Results in respect of the year ended 31 Decembe...

27 May 2020

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED

LEI: 549300HHFBWZRKC7RW84

RESULTS IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2019

2019 Financial Highlights

Strong NAV total return in the year of 4.1% (2018: 9.6%) above that of the Company’s peer group, the AIC Property Direct – UK sector total return of 2.5%. Company has outperformed peer group over 1, 3, 5 and 10 years with a 10 year total return of 202.2% compared to peer group total return of 51.5% over the same period.

Share price total return in the year was 18.0% (2018: -8.3%) compared to peer group total return of 13.4%. Company’s shares moved to a premium in the year. Over ten years the Company has delivered a share price total return of 162.2% compared with peer group average of 39.1% and FTSE All-Share REIT index of 149.0% and the FTSE All-Share Index of 118.3%.

£37 million available for investment at year end which, when utilised, will further enhance earnings and dividend cover.

24.6% (2018: 24.4%) – Prudent loan to value remains one of the lowest in the Company’s peer group and wider REIT sector.

A fully covered dividend in the year (2018: 89%) representing EPRA earnings per share of 4.76p (2018: 4.22p), an increase of 12.8% as successful asset management and investment activity boosted earnings.

2019 Portfolio Highlights

Portfolio value of £493.2 million (2018: £499.1 million) with 51% of the portfolio in the favoured industrial sector and only 9% in the retail sector.

2019 Portfolio total return of 4.8% (2018: 8.5%) significantly ahead of benchmark total return of 1.3% (2018: 6.8%).

Occupancy rate of 93.4% (2018: 94.1%) compared to benchmark occupancy rate of 92.4% as successful asset management initiatives in the year maintained a relatively high occupancy rate in the year.

13% reduction in carbon emissions associated with landlord procured energy.

In 2019, 20 new lettings securing £3.69m per annum in rent and restructured 15 leases to secure longer term income on £1.35m per annum of rent.

PERFORMANCE SUMMARY

Earnings & Dividends	31 December 2019	31 December 2018

IFRS earnings per share	3.98	7.68
EPRA earnings per share (p) (excluding capital items & swap movements)*	4.76	4.22
Dividends declared per ordinary share (p)	4.76	4.76
Dividend cover (%)	100	89
Dividend yield (%)**	5.2	5.9
FTSE All-Share Real Estate Investment Trusts Index Yield (%)	3.9	4.7
FTSE All-Share Index Yield (%)	4.1	4.5
Ongoing Charges***
As a % of average net assets including direct property costs	2.0	2.0
As a % of average net assets excluding direct property costs	1.2	1.1

Capital Values & Gearing	31 December 2019	31 December 2018	Change %
Total assets (£million)	505.8	512.2	(1.2)
Net asset value per share (p) (note 20)	89.9	91.0	(1.2)
Ordinary Share Price (p)	91.0	81.1	12.2
Premium/ (Discount) to NAV (%)	1.2	(10.9)
Loan to Value (%)†	24.6	24.4

Total Return	1 year % return	3 year % return	5 year % return	10 year % return
NAV‡	4.1	30.5	57.3	202.2
Share Price‡	18.0	23.1	52.1	162.2
FTSE All-Share Real Estate Investment Trusts Index	30.8	28.5	32.2	149.0
FTSE All-Share Index	19.2	22.0	43.8	118.3

Property Returns & Statistics (%)	31 December 2019	31 December 2018
Property income return	5.2	5.0
IPD benchmark income return	4.7	4.6
Property total return	4.8	8.5
IPD benchmark total return	1.3	6.8
Void rate	6.6	5.9

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

**Based on an annual dividend of 4.76p and the share price at 31 December 2019 of 91.0p.

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

†Calculated as bank borrowings less all cash as a percentage of the open market value of the property portfolio as at the end of each year.

‡ Assumes re-investment of dividends excluding transaction costs.

Sources: Aberdeen Standard Investments, MSCI.

Alternative Performance Measures (“APMs”) including NAV total return, share price total return, dividend cover, Loan to Value, dividend yield and portfolio total return are defined in the Annual report which will be available shortly on the Company’s website www.slipit.co .uk.

Chairman’s Statement

BACKGROUND
Since March 2020 the world has been enveloped in a gIobal COVID-19 pandemic which, at the time of writing, has resulted in a huge human and economic cost. In the UK, lockdown measures are still in place/being eased slowly with unprecedented government support effectively underwriting up to 80% of wages plus interest rates being cut to an all-time low of 0.1%. The economic impact of this pandemic on most tenants cannot be understated with the ability to pay rent, at least in the short term, severely curtailed. As if this is not enough to concern us all, we have the added uncertainty of an unknown outcome to the next round of Brexit talks scheduled for completion by the end of the year at a time when the bandwidth available within the UK Government for considered thought is limited.

REVIEW OF 2019
In the light of these extraordinary circumstances, it seems that 2019 was a different and distant world, but it is incumbent upon me to report on the performance of your Company and its assets during the year.

For the majority of 2019 uncertainty prevailed as the ongoing negotiations around the UK’s exit from the European Union caused political consternation. This fed directly into a weak UK economy as investment was held back until a clearer outcome was in sight. The clear election victory of the Conservative party in December 2019 did provide some measure of political certainty with a resultant bounce in economic activity in the short term.

Given this background, commercial real estate returns remained positive but were relatively muted compared to historical levels.

The Company’s benchmark, the MSCI UK Monthly Index Funds Quarterly Property Index, produced a total return of 1.3% for the year as the strong income return generated by UK commercial real estate of 4.7% was partially offset by capital value falls of 3.3%. Continuing the theme from previous years, there was a sharp divergence of returns at a sector level with the Industrial sector producing a total return of 6.8% as the structural change away from physical to online retailing continued. This is demonstrated by the -7.7% total return in the retail sector as more retailers continued to struggle, impacting rental levels and occupier demand. The office sector produced a positive total return of 4.3% underpinned by continued occupational demand across the UK and a limited supply pipeline.

POSITIVE PORTFOLIO AND CORPORATE PERFORMANCE – CONTINUED OUTPERFORMANCE
Your Company continued to produce above benchmark returns in the year. The portfolio produced a total return of 4.8% driven by the Company’s strategic overweight position in the Industrial sector which now accounts for 51% of the portfolio compared to the benchmark weighting of 30.7%. The Company’s limited exposure to the retail sector (8.6% versus a benchmark weighting of 28.5%) also boosted relative returns. It is also pleasing to note that the portfolio produced a positive total return across all the sectors it invests in, including the retail sector, and this reflects well on stock selection decisions.

This portfolio performance, combined with the use of the Company’s flexible gearing facilities, helped deliver a NAV total return of 4.1% in the year which compared favourably to the AIC Property – UK Commercial peer group of 2.5%. It should be highlighted that this total return was delivered despite a negative movement in the Company’s interest rate swap valuation of £1.4m which will reverse as the loan facilities approach maturity.

The total return to shareholders in the year was 18.0% as the discount at which the Company’s shares traded to NAV moved to a premium of 1.2% at the year end. This return again compared favourably to the AIC Property – UK Commercial peer group total return of 13.4%. This move to a premium rating continued into 2020 allowing the Company to issue 1 million new shares at a price of over 6% above NAV in February 2020.

The Company has also produced positive relative returns over the longer term with a NAV total return of 57.3% over five years compared to the peer group total return of 39.4%. The share price has similarly outperformed with a share price total return of 52.1% which compares to the peer group total return of 31.0%, the FTSE All-Share REIT Index of 32.2% and the wider equity market FTSE All-Share Index return of 43.8%.

EARNINGS & DIVIDENDS
The Company produced EPRA earnings in the year of 4.76p, an increase of 12.8% compared to 2018. This equated to dividend cover of 100% in the year (2018: 89%). This increase has been achieved through successful asset management initiatives at various properties across the portfolio and annualised income coming on-stream from assets purchased in 2018. As mentioned in previous statements, a key focus of the Board has been a fully covered dividend and hence it is pleasing to see this was achieved in 2019, delivered with prudent gearing levels. Going forward, there will be inevitable fluctuations in earnings due to COVID-19 as well as both investment and occupational activity which may affect the Company’s dividend policy.

These earnings underpinned the attractive dividend paid by the Company of 4.76p in the year, equating to a yield on the Company’s shares of 5.2% based on a year-end share price of 91.0p. This compares to the yield on the FTSE All-Share REIT Index of 3.9% and FTSE All-Share Index of 4.1% on the same date.

Where possible, given the current environment, the Company’s current policy is to pay four interim dividends quarterly in March, May, August and November.

FINANCIAL RESOURCES
One of the most pleasing aspects of the dividend being covered in 2019 was that it was achieved while gearing was kept relatively low. As at 31 December 2019, the Loan to Value was 24.6%, a marginal increase compared to the 24.4% at the end of December 2018, and at an attractive blended cost of 2.64%.

During the year the Company also increased its low cost revolving credit facility (“RCF”) to £55 million with only £18 million of this drawn at the year-end. This resulted in the Company having significant financial resources of £37 million to invest in income accretive opportunities.

BOARD CHANGES
In November 2019, the Board was pleased to announce the appointment of Sarah Slater as a Non-Executive Director. Sarah has over 25 years of experience in the real estate sector, including listed REIT experience, and will prove to be a valuable addition to the Board.

As previously announced it was my intention to retire from the Board at the AGM in 2020. However, the Board has identified there is a need for continuity in the current situation especially given the decisions that will need to be made later in the year relating to the dividend. It has therefore been agreed that I will stay on as Chair for the time being. Post my retirement James Clifton-Brown will succeed me as Chair and Sarah Slater will take over as the Chair of the Property Valuation Committee.

ANNUAL GENERAL MEETING
This year’s Annual General Meeting will be in held on 30 June 2020 at 10:30am at the offices of the Company’s lawyer, Dickson Minto, 16 Charlotte Square, Edinburgh EH2 4DF.

Given current UK Government Guidelines surrounding the COVID-19 pandemic, Members are likely to be restricted from attending the Company’s AGM in person or by attorney or by corporate representative this year. Only the formal business set out in the Notice will be considered, with no presentation by the Investment Manager and no refreshments. The Board, therefore, encourages all shareholders to exercise their votes in respect of the meeting in advance to ensure that your votes are registered and counted at the meeting.

However, the Board welcomes questions from our shareholders and, given the format and the prevailing circumstances, I would ask shareholders to submit their questions to the Board prior to the AGM (and in any event by no later than Friday, 26 June 2020).

The Board and/or the Investment Manager will respond to all such questions received. You may submit questions to the Board and Manager by email at Property.Income@aberdeen-asset.com.

OUTLOOK
The short-term outlook for the UK economy is exceptionally poor given the impact of COVID-19. Our Investment Manager forecasts a GDP decline of 14.2% in 2020, even given the unprecedented government intervention, although it is then forecast to grow by 11.8% in 2021. All this is before the outcome of Brexit is known and whether a satisfactory trade deal can be struck between the UK and the EU. The longer term impact remains the subject of much debate and depends on future government intentions on lockdowns, social distancing and the discovery of a vaccine for COVID-19.

The commercial real estate sector is one area where COVID-19 has the potential to hit the hardest. Before this crisis, the fundamentals underlying the sector remained strong with historically low gearing and muted vacancy. However, since the lockdown, the ability of tenants to pay rent has been curtailed with rent collection statistics across the sector for Quarter 2, 2020 under pressure and forecast to get worse if the lockdown continues in its current form. While government support will help, both vacancy and gearing levels are expected to rise in the short term and may accelerate the current trend of a move away from traditional high street retail to online retailing.

Your Company is not immune to the growing negative effect of COVID-19 especially if it leads to serious and widespread business defaults and hence increased voids and reduced rental income. On 23 April 2020 the Company announced that rental collections statistics for Quarter 2, 2020 were 66% (74% if ongoing monthly rents are included). The rent collection statistics for Q1 were 95% plus. Cognisant of the importance of the dividend to our shareholders it was also announced that the dividend payable in May 2020 would be maintained at 1.19p for the quarter to 31 March 2020. Future dividends will be kept under constant review given expected rent collections statistics in Quarter 3 and beyond. Valuations as at 31 March were down by 4.9% on a like for like basis and included a material uncertainty clause by the valuer which is being included in all current commercial real estate valuations. Finally, as at 30 April the Company’s shares traded on a 13.6% discount to the last published NAV, compared to the peer group average of 18.1%. However, it should be highlighted that the portfolio has good defensive characteristics, with diversification of risk in terms of geography, sector and tenant exposure. In addition, the Company remains prudently geared with an LTV of 24.4% and £47million of its RCF still to utilise with significant headroom on its loan covenants as at 31 March 2020.

In summary, there will undoubtedly be challenges ahead for your Company. The Board will work closely with the Company’s various stakeholders to ensure it is able to manage its way through the current environment with the aim of continuing to deliver the outperformance that has been delivered over the last decade.

Robert Peto
Chairman
26 May 2020

STRATEGIC REPORT – STAKEHOLDER ENGAGEMENT

The Board wishes to describe to the Company’s shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year.

This section, which serves as the Company’s section 172 statement as requested by the AIC Code on Corporate Governance, explains how the Directors have promoted the success of the Company for the benefit of its members as a whole during the financial year to 31 December 2019, taking into account the likely long term consequences of decisions, the need to foster relationships with all stakeholders and the impact of the Company’s operations on the environment.

THE ROLE OF THE DIRECTORS
The Company is a REIT and has no executive directors or employees and is governed by the Board of Directors. Its main stakeholders are Shareholders, the Investment Manager, Tenants, Service Providers, Debt Providers, and the Community.

As set out in the Corporate Governance Report, the Board has delegated day-to-day management of the assets to the Investment Manager and either directly or through the Investment Manager, the Company employs key suppliers to provide services in relation to property management, health and safety, valuation, legal and tax requirements, auditing, depositary obligations and share registration, amongst others. All decisions relating to the Company’s investment policy, investment objective, dividend policy, gearing, corporate governance and strategy in general are reserved for the Board. The Board meets quarterly, with numerous other ad-hoc meetings, and receives full information on the Company’s performance, financial position and any other relevant information. At least once a year, the Board also holds a meeting specifically to review the Group’s strategy.

The Board regularly reviews the performance of the Investment Manager, and its other service providers, to ensure they manage the Company, and its stakeholders, effectively and that their continued appointment is in the best long term interests of the stakeholders as a whole.

The Board also reviews its own performance annually to ensure it is meeting its obligations to stakeholders. Engagement with key stakeholders is considered formally as part of the annual evaluation process.

STRATEGIC ACTIVITY DURING THE YEAR
The Investment Manager’s Report details the key investment decisions taken during the year and subsequently. Notable transactions where the interests of stakeholders were actively considered include:

- the sale of the industrial unit in Milton Keynes, given the income risks to the Company, and the reinvestment of the sale proceeds into two buildings with rental income growth opportunities;
- the disposal of a logistics unit close to Derby to reduce the income concentration risk to the Company; and
- The extension of the Company’s Revolving Credit Facility with The Royal Bank of Scotland International Limited (RBSI) by £20m to take advantage of opportunities that might become available in the near future.

Subsequent to the financial year end, stakeholder considerations have been fundamental to the Board’s decision making during the Company’s response to the COVID-19 pandemic.

The Board’s primary focus is to promote the long term success of the Company for the benefit of its stakeholders as a whole. The Board oversees the delivery of the investment objective, policy and strategy, as agreed by the Company’s shareholders. As set out above, the Board considers the long term consequences of its decisions on its stakeholders to ensure the long term sustainability of the Company.

SHAREHOLDERS
Shareholders are key stakeholders and the Board places great importance on communication with them. The Board welcomes all shareholders’ views and aims to act fairly to all shareholders. The Board believes that the Company’s shareholders seek an attractive and sustainable level of income, the prospect of growth of income and capital in the longer term, a well-executed sustainable investment policy, responsible capital allocation and value for money.

The Investment Manager and Company’s Broker regularly meet with shareholders, and prospective shareholders, to discuss Company initiatives and seek feedback. The views of shareholders are discussed by the Board at every Board meeting, and action taken to address any shareholder concerns. The Investment Manager provides regular updates to shareholders and the market through the Annual Report, Half-Yearly Report, Quarterly Net Asset Value announcements, Company Factsheets and its website.

The Chair offers to meet with key shareholders at least annually, and other Directors are available to meet shareholders as required. This allows the Board to hear feedback directly from shareholders on the Company’s ongoing strategy. During the financial year to 31 December 2019, the Investment Manager undertook several meetings with large shareholders to provide reports on the progress of the Company and receive feedback, which was then provided

to the full Board.

The Company’s AGM provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Investment Manager of the Company. The Board would ordinarily encourage as many shareholders as possible to attend the Company’s AGM to engage directly with the Board. However, as set out in the Chair’s Statement, in light of the COVID-19 pandemic, shareholders are discouraged from attending the AGM but are encouraged to engage with the Company and the Board. Details on how to submit a question in advance of the AGM are set out in the Chairman’s Statement.

TENANTS
Another key stakeholder group is that of the underlying tenants that occupy space in the properties that the Company owns. The Investment Manager works closely with tenants to understand their needs through regular communication and visits to properties.

The Board believes that tenants want a positive, trusting and long term working relationship with the Investment Manager, sustainable buildings and tenancies, value for money and a focus on the community, health and safety and the environment.

The Investment Manager consults with tenants and, on the Board’s behalf, invests in our buildings to improve the quality and experience for our occupiers as well as reduce voids and improve values, helping to produce stronger returns. The Board receives reports on tenant engagement and interaction at every Board meeting. The Board also expects the Investment Manager to undertake extensive financial due diligence on potential tenants to mitigate the risk of tenant failure or inability to let properties.

Following the outbreak of the Covid-19 pandemic, the Company’s Investment Manager has worked closely with tenants to understand their needs. The Board believes that this is a crisis that impacts on individuals as much as companies and we take the Social aspects of ESG very seriously. The Board firmly believes that by helping tenants now and building relationships the Company will have better occupancy over future months and years, which will in turn benefit the Company’s cash flow.

INVESTMENT MANAGER
The Chairman’s Statement and Investment Manager’s Report details the key investment decisions taken during the year and subsequently. The Investment Manager has continued to manage the Company’s assets in accordance with the mandate provided by shareholders, with the oversight of the Board. The Board receives presentations from the Investment Manager at every Board meeting to help it to exercise effective oversight of the Investment Manager and the Company’s Strategy. The Board formally reviews the performance of the Investment Manager, and the fees it receives, at least annually.

THE COMMUNITY AND THE ENVIRONMENT
The Board and the Investment Manager are committed to investing in a responsible manner. There are a number of geopolitical, technological, social and demographic trends underway globally that can, and do, influence real estate investments – many of these changes fall under the umbrella of ESG considerations. As a result, the Investment Manager fully integrates ESG factors into its investment decision making and governance process.

The Board has adopted the Investment Manager’s ESG Policy and associated operational procedures and is committed to environmental management in all phases of the investment process.

The Company aims to invest responsibly, to achieve environmental and social benefits alongside returns. By integrating ESG factors into the investment process, the Company aims to maximise the performance of the assets and minimise exposure to risk.

DEBT PROVIDER
The Company has a term loan facility and revolving credit facility with The Royal Bank of Scotland International Limited (“RBSI”). RBSI seeks responsible portfolio management and ongoing compliance with the Company’s loan covenants. The Company maintains a positive working relationship with RBSI and provides regular updates on business activity and compliance with its loan covenants.

OTHER SERVICE PROVIDERS
The Board via the Management Engagement Committee also ensures that the views of its service providers are heard and at least annually reviews these relationships in detail. The aim is to ensure that contractual arrangements remain in line with best practice, services being offered meet the requirements and needs of the Company and performance is in line with the expectations of the Board, Investment Manager and other relevant stakeholders. Reviews will include those of the company secretary, broker, share registrar and auditor.

Robert Peto
Chairman
26 May 2020

STRATEGIC REPORT – STRATEGIC OVERVIEW

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

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

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

- No property will be greater by value than 15% of total assets.
- No tenant (excluding the Government) will be responsible for more than 20% of the Group’s rent roll.
- Gearing, calculated as borrowings as a percentage of gross assets, will not exceed 65%. The Board’s current intention is that the Group’s loan to value ratio (calculated as borrowings less all cash as a proportion of property portfolio valuation) will not exceed 45%.

As part of its strategy, the Board has contractually delegated the management of the property portfolio, and other services, to Aberdeen Standard Fund Managers Limited (“the Investment Manager”).The Investment Manager was appointed in place of Standard Life Investments (Corporate Funds) Limited on 10 December 2018 following the merger of Standard Life plc and Aberdeen Asset Management PLC in August 2017. The Investment Manager was appointed on identical terms to the arrangements previously in place with Standard Life Investments (Corporate Funds) Limited, and there have been no changes to the way the investment management services are provided to the Group.

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

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

At the property level, it is intended that the Group remains primarily invested in the commercial sector, while keeping a watching brief on other classes such as student accommodation and care homes. The Group is principally invested in office, industrial and retail properties and intends to remain so. The Board’s preference is to buy into good, but not necessarily prime, locations, where it perceives there will be good continuing tenant demand, and to seek out properties where the asset management skills of the Investment Manager can be used to beneficial effect. The Board will continue to have very careful regard to tenant profiles.

As part of this investment strategy, the Group recognises that tenants are a key stakeholder and aims to foster a culture whereby the experience of tenants is seen as paramount to the future success of the Group. The Investment Manager works closely with tenants to understand their needs through regular communication and visits to properties.

Where required, and in consultation with tenants, the Group refurbishes and manages the owned assets to improve the tenants’ experience, including consideration of Health & Safety and environmental factors, with the aim being to generate greater tenant satisfaction and retention and hence lower voids, higher rental values and stronger returns.

The Board continues to seek out opportunities for further, controlled growth in the Group. During 2019 and up to 31 March 2020, the Group raised an additional £960,000 through new share issues, as detailed in the Chairman’s Statement.

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

THE BOARD
As at 31 December 2019, the Board consisted of a non-executive Chairman and five non-executive Directors. The names and biographies of those directors who held office at 31 December 2019 and at the date of this report appear in the Annual Report and indicate their range of property, investment, commercial and financial experience. There is also a commitment to achieve the proper levels of diversity.

To assist the Board with orderly succession planning, the Board announced the appointment of Sarah Slater as an additional non-executive Director on 27 November 2019. A resolution to elect Sarah Slater as a Director will be proposed to shareholders at the Annual General Meeting (“AGM”) on 30 June 2020. As reported in the Chairman’s Statement, Robert Peto intends to step down from the Board in due course. James Clifton-Brown will succeed Robert Peto as Chair of the Company.

KEY PERFORMANCE INDICATORS
The Board meets quarterly and at each meeting reviews performance against a number of key measures which are considered to be alternative performance measures (“APMs”). These APMs are in line with recognised industry performance measures both in the Real Estate and Investment Trust industry and help to assess the overall performance of the portfolio and the wider Group:

Property income and total return against the Quarterly Version of the IPD Balanced Monthly Funds Index (“the Index”).
The Index provides a benchmark for the performance of the Group’s property portfolio and enables the Board to assess how the portfolio is performing relative to the market. A comparison is made of the Group’s property returns against the Index over a variety of time periods (quarter, annual, three years and five years).

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

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

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

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

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

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

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

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

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

The overarching risk that has emerged is COVID-19, the global pandemic that has impacted all areas of society in the UK and abroad. This pandemic has caused significant loss of life and global economic disruption. It arguably affects all areas of risk on which the Company reports and has increased the risk profile of the Company. In the section below particular consideration has been given to how COVID-19 is impacting on the specific risks that are reviewed at each Board meeting.

The Group and its objectives become unattractive to investors, leading to widening of the discount.
This risk is mitigated through regular contact with shareholders, a regular review of share price performance and the level of the discount or premium at which the shares trade to net asset value and regular meetings with the Group’s broker to discuss these points and address any issues that arise. COVID-19 has increased the volatility of the Company’s share price and, reflecting wider market sentiment, has resulted in the Company’s shares trading at a discount to prevailing NAV of 13.6% as at 30 April 2020. The average discount of the peer group at this date was 18.1%.

Net revenue falls such that the Group cannot sustain its level of dividend, for example due to tenant failure or inability to let properties.
This risk is mitigated through regular review of forecast dividend cover and of tenant mix, risk and profile. Due diligence work on potential tenants is undertaken before entering into new lease arrangements and tenants are kept under constant review through regular contact and various reports both from the managing agents and the Investment Manager’s own reporting process.

Contingency plans are put in place at units that have tenants that are believed to be in financial trouble. The Group subscribes to the Investment Property Databank Iris Report which updates the credit and risk ranking of the tenants and income stream, and compares it to the rest of the UK real estate market. An emerging risk in the year was the poor performance of the retail sector due to a number of high profile administrations and store closures in this sector.

The Group has partially mitigated this risk by having an underweight position to the retail sector with only 8.6% exposure to this sector against the benchmark weighting of 28.5% as at end of December.

The lockdown of many businesses as a result of COVID-19 has resulted in a significant fall of rental collection rates. As at 20 April, only 66% of rents billed for Quarter 2, 2020 had been collected. The usual rate is in excess of 95%. This trend is expected to continue and potentially worsen as long as the lockdown is in place. As a result of this net revenue will fall. On 23 April the Company announced it will be paying the full dividend relating to Quarter 1, 2020 but will keep its dividend policy under review given the likely continued fall in rental collection statistics.

Uncertainty or change in the macroeconomic environment results in property becoming an undesirable asset class, causing a decline in property values.
This risk is managed through regular reporting from, and discussion with, the Investment Manager and other advisers. Macroeconomic conditions form part of the decision making process for purchases and sales of properties and for sector allocation decisions.

The result of the UK general election on 12 December eased the political uncertainty, and in the short term the economic uncertainty, with a bounce in economic activity pre COVID-19. The impact of COVID-19 on the macroeconomic picture both in the UK and abroad will be severe in the short term with our Investment Manager forecasting a 14.2% fall in GDP in 2020 with an 11.8% increase in 2021. This macroeconomic impact has affected the UK commercial real estate sector. As well as having an impact on tenants’ ability to pay rent, valuations have fallen with the Company reporting a 4.9% like for like valuation fall in Quarter 1, 2020. In addition a material uncertainty clause has been inserted in all Quarter 1, 2020 valuations. Looking further ahead, the long term impact on the real estate sector will be dependent on the length of any lockdown and any social distancing measures put in place post the lockdown being eased.

One other issue that could potentially affect the macroeconomic picture and hence property values is the result of the trade negotiations with the EU.

Breach of loan covenants.
This risk is mitigated by the Investment Manager monitoring the loan covenants on a regular basis and providing a quarterly certificate to the bank confirming compliance with the covenants. Compliance is also reviewed by the Board each quarter and there is regular dialogue between the Investment Manager and RBS, the lending bank, on Group activity and performance. As at 31 March, based on the rent collections statistics mentioned above the loan covenants were comfortably met with interest cover of 455% (limit of 175%) and a Loan to value ratio of 28.4% (limit of 60%). In addition there were over £52 million of assets unencumbered at this date.

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

Other risks faced by the Group include the following:
- Strategic – incorrect strategy, including sector and property allocation and use of gearing, could all lead to a poor return for shareholders.
- Tax efficiency – the structure of the Group or changes to legislation could result in the Group no longer being a tax efficient investment vehicle for shareholders.
- Regulatory – breach of regulatory rules could lead to the suspension of the Group’s Stock Exchange Listing, financial penalties or a qualified audit report.
- Financial – inadequate controls by the Investment Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.
- Operational – failure of the Investment Manager’s accounting systems or disruption to the Investment Manager’s business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to loss of shareholder confidence.
- Cyber Risk – Business continuity risk to any of the Company’s service providers or properties, following a catastrophic event e.g. terrorist attack, cyber- attack, power disruptions or civil unrest, leading to disruption of service, loss of data etc.

The merger of Standard Life plc and Aberdeen Asset Management PLC has created additional operational risk for the Group. The Group appointed Aberdeen Standard Fund Managers Limited as its alternative investment fund manager (“AIFM”) in December 2018. The appointment was on identical terms to the arrangements previously in place with Standard Life Investments (Corporate Funds) Limited. There have been no changes so far to the way the Investment Manager provides its services to the Group but the Board is keeping under close review any potential implications for the Group arising from the merger and the integration process The Board seeks to mitigate and manage all risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group’s property portfolio, levels of gearing and the overall structure of the Group.

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

ENVIRONMENTAL, SOCIAL AND GOVERNANCE POLICY
Approach to ESG
The Company adopts the Investment Manager’s policy and approach to integrating ESG and this has been used as the basis for establishing the Company’s ESG objectives.

The Investment Manager views the management of ESG issues as a fundamental part of its business. Whilst real estate investment provides valuable economic benefits and returns for investors it has – by its nature – the potential to affect environmental and social outcomes, both positively and negatively.

The Investment Manager’s approach is underpinned by the following three overarching principles:

Transparency, Integrity and Reporting : being transparent in the ways in which we communicate and discuss our strategy, approach and performance with our investors and stakeholders.
Capability and Collaboration : drawing together and harnessing the capabilities and insights of our platforms, with those of our investment, supply chain and industry partners.
Investment Process and Asset Management : integrating ESG into decision making, governance, underwriting decisions and asset management approach. This includes the identification and management of material ESG risks and opportunities across the portfolio.

Of particular focus is responding to climate change, both in terms of resilience to climate impacts and in reducing emissions from the Company’s activities. The Investment Manager has committed to achieving net-zero emissions across its global portfolio by 2050 as part of the Better Building Partnership’s Climate Change Commitment. Over the course of the next year the focus will be on benchmarking the Company’s assets and appraising necessary improvement measures in the context of this goal.

EPRA Sustainability Best Practice Recommendations Guidelines
The Board, through its Investment Manager, has adopted the 2017 EPRA Sustainability Best Practice Recommendations Guidelines (sBPR) to inform the scope of indicators we report against. The Company has reported against all EPRA sBPR indicators that are material to the Company. Additional data has also been reported not required by the EPRA sBPR where we believe it to be relevant (e.g. like-for-like greenhouse gas emissions).

A full outline of the scope of reporting and materiality review in relation to EPRA sBPR indicators is included in the Annual Report.

Operational Performance Summary
Processes have been put in place to ensure operational sustainability performance is monitored and actions are implemented to drive continual improvement. Like-for-like landlord electricity and gas consumption reduced year-on-year across the Company’s assets, by 4% and 10% respectively. This helped drive a 13% reduction in like-for- like greenhouse gas emissions associated with landlord-procured energy. Like-for-like water consumption increased by 12% year-on-year.

Full details of performance against material EPRA sBPR indicators are included in the Annual Report.

2019 GRESB Assessment
The GRESB Assessment is the leading global sustainability benchmark for real estate vehicles. The Company has submitted data to GRESB since 2012. In the 2019 assessment, its score improved to 74/100; a 4% improvement on 2018. The Company achieved a Green Star rating and a Three Star ranking.

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

VIABILITY STATEMENT
The Board considers viability as part of its ongoing programme of financial reporting and monitoring risk. The Board continually considers the prospects for the Company over the longer term. Based on the Company’s current financial position, its operating model, and the diversified constituents of its portfolio, as well as the strong initial due diligence processes, the continued review of the portfolio and the active asset management initiatives, the Board believes that the Company has a sound basis upon which to continue to deliver returns over the long term.

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

The Board has also carried out a robust assessment of the principal and emerging risks faced by the Group. The main risks which the Board considers will affect the business model are; future performance, solvency, liquidity, tenant failure leading to a fall in dividend cover and macroeconomic uncertainty. These risks have all been considered in light of the financial and economic impact arising from COVID-19. The Board takes any potential risks to the ongoing success of the Group, and its ability to perform, very seriously and works hard to ensure that risks are consistent with the Group’s risk appetite at all times.

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

Detailed NAV, cash resources and income forecasts, prepared by the Company’s Investment Manager, for a five year period under both normal and stressed conditions;
Additional modelling that has been undertaken around the potential impact of COVID-19 on rent collection, cash flow, dividend cover, Net Asset Value and loan covenants;
The Group’s ability to pay its operational expenses, bank interest, tax and dividends over a five year period;
Future debt repayment dates and debt covenants, in particular those in relation to LTV and interest cover;
Demand for the Company’s shares and levels of premium or discount at which the shares trade to NAV;
Views of shareholders; and
The valuation and liquidity of the Group’s property portfolio, the Investment Manager’s portfolio strategy for the future and the market outlook.

Despite the uncertainty in the UK regarding both the impact of the COVID-19 pandemic and also Brexit, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the next five years. This assessment is based on the current financial position of the Company, its performance track record and feedback it receives from shareholders.

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

Robert Peto
Chairman
26 May 2020

STRATEGIC REPORT - INVESTMENT MANAGER’S REPORT

A lot has happened since the end of 2019. Set out below is our review of 2019 and some thoughts on how the events of the first quarter of 2020 might affect the market and the performance of your Company based on the knowledge available at the time of writing.

MARKET REVIEW
UK GDP growth slowed materially in 2019 as Brexit- related uncertainty, the general election and slower global growth weighed on the UK economy. Despite an upward revision to third quarter GDP growth to 0.5%, UK GDP was flat in the final quarter of the year resulting in an annual growth rate of 1.1% in 2019.

The UK labour market remained at historically tight levels and the general election outcome removed one layer of uncertainty for the UK, resulting in a recovery in business and household sentiment towards the end of 2019.

Returns in the real estate market moderated in 2019, with a total return of 1.3% for the calendar year as capital growth turned negative over this period. However, returns were markedly different at the sector level with industrial real estate recording another strong year, delivering total returns of 6.8%, whilst offices returned 4.3%. Retail on the other hand continued to weigh on overall commercial property returns, with capital values declining 12.9% over the year and delivering a total return of -7.7% according to the MSCI IPD Quarterly Index.

The FTSE UK REIT index experienced a late relief rally towards the end of 2019 resulting in a total return of 30.8% for the year as the December election result was viewed positively by the market. This was markedly ahead of the wider stock market, where the FTSE 100 and FTSE All Share indices returned 17.3% and 19.2% respectively. Whilst retail property orientated companies continued to trade at large discounts to net asset value (NAV), London office developers traded at closer to NAV. This was as a result of better than expected leasing activity and a modest upward movement in rents. Some income-focused and industrial orientated names traded at premiums to NAV.

Occupational markets had largely been unfazed by prevailing uncertainty and a lack of clarity on the UK’s future trading relationships. Take-up in the office sector remained strong, with Central London leasing volumes falling only marginally short of the 10 year annual average level. Regionally, headline rents rose and vacancy rates fell across the big six office markets. The retail sector remained the exception, as structural changes continued to hamper the outlook for the sector. The industrial sector, now driven by logistics rather than manufacturing, continued to be a key beneficiary of the structural changes playing out in the UK real estate sector.

The uncertainty created by ongoing Brexit negotiations and the UK general election was felt most acutely through the investment market in 2019. UK real estate investment volumes reached £52 billion in 2019 according to property data, down on the £63 billion recorded in 2018, but in line with the 10 year average. Once again, the alternative space (such as leisure, hotels, student accommodation, private residential schemes etc) gained investment market share on the previous year, accounting for one-third of all investment activity by value in 2019. Meanwhile, the office sector recorded investment volumes of £17.4 billion as a number of large deals in central London bolstered the overall number.

Regional offices were the best performing part of the office sector in 2019, delivering a total return of 5.6%, followed by City offices returning 5.1%, West End offices 4.5%, and South East offices 3.4%. Occupational demand for London offices remained resilient in spite of the political uncertainty created by the general election and Brexit negotiations. Leasing activity was strong in the final quarter of the year which helped bring the full-year take-up total to 12.8 million square feet, marginally below the 10-year annual average of 13.1 million square feet according to CBRE. Availability of second hand and Grade A. space both fell over the course of the year, with the squeeze being felt most acutely in newly constructed Grade A. space. New lettings focussed on the best quality Grade A. space, with secondary space becoming more challenging to let. Strong take-up, declining levels of availability and a limited forward supply pipeline supported rental value growth of 1.3% for London offices in 2019. In the regional office markets, the ‘Big Six’ in particular, corporate and public sector consolidation drove demand for the best quality space. In a similar vein to Central London offices, supply and pipeline of Grade A. office buildings in the ‘Big Six’ remained well balanced. As the year drew to a close, the political clarity derived from the election result prompted a noticeable increase in the level of optimism from agents in the market, particularly towards Central London offices.

The retail sector returned -7.7% in 2019, with values falling by 12.9% and, anecdotally, some pricing continuing to fall in 2020. Shopping centres were in the eye of this retail storm, with values across the MSCI Quarterly Index sample falling by 15.7% in 2019, bringing the cumulative fall to 27% over the last two years. Retail warehouses lost 14.0% of their value in 2019 and have now fallen 21% since their last peak at the beginning of 2018. Regional shops fell by a similar amount over the year. Supermarkets, protected by long index-linked leases to strong covenants, and Central London shops were the only retail segments to show any stability. In line with the weak performance of large-format retail, liquidity was highly constrained in 2019. Less than £700 million of shopping centres transacted – comfortably the lowest volume on record – and retail warehouse activity only picked up with greater price transparency towards the end of the year.

Ultimately, sentiment was weak and rents, in aggregate, were under intense downward pressure as retailers sought to rationalise portfolios through lease events, direct negotiations with landlords or the more drastic option of company voluntary arrangements. Even before COVID-19, further falls in value were anticipated in 2020.

The industrial sector maintained its position as the best performing UK commercial real estate sector in 2019, outperforming the wider market by over 500 bps with a total return of 6.8%. This is the eighth consecutive year that the sector has outperformed the wider market. Despite moderating from the levels witnessed in 2018, rents grew by a robust 2.9% at the headline level in 2019, continuing to provide support for pricing in the sector. In a similar vein to last year, the more space constrained South East industrial market recorded the strongest rental value growth with rents growing by 3.8%, whilst rental growth in the regions grew by a more modest 1.6%. The structural transition to online retailing continues unabated, resulting in another strong year of take-up by third-party logistics providers and retailers. In fact, with more than 35 million square feet of positive net absorption, 2019 was the strongest year since 2015 according to Co- star. As a result, vacancy rates trended lower over the course of the year and ended 2019 at approximately 3%. Prior to COVID-19 market fundamentals remained supportive for continued rental value growth in the industrial sector, particularly in London, the South East and the best urban locations across the UK. At this stage it is unclear whether the effects of the virus will cause a short term delay to this rental growth, or have a larger impact.

The UK real estate investment market remained highly polarised in 2019, with the alternative sectors clearly in vogue once again. The sector, categorised as “Other Property” by MSCI IPD, outperformed the market average in 2019 with a total return of 4.5%. Alternative property types possess a number of appealing facets for income focused investors, most notably the long indexed leases which are common practice and values which tend to be less volatile than the traditional commercial sectors. The sector has grown in prominence in recent years and 2019 was no exception as alternative property types accounted for close to a third of all investment activity in UK real estate: the sector’s greatest share of the UK real estate market on record. The Purpose Build Student Accommodation (PBSA) and hotel sectors, the most established alternative sectors for institutional investors in the UK, accounted for over 50% of the £16.5 billion that was invested in alternative property types last year, with the former benefitting from a number of large portfolio transactions and M&A activity. There was a noticeable increase in interest in retirement living and the Build to Rent sectors during 2019. This follows a more general trend emerging in UK real estate where investors are increasing allocations to more operational sectors, which provides greater exposure to the underlying performance of income-generating assets. There remains a considerable weight of money targeting such assets and this is likely to put further downward pressure on yields.

MARKET OUTLOOK
The general election result removed one layer of uncertainty in the UK which resulted in a noticeable improvement in sentiment in early 2020. Near-term uncertainties facing businesses and households eased, surveys of business activity picked up, admittedly from a low base and investment intentions appeared to have improved. All other things being equal, we would have expected that a more stable political backdrop and increased levels of optimism, at least in the near-term, would have translated into a modest recovery in the UK real estate investment market throughout 2020.

As this is written, however, our everyday life has been thrown into turmoil as we grapple with COVID-19. Despite massive Government intervention, it is clear that COVID-19 is going to have a material impact on every part of the economy in 2020. It is still too early to provide a reliable guide to the next 12 – 18 months; however we do believe the recovery will be prolonged, as it will take some considerable time for a new “normal” life to become re-established. As easing of restrictions begins, and some shops start to reopen we are still going to have limited travel – either because of centrally imposed restrictions or reluctance to use public transport.

Retailers and leisure operators will see a protracted recovery with normal trading only possible once a vaccine is in place. The viability of many companies only operating at limited capacity is debatable, and with heightened unemployment and a reluctance to visit busy spaces, consumer spending is likely to remain subdued.

Office functions are being undertaken from home, with varying degrees of success (not least linked to the presence of young children in the house!) and home working is likely to remain popular. Early return to work will be in reduced numbers, and it is possible we will see longer term changes in occupier demand towards having a hub and spoke model where there is a greater diversity of workplace, and reduced commuting to a centralised point. We might even see a resurgence in out of town office parks, as the ability to drive to work, and experience fresh air without dense population at lunchtime becomes more appealing than a vibrant city centre.

The logistics sector is likely to be the first to recover, and if some projections of permanently increased online shopping are correct, there could be a shortage of accommodation. That is not to say challenges don’t remain for the sector. Tenant failure in the short term is quite possible as logistics is a low margin business, and we have seen a significant reduction in freight movement, and some sectors, such as car manufacturing, are especially exposed to an economic downturn.

PERFORMANCE
There are a number of measures that can be used to consider the Company’s performance.

At the most basic level investors can compare the performance of the Company’s investment portfolio to the MSCI / IPD quarterly benchmark. This measure does not represent the return investors obtain, but it does demonstrate how the underlying portfolio is performing compared to the wider market on a like for like basis. We use the MSCI / IPD quarterly index as a benchmark for performance comparison only. We remain agnostic about the benchmark composition. Indeed, the Company’s sector allocation is significantly different to the benchmark, reflecting our investment outlook and strategy. It is pleasing to note that the portfolio has outperformed the benchmark over 1, 3, 5, and 10 years.

Perhaps a better reflection of performance is the NAV total return. The NAV total return takes into account all aspects of the Company – the impact of debt, management fees, costs of running the Company, as well as the costs of managing / refurbishing the assets. This is therefore the best measure of the performance that represents what is under the Board and manager’s influence. The benchmark return has none of these additional costs in it.

Portfolio Total Return	1 Year	3 Years	5 Years	10 Years
Portfolio total return % (per annum)	4.8	8.4	8.8	10.0
Benchmark return % (per annum)	1.3	6.2	6.7	8.3
NAV total return % (per annum)	4.1	9.3	9.5	11.7
Source: Aberdeen Standard Investments, MSCI IPD

In the table below we also compare the NAV total return of the company to the AIC property direct UK sector and to the open-ended property funds. Again, the NAV total return compares favourably to the investment company peer group and the Investment Association open-ended sector performance.

For shareholders the share price total return is potentially a more relevant measure. As Manager it is the one we can influence least as it is affected, sometimes quite materially by movements in the premium/discount at which the company’s shares trade compared to the NAV. The share price total return is shown in the table below against several other measures.

Both the Manager and the Board continuously monitor the share price and whether the Company is trading at a premium or a discount and how that compares to its peers. During the year the rating has fluctuated reflecting investor sentiment towards the sector often driven by wider uncertainties such as Brexit, the political situation, and the state of the economy.

NAV Total Returns to 31 December 2019	1 year (%)	3 year (%)	5 year (%)	10 year (%)

Standard Life Investments Property Income Trust	4.1	30.5	57.3	202.2
AIC Property Direct – UK sector (weighted average)	2.5	19.8	39.4	51.5
Investment Association Open Ended Commercial Property Funds sector	0.2	12.3	22.0	66.9
Company’s ranking in AIC Property Direct sector	5	3	2	1

Source: AIC, Aberdeen Standard Investments

Share Price Total Returns to 31 December 2019	1 year (%)	3 year (%)	5 year (%)	10 year (%)
Standard Life Investments Property Income Trust	18.0	23.1	52.1	162.2
FTSE All-Share Index	19.2	22.0	43.8	118.3
FTSE All-Share REIT Index	30.8	28.5	32.2	149.0
AIC Property Direct – UK sector (weighted average)	13.4	14.1	31.0	39.1

Source: AIC, Aberdeen Standard Investments

VALUATION
The investment portfolio is valued quarterly by Knight Frank LLP. As at 31 December 2019 the portfolio was valued at £493.2 million (£499.1 million as at 31 December 2018). Cash stood at £6.5 million, compared to £8.3 million a year earlier. During the course of the year the amount drawn under the revolving credit facility varied, but at year end stood at £18 million compared to £20 million at 31 December 2018.

The report and accounts relate to the period to the end December 2019, however since then there has been a significant change to UK valuations such that all UK valuers applied a Material Uncertainty clause to their valuations in March 2020. This meant that open ended funds based on the fund NAV had to suspend trading, and reflected the lack of transactional evidence valuers could rely on. As at the valuation date of 31 March 2020 the Company’s portfolio saw a like for like reduction of 4.9% from the end December valuation, with the NAV standing at 83.2p. Every asset in the portfolio reduced in value, demonstrating the scale of the impact of COVID 19, and the valuer’s desire to reflect the market sentiment as well as to rely on transactional evidence.

INVESTMENT STRATEGY
The Company has a clear investment strategy that the Board and Investment Manager use to focus their efforts.

The Company’s objective is to provide investors with an attractive level of income with the prospect of income and capital growth, delivered through investing in a diversified portfolio of UK Commercial real estate. We believe that the dividend should be fully covered by rental income over the medium term.

When constructing the portfolio we start by looking at the macro themes and drivers affecting UK real estate to undertake a top down review of what sectors we want to be invested in. We believe that having the correct sector allocation is likely to enhance performance. An example would be identifying the changing consumer habits in the retail sector that led us to reduce our retail exposure and increase the industrial weighting a few years ago, and in the office sector it identified the changing ways offices are being and will be used.

The top down approach helps us focus our efforts, but no two properties are the same so it is vitally important that we take a bottom up approach to analysing every asset we own and every asset we consider investing in.

We seek to invest in assets that we believe will perform over the medium to long term and help meet the Company’s income requirement. We look to acquire assets that will appeal to occupiers and future purchasers and are happy to invest in assets that require asset management and some investment, or have some vacancy, as we believe an active approach to managing assets generates superior returns. By investing in good quality assets that are in good locations and let to quality tenants we are less concerned about lease duration, as we manage the tenant relationships to maintain and grow income through lease events. Also key to this is Environmental, Social and Governance considerations which are set out in more detail below.

PURCHASES
During the reporting period the Company completed three purchases totalling £25.8 million. We had expected to be net investors over the year, however, with the high levels of uncertainty we took a cautious approach to appraising opportunities. We are strongly of the belief that it is better to only invest in assets we truly believe in rather than buying assets because we have the cash to do so.

Broadoak, Manchester
The Company acquired a small industrial unit that is adjacent to an estate already owned by the Company, which means the holding now forms a site for potential future development on Trafford Park. The purchase price was £3.5 million and the property is let for a further 8 years, with good potential for rental growth.

160 Causewayside, Edinburgh
The Company acquired this asset for £8.8 million. The property is located to the South of Edinburgh City Centre close to the University. The ground floor is let to Tesco and a pharmacy, whilst the four floors of offices above are let to a variety of tenants. There is one vacant suite, which we have good interest in. The offices provide a good opportunity for rental growth through asset management.

Badentoy, Aberdeen
The Company acquired a single let industrial / logistics unit for £13.55 million. The unit only covers 22% of the site, which gives scope for future expansion, although at present the whole site is let on a lease with 9 years remaining to a strong covenant.

SALES
Four sales were undertaken during the year totalling £35.3 million, with a further sale completed in January 2020 for £10.7 million. Sales are undertaken where we believe an asset is not going to perform in-line with our requirements, or if we think the risk profile is not suitable. We are happy to realise profits and reduce future risk. We regularly review our holdings to challenge our belief that they will continue to perform in line with expectations.

Silbury Court, Milton Keynes
We sold a small office for £6 million that we believed would require significant capital expenditure on expiry of the lease and potentially a prolonged void. Although we like the Milton Keynes office market, we felt this was a good example of taking a profit whilst mitigating risk.

Mansfield
We sold a small industrial unit for £920,000 to the tenant, who had an option on the unit. We had previously sold the remainder of the estate and this was the smallest asset in the fund.

Michigan Drive, Milton Keynes
Although the Milton Keynes market is strong for industrial units we sold this asset for £9.3 million due to serious concerns over the future viability of the tenant’s business. We believed there was far greater downside risk than upside.

Denby 242, Derby
This asset represented the single largest tenant exposure and, although we liked the unit, we felt there was too much risk around the lease expiry in 5 years’ time and the potential impact on the company’s revenue account. The sale was timed to take advantage of the strength of demand for logistics investments to realise a profit.

Bourne House, Staines
In January 2020 we completed the sale of this single let office asset for £10.7 million. The property had recently been re-let and was fully valued. We were also cognisant of increased flood risk on future modelling for this location.

ASSET MANAGEMENT
Asset management is the bread and butter of the Company’s activities, and – takes a very active approach to dealing with our tenants to optimise value. The Company benefits from having a dedicated and experienced team focused on asset management. They engage with tenants on a one to one basis, and ensure that the Company uses best in class agents where appropriate. One of the main focuses in 2019 has been to ensure the Company’s office properties address tenants’ needs. We have fully fitted several suites and developed shorter more user friendly leases to ease the challenges of relocating for smaller businesses. This has started to reap rewards, with a noticeable pick up in viewings, especially from companies that have grown up in serviced offices but now want dedicated space.

Although many commentators refer to serviced offices as a threat to traditional landlords, we have found they have helped us attract new tenants. Companies typically only made decisions to move or expand if they had to in 2019 with so much negative press and uncertainty around UK politics and economic outlook. After the general election in December we saw a noticeable pick up in enquiries and viewings.

Highlights of the team’s achievements are:

Over the course of 2019 20 new lettings were completed generating £3.69 million rent per annum.
7 lease renewals were completed securing £1.02 million per annum.
8 rent reviews agreed, showing an increase in annual rent of £330,600 per annum (14.2%) from the previously agreed rent.

DEBT
The Company utilises debt, with two facilities from the Royal Bank of Scotland. The main term loan is for £110 million and matures in April 2023. There is also a Revolving Credit Facility (“RCF”) of £55 million which matures on the same date. At the year-end £18 million was drawn on the RCF, however, following the sale of Bourne House, Staines in January 2020 a further £10 million was repaid, leaving just £8 million drawn.

The LTV as at 31 December was 24.6% (December 2018: 24.4%). The all in-cost of the debt as at 31 December was 2.6%.

The Company entered into an interest rate swap when the term loan was taken out. At 31 December 2019 the interest rate swap had a liability of £2.2 million (2018 -£0.8 million) which is reflected in the NAV. This liability will reduce to zero on maturity.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE
ESG is an integral part of how we manage the Company. That is of course a very easy statement to make, and we are continually refining what we do, and learning. We believe that “doing the right thing” in ESG terms, is increasingly aligned with the goals and ideals of our corporate occupiers, as well as the individuals who occupy and use our buildings. This is a relatively new phenomenon, and getting it right will be an essential part of delivering performance in the future. We report more fully on the ESG Metrics separately in the annual report, however within the Investment Manager’s report we wanted to explain the practical approach we take when managing the portfolio as ESG can mean different things to different people.

Environmental
This element is related to energy efficiency and waste. Much of what we do is very simple, for example:

We have worked with our managing agents to reduce waste to land fill through improved recycling in the buildings.
We always use energy efficient lightbulbs (LED) in refurbishments to reduce consumption.
We calibrate and monitor the operation of mechanical and electrical plant to ensure it runs as efficiently as possible.

These measures have helped the company achieve a 4% and 10% reduction in landlord like-for-like electricity and gas consumption respectively in 2019. All of the electricity purchased by the Company is designated as green energy. In addition there has been a 13% reduction in carbon emissions associated with landlord procured energy.

We have engaged with tenants on most of the assets in the portfolio about installing photo voltaic (PV) cells on the roof, where the Company pays for the installation and then sells the power to the tenant. We currently have 5 buildings where this has occurred (with a capacity of 241kwp) and are working on a further 4 schemes that could have a capacity of circa 2,000kwp.

Climate change presents both physical risks to real estate assets (e.g. from flooding) and transition risks associated with an asset’s ability to decarbonise. We assess flood risk on all of our potential purchases and existing assets, and are fortunate to have in house expertise as well as utilising the Environment Agency data.

Aberdeen Standard Investments has recently partnered with Vivid Economics to better understand climate risks across all asset classes. As part of this work, we will assess the physical risk posed to assets in the Company’s portfolio under a range of future climate scenarios out to 2040, ranging from a 1.5°C global temperature increase (i.e. consistent with the Paris Agreement) to a +4°C temperature increase. Results of this assessment will be available later in 2020.

Transition risk for real estate assets depends on their ability to transition to net-zero greenhouse gas emissions before 2050. Importantly, there is consensus in the UK real estate industry that it should not be possible to claim net-zero status by simply off-setting all emissions and that a standard of energy efficiency must be met first. Assessing transition risk at the asset level involves benchmarking energy performance and establishing the cost of improvements to meet levels consistent with a net-zero pathway. Where the Company (as landlord) is in control of utilities and has full energy data for office assets, our M&E/Sustainability consultants have started this benchmarking exercise.

This process will follow for other assets in due course and is dependent on obtaining energy consumption data from tenants.

Social
The Social aspect of ESG is not as easy to identify as the Environmental, but is an area of great focus for us, because it directly relates to how our buildings are used. It is most prevalent within our office portfolio as that is where we have more multi-let occupation.

We seek to invest in buildings where we can create amenities for the occupier, including things like high quality showers and changing rooms, secure bike racks, space for organised yoga classes, break out / relaxation space with coffee machines.

Our on-site reception teams seek to create a sense of community through tenant engagement. This includes organising food banks, competitions, local charity stalls etc., and in a couple of our buildings we have been able to assist tenants with provision of training and seminars to help people upskill.

We are convinced that we can improve the performance of our assets by getting the social aspect right. If we provide a working environment that resonates with the beliefs of the people who use our assets then that will increase the appeal to the corporates who employ them. We aim to provide accommodation that enhances productivity and therefore improves the cost efficiency for our tenants.

Governance
Engaging in the environmental and social aspects of ESG is in itself not enough. We need to be able to measure it, and provide tenants and investors with reliable information about our buildings. We subscribe to the GRESB benchmarking service and are looking at various forms of certification.

OUTLOOK AND FUTURE STRATEGY
The positive environment of early 2020 has quickly changed into what is likely to be a greater economic contraction than the Great Financial Crisis. We are fortunate to have a limited exposure to retail assets which are likely to continue to struggle, and we have a greater exposure to the industrial sector, which looks relatively resilient. In a market of sudden change, opportunities will arise. Our focus is to ensure longer term sustainability and positive progress for the Company; and hence we will look at opportunities as they arise. In the meantime, all our effort continues to be focused on providing tenants with accommodation that meets their needs. Our basic philosophy of investing in good quality assets, in strong locations, let to good tenants remains as valid now as it ever has.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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

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

select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
make judgement and estimates that are reasonable and prudent;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; - state that the Group has complied with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the Group Consolidated Financial Statements; and
prepare the Group Consolidated Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

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

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

The maintenance and integrity of the Company’s website is the responsibility of the Directors through its Investment Manager; the work carried out by the auditors does not involve considerations of these matters and, accordingly, the auditors accept no responsibility for any change that may have occurred to the Consolidated Financial Statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of the consolidated financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Consolidated Annual Report under the Disclosure and Transparency Rules.
The Directors each confirm to the best of their knowledge that:

the Consolidated Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
the management report, which is incorporated into the Strategic Report, Directors’ Report and Investment Manager’s Report, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face.

Statement under the UK Corporate Governance Code.

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

Approved by the Board on
26 May 2020
Robert Peto
Chairman

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income for the year ended 31 December 2019
	Notes	2019 £	2018 £
Rental income		29,878,646	27,773,205
Service charge income		3,313,463	1,665,737
Surrender premium		580,000	—
Valuation (loss)/gain from investment properties	7	(3,613,836)	12,057,044
Gain on disposal of investment properties	7	427,304	1,861,161
Investment management fees	4	(3,492,880)	(3,381,779)
Valuer’s fees	4	(97,668)	(91,396)
Auditor’s fees	4	(81,850)	(78,500)
Directors’ fees and subsistence	22	(227,276)	(202,298)
Service charge expenditure		(3,313,463)	(1,665,737)
Other direct property expenses		(2,935,023)	(3,154,578)
Other administration expenses		(530,862)	(426,768)
Operating profit		19,906,555	34,356,091
Finance income	5	15,856	58,411
Finance costs	5	(3,778,280)	(3,468,125)
Profit for the period before taxation		16,144,131	30,946,377
Taxation
Tax charge		—	—
Profit for the period, net of tax		16,144,131	30,946,377
Other Comprehensive Income Valuation (loss)/gain on cash flow hedge	14	(1,416,653)	1,440,836
Total other comprehensive gain/(loss)		(1,416,653)	1,440,836

Total comprehensive gain for the period, net of tax		14,727,478	32,387,213
Earnings per share		2019 (p)	2018 (p)
Basic and diluted earnings per share	18	3.98	7.68
EPRA earnings per share	18	4.76	4.22

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

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

Consolidated Balance Sheet as at 31 December 2019

ASSETS	Notes	2019 £	2018 £
Non-current assets
Investment properties	7	477,855,299	495,245,556
Lease incentives	7	5,523,822	2,896,409
Rental deposits held on behalf of tenants		1,298,364	840,633
		484,677,485	498,982,598
Current assets
Investment properties held for sale	8	10,700,000	—
Trade and other receivables	10	3,913,519	4,939,071
Cash and Cash equivalents	11	6,475,619	8,264,972
		21,089,138	13,204,043
Total Assets		505,766,623	512,186,641
LIABILITIES
Current liabilities
Trade and other payables	12	9,232,072	11,906,363
Interest rate swap	14	644,465	451,714
		9,876,537	12,358,077
Non-current liabilities
Bank borrowings	13	127,316,886	129,249,402
Interest rate swap	14	1,576,151	352,249
Obligations under finance leases	15	904,121	—
Rent deposits due to tenants		1,298,364	840,633
		131,095,522	130,442,284
Total liabilities		140,972,059	142,800,361

Net assets		364,794,564	369,386,280

EQUITY		2019 £	2018 £
Capital and reserves attributable to Company’s equity holders
Share capital	17	227,431,057	227,431,057
Retained earnings	18	6,168,350	6,156,881
Capital reserves	18	33,356,785	37,959,970
Other distributable reserves	18	97,838,372	97,838,372
Total equity		364,794,564	369,386,280

Approved and authorised for issue by the Board of Directors on 26 May 2020 and signed on their behalf by Robert Peto.

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

Consolidated Statement of Changes in Equity for the year ended 31 December 2019
		Share Capital	Retained earnings	Capital reserves	Other Distributable Reserves	Total equity
	Notes	£	£	£	£	£
Opening balance 1 January 2019		227,431,057	6,156,881	37,959,970	97,838,372	369,386,280
Profit for the year		—	16,144,131	—	—	16,144,131
Other comprehensive income		—	—	(1,416,653)	—	(1,416,653)
Total comprehensive income for the period		—	16,144,131	(1,416,653)	—	14,727,478
Ordinary shares issued net of issue costs	17	—	—	—	—	—
Dividends paid	20	—	(19,319,194)	—	—	(19,319,194)
Valuation loss from investment properties	7	—	3,613,836	(3,613,836)	—	—
Gain on disposal of investment properties	7	—	(427,304)	427,304	—	—
Balance at 31 December 2019		227,431,057	6,168,350	33,356,785	97,838,372	364,794,564



Consolidated Statement of Changes in Equity for the year ended 31 December 2018
		Share Capital	Retained earnings	Capital reserves	Other Distributable Reserves	Total equity
	Notes	£	£	£	£	£
Opening balance 1 January 2018		217,194,412	8,364,603	22,600,929	97,838,372	345,998,316
Profit for the year		—	30,946,377	—	—	30,946,377
Other comprehensive income		—	—	1,440,836	—	1,440,836
Total comprehensive income for the period		—	30,946,377	1,440,836	—	32,387,213
Ordinary shares issued net of issue costs	17	10,236,645	—	—	—	10,236,645
Dividends paid	20	—	(19,235,894)	—	—	(19,235,894)
Valuation gain from investment properties	7	—	(12,057,044)	12,057,044	—	—
Gain on disposal of investment properties	7	—	(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 below notes are an integral part of these Consolidated Financial Statements.

Consolidated Cash Flow Statement for the year ended 31 December 2019
Cash flows from operating activities	Notes	2019 £	2018 £
Profit for the year before taxation		16,144,131	30,946,377
Movement in lease incentives		(1,881,958)	(735,921)
Movement in trade and other receivables		(400,215)	16,441,217
Movement in trade and other payables		(2,216,558)	1,243,386
Finance costs	5	3,778,280	3,524,503
Finance income	5	(15,856)	(58,411)
Valuation loss/(gain) from investment properties	7	3,613,836	(12,057,044)
Gain on disposal of investment properties	7	(427,304)	(1,861,161)
Net cash inflow from operating activities		18,594,356	37,442,946

Cash flows from investing activities
Interest received	5	15,856	58,411
Purchase of investment properties	7	(25,808,526)	(64,023,051)
Additions through business acquisition		—	(23,913,188)
Capital expenditure on investment properties	7	(4,628,353)	(8,170,795)
Net proceeds from disposal of investment properties	7	35,067,304	44,861,161
Net cash inflow/(outflow) from investing activities		4,646,281	(51,187,462)
Cash flows from financing activities
Proceeds on issue of ordinary shares	16	—	10,314,000
Transaction costs of issue of shares	16	—	(77,355)
Bank borrowing	13	1,000,000	20,000,000
Repayment of RCF	13	(3,000,000)	—
Bank borrowing arrangement costs	13	(150,000)	(52,490)
Interest paid on bank borrowing	5	(2,986,775)	(2,546,435)
Payments on interest rate swaps	5	(574,021)	(726,842)
Dividends paid to the Company's shareholders	20	(19,319,194)	(19,235,894)
Net cash (outflow)/inflow from financing activities		(25,029,990)	7,674,984
Net decrease in cash and cash equivalents		(1,789,353)	(6,069,532)
Cash and cash equivalents at beginning of year	11	8,264,972	14,334,504
Cash and cash equivalents at end of year	11	6,475,619	8,264,972

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

Notes to the Consolidated Financial Statements for the year ended 31 December 2019

1 GENERAL INFORMATION

Standard Life Investment Property Income Trust Limited (“the Company”) and its subsidiaries (together “the Group”) carries on the business of property investment through a portfolio of freehold and leasehold investment properties located in the United Kingdom. The Company is a limited liability company incorporated in Guernsey, Channel Islands. The Company has its listing on the London Stock Exchange.

The address of the registered office is P.O. Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey. These audited Consolidated Financial Statements were approved for issue by the Board of Directors on 26 May 2020.

2 ACCOUNTING POLICIES

2.1 Basis of preparation

The audited Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”), and all applicable requirements of The Companies (Guernsey) Law, 2008. The audited Consolidated Financial Statements of the Group have been prepared under the historical cost convention as modified by the measurement of investment property and derivative financial instruments at fair value.

The Consolidated Financial Statements are presented in pounds sterling and all values are not rounded except when otherwise indicated.

The Directors have considered the basis of preparation of the accounts given the COVID 19 pandemic and believe that it is still appropriate for the accounts to be prepared on the going concern basis.

Changes in accounting policy and disclosure

IFRS 16 Leases

IFRS 16 Leases (“IFRS 16”) replaces IAS 17 Leases (“IAS 17”) and is effective for annual periods beginning on or after 1 January 2019. The key changes are the lessee and lessor accounting models are no longer symmetrical.

For lessees, the accounting for leases will change to a new single lessee accounting model, requiring recognition of a right-of-use asset (right to use underlying leased asset) and a lease liability (obligation to make lease payments) for a lease with a term greater than 12 months, exclusion to recognition is if the underlying asset is of a low value when new.

For lessors, this remains relatively unchanged – IFRS 16 retains IAS 17’s distinction of finance and operating lease however, IFRS 16 has introduced changes for the lessor where the lessor acts as an intermediate lessor in the lease contract.

The Group has made an assessment of the leases, where the Group acts as intermediate lessor in the lease agreement, and has identified that the Group has one investment property held on leased land which has a material impact on the accounts. The standard permits a modified retrospective approach in the year of adoption by recognising a cumulative catch up adjustment to opening retained earnings. The Group intends utilising this modified retrospective approach for this contract.

New and amended standards and interpretations not applied

IFRIC 23 Uncertainty over Income Tax Treatments (“IFRIC 23”) is effective for annual periods beginning on or after 1 January 2019. IFRIC 23 clarifies the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments. The Group has made no adjustments to its financial statement following adoption of IFRIC 23 and hence not discussed further.

Annual Improvements to IFRS

The Group has made no adjustments to its financial statements following adoption of the amendments to the IFRS Standards detailed in the annual Improvements to IFRS 2015-2017 Cycle (1 January 2019). The amendments were not applicable to the Group and hence not discussed.

New standards, amendments and Interpretation not yet effective

There are a number of amended standards issued which are effective from annual periods beginning on or after 1 January 2020. The Group does not anticipate these to have a material impact on the annual consolidated financial statements of the Group and hence not discussed and are detailed below:

Amendments to IAS 1 Presentation of Financial Statements (“IAS 1”) and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”) definition of material.
An amendment of IFRS 3 Business combinations (“ IFRS 3”) definition of business.

2.2 Significant accounting judgements, estimates and assumptions

The preparation of the Group’s Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. The most significant estimates and judgements are set out below. There were no critical accounting judgements.

Fair value of investment properties

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

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

Under the income capitalisation method, over (above market rent) and under-rent situations are separately capitalised (discounted).

The sensitivity analysis in note 7 details the decrease in the valuation of investment properties if equivalent yield increases by 50 basis points or rental rates (ERV) decreases by 5% which the Board believes are reasonable sensitivities to apply given historical movements in valuations.

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the Consolidated Balance Sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models.

The input to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair value. The judgements include considerations of liquidity and model inputs such as credit risk (both own and counterparty’s), correlation and volatility.

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

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

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

2.3 Summary of significant accounting policies

A Basis of consolidation

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

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

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

Power over the subsidiary (i.e. existing rights that give it the current ability to direct the relevant activities of the subsidiary)
Exposure, or rights, to variable returns from its involvement with the subsidiary
The ability to use its power over the subsidiary to affect its returns

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

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

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

B Functional and presentation currency

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

C Revenue Recognition

Revenue is recognised as follows;

i) Bank interest

Bank interest income is recognised on an accruals basis.

ii) Rental income

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

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

The surrender premiums received for the year ended 2019 were £580,000 (2018: £nil) as detailed in the Statement of Comprehensive Income and related to a tenant break during the year.

iii) Property disposals

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

D Expenditure

All expenses are accounted for on an accruals basis. The investment management and administration fees, finance and all other revenue expenses are charged through the Consolidated Statement of Comprehensive Income as and when incurred. The Group also incurs capital expenditure which can result in movements in the capital value of the investment properties. The movements in capital expenditure are reflected in the Statement of Comprehensive Income as a valuation gain/(loss). In 2019, there were no non-income producing properties (2018: nil).

E Taxation

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

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

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

F Investment property

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

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

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

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

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

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

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

or disposal.

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

G Investment properties held for sale

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

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

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

H Trade and other receivables

Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account, and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Consolidated Statement of Comprehensive Income.

I Cash and cash equivalents

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

J Borrowings and interest expense

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

Statement of Comprehensive Income as incurred.

K Accounting for derivative financial instruments and hedging activities

Interest rate swaps are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

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

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

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

L Service charge

The Group has appointed a managing agent to deal with the service charge at the investment properties and the Group is acting as an agent for the service charge and not a principal. As a result the Group recognises net service charge and void expenses in the Consolidated Statement of Comprehensive Income. The table in note 21 is a summary of the service charge during the year. It shows the amount the service charge has cost the tenants for the 12 months to 31 December 2019, the amount the tenants have been billed based on the service charge budget and the amount the Group has paid in relation to void units over the year. The table also shows the balancing service charge that is due from the tenants as at the Balance Sheet date.

M Other financial liabilities

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

3 FINANCIAL RISK MANAGEMENT

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

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

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

Market risk

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

i) Interest Rate risk

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

The bank borrowings as described in note 13 also expose the Group to cash flow interest rate risk. The Group’s policy is to manage its cash flow interest rate risk using interest rate swaps, in which the Group has agreed to exchange the difference between fixed and floating interest amounts based on a notional principal amount (see note 14). The Group has floating rate borrowings of £128,000,000. £110,000,000 of these borrowings has been fixed via an interest rate swap.

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

At 31 December 2019, if market rate interest rates had been 100 basis points higher, which is deemed appropriate given historical movements in interest rates, with all other variables held constant, the profit for the year would have been £115,244 lower (2018: £117,350 lower) as a result of the higher interest income on cash and cash equivalents off set by the higher interest expense on the RCF. Other Comprehensive Income and the Capital Reserve would have been £3,851,254 higher (2018: £3,136,020 higher) as a result of an increase in the fair value of the derivative designated as a cash flow hedge of floating rate borrowings.

At 31 December 2019, if market rate interest rates had been 100 basis points lower with all other variables held constant, the profit for the year would have been £115,244 higher (2018: £117,350 higher) as a result of the lower interest income on cash and cash equivalents off set by the lower interest expense on the RCF. Other Comprehensive Income and the Capital Reserve would have been £3,898,889 lower (2018: £4,985,212 lower) as a result of a decrease in the fair value of the derivative designated as a cash flow hedge of floating rate borrowings.

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

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

At 31 December 2019	Fixed Rate	Variable Rate £	Interest Rate £
Cash and cash equivalents	-	6,475,619	0.020%
Bank borrowings	128,000,000	-	2.640%

At 31 December 2018	Fixed Rate	Variable Rate £	Interest Rate £
Cash and cash equivalents	-	8,264,972	0.020%
Bank Borrowings	130,000,000	-	2.650%

ii) Real estate risk

The Group has identified the following risks associated with the real estate portfolio. The risks below, in particular b and c and also credit risk, have increased given the COVID 19 pandemic and the resultant affect on tenants ability to pay rent:

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

The Group uses advisers who are experts in the specific planning requirements in the scheme’s location in order to reduce the risks that may arise in the planning process.

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

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

Credit risk

Credit risk is the risk that a counterparty will be unable to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional related costs. The Investment Manager regularly reviews reports produced by Dun and Bradstreet and other sources, including the IPD IRIS report, to be able to assess the credit worthiness of the Group’s tenants and aims to ensure that there are no excessive concentrations of credit risk and that the impact of default by a tenant is minimised. In addition to this, the terms of the Group’s bank borrowings require that the largest tenant accounts for less than 20% of the Group’s total rental income, that the five largest tenants account for less than 50% of the Group’s total rental income and that the ten largest tenants account for less than 75% of the Group’s total rental income. The maximum credit risk from the tenant arrears of the Group at the financial year end was £2,599,862 (2018: £2,937,105) as detailed in note 10 below.

With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty bank with a maximum exposure equal to the carrying value of these instruments. As at 31 December 2019 £3,393,849 (2018: £5,709,167) was placed on deposit with The Royal Bank of Scotland plc (“RBS”), £3,081,770 (2018: £2,555,805) was held with Citibank. The credit risk associated with the cash deposits placed with RBS is mitigated by virtue of the Group having a right to off -set the balance deposited against the amount borrowed from RBS should RBS be unable to return the deposits for any reason.

Citibank is rated A-2 Stable by Standard & Poor’s and P-2 Stable by Moody’s. RBS is rated A-3 Stable by Standard & Poor’s and NP Positive by Moody’s.

Liquidity risk

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

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

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

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

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

	On demand	12 months	1 to 5 years	>5 years	Total
Year ended 31 December 2019	£	£	£	£	£
Interest-bearing loans	—	20,387,418	115,371,691	—	135,759,109
Interest rate swaps	—	610,082	1,372,685	—	1,982,767
Trade and other payables	3,177,865	26,068	104,271	2,658,921	5,967,125
Rental deposits due to tenants	—	320,878	514,128	784,237	1,619,243
	3,177,865	21,344,446	117,362,775	3,443,158	145,328,244

	On demand	12 months	1 to 5 years	>5 years	Total
Year ended 31 December 2018	£	£	£	£	£
Interest-bearing loans	—	22,435,855	117,792,177	—	140,228,032
Interest rate swaps	—	599,907	1,949,698	—	2,549,605
Trade and other payables	4,322,482	—	—	—	4,322,482
Rental deposits due to tenants	—	660,926	549,525	291,108	1,501,559
	4,322,482	23,696,688	120,291,400	291,108	148,601,678

Capital risk

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

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

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

The gearing ratios at 31 December 2019 and at 31 December 2018 were as follows:

	2019	2018
	£	£
Total borrowings (excluding unamortised arrangement fees)	128,000,000	130,000,000
Gross assets	505,766,623	512,186,641
Gearing ratio (must not exceed 65%)	25.31%	25.38%

The Group also monitors the Loan to Value ratio which is calculated as gross assets divided by gross borrowings less cash. As at 31 December 2019 this was 24.6% (2018: 24.4%)

Fair values

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

	Carrying Amount		Fair Value
	2019	2018	2019	2018
Financial Assets	£	£	£	£
Cash and cash equivalents	6,475,619	8,264,972	6,475,619	8,264,972
Trade and other receivables	4,388,390	4,939,071	4,388,390	4,939,071
Financial Liabilities Bank borrowings	127,316,886	129,249,402	130,066,813	130,055,982
Interest rate swaps	2,220,616	803,963	2,220,616	803,963
Trade and other payables	5,320,162	5,824,041	5,320,162	5,824,041

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

Cash and cash equivalents, trade and other receivables and trade and other payables are the same as fair value due to the short-term maturities of these instruments.
The fair value of bank borrowings is estimated by discounting future cash flows using rates currently available for debt on similar terms and remaining maturities. The fair value approximates their carrying values gross of unamortised transaction costs. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since 31 December 2018.
The fair value of the interest rate swap contract is estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since 31 December 2018. The definition of the valuation techniques are explained in the significant accounting judgements, estimates and assumptions above.

The table below shows an analysis of the fair values of financial instruments recognised in the Balance Sheet by the level of the fair value hierarchy.

Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

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

Year ended 31 December 2019	Level 1	Level 2	Level 3	Total fair value
Interest rate swap	—	2,220,616	—	2,220,616
Year ended 31 December 2018	Level 1	Level 2	Level 3	Total fair value
Interest rate swap	—	803,963	—	803,963

4 FEES

Investment management fees

On 19 December 2003 Standard Life Investments (Corporate Funds) Limited (“the Investment Manager”) was appointed as Investment Manager to manage the property assets of the Group. A new Investment Management Agreement (“IMA”) was entered into on 7 July 2014, appointing the Investment Manager as the AIFM (“Alternative Investment Fund Manager”). On 10 December 2018, the Investment Manager contract was novated on the same commercial terms to Aberdeen Standard Fund Managers Limited.

Until 30 June 2019, under the terms of the IMA the Investment Manager was entitled to 0.75% of total assets up to £200 million; 0.70% of total assets between £200 million and £300 million; and 0.65% of total assets in excess of £300 million. From 1 July 2019, under the terms of the IMA the Investment Manager is entitled to 0.70% of total assets up to £500 million; and 0.60% of total assets in excess of £500 million. The total fees charged for the year amounted to £3,492,880 (2018: £3,381,779). The amount due and payable at the year end amounted to £866,598 excluding VAT (2018: £875,512 excluding VAT).

Administration, secretarial fees

On 19 December 2003 Northern Trust International Fund Administration Services (Guernsey) Limited (“Northern Trust”) was appointed administrator, secretary and registrar to the Group. Northern Trust is entitled to an annual fee, payable quarterly in arrears, of £65,000. Northern Trust is also entitled to reimbursement of reasonable out of pocket expenses. Total fees and expenses charged for the year amounted to £65,000 (2018: £65,000). The amount due and payable at the year end amounted to £16,250 (2018: £16,250).

Valuer’s fee

Knight Frank LLP (“the Valuers”), external international real estate consultants, were appointed as valuers in respect of the assets comprising the property portfolio. The total valuation fees charged for the year amounted to £97,668 (2018: £91,396). The total valuation fee comprises a base fee for the ongoing quarterly valuation, and a one off fee on acquisition of an asset. The amount due and payable at the year end amounted to £20,960 (2018: £20,356 excluding VAT).

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

Auditor’s fee

During the year, Ernst & Young LLP resigned as independent auditor of the Group and Deloitte LLP were appointed as independent auditor of the Group. The audit fees for the year amounted to £81,850 (2018: £78,500) and relate to audit services provided for the 2019 financial year. Deloitte LLP did not provide any non-audit services in the year (2018: nil).

5 FINANCE INCOME AND COSTS

	2019 £	2018 £
Interest income on cash and cash equivalents	15,856	58,411
Finance income	15,856	58,411
Interest expense on bank borrowings	2,986,775	2,546,435
Payments on interest rate swap	574,021	726,842
Amortisation of arrangement costs (see note 13)	217,484	194,848
Finance costs	3,778,280	3,468,125

Of the finance costs above, £532,829 of the interest expense on bank borrowings and £119,037 of payments on interest rate swaps were accruals at 31 December 2019 and included in Trade and other payables.

6 TAXATION

UK REIT Status

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

As the principal company of the REIT, the Company is required to distribute at least 90% of the income profits of the Group’s UK property rental business. There are a number of other conditions that also require to be met by the Company and the Group to maintain REIT tax status. These conditions were met in the period and the Board intends to conduct the Group’s affairs such that these conditions continue to be met for the foreseeable future.

Accordingly, deferred tax is no longer recognised on temporary differences relating to the property rental business.

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

A reconciliation between the tax charge and the product of accounting profit multiplied by the applicable tax rate for the year ended 31 December 2019 and 2018 is as follows:

	2019 £	2018 £
Surplus before tax	16,144,131	30,946,377
Tax calculated at UK statutory corporate tax rate of 19% (2018: 19%)	3,067,385	5,879,812
UK REIT exemption on net income	(3,672,826)	(3,235,353)
Valuation (gain) in respect of investment properties not subject to tax	605,441	(2,644,459)
Current income tax charge	-	-

7 INVESTMENT PROPERTIES

	UK Industrial 2019 £	UK Office 2019 £	UK Retail 2019 £	UK Other 2019 £	Total 2019 £
Market value at 1 January	259,150,000	159,630,000	46,530,000	33,800,000	499,110,000
Sector reallocation	—	—	—	—	—
Purchase of investment properties	17,025,471	8,783,055	—	—	25,808,526
Additions through business acquisition	—	—	—	—	—
Capital expenditure on investment properties	2,455,684	2,172,669	—	—	4,628,353
Opening market value of disposed investment properties	(29,540,000)	(5,100,000)	—	—	(34,640,000)
Valuation loss from investment properties	3,274,144	(3,644,062)	(4,256,539)	1,012,621	(3,613,836)
Movement in lease incentives receivable	434,701	1,463,338	(3,461)	(12,621)	1,881,957
Market value at 31 December	252,800,000	163,305,000	42,270,000	34,800,000	493,175,000
Investment property recognised as held for sale	—	(10,700,000)	—	—	(10,700,000)
Market value net of held for sale at 31 December	252,800,000	152,605,000	42,270,000	34,800,000	482,475,000
Right of use asset recognised on leasehold properties	—	904,121	—	—	904,121
Adjustment for lease incentives	(1,999,983)	(2,616,679)	(301,447)	(605,713)	(5,523,822)
Carrying value at 31 December	250,800,017	150,892,442	41,968,553	34,194,287	477,855,299

The valuations were performed by Knight Frank LLP, accredited external valuers with recognised and relevant professional qualifications and recent experience of the location and category of the investment properties being valued. The valuation model in accordance with Royal Institute of Chartered Surveyors (‘RICS’) requirements on disclosure for Regulated Purpose Valuations has been applied (RICS Valuation – Professional Standards January 2014 published by the Royal Institution of Chartered Surveyors). These valuation models are consistent with the principles in IFRS 13. The market value provided by Knight Frank at the year end was £493,175,000 (2018: £499,110,000) however an adjustment has been made for lease incentives of £5,523,822 (2018: £3,864,444) 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 £904,121 has been recognised in respect of the present value of future ground rents. As required under IFRS 16 an amount of £904,121 has also been recognised as an obligation under finance leases in the balance sheet. Valuation gains and losses from investment properties are recognised in the Consolidated Statement of Comprehensive Income for the period and are attributable to changes in unrealised gains or losses relating to investment properties held at the end of the reporting period.

	UK Industrial 2018 £	UK Office 2018 £	UK Retail 2018 £	UK Other 2018 £	Total 2018 £
Market value at 1 January	213,135,000	150,450,000	69,625,000	—	433,210,000
Sector reallocation	—	—	(12,650,000)	12,650,000	—
Purchase of investment properties	32,038,597	12,740,385	(1,650)	19,245,719	64,023,051
Additions through business acquisition	—	23,913,188	—	—	23,913,188
Capital expenditure on investment properties	2,648,041	5,242,632	408	279,714	8,170,795
Opening market value of disposed investment properties	(5,600,000)	(32,100,000)	(5,300,000)	—	(43,000,000)
Valuation loss from investment properties	16,233,616	(586,989)	(5,113,656)	1,524,073	12,057,044
Movement in lease incentives receivable	694,746	(29,216)	(30,102)	100,494	735,922
Market value at 31 December	259,150,000	159,630,000	46,530,000	33,800,000	499,110,000
Investment property recognised as held for sale	—	—	—	—	—
Market value net of held for sale at 31 December	259,150,000	159,630,000	46,530,000	33,800,000	499,110,000
Adjustment for lease incentives	(1,787,864)	(1,153,339)	(304,908)	(618,333)	(3,864,444)
Carrying value at 31 December	257,362,136	158,476,661	46,225,092	33,181,667	495,245,556
In the Consolidated Cash Flow Statement, proceeds from disposal of investment properties comprise:
			2019 £	2018 £
Opening market value of disposed investment properties			34,640,000	43,000,000
Gain on disposal of investment properties			427,304	1,861,161
Net proceeds from disposal of investment properties			35,067,304	44,861,161

Valuation methodology

The fair value of completed investment properties are determined using the income capitalisation method.

The income capitalisation method is based on capitalising the net income stream at an appropriate yield. In establishing the net income stream the valuers have reflected the current rent (the gross rent) payable to lease expiry, at which point the valuer has assumed that each unit will be re-let at their opinion of ERV. The valuers have made allowances for voids where appropriate, as well as deducting non recoverable costs where applicable. The appropriate yield is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors.

No properties have changed valuation technique during the year. At the Balance Sheet date the income capitalisation method is appropriate for valuing all assets.

The Group appoints suitable valuers (such appointment is reviewed on a periodic basis) to undertake a valuation of all the direct real estate investments on a quarterly basis. The valuation is undertaken in accordance with the then current RICS guidelines and requirements as mentioned above.

The Investment Manager meets with the valuers on a quarterly basis to ensure the valuers are aware of all relevant information for the valuation and any change in the investment over the quarter. The Investment Manager then reviews and discusses the draft valuations with the valuers to ensure correct factual assumptions are made. The valuers report a final valuation that is then reported to the Board.

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

significant adjustments from the previous property valuation report;
reviewing the individual valuations of each property;
compliance with applicable standards and guidelines including those issued by RICS and the UKLA Listing Rules;
reviewing the findings and any recommendations or statements made by the valuer;
considering any further matters relating to the valuation of the properties.

The Chairman of the Committee makes a brief report of the findings and recommendations of the Committee to the Board after each Committee meeting. The minutes of the Committee meetings are circulated to the Board. The Chairman submits an annual report to the Board summarising the Committee’s activities during the year and the related significant results and findings.

All investment properties are classified as Level 3 in the fair value hierarchy. There were no movements between levels during the year.

The table above outlines the valuation techniques and inputs used to derive Level 3 fair values for each class of investment properties.

The table includes:

The fair value measurements at the end of the reporting period.
The level of the fair value hierarchy (e.g. Level 3) within which the fair value measurements are categorised in their entirety.
A description of the valuation techniques applied.
Fair value measurements, quantitative information about the significant unobservable inputs used in the fair value measurement.
The inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building.

Country & Class	Fair Value £	Valuation Technique	Key Unobservable Input	Range (weighted average)
UK Industrial	252,800,000	Capitalisation Rates	- Initial Yield	0.00% to 7.87% (5.16%)
Level 3			- Reversionary Yield	4.26% to 9.33% (6.22%)
			- Equivalent Yield	4.23% to 7.75% (6.07%)
			- Estimated rental value per sq ft	£2.75 to £218.50 (£187.78)
UK Office	163,305,000	Capitalisation Rates	- Initial Yield	0.00% to 10.75% (4.60%)
Level 3			- Reversionary Yield	0.38% to 8.89% (6.95%)
			- Equivalent Yield	4.78% to 8.38% (6.67%)
			- Estimated rental value per sq ft	£14.00 to £519.00 (£378.59)
UK Retail	42,270,000	Capitalisation Rates	- Initial Yield	4.79% to 8.49% (8.65%)
Level 3			- Reversionary Yield	5.12% to 7.84% (8.10%)
			- Equivalent Yield	5.63% to 8.05% (9.17%)
			- Estimated rental value per sq ft	£15.50 to £500.00 (£115.25)
UK Other	34,800,000	Capitalisation Rates	- Initial Yield	4.91% to 6.89% (5.45%)
Level 3			- Reversionary Yield	5.03% to 6.90% (5.50%)
			- Equivalent Yield	5.01% to 6.91% (5.58%)
			- Estimated rental value per sq ft	£18.68 to £120.50 (£41.68)
	493,175,000

Descriptions and definitions

The table above includes the following descriptions and definitions relating to valuation techniques and key observable inputs made in determining

the fair values.

Estimated rental value (ERV)

The rent at which space could be let in the market conditions prevailing at the date of valuation.

Equivalent yield

The equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise or fall to ERV at the next review or lease termination, but with no further rental change.

Initial yield

Initial yield is the annualised rents of a property expressed as a percentage of the property value.

Reversionary yield

Reversionary yield is the anticipated yield to which the initial yield will rise (or fall) once the rent reaches the ERV.

The table below shows the ERV per annum, area per square foot, average ERV per square foot, initial yield and reversionary yield as at the Balance Sheet date.

	2019	2018
ERV p.a.	£34,224,876	£34,380,532
Area sq ft	4,102,486	4,374,342
Average ERV per sq ft	£8.34	£7.86
Initial Yield	5.2%	5.1%
Reversionary Yield	6.7%	4.5%

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

	2019 £	2018 £
Increase in equivalent yield of 50 bps	(53,790,866)	(40,717,916)
Decrease of 5% in ERV	(23,968,000)	(16,563,503)

Below is a list of how the interrelationships in the sensitivity analysis above can be explained. In both cases outlined in the sensitivity table the estimated Fair Value would increase (decrease) if:

The ERV is higher (lower)
Void periods were shorter (longer)
The occupancy rate was higher (lower)
Rent free periods were shorter (longer)
The capitalisation rates were lower (higher)

8 INVESTMENT PROPERTIES HELD FOR SALE

As at 31 December 2019, the Group was actively seeking a buyer for Bourne House, Staines. The Group both exchanged contracts and completed this sale on 3 January 2020 for a price of £10,791,000.

As at 31 December 2018 the Group had no investment properties classified as held for sale.

9 INVESTMENT IN SUBSIDIARY UNDERTAKINGS

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

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

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

Standard Life Investments Property Holdings Limited, a company with limited liability incorporated in Guernsey, Channel Islands.
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.
Hagley Road Limited, a company with limited liability incorporated in Jersey, Channel Islands.

10 TRADE AND OTHER RECEIVABLES
	2019 £	2018 £
Trade receivables	2,738,455	3,036,500
Less: provision for impairment of trade receivables	(138,593)	(99,395)
Trade receivables (net)	2,599,862	2,937,105
Rental deposits held on behalf of tenants	320,878	660,926
Other receivables	992,779	1,341,040
Total trade and other receivables	3,913,519	4,939,071

Reconciliation for changes in the provision for impairment of trade receivables:
	2019 £	2018 £
Opening balance	(99,395)	(2,875)
Charge for the year	(39,198)	(96,520)
Reversal of provision	—	—
Closing balance	(138,593)	(99,395)

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

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

Amounts are considered impaired when it becomes unlikely that the full value of a receivable will be recovered. Movement in the balance considered to be impaired has been included in other direct property costs in the Consolidated Statement of Comprehensive Income. As of 31 December 2019, trade receivables of £138,593 (2018: £99,395) were considered impaired and provided for.

The ageing of these receivables is as follows:
	2019 £	2018 £
0 to 3 months	(118,416)	(55,115)
3 to 6 months	(1,427)	(21,619)
Over 6 months	(18,750)	(22,661)
Closing balance	(138,593)	(99,395)

As of 31 December 2019, trade receivables of £2,599,862 (2018: £2,937,105) were less than 3 months past due but considered not impaired.

11 CASH AND CASH EQUIVALENTS

	2019	2018
	£	£
Cash held at bank	3,081,770	2,555,805
Cash held on deposit with RBS	3,393,849	5,709,167
	6,475,619	8,264,972

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

12 TRADE AND OTHER PAYABLES

	2019	2018
	£	£
Trade and other payables	2,796,799	4,322,482
VAT payable	381,068	751,530
Deferred rental income	5,733,327	6,171,425
Rental deposits due to tenants	320,878	660,926
	9,232,072	11,906,363

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

13 BANK BORROWINGS


	2019	2018
	£	£
Loan facility and drawn down outstanding balance	128,000,000	130,000,000
Opening carrying value	129,249,402	109,107,044
Borrowings during the year	1,000,000	20,000,000
Repayment of RCF	(3,000,000)	—
Arrangements costs of additional facility	(99,997)	(52,520)
Amortisation of arrangement costs	167,481	194,878
Closing carrying value	127,316,886	129,249,402

On 28 April 2016 the Company entered into an agreement to extend £145 million of its existing £155 million debt facility with RBS. The debt facility consisted of a £110 million seven year term loan facility and a £35 million 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 £20 million. The Company currently has £18 million 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 1.60% 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 not exceed 55% after 27 April 2021 to maturity.

	2019 £	2018 £
Loan amount	128,000,000	130,000,000
Cash	(6,475,619)	(8,264,972)
	121,524,381	121,735,028
Investment property valuation	493,175,000	499,110,000
LTV percentage	24.6%	24.4%

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

that the net rental income is not less than 150% of the finance costs for any three month period;
that the largest single asset accounts for less than 15% of the Gross Secured Asset Value;
that the largest ten assets accounts for less than 75% of the Gross Secured Asset Value;
that sector weightings are restricted to 55%, 45% and 55% for the Office, Retail and Industrial sectors respectively;
that the largest tenant accounts for less than 20% of the Group’s annual net rental income;
that the five largest tenants account for less than 50% of the Group’s annual net rental income;
that the ten largest tenants account for less than 75% of the Group’s annual net rental income.

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

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

14 INTEREST RATE SWAP

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

	2019 £	2018 £
Opening fair value of interest rate swaps at 1 January	(803,963)	(2,244,799)
Valuation (loss)/gain on interest rate swaps	(1,416,653)	1,440,836
Closing fair value of interest rate swaps at 31 December	(2,220,616)	(803,963)

The split of the swap liability is listed below.

	2019 £	2018 £
Current liabilities	(644,465)	(451,714)
Non-current liabilities	(1,576,151)	(352,249)
Interest rate swap with a start date of 28 April 2016 maturing on 27 April 2023	(2,220,616)	(803,963)

15 OBLIGATIONS UNDER FINANCE LEASES

	Minimum lease payments	Interest	Present value of minimum lease payments
	2019 £	2019 £	2019 £
Less than one year	26,068	(24,592)	1,476
Between two and five years	104,271	(97,956)	6,315
More than five years	2,658,921	(1,762,591)	896,330
Total	2,789,260	(1,885,139)	904,121

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

16 LEASE ANALYSIS

The Group has granted leases on its property portfolio. This property portfolio as at 31 December 2018 had an average lease expiry of six years and two months. Leases include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Some leases contain options to break before the end of the lease term.

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

	2019 £	2018 £
Within one year	25,806,303	28,144,983
After one year, but not more than five years	79,140,128	75,726,933
More than five years	94,344,918	71,988,615
Total	199,291,349	175,860,531

The largest single tenant at the year end accounts for 4.5% (2018: 4.5%) of the current annual passing rent.

17 SHARE CAPITAL

Under the Company’s Articles of Incorporation, the Company may issue an unlimited number of ordinary shares of 1 pence each, subject to issuance limits set at the AGM each year. As at 31 December 2019 there were 405,865,419 ordinary shares of 1p each in issue (2018: 405,865,419). All ordinary shares rank equally for dividends and distributions and carry one vote each. There are no restrictions concerning the transfer of ordinary shares in the Company, no special rights with regard to control attached to the ordinary shares, no agreements between holders of ordinary shares regarding their transfer known to the Company and no agreement which the Company is party

to that affects its control following a takeover bid.

Allotted, called up and fully paid:

	2019 £	2018 £
Opening balance	227,431,057	217,194,412
Shares issued	-	10,314,000
Issue costs associated with new ordinary shares	-	(77,355)
Closing balance	227,431,057	227,431,057

In February 2020 the Company issued a further 1 million shares. As at 31 March 2020 the Company’s issued share capital stood at 406,865,419.

	2019 Number of shares	2018 Number of shares
Opening balance	405,865,419	394,865,419
Issued during the year	-	11,000,000
Closing balance	405,865,419	405,865,419

18 RESERVES

The detailed movement of the below reserves for the years to 31 December 2019 and 31 December 2018 can be found in the Consolidated Statement of Changes in Equity.

Retained earnings

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

Capital reserves

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

Other distributable reserves

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

19 EARNINGS PER SHARE

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

The earnings per share for the year is set out in the table below. In addition one of the key metrics the Board considers is dividend cover. This is calculated by dividing the net revenue earnings in the year (surplus for the year net of tax excluding all capital items and the swaps breakage costs) divided by the dividends payable in relation to the financial year. For 2019 this equated to a figure of 100% (2018: 89%).

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

	2019 £	2018 £
Surplus for the year net of tax	16,144,131	30,946,377
	2019	2018
	£	£
Weighted average number of ordinary shares outstanding during the year	405,865,419	403,172,131
Earnings per ordinary share (p)	3.98	7.68
Surplus for the year excluding capital items	19,330,662	17,028,172
EPRA earnings per share (p)	4.76	4.22

20 DIVIDENDS AND PROPERTY INCOME DISTRIBUTION GROSS OF INCOME TAX

Non Property Income Distributions	2019 £	2018 £
0.125p per ordinary share paid in March 2019 relating to the quarter ending 31 December 2018 (2018: 0.668p)	507,333	2,692,811
0.474p per ordinary share paid in November 2019 relating to the quarter ending 30 September 2019 (2018:0.421p)	1,923,802	1,708,693

Property Income Distributions
1.065p per ordinary share paid in March 2019 relating to the quarter ending 31 December 2018 (2018: 0.552p)	4,322,467	2,104,262
1.19p per ordinary share paid in May 2019 relating to the quarter ending 31 March 2019 (2018: 1.19p)	4,829,798	4,797,073
1.19p per ordinary share paid in August 2019 relating to the quarter ending 30 June 2019 (2019: 1.19p)	4,829,798	4,811,949
0.716p per ordinary share paid in November 2019 relating to the quarter ending 30 September 2019 (2017:0.769p)	2,905,996	3,121,106
	19,319,194	19,235,894

On 31 March 2019 a dividend in respect of the quarter to 31 December 2019 of 1.19 pence per share was paid. This dividend was split as a property income dividend of 0.629 pence per share and a non property income dividend of 0.561 pence per share.

21 RECONCILIATION OF CONSOLIDATED NAV TO PUBLISHED NAV

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

	2019	2018
Number of ordinary shares at the reporting date	405,865,419	405,865,419
	2019 £	2018 £
Total equity per audited consolidated financial statements	364,794,564	369,386,280
NAV per share (p)	89.9	91.0

22 RELATED PARTY DISCLOSURES

Directors’ remuneration

The remuneration of key management personnel is detailed below which includes pay as you earn tax and national insurance contributions. Further details on the key management personnel can be found in the Directors’ Remuneration Report and the Corporate Governance Report in the Annual Report.

	2019	2018
Robert Peto	44,000	42,000
Sally-Ann Farnon	17,850	37,500
Huw Evans	35,000	33,500
Mike Balfour James Clifton-Brown	37,000 35,000	33,500 33,500
Jill May	28,135	—
Sarah Slater Employers national insurance contributions	3,455 16,276	— 12,363
	216,716	192,363
Directors expenses	10,560	9,935
	227,276	202,298

Aberdeen Standard Fund Managers Limited, as the Manager of the Group from 10 December 2018, (previously Standard Life Investments (Corporate Funds) Limited), received fees for their services as investment managers.

23 SEGMENTAL INFORMATION

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

24 EVENTS AFTER THE BALANCE SHEET DATE

On 3 January 2020, the Company completed the sale of Bourne House, Staines for £10.8 million.

On 4 February 2020 the Company issued 1 million shares under its blocklisting authority.

Post Balance Sheet Event Disclosure

The outbreak of COVID-19 in 2020 has resulted in significant loss of life, adversely impacted global commercial activity and contributed to significant volatility in certain equity and debt markets. The global impact of the outbreak evolved rapidly and on 11th March 2020, the World Health Organization declared a pandemic. Many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. Businesses are also implementing similar precautionary measures. Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, are creating significant disruption in supply chains and economic activity and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries. The impact of COVID-19 has led to significant volatility and declines in the global public equity markets and it is uncertain how long this volatility will continue. As COVID-19 continues to spread, the potential impacts, including a global, regional or other economic recession, are increasingly uncertain and difficult to assess.

The outbreak of COVID-19 and the resulting financial and economic market uncertainty could have a significant adverse impact on the Group, including the fair value of its investments. The most significant conditions arising from COVID-19 arose after the reporting period and as a result the Group considers the emergence of the COVID-19 pandemic to be a non-adjusting post balance sheet event. Any future impact on the Group is likely to be in connection with the assessment of the fair value of investments and stability of rental income at future dates. The Company announced a fall in like for like portfolio values of 4.9% as at 31 March 2020 with a NAV of 83.2p, a fall of 7.5% as announced on 12 May 2020. The independent valuation prepared by Knight Frank at 31 March 2020 also included a material uncertainty clause. At the date of reporting it is not possible to quantify the future financial impact of COVID-19 on the Company’s investments or rental income with any degree of certainty. The Board will continue to closely analyse and review the impact of COVID-19 on the Fund and will take appropriate action as required.

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 December 2018. The statutory accounts for the year ended 31 December 2019 received an audit report which was unqualified.

The Annual Report will be posted to shareholders in June 2020 and additional copies will be available from the Manager (Tel. 07717543309) or by download from the Company's webpage (www.slipit.co.uk).

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

All enquiries to:

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051

For further information:-
Jason Baggaley – Real Estate Fund Manager, Aberdeen Standard Investments
Tel: 07801039463 or jason.baggaley@aberdeenstandard.com

Oli Lord – Deputy Fund Manager, Aberdeen Standard Investments
Tel: 07557938803 or oli.lord@aberdeenstandard.com

Graeme McDonald - Senior Fund Control Manager, Aberdeen Standard Investments
Tel: 07717543309 or graeme.mcdonald@aberdeenstandard.com

END

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Abrdn Property Income Trust Limited (API)

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