Half Year Report

17 September 2018

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE HALF YEAR ENDED 30 JUNE 2018

Financial Highlights

- NAV total return of 5.6% for the period ended 30 June 2018, driven by outperforming property portfolio. 

- Share price total return over the period of 2.4% compared to the total return on the FTSE All-Share REIT Index of 1.3% and the FTSE All-Share Index of 1.7% with the Company’s shares trading at a premium to NAV of 3.3% as at 30 June 2018.

- Conservative LTV of 19.0% at period end at an attractive interest rate of 2.7%.

- Dividend cover of 83% over the period but utilisation of financial resources and delivery of successful asset management initiatives should boost earnings and increase dividend cover in the medium term.

- The yield on the Company’s share price as at 30 June 2018 stood at 5.1% which compares favourably to the FTSE All-Share REIT Index (3.9%) and FTSE All-Share Index (3.6%) at the same date.

- 9.5 million shares were issued under the Company’s blocklisting facility generating net proceeds of £8.8 million for investment into the portfolio as well as being accretive to NAV.

- Overall, the Company, with a market capitalisation of £376.5 million as at 30 June 2018, has a secure and growing balance sheet, significant financial resources for investment and an outperforming portfolio of assets. 

Property Highlights

- As at 30 June 2018, the portfolio was valued at £458 million (Dec 2017: £433 million)

- Property total return for the period was 4.7%, ahead of the IPD Quarterly version of Monthly Index total return of 4.2%. The income return of 2.4% from the portfolio continued to outperform the comparative benchmark figure of 2.3% with a capital return of 2.2% also outperforming the benchmark return of 1.8%.

- Portfolio had a 53% weighting to the outperforming industrial sector at the period end with only 14% of the portfolio being in retail assets.

- Void rate of 7.2% at period end with over a third of these being in the Company’s favoured industrial sector.

- Positive rent collection rates of 99% within 28 days highlighting the continued strength of tenant covenants in an environment where income will be the key component of returns going forward.

PERFORMANCE SUMMARY

Earnings & Dividends				30 June 2018	30 June 2017
EPRA earnings per share (excluding capital items & swap movements) (pence per share)				1.98	2.64
Dividends declared per ordinary share (p)				2.38	2.38
Dividend cover (%)*				82.8	110.5
Dividend yield (%)**				5.1	5.3
FTSE Real Estate Investment Trusts Index Yield (%)				3.9	3.6
FTSE All-Share Index Yield (%)				3.6	3.6

Capital Values & Gearing		30 June 2018	31 December 2017	Change %
Total Assets (£million)		483.6	468.8	3.2
Net asset value per share (p)		90.1	87.6	2.9
Ordinary Share Price (p)		93.10	93.25	(0.2)
Share Price Premium to NAV (%)		3.3	6.4
Loan to value (%)***		19.0	18.0

Total Return	6 months % Return	1 Year % Return	3 Year % Return	5 Year % Return
NAV****	5.6	13.4	36.1	109.7
Share Price****	2.4	9.8	30.7	104.6
FTSE All-Share REIT Index	1.3	9.8	9.9	62.7
FTSE All-Share Index	1.7	9.0	31.6	52.8

Property Returns & Statistics %			Period ended 30 June 2018	Period ended 30 June 2017
Property income return			2.4	3.3
IPD benchmark income return			2.3	2.4
Property total return			4.7	5.6
IPD benchmark total return			4.2	4.5
Void rate			7.2	6.7

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

** Based on an annual dividend of 4.76p and the share price at 30 June.

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

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

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

CHAIRMAN’S STATEMENT

I am pleased to report that your Company has continued the positive momentum that has been delivered over the last few years. Over the last six months, the property portfolio has generated above benchmark returns, driven by overweight exposure in the strongly performing industrial sector. This has underpinned a robust NAV total return. In addition, the Company’s shares continue to trade at a healthy premium to both NAV and the wider peer group.

Background

There can be no doubt that the shadow of Brexit and the continued uncertainty surrounding the outcome of these negotiations has now impacted the real economy. Business investment, one of the predominant drivers for GDP growth, has been muted as businesses hold back until the UK’s future trading relationship with the EU is determined. Combined with subdued consumer spending, the growth in the UK economy was among the slowest of the developed nations in the first half of 2018.

Against such a background the performance of the UK real estate market has been positive. At the start of 2018 IPF Consensus expectations for the whole year were for a total return of 4.0%. However, the Company’s benchmark (IPD quarterly version of IPD Monthly Index Funds) has already produced a total return of 4.2% in the first six months of 2018, underlining the resilience of property as an asset class. Capital growth has continued to hold up well with values rising by 1.8% in the period. A strong performance from the industrial sector more than offset weakness in the retail sector which has been affected by a number of administrations and company voluntary arrangements. On the income side, rental growth of 0.6% was recorded, again predominantly driven by the industrial sector, with an overall income return of 2.3% over the last six months.

Positive Performance

The Company has continued its trend of outperformance. The portfolio total return over the first 6 months of 2018 was 4.7% representing a good margin over the benchmark return. The portfolio produced a capital return of 2.2% which was driven by the structure of the portfolio with a deliberately overweight exposure to industrials. This sector now accounts for 53% of the portfolio compared to the benchmark weighting of 26%. The income return of 2.4% also continued to exceed that of the benchmark, underpinned by a tenant base which ranks better than the benchmark for tenant strength. The portfolio performance helped drive a NAV total return of 5.6%, above that of the AIC Direct UK Property Sector return of 3.8%. Gearing helped achieve this return but the level of gearing remained lower than many of our competitors.

The total return to shareholders was 2.4% as the premium that the Company’s shares trade to the NAV narrowed to 3.3% at the period end. However, the continued positive rating of the Company’s shares in the six months, as the demand from investors for attractive, secure income returns continues, allowed the Company to issue 9.5 million shares over the period raising net proceeds of £8.8 million, all at prices accretive to the underlying NAV. As at 31 August the premium over NAV stood at 5.1%.

The Company has also consistently outperformed over the longer term with an NAV total return over five years of 109.7% comparing favourably to the NAV return of the AIC Property Direct Peer Group of 85.4%. Likewise, the share price total return, incorporating dividends, has also outperformed, returning 104.6% over five years compared to the total returns on the AIC Property Direct Peer Group (67.8%), the FTSE All Share REIT Index (62.7%) and the FTSE All-Share Index (52.8%).

Dividends

Dividends totalling 2.38p were paid to shareholders in the period. Based on an annualised dividend of 4.76p and the share price at 30 June 2018, the Company’s shares yielded 5.1%. This yield compares favourably to the yield on the FTSE All-Share REIT and FTSE All-Share Indices (3.9% and 3.6% respectively). Dividend cover was 83% for the first six months of the year as the Investment Manager continued to sell assets that had limited future return prospects and subsequently reinvest in assets that will generate secure income with lower risk. The Board is fully aware of the importance to shareholders of paying out an attractive income. While there will be fluctuations in the level of cover as the portfolio is strengthened, the utilisation of the Company’s financial resources and the proven track record of the manager in delivering successful asset management initiatives, should lead to improved dividend cover over the medium term. This is a key priority for the Board.

Financial Resources

As at 30 June 2018 the Company had a prudent LTV of 19% at a fixed interest rate of 2.73%, highlighting the income accretive nature of the debt when compared to the portfolio initial yield of 5.2%. The Company also had considerable financial resources still available for investment with all of its £35 million revolving credit facility to utilise and uncommitted cash of £10 million at the period end. Overall, the Company has a strong financial base with a solid balance sheet, relatively low gearing and with resources still available for investment.

Outlook

While there are undoubtedly other considerations, the largest element affecting the outlook for the UK economy is the Brexit “end state” and what deal, if any, the UK secures upon leaving the EU. The uncertainty surrounding the outcome has not surprisingly led to muted economic growth forecasts with our Investment Managers forecasting UK GDP growth of 1.4% for 2018 and 1.5% for 2019, significantly below the forecast for the G7 average.

While real estate is not immune to the travails of the real economy, the asset class has continued to grow, albeit slower than in recent years. Underpinning this growth is the fact that the fundamentals of the real estate market are in good shape compared with previous cycles of slowing economic growth. Gearing and vacancy levels remain low by historical standards as does large scale development. The demand for the attractive, secure income streams that real estate continues to provide, means real estate as an asset class is still a good investment proposition. Whilst noting the recent small increase in the base rate, the yield on property is still significantly above bond yields.

Given the above, your Company is in a strong position. While the portfolio is secondary in nature, it is purposely geared towards the favoured Industrial sector, with limited retail exposure. This should stand the portfolio in good stead as the structural shift towards online retailing continues. In addition, 36% of the Company’s total void of 7.2% is in the industrial sector, presenting opportunities to implement successful asset management initiatives to reduce voids and generate income. The Company also remains in a strong financial position with cash resources and low-cost flexible gearing that allows the Company to increase or decrease gearing depending on the opportunities that arise. Finally, the Company pays out an attractive and secure dividend to investors underpinned by a portfolio that has been strengthened over the last 18 months. Overall, I believe your Company is well positioned to continue to build on the strong relative performance delivered in recent years.

Robert Peto
Chairman
14 September 2018

STRATEGIC OVERVIEW

Principal Risks and Uncertainties

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

The Board has carried out an assessment of the risk profile of the Company which concluded that the risks as at 30 June 2018 were not materially different from those detailed in the statutory accounts of the Group for the year ended 31 December 2017.

INVESTMENT MANAGER’S REPORT

UK Real Estate Market

The first half of 2018 has seen a continuation of market forces experienced the previous year, where real estate returns have remained fairly resilient, despite an environment of domestic and global political uncertainty. In the UK, the potential impact of Brexit appears to be having a greater influence, with UK GDP growth lagging, however on a global scale Brexit is still a relatively small event, and overseas money has continued to invest in the UK. Below, we have listed some of the key themes we think are important for the UK real estate market at present.

- The UK economy expanded by 0.4% in the second quarter of the year according to the ONS’ first estimate. It bounced back after a difficult start to 2018 which appeared to have been a largely weather related phenomenon. This is still very low growth.

- In the UK, investors face ongoing indecision from the UK government regarding the Brexit “end state”. Our base case is for a free-trade agreement (FTA) with all- UK customs union and some regulatory devolution to Northern Ireland. The uncertainty around the Brexit outcome has had limited impact on the investment market it appears, but definitely makes occupational transactions slower as companies are less inclined to invest in new premises/expansion.

- Real income growth should start to boost GDP growth, however wage growth remains stubbornly low, and given the uncertainty of the economic outlook perhaps the savings ratio will improve before retail spending.

- Business investment continues to be held back by elevated uncertainty over the UK’s future trading relationship with the EU.

- The rise in oil prices will push the energy component of CPI inflation higher. However, base effects mean that inflation is still expected to fall over the course of the year.

- The Bank of England increased Bank Rate by 25bps in August, as the bounce in data reassured the Bank the first quarter slowdown was largely temporary.

- Difficulties in the retail sector have dominated the headlines over the last few months. This is now being reflected in retail rents which are now falling across the board according to MSCI’s Monthly index. News that half-year profits at John Lewis would be “close to zero” was further evidence of the mounting challenges in the industry.

- At the opposite end of the spectrum, industrial demand remains buoyant and in the supply-starved South East which has pushed rents 2.9% higher over the first half of 2018. Demand is broad-based, with the continued expansion of trade counters and urban logistics uses a feature. Regional rents rose by a more modest 1.0% over the period with more balanced supply and demand.

- London office rents were broadly static and take-up have been propped up by flexible office providers who do not drive net absorption as they seek to find short term occupiers themselves. Take-up in the regional office markets has slowed somewhat over the first half of 2018, although grade ‘A’ stock levels are low in many markets, maintaining some rental tension.

- Across most sectors and locations supply of good quality office and industrial accommodation remains muted. This is due to low levels of new development over the last 10 years compared to previous cycles, combined with a significant change of use from poorer industrial and office accommodation to alternative uses, mainly residential.

- Investment volumes in the first half of 2018 suggest a marginally lower total than the same period in 2017 although there was a noticeable fall in the number of industrial deals compared to the level of transactions in the second half of 2017. This reflects the dearth of stock as investors hold what they have and continue to compete very strongly for assets that do come to market.

- UK institutions were the major net investor in the quarter to 30 June, selling less real estate than any quarter since 2006. Overseas investors were only marginal net investors.  

- The result of the competitive demand has been continued strong capital growth in the industrial sector – 7% for the first half of the year, according to MSCI – which we expect to continue through the rest of 2018 given prices achieved are far outstripping valuations.

- Demand for retail assets across the spectrum remained weak, with very little interest for larger lot sizes, which continues to weigh on the transaction volumes of larger retail parks and shopping centres.

- Activity in the listed sector broadly mirrors the trends we are seeing in the direct market. Industrial stocks are trading at a premium to NAV which is indicative of optimism for sustained capital growth. London office names are still trading at a discount to NAV, but a narrower one, as the expectation has shifted from a market correction to one of stagnation. Negative sentiment around growth prospects means Retail REITs remain at large discounts to NAV.

Investment Outlook

- Investor sentiment and activity continues to illustrate that the hierarchy of sector preference remains largely unchanged. The industrial sector remains the favoured sector call as investors seek to take advantage of the structural shift towards online retailing. This is not expected to change over the near term.

- The alternative sectors remain another sector call favoured by many investors. Typically targeting these sectors for their long, stable inflation-linked leases, alternative sectors remain highly sought-after as we move into an environment of predominantly income led returns. However, the sub-sectors are diverse and the risks associated with these sectors equally so.

- Investors are broadening their investment requirements in the alternative space. Rather than purely seeking defensive long income, investors are more comfortable with operational alternative sectors and their associated diversification benefits. Residential and student accommodation are already firmly established in this regard.

- Our five-year total return forecast for all property is below market consensus. We do not see yield compression contributing positively to total returns going forward. Rather, returns will be driven by income and, as such, a key focus will be appropriate management of income risk at the asset and portfolio level. The focus on income is reflected in our projected sub sector returns which have become more divergent in the short term, with industrials and income-focussed sectors, including the Private Rented Sector, expected to be the strongest performing areas of the market.

Performance

Given the nature of the underlying asset class and the Company you are invested in, it is important to look at performance at four levels; the underlying portfolio against a property benchmark, the NAV total return against the peer group; the share price total return against the market / real estate companies; and finally, given the income focus of the Company, the dividend yield.

Portfolio Level Performance

The underlying property portfolio has continued to perform strongly, driven in part by its sector allocation (heavily over weight to industrial and underweight to retail), but also because of its above average income return and active management. The property level return over the first half of 2018 was 4.7%, compared to the IPD / MSCI quarterly version of the monthly index figure of 4.2%. The portfolio has outperformed the market over every timescale, and is measured by MSCI as having outperformed the benchmark over 12 months and being in the top quartile for performance over three, five and ten years.

NAV Performance

In addition to strong performance from the underlying portfolio the NAV total return is above the asset level return over all time periods. This is in part from the benefit of gearing whilst capital values have risen. The chart below shows how the Company’s NAV total return compares favourably to the peer group.

NAV Total Returns to 30 June 2018	6 months (%)	1 year (%)	3 year (%)	5 year (%)
Standard Life Investments Property Income Trust	5.6	13.4	36.1	109.7
AIC Property Direct - UK sector (weighted average)	3.8	9.1	28.8	85.4
Investment Association Open Ended Commercial Property Funds sector	2.6	6.6	13.0	39.1
Company's ranking in AIC Property Direct sector (out of 13)	3	3	2	2

Source: Winterflood Securities, Aberdeen Standard Investments

Share Price Total Return to 30 June 2018

Of all the measures reported here the share price total return is the one the investment manager has the least control over in the shorter term. Your Company has consistently traded on a wider premium than the sector average over the reporting period, perhaps reflecting the higher dividend yield. This has resulted in strong share price performance over the six month period as well as over the longer term.

Share Price Total Returns		6 months (%)	1 year (%)	3 year (%)	5 year (%)
Standard Life Investments Property Income Trust		2.4	9.8	30.7	104.6
FTSE All-Share Index		1.7	9.0	31.6	52.8
FTSE All-Share REIT Index		1.3	9.8	9.9	62.7
AIC Property Direct - UK sector (weighted average)		5.1	4.6	20.5	67.8

Source: Winterflood Securities, Aberdeen Standard Investments

Dividend Yield

The Company’s main focus is on providing its investors with an attractive income return. In order to do this, with the discipline of a covered dividend policy in the medium term, it is important that the Company maintains a high income level from its portfolio.

The Board and Investment Manager seek to maintain a covered dividend, however this has not been possible during the first half of 2018, mainly due to holding larger than normal levels of cash following sales, and it taking longer than expected to reinvest into income producing assets. The void level is also slightly higher than last year with several properties becoming vacant on lease expiry.

Portfolio Valuation

The investment portfolio is valued quarterly by Knight Frank. As at 30 June 2018 the portfolio comprised 56 properties valued at a total of £458.0m with a cash balance of £23.2m. This compares to 56 properties valued at a total of £418.1m with a cash balance of £26.7m as at 30 June 2017.

Investment Strategy

The Company remains focused on delivering an attractive income to investors through investing in a diversified portfolio of UK commercial real estate assets. We target assets that are well located, and are in good condition, which we believe will appeal to occupiers. We aim to actively manage the assets to renew and extend leases to give the Company a sustainable and predictable income.

With continued uncertainty in capital markets, and an expectation tenant demand could dampen over the next 12 months as people adopt a wait and see attitude, we are focussed on understanding our tenants requirements and trying to address lease events early. If we believe a property will appeal to other investors and has a significant void risk or capex requirement then we will consider a sale to reduce that risk, however we still believe that having good quality buildings in strong locations means we can retain tenants and increase income.

Portfolio Allocation

The Company is invested in a portfolio of commercial real estate assets that provide it with diversification by asset, asset type, and income source.

The focus on income has led for several years to an overweight position in the industrial sector, and we have increased this further over the last 12 months. As at the end of June 2018 the Company had 52.7% of its portfolio invested in the industrial sector (industrial is a wide ranging term and includes logistics as well as light manufacturing), with 29.1% invested in offices and only 14.2% invested in the retail sector. Also, 4% of the fund is invested in what is classified as “other”, in our case being leisure and a data centre. Our office portfolio is focussed on the south east, however at the end of the reporting period we did purchase a multi let office in the City of London as we believed the asset will perform well in the future and had an attractive entry price.

The regional allocation has a bias towards the South East, especially in the office sector, with a greater focus on the East and West Midlands for industrial/ logistics. We have no exposure to Wales currently, and only a small exposure to Scotland.

Investment Activity

Purchases

During the reporting period the Company completed five purchases:

- Timbmet, Shellingford - The Company acquired a 200,000 sq ft distribution facility as a sale and leaseback to provide a 25 year lease with indexation at an initial yield of 6.5%. The property is located between Oxford and Swindon and provides the tenant with cost effective accommodation with good access to the national motorway network.

- Grand National Retail Park, Aintree - The name is a bit misleading on this purchase as it is in fact a leisure scheme with a Pure Gym, Premier Inn hotel, KFC, and Toby Carvery. The property is located adjacent to the race course, and offers scope for asset management. The purchase price of £6.125m reflected a yield of 6.8%.

- Flamingo Flowers, Sandy - The Company acquired a 125,000 sq ft industrial facility used for the preparation and distribution of cut flowers for £6m and at a yield of 6.25%. The property is let for a further 19 years, with indexation, and is let off a low rent of £3.17per sq ft. The location is adjacent to a junction of the A1, just 35 miles north of the M25.

- 15 Basinghall St, London – The Company acquired a City office building where 20% of the income is derived from two retail units, and two of the five office floors are vacant. The property is located close to Bank tube station, and offers asset management opportunities. The purchase price reflected an initial yield of 7% with a rental guarantee on the vacant space.

- Building 3300 Birmingham Business Park – The Company increased its exposure to the “other“ sector with the purchase of a data centre on the outskirts of Birmingham. The property was acquired by way of a sale and leaseback with a 20 year lease (tenant break in year 14 and two rights to renew for a further 10 years) and benefits from annual indexed rental increases and a very large power supply. The purchase price reflected an initial yield of 5.75%.

After the reporting period the Company also acquired:

- Shield Engineering, Burton Latimer – An industrial unit used for high end aluminium moulding located close to Kettering. The property was acquired by way of a sale and leaseback on a 20 year lease with indexation at an initial yield of 7.15%.

- Speedyhire, Cambuslang - After the reporting period the Company exchanged on the purchase of a single let logistics unit of 61,200 sq ft. The property is let for a further 5 years and is located in a prominent position close to junction 2A of the M74, and has a low site cover of 26%. The purchase price of £5.03 million reflects an initial yield of 5.9% however on settlement of an outstanding rent review the yield is expected to move to 6.75%.

Sales

The Company completed the sale of three assets in the reporting period.

- Elstree Tower, Borehamwood – The Company sold the single let office for £20m (valuation £18m). The property was let to the single largest tenant in the portfolio, with a tenant break in 2020 and the potential need for significant capex. The sale enabled the Company to reduce future void and capex risk whilst realising a profit.

- Bathgate Retail Pak, Bathgate – A small edge of town centre retail park let to three good tenants but with short leases, and concern over future occupancy. The property was sold for £5.2m.

- Charter Court, Slough – Multi let office with some vacancy and need for significant capex on lease expiry. The sale price of £13.25m was ahead of valuation.

Asset Management

Asset management is an essential tool for delivering returns. We aim to build relationships with our tenants in advance of any lease event to understand their requirements and secure their future occupation. During the reporting period a total of seven new lettings were completed securing £1.13m pa of rent, and a further six leases were renegotiated to extend the term, securing a further £705,000pa of rent.

The use of CVAs by retailers to get out of lease commitments or cut their rent has been widely reported in the media this year. In the year to date the Company has not experienced any tenant entering into a CVA, although two retail tenants have gone into administration – Maplin and Poundworld. Both represented relatively small amounts of total rent. In the case of the Maplin unit we have agreed terms with another party after getting proposals from two retailers, and the Poundworld unit has interest from three retailers. These are good examples of having the type of property that tenants want to occupy.

Vacant property in the portfolio is a double-edged sword, as it does not provide any income, (in fact with costs such as rates the income is negative), however it often gives an opportunity to relet the property at a higher rent than if the existing tenant remained. It is important to get this balance right and to own property that will relet well. Some of the more recent purchases have included part vacancy, with approximately one third of the current voids having been purchased in the last 12 months. The void rate at the end of the reporting period was 7.2%, as detailed below, and is spread across only 12 units.

Property Name	Sector	Area (sq.m)	ERV	ERV%	Comment
Let		360,617	£29,360,441	92.81%
Vacant		16,747	£2,275,259	7.19%
Unit 6, Broadgate, Oldham	Industrial	9,625	£544,000	1.72%	Terms agreed for sale
Explorer 1 & 2, Crawley	Office	1,339	£377,132	1.19%	1 of 3 floors under offer (completed after quarter end)
Pinnacle, Reading	Office	1,070	£317,750	1.00%	Interest in part
15 Basinghall Street, London	Office	605	£310,910	0.98%	New purchase
The Kirkgate, Epsom	Office	1,147	£308,500	0.98%	Refurbishment underway, terms out to two parties
Foxholes Business Park, Hertford	Industrial	1,113	£177,400	0.56%	1 of 4 units under offer
One Station Square, Bracknell	Office	512	£126,750	0.40%	Limited interest to date
Kings Business Park, Bristol	Industrial	541	£45,000	0.14%	Recently refurbished, interest from adjacent tenant
Broadoak Business Park, Manchester	Industrial	382	£30,817	0.10%	Under offer
Budbrooke Industrial Estate, Warwick	Industrial	131	£15,000	0.05%	Under offer
Howard Town Retail Park, Glossop	Retail	261	£14,000	0.04%
New Palace Place, London	Office	21	£8,000	0.03%
Total		377,364	£31,635,700	100.00%

Debt

The Company has two debt facilities from RBS. The first is a £110m term loan, which is due to expire in April 2023, along with a revolving credit facility (RCF) of £35m, which expires on the same date.

At the reporting date the RCF was undrawn.

At 30 June 2018 the LTV for the Company was 19.0% (with a bank covenant of 60%). The all in cost at that date was 2.73%.

Jason Baggaley
Fund Manager

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Interim Management Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

- The condensed Unaudited Consolidated Financial Statements have been prepared in accordance with IAS 34; and

- The Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority’s Disclosure and Transparency Rules.

- In accordance with 4.2.9R of the Financial Conduct Authority’s Disclosure and Transparency Rules, it is confirmed that this publication has not been audited or reviewed by the Company’s auditors.

The Interim Report, for the six months ended 30 June 2018, comprises an Interim Management Report in the form of the Chairman’s Statement, the Investment

Manager’s Report, the Directors’ Responsibility Statement and a condensed set of Unaudited Consolidated Financial Statements. The Directors each confirm to the best of their knowledge that:

a. the Unaudited Consolidated Financial Statements are prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

b. the Interim Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties faced.

For and on behalf of the Directors of Standard Life Investments Property Income Trust Limited

Approved by the Board on
14 September 2018
Robert Peto
Chairman

FINANCIAL STATEMENTS

Unaudited Consolidated Statement of Comprehensive Income
for the period ended 30 June 2018

	Notes	1 Jan 18 to 30 Jun 18 £	1 Jan 17 to 30 Jun 17 £	1 Jan 17 to 31 Dec 17 £
Rental income		13,402,210	14,794,656	28,541,413
Valuation surplus from investment properties	3	8,628,067	9,501,318	23,174,903
Surplus/(deficit) on disposal of investment properties		995,922	(470,987)	(138,237)
Investment management fees	2	(1,661,767)	(1,536,615)	(3,136,218)
Valuers fees		(38,184)	(34,686)	(71,844)
Auditor’s fees		(37,250)	(34,622)	(74,500)
Directors fees and expenses		(100,999)	(97,315)	(194,011)
Other direct property expenses		(1,788,188)	(976,737)	(1,848,130)
Other administration expenses		(211,758)	(232,431)	(434,466)
Operating surplus		19,188,053	20,912,581	45,818,910
Finance income		51,302	746	2,752
Finance costs		(1,670,862)	(1,670,820)	(3,356,428)
Surplus for the period before taxation		17,568,493	19,242,507	42,465,234
Taxation
Tax charge		-	-	-
Surplus for the period, net of tax		17,568,493	19,242,507	42,465,234
Other Comprehensive Income
Valuation surplus on cash flow hedge		1,373,850	969,520	1,317,743
Total other comprehensive surplus		1,373,850	969,520	1,317,743
Total comprehensive surplus for the period, net of tax		18,942,343	20,212,027	43,782,977
Earnings per share		pence	pence	pence
Basic and diluted earnings per share	5	4.38	4.98	10.91
Adjusted (EPRA) earnings per share		1.98	2.64	4.99

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

Unaudited Consolidated Balance Sheet
as at 30 June 2018

	Notes	30 Jun 18 £	30 Jun 17 £		31 Dec 17 £
ASSETS
Non-current assets
Investment properties	3	443,256,957	385,014,067		404,252,083
Lease incentives	3	3,478,043	3,965,933		3,657,917
Rent deposits held on behalf of tenants		961,978	1,162,161		995,942
		447,696,978	390,142,161		408,905,942
Current assets
Investment properties held for sale	4	11,250,000	29,080,000		25,300,000
Trade and other receivables		1,401,392	1,696,084		20,256,944
Cash and cash equivalents		23,203,967	26,685,541		14,334,504
		35,855,359	57,461,625		59,891,448
Total assets		483,552,337	447,603,786		468,797,390
LIABILITIES
Current liabilities
Trade and other payables		8,416,847	8,425,360		10,451,289
Interest rate swap	8	252,383	1,040,745		887,699
		8,669,230	9,466,105		11,338,988
Non-current liabilities
Bank borrowings	9	109,148,606	109,075,233		109,107,044
Interest rate swap	8	618,566	1,552,277		1,357,100
Rent deposits due to tenants		961,978	1,162,161		995,942
		110,729,150	111,789,671		111,460,086
Total liabilities		119,398,380	121,255,776		122,799,074
Net assets		364,153,957	326,348,010		345,998,316
EQUITY
Capital and reserves attributable to Company’s equity holders
Share capital		226,001,857	211,762,335		217,194,412
Retained earnings		6,714,960	8,500,932		8,364,603
Capital reserves		33,598,768	8,246,371		22,600,929
Other distributable reserves		97,838,372	97,838,372		97,838,372
Total equity		364,153,957	326,348,010		345,998,316
NAV per share		90.1	83.9		87.6
EPRA NAV per share		90.3	84.6		88.2

Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2018

		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance at 01 January 2018		217,194,412	8,364,603	22,600,929	97,838,372	345,998,316
Surplus for the period		-	17,568,493	-	-	17,568,493
Other comprehensive surplus		-	-	1,373,850	-	1,373,850
Total comprehensive surplus for the period		-	17,568,493	1,373,850	-	18,942,343
Ordinary shares issued net of issue costs		8,807,445	-	-	-	8,807,445
Dividends paid	7	-	(9,594,147)	-	-	(9,594,147)
Valuation surplus from investment properties	3	-	(8,628,067)	8,628,067	-	-
Surplus on disposal of investment properties	3	-	(995,922)	995,922	-	-
Balance at 30 June 2018		226,001,857	6,714,960	33,598,768	97,838,372	364,153,957
		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance at 01 January 2017		204,820,219	7,532,448	(1,753,480)	97,838,372	308,437,559
Surplus for the period		-	19,242,507	-	-	19,242,507
Other comprehensive surplus		-	-	969,520	-	969,520
Total comprehensive surplus for the period		-	19,242,507	969,520	-	20,212,027
Shares issued net of issue costs		6,942,116	-	-	-	6,942,116
Dividends paid	7	-	(9,243,692)	-	-	(9,243,692)
Valuation surplus from investment properties		-	(9,501,318)	9,501,318	-	-
Deficit on disposal of investment properties	3	-	470,987	(470,987)	-	-
Balance at 30 June 2017		211,762,335	8,500,932	8,246,371	97,838,372	326,348,010

		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance at 01 January 2017		204,820,219	7,532,448	(1,753,480)	97,838,372	308,437,559
Surplus for the year		-	42,465,234	-	-	42,465,234
Other comprehensive surplus		-	-	1,317,743	-	1,317,743
Total comprehensive surplus for the year		-	42,465,234	1,317,743	-	43,782,977
Shares issued net of issue costs		12,374,193	-	-	-	12,374,193
Dividends paid	7	-	(18,596,413)	-	-	(18,596,413)
Valuation surplus from investment properties		-	(23,174,903)	23,174,903	-	-
Deficit on disposal of investment properties	3	-	138,237	(138,237)	-	-
Balance at 31 December 2017		217,194,412	8,364,603	22,600,929	97,838,372	345,998,316

Unaudited Consolidated Cash Flow Statement
for the period ended 30 June 2018

	Notes	1 Jan 18 to 30 Jun 18 £	1 Jan 17 to 30 Jun 17 £	1 Jan 17 to 31 Dec 17 £
Cash flows from operating activities
Surplus for the period before taxation		17,568,493	19,242,507	42,465,234
Movement in non-current lease incentives		(396,485)	41,416	(114,820)
Movement in trade and other receivables		18,889,516	(134,488)	(18,529,129)
Movement in trade and other payables		(2,068,406)	(133,364)	1,726,346
Finance costs		1,670,862	1,670,820	3,356,428
Finance income		(51,302)	(746)	(2,752)
Valuation surplus from investment properties	3	(8,628,067)	(9,501,318)	(23,174,903)
(Surplus)/deficit on disposal of investment properties	3	(995,922)	470,987	138,237
Net cash inflow from operating activities		25,988,689	11,655,814	5,864,641
Cash flows from investing activities
Interest received		51,302	746	2,752
Purchase of investment properties		(50,212,474)	(11,285,362)	(50,012,676)
Capital expenditure on investment properties	3	(2,936,163)	(1,394,736)	(2,187,601)
Net proceeds from disposal of investment properties	3	38,395,922	33,554,013	72,086,763
Net cash (outflow)/inflow from investing activities		(14,701,413)	20,874,661	19,889,238
Cash flows from financing activities
Proceeds on issue of ordinary shares		8,874,000	6,994,575	12,467,700
Transaction costs of issue of shares		(66,555)	(52,459)	(93,507)
Repayment of RCF		-	(15,000,000)	(15,000,000)
Bank borrowing arrangement costs		(52,500)	-	(55,000)
Interest paid on bank borrowing		(1,167,133)	(1,052,219)	(2,089,843)
Payments on interest rate swap		(411,478)	(545,196)	(1,106,369)
Dividends paid to the Company’s shareholders		(9,594,147)	(9,243,692)	(18,596,413)
Net cash outflow from financing activities		(2,417,813)	(18,898,991)	(24,473,432)
Net increase in cash and cash equivalents		8,869,463	13,631,484	1,280,447
Cash and cash equivalents at beginning of period		14,334,504	13,054,057	13,054,057
Cash and cash equivalents at end of period		23,203,967	26,685,541	14,334,504

Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2018

1 Accounting Policies

The Unaudited Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) IAS 34 ‘Interim Financial Reporting’ and, except as described below, the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2017. The condensed Unaudited Consolidated Financial Statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 December 2017, which were prepared under full IFRS requirements.

2 Related Party Disclosures

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

Investment manager

On 19 December 2003 Standard Life Investments (Corporate Funds) Limited (“the Investment Manager”) was appointed as Investment Manager to manage the property assets of the Group. A new Investment Management Agreement (“IMA”) was entered into on 7 July 2014, appointing the Investment Manager as the AIFM (“Alternative Investment Fund Manager”).

Under the terms of the current IMA, the Investment Manager is entitled to receive fees of 0.75% of total assets up to £200 million; 0.70% of total assets between £200 million and £300 million; and 0.65% of total assets in excess of £300 million. The total fees charged for the period ended 30 June 2018 amounted to £1,661,767 (period ended 30 June 2017: £1,536,615). The total amount due and payable at the period end amounted to £834,388 excluding VAT (period ended 30 June 2017: £775,590 excluding VAT).

3 Investment Properties

Country	UK	UK	UK	UK
Class	Industrial	office	Retail	Other	Total
	30 Jun 18	30 Jun 18	30 Jun 18	30 Jun 18	30 Jun 18
Market value at 1 January	213,135,000	150,450,000	69,625,000	-	433,210,000
Purchase of investment properties	18,226,370	12,740,385	-	19,245,719	50,212,474
Capital expenditure on investment properties	1,033,283	1,795,707	2,987	104,186	2,936,163
Opening market value of disposed investment properties	-	(32,100,000)	(5,300,000)	-	(37,400,000)
Valuation surplus/(deficit) from investment properties	8,578,170	178,398	705,235	(833,736)	8,628,067
Movement in lease incentives receivables	347,177	25,510	(33,222)	58,831	398,296
Market value at 30 June	241,320,000	133,090,000	65,000,000	18,575,000	457,985,000
Investment property recognised as held for sale	(11,250,000)	-	-	-	(11,250,000)
Market value net of held for sale at 30 June	230,070,000	133,090,000	65,000,000	18,575,000	446,735,000
Adjustment for lease incentives	(1,440,296)	(1,159,288)	(819,628)	(58,831)	(3,478,043)
Carrying value at 30 June	228,629,704	131,930,712	64,180,372	18,516,169	443,256,957

The market value provided by Knight Frank LLP at the period ended 30 June 2018 was £457,985,000 (30 June 2017: £418,060,000) however an adjustment has been made for lease incentives of £3,478,043 (30 June 2017: £3,965,933) that are already accounted for as an asset.

In the unaudited consolidated Cash Flow Statement, surplus/(deficit) from disposal of investment properties comprise:

	1 Jan 18 to 30 Jun 18	1 Jan 17 to 30 Jun 17	1 Jan 17 to 31 Dec 17
Opening market value of disposed investment properties	37,400,000	34,025,000	72,225,000
Surplus/(deficit) on disposal of investment properties	995,922	(470,987)	(138,237)
Net proceeds from disposed investment properties	38,395,922	33,554,013	72,086,763

4 Investment Properties Held For Sale

As at the 30 June 2018 the Group was actively seeking a buyer for the following property:

- 3B–C Michigan Drive, Milton Keynes

5 Earnings Per Share

The earnings per Ordinary share are based on the net profit for the period of £17,568,493 (30 June 2017: £19,242,507) and 401,011,552 (30 June 2017: 386,333,375) ordinary shares, being the weighted average number of shares in issue during the period.

Earnings for the period to 30 June 2018 should not be taken as a guide to the results for the year to 31 December 2018.

6 Investment in Subsidiary Undertakings

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

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

The group undertakings consist of the following 100% owned subsidiaries at the Balance Sheet Date:

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

- Standard Life Investments (SLIPIT) Limited Partnership, a limited partnership established in England.

- Standard Life Investments SLIPIT (General Partner) Limited, a company with limited liability incorporated in England.

- Standard Life Investments SLIPIT (Nominee) Limited, a company with limited liability incorporated and domiciled in England.

7 Dividends and Property Income Distribution Gross of Income Tax

		30 Jun 18	30 Jun 17	31 Dec 17
		£	£	£
Non Property Income Distributions
0.84p per ordinary share paid in March 2017 relating to the quarter ending 31 December 2016		-	3,258,910	3,258,910
Property Income Distributions
0.35p per ordinary share paid in March 2017 relating to the quarter ending 31 December 2016		-	1,357,879	1,357,879
1.19p per ordinary share paid in May 2017 relating to the quarter ending 31 March 2017		-	4,626,903	4,626,903
1.19p per ordinary share paid in August 2017 relating to the quarter ending 30 June 2017		-	-	4,665,723
1.19p per ordinary share paid in November 2017 relating to the quarter ending 30 September 2017		-	-	4,686,998
1.19p per ordinary share paid in March 2018 relating to the quarter ending 31 December 2017		4,797,073	-	-
1.19p per ordinary share paid in May 2018 relating to the quarter ending 31 March 2018		4,797,074	-	-
		9,594,147	9,243,692	18,596,413

A property income dividend of 1.19p per share was declared on 7 August 2018 in respect of the quarter to 30 June 2018 – a total payment of £4,811,949. This was paid on 31 August 2018.

8 Financial Instruments and Investment Properties

Fair values

The fair value of financial assets and liabilities is not materially different from the carrying value in these financial statements.

Fair value hierarchy

The following table shows an analysis of the fair values of investment properties recognised in the balance sheet by the level of the fair value hierarchy:

30 June 2018	Level 1	Level 2	Level 3	Total fair value
Investment properties	-	-	457,985,000	457,985,000

The lowest level of input is the underlying yields on each property which is an input not based on observable market data.

The following table shows an analysis of the fair values of financial instruments recognised in the balance sheet by the level of the fair value hierarchy:

30 June 2018	Level 1	Level 2	Level 3	Total fair value
Loan facilities	-	110,428,272	-	110,428,272

The lowest level of input is the interest rate payable on each borrowing which is a directly observable input.

30 June 2018	Level 1	Level 2	Level 3	Total fair value
Interest rate swap	-	870,949	-	870,949

Of the figure above, £252,383 is included within current liabilities and £618,566 is included within non-current liabilities. The lowest level of input is the three month LIBOR yield curve which is a directly observable input.

There were no transfers between levels of fair value hierarchy during the six months ended 30 June 2018.

Explanation of the fair value hierarchy:

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

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

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

The fair value of investment properties is calculated using unobservable inputs as described in the annual report and accounts for the year ended 31 December 2017.

Sensitivity of measurement to variance of significant unobservable inputs:

- A decrease in the estimated annual rent will decrease the fair value.

- An increase in the discount rates and the capitalisation rates will decrease the fair value.

- There are interrelationships between these rates as they are partially determined by the market rate conditions.

- The fair value of the derivative interest rate swap contract is estimated by discounting expected future cash flows using current market interest rates and yield curves over the remaining term of the instrument.

The fair value of the loan facilities are estimated by discounting expected future cash flows using the current interest rates applicable to each loan.

9 Bank Borrowings

On 28 April 2016 the Group entered into an agreement to extend £145 million of its existing £155 million debt facility with RBS. The debt facility consists of a £110 million seven year term loan facility and a £35 million five year RCF. The RCF may by agreement be extended by one year on two occasions. As at 30 June 2018, none of the RCF was drawn down.

On 20 May 2018, the Group extended the RCF by two years to expire in line with the term loan with the margin on the RCF now at LIBOR plus 1.45%. Interest is payable on the Term Loan at 3 month LIBOR plus 1.375% which equates to a fixed rate of 2.725% on the Term Loan.

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

10 Events After the Balance Sheet Date

Purchases

On 4 July 2018, the Group completed the purchase of an industrial unit, close to Kettering for £8.1 million excluding costs.

On 10 September 2018 the Group exchanged on the purchase of Speedyhire, a logistics unit in Cambuslang.

Dividends

On 7 August 2018, the Company declared a property income dividend in respect of the quarter to 30 June 2018 of 1.19pence per share which was paid on 31 August 2018.

Share Issues

During the period from 1 July 2018 to 14 September 2018 the Group has raised £1.4 million through the issue of 1.5 million new ordinary shares.

The Interim Report and Unaudited Consolidated Condensed Financial Statements for the period from 1 January 2018 to 30 June 2018 will shortly be available for download from the Company’s website hosted by the Investment Manager (www.slipit.co.uk).

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

All enquiries to:

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

Jason Baggaley
Aberdeen Standard Investments Limited
Tel: [phone]

Graeme McDonald
Aberdeen Standard Investments Limited
Tel: [phone]

END