Annual Results - December 2022

Guernsey: 24 April 2023

LEI: 549300HHFBWZRKC7RW84

abrdn Property Income Trust Limited
(“API” or the “Company”)

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

FINANCIAL REVIEW AS AT 31 DECEMBER 2022

• NAV TOTAL RETURN of -12.8% (2021: 28.6%) for the year, 7.0% over 3 years, 21.9% over 5 years and 159.5% over 10 years.
• SHARE PRICE TOTAL RETURN of -19.0% (2021: 43.4%) for the year, -18.5% over 3 years, -11.8% over 5 years and 90.4% over 10 years.
• SHARE BUYBACKS totalling £12.4m in 2022 at significant discounts to NAV which are accretive to both NAV performance and earnings (NAV per share 0.2p higher).
• FINANCIAL RESOURCES of £57.8m as at 31 December 2022 (2021: £50m) available for investment to enhance earnings.
• LOAN-TO-VALUE of 22.6% (2021: 19.2%) at the year end with scope to increase gearing through available revolving credit facility.
• DIVIDENDS PAID of 4.0p in the year (2021: 3.7725p) equating to a yield of 6.4% based on the share price as at 31 December 2022.
• DIVIDEND YIELD of 6.4% compared to the Dividend yield of the FTSE All-Share Index (3.6%) and FTSE All-Share REIT Index (4.6%)

PORTFOLIO REVIEW AS AT 31 DECEMBER 2022

• PORTFOLIO TOTAL RETURN of -8.8% (2021: 22.6%) is marginally ahead of the MSCI benchmark return of -8.9% and the Company has outperformed its benchmark over all time periods.
• RENT COLLECTION for 2022 of 98.9% of rent due (2021: 96.0%).
• OCCUPANCY RATE of 90.2% (2021: 90.3%) compared to the MSCI rate of 90.0% (2021: 90.0%)
• POSITIVE ASSET MANAGEMENT: A total of 6 lease renewals and restructurings were undertaken, securing £567,954 p.a. in rent, and a total of 16 lettings including agreements for lease securing £1,980,737 p.a.
• POSITIVE ASSET MANAGEMENT: 6 rent reviews were settled with uplifts in rent, securing an additional £237,560 p.a. (an average increase of 11% on previous rent)
• PORTFOLIO WELL POSITIONED – with a 55.7% weighting in Industrial, 21.6% weighting in Office, 13.1% weighting in Retail and 9.6% weighting in Other.  Figures Excluding the Company’s investment in 1,471 hectares of open moorland at Far Ralia.
• PV SCHEMES – The company has 7 operational PV schemes totalling 1.5 MWp and is actively engaged in 24 additional schemes that would add a further 16.0 MWp

The Company's Annual Report and Accounts for the year ended 31 December 2022 and the Notice of the Annual General Meeting will shortly be available to view on the Company's corporate website at https://www.abrdnpit.co.uk/en-gb/literature.  The Documents have also been submitted to the National Storage Mechanism and are available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.  Hard copies will be posted to shareholders shortly.

PERFORMANCE SUMMARY

Earnings, Dividends & Costs			31 December 2022	31 December 2021
IFRS Earnings per share (p)			(13.11)	21.54
EPRA earnings per share (p) (excl capital items & swap movements) *			2.94	3.69
Dividends paid per ordinary share (p)			4.0	3.7725
Dividend Cover (%)			73	98
Dividend Cover excluding non-recurring items (%)			97	98
Dividend Yield (%) **			6.4	4.6
FTSE All-Share Real Estate Investment Trusts Index Yield (%)			4.6	2.6
FTSE All-Share Index Yield (%)			3.6	3.1
Ongoing Charges ***
As a % of average net assets including direct property costs			2.2	2.2
As a % of average net assets excluding direct property costs			1.1	1.2
Capital Values & Gearing		31 December 2022	31 December 2021	Change %
Total assets (£million)		444.9	526.6	(15.5)
Net asset value per share (p) (note 21)		84.8	101	(16.0)
Ordinary Share Price (p)		62.4	81.5	(23.4)
(Discount)/Premium to NAV (%)		(26.4)	(19.3)
Loan-to-value (%) ^		22.6	19.2
Total Return	1 year % return	3 year % return	5 year % return	10 year % return
NAV #	(12.8)	7.0	21.9	159.5
AIC Property Direct – UK Commercial (weighted average) NAV Total Return	(0.4)	20.9	39.6	32.1
Share Price #	(19.0)	(18.5)	(11.8)	90.4
AIC Property Direct – UK Commercial (weighted average) Share Price Total Return	(15.8)	(6.9)	12.5	17.8
FTSE All-Share Real Estate Investment Trusts Index	(31.6)	(25.8)	(15.0)	45.1
FTSE All-Share Index	0.3	7.1	15.5	88.2
Property Returns & Statistics (%)			31 December 2022	31 December 2021
Portfolio income return			4.4	4.7
MSCI Benchmark income return			4.1	4.4
Portfolio total return			(8.8)	22.6
MSCI Benchmark total return			(8.9)	16.3
Void rate			9.8	9.7

* Calculated as profit for the period before tax (excluding capital items & swaps costs) divided by weighted average number of shares in issue in the period. EPRA stands for European Public Real Estate Association.

** Based on dividend paid of 4.0p and the share price at 31 December 2022 of 62.4p.

*** 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 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: abrdn, MSCI

CHAIR’S STATEMENT

Background

With the threat and disruption from COVID-19 abating, it would have been reasonable to hope that 2022 would be a year of stability and recovery. However, it turned out to be quite the contrary. The impact of Russia’s invasion of Ukraine was the prevalent issue in the early part of the year.

This led, in part, to a sustained surge in inflation and a corresponding reaction by the Bank of England, and other Central Banks, to raise interest rates. Gilt yields rose through the year until late September, but volatility in the UK Government bond market reached unprecedented levels in late September/early October when it reacted negatively to Liz Truss’s “Growth Plan” which triggered a slump in the UK commercial property market.

UK Real Estate Market

2022 was very much a year of two halves, with the first six months continuing the positive capital growth recorded throughout 2021. The third quarter was the tipping point at which the increase in inflation and interest rates, along with unexpected government economic policy announcements, led to a spike in gilt yields. With a rapid repricing of the “risk-free” rate, real estate values reversed, resulting in the largest monthly capital declines ever recorded by MSCI in October and November.

Perhaps surprisingly, the industrial sector was largely responsible for not only the positive capital growth in the first half of the year, but also the rapid decline in the second half. Historically low yields had been paid in the expectation of high rental growth, by increasingly debt-backed buyers. The increase in debt costs, coupled with fears of recession reducing confidence in future rental growth, led to a sharp upward yield adjustment and a corresponding decline in values.

Despite this, the dynamics of the industrial market remain reasonably robust with continued low vacancy levels, limited new supply and good occupier demand. There is still likely to be rental growth, albeit at more muted levels than previous years, meaning the company’s exposure to this sector should be positive going forward.

The structural change in the office market was accelerated by the impact of COVID-19. Whilst we are hopeful that the pandemic is firmly behind us, there are few signs of confidence returning to the sector. The wide range of approaches being taken by companies to get staff back into offices and to manage hybrid working is fuelling this uncertainty. The Board and Investment Manager remain convinced that overall office demand will reduce, with well specified offices which provide good staff amenities faring best. Given this uncertainty, and the likelihood of further capital declines, the Company disposed of three office assets during the year.

We continue to expect the retail sector to experience challenges and headwinds, particularly with the cost-of-living crisis and the spectre of recession hanging over the UK. In such circumstances, the “discretionary” areas of the market, such as fashion and non-essential retailers, will suffer most with shopping centres and the high street bearing the brunt of this. The Company’s retail portfolio is focused in the retail warehouse sector, predominantly occupied by discount or budget retailers, for whom we see a more positive outlook.

Whilst there have been many changes in the property market over the year, one constant has been the increasing importance of Environmental, Social and Governance (ESG) factors. Both occupiers and investors have an increasing focus on this aspect of assets, meaning that it is having a direct impact on value. Fortunately, the Company’s early and continuing work in this area has meant we are well positioned, with the Board’s Sustainability Committee overseeing progress in this regard.

Portfolio and Corporate Performance

The NAV total return for the year was a loss of -12.8%. The real estate investment portfolio returned -8.8%, which approximately matched the MSCI Quarterly Property Index benchmark return of -8.9% over the same period. The Company’s portfolio has strongly outperformed the Index over 3, 5 and 10 years.

The share price total return for the year of -19.0% was disappointing, with the Company’s shares consistently trading on a discount which peaked with risk free rates at the end of the third quarter. The Board pursued its share buyback programme throughout most of the year buying a total of 15.7m shares at an average discount of 26.8%. This contributed 0.2p to NAV per share. The Board continues to monitor the discount of the share price against NAV.

IFRS earnings have decreased from 21.54p per share to -13.11p for 2022. This reflects the drop in valuations recorded in the second half of the year. EPRA earnings per share decreased from 3.69p to 2.94p per share as a result of the one-off break costs associated with terminating the interest rate swap entered into in October. Without the break costs the EPRA earnings per share would have been 3.86p, an increase of 4.6% reflecting improved rental collection.

Rent Collection

Collection rates largely returned to more normal levels in 2022, with the fourth quarter sitting at 99% and the year as a whole at 98.9%. This improvement led to a reversal in bad debt provisions which made a contribution to performance. Going forward, we believe that the portfolio is well diversified in tenant risk. In addition, the positive tenant engagement undertaken over the last couple of years should be beneficial particularly if economic conditions deteriorate further.

Financial Resources & Renewal of the Debt Facility

The Company continues to be in a strong financial position with significant unutilised financial resources of £55m available for investment in the form of its revolving credit facilities (“RCF”) net of existing cash and financial commitments.

The low Loan-to-value (“LTV”) ratio of 22.6% at the year end means the Company is well placed to deploy capital into accretive assets which fit the portfolio strategy.

The existing debt facility (which includes the RCF) of £165 million will come to an end in April 2023. This was renewed at the end of the summer with our existing lender at a three year tenor comprising an £85 million term loan and an £80 million RCF. A swap contract to fix rates on the £85 million term loan was also negotiated. At that time the politically induced gilt market volatility was at its height.

We took the view that it was in the Company’s best interests to secure the re-financing for April 2023 as some lenders were beginning to withdraw from the market. Furthermore, even if facilities had still been available, it was possible that the Company could have been forced to renew at even higher rates if markets had continued to deteriorate.

UK fixed interest markets began to improve shortly after new terms had been agreed and, therefore with hindsight, our loan renewal timing proved to be poor. Recognising this, and the income-orientated nature of the Company the Board and Managers pro-actively reconsidered matters with the help of external advice. As a result, the new swap contract was terminated in December and replaced with an interest rate cap arrangement. This limits the interest cost on the term loan to 5.46%, but if SONIA declines the Company’s interest cost will decline too.

These new arrangements have resulted in a one-off charge of £3.56 million to terminate the swap, along with the payment of a premium of £2.5 million for the cap arrangement. This premium will be amortised over the three years from April 2023. Although complex and costly, the Board believes these actions have placed the Company on a better footing for the future.

Benchmark Change

Following a review undertaken by the Investment Manager’s Investment Strategy Team, the Board has decided to amend the benchmark against which the property portfolio is measured. Going forward the MSCI UK Quarterly Property Index will be referenced, as it has grown to become the largest and most relevant benchmark covering the UK market. The Company previously used the MSCI UK Monthly Index Funds Quarterly Property Index which has, in recent times, not only reduced in size but is also now less reflective of the investment universe in which the Company could acquire assets.

Dividends

The Board remains conscious that many of the Company’s shareholders have invested in the Company because of the attractive level of income it generates. The Board aims to invest in good quality assets that have the potential to provide an above market level of total return as well as an attractive level of income that has scope to grow.

The Board has maintained the annual dividend of 4p per share, which was reached at the end of 2021, for 2022. Dividend cover has decreased to 73%, down from 98% in 2021. Excluding one-off swap break costs, dividend cover was 97%.

The Board reaffirms its stated intention to maintain the current dividend level, of 4p per share despite the increased financing costs for the next two years.

Management Fee

A thorough review of costs was undertaken late in the year, which resulted in a renegotiation of and 10bps reduction in the management fee. From 1st January 2023 abrdn will be paid 0.6% of Gross Asset Value (GAV) below £500m, and 0.5% above £500m.

Annual General Meeting (“AGM”)

The Annual General Meeting (“AGM”) will be held at 2.30pm on Wednesday 14 June 2023 at Wallacespace, 15 Artillery Lane, London E1 7HA. The Board looks forward to welcoming shareholders in person where they will have the opportunity to put questions to the Board and/or the Manager. Shareholders are also invited to submit questions by email to [e-mail]

The Board has decided to hold an interactive Online Shareholder Presentation at 2.30pm on Tuesday 13 June 2023. As part of the presentation, shareholders will receive updates from the Chair and Manager as well as the opportunity to participate in an interactive question and answer session. Further information on how to register for the event can be found on www.workcast.com/register?cpak=9811658259471291.

Outlook

2022 was a particularly challenging year for many companies including this one. The high industrial weighting had a negative impact during the past year but we believe the sector allocation and assets held will be beneficial in the near future. The new debt facility provides the Company with certainty, albeit at a higher interest rate than before. This increased cost will impact short-term dividend cover, but the Board and Investment Manager are confident that the portfolio offers a wide range of initiatives and opportunities to grow income. In addition, the Company’s strong financial footing provides the means to take advantage of market conditions to acquire well-specified, attractively priced assets which will enhance dividend cover.

We are anticipating a continued easing of inflation, with forecasts of a return to lower levels later this year. Whether the slowing of the UK economy results in a recession is still to be seen, but the diversification of the API tenant base, the portfolio weighting to more favoured areas of the market, the quality of the assets and our focus on ESG should leave us well-placed for the year ahead.

21 April 2023
James Clifton-Brown

INVESTMENT MANAGER’S REPORT

Market Review

2022 was another year of unexpected challenges. The year started with optimism of ongoing recovery in a post COVID-19 world, before the shock of the Russian invasion of Ukraine changed the economic outlook globally with inflation and rising interest rates becoming the main narrative. The UK had further challenges with a very volatile political situation. This reached a climax in September with a mini budget that led to a spike in inflationary and interest rate expectations, with a sharp decline in Sterling.

During the first six months of the year, performance for UK real estate was positive, with investment activity remaining robust. However, the narrative changed in the second half of the year as government bond yields and inflation rose and economic sentiment declined. The tightening monetary cycle increased financing costs

for real estate, which acted as the catalyst for a broad decline in UK property values. In addition, the spread between real estate and UK government bond yields narrowed over the year as bond yields rose, making the asset class relatively less attractive.

The UK real estate market recorded a total return of -8.9% in 2022, according to the MSCI quarterly Index. The 7.8% positive total return recorded in the first six months of the year was more than unwound during the second half of the year with a -4.2% fall in capital values through the third quarter which accelerated to a -12.0% decline in fourth quarter. The overall return of -8.9% in 2022 masks significant divergence in returns at the sector level.

The UK industrial sector was the weakest performing sector, posting a total return of -14.6% over the course of 2022, whilst the office and retail sectors recorded returns of -9.8% and -4.8% respectively over the same period. Transaction volumes reached £62.8 billion over the course of the year, 16% down on 2021 but 26% ahead of 2020 levels.

Following a very strong year of performance in 2021, the listed property sector had a difficult 2022 with widening discounts to net asset values (NAV). The FTSE UK REIT index registered a total return of -31.9% in 2022, underperforming the FTSE All-Share index, which recorded a total return of 0.3%. Sector specialists that had been trading on the biggest premiums saw rapid moves to large discounts especially in the logistics sector, reflecting the change in pricing of the underlying assets which had reached low levels of yield.

Specialist funds have been increasingly popular over the last few years, however with logistics funds being hardest hit in terms of NAV falls in 2022 and several social housing funds having significant challenges, there is potential for diversified funds to return more into favour. NAV declines in Q4 led to a narrowing of discounts for a while, but concerns over a new banking crisis at the end of Q1 2023 mean discounts are back to similar levels as at end 2022 despite the lower NAVs.

Offices

The office sector delivered a total return of -9.8% in the year to December 2022 according to the MSCI Quarterly Index, a deterioration on the +5.3% recorded in 2021. Performance for the sector was impacted by declining capital values as yields rose in response to increasing interest rates and a narrowing spread over the UK 10-year gilt yield. Capital values rose by a modest 0.9% during the first half of 2022, but they declined by -13.9% in the second half, resulting in values declining by -13.2% for the year.

There was a polarisation in performance at the market level within the office sector, with West End offices posting the strongest total return of -4.5% during 2022. With total returns of -12.1% and -11.6% respectively during 2022, the Rest of UK and the Rest of South East posted the weakest regional returns within the office sector.

Despite structural headwinds facing the sector more generally, vacancy rates in the West End office market declined to 3.7% in 2022, having hit 5.4% during 2020 according to CBRE data. The West End office market has benefitted from more attractive fundamentals, including much higher office occupancy and a lower vacancy level than the rest of the office sector. The COVID-19 pandemic has created a longer-term structural headwind for the office sector in the UK, largely as a result of the increased prominence of hybrid working. The subsequent change to office occupation is reflected in higher vacancy rates across most UK office markets. In the regional markets, a lack of availability for best-in-class space is evident which should provide support for Grade A rental growth.

In central London, the vacancy rate at the end of 2022 stood at 8.2%, substantially higher than the ten-year

average of 5.1%. However, it is clear that occupier demand remains highly polarised. Despite take-up of central London office space reaching 12.3 million sq ft in 2022, in-line with the 10-year average, 80% of take-up was focused on Grade A space. Indeed, we believe that occupier preference for the best quality space will create an increasing wedge in rents between Grade A/best in class space and the rest for the office sector. In central London for example, prime rents grew by 4.6% in 2022 whilst market average rents grew by only 2.1%.

Retail

The retail sector delivered a total return of -4.8% in 2022 according to the MSCI Quarterly Index. In a similar vein to other UK real estate sectors, total returns turned negative due to weakening capital value growth. Capital values rose by 4.9% during the first half of the year, but this was unwound in the second half of the year when values declined by -13.9%. Most of the capital value decline was recorded in the fourth quarter at -10.5%.

Polarisation across retail sub-sectors was acutely evident, with retail warehousing posting the best performance in the retail sector, with a total return of -0.8% and capital growth of -6.2% in 2022. Well positioned retail warehouses with essential and discount retailers as anchor tenants continued to attract investor interest at the expense of discretionary and non-essential retail. Shopping centres delivered a total return of -5.3%, whereas supermarkets delivered the lowest total return of -13.4%, heavily impacted by the -17.5% capital value decline in the final quarter. The supermarket sector was more sensitive to the rising interest rate environment given the generally low yielding nature of the sector.

Industrial

The fortunes of the industrial and logistics sector turned during the course of 2022, with the sector leading the repricing of UK real estate in response to rising debt costs and a weaker macro-economic environment. Yields within the sector had reached historic lows in the first half of 2022 as investors continued to favour the sector but, as investor demand weakened in response to rising debt costs, yields moved out by between 150 – 200 bps between June and December 2022. As a consequence, capital values fell -17.4% during 2022 according to the MSCI Quarterly Index, leading to it recording the weakest performance across the UK real estate market, with a total return of -14.6%, a stark contrast to the return of 36.4% for the sector in 2021.

Lower yielding areas of the market, such as within London and the wider South East, were the most adversely impacted, with London industrial seeing its largest quarterly capital value decline in the history of the MSCI Index of -22.2% in the final quarter.

That being said, rental growth remained positive throughout the year, with UK industrial market rental growth significantly outperforming the market at 10.4% in 2022 – compared to 3.8% for all property – as occupational demand remained healthy.

Demand was principally driven by the third party logistics (‘3PL’) sector, while demand from the manufacturing sector saw continued growth, helping to offset the fall in take-up from online retailers. While the level of take-up fell in the second half of 2022, it remained well above the long term average. ‘Big Box’ take-up for the year reached 47.99m sq ft, the third highest level on record according to Savills. Despite robust take-up, supply levels increased during 2022, with the UK vacancy rate rising to 3.9%. This, however, remains near historic lows and the existing development pipeline is unlikely to materially alter the strong supply/demand dynamic which the sector currently enjoys.

Alternatives

The UK real estate alternative sector, or “Other Property” as it is categorised by MSCI, represents real estate which falls outside the traditional ‘Retail’, ‘Office’ or ‘Industrial’ definitions. The alternative sector recorded a total return of -2.6% in 2022, outperforming the other sectors. The healthcare sector, which represents approximately 10% of the “Other Property” sector within the MSCI sample, was the standout performer, generating a total return of 3.5%.

Despite the cost-of-living crisis placing pressure on UK Household disposable incomes, the leisure and hotel sectors still outperformed the wider market, returning -3.8% and -5.3% respectively over the course of 2022. Hotel trading improved significantly over the course of the year and whilst room rates were the primary driving force behind the recovery in performance, occupancy also improved, supported by growing weekend leisure stays and a recovery in weekday business demand. With a weaker pound, it is likely the return of international visitors aided the recovery.

Investor appetite for the living sector continued its strong trajectory. A total of £12.7 billion was invested in the living sector in 2022 according to Real Capital Analytics data, equating to 20% of all UK real estate transactions. However, of the £12.7 billion invested, the Purpose Built Student Accommodation (PBSA) sector accounted for £8.5 billion, or 67% of all activity. The largest deal in the PBSA sector last year was GIC and Greystar’s purchase of the Student Roost portfolio from Brookfield for £3.3 billion. The continued investor interest in the sector helped provide support for pricing, with direct let PBSA asset yields rising by only 25bps over the second half of 2022, much less than other areas of the commercial real estate market.

Market Outlook 2023

Given the magnitude and speed of correction we have seen in sectors including supermarkets, industrial and logistics, and long duration income more generally, we believe that the market pricing for these areas of UK real estate will find a floor much quicker than we have seen in previous cycles. As such, our outlook, and forecasts for these areas of the market have improved materially, given the size of the corrections experienced.

Following the poor reception to the mini budget in September 2022 longer term yields may have peaked in early 2023 and could reduce by year end if inflation falls as predicted. Lower yields, and in particular forward swap rates, will make utilising debt more accretive again and will likely increase investment volumes as debt backed buyers re-enter the market.

It is never easy to call the bottom of a market cycle, however it appears that the industrial sector may be bottoming out about now, with offices and retail values having further to fall. The rapid repricing of the UK market means that the prospective returns from today’s levels look more attractive, along with the likely improvement of the yield premium of growth assets over gilts as the year develops. abrdn forecasts a market return of 4.3% over the 3 years from April 2023.

The outlook is positive for the industrial sector and particularly for better quality assets in strong locations, as both occupiers and investors narrow their focus on best-in-class assets. The size and speed of value correction in 2022 means the sector now looks better value relative to other real estate sectors and indeed, other asset classes. The sector continues to benefit from structural tailwinds and a positive supply/demand dynamic, with the UK wide vacancy rate remaining near historic lows and new supply levels likely to remain muted due to higher development costs. Whilst we anticipate the industrial vacancy rate to move higher this year, largely as a result of a weaker economic backdrop, we expect occupational demand to remain robust as the advent of ‘onshoring’ and continued demand for e-commerce supports demand for good quality accommodation. As a result, further rental value growth is expected and is likely to drive performance in the medium term. There is the prospect for capital value growth for best-in-class assets, as investors once again compete for good quality industrial accommodation with strong occupational fundamentals.

The office sector continues to face real structural headwinds as working habits remain altered following the COVID-19 pandemic. Indeed, the bifurcation between best-in-class and secondary office space is acutely evident, becoming even more entrenched during 2022. Secondary office accommodation is at risk of obsolescence and asset stranding, while the capital requirements to ensure assets meet minimum ESG standards is unlikely to lead to positive returns.

The office sector did not reprice as much as many other UK property sectors in 2022, predominantly due to limited transactional evidence. However, we expect further pricing discovery to emerge over the course of 2023 and for secondary accommodation, this is likely to result in large downward revisions to valuations. Supply of truly best-in-class office space remains extremely limited across the UK which will provide more support for pricing and tenant demand.

Performance within the retail sector is expected to remain polarised in 2023. Consumer spending habits will be driven by consumer cost considerations and as such, non-discretionary led retailing is expected to be best placed.

Following a period of repricing in 2022, the retail warehouse sector is garnering more interest from investors, particularly for food anchored schemes with a discount orientated line-up which will be more insulated from any slowdown in consumer spending. Equally, the supermarket sector now looks attractive following a broad re-pricing last year, but the sector will not be immune to increasingly price sensitive consumers, with supermarket operators adapting to changes in consumer behaviour. A divergence in performance between the supermarket operators is already evident and as such, a focus on the quality of the underlying real estate will remain crucial.

The outlook for 2023 feels a lot more positive than it did at the end of 2022. Tenant demand remains resilient for good quality accommodation, and the impact of high interest rates and gilt yields seems to be easing, although recent turmoil in the banking sector is a timely reminder that risks still remain. If the UK can experience some political stability and a soft landing, then it feels as though real estate is well placed to benefit following the short sharp correction of 2022.

Purchases:

As previously reported in our results to December 2021, we completed a purchase in April 2022 for £5.0m. The asset was a car showroom in Stockton on Tees let to Motorpoint for 25 years (with a tenant break in years 15 and 20), with the 5 yearly rent reviews linked to CPI. After the reporting period (in March 2023) the Company acquired a food store in Welwyn Garden City let to Morrisons for £18.3m, which reflected a yield of 6.35%. The store is a strong trader for Morrisons and was acquired off market by way of a sale and leaseback with a new 25 year lease subject to indexation of rent.

Development:

During 2022 substantial progress was made on the pre-let development at St Helens. Completion of the development occurred in April 2023 with a new 15 year lease to the local Council commencing at a passing rent of £0.7m pa. The rent is subject to 5 yearly rent reviews linked to CPI +1%. The property is sublet to a not for profit research body investigating ways to manufacture low carbon glass (the project is known as Glass Futures).

After the reporting period the Company completed the purchase of a development site in Knowsley (Liverpool) for £4m following grant of planning permission. We expect to start on site in the second quarter to construct a 110,000 sq ft grade A logistics unit.

Sales:

A total of four assets were sold in 2022 for a total of £41.8m at a combined realised loss of £0.2m based on the valuation as at 31 December 2021 and the net proceeds as disclosed in note 7. Three of the assets were offices and the decision to sell was taken as part of our general concern over the future of offices. We also disposed of an industrial asset (the lowest yielding asset in the company) just before the major correction in pricing.

Asset Management:

During the COVID-19 pandemic rent collection was a major focus for the asset management team. In 2022 attention was able to return to more normal tenant engagement, with rental collection back at 100% in the fourth quarter and the rate for the year just over 99% with some rent still being collected.

Rent Collection	Quarter	% Received
2021	1	100%
	2	98%
	3	97%
	4	99%
	2021 FY	98%
2022	1	99%
	2	99%
	3	97%
	4	100%
	2022 FY	99%

The vacancy rate at the year-end was 9.8% (prior year 9.7%) which is above our target level of 5%. As noted below, we have several units that are subject to an agreement for lease, and when those leases complete along with some other lettings under offer, the vacancy rate is expected to be close to around that target level.

Ten lettings were completed during the year securing a total of £1.2m pa. In addition, an agreement for lease (a contractual agreement to enter into a lease once the landlord completes a refurbishment) securing a rent of £0.6m pa was signed and we expect to complete the works mid 2023. Since the year end two more lettings have completed securing £0.3m pa.

In addition to the asset lettings, four leases were completed with an operator of EV charge points in some of our asset car parks. The combined base rent is only £8,000pa (with a top up potential share of turnover) however we will be undertaking more of these lettings where an operator has the cost of installation and running the charge points, but our tenants benefit from the service.

Six lease renewals or regears were completed over the year securing £0.6m pa, along with six rent reviews, resulting in an additional £0.2m pa being secured and since year end two more rent reviews with a total increase in rent of £0.1m pa were agreed. The majority of the increase is from the industrial / logistics sector although we are also seeing some increases in our office portfolio.

Portfolio Rent Reviews

Basis	% of Current Rent Roll	Weighted Average Floor (value if fixed)	Weighted Average Cap / Range of Caps	Weighted Average Unexpired Lease Term (years)
RPI Inflation linked %	17.1%	1.0%	3.9 (ex-uncapped income)	8.4
CPI Inflation linked %	4.0%	1.7%	3.7%	14.7
Fixed / Stepped	10.3%	2.6%	n/a	10.6
Open Market Value	68.6%	n/a	n/a	2.6
Total	100%	n/a	n/a	5.7 (FUND WAULT)

Income Growth Potential

The Company has a diversified portfolio of commercial real estate assets let to occupiers under a variety of leases. The rent that tenants pay will vary over time, and in the case of the current portfolio the rent received is below market rates giving scope for increase over the next five years. This increase will come from rent reviews and lease renewals on existing leases (£2.1m of reversion present), completing development projects (£1.2m of rent) and hopefully letting void units (£2.3m).

Rent reviews are a mixture of open market (negotiated), fixed or indexed. The table below shows the Company mix.

Passing Rent (OMV)	£17.4m
RPI Linked Income	£4.3m
CPI Linked Income	£1.0m
Fixed/Stepped Income	£2.6m
Reversion in Let Portfolio	£2.1m
Development Properties	£1.2m
Void Properties	£2.4m
Estimated Rental Value	£31.1m

Debt

The Company’s £110m term loan and £50m revolving credit facility (RCF) was to mature in April 2023, and

given volatility in the lending market the company sought to secure an extension in 2022, which it did in October. At year end the term loan was fully drawn and subject to an interest rate swap giving an all in cost of 2.725%. The RCF was undrawn following the sales undertaken in the year (also undrawn year end 2021 although there was some utilisation in the intervening period).

The new facility is with the existing lender (RBSI), commences in April 2023 for three years and consists of a £85m term loan and an £80m RCF. The margin on both is 150bps which is considered very competitive. At the time of agreeing the new facility swap rates were very unattractive however there was significant concern that rates would go even higher as a result of the then Government policy. The Company decided to enter into a swap given the risks of a worsening situation, which would have fixed the cost of debt at 7.0%.

With the rapid repricing of interest rate futures following the change of Prime Minister and Chancellor the Company decided to break that swap in December 2022 and enter into an interest rate cap instead. This limits the upper rate the Company could pay to 5.5% and allows the Company to benefit from lower rates if they occur.

The costs associated with the debt restructure were, as detailed in the 2022 NAV and disclosed further in the accounts, £3.6m to break the swap and £2.5m to replace this with an interest rate cap; the latter of which will be amortised over the three-year tenor of the loan. The LTV as at year end was 22.6% (19.2% prior year) which is a level the Investment Manager and Board are comfortable with at this stage of the market cycle.

Outlook and Future Strategy

Although the economic outlook remains uncertain the portfolio consists of good quality assets that are appealing to occupiers. The Investment Manager will continue to focus on growing income through active asset management of the assets, and ensuring the assets in the portfolio meet occupier needs. In the first few months of 2023 new occupier interest is encouraging, and we expect that to continue given the quality of accommodation the Company offers.

In order to have a reliable income stream with potential for growth we will continue to focus on ESG and offering cost effective solutions for occupiers. To reflect the importance of ESG, the Annual Report now includes a dedicated section and we have also early adopted the Taskforce for Climate-related Financial Disclosures.

Performance

There are a number of different measures of performance used by the Board, from individual assets to shareholder return. These are detailed below:

	Portfolio total return (per annum)	MSCI UK Quarterly Property Index return (per annum)	MSCI UK Monthly Index Funds Quarterly Property Index return (per annum)	NAV total return (per annum)
1 Year	(8.8%)	(8.9%)	(10.8%)	(12.8%)
3 Year	9.8%	3.9%	4.7%	7.0%
5 Year	24.9%	11.7%	13.7%	21.9%
10 Year	12.1%	89.0%	88.5%	159.5%

Portfolio Return:

The Company uses a MSCI Benchmark to measure performance of the underlying assets against the general market. The portfolio is not constructed with reference to the MSCI index, but it can be useful to measure the performance of the Investment Manager. At the end of 2022 the Board and Manager changed the benchmark index it uses for this comparison from the MSCI quarterly version of monthly valued funds to the MSCI Quarterly index. The reason for this change was that the quarterly index represents a much broader measure of the market return, and is the main index used by commentators. For the purpose of this year end report and accounts performance review the table above shows the portfolio and NAV against both indices for clarity.

At a portfolio level the Company has continued to demonstrate performance above that of the overall market over 1, 3, 5 and 10 years (see above). The improved performance relative to the benchmark is a result from a combination of structure (having a greater exposure to strongly performing sectors and low exposure to poorly performing sectors), and the active approach to managing the portfolio. Turnover in the portfolio has been higher than the market over most time periods, indicating a willingness to take profits and reinvest in new productive assets.

NAV Return:

The NAV total return is perhaps the best indication of the Company’s performance, rather than just the property portfolio, as it takes all costs and manager controlled factors (such as borrowing) into account. The table above shows NAV total returns alongside the portfolio and market returns. The table below compares the NAV total return of the company against the AIC peer group, and as a further source of comparison against the IA open ended fund sector average.

NAV Total Returns to 31 December 2022

Source AIC, abrdn	1 year %	3 years %	5 years %	10 years %
abrdn Property Income Trust Limited	(12.8)	7.0	21.9	159.5
AIC Property UK Commercial (weighted average)	(0.4)	20.9	39.6	32.1
Investment Association Open Ended Commercial Property Funds sector	(7.7)	(1.8)	1.1	35.5

Share Price:

For the investor, share price total return is the real measure of their experience, measuring the share price performance along with the dividends they received. The Company’s market capitalisation at 31 December 2022 was £237.9m against £323.5m a year earlier. The reduction in market capitalisation reflects the wider discount and the share buy backs undertaken by the Company – totalling £12.4m in 2022.

Share Price Total Returns to 31 December 2022

Source AIC, abrdn	1 year %	3 years %	5 years %	10 years %
abrdn Property Income Trust Limited	(19.0)	(18.5)	(11.8)	90.4
FTSE All-Share Index	0.3	7.1	15.5	88.2
FTSE All-Share REIT Index	(31.6)	(25.8)	(15.0)	45.1
AIC Property Direct – UK Sector (weighted Average)	(15.8)	(6.9)	12.5	17.8

Valuation

The portfolio is valued quarterly by Knight Frank LLP under the provisions of the RICS Red Book. As at 31 December 2022 the portfolio, including the Ralia Estate, was valued at £416.2m (£499.9m at 31 December 2021) and the Company held cash of £15.9m (£13.8m at 31 December 2021). The portfolio consisted of 45 assets at year-end (48 assets at 31 December 2021).

Investment Strategy

The Company has a clearly stated investment strategy: “To provide investors with an attractive income return, with the prospect of income and capital growth, through investing in a diversified portfolio of commercial real estate assets in the UK”. The word “Income” features in both the Company’s name, and prominently in the investment strategy.

Our investment activities are centred around providing an attractive level of income. However, you will read throughout the report about the importance of ESG to future returns. The Investment Manager and Board want to provide a level of income that is attractive to investors today, that is sustainable and has scope to grow in the future. We also want to provide a reasonable total return (i.e. not sacrifice capital value to deliver an unsustainable level of income).

Environmental Social and Governance (ESG)

ESG is central to API’s investment philosophy and is fully incorporated into our decision making and actions. We believe that ESG should form a central part of decision making, and that in order to make the best decisions, we must build our own expertise and knowledge through working with best in class consultants to optimise the timing and impact of our investments in ESG improvements. We do not aim to solve every problem overnight, rather we seek to find the optimum point of intervention for each asset to maximise return for shareholders and avoid waste (and with it embedded carbon).

To reflect the importance of ESG, the Annual Report now includes a dedicated section and we have also early adopted the Taskforce for Climate-related Financial Disclosures.

PROPERTY INVETMENTS

Top Ten Properties

Property	Value (range)	Sector	% of total portfolio
B&Q, Halesowen	£22m - £24m	Retail	5.7%
54 Hagley Road, Birmingham	£22m - £24m	Office	5.6%
Symphony, Rotherham	£20m - £22m	Industrial	5.0%
Atos Data Centre, Birmingham	£16m - £18m	Other	3.8%
Timbmet, Shellingford	£14m - £16m	Industrial	3.7%
Hollywood Green, London	£14m - £16m	Other	3.4%
Tetron 141, Swadlincote	£12m - £14m	Industrial	3.2%
CEVA Logistics, Corby	£12m - £14m	Industrial	3.2%
Walton Summit Industrial Estate, Preston	£12m - £14m	Industrial	2.9%
Badentoy North, Aberdeen	£12m - £14m	Industrial	2.9%

Top Ten Tenants

Tenant	Passing Rent	% of total contracted rent
B&Q Plc	£1,560,000	6.2%
Public Sector	£1,346,186	5.3%
The Symphony Group Plc	£1,225,000	4.8%
Schlumberger Oilfield UK Plc	£1,138,402	4.5%
CEVA Logistics Limited	£840,000	3.3%
Atos IT Services Limited	£838,910	3.3%
Jenkins Shipping Co Ltd	£819,390	3.2%
Timbmet Limited	£799,683	3.2%
Thyssenkrupp Materials (UK) Ltd	£643,565	2.5%
Adexa Direct Limited	£560,997	2.2%

Portfolio Allocation by region

Region	Weighting
South East	21.2%
West Midlands	20.9%
North West	13.5%
East Midlands	13.4%
Scotland	12.0%
North East	10.5%
South West	3.4%
London City	2.7%
London West End	2.3%

Portfolio Allocation by Sector

Region	Weighting
Rest of UK Industrial	45.5%
Retail Warehouses	11.0%
Rest of UK Offices	9.4%
Other Commercial	9.4%
South East industrial	9.1%
South East Offices	6.8%
London City Offices	2.7%
London West End Offices	2.3%
South East Retail	1.9%
Land	1.8%

ENVIRONMENTAL, SOCIAL and GOVERNANCE (ESG)

ESG

It is now commonplace for investment managers to say that ESG is embedded in their processes. It is not always clear what that really means. As a Company investing in real assets we can have a direct impact on ESG outputs – and the reason we have fully integrated ESG into our investment process and behaviour is that we believe it is fundamental to achieving the Company’s investment objective. We do not consider ESG in isolation or as just a cost. We see it as an opportunity for driving performance. It is for that reason it forms an integral part of our decision making processes. We seek to implement ESG initiatives in a planned, sensible, and measured way so as to maximise the return on investment.

ESG Policy

ESG Strategy.

The Board has a separate Sustainability Committee that sets Key Performance Indicators (KPIs) in order to measure the ESG performance of the real estate portfolio and Investment Manager in delivering ESG improvements. The Committee is relatively new, and demonstrates the increased importance of ESG in managing risk and return for the Company.

The Investment Manager has an advanced and comprehensive framework of process, oversight, and knowledge to incorporate and enhance ESG into the business and to ensure practical implementation, which is evolving to keep pace with current ESG trends and legislation.

Priorities.

The Company has identified two main areas of focus that have the most relevance for the activities it undertakes – People and Planet.

People involves our tenants, the users of our properties and the local community. It is a wide-ranging theme, covering supplier management, community engagement, social values, tenant engagement and wellness.

Under Planet, the Company has a primary focus on (1) carbon and energy; (2) climate resilience; and (3) biodiversity.

Hardly a week goes by without an extreme weather event occurring somewhere in the world, bringing the need for climate action into focus. The Company has a clear strategy for managing carbon emissions across the portfolio and has been implementing energy efficiency improvements and renewable energy projects for several years.

In 2021, we undertook work to establish the operational carbon footprint baseline of the portfolio and model our pathway to net-zero.

This involved benchmarking the performance of each asset, modelling our future footprint including embodied and operational carbon and identifying the types of measures necessary to fully decarbonise the portfolio by 2050. From that baseline we can measure progress annually – although it won’t be a straight line to net-zero. In 2022, we have been actioning our net-zero strategy to improve on the baseline performance, with an initial focus on offices and also a refurbishment to have our first operational net neutral carbon logistics unit.

Transparency and Reporting

EPRA Sustainability Best Practice Recommendations Guidelines.

We have adopted the 2017 EPRA Sustainability Best Practice Recommendations Guidelines (sBPR) to inform the scope of indicators we report against. We have reported against all EPRA sBPR indicators that are material to the Company. We also report additional data not required by the EPRA sBPR where we believe it to be relevant (e.g. like-for-like greenhouse gas emissions).

A full outline of the scope of reporting and materiality review in relation to EPRA sBPR indicators as explained above, is included in the full Annual Accounts which can be found at the following link  https://www.abrdnpit.co.uk/en-gb/literature.  These also provides disclosures required under Streamlined Energy and Carbon Reporting (SECR).

2022 GRESB Assessment.

The GRESB Assessment is regarded as the leading global sustainability benchmark for real estate vehicles. The Company has submitted data to GRESB since 2012. Whilst GRESB is a useful tool for benchmarking ESG

performance, there are significant limitations with the default peer group selection which the company does not believe represents its peers. Despite providing this feedback, GRESB still does not benchmark the Company against similar UK funds, however we continue to engage on this matter.

Our ESG Priorities
Climate Change.

The Company considers the risks and opportunities of climate change on the portfolio. This is one of the most material ESG components to investment performance. The Taskforce for Climate-related Financial Disclosures (TCFD) was established to provide a standardised way to disclose and assess climate-related risks and opportunities and defines two types of climate risks:

· Transition risks: those that relate to an asset, portfolio or company’s ability to decarbonise. An entity can be exposed to risks as a result of carbon pricing, regulation, technological change and shifts in demand related to the transition.

· Physical risks: those that relate to an asset’s vulnerability to factors such as increasing temperatures and extreme weather events as a result of climate change. Exposure to physical risks may result in, for example, direct damage to assets, rising insurance costs, health and safety or supply chain disruption.

The Taskforce for Climate-related Financial Disclosures (TCFD) recommendations are structured around four key topics: Governance, Strategy, Risk Management and Metrics & Targets. The Company is committed to implementing the recommendations of the TCFD to provide investors with information on climate risks and opportunities that are relevant to the Company. We highlight our commitments and progress against both transition and physical risks below with formal TCFD disclosure in the full Annual Accounts which can be found via the following link https://www.abrdnpit.co.uk/en-gb/literature.

Transition Risks: Targeting Net-Zero

Net-Zero Strategy.

The Company has set a target to be net-zero for emissions associated with landlord-procured energy by 2030 and has determined that it will work with tenants to establish a reasonable and realistic target for total carbon emissions over the medium term.

The net-zero target was informed from the findings of a carbon modelling exercise undertaken in 2021 to understand its current carbon footprint, and what would be required to be net-zero by 2050. The key finding was that landlord-controlled energy (i.e. responsible for scope 1 and 2 carbon emissions) accounts for less than 6% of the Company’s carbon footprint and we have limited control over 94% of the output determined by tenants.

Our Net-Zero Principles.

Although the goal of net-zero may seem clear, definitions and standards and the policy mix to support it remains immature. Accordingly, the Company has established several key principles to ensure its strategy, is robust and delivers value:

Practical:

· Asset-level action – focusing on energy efficiency and renewables is our priority to ensure compliance with energy performance regulations. Our analysis shows that meeting proposed future Energy Performance Certificate standards is a sensible stepping stone towards net-zero. This improves the quality of assets for occupiers and reduces the exposure to regulatory and market risk. Our investment in nature-based carbon removal at Far Ralia is in addition to asset-level decarbonisation.

· Timing – we aim to align improvements at our properties with existing plant replacement cycles and planned refurbishment activities wherever possible. This ensures we are not unnecessarily replacing functional plant ahead of its useful life unless necessary, which in turn reduces cost and embodied carbon.

Realistic:

· Target – long-term objectives must be stretching but deliverable and complemented by near-term targets and actions.

· Policy support – to fully decarbonise before 2050 the real estate sector requires a supportive policy mix to incentivise action and level the playing field.

Measurable:

· Clear key performance indicators at the asset and portfolio level.

Collaborative:

· Occupiers – we cannot achieve net-zero for the portfolio in isolation. We will work closely with occupiers, many of whom have their own decarbonisation strategies covering their leased space.

· Suppliers – we will work collaboratively with our suppliers including property managers and consultants in order to achieve net-zero.

Performance to Date

Baseline versus current performance:

Our operational carbon intensity for 2019 is shown below. We have used 2019 as a baseline as it was unaffected by changes in occupancy due to COVID-19. The 2019 baseline was updated from that reported in the 2021 annual report due to improved data coverage and the inclusion of F-gases.

Normalised Portfolio Carbon Intensity:

2019	63.4 kgCO2e /m2
2021	53.1 kgCO2e /m2
% Change	(16%)

This shows a total operational footprint of 25,128 tonnes of carbon dioxide equivalent (CO₂e). Of this, 6% is associated with Scope 1 and 2 emissions that are directly controlled by the Company, with 94% coming from Scope 3 emissions from tenant procured energy. For 2019 we gathered energy consumption data for 31% of the portfolio by floor area with representative industry standard benchmarks used to estimate the rest.

Based on these assumptions for 2019 the energy intensity at the portfolio level was 286 kWh/m2 which has reduced by 7% to 266 kWh/m2 and the operational emissions intensity was 63.4 kgCO₂e /m2 across Scopes 1, 2 and 3 which has improved by 16% to 53.1 kgCO₂e /m2.

For more information around our commitment and approach to ESG, please see our full Annual Accounts https://www.abrdnpit.co.uk/en-gb/literature.

PRINCIPAL RISKS AND UNCERTAINTIES

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

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 Company’s broker to discuss these points and address any issues that arise. Geopolitical risk increased the volatility of the Company’s share price and, reflecting wider market sentiment, has resulted in the Company’s shares trading at a discount to prevailing NAV of 26.4% as at 31 December 2022, in-line with other diversified peers in the Company’s AIC peer group.

Net revenue falls such that the Company cannot sustain its level of dividend, for example due to tenant failure, voids or increased costs.

This risk is mitigated through regular review of forecast dividend cover and 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 review through regular contact and various reports both from the managing agents and the Investment Manager’s own reporting process.

Contingency plans are put in place at units that have tenants that are believed to be in financial trouble. The Company subscribes to the MSCI 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.

During 2022 the significantly heightened geopolitical uncertainty and cost of living crisis have resulted in inflationary pressures and vulnerabilities in supply chains being exposed. Government initiatives have eased some of these pressures and we are yet to see the full impact which could impact upon our tenants’ ability to trade profitably.

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.

The impact of geopolitical uncertainty and the cost of living crisis have resulted in inflationary pressures which have impacted both property values and the ability of tenants to pay rent.

Real estate holdings of good quality and rental growth prospects can appear more attractive at such times to offer a partial hedge against inflationary pressures.

Environmental.

Environmental risk is considered as part of each purchase and monitored on an ongoing basis by the Investment Manager. However, with extreme weather events both in the UK and globally becoming a more regular occurrence due to climate change, the impact of the environment on the property portfolio and on the wider UK economy is seen as an increasing risk.

Please see the Environmental, Social and Governance Policy section, our Taskforce for Climate-related Financial Disclosures of our full Annual Accounts and the Investment Manager’s Review for further details on how the Company addresses environmental risk, including climate change.

Other risks faced by the Group include the following:

· 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.

· Business continuity – risks to any of the Company’s service providers or properties, following a catastrophic event e.g. terrorist attack, cyber-attack, power disruptions or civil unrest, leading to disruption of service, loss of data etc.

· Refinancing – risk that the Company is unable to renew its existing facilities, or does so on significantly adverse terms, which does not support the current business strategy.

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.

Details of the Group’s internal controls are described in more detail in the Corporate Governance Report in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature.

Emerging Risks

Emerging risks have been identified by the Board through a process of evaluating relatively new risks that have emerged and increased materially in the year, and subsequently, or through market intelligence are expected to grow significantly and impact the Company. Any such emerging risks are likely to cause disruption to the business model. If ignored, they could impact the Company’s financial performance and prospects. Alternatively, if recognised, they could provide opportunities for transformation and improved performance.

Economic and Geopolitical.

Russia’s invasion of Ukraine is the largest, most dangerous military conflict in Europe since WWII. Russian President Vladimir Putin failed in his initial aim to destroy Ukrainian sovereignty and has since increased attacks on Ukraine’s energy and civilian infrastructure. A settlement or even a ceasefire looks unlikely for now. Instead, an extended conflict is anticipated, alongside a long term political, economic and military standoff between the West and Russia. Intentional or accidental escalation between NATO and Russia remains a risk.

The Investment Manager expects global markets to remain volatile. From a macro-economic perspective, higher medium-term oil, gas and food prices alongside financial market disruption and sanctions on Russia could lead to a continuation of the already elevated inflationary environment, which will in turn weaken the outlook for economic growth. There is also the risk of further interest rate increases. A period of prolonged instability, with impacts for Europe in particular, is now clearly a potential outcome.

Tensions are also increasing in the relationship between the United States and China which could lead to greater protectionism and a decline in global trade. In particular, the future of Taiwan is uncertain and as one of the largest producers and exporters of microchips in the world could cause considerable disruption if its independence was threatened.

The current economic and geopolitical environment is unpredictable, and changing rapidly, and this may affect the real estate valuations in the Company’s portfolio.

Climate.

Climate change is happening now and its rate of change and impact on the environment will depend on the planet’s success in controlling global emissions. The average surface temperature in the UK has risen by 1.2^oC since pre-industrial times, and further warming is predicted. More extreme weather events are also expected in future which could cause serious damage to infrastructure and property. The extent of climate change and the necessary regulation to control it are uncertain and will continue to be monitored.

The Legacy of COVID-19.

Although the direct impact of COVID-19 on our lives has receded, it has introduced or accelerated some structural changes to the ways that we live, work and consume and reformed our expectations of our environment and society. In particular, the trend towards flexible and home working is affecting the use of offices, with sustainability, health, wellbeing and the social impact of office use increasing in importance.

COVID-19 has also impacted the way that we that we shop: social distancing measures in response to the pandemic have accelerated the increase in on-line shopping and decline in physical retailing. This has created challenging conditions for traditional retailers and their landlords. It is still uncertain how the role of offices and retail will develop and they both continue to be assessed in order to protect the portfolio but also to identify new investment opportunities.

Technology.

Technology is also rapidly changing the habits of businesses and consumers which in turn is impacting occupiers’ future requirements for property and leading to greater disparity in the performance of different property sectors and also within each sector itself. Advances in technology have enabled many of the behavioural changes in the use of real estate: for example, the increased use of video conferencing by businesses has facilitated a more permanent shift to home working and could also redefine the need for office space in the future.

Robotics and automation are also altering the specifications for industrial buildings and greater use of data and advanced analytics is driving the need the data storage and data centres. Technology is also increasingly contributing to improvements in the sustainability of properties. If landlords fail to embrace technology, they may face the risk of “stranded” assets in the future.

Viability Statement

The Board considers viability as part of its programme of financial reporting and monitoring risk. The Board regularly reviews the prospects for the Company over the longer term taking into account the Company’s current financial position, its operating model, and the diversified constituents of its portfolio. In addition the Board considers strong initial due diligence processes, the continued review of the portfolio and the active asset management initiatives. Given the above, the Board believes that the Company has a sound basis upon which to continue to deliver returns over the long term.

In terms of viability, the Board has considered the nature of the Group’s assets and liabilities and associated cash flows and has determined that three 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. This timescale was assessed as being more accurate than the previous five year period used by the Board and also brings the Group more in line with its peer group and reflecting the term of the long-term debt.

The Board has also carried out a robust assessment of the principal and emerging risks faced by the Group, as detailed above. The main risks which the Board considers will affect the business model are: future performance, solvency, liquidity, tenant failure leading to a fall in dividend cover and macroeconomic uncertainty.

These risks have all been considered in light of the financial and economic impact that arose from COVID-19 and considering the emerging geopolitical risks.

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 consistent with the Group’s risk appetite at all times. 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 Company’s Investment Manager, for a three year period under both normal and stressed conditions;

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

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

· The ability of the Company to refinance its debt facilities in April 2023;

· Demand for the Company’s shares and levels of premium or discount at which the shares trade to NAV;

· Views of shareholders; 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 assessment for stressed conditions used a foreseeable severe but plausible scenario which was modelled using the following assumptions:

• 25 per cent capital fall in the next 3 years
• Tenant defaults of 15 per cent for the next 3 years
• Sterling Overnight Index Average (SONIA) tracks 1.0 per cent above the anticipated forward curve

Even under those scenarios the Group remains viable.

Despite the uncertainty in the UK regarding the impact of international conflict, the Board has a reasonable expectation, based on the information at the time of writing, that the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years. This assessment is based on the current financial position of the Company, its performance track record and feedback it receives from shareholders.

GOING CONCERN

The Group’s strategy and business model, together with the factors likely to affect its future development, performance and position, including principal risks and uncertainties, are set out in the Strategic Report.

The Directors have reviewed detailed cash flow, income and expense projections in order to assess the Group’s ability to pay its operational expenses, bank interest and dividends over the going concern period. The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular those relating to LTV and interest cover.

The Directors have not identified any material uncertainties, including risks related to significantly heightened geopolitical uncertainty and cost of living crisis, which might cast significant doubt on the ability of the Group to continue as a going concern for a period of not less than 12 months from the date of the approval of this Annual Report.

The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence and the Board believes it is appropriate to adopt the going concern basis in preparing the consolidated financial statements.

STATEMENT OF DIRECTOR’S RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Group Consolidated 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 Consolidated 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 Consolidated Financial Statements; and

· Prepare the Group Consolidated 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 Group Consolidated 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 through its Investment Manager; 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 Consolidated Financial Statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of the consolidated 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 Review, 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 position and performance, business model and strategy.

Approved by the Board on

21 April 2023

James Clifton-Brown

Chair

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
	Notes	12 months to 31 Dec 2022 £	12 months to 31 Dec 2021 £
Rental income		26,697,931	26,485,585
Service charge income	4	4,411,821	4,097,344
Service charge expenditure	4	(5,576,812)	(4,938,920)
Net Rental Income		25,532,940	25,644,009
Administrative and other expenses
Investment management fees	4	(3,480,963)	(3,301,074)
Other direct property expenses	4	(3,089,960)	(2,564,156)
Impairment gain/(loss) on trade receivables	4	852,062	(406,475)
Other administration expenses	4	(1,134,919)	(1,162,009)
Total Administrative and other expenses		(6,853,780)	(7,433,714)
Operating profit before changes in fair value of investment properties		18,679,160	18,210,295
Valuation (loss)/gain from investment properties	7	(62,257,782)	72,188,550
Valuation loss from land	8	(60,322)	(501,550)
Loss on disposal of investment properties	7	(207,153)	(634,368)
Operating (loss)/profit		(43,846,097)	89,262,928
Finance income	5	27,543	763
Finance costs	5	(3,672,685)	(3,530,870)
Loss on termination of interest rate swaps	14b	(3,562,248)	-
(Loss)/profit for the period before taxation		(51,053,487)	85,732,821
Taxation
Tax charge		-	-
(Loss)/profit for the period, net of tax		(51,053,487)	85,732,821
Other comprehensive income
Movement in fair value on existing swap	14a	1,470,570	3,167,218
Movement in fair value on interest rate cap	14c	43,292	-
Total other comprehensive gain		1,513,862	3,167,218
Total comprehensive (loss)/gain for the period, net of tax		(49,539,625)	88,900,039
Earnings per share		2022 (p)	2021 (p)
Basic and diluted earnings per share	19	(13.11)	21.54

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

The notes below are an integral part of these Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEET
As at 31 December 2022
Assets	Notes	31 Dec 2022 £	31 Dec 2021 £
Non-current assets
Investment properties	7	401,217,536	484,514,085
Lease incentives	7	8,357,036	8,802,294
Land	8	7,500,000	7,500,000
Interest rate cap	14c	2,211,007	-
Rental deposits held on behalf of tenants		751,782	904,189
		420,037,361	501,720,568
Current assets
Trade and other receivables	10	7,457,083	11,024,100
Cash and cash equivalents	11	15,871,053	13,818,008
Interest rate swap	14a	1,238,197	-
Interest rate cap	14c	339,462	-
		24,905,795	24,842,108
Total assets		444,943,156	526,562,676
Liabilities
Current liabilities
Trade and other payables	12	10,880,310	13,618,457
Interest rate swap	14a	-	546,526
		10,880,310	14,164,983
Non-current liabilities
Bank borrowings	13	109,123,937	109,723,399
Interest rate swap	14a	-	31,510
Obligations under finance leases	15	899,572	901,129
Rent deposits due to tenants		751,782	904,189
		110,775,291	111,550,227
Total liabilities		121,655,601	125,715,210
Net assets		323,287,555	400,847,466
Equity
Capital and reserves attributable to Company’s equity holders
Share capital	17	228,383,857	228,383,857
Treasury share reserve	17	(18,400,876)	(5,991,417)
Retained earnings	18	4,362,024	8,521,081
Capital reserves	18	11,084,178	72,095,573
Other distributable reserves	18	97,838,372	97,838,372
Total equity		323,287,555	400,847,466

Approved and authorised for issue by the Board of Directors on 21 April 2023 and signed on their behalf by James Clifton-Brown

The accompanying notes below are an integral part of these Consolidated Financial Statements. Company Number: 41352 (Guernsey).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022

	Notes	Share Capital £	Treasury Shares £	Retained Earnings £	Capital Reserves £	Other Distributable Reserves £	Total Equity £
Opening balance 1 January 2022		228,383,857	(5,991,417)	8,521,081	72,095,573	97,838,372	300,847,466
Loss for the year		-	-	(51,053,487)	-	-	(51,053,487)
Other comprehensive income		-	-	-	1,513,862	-	1,513,862
Total comprehensive income for the period		-	-	(51,053,487)	1,513,862	-	(49,539,625)
Ordinary shares paced into treasury net of issue costs	17	-	(12,409,459)	-	-	-	(12,409,459)
Dividends paid	20	-	-	(15,610,827)	-	-	(15,610,827)
Valuation loss from investment properties	7	-	-	62,257,782	(62,257,782)	-	-
Valuation loss from land	8	-	-	60,322	(60,322)	-	-
Loss on disposal of investment properties	7	-	-	207,153	(207,153)	-	-
Balance at 31 December 2022		228,383,857	(18,400,876)	4,382,024	11,084,178	97,838,372	323,287,555

	Notes	Share Capital £	Treasury Shares £	Retained Earnings £	Capital Reserves £	Other Distributable Reserves £	Total Equity £
Opening balance 1 January 2021		228,383,857	(1,450,787)	7,339,209	(604,214)	97,838,372	331,506,437
Profit for the year		-	-	85,732,820	-	-	85,732,820
Other comprehensive income		-	-	-	3,167,218	-	3,167,218
Total comprehensive income for the period		-	-	85,732,820	-	-	88,900,038)
Ordinary shares paced into treasury net of issue costs	17	-	(4,540,630)	-	-	-	(4,540,630)
Dividends paid	20	-	-	(15,018,379)	-	-	(15,018,379)
Other transfer between reserves	18	-	-	1,520,063	(1,520,063)	-	-
Valuation gain from investment properties	7	-	-	(72,188,550)	72,188,550	-	-
Valuation loss from land	8	-	-	501,550	(501,550)	-	-
Loss on disposal of investment properties	7	-	-	634,368	(634,368)	-	-
Balance at 31 December 2021		228,383,857	(5,991,417)	8,521,081	72,095,573	97,838,372	400,847,466

CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2022
		12 months to	12 months to
Cash flows from operating activities	Notes	31 Dec 2022 £	31 Dec 2021 £
(Loss)/profit for the year before taxation		(51,053,487)	85,732,820
Movement in lease incentives		(841,398)	(2,966,033)
Movement in trade and other receivables		3,719,424	(270,226)
Movement in trade and other payables		(3,237,151)	536,404
Finance costs	5	3,562,248	(5,877)
Finance income	5	3,672,685	3,530,870
Other transfer between reserves		(27,543)	(763)
Valuation loss/(gain) from investment properties	7	-	1,520,064
Valuation loss from land	8	62,257,782	(72,188,550)
Loss on disposal of investment properties	7	60,322	501,550
Net cash inflow from operating activities		18,320,035	17,030,504
Cash flows from investing activities
Interest received	5	27,543	763
Purchase of investment properties	7	(5,501,321)	(11,741,501)
Purchase of land	8	(60,322)	(8,001,550)
Capital expenditure on investment properties	7	(13,524,813)	(1,819,229)
Net proceeds from disposal of investment properties	7	41,142,847	31,840,632
Net cash inflow from investing activities		22,083,934	10,279,113
Cash flows from financing activities
Shares bought back during the year	17	(12,409,459)	(4,540,630)
Drawn-down on RCF	13	17,000,000	-
Repayment of RCF	13	(17,000,000)	-
Bank borrowing arrangement	13	(804,297)	-
Interest paid on bank borrowings		(2,959,023)	(1,872,545)
Payments on interest rate swaps		(473,425)	(1,418,916)
Swap breakage costs	14b	(3,562,248)	-
Cap arrangement fees	14c	(2,507,177)	-
Finance lease interest	5	(24,468)	(24,511)
Dividends paid to the Company’s shareholders	20	(15,610,827)	(15,018,379)
Net cash outflow from financing activities		(38,350,924)	(22,874,981
Net increase in cash and cash equivalents		2,053,045	4,434,637
Cash and cash equivalents at beginning of year	11	13,818,008	9,383,371
Cash and cash equivalents at end of year	11	15,871,053	13,818,008

Notes TO the consolidated financial statements

1. General Information

abrdn 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

PO Box 255,

Trafalgar Court,

Les Banques,

St Peter Port,

Guernsey

These audited Consolidated Financial Statements were approved for issue by the Board of Directors on 21 April 2023.

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 (“IFRS”) as adopted by the European Union and as issued by the International Accounting Standards Board, 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, land 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.

The Directors have considered the basis of preparation of the accounts given the significantly heightened geopolitical uncertainty and cost of living crisis and believe that it is still appropriate for the accounts to be prepared on the going concern basis as further described in the Directors Report.

Changes in accounting policy and disclosure.

The following amendments to existing standards and interpretations were effective for the year, but were deemed not applicable to the Group:

· Amendments to IFRS 3 Reference to the Conceptual Framework, Amendments to IAS 37 Onerous Contracts Cost of Fulfilling a Contract, and IAS 16 Property, Plant and Equipment – Proceeds before Intended Use

The IFRS Interpretations Committee issued the following Agenda Decision in October 2022.

· IFRIC: Lessor forgiveness of lease payments (IFRS 9 ‘Financial Instruments’ and IFRS 16 ‘Leases’)

The amendment is effective immediately, the directors of the Group are determining the impact but don’t expect it to be material.

Annual improvements to IFRS.

Annual Improvements to IFRS Accounting Standards 2018-2020 Cycle includes amendments to four standards for the current year.

· IFRS 1 First-time Adoption of International Financial Reporting Standards

· IFRS 9 Financial Instruments

· IFRS 16 Leases

· IAS 41 Agriculture

The Directors have considered the amendments noted above and have deemed these not applicable to the Group.

New and revised IFRS Accounting Standards in issue but not yet effective.

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Accounting Standards that have been issued but are not yet effective.

· Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures — Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

· Amendments to IAS 1 Presentation of Financial Statements—Classification of Liabilities as Current or Non-current

· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements — Disclosure of Accounting Policies

The amendments change the requirements in IAS 1.

· Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors — Definition of Accounting Estimates

The amendments replace the definition of a change.

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 future periods. The most significant estimates and judgements are set out below. There were no critical accounting judgements.

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 50 basis points or rental rates (ERV) decreases by 5% which the Board believes are reasonable sensitivities to apply given historical movements in valuations.

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 The Royal Bank of Scotland. 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.

Provision for impairment of receivables.

Provision for impairment of receivables are also a key estimation uncertainty. These are measured with reference to amounts included as income at the year end but not yet collected. In assessing whether the credit risk of an asset has significantly increased the Group takes into account qualitative and quantitative reasonable and supportable forward-looking information.

Due to the impact of the significantly heightened geopolitical uncertainty and cost of living crisis on collection rates, there remains an elevated assessed credit risk. Each individual rental income debtor is reviewed to assess whether it is believed there is a probability of default and expected credit loss given the knowledge of and intelligence about the individual tenant and an appropriate provision made.

2.3 Summary of significant accounting policies.

A Basis of consolidation.

The audited Consolidated Financial Statements comprise the financial statements of abrdn 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 Company’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.

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.

iii) Other income.

The Group is classified as the principal in its contract with the managing agent. Service charges billed to tenants by the managing agent are therefore recognised gross.

iv) 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.

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 they have been disposed of and no future economic benefit is expected from their disposal. Any gains or losses on the 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 Investment properties 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 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.

H Land.

The Group’s land is capable of woodland creation and peatland restoration projects which would materially assist the Group’s transition to Net-Zero.

Land is initially measured at cost including transaction costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group. Land is not depreciated but instead, subsequent to initial recognition, recognised at fair value based upon periodic valuations provided by the external valuers. 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.

I 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 expected credit 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.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.

A provision for impairment of trade receivables is established where the Property Manager has indicated concerns over the recoverability of arrears based upon their individual assessment of all outstanding balances which incorporates forward looking information. Given this detailed approach, a collective assessment methodology applying a provision matrix to determine expected credit losses is not used.

The amount of the provision is recognised in the Consolidated Balance Sheet and any changes in provision recognised in the Statement of Comprehensive Income.

J 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.

K 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.

L Accounting for derivative financial instruments and hedging activities.

Interest rate hedges 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 profit 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.

M Service charge.

IFRS15 requires the Group to determine whether it is a principal or an agent when goods or services are transferred to a customer. An entity is a principal if the entity controls the promised good or service before the entity transfers the goods or services to a customer. An entity is an agent if the entity’s performance obligation is to arrange for the provision of goods and services by another party.

Any leases entered into between the Group and a tenant require the Group to provide ancillary services to the tenant such as maintenance works etc, therefore these service charge obligations belong to the Group. However, to meet this obligation the Group appoints a managing agent, Jones Lang Lasalle Inc “JLL” and directs it to fulfil the obligation on its behalf. The contract between the Group and the managing agent creates both a right to services and the ability to direct those services.

This is a clear indication that the Group operates as a principal and the managing agent operates as an agent. Therefore it is necessary to recognise the gross service charge revenue and expenditure billed to tenants as

opposed to recognising the net amount.

N 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 His 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 as current 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, liquidity risk and capital 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 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 and the new interest rate cap due to commence 27 April 2023.

i) Interest Rate risk.

As described on below the Group invests cash balances with RBS, Citibank and Barclays. 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 has historically been to manage its cash flow interest rate risk using interest rate swaps, in which the Group 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. The full £110,000,000 of these borrowings has been fixed via an interest rate swap.

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 L.

The Group has completed an extension of its debt facilities that were due to expire in April 2023 with new floating rate borrowings of £85,000,000 commencing on the same day as the existing facility ends. As discussed further in note 14, the Group initially sought to manage its cash flow interest rate risk using an interest rate swap. Due to subsequent changes in the interest rate environment, the Group took the decision to break the swap and replace this with an interest rate cap limiting the floating rate exposure (SONIA) to 3.959%.

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.

At 31 December 2022, if market rate interest rates had been 100 basis points higher, which is deemed appropriate given historical movements in interest rates, with all other variables held constant, the profit for the year would have been £158,711 higher (2021: £138,180 higher) as a result of the higher interest income on cash and cash equivalents. Other Comprehensive Income and the Capital Reserve would have been £1,753,510 higher (2021: £1,657,653 higher) as a result of an increase in the fair value of the derivative designated as a cash flow hedge of floating rate borrowings.

At 31 December 2022, if market rate interest rates had been 100 basis points lower with all other variables held constant, the profit for the year would have been £158,711 lower (2021: £138,180 lower) as a result of the lower interest income on cash and cash equivalents. Other Comprehensive Income and the Capital Reserve would have been £1,404,933 lower (2021: £1,657,731 lower) as a result of a decrease in the fair value of the derivative designated as a cash flow hedge of floating rate borrowings.

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 up to 27 April 2023 due to an interest rate swap and as detailed further in note 14:

At 31 December 2022	Fixed Rate £	Variable Rate £	Interest Rate £
Cash and cash equivalents	-	15,871,053	0.000%
Bank borrowings	110,000,000	-	2.725%

At 31 December 2021	Fixed Rate £	Variable Rate £	Interest Rate £
Cash and cash equivalents	-	13,818,008	0.000%
Bank borrowings	110,000,000	-	2.725%

ii) Real estate risk.

The Group has identified the following risk associated with the real estate portfolio. The risks following, in particular b and c and also credit risk have remained high given the ongoing cost of living crisis and the resultant effect on tenants’ ability to pay rent:

a) The cost of any development schemes may increase if there are delays in the planning process given the

inflationary environment. 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) Tenants may become insolvent causing a significant loss of rental income and a reduction in the value of the associated property (see also credit risk below). 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 MSCI 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 £4,713,145 (2021: £5,418,733) as detailed in note 10. The Investment Manager also has a detailed process to identify the expected credit loss from tenants who are behind with rental payments.

This involves a review of every tenant who owes money with the Investment Manager using their own knowledge and communications with the tenant to assess whether a provision should be made. This resulted in the provision for bad debts decreasing to £2,137,972 at the year end (2021: £2,990,034).

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 2022 £6,481,061 (2021: £1,392,240) was placed on deposit with The Royal Bank of Scotland plc (“RBS”), £786,166 (2021: £1,145,830) was held with Citibank and £8,603,826 (2021: £11,279,938) was held with Barclays.

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-1 Stable by Standard & Poor’s and P-1 Stable by Moody’s. Barclays Bank UK is rated A-1 Positive by Standard & Poor’s and P-1 Stable 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.

Year ended 31 December 2022	On demand £	12 months £	1 to 5 years £	> 5 years £	Total £
Interest-bearing loans	-	29,462,608	94,425,183	-	123,887,791
Trade and other payables	5,284,559	26,068	104,271	2,580,717	7,995,615
Rent deposits due to tenants	-	257,899	508,736	243,046	1,009,681
	5,284,559	29,746,575	95,038,190	2,823,763	132,893,087

Year ended 31 December 2021	On demand £	12 months £	1 to 5 years £	> 5 years £	Total £
Interest-bearing loans	-	1,744,875	110,436,219	-	112,181,094
Interest rate swaps (payable)	-	1,252,625	313,156	-	1,565,781
Trade and other payables	8,187,362	26,068	104,271	2,606,785	10,924,486
Rent deposits due to tenants	-	65,720	550,084	354,105	969,909
	8,187,362	3,089,288	111,403,730	2,960,890	125,641,270

The disclosed amounts for interest-bearing loans and interest rate swaps in the below table are the estimated net undiscounted cash flows. As disclosed further in note 14, on 12 October 2022 the Group announced that it had completed an extension of its debt facilities and the disclosure below reflects the repayment of the existing facility on 27 April 2023, offset against the new facility being granted.

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

of Directors.

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 2022 and at 31 December 2021 were as follows:

	2022 £	2021 £
Total borrowings (excluding unamortised arrangement fees)	110,000,000	110,000,000
Gross assets	444,93,156	526,562,676
Gearing ratio (must not exceed 65%)	24.72%	20.89%

The Group also monitors the Loan-to-value ratio which is calculated as gross borrowings less cash divided by portfolio valuation. As at 31 December 2022 this was 22.6% (2021: 19.2%).

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 at amortised cost.

	Carrying Amount		Fair Value
Financial Assets	2022 £	2021 £	2022 £	2021 £
Cash and cash equivalents	15,871,053	13,818,008	15,871,053	13,818,008
Trade and other receivables	7,457,083	11,024,100	7,457,083	11,024,100
Financial Liabilities
Bank borrowings	109,123,937	109,723,399	109,580,566	110,119,830
Trade and other payables	6,564,852	8,359,405	6,564,852	8,359,405

The fair value of trade receivables and payables are materially equivalent to their amortised cost.

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 2021.

· 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 2021. The definition of the valuation techniques are explained in the significant accounting judgements, estimates and assumptions on above.

The table below shows an analysis of the fair values of financial assets and liabilities recognised in the Balance Sheet by the level of the fair value hierarchy:

Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Year ended 31 December 2022	Level 1	Level 2	Level 3	Total fair value
Financial assets
Trade and other receivables	-	7,457,083	-	7,457,083
Cash and cash equivalents	15,871,053	-	-	15,871,053
Interest rate swap	-	1,238,197	-	1,238,197
Interest rate cap	-	2,550,469	-	2,550,469
Rental deposits held on behalf of tenants	751,782	-	-	751,782
Right of use asset	-	899,572	-	899,572
	16,622,835	12,145,321	-	28,768,156
Financial liabilities
Trade and other payables	-	6,564,852	-	6,564,852
Bank borrowings	-	109,580,566	-	109,580,566
Obligations under finance leases	-	899,572	-	899,572
Rental deposits due to tenants	751,782	-	-	751,782
	751,782	117,044,990	-	117,796,772
Year ended 31 December 2021	Level 1	Level 2	Level 3	Total fair value
Financial assets
Trade and other receivables	-	11,024,100	-	11,024,100
Cash and cash equivalents	13,818,008	-	-	13,818,008
Rental deposits held on behalf of tenants	904,189	-	-	904,189
Right of use asset	-	901,129	-	901,129
	14,722,197	11,925,229	-	26,647,426
Financial liabilities
Trade and other payables	-	6,554,087	-	6,554,087
Bank borrowings	-	568,036	-	568,036
Bank borrowings	-	110,119,830	-	110,119,830
Obligations under finance leases	-	901,129	-	901,129
Rental deposits due to tenants	904,189	-	-	904,189
	904,189	118,143,082	-	119,047,271

Please see note 7 for details on the valuation of Investment properties.

4. Administrative and Other Expenses

	Notes	2022 £	2021 £
Investment management fees		3,480,963	3,301,074
Other direct property expenses
Vacant Costs (excluding void service charge)*		600,561	987,406
Repairs and maintenance		1,740,937	763,579
Letting fees		431,534	408,984
Amounts written off in the period	10	79,115	150,313
Other costs		237,813	253,874
Total Other direct property expenses		3,089,960	2,564,156
Impairment (gain)/loss on trade receivables		(852,062)	406,475
Other administration expenses
Directors’ fees and subsistence	22	247,603	221,742
Valuers fees		94,256	77,457
Auditor’s fees		131,280	111,540
Marketing		226,782	197,714
Other administration costs		434,998	553,556
Total Other administration expenses		1,134,919	1,162,009
Total Administrative and other expenses		6,853,780	7,433,714

Void Service charge costs for the year amounted to £1,164,991 (2021: £841,576). These have been reclassified as Service charge expenditure in the current year.

	2022 £	2021 £
Total service charge billed to tenants	4,492,780	3,984,327
Service charge due (to)/from tenants	(80,959)	113,017
Service charge income	4,411,821	4,097,344
Total service charge expenditure incurred	4,411,821	4,097,344
Service charge billed to the Group in respect of void units	1,164,991	841,576
Service charge expenditure	5,576,812	4,938,920

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”). On 10 December 2018, the Investment Manager’s contract was novated on the same commercial terms to Aberdeen Standard Fund Managers Limited (subsequently renamed abrdn Fund Managers Limited in August 2022).

From 1 July 2019, under the terms of the IMA the Investment Manager is entitled to investment management fees 0.70% of total assets up to £500 million; and 0.60% of total assets in excess of £500 million. The total fees charged for the year amounted to £3,480,963 (2021: £3,301,074).

The amount due and payable at the year end amounted to £742,952 excluding VAT (2021: £893,048 excluding VAT). In addition the Company paid the Investment Manager a sum of £184,750 excluding VAT (2021: £160,250 excluding VAT) to participate in the Managers marketing programme and Investment Trust share plan.

The Group has agreed a 10bps reduction in the fee payable to the Investment Manager, effective from 1 January 2023. The fee will reduce to 0.60% of total assets up to £500m, and 0.50% of total assets in excess of £500 million.

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 £65,000 (2021: £65,000). The amount due and payable at the year end amounted to £32,500 (2021: £16,250).

Valuer’s fee.

Knight Frank LLP (“the Valuers”), external international real estate consultants, was appointed as valuers in respect of the assets comprising the property portfolio. The total valuation fees charged for the year amounted to £94,256 (2021: £77,457). The total valuation fee comprises a base fee for the ongoing quarterly valuation, and a one off fee on acquisition of an asset. The amount due and payable at the year end amounted to £17,687 excluding VAT (2020: £21,246 excluding VAT).

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

Auditor’s fee.

At the year end date Deloitte LLP continued as independent auditor of the Group. The audit fees for the year amounted to £131,280 (2021: £111,540) and relate to audit services provided for the 2022 financial year. Deloitte LLP did not provide any non-audit services in the year (2021: nil).

5. Finance Income and Costs

Of the finance costs shown below, £1,010,547 of the interest expense on bank borrowings (offset against a net receivable £343,033 of payments on interest rate swaps) were accruals at 31 December 2022 and included in Trade and other payables.

	2022 £	2021 £
Interest income on cash and cash equivalents	27,543	763
Finance income	27,543	763
Interest expense on bank borrowings	3,251,500	1,613,050
Non-utilisation charges on facilities	308,582	329,186
(Receipts)/payments on interest rate swaps	(116,700)	1,383,547
Amortisation of arrangement costs (see note 13)	204,835	180,576
Finance lease interest	24,468	24,511
Finance costs	3,672,685	3,530,870

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 period 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 not 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 2022 and 2021 is as follows:

	2022 £	2021 £
Profit/(loss) before tax	(51,053,487)	85,732,820
Tax calculated at UK statutory corporation tax rate of 19% (2021: 19%)	(9,700,163)	16,289,236
UK REIT exemption on net income	(2,179,636)	(2,789,236)
Valuation loss in respect of investment properties not subject to tax	11,889,779	(13,500,000)
Current income tax charge	-	-

7. Investment Properties

	UK Industrial 2022 £	UK Office 2022 £	UK Retail 2022 £	UK Other 2022 £	Total 2022 £
Market value at 1 January	273,565,250	126,275,000	56,525,000	36,050,000	492,415,250
Purchase of investment property	91,859	-	-	5,409,462	5,501,321
Capital expenditure on investment properties	9,375,227	4,117,846	31,740	-	13,524,813
Opening market value of disposed investment properties	(20,450,000)	(20,900,000)	-	-	(41,350,000)
Valuation loss from investment properties	(35,924,164)	(20,993,533)	(3,087,334)	(2,252,751)	(62,257,782)
Movement in lease incentives receivable	866,828	(49,313)	80,594	(56,711)	841,398
Market value at 31 December	227,525,000	88,450,000	53,550,000	39,150,000	408,675,000
Investment property recognised as held for sale	-	-	-	-	-
Market value net of held for sale at 31 December	227,525,000	88,450,000	53,550,000	39,150,000	408,675,000
Right of use asset recognised on leasehold properties	-	899,572	-	-	899,572
Adjustment for lease incentives	(4,871,218)	(1,986,578)	(888,782)	(610,458)	(8,357,036)
Carrying value at 31 December	222,653,782	87,362,994	52,661,218	38,539,542	401,217,536

The valuations were performed by Knight Frank LLP, 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 Royal Institute of Chartered Surveyors (‘RICS’) requirements on disclosure for Regulated Purpose Valuations has been applied (RICS Valuation – Professional Standards January 2014 published by the Royal Institution of Chartered Surveyors). These valuation models are consistent with the principles in IFRS 13.

	UK Industrial 2021 £	UK Office 2021 £	UK Retail 2021 £	UK Other 2021 £	Total 2021 £
Market value at 1 January	211,200,000	142,695,000	51,150,000	32,650,000	437,695,000
Purchase of investment property	11,690,631	-	50,870	-	11,741,501
Capital expenditure on investment properties	125,634	1,712,322	(35,227)	16,500	1,819,229
Opening market value of disposed investment properties	(9,400,000)	(20,425,000)	(2,650,000)	-	(32,475,000)
Valuation loss from investment properties	58,043,007	1,580,786	7,762,099	3,282,595	70,668,487
Movement in lease incentives receivable	1,905,978	711,892	247,258	100,905	2,966,033
Market value at 31 December	273,565,250	126,275,000	56,525,000	36,050,000	492,415,250
Investment property recognised as held for sale	-	-	-	-	-
Market value net of held for sale at 31 December	273,565,250	126,275,000	56,525,000	36,050,000	492,415,250
Right of use asset recognised on leasehold properties	-	901,129	-	-	901,129
Adjustment for lease incentives	(4,405,288)	(2,921,649)	(808,188)	(667,169)	(8,802,294)
Carrying value at 31 December	269,159,962	124,254,480	55,716,812	35,382,831	484,514,085

The market value provided by Knight Frank at the year end was £408,675,000 (2021: £492,415,250) however an adjustment has been made for lease incentives of £8,357,036 (2021: £8,802,294) that are already accounted for as an asset. In addition, as required under IFRS 16, a right of use asset of £899,572 has been recognised in respect of the present value of future ground rents. As required under IFRS 16 an amount of £899,572 has also been recognised as an obligation under finance leases in the balance sheet.

Valuation methodology.

The fair values 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.

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.

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

	2022 £	2021 £
Opening market value of disposed investment properties	41,350,000	32,475,000
Loss on disposal of investment properties	(207,153)	(634,368)
Net proceeds from disposal of investment properties	41,142,847	31,840,632

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 investment properties.

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 management group that determines the Company’s valuation policies and procedures for property valuations is the Property Valuation Committee as detailed in the full Annual Accounts. The Committee reviews the quarterly property valuation reports produced by the valuers before they are submitted 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 Chair 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 Chair submits an annual report to the Board summarising the Committee’s activities during the year and the related significant results and findings.

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.

As noted above, all investment properties listed in the table below are categorised Level 3 and are all valued using the Income Capitalisation method.

Country & Class 2022	UK Industrial Level 3	UK Office Level 3	UK Retail Level 3	UK Other Level 3	Total
Fair Value 2022 £	227,525,000	88,450,000	53,550,000	39,150,000	408,675,000
Key Unobservable Input 2022	• Initial Yield	• Initial Yield	• Initial Yield	• Initial Yield	• Initial Yield
	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield
	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield
	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft
Range (weighted average) 2022	0.00% to 8.78% (5.20%)	5.10% to 7.90% (6.11%)	4.39% to 8.33% (6.75%)	5.01% to 9.13% (5.98%)
	5.00% to 8.68% (6.35%)	6.25% to 10.45% (8.76%)	5.49% to 7.99% (6.16%)	4.79% to 9.40% (5.85%)
	5.00% to 8.23% (6.26%)	6.15% to 9.25% (8.02%)	5.76% to 9.67% (6.79%)	5.01% to 9.07% (5.87%)
	£4.50 to £9.00 (£6.38)	£17.01 to £45.47 (£26.78)	£8.74 to £30.61 (£15.37)	£6.00 to £20.00 (£14.71)

Country & Class 2021	UK Industrial Level 3	UK Office Level 3	UK Retail Level 3	UK Other Level 3	Total
Fair Value 2021 £	273,565,250	126,275,000	56,525,000	36,050,000	492,415,250
Key Unobservable Input 2021	• Initial Yield	• Initial Yield	• Initial Yield	• Initial Yield	• Initial Yield
	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield	• Reversionary Yield
	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield	• Equivalent Yield
	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft	• Estimated rental value per sq ft
Range (weighted average) 2021	0.00% to 7.49% (4.48%)	2.71% to 6.28% (4.77%)	4.56% to 8.43% (6.18%)	4.57% to 8.10% (5.40%)
	0.00% to 7.72% (5.11%)	5.25% to 9.23% (7.28%)	5.25% to 7.48% (5.83%)	4.39% to 7.90% (5.22%)
	0.00% to 7.00% (5.07%)	5.16% to 8.17% (6.84%)	5.52% to 8.12% (6.40%)	4.62% to 7.90% (5.35%)
	£4.00 to £9.50 (£6.19)	£17.00 to £46.09 (£26.19)	£8.74 to £29.32 (£15.31)	£9.24 to £18.68 (£15.09)

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 overall ERV per annum, area per square foot, average ERV per square foot, initial yield and reversionary yield as at the Balance Sheet date.

	2022	2021
ERV p.a.	£31,048,945	£31,542,350
Area sq ft	3,416,291	3,517,993
Average ERV per sq ft	£9.09	£8.97
Initial Yield	5.7%	4.8%
Reversionary Yield	7.1%	5.8%

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of completed investment property. The Board believes these are reasonable sensitivities given historic movements in valuations.

	2022 £	2021 £
Increase in equivalent yield of 50 bps	(31,086,535)	(41,659,430)
Decrease of 5% in ERV	(15,879,151)	(19,561,811)

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. Land

Valuation methodology.

The Land is held at fair value.

The Group appoints suitable valuers (such appointment is reviewed on a periodic basis) to undertake a valuation of the land on a quarterly basis. The valuation is undertaken in accordance with the then current RICS guidelines by Knight Frank LLP whose credentials are set out in note 7.

Reconciliation of carrying amount	2022	2021
Cost
Balance at the beginning of the year	8,001,550	-
Additions	60,322	8,001,550
Balance at the end of the year	8,061,872	8,001,550
Accumulated depreciation and amortisation
Balance at the beginning of the year	(501,550)	-
Valuation loss from land	(60,322)	(501,550)
Balance at the end of the year	(561,872)	(501,550)
Carrying amount as at 31 December	7,500,000	7,500,000

9. Investments in Subsidiary Undertakings

The Company owns 100 per cent of the issued ordinary share capital of abrdn Property Holdings Limited (formerly known as Standard Life Investments Property Holdings Limited), a company with limited liability incorporated and domiciled in Guernsey, Channel Islands, whose principal business is property investment.

In 2015 the Group acquired 100% of the units in Standard Life Investments SLIPIT Unit Trust, (formerly Aviva Investors UK Real Estate Recovery II Unit Trust) a Jersey Property Unit Trust. The acquisition included the entire issued share capital of a General Partner which held, through a Limited Partnership, a portfolio of 22 UK real estate assets. The transaction completed on 23 December 2015 and the Group has treated the acquisition as a Business Combination in accordance with IFRS 3.

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

· abrdn Property Holdings Limited (formerly known as Standard Life Investments Property Holdings Limited), a property investment company with limited liability incorporated in Guernsey, Channel Islands.

· abrdn (APIT) Limited Partnership (formerly known as Standard Life Investments (SLIPIT) Limited Partnership), a property investment limited partnership established in England.

· abrdn APIT (General Partner) Limited (formerly known as Standard Life Investments SLIPIT (General Partner) Limited), a company with limited liability incorporated in England. This Company is the GP for the Limited Partnership.

· abrdn (APIT Nominee) Limited (formerly known as Standard Life Investments SLIPIT (Nominee) Limited), a company with limited liability incorporated and domiciled in England.

On 20th May 2022, Hagley Road Limited, a subsidiary of the Group, was liquidated.

10. Trade and Other Receivables

	2022 £	2021 £
Trade receivables	6,851,117	8,408,767
Finance incomeless provision for impairment of trade receivables	(2,137,972)	(2,990,034)
Trade receivables (net)	4,713,145	5,418,733
Rental deposits held on behalf of tenants	257,899	65,720
Other receivables	2,486,039	5,539,647
Total trade and other receivables	7,457,083	11,024,100

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

	2022 £	2021 £
Opening balance	(2,990,034)	(2,583,559)
Credit/(charge) for the year	772,947	(556,788)
Reversal for amounts written-off	79,115	150,313
Closing balance	(2,137,972)	(2,990,034)

The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected to be received and approximate 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 at 31 December 2022, trade receivables of £2,137,972 (2021: £2,990,034) were considered impaired and provided for.

If the provision for impairment of trade receivables increased by £1 million then the Company’s earnings

and net asset value would decrease by £1 million. If it decreased by £1 million then the Company’s earnings and net asset value would increase by £1 million.

The ageing of the receivables provided for is as follows:

	2022 £	2021 £
0 to 3 months	(8,203)	(162,132)
3 to 6 months	(251,682)	(451,417)
Over 6 months	(1,878,087)	(2,376,485)
	(2,137,972)	(2,990,034)

As of 31 December 2022, trade receivables of £3,099,355 (2021: £5,418,733) were less than 3 months past due but considered not impaired.

11. Cash and Cash Equivalents

	2022 £	2021 £
Cash held at bank	9,389,992	12,425,768
Cash held on deposit with RBS	6,481,061	1,392,240
	15,871,053	13,818,008

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

	2022 £	2021 £
Trade and other payables	4,655,599	6,488,367
VAT payable	628,960	1,698,995
Deferred rental income	5,337,852	5,365,375
Rental deposits due to tenants	257,899	65,720
Closing balance	10,880,310	13,618,457

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

13. Bank Borrowings

During the year, the Group drew down £17m on the Revolving Credit Facility. This was fully repaid by the end of the year.

	2022 £	2021 £
Loan facility and drawn down outstanding balance	110,000,000	110,000,000
Opening carrying value	109,723,399	109,542,823
Arrangement costs of additional facility	(804,297)	-
Amortisation arrangement costs	204,835	180,576
Closing carrying value	109,123,937	109,723,399

The London Interbank Offer Rate (LIBOR) was one of the main interest rate benchmarks used in financial

markets to determine interest rates for financial contracts globally. In line with announcements from the

Financial Conduct Authority (FCA), 24 of the 35 LIBOR settings ceased from 1 January 2022. The Group took steps, before the date of transition, to ensure that any exposure to LIBOR was identified with actions taken to rebase and redocument any financial contracts where LIBOR was previously used.

This led to minor amendments to operational processes to cater for this change but there was not expected to be a material impact on the assets and liabilities of the Group as a result of the phase out of LIBOR. The switch to the Sterling Overnight Index Average (SONIA) benchmark took effect from the first interest payment date following cessation of LIBOR (20th January 2022).

On 12 October 22 the Group entered into an agreement to extend its existing £165 million debt facility with Royal Bank of Scotland International (“RBSI”). The facility (due to expire on 27 April 2023) consisted of a £110 million term loan payable at 1.375% plus SONIA and two Revolving Credit Facilities (“RCF”) of £35 million payable at 1.45% plus SONIA and £20 million payable at 1.60% plus SONIA. The amended and restated agreement was for a three year term loan of £85 million and a single RCF of £80 million; both payable at 1.5% plus SONIA. The new facility is due to commence on 27 April 2023. As at 31 December 2022 none of the RCF was drawn (2021: £nil); £17m was drawn down during the year however this was fully repaid prior to 31 December 2022.

Analysis of movements in net debt	Cash & cash equivalents	Interest-bearing loans	2022 net debt	Cash & cash equivalents	Interest-bearing loans	2021 net debt
	£	£	£	£	£	£
Opening balance	13,818,008	(109,723,399)	(95,905,391)	9,383,371	(109,542,823)	(100,159,452)
Cash movement	2,053,045	804,297	2,857,342	4,434,637	-	4,434,637
Amortisation of arrangement costs	-	(204,835)	(204,835)	-	(180,576)	(180,576)
Closing balance	15,871,053	(109,123,937)	(93,252,884)	13,818,008	(109,723,399)	(95,905,391)

Under the terms of the loan facilities there are certain events which would entitle RBSI 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 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 RBSI 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. There have been no changes to the covenant requirements as a result of the extension to the facility noted above.

	2022 £	2021 £
Loan amount	110,000,000	110,000,000
Cash	(15,871,053)	(13,818,008)
	94,128,947	96,181,992
Portfolio valuation	416,175,000	499,915,250
LTV percentage	22.6%	19.2%

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 complied with its obligations and loan covenants under its loan agreement.

The loan facility is secured by fixed and floating charges over the assets of the Company and its wholly owned subsidiaries, abrdn Property Holdings Limited and abrdn (APIT) Limited Partnership.

During the year, the Group complied with its obligations and loan covenants under its loan agreement.

The loan facility is secured by fixed and floating charges over the assets of the Company and its wholly

owned subsidiaries, abrdn Property Holdings Limited and abrdn (APIT) Limited Partnership.

14. Interest Rate Swap and Cap

In order to mitigate any interest rate risk linked to their debt facilities, the Group’s policy has been to manage its cash flow using hedging instruments. The following hedging instruments were effective during the year:

14a Existing Interest Rate Swap.

The Group has previously taken out an interest rate swap of a notional amount of £110,000,000 with RBS as part of a refinancing exercise in April 2016. The interest rate swap effective date is 28 April 2016 and has a maturity date of 27 April 2023. Under the swap the Company agreed to receive a floating interest rate linked to SONIA and pay a fixed interest rate of 1.35%.

	2022 £	2021 £
Opening fair value of interest rate swap at 1 January	(568,036)	(3,735,254)
Reclassification of interest accrual	(247,093)	-
Valuation gain on interest rate swaps	1,470,570	3,167,218
Reclassified to Profit & Loss	582,756	-
Closing fair value of interest rate swap at 31 December	1,238,197	(568,036)

	2022 £	2021 £
Current assets/(liabilities)	1,238,197	(546,526)
Non-current assets/(liabilities)	-	(21,510)
Interest rate swap with a start date of 28 April 2016 maturing on 27 April 2023	1,238,197	(568,036)

14b Terminated Interest Rate Swap.

As disclosed in note 13, on 12 October 2022 the Group announced that it had completed an extension of its debt facilities which included an interest rate swap of a notional amount of £85,000,000 (due to commence 27 April 2023). At the time, there was heightened volatility and swap rates were high, exacerbated by political uncertainty, and the all-in cost of the term loan amounted to 6.97%. In light of the change in interest rate environment since completion, the Group took the decision to break the swap at a cost of £3,562,248 on 12 December 2022.

	2022 £	2021 £
Opening fair value of interest rate swap at 1 January	-	-
Valuation loss on interest rate swaps	(3,562,248)	-
Swaps breakage costs	3,562,248	-
Closing fair value of interest rate swap at 31 December	-	-

14c Interest Rate Cap.

Simultaneously to the breaking of the £85,000,000 swap, the Group agreed an interest rate cap against a notional amount of £85,000,000 (due to commence 27 April 2023) with a cap level (SONIA) set at 3.959%. The cost of purchasing this cap was £2,507,177.

	2022 £	2021 £
Opening fair value of interest rate cap at 1 January	-	-
Cost of interest rate cap	2,507,177	-
Valuation gain on interest rate cap	43,292	-
Closing fair value of interest rate cap at 31 December	2,550,469	-

	2022 £	2021 £
Current assets/(liabilities)	339,462	-
Non-current assets/(liabilities)	2,211,007	-
	2,550,469	-

15. Obligations Under Finance Leases

The table below shows the present value of future lease payments in relation to the ground lease payable at Hagley Road, Birmingham as required under IFRS 16. A corresponding asset has been recognised and is part of Investment properties as shown in note 7.

	Minimum lease payments	Interest	Present value of minimum lease payments
	2022	2022	2022
	£	£	£
Less than one year	26,068	(24,468)	1,600
Between two and five years	104,271	(97,426)	6,845
More than five years	2,580,717	(1,689,590)	891,127
Total	2,711,056	(1,811,484)	899,572

	Minimum lease payments	Interest	Present value of minimum lease payments
	2021	2021	2021
	£	£	£
Less than one year	26,068	(24,511)	1,557
Between two and five years	104,271	(97,607)	6,664
More than five years	2,606,785	(1,713,877)	892,908
Total	2,737,124	(1,835,995)	901,129

16. Lease Analysis

The Group has granted leases on its property portfolio. This property portfolio as at 31 December 2022 had an average lease expiry of 5 years and 8 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:

	2022 £	2021 £
Within one year	24,457,032	24,857,300
Between one and two years	21,677,762	22,613,540
Between two and three years	16,236,484	19,869,754
Between three and four years	12,375,936	14,371,388
Between four and five years	8,695,218	10,352,802
More than five years	45,075,463	44,233,215
Total	128,517,895	136,297,999

The largest single tenant at the year end accounts for 6.0% (2021: 6.1%) of the current annual passing rent.

17. 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 2022 there were 381,218,977 ordinary shares of 1p each in issue (2021: 396,922,386). 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:

	2022 £	2021 £
Opening balance	228,383,857	228,383,857
Shares issued	-	-
Issue costs associated with new ordinary shares	-	-
Closing balance	228,383,857	228,383,857

Treasury Shares.

In 2022, the Company undertook a share buyback programme at various levels of discount to the prevailing NAV. In the period to 31 December 2022 15,703,409 shares had been bought back (2021: 7,394,036) at a cost of £12,409,459 after costs (2021: £4,540,630) and are included in the Treasury share reserve.

	2022 £	2021 £
Opening balance	5,991,417	1,450,787
Bought back during the year	12,409,459	4,540,630
Closing balance	18,400,876	5,991,417

The number of shares in issue as at 31 December 2022/2021 are as follows:

	2022 Number of shares	2021 Number of shares
Opening balance	396,922,386	404,316,422
Issued during the year	-	-
Bought back during the year and put into Treasury	(15,703,409)	(7,394,036)
Closing balance	381,218,977	396,922,386

18. Reserves

The detailed movement of the below reserves for the years to 31 December 2022 and 31 December 2021 can be found in the Consolidated Statement of Changes in Equity above.

Retained earnings.

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

During 2021, it was identified that there were historic leases dating back to 2016 where required rent smoothing adjustments had not been applied. The total of these adjustments up to the end of the year ending 31 December 2020 amounted to £1,520,063. Having considered the key financial measures of the Group, and the accumulated profile of this balance, the Directors were satisfied that the appropriate correction was a transfer of the identified adjustment from Capital Reserves to Retained Earnings in the year ended 31 December 2021.

This adjustment had no effect on the previously reported NAVs of the Group.

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.

19. Earnings per Share

Basic earnings per share amounts are calculated by dividing profit 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 2022 this equated to a figure of 97% (2021: 98%).

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	2022 £	2021 £
Surplus for the year net of tax	(51,053,487)	85,732,820
	2022 £	2021 £
Weighted average number of ordinary shares outstanding during the year	389,565,276	398,041,380
Loss/earnings per ordinary share (pence)	(13.11)	21.54
Profit for the year excluding capital items	11,471,770	14,680,188
EPRA earnings per share (p)	2.94	3.69

20. Dividends and Property Income Distributions Gross of Income Tax

	12 months to Dec 22				12 months to Dec 21
Dividends	PID pence	Non-PID pence	Total Pence	PID £		Non-PID £	PID pence	Non-PID pence	Total Pence		PID £	Non-PID £
Quarter to 31 December of prior year (paid in February)	0.7910	0.2090	1.0000	3,139,656		829,568	0.7140	-	0.7140		2,878,508	-
Top-up for prior year (paid in May)	-	-	-	-		-	0.3810	-	0.3810		1,512,274	-
Quarter to 31 March (paid in May)	1.0000	-	1.0000	3,969,224		-	0.8925	-	0.8925		3,542,532	-
Quarter to 30 June (paid in August)	1.0000	-	1.0000	3,860,190		-	0.8925	-	0.8925		3,542,532	-
Quarter to 30 September (paid in November)	0.1806	0.8194	1.0000	688,481		3,123,708	0.2519	0.6406	0.8925		999,848	2,542,685
Total dividends paid	2.9716	1.0284	4.0000	11,657,551		3,953,276	3.1319	0.6406	3.7725		12,475,694	2,542,685
Quarter to 31 December of current year (paid after year end)	-	1.0000	1.0000	-		3,812,190	0.7910	0.2090	1.0000		3,139,656	829,568
Prior year dividends (per above)	(0.7910)	(0.2090)	(1.0000)	(3,139,656)		(829,568)	(0.7140)	-	(0.7140)		(2,878,508)	-
Total dividends paid for the year	2.1806	1.8194	4.0000	8,517,895		6,935,898	3.2089	0.8496	4.0585		12,736,842	3,372,253

On 24 February 2023 a dividend in respect of the quarter to 31 December 2022 of 1.0 pence per share was paid purely as Non Property Income Distribution.

21. 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.

	2022	2021
Number of ordinary shares at the reporting date	381,218,977	396,922,386
	2022 £	2021 £
Total equity per audited consolidated financial statements	323,287,555	400,847,466
NAV per share (p)	84.8	101.0

22. Related Party Disclosure

Directors ’ remuneration

The Directors of the Company are deemed as key management personnel and received fees for their services. Further details are provided in the Directors’ Remuneration Report (unaudited) in the full Annual Accounts. Total fees for the year were £247,603 (2021: £221,742) none of which remained payable at the year end (2021: nil).

abrdn Fund Managers Limited (formerly known as Aberdeen Standard Fund Managers Limited), as the Manager of the Group from 10 December 2018, received fees for their services as investment managers. Further details are provided in note 4.

	2022	2021
Huw Evans	17,124	36,000
Mike Balfour	41,500	40,000
Mike Bane	34,059	-
James Clifton-Brown	50,000	47,000
Jill May	37,000	36,000
Sarah Slater	37,000	36,000
Employers national insurance contribution	22,885	17,338
	239,568	212,338
Directors expenses	8,035	9,404
	247,603	221,742

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. Capital Commitments

The Group had contracted capital commitments at 31 December 2022 of £17.3m (31 December 2021: £11.9m). This comprises the remaining capital expenditure required to complete the pre-let development funding in St Helens (achieved Practical Completion in April 2023), and the committed expenditure for the speculative industrial development in Knowsley. The Knowsley development will commence in April 2023 and is anticipated to complete in December 2023.

25. Events After the Balance Sheet Date

On 23 February 2023, the Company completed the purchase of a piece of land at Knowlsey for £4m with

the aim of developing an industrial site throughout 2023.

On 24 March 2023, the Company completed the purchase of a Morrison’s foodstore in Welwyn Garden City by way of a sale and leaseback for £18.3m.

On 24 February 2023 a dividend in respect of the quarter to 31 December 2022 of 1.0 pence per share was paid purely as Non Property Income Distribution.

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 December 2022. The statutory accounts for the year ended 31 December 2022 received an audit report which was unqualified.

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 – Real Estate Fund Manager, abrdn

Tel:  [phone] or [e-mail]

Mark Blyth – Real Estate Deputy Fund Manager, abrdn

Tel: [phone] or [e-mail]

Craig Gregor - Fund Controller, abrdn

Tel: [phone] or [e-mail]