Final Results

RNS Number : 8350I

Standard Life Invs Property Inc Tst

19 March 2010

 



STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST                  

RESULTS ANNOUNCEMENT (UNAUDITED)  IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2009

Financial Highlights

- Dividend of 4.00p paid in respect of the 12 months to 31 December 2009

- Special dividend of 0.25p paid in respect of the 12 months to 31 December 2009

- Dividend yield of 6.5% based on year end share price (including special dividend)

- Net Asset Value per share decreased by 8.3% to 56.6p

- Open market value of property portfolio as at 31 December 2009: £136.8m*

- Two properties purchased during the year for £21m (excluding purchase costs)

Financial Summary
	31 December 2009	31 December 2008	% Change
IFRS Net Asset Value per share**	57.6p	62.7p	-8.1%
Published adjusted IFRS Net Asset Value per share***	56.6p	61.7p	-8.3%
Share price	64.5p	49.7p	29.8%
Value of total assets	£169.1m	£169.0m	0.1%
Loan to value****	39.2%	32.4%	-
Cash balance	£30.8m	£44.5m	-
Dividends per share*****	4.00p	6.76p	-40.8%
Special dividend	0.25p	-	n/a

* As valued by the Group's independent property valuer, Jones Lang LaSalle Limited.

** Calculated under International Financial Reporting Standards.

*** Calculated under International Financial Reporting Standards, adjusted to include a dividend of 1p per share in respect of the quarter ending 31 December 2009.

**** Calculated as bank borrowings less full cash balance as a percentage of the open market value of the property portfolio as at 31 December 2009.

***** Dividends paid during the 12 months to 31 December 2009.

Extracts from Chairman's Statement

"What a difference a year makes! Last year I reported that the share price was at a low point of 26.75p per share in March 2009 with the shares trading at a discount of close to 50%. The market expected a number of property owners to suffer liquidity issues resulting in some distressed sales. During this period of uncertainty your Company was able to take advantage of buying opportunities by investing some of the cash that had been built up in 2007 and 2008 before the worst of the falls in the property market.

By the summer most of the listed property holdings companies such as British Land and Land Securities had raised substantial amounts of capital through deeply discounted rights issues and no longer needed to sell assets at the bottom of the property cycle. In addition the banks did not dump material numbers of properties on the market where owners had breached covenants. Property values also recovered in the second half as institutional cash flows turned positive with the sector offering attractive yield premiums to UK gilts.

At  the year end the Company's share price had improved to 64.5p representing a premium of 14% to net asset value. The shares still offer a dividend yield of 6.7%, based on the share price as at 17 March 2010, compared with a yield on the FTSE All-Share Index of 3.2%

 Performance: Property Income and Total Return

The Company generated a property income return of 12.3% on its properties which was considerably ahead of the IPD Monthly Index of 8.2% in respect of the year ended 31 December 2009. The total return numbers were reduced by the falls in commercial property values experienced during 2009. The Company's property total return was 4.5% (property only) compared with the IPD Monthly Index of 2.2%.  The total return (including cash) was 4.3%.

Performance: Net Asset Value

The Company's published net asset value fell over the reporting period from 61.7p per share to 56.6p. As can be seen from the table below, the vast majority of the decline in published net asset value related to the fall in the valuation of the Company's commercial property, including the impact of gearing, which accounted for 10.7p of the fall in net asset value over the year. The impact of the movement in the valuation of the interest rate swap which the Company put in place to fix the borrowing rate at launch added 1.4p to the net asset value. Other reserve movements contributed 4.2p the majority of which related to surrender premiums received from tenants during the year.

                                                                                                Pence per share                  % of opening NAV

Published NAV as at 31 December 2008                                      61.7                                        100.0

Decrease in valuation of property portfolio                                     (10.7)                                     (17.3)

Increase in interest rate swap valuation                                         1.4                                          2.3

Other reserve movements                                                                 4.2                                          6.8

Published NAV as at 31 December 2009                                      56.6                                        91.8       

The published net asset value is calculated under International Financial Reporting Standards ("IFRS") and includes a provision for the payment of the fourth interim dividend of 1.00p per ordinary share for the quarter to 31 December 2009.

Earnings and Dividends

Total dividends of 4.00p per share have been declared and paid in respect of the year ended 31 December 2009. In addition a special dividend of 0.25p was paid in February 2010 in respect of the last financial year. Consistent with the Board's commitment made in November 2008 the special dividend represents the surplus normalised earnings above the rebased annual dividend of 4.00p per share.

The Board has historically targeted a high level of dividend cover and continues to believe that this is an appropriate long term discipline for the Company to follow.  Given that the required accounting treatment to recognise the level of surrender premiums received during 2009 of £4.2m (3.67p per share) as current year income the Board may utilise this exceptional income, if required, to help finance future dividends.

The Board is pleased to announce a 10% increase in the level of quarterly dividends for the year ended 31 December 2010.  The first interim dividend will therefore be 1.10p per share payable in May 2010 and the following three interim dividends will also be paid at this level.  This reflects the Board's confidence in future earnings resulting from recent purchase activity together with the strong revenue reserve position.

Management Fees and Other Expenses

 Throughout 2009 the Company benefited from lower management fees having been reduced from quarter four in 2008 from 85 bps to 75 bps.  All other expenses have been kept under review. Over the last two years the Board has reviewed its main service providers and this has resulted in a change in valuer and auditor.

Total expenses fell by approximately £150,000 over the year benefiting from lower management fees (£399,000) and a reduction in non-recoverable property costs (£100,000). However expenses did include increases for bad debts (£146,000), insurance premiums (£78,000) and energy performance certificate costs (£53,000).

Borrowings and Cash Position

As at 31 December 2009 the Company had bank borrowings of £84.4m and a cash position of £30.8m (excluding rent deposits) therefore cash as a percentage of debt was 36.5%.  As a reminder to shareholders £72m of the Company's borrowings are effectively at a fixed rate of interest until 2013 and the rate on the remaining £12.4m varies with LIBOR plus a margin. Currently the rate payable on the £12.4m is 2.0% and this is being rolled over monthly.

Loan to Value Ratio

As at 31 December 2009 the loan to value ratio (assuming all cash is placed with RBS as an offset to the loan balance) was 39.2%. The covenant level is 65%. I communicated in my interim statement that the LTV covenant had been increased to 65% to allow the Company to invest its cash balances to take advantage of attractively valued properties and also to enhance the revenue account.

Activity

The Company purchased two properties for £21m (excluding purchase costs) at yields of 8.6% and 9.9% during the year. The largest purchase was an office building in Uxbridge for £11m. Following active management initiatives the leases on this property were re-geared to extend the unexpired lease term and the vacant suite was let helping to increase the year end valuation to £17m. Although this purchase was made as a long term investment the Company accepted a bid considerably in excess of the year end valuation and intends to utilise the proceeds to invest in other properties at a higher yield to enhance the Company's revenue account.

Following the year end the Company purchased a retail warehouse in Bolton for £14m at a yield of 8% and agreed the funding of a pre-let office and industrial development in Aberdeen, further details of which can be found in the Investment Manager's Report.

Discount and Share Price

The year end share price of 64.5p represented a premium of 14% to the net asset value of 56.6p. The increase in the share price during the year of 29.6% reflects the recovery of UK commercial property values and improved investor sentiment for the sector once again highlighting the attractions of the dividend yield.  As at 17 March 2010, the share price is 60.0p equivalent to a premium to the 31 December 2009 NAV of 6%.

Dividend Yield

The current share price represents a dividend yield of 6.7%. This dividend yield compares with bank deposit rates of around 0.5% redemption yields on UK gilts of just over 4% and a yield on the FTSE All-Share Index  of 3.2%.

Fund Raising

During the year the Company allotted 10,399,999 ordinary shares of 1p each, representing, in aggregate, 10% of the Company's issued share capital.

Investment Outlook

The recent strong recovery in property prices has led to some nervousness over its sustainability. The shape of the property market recovery will depend on the strength of the recovery in the UK economy as well as the high levels of liquidity targeting the UK commercial sector.

Asset management initiatives will remain critical to preserving property values and rents. With the Company's current cash position of £25m the Company is well placed to take advantage of suitable buying opportunities. The Board remains confident that the Company is in a strong position to enhance income returns for the benefit of shareholders by continuing to purchase attractively valued properties utilising the skills of its Investment Manager, Standard Life Investments.

Should economic growth strengthen and confidence improve longer term, it is likely that the UK commercial property market will provide double digit returns over the next few years."

David Moore

Chairman

Extracts from Investment Manager's Report

"UK Commercial Property Market

2009 was truly a year of two halves. It started much as 2008 ended with continued monthly falls in capital values and a negative outlook, but ended with a positive total return, rapid increases in capital values, and signs that commercial property was back in vogue. This turnaround is perhaps best illustrated by looking at the derivative pricing for calendar year 2009, which was negative 25% in January, but ended the year in positive territory.

So why did the market change so rapidly? The point of inflection in the direct market was July 2009, about 4 months after the listed sector, which is normally a lead indicator for the direct market. By the summer most of the major property players had secured their capital base through deeply discounted rights issues, and so no longer needed to sell assets at bottom of cycle levels, and the banks had not flooded the market with distressed assets as many had feared. The other source of distressed sellers was the open ended funds, who had to sell to meet redemptions, however by the summer most of these had closed, and had sold what they needed to. There was therefore a lack of stock available, and at the same time institutions began to get net inflows again as many investors felt the margin over gilts made the sector look attractive again.  In a matter of weeks the pressure to sell was replaced by a pressure to buy as cash levels in funds rose. All of a sudden the overseas buyers were not the only show in town, and competition for secure, well let prime stock forced up prices. In December 2009 the IPD monthly index recorded its largest 1 month rise in capital values at 3%.

Although positive, one has to be concerned with the sustainability of such a turn around, especially as the fundamentals of the market remain weak with negative rental growth, and general economic uncertainty. The recovery to date is also put into context to the falls experienced since the market peak in June 2007. If the rise in direct property values seems large, then the listed property sectors 82% rise since its low in March 2009 to year end is truly impressive, especially compared to the 47.5% of the wider FTSE All-Share Index.

Indeed, commercial property pricing looks fair value compared to bonds, and the rationale of buying property for a sustainable, and predictable income return, remains intact. In an environment of very low interest rates, and uncertainty over the economic outlook including the possibility of inflation returning, property looks like an attractive asset class.

Outlook

The recovery in capital values is likely to continue through the first half of 2010, but is likely to retreat slightly in the second half of the year. The continued recovery is not going to be a straight line, but will be a bumpy ride, its outcome driven by the general economic recovery, and continued weight of money into the sector. A shortage of prime investment stock and hardening yields is likely to move investors up the risk curve despite the weak occupational market, with subsequent benefit to the secondary market. It is likely that the direct UK commercial property market will return low double digit returns per annum over the next 3 to 5 years.

Portfolio Valuation:

The investment properties were valued at £136.8m at the end of the year and the Company held cash holdings of £30.8m (excluding rental deposits).

The valuations were undertaken by Jones Lang La Salle over the course of 2009. With increased turnover in the second half the valuers had access to greater levels of comparable evidence, which enabled them to have greater confidence in the accuracy of the valuations compared to the end of December 2008, at which time many valuers were compelled to qualify their valuations.

As at 31 December 2009 the property portfolio had an initial yield of 7.7% and equivalent yield of 8.1%, compared to 8.0% and 8.4% respectively at December 2008. The void level stood at 6.5%, which showed a small increase since last year whilst still being well below the IPD monthly index level of 11.5%. IPD in fact reports the Company's void level as 1%, but we include properties where the tenant went into administration as void even although the lease remains vested with the administrator to avoid empty rates. We also include a logistics unit in Skelmersdale where a surrender of the guarantor's interest was accepted in return for the payment of three year's rent up front.

Purchases:

The Company made two purchases over the period, and three after the reporting period.

Capital Court, Uxbridge: The Company acquired the investment in April 2009 for £10.98m, reflecting a yield of 9.95%. The 55,000sqft office was built in 2003 and let to two tenants, Manpower and IBB solicitors. During the year the Company spent £1.95m regearing the leases, and at the end of December the property was valued at £17m. After the reporting period this property was sold for £19m, as detailed below.

Northern & Shell Tower, Docklands, London: The second purchase, made in November 2009, was a 53,000sqft office for £10m, reflecting a yield of  8.6%. The property is let for a further 13 years to Northern & Shell plc at £16.90psqft. At the year end the property was valued at £10.95m.

Focus Unit, Wymondham, Norwich: The Company completed the purchase of  a retail warehouse built in 2009 and let to Focus DIY for 24 years for £5m, reflecting a yield of 8% in January 2010.

Hydrasun, Aberdeen: In February 2010 the Company agreed the funding of a pre let office and industrial development in Aberdeen. The site purchase price was £2.17m, and the fund will pay the construction costs, giving a total expenditure of £11.7m. The property will be let on completion for 20 years with five yearly upward only rent reviews to 3%pa compound. The yield on the commencing rent will be 8%.

Tesco Distribution Unit, Wingate, Bolton: In February 2010 the Company completed the purchase of a 272,000 sqft logistics unit.  The building was built in 2006 to a very high standard and is let to Tesco stores for a further 6 years at an annual rent of £1.19m p.a. The £14.06m purchase price reflects an 8% initial yield.

Sales:

The Company undertook two sales after the reporting period.

Capital Court Uxbridge: Although purchased as a long term investment in April 2009 the Company sold the property in January 2010 for £19m. The sale price was £2m ahead of the end December valuation, and it was decided to take the profit and reinvest the sale proceeds into higher yielding stock. The property showed a 47% total return from purchase to sale in nine months.

Century Plaza Edgeware: The Company sold the mixed use investment in February 2010 for £6.4m, giving an initial yield of 7%.  The property comprises a mix of residential, leisure and retail tenants.

Asset Management:

The Company undertook a number of initiatives to protect or enhance income over the period. Six new leases were granted, two tenant only break clauses removed, and two lease surrenders accepted. The first surrender was from Hoyts cinema. The property was simultaneously relet to Vue cinemas for a term of twenty years with fixed increases, which improved the security and duration of the income. As the Hoyts lease was very over-rented the income to the Company fell by £400,000pa, but a premium of £3.3m was received from Hoyts to compensate.

The Company also took a surrender of a guarantor's obligation on a logistics unit in Skelmersdale in return for three years rent paid in advance. This gives the Company an opportunity to market the premises.

Bank Debt:

The Company currently has £84m of debt from RBS from a facility maturing in December 2013. The Company has an interest rate hedge in place for £72m giving a fixed rate of 5.115% plus margin. The swap was held in the accounts at a liability of £6.1m at the year end. Assuming the contract is held for its duration, its value will be £0 on maturity, thus adding 5.4p per share to the NAV over the next 4 years.

In June 2009 the facility with RBS was amended so that cash held by the Company could be offset against the loan amount when calculating the loan to value ("LTV"). Without the amendment the Company would have had to utilise some of its cash to repay debt at a  time in the cycle when the Investment Manager strongly believed that property should be bought to enhance future returns. The margin on the loan was increased from 60bps to 150bps for the facility change, and at the same time the LTV covenant was increased to 65%.   At the period end the LTV stood at 39.2% (if all Group cash was deposited with RBS).

Company Strategy:

The Company is focused on providing an attractive level of income, with the prospect of capital and income growth. The Investment Manager will seek to invest the cash into properties with a strong income flow at a yield that is accretive to the revenue account, and also take advantage of the stronger investment market to exit some investments and reinvest the cash. The Company has followed a covered dividend policy, and by investing the cash it can maintain this. "

Standard Life Investments

Statement of Directors' Responsibilities

The Directors are responsible for preparing Financial Statements for each year which give a true and fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, as adopted by the EU, of the state of affairs of the Group and of the profit or loss of the Group for that year.  In preparing those Financial Statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements that are reasonable and prudent;

• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

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

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

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

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

Statement under the Disclosure and Transparency Rules 4.1.12

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

(a) the Consolidated Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and net return of the Group; and

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

David Moore        

Chairman

UNAUDITED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income (Unaudited)

for the year ended 31 December 2009

		2009	2008
		£	£
Rental income		11,428,246	11,517,044
Surrender premium income		4,248,793	9,219
Valuation loss on investment properties		(10,834,835)	(39,982,011)
Realised loss on disposal of investment properties		(27,391)	(4,002,729)
Investment management fee		(1,086,828)	(1,485,501)
Head lease payments		(500)	(33,537)
Surrender premium expense		(100,000)	-
Other direct property operating expenses		(878,096)	(740,196)
Directors' fees and subsistence		(104,053)	(103,786)
Valuer's fee		(23,520)	(31,006)
Auditor's fee		(44,700)	(41,125)
Other administration expenses		(287,808)	(238,666)
Operating profit / (loss)		2,289,308	(35,132,294)
Finance income		454,917	2,314,517
Finance cost		(4,924,425)	(5,451,343)
Loss for the year		(2,180,200)	(38,269,120)
Other comprehensive income
Valuation gain / (loss) on cash flow hedges		1,468,003	(7,312,566)
Total comprehensive loss for the year, net of tax		(712,197)	(45,581,686)
Loss per share for the period attributable
to the equity holders of the Company
Basic and diluted (pence)		(2.06)	(36.80)

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

Consolidated Balance Sheet (Unaudited)

as at 31 December 2009

		2009	2008
		£	£
ASSETS
Non-current assets
Freehold investment properties		108,475,658	107,006,879
Leasehold investment properties		24,316,594	14,403,182
Lease incentives		3,878,541	1,498,525
		136,670,793	122,908,586
Current assets
Trade and other receivables		1,608,329	1,656,747
Cash and cash equivalents		30,796,998	44,469,002
		32,405,327	46,125,749
Total assets		169,076,120	169,034,335
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital		6,671,438	1,040,000
Share premium		5,217,022	5,217,022
Retained earnings		6,662,276	1,717,458
Capital reserves		(46,055,762)	(36,661,539)
Other distributable reserves		93,433,322	93,916,114
Total equity		65,928,296	65,229,055
LIABILITIES
Non-current liabilities
Bank borrowings		84,043,766	84,432,692
Interest rate swap		3,032,234	3,814,101
Redeemable preference shares		8,529,302	8,046,510
Leasehold obligations		6,094	17,682
		95,611,396	93,310,985
Current liabilities
Trade and other payables		4,460,964	3,732,695
Interest rate swap		3,074,964	3,761,100
Leasehold obligations		500	500
		7,536,428	7,494,295
Total liabilities		103,147,824	103,805,280
Total equity and liabilities		169,076,120	169,034,335

Consolidated Statement of Changes in Equity

for the year ended 31 December 2008

					Other
	Share	Share	Retained	Capital	distributable
	capital	premium	earnings	reserves	reserves	Total equity
	£	£	£	£	£	£
Opening balance 1 January 2008	1,040,000	5,217,022	2,576,775	14,635,767	94,371,577	117,841,141
Loss for the year	-	-	(38,269,120)	-	-	(38,269,120)
Valuation loss on cash flow hedges	-	-	-	(7,312,566)	-	(7,312,566)
Total comprehensive income for the year	-	-	(38,269,120)	(7,312,566)	-	(45,581,686)
Valuation loss on investment properties	-	-	39,982,011	(39,982,011)	-	-
Realised loss on disposal of investment properties	-	-	4,002,729	(4,002,729)	-	-
Transfer between reserves*	-	-	455,463	-	(455,463)	-
Dividends	-	-	(7,030,400)	-	-	(7,030,400)
Balance as at 31 December 2008	1,040,000	5,217,022	1,717,458	(36,661,539)	93,916,114	65,229,055

* this is a transfer to move redeemable preference share finance costs from the retained earnings reserve to the other distributable reserves

Consolidated Statement of Changes in Equity (Unaudited)

for the year ended 31 December 2009

					Other
	Share	Share	Retained	Capital	distributable
	capital	premium	earnings	reserves	reserves	Total equity
	£	£	£	£	£	£
Opening balance 1 January 2009	1,040,000	5,217,022	1,717,458	(36,661,539)	93,916,114	65,229,055
Loss for the year	-	-	(2,180,200)	-	-	(2,180,200)
Valuation gain on cash flow hedges	-	-	-	1,468,003	-	1,468,003
Total comprehensive income for the year	-	-	(2,180,200)	1,468,003	-	(712,197)
Ordinary shares issued	5,631,438+	-	-	-	-	5,631,438
Valuation loss on investment properties	-	-	10,834,835	(10,834,835)	-	-
Realised loss on disposal of investment properties	-	-	27,391	(27,391)	-	-
Transfer between reserves*	-	-	482,792	-	(482,792)	-
Dividends	-	-	(4,220,000)	-	-	(4,220,000)
Balance as at 31 December 2009	6,671,438	5,217,022	6,662,276	(46,055,762)	93,433,322	65,928,296

* this is a transfer to move redeemable preference share finance costs from the retained earnings reserve to the other distributable reserves

⁺ this value represents both the nominal amount and the premium raised on issuing the ordinary shares.

Consolidated Cash Flow Statement (Unaudited)

for the year ended 31 December 2009

		2009	2008
		£	£
Cash generated from operating activities		11,548,205	7,441,384
Cash flows from investing activities
Interest received		454,917	2,314,517
Purchase of investment property		(22,092,080)	(7,825,782)
Capital expenditure on investment properties		(136,534)	(84,982)
Retentions received relating to property purchase		-	110,000
(Costs of) / proceeds from disposal of investment properties		(27,391)	19,993,294
Net cash (used in) / generated in investing activities		(21,801,088)	14,507,047
Cash flows from financing activities
Proceeds from issue of shares		5,631,438	-
Arrangement costs of amended bank borrowing facility		(422,164)	-
Interest paid on bank borrowings		(1,460,332)	(4,324,336)
Interest rate swap cost		(2,948,063)	(673,039)
Dividends paid to the Company's shareholders		(4,220,000)	(7,030,400)
Net cash used in financing activities		(2,509,287)	12,027,775
Net (decrease) / increase in cash and cash equivalents in the year		(13,672,004)	9,920,656
Cash and cash equivalents at beginning of the year		44,469,002	34,548,346
Cash and cash equivalents at end of year		30,796,998	44,469,002

Notes Unaudited

1.  Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except that the group has adopted the following new and amended IFRS interpretations as of 1 January 2009:

- IAS 1 (revised 2007), 'Presentation of financial statements'

- IFRS 8 'Operating segments'

- Amendment to IFRS 7 Financial Instruments: Disclosures

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 amounts recognized in the financial statements.  However, uncertainty 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.

Going Concern

The Group's management has made an assessment of the Group's ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

Fair value of investment properties

Investment property is stated at fair value as at the balance sheet date. Gains or losses arising from changes in the fair values are includes in the Consolidated Statement of Comprehensive Income in the year in which they arise. The fair value of investment properties is determined by independent real estate valuation experts using recognised valuation techniques. The fair values are determined based on recent real estate transactions with similar characteristics and locations to those of the Group's assets.  The determination of the fair value of investments properties requires the use of estimates such as future cash flows from the assets. The estimate of the future cash flows will consider the repair and conditions of the property, lease terms, future lease events, as well as other relevant factors for the particular investment. These estimates are based on local market conditions existing at balance sheet date.

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the Statement of financial position 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 the 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.

3. Related party disclosures

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

Redeemable preference shares

On 19 December 2003 the Company issued 6,000,000 25p redeemable zero dividend preference shares for £6,000,000 to The Standard Life Assurance Company.  On 10 July 2006 these shares were transferred to Standard Life Assurance Limited. These shares have a nominal value of £1,500,000 and are redeemable by the Company at a price of £1.7908. These shares do not carry any voting rights.

Ordinary share capital

Standard Life Investment Funds Limited held 21,769,609 of the issued ordinary shares throughout the year on behalf of its Unit Linked Property Funds (2008: 21,769,609).  This equates to 19.0% (2008: 20.9%) of the ordinary share capital in issue at the balance sheet date.  However, Standard Life Investments Funds Limited is not considered to exercise control of the Group.  Those parties related to the Investment Manager waived their rights to commission on the initial purchase of these shares in order to maintain the fairness of the transaction to all parties.

Cash held on deposit with related parties

As at 31 December 2009, £nil (2008: £9,800,976) was invested in Standard Life Investments (Global Liquidity Funds) plc, a liquidity fund that is rated Aaa by Moody's.  The interest earned on this investment during the year was £68,376 (2008: £847,126) representing an average rate of 1.16% (2008: 5.44%). Standard Life plc is the ultimate controlling party of the Investment Manager, Standard Life Investments (Corporate Funds) Limited.  Standard Life Investments (Global Liquidity Funds) plc is an entity that is also managed within the Standard Life plc group.

Directors

The Directors each hold the following number of Ordinary Shares in the Company:

                                                                2009                       2008

David Moore                                         15,000                   15,000

Richard Barfield                                   30,000                   30,000

John Hallam                                         15,000                   15,000

Shelagh Mason                                   15,000                   15,000

Paul Orchard-Lisle                              25,000                   25,000

No Director has any interest in any transactions which are or were unusual in their nature or conditions or significant to the business of the Group and which were effected by any member of the Group since its date of incorporation. Total fees relating to the Directors in the year under review were £104,053 (2008: £103,786), being £100,000 (2008: £100,000) in respect of fees and £4,053 (2008: £3,786) in respect of travel and subsistence.

David Moore is a partner of Ozannes Adocates and Notaries Public (Guernsey) who are the Group's solictors. As at 31 December 2009, the fees paid during the year to Ozannes Adocates and Notaries Public (Guernsey) were £5,446 (2008: £2,510).

Investment Manager

Standard Life Investments (Corporate Funds) Limited is the Investment Manager.

4. Events after the balance sheet date

Property Sales and Purchases

On 25 January 2010 the Group completed the sale of Capital Court, Uxbridge for a price of £19.2m. The property is a freehold office in the town centre of Uxbridge. The sale price represents a net initial yield of 6.0%.

On 29 January 2010 the Group completed the purchase of retail warehouse in Wymondham, Norwich for a price of £5.0m. The property is let to Focus (DIY) Ltd for 25 years from 29 September 2008. This purchase price represents a net initial yield of 8.0%.

On 15 February 2010 the Group completed the sale of Century Plaza, Edgeware for a price of £6.4m. The property is a freehold mixed use development located in the London suburb of Barnet. The sale price represents a net initial yield of 6.9%.

On 16 February 2010 the Group completed the purchase of land at Aberdeen Business Gateway Park for a price of £2.2m. The Group also entered into further capital commitments of £9.5m to provide funding to the developer, Stockland Muir, and to make final payment to acquire the completed development on grant of lease due January 2011. The property, once constructed, will be let to Hydrasun Ltd for a term of 20 years. The completed development including letting represents a net intial yield of 8.1%.

On 26 February 2010 the group completed the purchase of a distribution unit at Wingates, Bolton for a price of £14.0m. The property is let to Tesco Stores Ltd for 10 years from 27 September 2006. This purchase price represents a net initial yield of 8.0%.

Dividends

On 26 February 2010 a dividend of £1,430,000 (2008: £1,040,000) in respect of the quarter to 31 December 2009 was paid.  This included a special dividend of 0.25p per share in additional to the 1.00p per share paid to give a covered dividend for 2009 on normalised earnings.

Additional Notes (Unaudited)

This Annual Results Announcement is not the Company's statutory accounts for the year ended 31 December 2009.  The statutory accounts for the year ended 31 December 2008 received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

The statutory accounts for the financial year ended 31 December 2009 will be approved by the Directors in due course, and issued to shareholders.   The audit report on the statutory accounts for the year ended 31 December 2009 has not been signed.  The Company's AGM is to be held on the 26 May 2010.  The Annual Report and the Notice of AGM will be sent to shareholders in April 2010 and will be available to download  from the Company's website hosted by the Investment Manager (www.standardlifeinvestments.co.uk/its).

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.

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