Results Half Year Ended 30.06.19

18 September 2019

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE HALF YEAR ENDED 30 JUNE 2019

Financial Highlights

• NAV total return of 2.7% for the period ended 30 June 2019, generated by like for like portfolio growth combined with profits on sales of assets and strong income generation.  

• Share price total return of 18.9% in period compared to FTSE All Share REIT Index total return of 9.7% and FTSE All-Share Index total return of 13.0%.

• Prudent LTV of 23.4% at period end remains one of the lowest in the peer group and wider REIT sector.

• Dividend cover of 101% over the period which equates to EPRA earnings per share of 2.42p, an increase of 22% compared to first six months of 2018.

• The Company has unutilised Revolving Credit Facility of £37 million available for investment in opportunities that may arise.

• Dividend yield of 5.1% based on a period end share price of 94.2p compares favourably to FTSE All-Share REIT Index yield of 4.5% and FTSE All-Share Index yield of 4.1%

Property Highlights

• Property total return for the period was 3.3%, significantly ahead of the MSCI IPD benchmark total return of 0.9% as strategic overweight position to industrial sector
  and successful asset management initiatives continued to drive strong portfolio outperformance.
   
• Portfolio had a 52.8% weighting to the outperforming industrial sector at the period end with only 9% of the portfolio being in retail assets.
   
• Occupancy rate of 93.7%, as successful asset management initiatives and strategic sales continued to maintain high occupancy levels compared to  benchmark occupancy of 92.8%.

• Six new lettings securing £970,000 per annum in rent and restructured four leases to secure longer tem income on £242,000 per annum of rent

• Positive rent collection rates of 99% within 21 days (excluding tenants in administration and on repayment plans) for first six months of 2019.

PERFORMANCE SUMMARY

Earnings & Dividends				30 June 2019	30 June 2018
EPRA earnings per share (excluding capital items & swap movements) (p)				2.42	1.98
Dividends declared per ordinary share (p)				2.38	2.38
Dividend cover (%)*				101.5	82.8
Dividend yield (%)**				5.1	5.1
FTSE All-Share Real Estate Investment Trusts Index Yield (%)				4.5	3.9
FTSE All-Share Index Yield (%)				4.1	3.6

Capital Values & Gearing		30 June 2019	31 December 2018		Change %
Total Assets (£million)		514.3		512.2	0.4
Net asset value per share (p)		91.1		91.0	0.1
Ordinary Share Price (p)		94.2		81.1	16.2
Premium/ (Discount) to NAV (%)		3.4		(10.9)
Loan to value (%)***		23.4		24.4

Total Return	6 months % return	1 Year % return	3 Year % return	5 Year % return
NAV****	2.7	6.5	31.4	71.6
Share Price****	18.9	6.5	39.4	61.6
FTSE All-Share Real Estate Investment Trusts Index	9.7	(5.2)	13.6	24.5
FTSE All-Share Index	13.0	0.6	29.5	35.8

Property Returns & Statistics %			30 June 2019	30 June 2018
Property income return			2.7	2.4
MSCI IPD benchmark income return			2.3	2.3
Property total return			3.3	4.7
MSCI IPD benchmark total return			0.9	4.2
Void rate			6.3	7.2

* 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 2019.

*** 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, MSCI Investment Property Databank (“IPD”)

CHAIRMAN’S STATEMENT

Background

In what has been the theme for over three years, the UK continues to be gripped by political uncertainty. The Conservative Party election of a new leader, and therefore Prime Minister, and his promise to leave the European Union by 31 October 2019 may at least clarify matters one way or another. However, there remains uncertainty as at to how this situation will evolve.

Despite all of the uncertainty, the economy has proved remarkably resilient through this period but the holding back of planned investment until the political situation becomes clearer, combined with headwinds caused by the US/China trade dispute, has resulted in an economy that is now stagnating and on the verge of technical recession.

Against this background, UK commercial real estate, even with a continuing fall in investment volumes, has held up well producing positive returns over the first half of 2019. The Company’s benchmark (Quarterly version of MSCI IPD Monthly Index Funds) produced a total return of 0.9% over this six month period as declining capital values of 1.3% were more than offset by the attractive income returns of 2.3% that the UK commercial real estate market continues to generate. The polarisation of the industrial and retail sectors continued apace with industrials producing a total return of 3.3% compared to the retail total return of -2.5%, a trend that suits your Company given its overweight position to industrials and low weighting to retail. Offices also produced a positive total return of 1.9% underpinned by take up from flexible office providers.

Continued Portfolio and Corporate Outperformance

The Company continued to produce positive performance during the six months to 30 June 2019 at both a portfolio and corporate level. The portfolio delivered a total return of 3.3%, significantly above that of the benchmark. The portfolio also delivered positive capital performance of 0.6%, as the 52.8% exposure to the industrial sector (benchmark – 29.5%) and 9.0% exposure to the poorly performing retail sector (benchmark – 30.2%) provided a structural tailwind to performance with the Company’s office portfolio broadly static. On the income side, the portfolio delivered an income return of 2.7%, again in excess of the benchmark, underpinned by a strong tenant base that has paid 99% of rent due within 21 days.

These returns, combined with the prudent use of the Company’s flexible gearing in the period helped deliver a NAV total return of 2.7% (the EPRA NAV total return excluding the movement in the swap liability was higher at 3.2%).

The Company’s share price also improved over the six month period as the shares traded at a premium to NAV of 3.4% as at 30 June 2019 compared to a 10.9% discount as at 31 December 2018. This resulted in a share price total return of 18.9% over the period compared to 13.0% from the FTSE All- Share Index and 9.7% from the FTSE All-Share REIT Index.

Over the longer term the Company has also delivered outperformance with a NAV total return over five years of 71.6%, in excess of the AIC Direct Property sector weighted average return of 52.6%. The share price total return of 61.6% compares to the FTSE All- Share Index return of 35.8% and the FTSE All-Share REIT Index of 24.5%.

Earnings and Dividends

As mentioned in the Annual Report to 31 December 2018, a key focus of the Board is income generation in order to support dividend cover. It is therefore pleasing to report that EPRA earnings per share for the six month period were 2.42p compared to 1.98p at this point in 2018. This equates to dividend cover for the six months of 101% as a number of successful asset management initiatives were completed with the occupancy rate of the portfolio now standing at 93.7%. While there will undoubtedly be fluctuations in earnings as assets are bought and sold and leases expire, the Board is encouraged that earnings and hence dividend cover has improved in the period.

Dividends totalling 2.38p per share were paid to shareholders in the period. Based on an annualised dividend of 4.76p and the share price at 30 June 2019 of 94.2p, the Company’s shares yielded 5.1%. This yield compares favourably to the yield on the FTSE All-Share and FTSE All-Share REIT Indices (4.1% and 4.5% respectively).

Financial Resources

As at 30 June 2019, the Company’s LTV was a prudent 23.4% which is towards the lower end of the Company’s peer group and also the wider REIT sector. The Company’s debt profile is now made up of a £110 million term loan and revolving credit facilities (“RCF”) of up to £55 million following the decision to increase the RCF with The Royal Bank of Scotland International Limited by £20million, as announced in June 2019. As at 30 June 2019, the Company had drawn £18 million of its RCF, resulting in a blended rate of interest of 2.65%. Given the portfolio net initial yield is 5.2%, the use of debt is highly income accretive and supportive of dividend cover. In addition, it provides flexible resources to take advantage of opportunities which will inevitably arise in the current uncertain environment. With cash of £11.7 million as at 30 June, the Company continues to be in a strong financial position with significant firepower to invest at the opportune time.

Board Changes

In line with the strategy of refreshing the Board composition on a regular basis and having been on the Board since 2014 and Chair since 2016, it is my intention to retire from the Board of the Company at the Annual General Meeting in June 2020. I will be succeeded as Chairman by James Clifton-Brown who was appointed to the Board in August 2017 and has considerable real estate experience. I am confident that James will provide wise leadership of the Board during these uncertain times.

The Board has commenced a search to recruit an additional non-executive director and I hope to be in a position to provide an update on the search in due course. It is expected that the new Director will succeed James as Chair of the Property Valuation Committee.

Investment Management Fee

The Board, through its Management Engagement Committee, conducts an annual exercise to benchmark its management fees against various comparators. As a result of this exercise the Board has agreed a change in its management fee with Aberdeen Standard Investments. From 1 July 2019 the annual management fee will be calculated on a tiered basis as follows:

• 0.70% per annum on total assets up to £500 million
• 0.60% per annum on total assets over £500 million

This compares to the current management fee of 0.75% on total assets up to £200 million, 0.70% on total assets between £200 million and £300 million and 0.65% on total assets in excess of £300 million. This revised arrangement simplifies the fee structure and will result in a lower fee should the Company continue to grow.

Investment Outlook

The UK economy continues to be affected by political and macroeconomic uncertainty centred around Brexit, which looks likely to persist in the near term, holding back investment and therefore growth. The Company’s Investment manager is forecasting GDP growth of 1.4% in both 2019 and 2020 in its base case, although it should be highlighted that downside risks exist and leading indicators have weakened in recent months.

Overall, the UK commercial property market is holding up well with positive total returns still forecast. The investment market has been, and will continue to be, muted in 2019 until progress is made on the Brexit conundrum. However, occupier markets are generally faring well, apart from the retail sector which is under severe pressure as the growth in e-commerce continues which, inversely, is boosting the industrial sector. The property market also continues to be underpinned by strong fundamentals– relatively high yields in an environment where there is a suggestion of interest rate cuts, limited development and high occupancy rates.

Given this background, the Board believes that your Company is strategically set to continue producing relative outperformance. The Company is well diversified in both geographic and sector terms but, importantly, has a strategic overweight position to the industrial sector, which is forecast to be the strongest driver of returns over the next three years. Combined with the low retail weighting, the portfolio is appropriately structured to continue delivering positive relative returns albeit secondary assets can be more volatile in nature. With income likely to be the main driver of performance in the medium term, the Company’s above benchmark income return will continue to be crucial to future returns, underpinned as it is by a strong tenant base. Linked to this is the proven track record of the Company’s Investment Manager in implementing successful asset management initiatives to ensure the Company’s occupancy rate remains high. Finally, the Company is in a healthy financial position with a strong balance sheet, prudent, low cost flexible gearing and financial resources to allow it to take advantage of opportunities as and when they arise. Overall, I believe your Company is well positioned to continue delivering value for shareholders.

Robert Peto

Chairman

17 September 2019

STRATEGIC REPORT

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 have carried out an assessment of the risk profile of the Company which concluded that the risks as at 30 June 2019 were not materially different from those detailed in the statutory accounts for the Group for the year ended 31 December 2018.

INVESTMENT MANAGER’S REPORT

Economic Background

Although UK GDP recorded steady growth in Q1, inventory building was key to this, as companies  stockpiled resources ahead of the anticipated disruption to supply chains caused by a potential   “cliff edge” withdrawal from the EU at the end of March. The eventual six-month extension to Article 50 averted this and Q2 GDP fell as some of that inventory building unwound. With the potential October 31 Brexit deadline looming one can expect further volatility in short term numbers given business investment will remain subdued until there is more clarity.

In spite of a relatively tight labour market, accommodative monetary policy and high corporate profit margins, inflation remains remarkably low. Although the Bank of England has given hawkish signals, it is expected interest rates will remain  lower for longer if they are to support the backdrop of decelerating growth, particularly until  greater clarity on the UK’s future relationship with the EU emerges. Indeed, we no longer have modest tightening cycles in our UK and Eurozone forecasts, with the US Federal Reserve expected to cut interest rates once more this year and monetary policy easing also expected in other major economies. Low inflation globally, slowing growth and trade war uncertainty, on top of the more UK-specific risks, are pointing towards a longer period of ultra-low interest rates.

UK Real Estate Market

According to MSCI, UK real estate capital values are now falling but managed to deliver a positive total return of 0.9% for the first six months of 2019. While retail returns have been negative as expected, and have borne the brunt of the capital  decline, growth in the industrial sector has moderated after a period of record capital value  gains, but remain positive, resulting in a 3.5% total return within MSCI’s index over the six month  period.

The second quarter saw a fall in transaction activity to levels last seen in 2012. Overseas investors have been net sellers of the UK office market with Chinese capital controls now appearing to have a significant effect on global real estate markets. Although New York has perhaps borne the brunt of Chinese disinvestment, London is not immune, and there are indications that other global investors are displaying more caution towards London too, which see London office pricing could could soften in the second half of the year. The retail sector has a very shallow pool of buyers tending to be opportunistic in nature with a large amount of stock being quietly marketed. The lack of demand in the occupier market and uncertainty about where rental values will settle mean investors  are, in many retail sub-sectors, demanding discounts to valuation. The share price discount to net asset value for listed stocks with a high retail weighting also provides an indication of sentiment towards this sector.

Take-up in the office sector remains robust and central London take-up has recovered, following a muted period around the EU referendum, and is now back close to the high watermark set in 2015. However, this is largely driven by flexible office providers; traditional take-up has been broadly flat since early 2016. The now roughly 20% of  take-up accounted for by flexible office providers does not actually absorb supply, as it must all  be re-let into the market.

Regionally, office headline rents are steadily rising in the big six office markets, boosted by the trend towards consolidation among some of the largest corporate occupiers, as well as the public sector’s shift towards large regional hubs. Vacancy rates have been steadily falling in these markets since 2017, with high net absorption pushing rents up and virtually no new construction in the last two years. While supply has tightened, the economic backdrop is expected to affect demand going forward and, therefore, rents. A similar dynamic has been playing out in the South East office markets. While vacancy has not fallen as dramatically, demand has gravitated towards those markets with critical mass, limited new stock and good infrastructure, such as Reading.

A wave of company voluntary arrangements (CVAs) in retail has put downward pressure on rental values in the sector, and on risk premia requirements, and so also on certain valuations. Industrial demand, however, remains especially high in London and the South East, while logistics has had another strong start to the year with a number of significant lettings of speculatively developed space in core markets.

Performance

The Company considers performance at several levels – that of the investment portfolio against the MSCI IPD quarterly index (i.e. like for like property performance), and the NAV Total Return against the MSCI IPD quarterly index, so that the impact of gearing and the costs of running the Company can be seen. The NAV is also compared to the peer group, as is the share price total return, and dividend yield.

Portfolio Level Performance

The underlying portfolio has continued to perform well against the MSCI IPD index, with outperformance over the half year (3.3% v 0.9%),  which continues the trend over one, three, and five years, as shown across. The portfolio weightings, with very low (9%) exposure to retail and a high (52%) exposure to industrials have contributed to the outperformance. Over the 12 months to end June, the wider retail market fell in value by 9.6% according to MSCI, whilst industrial values grew by 5.8% (offices 1.3%),

demonstrating the importance of portfolio structure as well as asset selection. The top five contributors to the Company’s performance were all industrial and three of the five had been subject to asset management, with the other two being longer term secure income assets benefitting from indexation linked reviews. Retail assets dominated the poorer performers, along with an office subject to refurbishment and reletting.

NAV Performance

Over most time periods gearing has been accretive to performance, with the NAV total return being greater than the asset level total return. This has reversed in the first half of 2019, mainly due to the increased liability of the interest rate swap as interest rate yields fell. This movement will reverse by maturity of the debt in April 2023.

NAV total return for the Company continues to compare favourably to the peer group as well as the open ended funds sector, as seen in the NAV Total Returns table.

NAV Total Returns to 30 June 2019
	6 months (%)	1 year (%)	3 year (%)			5 year (%)
Standard Life Investments Property Income Trust	2.7	6.5	31.4			71.6
AIC UK Commercial Property sector (weighted average)	1.2	4.0	22.2			52.6
Investment Association Open Ended Commercial Property Funds sector	0.8	1.9	15.9			29.6
Company's ranking in AIC UK Commercial Property sector	6	6	4			2
Source: Aberdeen Standard Investments, Association of Investment Companies (“AIC”)

Share Price Return

In many ways share price return is something the Company can influence the least as it is impacted by changes in demand for the Company’s shares;  however it is an important measure as it best represents the performance to the investor. The table below shows the Company performance against some comparators.

Share Price Total Returns to 30 June 2019		6 months (%)	1 year (%)	3 year (%)	5 year (%)
Standard Life Investments Property Income Trust		18.9	6.5	39.4	61.6
FTSE All-Share Index		13.0	0.6	29.5	35.8
FTSE All-Share REIT Index		9.7	-5.2	13.6	24.5
AIC UK Commercial Property sector (weighted average)		8.4	-0.3	27.2	32.3

Source: Aberdeen Standard Investments, Association of Investment Companies

Dividend Yield

The Company’s clear objective, and therefore the Investment manager’s main focus, is to provide investors with an attractive level of income. The dividend is paid quarterly and, based on a June 30 share price of 94.2p, the dividend yield was 5.1%. The Board and Investment Manager seek to maintain a covered dividend and, for the first half, achieved this with cover of 101%.

Portfolio Valuation

The investment portfolio is valued quarterly by Knight Frank. As at 30 June 2019 the portfolio comprised 57 assets valued at a total of £496.8 million, with a cash balance of £11.7m. This compares to 56 properties valued at £458 million and cash of £23.2 million as at 30 June 2018.

Portfolio Strategy

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

Given the continued uncertainty in capital markets we have taken a reducing risk approach, with the focus being on asset management of existing assets. We will look to take further risk off the table through working with our tenants to ensure we maximise occupancy, however we will consider sales of selective assets if we believe they provide too great a risk of voids in income. Subsequent reinvestment will be in assets that will provide the opportunity to grow or secure longer term income.

Portfolio Allocation

The Company is invested in a portfolio of UK commercial real estate assets that provide it with diversity of type, location, and income source.  We take a top down approach to consider the macro overlay for the fund which takes into account sector exposures i.e. the strategic decision taken some years ago to be underweight retail and overweight industrial / logistics given the structural change in those sectors. In addition there is a conscious effort to diversify the tenant base with our top ten tenants’ only accounting for 32.6% of the total rent roll. Finally, once we have taken macro considerations into account, we take a bottom up approach to selecting individual assets that we believe will meet the Company’s needs.

As at 30 June 2019, the Company had a 53% exposure to industrial (which includes logistics), a 31% exposure to offices, a 9% exposure to retail, and a 7% exposure to “other” (leisure and a data centre). The geographical weighting is not something we concentrate on per se, however the South East provides stronger land values and concentration of people and so often has better prospects for rental growth and tenant demand. 37% of the fund is invested in the South East, with a further 5.6% invested in Central London.

Investment Activity - Purchases

No new purchases were undertaken during the reporting period. The Company was in effect fully invested, and the investment manager did not see stock that it felt was sufficiently attractive to utilise debt from the RCF to invest in. After the period end the Company did however complete on two purchases:

Trafford Park, Manchester

The Company acquired a small industrial unit for £3.5m with a 5.7% yield. The unit is adjacent to an existing holding, and provides opportunity in the future for a reconfiguration of the site.  Although the yield is lower than we normally buy at we believe the asset to be reversionary, so a greater yield will be available in the future.

Causewayside, Edinburgh

The Company acquired a mixed use office and retail unit on the South side of Edinburgh. The ground floor is let to Tesco and a pharmacy, whilst the upper parts provide four floors of multi let offices. The purchase price of £8.7m reflects a yield of 3.5%, however once rent frees have expired and the vacant suite (4,700 sq ft out of the 33,000 sq ft total) is let the yield is expected to be 7.7%.

Sales

The Company only completed one sale during the first half of 2019, that of a single let office in Milton Keynes for £6 million. The property was subject to a lease expiry in 2021 and the tenant was expected to vacate with the property requiring capex to upgrade it. The sale enabled the Company to take profit whilst reducing risk in 2021. After the period end the Company completed on the sale of an industrial asset in Milton Keynes for £9.3 million. The asset was let to a company engaged in manufacturing envelopes, and the sale was undertaken to reduce exposure to a covenant that we felt to be deteriorating, and we did not want to hold the unit vacant if the tenant failed.

Asset Management

Actively engaging with our tenants, and investing in our assets to ensure they appeal to occupiers is a central part of how we create value and a sustainable income. We aim to meet with our tenants regularly to understand their needs, and make sure our assets appeal to them. In the office space this generally means providing good quality shower / changing / bike storage facilities, but also trying to create an environment where people want to work. In the industrial / logistics sector we have been discussing the potential for installing PV cells on the roof to provide energy for the tenant – we can generally sell it for the duration of their lease at a lower cost than the grid, and still receive a sufficient return on our investment. This is one of our ESG initiatives, and has enabled some good conversations with tenants.

Given the very uncertain outlook many occupiers have with the ongoing Brexit saga, let alone the wider global trade tensions, it is not surprising that companies are delaying making decisions about the property they occupy if they can. We are finding deals with tenants taking longer and longer, although the level of enquiries and viewings on vacant accommodation remains encouraging. During the reporting period we completed six new lettings for a total rent of £970,750pa, three rent reviews were settled increasing the rent by £135,000pa (an increase of 24% on the previous rent), and extended a lease with Tesco on small unit for a further 10 years, securing a rent of £107,250pa.

The Company had a vacancy rate of 6.3% as at 30 June 2019 (7.2% June 2018). The largest vacancy is an industrial unit in Rugby that became void during the first half of 2019 and is currently being refurbished. The other two largest voids are offices with vacancy at Kirkgate, Epsom and Basinghall Street, London. These three buildings account for over half of the current voids.

Debt

The Company has two debt facilities with RBS. It has a term loan of £110m, which is due to expire in April 2023 and is fully hedged by way of an interest rate swap. The interest rate swap is held as a liability on the balance sheet (£2.4m liability as at 30 June 2019). This liability will revert to £0 on maturity of the swap. The Company also has a Revolving Credit Facility (RCF). This was originally for £35m, with £18m drawn at the end of June (none of the RCF was drawn down 30 June 2018). During the reporting period the Company extended the RCF by £20m and it is co-terminous with the term loan. As at 30 June 2019 the LTV was 23.4% (19.0% June 2018). The all in cost of the debt is 2.7%, which compares favourably to the portfolio income yield of 5.2%.

Investment Outlook

The UK economy continues to be affected by political and macroeconomic uncertainty which looks likely to persist in the near term, holding back growth. Aberdeen Standard Investments has revised its GDP growth expectations downwards from 1.9% to 1.4% in both 2019 and 2020 in its base case, although downside risks exist and leading indicators have weakened in recent months. Occupier markets are holding up relatively well with office demand being supported by the rapid expansion of flexible office providers and, in the regions, by corporate and public sector consolidation. The polarisation of retail is an ongoing trend and weaker locations are under increasing pressure, however, the twin engines of urbanisation and the rise of e-commerce continue to propel the industrial sector.

Whilst the investment market has slowed this year, and with political uncertainty causing many to adopt a cautious approach to investment, there remains considerable capital with potential for deployment attracted to UK real estate’s income yield and, retail sector aside, good occupational fundamentals. This capital is likely to remain on the side-lines however until greater clarity over Brexit is reached.

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 2019, 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

17 September 2019

Robert Peto

Chairman

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income
for the period ended 30 June 2019	Notes	1 Jan 19 to 30 Jun 19 £		1 Jan 18 to 30 Jun 18 £	1 Jan 18 to 31 Dec 18 £
Rental income		15,360,183		13,402,210	27,773,205
Service charge income		1,196,706		906,711	1,665,737
Valuation surplus from investment properties	3	958,500		8,628,067	12,057,044
Surplus on disposal of investment properties		867,550		995,922	1,861,161
Investment management fees	2	(1,754,640)		(1,661,767)	(3,381,779)
Valuers fees		(50,346)		(38,184)	(91,396)
Auditor’s fees		(40,125)		(37,250)	(78,500)
Directors fees and expenses		(117,006)		(100,999)	(202,298)
Service charge expenditure		(1,196,706)		(906,711)	(1,665,737)
Other direct property expenses		(1,397,144)		(1,788,188)	(3,154,578)
Other administration expenses		(363,770)		(211,758)	(426,768)
Operating profit		13,463,202		19,188,053	34,356,091
Finance income		7,656		51,302	58,411
Finance costs		(1,841,277)		(1,670,862)	(3,468,125)
Surplus for the period before taxation		11,629,581		17,568,493	30,946,377
Taxation
Tax charge		-		-	-
Surplus for the period, net of tax		11,629,581		17,568,493	30,946,377
Other Comprehensive Income
Valuation (deficit)/gain on cash flow hedge		(1,593,258)		1,373,850	1,440,836
Total other comprehensive surplus		(1,593,258)		1,373,850	1,440,836
Total comprehensive surplus for the period, net of tax		10,036,323		18,942,343	32,387,213
Earnings per share		(p)		(p)	(p)
Basic and diluted earnings per share	5	2.87		4.38	7.68
Adjusted (EPRA) earnings per share		2.42		1.98	4.22

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

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

Consolidated Balance Sheet
as at 30 June 2019
	Notes	30 Jun 19 £	30 Jun 18 £			31 Dec 18 £
ASSETS
Non-current assets
Investment properties	3	493,897,366		443,256,957		495,245,556
Lease incentives	3	3,898,149		3,478,043		2,896,409
Rent deposits held on behalf of tenants		966,657		961,978		840,633
		498,762,172		447,696,978		498,982,598
Current assets
Investment properties held for sale	4	-		11,250,000		-
Trade and other receivables		3,834,177		1,401,392		4,939,071
Cash and cash equivalents		11,699,447		23,203,967		8,264,972
		15,533,624		35,855,359		13,204,043
Total assets		514,295,796		483,552,337		512,186,641
LIABILITIES
Current liabilities
Trade and other payables		12,249,103		8,416,847		11,906,363
Interest rate swap	8	595,528		252,383		451,714
		12,844,631		8,669,230		12,358,077
Non-current liabilities
Bank borrowings	9	127,203,418		109,148,606		129,249,402
Interest rate swap	8	1,801,693		618,566		352,249
Rent deposits due to tenants		966,657		961,978		840,633
Obligations under finance leases		1,716,391		-		-
		131,688,159		110,729,150		130,442,284
Total liabilities		144,532,790		119,398,380		142,800,361
Net assets		369,763,006		364,153,957		369,386,280
EQUITY
Capital and reserves attributable to Company’s equity holders
Share capital		227,431,057		226,001,857		227,431,057
Retained earnings		6,300,815		6,714,960		6,156,881
Capital reserves		38,192,762		33,598,768		37,959,970
Other distributable reserves		97,838,372		97,838,372		97,838,372
Total equity		369,763,006		364,153,957		369,386,280
NAV per share		91.1		90.1			91.0
EPRA NAV per share		91.7		90.3			91.2

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

Consolidated Statement of Changes in Equity
for the period ended 30 June 2019

		Share Capital	Retained earnings	Capital reserves	Other distributable reserves	Total equity
	Notes	£	£	£	£	£
Opening balance at 01 January 2019		227,431,057	6,156,881	37,959,970	97,838,372	369,386,280
Surplus for the period		-	11,629,581	-	-	11,629,581
Other comprehensive income		-	-	(1,593,258)	-	(1,593,258)
Total comprehensive surplus for the period		-	11,629,581	(1,593,258)	-	10,036,323
Dividends paid	7	-	(9,659,597)	-	-	(9,659,597)
Valuation surplus from investment properties	3	-	(958,500)	958,500	-	-
Surplus on disposal of investment properties	3	-	(867,550)	867,550	-	-
Balance at 30 June 2019		227,431,057	6,300,815	38,192,762	97,838,372	369,763,006
		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 income		-	-	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		-	(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 2018		217,194,412	8,364,603	22,600,929	97,838,372	345,998,316
Surplus for the year		-	30,946,377	-	-	30,946,377
Other comprehensive income		-	-	1,440,836	-	1,440,836
Total comprehensive surplus for the year		-	30,946,377	1,440,836	-	32,387,213
Ordinary shares issued net of issue costs		10,236,645	-	-	-	10,236,645
Dividends paid	7	-	(19,235,894)	-	-	(19,235,894)
Valuation surplus from investment properties		-	(12,057,044)	12,057,044	-	-
Surplus on disposal of investment properties	3	-	(1,861,161)	1,861,161	-	-
Balance at 31 December 2018		227,431,057	6,156,881	37,959,970	97,838,372	369,386,280

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

Consolidated Cash Flow Statement
for the period ended 30 June 2018
	Notes	1 Jan 19 to 30 Jun 19 £	1 Jan 18 to 30 Jun 18 £	1 Jan 18 to 31 Dec 18 £
Cash flows from operating activities
Surplus for the period before taxation		11,629,581	17,568,493	30,946,377
Movement in non-current lease incentives		(784,580)	(396,485)	(735,921)
Movement in trade and other receivables		(941,426)	18,889,516	16,441,217
Movement in trade and other payables		2,185,153	(2,068,406)	1,243,386
Finance costs		1,841,277	1,670,862	3,524,503
Finance income		(7,656)	(51,302)	(58,411)
Valuation surplus from investment properties	3	(958,500)	(8,628,067)	(12,057,044)
Surplus on disposal of investment properties	3	(867,550)	(995,922)	(1,861,161)
Net cash inflow from operating activities		12,096,299	25,988,689	37,442,946
Cash flows from investing activities
Interest received		7,656	51,302	58,411
Purchase of investment properties		-	(50,212,474)	(64,023,051)
Additions through business acquisition		-	-	(23,913,188)
Capital expenditure on investment properties	3	(1,076,919)	(2,936,163)	(8,170,795)
Net proceeds from disposal of investment properties	3	5,967,550	38,395,922	44,861,161
Net cash inflow/ (outflow) from investing activities		4,898,287	(14,701,413)	(51,187,462)
Cash flows from financing activities
Proceeds on issue of ordinary shares		-	8,874,000	10,314,000
Transaction costs of issue of shares		-	(66,555)	(77,355)
Bank borrowing		-	-	20,000,000
Repayment of RCF		(2,000,000)	-	-
Bank borrowing arrangement costs		(150,000)	(52,500)	(52,490)
Interest paid on bank borrowing		(1,452,231)	(1,167,133)	(2,546,435)
Payments on interest rate swap		(298,283)	(411,478)	(726,842)
Dividends paid to the Company’s shareholders		(9,659,597)	(9,594,147)	(19,235,894)
Net cash (outflow)/inflow from financing activities		(13,560,111)	(2,417,813)	7,674,984
Net increase in cash and cash equivalents		3,434,475	8,869,463	(6,069,532)
Cash and cash equivalents at beginning of period		8,264,972	14,334,504	14,334,504
Cash and cash equivalents at end of period		11,699,447	23,203,967	8,264,972

The notes are an integral part of these consolidated financial statements

Notes to the Unaudited Consolidated Financial Statements

for the period ended 30 June 2019

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 2018. 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 2018, 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

Following the merger of Standard Life plc with Aberdeen Asset Management PLC in August 2017, the Company appointed Aberdeen Standard Fund Managers Limited as its AIFM with effect from 10 December 2018. The appointment is on identical terms to the arrangements previously in place with Standard Life Investments (Corporate Funds) Limited and the terms of the previous management agreement have been novated across to Aberdeen Standard Fund Managers Limited.

Under the terms of the current IMA, the Investment Manager is entitled to receive fees of 0.75% of total assets up to £200million; 0.70% of total assets between £200million and £300million; and 0.65% of total assets in excess of £300million. The total fees charged for the period ended 30 June 2019 amounted to £1,754,640 (period ended 30 June

2018: £1,661,767). The total amount due and payable at the period end amounted to £875,388 excluding VAT (period ended 30 June 2018: £834,388 excluding VAT).

3 Investment Properties

Country	UK	UK	UK	UK
Class	Industrial	Office	Retail	Other	Total
	30 Jun 19	30 Jun 19	30 Jun 19	30 Jun 19	30 Jun 19
Market value at 1 January	259,150,000	159,630,000	46,530,000	33,800,000	499,110,000
Purchase of investment properties	-	-	-	-	-
Capital expenditure on investment properties	587,649	489,270	-	-	1,076,919
Opening market value of disposed investment properties	-	(5,100,000)	-	-	(5,100,000)
Valuation surplus  from investment properties	2,406,969	(822,506)	(1,629,850)	1,003,887	958,500
Movement in lease incentives receivables	185,382	633,236	(30,150)	(3,887)	784,581
Market value at 30 June	262,330,000	154,830,000	44,870,000	34,800,000	496,830,000
Right of use asset recognised on leasehold properties	-	1,716,391	-	-	1,716,391
Adjustment for lease incentives	(1,973,247)	(1,786,574)	(274,758)	(614,446)	(4,649,025)
Carrying value at 30 June	260,356,753	154,759,817	44,595,242	34,185,554	493,897,366

The market value provided by Knight Frank LLP at 30 June 2019 was £496,830,000 (30 June 2018: £457,985,000) however an adjustment has been made for lease incentives of £4,649,025 (30 June 2018: £3,478,043) that are already accounted for as an asset. In addition, as required under IFRS 16 which became effective from 1 January 2019, a right of use asset of £1,716,391 has been recognised in respect of the present value of future ground rents. As required under IFRS 16 an amount of £1,716,391 has also been recognised as an obligation under finance leases in the balance sheet.

In the unaudited consolidated cash Flow statement, surplus from disposal of investment properties comprise:

	1 Jan 19 to 30 Jun 19	1 Jan 18 to 30 Jun 18	1 Jan 18 to 31 Dec 18
Opening market value of disposed investment properties	5,100,000	37,400,000	43,000,000
Surplus on disposal of investment properties	867,550	995,922	1,861,161
Net proceeds from disposed investment properties	5,967,550	38,395,922	44,861,161

4 Investment Properties Held For Sale

There were no assets held for sale at 30 June 2019 (2018: £11,250,000).

5 Earnings Per Share

The earnings per Ordinary share are based on the net profit for the period of £11,629,581 (30 June 2018: £17,568,493) and 405,865,419 (30 June 2018: 401,011,552) ordinary shares, being the weighted average number of shares in issue during the period.

Earnings for the period to 30 June 2019 should not be taken as a guide to the results for the year to 31 December 2019.

6 Investment in Subsidiary Undertakings

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

• Standard Life Investments Property Holdings Limited, a property investment company with limited liability incorporated in Guernsey, Channel Islands.
• Standard Life Investments (SLIPIT) Limited Partnership, a property investment limited partnership established in England.
• Standard Life Investments SLIPIT (General Partner) Limited, a company with limited liability  incorporated in England. This Company is the GP for the Limited Partnership.
• Standard Life Investments SLIPIT (Nominee) Limited, a company with limited liability incorporated  and domiciled in England.
• Hagley Road Limited, a property investment company with limited liability incorporated in Jersey, Channel Islands.

7 Dividends and Property Income Distribution Gross of Income Tax

		30 Jun 19	30 Jun 18	31 Dec 18
		£	£	£
Non property income distributions
0.668p per ordinary share paid in March 2018 relating to the quarter ending 31 December 2017		-	2,692,811	2,692,811
0.421p per ordinary share paid in November 2018 relating to the quarter ending 30 September 2018		-	-	1,708,693
Property Income Distributions
0.552p per ordinary share paid in March 2018 relating to the quarter ending 31 December 2017		-	2,104,263	2,104,262
1.19p per ordinary share paid in May 2018 relating to the quarter ending 31 March 2018		-	4,797,073	4,797,073
1.19p per ordinary share paid in August 2018 relating to the quarter ending 30 June 2018		-	-	4,811,949
0.769p per ordinary share paid in November 2018 relating to the quarter ending 30 September 2018		-	-	3,121,106
1.19p per ordinary share paid in March 2019 relating to the quarter ending 31 December 2018		4,829,799	4,797,073	-
1.19p per ordinary share paid in May 2019 relating to the quarter ending 31 March 2019		4,829,798	4,797,074	-
		9,659,597	9,594,147	19,235,894

A property income dividend of 1.19p per share was declared on 8 August 2019 in respect of the quarter to 30 June 2019 – a total payment of £4,829,798. This was paid on 30 August 2019.

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 the 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 2019	Level 1	Level 2	Level 3	Total fair value
Investment properties	-	-	496,830,000	496,830,000

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 2019	Level 1	Level 2	Level 3	Total fair value
Loan facilities	-	129,895,646	-	129,895,646

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

30 June 2019	Level 1	Level 2	Level 3	Total fair value
Interest rate swap	-	2,397,221	-	2,397,221

Of the figure above, £595,528 is included within current liabilities and £1,801,693 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 2019.

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 2018.

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 Company entered into an agreement to extend £145million of its existing £155 million debt facility with RBS. The debt  facility consists of a £110million seven year term loan facility and a £35million five year RCF which was extended by two years in May 2018 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.

In June 2019, the Company also entered into a new arrangement with the Royal Bank of Scotland International Limited (RBSI) to extend its Revolving Credit Facility (RCF) by £20m. The Company currently has £18m undrawn from its existing facility, and has not drawn the new facility, which has an expiry coterminous with the existing debt provided by RBSI, in April 2023. The new facility has a margin of 160bps above Libor.

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 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 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

On 30 August 2019, the Company completed the sale of Crown Farm, Mansfield for £900,000.

On 5 September 2019, the Company completed the sale of Michigan Drive, Milton Keynes for £9.3 million.

On 9 September 2019, the Company completed the acquisition of Unit 4 at Broadoak Business Park, Trafford for £3.5 million

On 13 September 2019, the Company completed the acquisition of Causeway House, Edinburgh for £9.1 million.

The Interim Report and Unaudited Consolidated Condensed Financial Statements for the period from 1 January 2019 to 30 June 2019 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