The Investment Manager checks the valuation of the swap instrument internally to ensure it is accurate. In addition, the credit rating of the bank that the swap is taken out with is assessed regularly.

Other risks faced by the Group 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 Group or changes to legislation could result in the Group no longer being a tax efficient investment vehicle for shareholders.

-Regulatory – breach of regulatory rules could lead to the suspension of the Group’s Stock Exchange Listing, financial penalties or a qualified audit report.

-Financial – inadequate controls by the Investment Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards 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 recent merger of Standard Life plc and Aberdeen Asset Management PLC creates additional operational risk for the Group due to the potential for changes in the way the Investment Manager provides its services to the Group. The Board is keeping under close review any potential implications for the Group arising from the merger and the integration process.

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 Group’s property portfolio, levels of gearing and the overall structure of the Group.

Social, Community and Employee Responsibilities

The Group has no direct social, community or employee responsibilities. The Group has no employees and accordingly no requirement to separately report in this area as the management of the portfolio has been delegated to the Investment Manager. In light of the nature of the Group’s business there are no relevant human rights issues and there is thus no requirement for a human rights policy. The Board does, however, closely monitor the policies of its suppliers to ensure that proper provision is in place.

Sustainable Real Estate Investment Policy

The Investment Manager acquires, develops and manages properties on behalf of the Group. It is recognised that these activities have both direct and indirect environmental and social impacts. The Board has adopted the Investment Manager’s own Sustainable Real Estate Investments Policy and associated Environmental Management Systems and is committed to environmental management in all phases of an asset’s cycle – from acquisition through to demolition, redevelopment and operational management to disposal. The focus is on energy efficiency, greenhouse gas emissions, resource management and occupier satisfaction. To facilitate this, the Manager works in partnership with contractors, suppliers, tenants and consultants to minimise those impacts, seeking continuous improvements in environmental performance and conducting regular reviews.

The Group was awarded a Green Star ranking in the Global Real Estate Sustainability Benchmark 2017 and improved its score by 8% compared with 2016. A Green Star is awarded to entities that perform well in both categories of the GRESB assessment: Management & Policies and Implementation and Measurement. The Group’s approach, through its Investment Manager, to monitoring and improving the sustainability performance of the assets held by the Group has been highly successful. Like-for- like landlord electricity and gas consumption reduced year-on-year across the Trust’s assets, by 16% and 27% respectively. This helped drive a significant reduction in greenhouse gas emissions. Water consumption also reduced year-on-year and 99.9% of waste was diverted from landfill. For the first time this year we have adopted the 2017 EPRA Sustainability Best Practice Recommendations Guidelines (SPBRs) to inform the scope of indicators we report against.

Health & Safety

Alongside these environmental principles the Group has a health and safety policy which demonstrates commitment to providing safe and secure buildings that promote a healthy working/customer experience that supports a healthy lifestyle. The Group, through the Investment Manager, manages and controls health and safety risks systematically as any other critical business activity using technologically advanced systems and environmentally protective materials and equipment. The aim is to achieve a health and safety performance the Group can be proud of and allow the Group to earn the confidence and trust of tenants, customers, employees, shareholders and society at large.

Viability Statement

The Board considers viability as part of its ongoing programme of monitoring risk.

The Board has considered the nature of the Group’s assets and liabilities and associated cash flows and has determined that five years is the maximum timescale over which the performance of the Group can be forecast with a material degree of accuracy and so is an appropriate period over which to consider the Group’s viability.

In assessing the Group’s viability, the Board has carried out thorough reviews of the following:

-Detailed NAV, cash resources and income forecasts, prepared by the Investment Manager, for a five year period under both normal and stressed conditions;

-The Group’s ability to pay its operational expenses, bank interest and dividends over a five year period;

-Future debt repayment dates and debt covenants, in particular those in relation to LTV and interest cover; and

-The valuation and liquidity of the Group’s property portfolio, the Investment Manager’s portfolio strategy for the future and the market outlook.

The Board has also carried out a robust assessment of the principal risks faced by the Group. The Board takes any potential risks to the ongoing success of the Group, and its ability to perform, very seriously and works hard to ensure that risks are kept to a minimum at all times.

Based on the results of the analysis outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five year period of its assessment.

Approval of Strategic Report

The Strategic Report comprises the Financial and Property Highlights, Performance Summary, Chairman’s Statement, Strategic Overview and Investment Manager’s Report. The Strategic Report was approved by the Board and signed on its behalf by:

Robert Peto
Chairman

5 April 2018

INVESTMENT MANAGER’S REPORT

UK Real Estate Market

The economy and the real estate market both surprised on the upside in 2017. According to the ONS, economic growth is estimated to have increased by 1.7% over the year; this compares to projections at the start of the year for growth of 1.4%. Similarly, All Property real estate returns were 10.5% (according to the Group’s benchmark) over the year coming in ahead of the IPF Consensus expectations of 3.2% for the year. Capital growth was relatively strong over the year also with values rising by 5.4%. Furthermore, rents increased by 1.9% over the year. As we move through 2018, economists generally expect more subdued economic growth for the year ahead and then some further moderation in economic momentum in 2019 as the impact of leaving the European Union becomes more pronounced. Real estate returns for the year are expected to reflect this moderation in economic growth and more subdued returns are expected in 2018 with less capital growth in prospect and income anticipated to be the main driver of returns.

As for the equity markets, the FTSE All-Share returned 13.1% over 2017 whilst the FTSE 100 returned 12% over the year. Listed real estate equities recorded a return of 12.7% in 2017.

In sector terms, the industrial sector has continued to demonstrate its strength, generating a total return of 21.1% p.a. in 2017. Retail was the laggard sector again, recording total returns of 7.7%. Despite the political uncertainty associated with the sector, the office sector recorded a total return of 8.5% over 2017. Industrial values continued to rise strongly over the year whilst both the other two sectors only experienced modest capital growth. Retail capital growth continued to be the weakest amongst sectors with values increasing by 1.5%. Office values were stronger, growing 3.5% over 2017. Rents remained on an upward trend over the year, but within sectors, retail rental growth, at 0.4% in 2017, continued to be considerably weaker than the other sectors. It was below office rental growth at 1.4% and industrials at 4.9% over the year.

Investment Outlook

UK real estate continues to provide an elevated yield compared to other assets and market values are now ahead of the level they attained before the Brexit upheaval in 2016. Lending to the sector remains prudent and liquidity remains reasonable. Additionally, development continues to be relatively constrained by historic standards, and existing vacancy rates are below average levels in most markets, although there are pockets of oversupply in some markets such as Central London offices. The robust fundamentals should help to maintain the positive returns the sector is currently recording. In this environment, the steady secure income component generated by the asset class is likely to be the key driver of returns over the next few years. The market is expected to continue to be sentiment driven in the short term as the politics and economic impact associated with the UK’s withdrawal from the European Union continues to evolve. The retail sector continues to face a series of headwinds that may hold back recovery in less strong locations due to oversupply and structural issues but the prospects for retail in the South East and Central London are expected to remain more robust. Given the backdrop of continuing heightened macro uncertainty, investors are becoming more risk averse and better quality assets are once again broadly outperforming poorer quality. Occupier demand, particularly in offices, has continued to focus on good quality real estate that offer an elevated level of amenity to employees, as low levels of unemployment mean the work environment is part of the offering to recruit and retain the best people.

Performance

The Group performed well in 2017, with the portfolio outperforming the MSCI / IPD benchmark (property level total return of 12.1% vs benchmark 10.5%). Over the longer term performance has been also relatively strong with outperformance over three and five years. This has helped drive NAV total return which has exceeded the property level total return over these time periods highlighting the positive effect of the Group’s gearing.

The Group’s NAV total return also compared favourably to the peer group as detailed below.

NAV Total Returns to 31 December 2017	1 year (%)	3 year (%)	5 year (%)
Standard Life Investments Property Income Trust	14.5	38.1	112.9
AIC Property Direct - UK sector (weighted average)	9.7	26.5	60.2
Investment Association Open Ended Commercial Property Funds sector	7.7	14.7	37.6
Company's ranking in AIC Property Direct sector	2	2	2
Source: Winterflood Securities, Standard Life Investments

Shown here is the Group’s share price performance – an obviously important measure for investors, but one that is slightly less relevant to the investment manager as the share price is not directly influenced by its actions compared to the NAV or property level returns. Nonetheless, the rating of the Group’s shares is an important measure of the Group’s perception, and it has been pleasing to see a premium rating throughout 2017 which has resulted in a strong share price performance over the 12 months as highlighted in the table below.

Share Price Total Returns		1 year (%)	3 year (%)	5 year (%)
Standard Life Investments Property Income Trust		13.7	40.5	115.8
FTSE All-Share Index		13.1	33.3	63.0
FTSE All-Share REIT Index		12.2	15.4	70.8
AIC Property Direct UK sector (weighted average)		8.2	18.4	65.7

Source: Winterflood Securities, Standard Life Investments

Valuation

The property portfolio was valued on a quarterly basis by Knight Frank LLP (JLL valued part of the portfolio for the March 2017 valuation) throughout the year. At the year end the property portfolio was valued at £433.2 million, and it held uncommitted cash of £18.3 million (this compared with £429.9 million and £13.1 million as at year end 2016). During the year the Group also reduced its debt by repaying £15 million of the revolving credit facility.

Investment Strategy

The Board and Investment Manager remains focused on delivering an attractive income return to shareholders, but we also want to provide investors with a reasonable total return. We aim to meet these objectives through owning assets that we expect to perform in line with our expectations, and also by actively managing the assets we own to drive value and security of future income streams.

Below we outline the activity that has taken place over the year; however a brief summary of our investment policy is to sell properties that we believe have more void or capex risk than we are comfortable with, or where we think the asset will not perform in line with requirements. The sales have therefore concentrated on poorer quality retail warehousing which we believe could see capital falls due to the structural changes in that marketplace, and on office assets that are likely to require significant expenditure and have large voids, where the potential return to the Group for undertaking the capex is not considered adequate. We also believe in realising a profit where we feel the property has reached the top of its value.

When purchasing a new investment we look to acquire assets that are in a good location and are going to appeal not just to the existing tenant but also to future tenants. Although we are happy to buy investments with some void or capex requirements we are not looking at major refurbishment opportunities due to the lack of income they would have. We do not have a particular regional focus, although we do want to invest in vibrant areas.

Purchases

Six assets were purchased during 2017 for a total of £48.9 million, and then after the year end a further three purchases completed for £23.6 million. The purchases are detailed below in order of purchase. The purchases provide a diverse exposure to asset type, location, and tenant. The one factor they have in common is our belief that they have a sufficient appeal to the current, and potential future, occupiers and hence will provide a reliable source of income going forward.

Kings Business Park, Bristol: A seven unit industrial estate close to the city centre of Bristol, with asset management opportunities. The purchase price of £5.27 million reflected a yield of 6.25%.

SNOP, Washington: A single let industrial unit of 150,000 sq ft located close to the Nissan car plant in Washington. The property is reversionary, and has a low site cover of 28%. The purchase price of £5.5 million reflected a yield of 6.3%.

101 Princess Street, Manchester: We purchased this multi-let office for £8.1 million, reflecting a yield of 6.45%. The traditional brick building is let to six tenants and provides refurbished “trendy” space with exposed services, and has strong potential for rental growth.

Pinnacle, Reading: This multi-let office is located close to Reading train station and offers good quality accommodation that we intend to enhance. The purchase price of £13.45 million reflected a yield of 6.75%.

Units H1, H2 & G, Nexus, Birmingham: a small single let industrial unit that had just been let on a new 15 year lease. The purchase price of £4.58 million represented a yield of 5.75%

One Station Square, Bracknell: We purchased a refurbished multi-let office located adjacent to the train station for £12 million, with a yield of 6.9% in December 2017. The building has one vacant floor and we believe the recent improvements to the town centre, and loss of office accommodation to residential use, provides good scope for future rental growth.

Timbmet, Shellingford: In early January 2018 we completed the purchase of a single let warehouse located between Oxford and Swindon by way of a 25 year sale and leaseback, with indexed rent reviews throughout the lease. The purchase price of £11.5 million reflected an initial yield of 6.5%.

Grand National Retail Park, Aintree: This small leisure scheme is located adjacent to the race course, an equestrian and event facility, as well as established out of town retail. The tenants all trade well and we believe there is scope for asset management – indeed 2 weeks after purchase we agreed terms to take a break out of the gym operator’s lease to give an additional five year term certain to the lease. The purchase price of £6.1 million reflects a yield of 6.85%.

Flamingo Flowers, Sandy: The purchase of this industrial facility, used to process and distribute cut flowers, provides the Group with an attractive income stream for a 19 year lease with indexation from a low base rent. The site’s location, adjacent to a junction of the A1, just 35 miles off the M25, provides interesting longer term opportunities. The purchase price of £6 million represents an initial yield of 6.25%.

Sales

Over the course of 2017 the Group completed the disposal of 9 assets for a total of £71.4 million. The Group also exchanged contracts on the sale of its biggest asset Elstree Tower, Borehamwood for £20 million with completion taking place on 16 March 2018. Contracts were also exchanged on a further retail warehouse asset, Bathgate Retail Park, with a completion date of 19 January 2018 for £5.23 million. After the year end, the Group exchanged contracts for the sale of an office building in Slough for £13.25 million, with completion expected on 6 April 2018.

The sales were driven by a desire to reduce future void / capex risk, and also reduce exposure to two markets we are more concerned about – Central London offices and weaker retail warehousing.

Quadrangle, Cheltenham: The lease on this office would have expired in June 2018 and circa £10 million of capex would have been required as well as letting risk. We completed this sale for £11.1 million, which was ahead of valuation, in January 2017.

White Bear Yard, London: We completed the sale of this multi-let office in Clerkenwell for £19 million in March 2017 as we were concerned about rising business rates, Brexit and the non-air-conditioned nature of the building had future income risk. The Group now has no core London office exposure.

Matalan, Bradford and King’s Lynn: We sold two stand-alone retail warehouse investments let to Matalan for a combined £8.2 million. The sale reduced exposure to retail, which we expect to continue to under-perform.

Travis Perkins, Cheltenham: We sold a small, but dilapidated industrial unit on a long lease to the tenant for £2.2 million. It was one of the smallest assets in the fund.

IT Centre York: As we prefer town / city centre offices we sold this single let office with a short lease for £4.3 million. It is located out of town, and we were uncomfortable about future rental prospects.

Range, Southend on Sea: We continued our disinvestment of secondary retail warehousing with the sale of this stand-alone unit to the local Council for £5 million.

Dorset St, Southampton: The main tenant in the building left on lease expiry following corporate changes, leaving the building 75% vacant and in need of refurbishment. We did not believe the modernisation would provide us with sufficient returns and therefore sold the property for £5.2 million.

DSG, Preston: This property was heavily over rented and with a new scheme about to be developed elsewhere in Preston we felt a sale would capitalise on current demand for secure income and protect the Group from anticipated capital decline in the unit. We sold this property for £16.4 million.

Asset Management

One of the differentiators of real estate as an asset class is the opportunity for active asset management to enhance returns. We focus on working with tenants to try and ensure the assets meet their requirements, so they want to remain in occupation, and are willing to renew leases or take out lease break clauses. It is cheaper to retain tenants than it is to find new ones, even although it can sometimes be harder to capture all the potential rental growth in such a circumstance.

With the continued political uncertainty both in the UK and abroad, it is hardly surprising that many companies are delaying making property decisions. Moving is expensive and time consuming, so we find tenants are receptive to lease extension discussions, but they want an increased level of flexibility in their leases, and only commit when they have to.

During the course of the year we renewed or renegotiated 5 leases securing £628,600pa of rent, and let 8 units for a total of £512,000pa. We also settled nine rent reviews, with a total increase in rent of £111,200pa.

Over the course of 2017 the Group’s occupancy rate declined, from 96.7% at year-end 2016, to 92.3%, based on percentage of estimated rental value of the portfolio as at end 2017 resulting in a void level of 7.7%. In January 2018 the Group signed an agreement for lease (completed 1 March 2018) on the largest void, an industrial unit in Rainham, that represented over a quarter of this void level. In addition, two of the recent purchases (Reading and Bracknell) had void floors which were subject to a rental guarantee when we purchased the properties, hence are generating income even though they are technically void. Set out below is a table showing the current status of each void unit in the portfolio.

Property Name	Sector	ERV	ERV%	Comment
Let		£27,565,991	92.26%
Vacant		£2,313,297	7.74%
Marsh Way, Rainham	Industrial	£636,197	2.13%	Agreement for lease signed
Unit 6, Broadgate, Oldham	Industrial	£544,000	1.82%	Proposal made
Explorer 1 & 2, Crawley	Office	£373,500	1.25%	Being refurbished
The Pinnacle, Reading	Office	£253,000	0.85%	Rent guarantee from purchase
Foxholes Business Park, Hartford	Industrial	£186,800	0.63%	One of 4 units under offer
One Station Square, Bracknell	Office	£126,750	0.42%	Rent guarantee from purchase
Charter Court, Slough	Office	£59,300	0.20%
Ocean Trade Centre, Aberdeen	Industrial	£41,500	0.14%	Under offer
Kings Business Park, Bristol	Industrial	£41,250	0.13%	Under offer
Howard Town Retail Park, Glossop	Retail	£28,100	0.09%	Under offer
Budbrooke Industrial Estate, Warwick	Industrial	£14,900	0.05%	Under offer
New Palace Place, London	Office	£8,000	0.03%
Total		£29,879,288	100.00%

Debt

The Group has two debt facilities in place, both with RBS:

The term loan of £110 million is fully drawn and the facility is fixed until April 2023. The Group has an interest rate swap in place to fix the rate paid, with an all-in rate of 2.7%. The interest rate swap is valued at a liability of £2.2 million as at end 2017 (£3.6 million same time 2016). It should be noted that the value of the swap will revert to £0 at maturity.

In addition, the Group has a £35 million Revolving Credit Facility which is due to expire in April 2021 (although the Group has the right to extend it by two years). As at the end of 2017 the RCF was undrawn.

The Group had a loan to value ratio at year end of 18% which is down from the end 2016 LTV of 26.0%. The reduction in LTV has been a deliberate move given the cautious outlook the Group has for the market and it is now at the bottom end of the desired range.

Jason Baggaley

Fund Manager

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Group financial statements for each year which give a true and fair view, in accordance with the applicable Guernsey law and those International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.

In preparing those Financial Statements, the Directors are required to:

-select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

-make judgement and estimates that are reasonable and prudent;

-present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;

-state that the Group has complied with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the Group financial statements; and

-prepare the Group Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.

The Directors are responsible for keeping adequate accounting records, that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the Financial Statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud, error and non compliance with law and regulations.

The maintenance and integrity of the Company’s website is the responsibility of the Directors; the work carried out by the auditors does not involve considerations of these matters and, accordingly, the auditors accept no responsibility for any change that may have occurred to the Financial Statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Consolidated Annual Report under the Disclosure and Transparency Rules

The Directors each confirm to the best of their knowledge that:

-the 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

-the management report, which is incorporated into the Strategic Report, Directors’ Report and Investment Manager’s 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 that they face.

Statement under the UK Corporate Governance Code

The Directors each confirm to the best of their knowledge and belief that the Annual Report and Consolidated Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Group’s performance, business model and strategy.

Approved by the Board on

5 April 2018

Robert Peto

Chairman

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017	Notes		2017 £	2016 £
Rental income			28,526,725	30,414,862
Surrender premium			14,688	81,500
Valuation gain/(loss) from investment properties	7		23,174,903	(5,300,992)
(Loss)/gain on disposal of investment properties			(138,237)	1,067,395
Investment management fees	4		(3,136,218)	(3,157,399)
Valuers fees	4		(71,844)	(99,001)
Auditor’s fees	4		(74,500)	(73,695)
Directors fees and expenses	22		(194,011)	(164,225)
Other direct property expenses			(1,848,130)	(1,372,597)
Other administration expenses			(434,466)	(445,144)
Operating surplus			45,818,910	20,950,704
Finance income	5		2,752	30,536
Finance costs	5		(3,356,428)	(4,047,594)
Loss on derecognition of interest rate swap	14		-	(2,735,000)
Surplus for the year before taxation			42,465,234	14,198,646
Taxation
Tax charge			-	-
Surplus for the year, net of tax			42,465,234	14,198,646
Other Comprehensive Income
Net change in fair value of the swaps reclassified to profit and loss	14		-	2,735,000
Valuation gain/(loss) on cash flow hedge	14		1,317,743	(4,212,250)
Total other comprehensive surplus/(deficit)			1,317,743	(1,477,250)
Total comprehensive surplus for the year, net of tax			43,782,977	12,721,396
Earnings per share			2017 (p)	2016 (p)
Basic and diluted earnings per share	18		10.91	3.73
EPRA earnings per share	18		4.99	5.56

All items in the above Consolidated Statement of Comprehensive Income derive from continuing operations.

Consolidated Balance Sheet
as at 31 December 2017
	Notes		2017 £	2016 £
ASSETS
Non-current assets
Investment properties	7		404,252,083	395,782,781
Lease incentives	7		3,657,917	4,187,219
Rent deposits held on behalf of tenants			995,942	936,668
			408,905,942	400,906,668
Current assets
Investment properties held for sale	8		25,300,000	29,975,000
Trade and other receivables	10		20,256,944	1,787,089
Cash and cash equivalents	11		14,334,504	13,054,057
			59,891,448	44,816,146
Total assets			468,797,390	445,722,814
LIABILITIES
Current liabilities
Trade and other payables	12		10,451,289	8,784,217
Interest rate swap	14		887,699	1,341,101
			11,338,988	10,125,318
Non-current liabilities
Bank borrowings	13		109,107,044	124,001,828
Interest rate swap	14		1,357,100	2,221,441
Rent deposits due to tenants			995,942	936,668
			111,460,086	127,159,937
Total liabilities			122,799,074	137,285,255
Net assets			345,998,316	308,437,559
EQUITY
Capital and reserves attributable to Company’s equity holders
Share capital	16		217,194,412	204,820,219
Retained earnings	17		8,364,603	7,532,448
Capital reserves	17		22,600,929	(1,753,480)
Other distributable reserves	17		97,838,372	97,838,372
Total equity			345,998,316	308,437,559
Approved by the Board on 5 April 2018 and signed on its behalf by: Robert Peto, Chairman

Consolidated Statement of Changes in Equity
for the year ended 31 December 2017		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance 1 January 2017		204,820,219	7,532,448	(1,753,480)	97,838,372	308,437,559
Surplus for the year		-	42,465,234	-	-	42,465,234
Other comprehensive income		-	-	1,317,743	-	1,317,743
Total comprehensive surplus for the year		-	42,465,234	1,317,743	-	43,782,977
Ordinary shares issued net of issue costs	16	12,374,193	-	-	-	12,374,193
Dividends paid	19	-	(18,596,413)	-	-	(18,596,413)
Valuation gain from investment properties	7	-	(23,174,903)	23,174,903	-	-
Loss on disposal of investment properties		-	138,237	(138,237)	-	-
Balance at 31 December 2017		217,194,412	8,364,603	22,600,929	97,838,372	345,998,316
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance 1 January 2016		204,820,219	6,167,329	3,957,367	97,838,372	312,783,287
Surplus for the year		-	14,198,646	-	-	14,198,646
Other comprehensive income		-	-	(1,477,250)	-	(1,477,250)
Total comprehensive surplus for the year		-	14,198,646	(1,477,250)	-	12,721,396
Dividends paid	19	-	(17,067,124)	-	-	(17,067,124)
Valuation loss from investment properties	7	-	5,300,992	(5,300,992)	-	-
Profit on disposal of investment properties		-	(1,067,395)	1,067,395	-	-
Balance at 31 December 2016		204,820,219	7,532,448	(1,753,480)	97,838,372	308,437,559

Consolidated Cash Flow Statement
for the year ended 31 December 2017
	Notes		2017 £	2016 £
Cash flows from operating activities
Surplus for the year before taxation			42,465,234	14,198,646
Movement in non-current lease incentives			(114,820)	(816,862)
Movement in trade and other receivables			(18,529,129)	135,094
Movement in trade and other payables			1,726,346	(3,690,397)
Loss on derecognition of interest rate swaps			-	2,735,000
Finance costs	5		3,356,428	4,047,594
Finance income	5		(2,752)	(30,536)
Valuation (gain)/loss from investment properties	7		(23,174,903)	5,300,992
Loss/(gain) on disposal of investment properties	7		138,237	(1,067,395)
Net cash inflow from operating activities			5,864,641	20,812,136
Cash flows from investing activities
Interest received	5		2,752	30,536
Purchase of investment properties			(50,012,676)	-
Capital expenditure on investment properties	7		(2,187,601)	(1,479,788)
Net proceeds from disposal of investment properties	7		72,086,763	20,192,395
Net cash inflow from investing activities			19,889,238	18,743,143
Cash flows from financing activities
Proceeds on issue of ordinary shares	16		12,467,700	-
Transaction costs of issue of shares	16		(93,507)	-
Repayment of bank borrowing	13		-	(139,432,692)
Bank borrowing	13		-	145,000,000
Repayment of RCF	13		(15,000,000)	(20,000,000)
Bank borrowing arrangement costs	13		(55,000)	(1,138,458)
Interest paid on bank borrowing	5		(2,089,843)	(2,594,070)
Payments on interest rate swap	5		(1,106,369)	(929,394)
Swap breakage costs	14		-	(2,735,000)
Dividends paid to the Company’s shareholders	19		(18,596,413)	(17,067,124)
Net cash outflow from financing activities			(24,473,432)	(38,896,738)
Net increase in cash and cash equivalents			1,280,447	658,541
Cash and cash equivalents at beginning of year	11		13,054,057	12,395,516
Cash and cash equivalents at end of year			14,334,504	13,054,057

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

1 General Information

Standard Life Investment Property Income Trust Limited (“the Company”) and its subsidiaries (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 in Guernsey, Channel Islands. The Company has its listing on the London Stock Exchange.

The address of the registered office is Trafalgar Court, Les Banques, St Peter Port, Guernsey.

These audited Consolidated Financial Statements were approved for issue by the Board of Directors on 5 April 2018.

2 Accounting Policies

2.1 Basis of preparation

The audited Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”), and all applicable requirements of The Companies (Guernsey) Law, 2008. The audited Consolidated Financial Statements of the Group have been prepared under the historical cost convention as modified by the measurement of investment property and derivative financial instruments at fair value. The Consolidated Financial Statements are presented in pounds sterling and all values are not rounded except when otherwise indicated.

In the previous years, all rent deposits held on behalf of tenants are classified as current assets within trade and other receivables. The portion of rent deposits held on behalf of tenants that will be used to pay non-current rent deposits due to tenants are now classified as non-current assets, and the prior year comparative was restated accordingly. There is no impact on net assets or net profit on this reclassification, thus, presentation of a third balance sheet is considered not necessary. As at 1 January 2016, an amount of £622,283 of the rent deposits held on behalf of tenants included in current assets should have been reclassified as non-current assets.

Changes in accounting policy and disclosure

The accounting policies adopted are consistent with those in the previous financial year. The following amendments to existing standards were effective for the year, but were either not applicable to or did not have a material impact on the Group:

-Amendments to IAS 7: Disclosure Initiative

-Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

-Annual Improvements to IFRSs 2014–2016 Cycle: Clarification for the scope of the disclosure requirements in IFRS 12

New and amended standards and interpretations not applied

As at the date of approval of the Group financial statements, the following new and amended standards in issue are adopted by the EU and are applicable to the Group but are not yet effective and thus, have not been applied by the Group:

-IFRS 9 Financial Instruments (effective 1 January 2018)

-IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

-Clarification to IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

-IFRS 16 Leases (effective 1 January 2018)

The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Consolidated or Company Financial Statements in the period of initial application.

IFRS 9 – Financial Instruments

In July 2014, the IASB published the final version of IFRS 9 ‘Financial Instruments’ which replaces the existing guidance in IAS 39 ‘Financial Instruments: Recognition and Measurement’. The IFRS 9 requirements represent a change from the existing requirements in IAS 39 in respect of financial assets.

The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value.

The standard eliminates the existing IAS 39 categories of held to-maturity, available-for-sale and loans and receivables. For financial liabilities, IFRS 9 largely carries forward without substantive amendment the guidance on classification and measurement from IAS 39. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in profit or loss.

The standard introduces new requirements for hedge accounting that align hedge accounting more closely with risk management and establishes a more principles-based approach to hedge accounting. The standard also adds new requirements to address the impairment of financial assets and means that a loss event will no longer need to occur before an impairment allowance is recognised.

The standard will be effective for annual periods beginning on or after 1 January 2018, and is required to be applied retrospectively with some exemptions. The Group has assessed IFRS 9’s full impact and it does not currently anticipate that this standard will have any material impact on the Group’s financial statements as presented for the current year.

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 specifies how and when an entity should recognise revenue from contracts and enhances the nature of revenue disclosures.

The Group notes lease contracts within the scope of IAS 17 ‘Leases’ are excluded from the scope of IFRS 15. Rental income derived from operating leases is therefore outwith the scope of IFRS 15, and the Group therefore does not anticipate IFRS 15 having a material impact on the Group’s Financial Statements as presented for the current year.

The Group notes under specific circumstances, certain elements of contracts the Group may enter (for example, rental guarantees provided when selling a property) potentially fall within the scope of IFRS 15. The Group does not have any contracts in place at 31 December 2017 that it believes meet these specific criteria, but will review again in advance of implementing IFRS 15.

IFRS 16 – Leases

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosures of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces IAS 17 ‘Leases’.

IFRS 16 changes fundamentally the accounting for leases by lessees by eliminating the current IAS 17 dual accounting model, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead IFRS 16 introduces a single on-balance sheet accounting model where the lease, for lessees, becomes an on-balance sheet liability that attracts interest, together with a new lease asset.

For lessor accounting, lessors continue to classify leases as finance and operating leases.

For companies with material off balance sheet leases, there will be a change to key financial metrics derived from the company’s assets and liabilities (for example, leverage ratios).

The standard will be effective for annual periods beginning on or after 1 January 2019. The Group has assessed IFRS 16’s full impact and it does not anticipate currently that this standard will have any material impact on the Group’s financial statements as presented for the current year.

The standard permits a modified retrospective approach in the year of adoption (from 1 January 2018) by recognising a cumulative catch up adjustment to opening retained earnings. The Group intends utilising this modified retrospective approach should any contracts fall within scope, but has not and does not intend implementing the standard in advance of the effective date.

2.2 Significant accounting judgements, estimates and assumptions

The preparation of the Group’s Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. The most significant estimates and judgements are set out below.

Fair value of investment properties

Investment properties are stated at fair value as at the Balance Sheet date. Gains or losses arising from changes in fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise. The fair value of investment properties is determined by external real estate valuation experts using recognised valuation techniques. The fair values are determined having regard to any recent real estate transactions where available, with similar characteristics and locations to those of the Group’s assets.

In most cases however, the determination of the fair value of investment properties requires the use of valuation models which use a number of judgements and assumptions. The only model used was the income capitalisation method. Under the income capitalisation method, a property’s fair value is judged based on the normalised net operating income generated by the property, which is divided by the capitalisation rate (discounted by the investor’s rate of return). Under the income capitalisation method, over (above market rent) and under-rent situations are separately capitalised (discounted).

The sensitivity analysis in note 7 details the decrease in the valuation of investment properties if equivalent yield increases by 25 basis points or rental rates (ERV) decreases by 5%.

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the Consolidated Balance Sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair value. The judgements include considerations of liquidity and model inputs such as credit risk (both own and counterparty’s), correlation and volatility.

Changes in assumptions about these factors could affect the reported fair value of financial instruments. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument (without modification or repackaging) or based on any available observable market data.

The valuation of interest rate swaps used in the Balance Sheet is provided by Natwest. These values are validated by comparison to internally generated valuations prepared using the fair value principles outlined above.

The sensitivity analysis in note 3 details the increase and decrease in the valuation of interest rate swaps if market rate interest rates had been 100 basis points higher and 100 basis points lower.

2.3 Summary of significant accounting policies

A Basis of consolidation

The audited Consolidated Financial Statements comprise the financial statements of Standard Life Investments Property Income Trust Limited and its material wholly owned subsidiary undertakings.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with subsidiaries and has the ability to affect those returns through its power over the subsidiary.

Specifically, the Group controls a subsidiary if, and only if, it has:

-Power over the subsidiary (i.e. existing rights that give it the current ability to direct the relevant activities of the subsidiary)

-Exposure, or rights, to variable returns from its involvement with the subsidiary

-The ability to use its power over the subsidiary to affect its returns

The Group assesses whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

B Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Consolidated Financial Statements are presented in pound sterling, which is also the Group’s functional currency.

C Revenue Recognition

Revenue is recognised as follows;

i) Bank interest

Bank interest income is recognised on an accruals basis.

ii) Rental income

Rental income from operating leases is net of sales taxes and value added tax (“VAT”) recognised on a straight line basis over the lease term including lease agreements with stepped rent increases. The initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. The cost of any lease incentives provided are recognised over the lease term, on a straight line basis as a reduction of rental income. The resulting asset is reflected as a receivable in the Consolidated Balance Sheet. The valuation of investment properties is reduced by the total of the unamortised lease incentive balances. Any remaining lease incentive balances in respect of properties disposed of are included in the calculation of the profit or loss arising at disposal.

Contingent rents, being those payments that are not fixed at the inception of the lease, for example increases arising on rent reviews, are recorded as income in periods when they are earned. Rent reviews which remain outstanding at the year end are recognised as income, based on estimates, when it is reasonable to assume that they will be received.

The surrender premiums received for the year ended 2017 were £14,688 (2016: £81,500) as detailed in the Statement of Comprehensive Income and related to a tenant break during the year.

iii) Property disposals

Where revenue is obtained by the sale of properties, it is recognised once the sale transaction has been completed, regardless of when contracts have been exchanged.

D Expenditure

All expenses are accounted for on an accruals basis. The investment management and administration fees, finance and all other revenue expenses are charged through the Consolidated Statement of Comprehensive Income as and when incurred. The Group also incurs capital expenditure which can result in movements in the capital value of the investment properties. The movements in capital expenditure are reflected in the Consolidated Statement of Comprehensive Income as a valuation gain/(loss). In 2017, there were no non-income producing properties (2016: nil).

E Taxation

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in other comprehensive income or in equity is recognised in other comprehensive income and in equity respectively, and not in the income statement. Positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation, if any, are reviewed periodically and provisions are established where appropriate.

The Group recognises liabilities for current taxes based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provisions in the period in which the determination is made.

Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the Directors consider that the Group will recover the value of investment property through sale. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

F Investment property

Investment properties comprise completed property and property under construction or re-development that is held to earn rentals or for capital appreciation or both. Property held under a lease is classified as investment property when the definition of an investment property is met.

Investment properties are measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.

Subsequent to initial recognition, investment properties are stated at fair value. Fair value is based upon the market valuation of the properties as provided by the external valuers as described in note 2.2. Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise. For the purposes of these financial statements, in order to avoid double counting, the assessed fair value is:

i) Reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments.

ii) Increased by the carrying amount of any liability to the superior leaseholder or freeholder (for properties held by the Group under operating leases) that has been recognised in the Balance Sheet as a finance lease obligation.

Acquisitions of investment properties are considered to have taken place on exchange of contracts unless there are significant conditions attached. For conditional exchanges acquisitions are recognised when these conditions are satisfied.

Investment properties are derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of investment properties are recognised in the Consolidated Statement of Comprehensive Income in the year of retirement or disposal.

Gains or losses on the disposal of investment properties are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.

G Non-current assets held for sale

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value (except for investment property measured using the fair value model).

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary (i.e. disposal group) are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

H Trade and other receivables

Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account, and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Consolidated Statement of Comprehensive Income.

I Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits, and other short-term highly liquid investments readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in value.

J Borrowings and interest expense

All loans and borrowings are initially recognised at the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. Borrowing costs are recognised within finance costs in the Consolidated Statement of Comprehensive Income as incurred.

K Accounting for derivative financial instruments and hedging activities

Interest rate swaps are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transactions. The Group also documents its assessment both at hedge inception and on an ongoing basis of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income in the Consolidated Statement of Comprehensive Income. The gains or losses relating to the ineffective portion are recognised in operating surplus in the Consolidated Statement of Comprehensive Income.

Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expenses are recognised.

When a derivative is held as an economic hedge for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item.

L Service charge

The Group has appointed a managing agent to deal with the service charge at the investment properties and the Group is acting as an agent for the service charge and not a principal. As a result the Group recognises net service charge and void expenses in the Consolidated Statement of Comprehensive Income. The table in note 21 is a summary of the service charge during the year. It shows the amount the service charge has cost the tenants for the 12 months to 31 December 2017, the amount the tenants have been billed based on the service charge budget and the amount the Group has paid in relation to void units over the year. The table also shows the balancing service charge that is due from the tenants as at the Balance Sheet date.

M Other financial liabilities

Trade and other payables are recognised and carried at invoiced value as they are considered to have payment terms of 30 days or less and are not interest bearing. The balance of trade and other payables are considered to meet the definition of an accrual and have been expensed through the Income Statement or Balance Sheet depending on classification. VAT payable at the Balance Sheet date will be settled within 31 days of the Balance Sheet date with Her Majesty’s Revenue and Customs (“HMRC”) and deferred rental income is rent that has been billed to tenants but relates to the period after the Balance Sheet date. Rent deposits recognised in note 12 are those that are due within one year as a result of upcoming tenant expiries.

3 Financial Risk Management

The Group’s principal financial liabilities are loans and borrowings. The main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s property portfolio. The Group has rent and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk, capital risk and liquidity risk. The Group is not exposed to currency risk or price risk. The Group is engaged in a single segment of business, being property investment in one geographical area, the United Kingdom. Therefore the Group only engages in one form of currency being pound sterling. The Group currently invests in direct non-listed property and is therefore not exposed to price risk.

The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Market risk

Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the interest rate swap.

i) Interest Rate risk

The Group invests cash balances with RBS and Citibank. These balances expose the Group to cash flow interest rate risk as the Group’s income and operating cash flows will be affected by movements in the market rate of interest. There is considered to be no fair value interest rate risk in regard to these balances.

The bank borrowings as described in note 13 also expose the Group to cash flow interest rate risk. The Group’s policy is to manage its cash flow interest rate risk using interest rate swaps, in which the Group has agreed to exchange the difference between fixed and floating interest amounts based on a notional principal amount (see note 14). The Group has floating rate borrowings of £110,000,000, all of which have been fixed via an interest rate swap.

The bank borrowings are carried at amortised cost and the Group considers this to be a close approximation to fair value. The fair value of the bank borrowings is affected by changes in the market interest rate. The fair value of the interest rate swap is exposed to changes in the market interest rate as their fair value is calculated as the present value of the estimated future cash flows under the agreements. The accounting policy for recognising the fair value movements in the interest rate swaps is described in note 2.3.

Trade and other receivables and trade and other payables are interest free and have settlement dates within one year and therefore are not considered to present a fair value interest rate risk.

The tables below set out the carrying amount of the Group’s financial instruments excluding the amortisation of borrowing costs as outlined in note 13. Bank borrowings have been fixed due to an interest rate swap and are detailed further in note 14:

At 31 December 2017				Fixed rate	Variable rate	Interest rate
				£	£	£
Cash and cash equivalents				-	14,334,504	0.020%
Bank borrowings				110,000,000	-	2.725%
At 31 December 2016				Fixed rate	Variable rate	Interest rate
				£	£	£
Cash and cash equivalents				-	13,054,057	0.212%
Bank borrowings				110,000,000	-	2.725%
Bank borrowings				-	15,000,000	1.567%

At 31 December 2017, if market rate interest rates had been 100 basis points higher with all other variables held constant, the surplus for the year would have been £143,345 higher (2016: £19,459 lower) as a result of the higher interest income on cash and cash equivalents off set by the higher interest expense on the RCF. Other Comprehensive Income and the Capital Reserve would have been £5,604,283 higher (2016: £6,806,871 higher) as a result of an increase in the fair value of the swap designated as a cash flow hedge of floating rate borrowings.

At 31 December 2017, if market rate interest rates had been 100 basis points lower with all other variables held constant, the surplus for the year would have been £143,345 lower (2016: £19,459 higher) as a result of the lower interest income on cash and cash equivalents off set by the lower interest expense on the RCF. Other Comprehensive Income and the Capital Reserve would have been £5,941,013 lower (2016: £7,285,802 lower) as a result of a decrease in the fair value of the swap designated as a cash flow hedge of floating rate borrowings.

ii) Real estate risk

The Group has identified the following risks associated with the real estate portfolio:

a) The cost of the development schemes may increase if there are delays in the planning process. The Group uses advisers who are experts in the specific planning requirements in the scheme’s location in order to reduce the risks that may arise in the planning process.

b) A major tenant may become insolvent causing a significant loss of rental income and a reduction in the value of the associated property. To reduce this risk, the Group reviews the financial status of all prospective tenants and decides on the appropriate level of security required via rental deposits or guarantees.

c) The exposure of the fair values of the portfolio to market and occupier fundamentals. The Group aims to manage such risks by taking an active approach to asset management (working with tenants to extend leases and minimise voids), capturing profit (selling when the property has delivered a return to the Group that the Group believes has been maximised and the proceeds can be reinvested into more attractive opportunities) and identifying new investments (generally at yields that are accretive to the revenue account and where the Group believes there will be greater investment demand in the medium term).

Credit risk

Credit risk is the risk that a counterparty will be unable to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional related costs. The Investment Manager regularly reviews reports produced by Dun and Bradstreet and other sources, including the IPD IRIS report, to be able to assess the credit worthiness of the Group’s tenants and aims to ensure that there are no excessive concentrations of credit risk and that the impact of default by a tenant is minimised. In addition to this, the terms of the Group’s bank borrowings require that the largest tenant accounts for less than 20% of the Group’s total rental income, that the five largest tenants account for less than 50% of the Group’s total rental income and that the ten largest tenants account for less than 75% of the Group’s total rental income. The maximum credit risk from the tenant arrears of the Group at the financial year end was £1,421,341 (2016: £958,417) as detailed in note 10.

With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty bank with a maximum exposure equal to the carrying value of these instruments. As at 31 December 2017 £6,969,884 (2016: £3,489,002) was placed on deposit with The Royal Bank of Scotland plc (“RBS”), £7,364,620 (2016: £9,565,055) was held with Citibank. The credit risk associated with the cash deposits placed with RBS is mitigated by virtue of the Group having a right to off-set the balance deposited against the amount borrowed from RBS should RBS be unable to return the deposits for any reason. Citibank is rated A-2 Stable by Standard & Poor’s and P-2 Stable by Moody’s. RBS is rated A-3 Stable by Standard & Poor’s and NP Positive by Moody’s.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The investment properties in which the Group invests are not traded in an organised public market and may be illiquid.

As a result, the Group may not be able to liquidate its investments in these properties quickly at an amount close to their fair value in order to meet its liquidity requirements.

The following table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.

The disclosed amounts for interest-bearing loans and interest rate swaps in the below table are the estimated net undiscounted cash flows.

The Group’s liquidity position is regularly monitored by management and is reviewed quarterly by the Board of Directors.

Year ended 31 December 2017		On demand	12 months	1 to 5 years	> 5 years	Total
		£	£	£	£	£
Interest-bearing loans		-	2,085,600	8,342,400	110,521,400	120,949,400
Interest rate swaps		-	911,900	3,647,600	227,975	4,787,475
Trade and other payables		3,245,930	-	-	-	3,245,930
Rental deposits due to tenants		-	586,189	395,688	600,254	1,582,131
		3,245,930	3,583,689	12,385,688	111,349,629	130,564,936
Year ended 31 December 2016
		On demand	12 months	1 to 5 years	> 5 years	Total
		£	£	£	£	£
Interest-bearing loans		-	2,151,250	8,605,000	127,689,063	138,445,313
Interest rate swaps		-	1,081,300	4,325,200	1,351,625	6,758,125
Trade and other payables		1,642,956	-	-	-	1,642,956
Rental deposits due to tenants		-	186,673	492,576	444,092	1,123,341
		1,642,956	3,419,223	13,422,776	129,484,780	147,969,735

Capital risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, increase or decrease borrowings or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by gross assets and has a limit of 65% set by the Articles of Association of the Company. Gross assets are calculated as non-current and current assets, as shown in the Consolidated Balance Sheet.

The gearing ratios at 31 December 2017 and at 31 December 2016 were as follows:

					2017 £	2016 £
Total borrowings (excluding unamortised arrangement fees)					110,000,000	125,000,000
Gross assets					468,797,390	445,722,814
Gearing ratio (must not exceed 65%)					23.5%	28.0%

Fair values

Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements.

			Carrying Amount		Fair Value
			2017	2016	2017	2016
			£	£	£	£
Financial assets
Cash and cash equivalents			14,334,504	13,054,057	14,334,504	13,054,057
Trade and other receivables			20,256,944	1,787,079	20,256,944	1,787,079
Financial liabilities
Bank borrowings			109,107,044	124,001,828	111,678,649	124,440,019
Interest rate swaps			2,244,799	3,562,542	2,244,799	3,562,542
Trade and other payables			4,828,061	2,766,297	4,828,061	2,766,297

The fair value of the financial assets and liabilities are included at an estimate of the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair value:

-Cash and cash equivalents, trade and other receivables and trade and other payables are the same as fair value due to the short-term maturities of these instruments.

-The fair value of bank borrowings is estimated by discounting future cash flows using rates currently available for debt on similar terms and remaining maturities. The fair value approximates their carrying values gross of unamortised transaction costs. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since 31 December 2016.

-The fair value of the interest rate swap contract is estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since 31 December 2016. The definition of the valuation techniques are explained in the significant accounting judgements, estimates and assumptions.

Year ended 31 December 2017			Level 1	Level 2	Level 3	Total fair value
Interest rate swap			-	2,244,799	-	2,244,799
Year ended 31 December 2016			Level 1	Level 2	Level 3	Total fair value
Interest rate swap			-	3,562,542	-	3,562,542

4 Fees

Investment management fees

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 the Investment Manager is entitled to 0.75% of total assets up to £200 million; 0.70% of total assets between £200 million and £300 million; and 0.65% of total assets in excess of £300 million. The total fees charged for the year amounted to £3,136,218 (2016: £3,157,399). The amount due and payable at the year end amounted to £807,005 excluding VAT (2016: £772,290 excluding VAT).

Administration, secretarial and registrar fees

On 19 December 2003 Northern Trust International Fund Administration Services (Guernsey) Limited (“Northern Trust”) was appointed administrator, secretary and registrar to the Group. Northern Trust is entitled to an annual fee, payable quarterly in arrears, of £65,000. Northern Trust is also entitled to reimbursement of reasonable out of pocket expenses. Total fees and expenses charged for the year amounted to £76,150 (2016: £75,472). The amount due and payable at the year end amounted to £20,540 (2016: £nil).

Valuers fee

Knight Frank LLP (“the Valuers”), external international real estate consultants, were appointed as valuers in respect of the assets comprising the property portfolio. The total valuation fees charged for the year amounted to £71,844 (2016: £99,001) of which minimum fees of £2,500 per property (2016: £2,500) were incurred due for new properties added to the portfolio. The amount due and payable at the year end amounted to £37,158 excluding VAT (2016: £18,458 excluding VAT).

The annual fee is equal to 0.017 percent of the aggregate value of the property portfolio paid quarterly.

Auditor’s fee

At the year end date Ernst & Young LLP continued as independent auditor of the Group. The audit fees for the year amounted to £74,500 (2016: £73,695) and relate to audit services provided for the 2017 financial year. Ernst & Young LLP also provided non-audit services in respect of taxation advice amounting to £nil in 2017 (2016; £4,500). Total non-audit fees incurred up to the Balance Sheet date amounted to £nil (2016: £4,500) and are included within other administration expenses in the Consolidated Statement of Comprehensive Income.

5 Finance Income and Costs

					2017	2016
					£	£
Interest income on cash and cash equivalents					2,752	30,536
Finance income					2,752	30,536
Interest expense on bank borrowings					2,089,843	2,594,070
Payments on interest rate swap					1,106,369	929,394
Amortisation of arrangement costs (see note 13)					160,216	524,130
Finance costs					3,356,428	4,047,594

Of the finance costs above, £390,503 of the interest expense on bank borrowings and £208,670 of payments on interest rate swaps were accruals at 31 December 2017.

6 Taxation

UK REIT Status

The Group migrated tax residence to the UK and elected to be treated as a UK REIT with effect from 1 January 2015. As a UK REIT, the income profits of the Group’s UK property rental business are exempt from corporation tax as are any gains it makes from the disposal of its properties, provided they are not held for trading or sold within three years of completion of development. The Group is otherwise subject to UK corporation tax at the prevailing rate.

As the principal company of the REIT, the Company is required to distribute at least 90% of the income profits of the Group’s UK property rental business. There are a number of other conditions that also require to be met by the Company and the Group to maintain REIT tax status. These conditions were met in the year and the Board intends to conduct the Group’s affairs such that these conditions continue to be met for the foreseeable future. Accordingly, deferred tax is no longer recognised on temporary differences relating to the property rental business.

The Company and its Guernsey subsidiary have obtained exempt company status in Guernsey so that they are exempt from Guernsey taxation on income arising outside Guernsey and bank interest receivable in Guernsey.

A reconciliation between the tax charge and the product of accounting profit multiplied by the applicable tax rate for the year ended 31 December 2017 and 2016 is, as follows:

					2017	2016
					£	£
Surplus before tax					42,465,234	14,198,646
Tax calculated at UK statutory corporation tax rate of 19.25% (2016: 20%)					8,174,558	2,839,729
UK REIT exemption on net income and gains					(3,864,098)	(3,963,833)
Valuation (gain)/loss in respect of investment properties not subject to tax					(4,461,169)	1,060,198
Excess management expenses not utilised					150,709	-
Expenditure not allowed for corporation tax/income tax purposes					-	63,906
Current income tax charge					-	-

7 Investment Properties

	UK	UK	UK
	Industrial	Office	Retail	Total
	2017	2017	2017	2017
	£	£	£	£
Market value at 1 January	181,735,000	150,475,000	97,735,000	429,945,000
Purchase of investment properties	15,767,982	34,244,694	-	50,012,676
Capital expenditure on investment properties	1,500,705	547,156	139,740	2,187,601
Opening market value of disposed investment properties	(1,975,000)	(39,700,000)	(30,550,000)	(72,225,000)
Valuation gain from investment properties	15,734,294	5,217,229	2,223,380	23,174,903
Movement in lease incentives	372,019	(334,079)	76,880	114,820
Market value at 31 December	213,135,000	150,450,000	69,625,000	433,210,000
Investment properties recognised as held for sale	-	(20,000,000)	(5,300,000)	(25,300,000)
Market value net of held for sale at 31 December	213,135,000	130,450,000	64,325,000	407,910,000
Adjustment for lease incentives	(1,093,118)	(1,711,950)	(852,849)	(3,657,917)
Carrying value at 31 December	212,041,882	128,738,050	63,472,151	404,252,083

The valuations were performed by Knight Frank LLP (JLL valued part of the portfolio for the March 2017 valuation), accredited external valuers with recognised and relevant professional qualifications and recent experience of the location and category of the investment properties being valued. The valuation model in accordance with the Royal Institute of Chartered Surveyors (‘RICS’) requirements on disclosure for Regulated Purpose Valuations has been applied (RICS Valuation – Professional Standards January 2014 (revised April 2015) published by the Royal Institution of Chartered Surveyors). These valuation models are consistent with the principles in IFRS 13. The market value provided by Knight Frank at the year end was £433,210,000 (2016: £429,945,000) however an adjustment has been made for lease incentives of £3,657,917 (2016: £4,187,219) that are already accounted for as an asset. Valuation gains and losses from investment properties are recognised in the Consolidated Statement of Comprehensive Income for the period and are attributable to changes in unrealised gains or losses relating to investment properties held at the end of the reporting period.

	UK	UK	UK
	Industrial	Office	Retail	Total
	2016	2016	2016	2016
	£	£	£	£
Market value at 1 January	187,070,000	164,065,000	100,850,000	451,985,000
Capital expenditure on investment properties	969,776	53,563	456,449	1,479,788
Opening market value of disposed investment properties	(7,950,000)	(8,675,000)	(2,500,000)	(19,125,000)
Valuation gain/(loss) from investment properties	1,261,400	(4,868,783)	(1,693,609)	(5,300,992)
Movement in lease incentives receivable	383,824	(99,780)	622,160	906,204
Market value at 31 December	181,735,000	150,475,000	97,735,000	429,945,000
Investment properties recognised as held for sale	-	(29,975,000)	-	(29,975,000)
Market value net of held for sale at 31 December	181,735,000	120,500,000	97,735,000	399,970,000
Adjustment for lease incentives	(721,099)	(2,212,708)	(1,253,412)	(4,187,219)
Carrying value at 31 December	181,013,901	118,287,292	96,481,588	395,782,781

In the consolidated Cash Flow Statement, proceeds from disposal of investment properties comprise:

		2017	2016
		£	£
Opening market value of disposed investment properties		72,225,000	19,125,000
(Loss)/gain on disposal of investment properties		(138,237)	1,067,395
Net proceeds from disposal of investment properties		72,086,763	20,192,395

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 valuers have 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 ERV. The valuers have made allowances for voids 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 during the year. At the Balance Sheet date the income capitalisation method is appropriate for valuing all assets.

The Group appoints suitable valuers (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 valuers on a quarterly basis to ensure the valuers are 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 valuers to ensure correct factual assumptions are made. The valuers report a final valuation that is then reported to the Board.

The management group that determines the Group’s valuation policies and procedures for property valuations is the Property Valuation Committee. The Committee reviews the quarterly property valuation reports produced by the valuers (or such other person as may from time to time provide such property valuation services to the Group) before its submission to the Board, focusing 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 during the year.

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 and inputs used to derive Level 3 fair values for each class of investment properties. The table includes:

-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 & Class	Fair Value	Valuation Technique	Key Unobservable Input	Range (weighted average)
	£
UK Industrial Level 3	213,135,000	Income Capitalisation	Initial Yield Reversionary Yield Equivalent Yield Estimated rental value per Sq. ft	-3.47% to 9.06% (5.24%) 5.33% to 9.11% (6.72%) 5.00% to 8.24% (6.28%)  Â£29.71 to £214.08 (£84.88)
UK Office Level 3	150,450,000	Income Capitalisation	Initial Yield Reversionary Yield Equivalent Yield Estimated rental value per Sq. ft	3.45% to 9.00% (6.27%) 4.98% to 9.49% (6.95%) 4.90% to 7.55% (6.43%)  Â£165.30 to £731.42 (£296.87)
UK Retail Level 3	69,625,000	Income Capitalisation	Initial Yield Reversionary Yield Equivalent Yield Estimated rental value per Sq. ft	5.01% to 8.56% (6.43%) 5.27% to 9.17% (6.20%) 5.10% to 8.65% (6.49%) £117.32 to £497.24 (£226.37)
	433,210,000

Descriptions and definitions

The table above includes the following descriptions and definitions relating to valuation techniques and key observable 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 or fall to ERV at the next review or lease termination, but with no further rental change.

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.

			2017	2016
ERV p.a.			£30,925,950	£31,037,488
Area sq ft			3,799,885	3,745,069
Average ERV per sq ft			£8.14	£8.29
Initial yield			5.5%	6.3%
Reversionary yield			4.7%	7.2%

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of completed investment property.

			2017	2016
			£	£
Increase in equivalent yield of 25 bps			(18,981,000)	(17,901,800)
Decrease in rental rates of 5% (ERV)			(11,071,600)	(21,464,055)

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)

8 Investment Properties Held For Sale

As at 31 December 2017 the Group had exchanged contracts with third parties for the sale of Bathgate Retail Park. The sale completed on 19 January 2018. Additionally, the Group had exchanged contracts with third parties for the sale of Elstree Tower, Borehamwood. The sale completed on 16 March 2018. As at 31 December 2017, the combined value of these assets was £25.3 million.

As at 31 December 2016 the Group had exchanged contracts with third parties for the sale of The Quadrangle, Cheltenham for a price of £11,075,000. The sale completed on 10 January 2017. As at 31 December 2016, the Group was actively seeking a buyer for White Bear Yard, London. The Group both exchanged contracts and completed this sale on 22 March 2017 for a price of £19,000,000.

9 Investment in Subsidiary Undertakings

During the year ended 31 December 2017, the Group liquidated the following entities:

-Huris (Farnborough) Limited, a company incorporated in the Cayman Islands.

The Group undertakings consist of the following 100% owned subsidiaries at the Balance Sheet date:

-Standard Life Investments Property Holdings Limited, a company with limited liability incorporated and domiciled in Guernsey, Channel Islands, whose principle business is property investment.

-Standard Life Investments (SLIPIT) Limited Partnership, a limited partnership established in England, whose principle business is property investment.

-Standard Life Investments SLIPIT (General Partner) Limited, a company with limited liability incorporated in England, whose principle business is property investment.

-Standard Life Investments SLIPIT (Nominee) Limited, a company with limited liability incorporated and domiciled in England, whose principle business is property investment.

During the year ended 31 December 2016, the Group liquidated the following entities:

-Standard Life Investments SLIPIT Unit Trust.

-Ceres Court Properties Limited, a company with limited liability incorporated and domiciled in the United Kingdom.

-HEREF Eden Main Limited, a company incorporated in Jersey, Channel Islands.

10 Trade and Other Receivables

			2017	2016
			£	£
Trade receivables			1,424,216	992,099
Less: provision for impairment of trade receivables			(2,875)	(33,952)
Trade receivables (net)			1,421,341	958,147
Rental deposits held on behalf of tenants			586,189	186,673
Cash held by Solicitors			17,727,355	-
Other receivables			522,059	642,269
Total trade and other receivables			20,256,944	1,787,089

Reconciliation for changes in the provision for impairment of trade receivables:

			2017	2016
			£	£
Opening balance			(33,952)	(13,495)
Charge for the year			(2,875)	(33,952)
Reversal of provision			33,952	13,495
Closing balance			(2,875)	(33,952)

The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected to be received and the approximate of their carrying amounts.

The trade receivables above relate to rental income receivable from tenants of the investment properties. When a new lease is agreed with a tenant the Investment Manager performs various money laundering checks and makes a financial assessment to determine the tenant’s ability to fulfil its obligations under the lease agreement for the foreseeable future. The majority of tenants are invoiced for rental income quarterly in advance and are issued with invoices at least 21 days before the relevant quarter starts. Invoices become due on the first day of the quarter and are considered past due if payment is not received by this date. Other receivables are considered past due when the given terms of credit expire.

Amounts are considered impaired when it becomes unlikely that the full value of a receivable will be recovered. Movement in the balance considered to be impaired has been included in other direct property costs in the Consolidated Statement of Comprehensive Income. As of 31 December 2017, trade receivables of £2,875 (2016: £33,952) were considered impaired and provided for.

The ageing of these receivables is as follows:

			2017	2016
			£	£
0 to 3 months			2,875	8,625
3 to 6 months			-	5,625
Over 6 months			-	19,702
			2,875	33,952

As of 31 December 2017, trade receivables of £1,421,341 (2016: £958,147) were less than 3 months past due but considered not impaired.

11 Cash and Cash Equivalents

			2017	2016
			£	£
Cash held at bank			7,364,620	9,565,055
Cash held on deposit with RBS			6,969,884	3,489,002
			14,334,504	13,054,057

Cash held at banks earns interest at floating rates based on daily bank deposit rates. Deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the applicable short-term deposit rates.

12 Trade and Other Payables

			2017	2016
			£	£
Trade and other payables			3,245,930	1,642,956
VAT payable			892,068	888,553
Deferred rental income			5,727,102	6,066,035
Rental deposits due to tenants			586,189	186,673
Lease incentives due within one year			-	-
			10,451,289	8,784,217

Trade payables are non-interest bearing and are normally settled on 30-day terms.

13 Bank Borrowings

			2017	2016
			£	£
Loan facility and drawn down outstanding balance			110,000,000	125,000,000
Opening carrying value			124,001,828	139,048,848
Repayment of 2015 loan			-	(139,432,692)
Borrowings during the year			-	145,000,000
Repayment of RCF			(15,000,000)	(20,000,000)
Arrangements costs of additional facility			(55,000)	(1,138,458)
Amortisation of arrangement costs			160,216	524,130
Closing carrying value			109,107,044	124,001,828

On 22 December 2015, the Group increased its previous borrowing facilities from £84,432,692 to £139,432,692 and completed the drawdown of an additional £55,000,000 loan with RBS. The additional borrowing was in the form of an additional term loan of £40,567,308 and a RCF of £14,432,692 (with the potential to draw a further £15,567,308 of the RCF). The entire debt facility and the drawn down balance of £139,432,692 were then repayable on 27 June 2017. Interest from 22 December 2015 was payable at a rate equal to the aggregate of 3 month LIBOR and a margin of 1.25%.

On 28 April 2016 the fully drawn down balance of £139,432,692 was repaid.

On 28 April 2016 the Group entered into an agreement to extend £145 million of its existing £155 million debt facility with RBS. The debt facility consists of a £110 million seven year term loan facility and a £35 million five year RCF. The RCF may by agreement be extended by one year on two occasions. During the year £15 million of the RCF was repaid, with the balance of £nil remaining drawn down by the Group at 31 December 2017. Interest is payable on the Term Loan at 3 month LIBOR plus a margin of 1.375%. The Company has entered into a swap arrangement which fixes the interest rate on the Term Loan (see note 14 for further details) and results in an all-in interest rate on the term loan of 2.725%. Interest is payable on the RCF at relevant LIBOR plus a margin of 1.2%.

Under the terms of the loan facility there are certain events which would entitle RBS to terminate the loan facility and demand repayment of all sums due. Included in these events of default is the financial undertaking relating to the LTV percentage. The new loan agreement notes that the LTV percentage is calculated as the loan amount less the amount of any sterling cash deposited within the security of RBS divided by the gross secured property value, and that this percentage should not exceed 60% for the period to and including 27 April 2021 and should not exceed 55% after 27 April 2021 to maturity. All loan covenants were comfortably met during the year ended 31 December 2017.

			2017	2016
			£	£
Loan amount			110,000,000	125,000,000
Cash held by Solicitors			(17,727,355)	-
Cash and cash equivalents			(14,334,504)	(13,054,057)
			77,938,141	111,945,943
Investment property valuation			433,210,000	429,945,000
LTV percentage			18.0%	26.0%

Other loan covenants that the Group is obliged to meet include the following:

-that the net rental income is not less than 150% of the finance costs for any three month period

-that the largest single asset accounts for less than 15% of the Gross Secured Asset Value

-that the largest ten assets accounts for less than 75% of the Gross Secured Asset Value

-that sector weightings are restricted to 55%, 45% and 55% for the Office, Retail and Industrial sectors respectively

-that the largest tenant accounts for less than 20% of the Group’s annual net rental income

-that the five largest tenants account for less than 50% of the Group’s annual net rental income

-that the ten largest tenants account for less than 75% of the Group’s annual net rental income

During the year, the Group did not default on any of its obligations and loan covenants under its loan agreement. The loan facility is secured by fixed and floating charges over the assets of the Group and its wholly owned subsidiaries, Standard Life Investments Property Holdings Limited and Standard Life Investments (SLIPIT) Limited Partnership.

The Board’s current intention is that the Company’s LTV ratio (calculated as borrowings less all cash as a proportion of the property portfolio valuation) will not exceed 45%.

14 Interest Rate Swap

On 20 January 2012 the Group completed an interest rate swap of a notional amount of £12,432,692 with RBS. This interest rate swap had a maturity of 16 December 2018. Under the swap the Group had agreed to receive a floating interest rate linked to 3 month LIBOR and pay a fixed interest rate of 1.77125%.

On 20 January 2012 the Group completed an interest rate swap of a notional amount of £72,000,000 with RBS which replaced the interest rate swap entered into on 29 December 2003. This interest rate swap effective date was 29 December 2013 and had a maturity date of 16 December 2018. Under the swap the Group had agreed to receive a floating interest rate linked to 3 month LIBOR and pay a fixed interest rate of 2.0515%.

On 28 April 2016, both of the above interest rate swaps were repaid at a cost of £2,735,000.

As part of the refinancing of loans (see note 13), on 28 April 2016 the Group completed an interest rate swap of a notional amount of £110,000,000 with RBS. The interest rate swap effective date is 28 April 2016 and has a maturity date of 27 April 2023. Under the swap the Group has agreed to receive a floating interest rate linked to 3 month LIBOR and pay a fixed interest rate of 1.35%.

			2017	2016
			£	£
Opening fair value of interest rate swaps at 1 January			(3,562,542)	(2,085,292)
Valuation gain/(loss) on interest rate swaps			1,317,743	(4,212,250)
Swaps breakage costs			-	2,735,000
Closing fair value of interest rate swaps at 31 December			(2,244,799)	(3,562,542)

The split of the swap liability is listed below:

			2017	2016
			£	£
Current liabilities			(887,699)	(1,341,101)
Non-current liabilities			(1,357,100)	(2,221,441)
Interest rate swap with a start date of 28 April 2016 maturing on 27 April 2023			(2,244,799)	(3,562,542)

15 Lease Analysis

The Group has entered into leases on its property portfolio. This property portfolio as at 31 December 2017 had an average lease expiry of 6 years and 2 months. Leases include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Some leases contain options to break before the end of the lease term.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

			2017	2016
			£	£
Within one year			25,353,460	26,641,958
After one year, but not more than five years			62,905,498	69,213,166
More than five years			32,278,558	57,451,817
Total			120,537,516	153,306,941

The largest single tenant at the year end accounts for 5.0% (2016: 4.6%) of the current annual passing rent.

16 Share Capital

Under the Company’s Articles of Incorporation, the Company may issue an unlimited number of ordinary shares of 1 pence each, subject to issuance limits set at the AGM each year. As at 31 December 2017 there were 394,865,419 ordinary shares of 1 pence each in issue (2016: 380,690,419). All ordinary shares rank equally for dividends and distributions and carry one vote each. There are no restrictions concerning the transfer of ordinary shares in the Company, no special rights with regard to control attached to the ordinary shares, no agreements between holders of ordinary shares regarding their transfer known to the Company and no agreement which the Company is party to that affects its control following a takeover bid.

Allotted, called up and fully paid:			2017	2016
			£	£
Opening balance			204,820,219	204,820,219
Shares issued between 1 February 2017 and 7 December 2017 at a price of 85.9p and 91.3p per share			12,467,700	-
Issue costs associated with new ordinary shares			(93,507)	-
Closing balance			217,194,412	204,820,219

			2017	2016
			Number of shares	Number of shares
Opening balance			380,690,419	380,690,419
Issued during the year			14,175,000	-
Closing balance			394,865,419	380,690,419

17 Reserves

The detailed movement of the below reserves for the years to 31 December 2017 and 31 December 2016 can be found in the Consolidated Statement of Changes in Equity.

Retained earnings

This is a distributable reserve and represents the cumulative revenue earnings of the Group less dividends paid to the Company’s shareholders.

Capital reserves

This reserve represents realised gains and losses on disposed investment properties and unrealised valuation gains and losses on investment properties and cash flow hedges since the Company’s launch.

Other distributable reserves

This reserve represents the share premium raised on launch of the Company which was subsequently converted to a distributable reserve by special resolution dated 4 December 2003. This balance has been reduced by the allocation of preference share finance costs.

18 Earnings per Share

Basic earnings per share amounts are calculated by dividing surplus for the year net of tax attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

The earnings per share for the year is set out in the table below. In addition one of the key metrics the Board considers is dividend cover. This is calculated by dividing the net revenue earnings in the year (surplus for the year net of tax excluding all capital items and the swaps breakage costs) divided by the dividends payable in relation to the financial year. For 2017 this equated to a figure of 104% (2016: 117%). The following reflects the income and share data used in the basic and diluted earnings per share computations:

			2017	2016
			£	£
Surplus for the year net of tax			42,465,234	14,198,646
			2017	2016
Weighted average number of ordinary shares outstanding during the year			389,272,679	380,690,419
Earnings per ordinary share (p)			10.91	3.73
Surplus for the year excluding capital items			19,428,568	21,167,243
EPRA earnings per share (p)			4.99	5.56

19 Dividends and Property Income Distribution Gross of Income Tax

On 29 March 2018 a dividend in respect of the quarter to 31 December 2017 of 1.19 pence per share was paid totalling £4,797,073. This dividend was split as a property income dividend of 0.522 pence per share and a non property income dividend of 0.668 pence per share.

		2017	2016
		£	£
Non Property Income Distributions
0.84p per ordinary share paid in March 2017 relating to the quarter ending 31 December 2016 (2016: 0.561p)		3,258,910	1,679,695
Property Income Distributions
0.35p per ordinary share paid in March 2017 relating to the quarter ending 31 December 2016 (2016: 0.60p)		1,357,879	1,796,781
1.19p per ordinary share paid in May 2017 relating to the quarter ending 31 March 2017 (2016: 1.19p)		4,626,903	4,530,216
1.19p per ordinary share paid in August 2017 relating to the quarter ending 30 June 2017 (2016: 1.19p)		4,665,723	4,530,216
1.19p per ordinary share paid in November 2017 relating to the quarter ending 30 September 2017 (2016: 1.19p)		4,686,998	4,530,216
		18,596,413	17,067,124

20 Reconciliation of Consolidated NAV to Published NAV

The NAV attributable to ordinary shares is published quarterly and is based on the most recent valuation of the investment properties.

		2017	2016
Number of ordinary shares at the reporting date		394,865,419	380,690,419
		2017	2016
		£	£
Total equity per audited consolidated financial statements		345,998,316	308,437,559
NAV per share (p)		87.6	81.0

Service Charge

The Group has appointed a managing agent to deal with the service charge at the investment properties. The table below is a summary of the service charge during the year. The table shows the amount the service charge costs the tenants, the amount the tenants have been billed based on the service charge budget and the amount the Group has paid in relation to void units over the year. The table also shows the balancing service charge that is due from the tenants as at the Balance Sheet date.

		2017	2016
		£	£
Total service charge expenditure incurred		1,663,097	1,888,993
Total service charge billed to tenants excluding void units and service charge caps		1,800,731	1,550,599
Service charge billed to the Group in respect of void units and service charge caps		181,659	135,432
Service charge due (to)/from from tenants as at 31 December		(319,293)	202,962
		1,663,097	1,888,993

22 Related Party Disclosures

Directors’ remuneration

The remuneration of key management personnel is detailed below which includes pay as you earn tax and national insurance contributions.

Investment manager

Management of the property portfolio is contractually delegated to Standard Life Investments (Corporate Funds) Limited as Investment Manager and the contract with the Investment Manager can be terminated by the Group. Transactions with the Investment Manager in the year are detailed out in note 4.

		2017	2016
		£	£
Robert Peto (appointed Chairman 2 June 2016)		40,000	34,558
Sally-Ann Farnon		36,000	33,250
Huw Evans		32,000	30,000
Mike Balfour (appointed 10 March 2016)		32,000	24,723
James Clifton-Brown (appointed 17 August 2016)		32,000	12,061
Richard Barfield (retired 2 June 2016)		-	14,808
Employers national insurance contributions		11,962	7,866
		183,962	157,266
Directors expenses		10,049	6,959
		194,011	164,225

23 Segmental Information

The Board has considered the requirements of IFRS 8 ‘operating segments’. The Board is of the view that the Group is engaged in a single segment of business, being property investment and in one geographical area, the United Kingdom.

24 Events After the Balance Sheet Date

Dividends

On 29 March 2018 a dividend in respect of the quarter to 31 December 2017 of 1.19 pence per share was paid. This dividend was split as a property income dividend of 0.522 pence per share and a non property income dividend of 0.668 pence per share.

Purchases

On 5th January 2018 the Group completed the purchase of Timbmet, an industrial property for £11.5 million excluding costs.

On 2nd February 2018 the Group completed the purchase of Grand National Leisure Park, Aintree, a retail park for £6.125 million excluding costs.

On 7th February 2018 the Group completed the purchase of Sandy, a retail warehouse for £6.020 million excluding costs.

Sales

On 19 January 2018 the Group completed the sale of Bathgate Retail Park for £5.23 million excluding costs.

On 16 March 2018 the Group completed the sale of Elstree Tower, Borehamwood for £20 million excluding costs.

On 21 March 2018, the Group exchanged contracts for the sale of Charter Court, Slough for £13.25 million excluding costs. This is expected to complete on 6 April 2018.

Share Issues

During the period from 1 January 2018 to 16 March 2018 the Group has raised £7.6 million through the issue of 8.25 million new ordinary shares.

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 December 2017. The statutory accounts for the year ended 31 December 2017 received an audit report which was unqualified.

The Annual Report will be posted to shareholders in April 2018 and additional copies will be available from the Manager (Tel. [phone]) or by download from the Company's webpage (www.slipit.co.uk).

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.

All enquiries to:

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: [phone]
Fax: [phone]

Jason Baggaley
Standard Life Investments Limited
Tel: [phone]

Graeme McDonald
Standard Life Investments Limited
Tel: [phone]