Final Results

RNS Number : 1861C

Standard Life Invs Property Inc Tst

12 April 2013

 



STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED

RESULTS IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2012

Financial Highlights
- £84m debt facility extended to 2018 on attractive terms
- Dividends of 4.532p paid in respect of the 12 months to 31 December 2012
- Dividend yield of 7.8% based on year end share price of 58.25p - Real estate portfolio out performance with total returns of 4.1% in 2012 versus quarterly version of the IPD      monthly index of 1.6%
Financial Summary
	31 December 2012	31 December 2011		% Change
Net Asset Value per share  1	57.7p	63.9p		-9.7%
Published adjusted Net Asset Value per share  2	56.6p	62.7p		-9.7%
Share Price	58.25p	51.75p		+12.6%
Value of total assets	£176.3m	£181.9m		-3.1%
Loan to value  3	43.9%	41.1%		+2.8%
Cash balance	£13.5m	£17.8m		-24.1%
Dividends per share 4	4.532p	4.466p		+1.5%
Property Performance
	Year ended	Year ended
	31 December 2012	31 December 2011
Property income return	9.7%	7.6%
IPD property income monthly index  5	6.2%	6.2%
Property total return (property only)	4.1%	6.5%
Property total return (property and cash only)	3.7%	5.9%
IPD property total return   5	1.6%	7.4%
1 Calculated under International Financial Reporting Standards.
2 Calculated under International Financial Reporting Standards, adjusted for the dividend of 1.133p per share
in respect of the quarter ending 31 December 2012.
3 Calculated as bank borrowings less full cash balance as a percentage of the open market value of the property    portfolio as at 31 December 2012.
4 Dividends paid during the 12 months to 31 December 2012.
5 Source: IPD quarterly version of monthly index funds (excludes cash).

The Chairman, Paul Orchard-Lisle, stated:

'Overview of 2012 for the Company

In last year's report, I wrote that I believed the Company to be well positioned to maintain an attractive income flow to its investors. I am pleased to say that my confidence has been justified with shareholders for the 12 month period to the end of December 2012 receiving a 9.7% income return from the property portfolio (including surrender premiums). Our dividend yield at the end of the year was 7.8% on a share price of 58.25p.

While our focus was, and will continue to be, on the receipt and distribution of income, I am alert that we should also deliver an attractive total return and growth in our NAV. However, the measurement of capital value is lead by the market at large as much as by our own assets and is far more subjective than the actual receipt of cash from tenants. Thus, along with most real estate investors, we have seen the capital value of our properties decline by 5.2%* versus a fall in the IPD monthly index of 4.3%. Our property total return was 4.1%* versus the IPD monthly index of 1.6%*.

*Source: IPD quarterly version of monthly index fund (excluding cash)

STRATEGY

In pursuit of our aim to distribute an attractive income return, we have worked with our Investment Manager to improve the quality of the company's income stream. We are looking to enhance the portfolio of properties so that it is entirely let to tenants of substantial financial covenant at fair rents that have the potential to grow as the UK economy recovers. Our belief is that well positioned good secondary properties are more likely to deliver the future returns that we seek rather than the pursuit of heavily priced so-called prime opportunities. To an extent, the policy reflects the asset management skills of our manager, specifically in relation to multi-let buildings where frequently we are able to unlock latent value by the reorganisation of leases and the improvement of the accommodation.

FINANCIAL PERFORMANCE

Net Asset Value

At the end of the year the adjusted NAV was 56.6 pence per share, approximately 9.7% below that recorded at the end of December 2011. The movement is in line with our peer group's performance but is below our ambitions. Set out below is an analysis of the components and movements of the NAV calculation.

	Pence per share	% of opening NAV
Published adjusted NAV as at 31 December 2011	62.7	100.0
Decrease in valuation of property portfolio	(6.5)	(10.4)
Decrease in interest rate SWAP valuation	(0.6)	(0.9)
Other reserve movements	1.0	1.6
Published adjusted NAV as at 31 December 2012	56.6	90.3

The published NAV is calculated under International Financial Reporting Standards and adjusted for the payment of a dividend of 1.133p per share for the quarter ended 31 December 2012.

Earnings and Dividend

During 2012, the Company paid total dividends of 4.532p per share, an increase of 1.5% on dividends paid in 2011. Dividends paid in the year are shown below:

	2012 Pence per share	2011 Pence per share
Interim dividend paid in May relating to quarter ending 31 March	1.133	1.100
Interim dividend paid in August relating to quarter ending 30 June	1.133	1.100
Interim dividend paid in November relating to quarter ending 30 September	1.133	1.133
Interim dividend paid in February relating to quarter ending 31 December	1.133	1.133
	4.532	4.466

Loan to value ratio

At 31 December 2012 the LTV ratio (assuming all cash placed with RBS is offset against the loan balance) was 43.9%, within the range of 35% to 45% set by the Board.

Under the terms of the RBS loan facility, the LTV covenant is 65% until December 2016 reducing to 60% for the remaining two years.

Shares and Share Price

During the year, 3,000,000 new shares were issued at a premium to NAV bringing the total in issue to 139,631,746.

At 31 December 2012, our share price was 58.25p representing a premium over NAV of 2.9% and an increase in share value of approx 12.6% over the 12 month period. Over the year the share price total return was 21.1%.

Since the year end to 11 April 2013, the Company has issued a further 5,300,000 new shares at a premium to NAV bringing the total shares in issue to 144,931,746.

THE PORTFOLIO

Reflecting the strategy outlined previously, during the year we acquired multi-let office buildings in Cheltenham and Glasgow and sold the health club in Chislehurst.

Our void rate at the end of the year was 10.9% which is in line with the IPD average of 9.0%. However, of our voids, 5.6% represents space that we sought to take back in order to refurbish and relet. At the time of writing this report, all but 3.6% of the 10.9% is under offer, but of course subject to the completion of formal leases.

The former Focus unit at Wymondham (Norwich) remains unlet. We have an acceptable offer for the space from a food supermarket, but vested interests have challenged our planning application and the matter is being pursued in planning appeal.

Rent collection - on which we rely to pay dividends - was very satisfactory in 2012. 96% of our tenants paid the full amounts within 14 days of the due date and at the year end, long term debtors amounted to just 0.5% of the rent roll.

Of the occupational leases with expiry dates or break clauses in 2013, six have been extended or had break clauses removed, leaving just three to be resolved. We have also reached agreement in respect of 30% of the rent at risk in 2014.

DEBT AND FINANCE

As reported above, currently our NAV is adversely affected by the three interest rate swaps that the Company has in place. A swap facility of £72m will mature in December 2013, and as a consequence our NAV will be enhanced by £3.2m (2.3p per share). The remaining two swaps mature in December 2018.

In parallel, the new banking facility with RBS was completed in January 2012 and post December 2013 the all-in interest rate will fall from 6.3% to 3.8%, not only reducing a significant outflow of money (£1.8m p.a.) but also improving the dividend cover further.

CORPORATE GOVERANCE

The membership of the Board remained unchanged during the year. However David Moore has stated his intention to retire from the Board at the forthcoming Annual General Meeting, and I pay tribute to his diligence, enthusiasm and commitment to the Company as its first Chairman and as one of the founder directors.

Following a search conducted by the Nomination Committee, the Board is pleased to announce the appointment of Huw Evans as a Director, with effect from 11 April 2013. Huw is a Chartered Accountant and his career has included over fifteen years in corporate finance, advising on a wide range of companies in financial services and other sectors. Huw is currently a director of a number of Guernsey-based investment funds.

During the year, there has been a full review of the Board's performance both individually and collectively. The Board's Committees (Valuations, Nominations, Remuneration, Management Engagement and Audit) also met regularly to conduct the normal business within their terms of reference. In the case of the Management Engagement Committee, this included appraisals of all our service suppliers and in the case of the Valuations Committee direct discussions with our valuers.

OUTLOOK

While the UK will no doubt see more occupational tenants unable to continue their business in their current format, I am as confident as it is reasonable to be that we have a low risk exposure to such companies. I am therefore encouraged to believe that our focus on income generation will deliver good returns to investors in the year ahead. Part of so doing will be supported by the continuation of an active asset management regime. This will include some further reshaping of the portfolio to weed out any holdings that appear unable to perform to our requirements.

There are also some higher level matters that will require our attention in the coming months. By July 2014, we must be compliant with the new AIFM directive, and we have started discussions on the implications already, noting with regret that a financial burden will arise. We will also review our current structure in order to be sure that we deliver net returns to shareholders in an efficient manner.'

Jason Baggaley, on behalf of Investment Manager, stated:

'UK Commercial Real Estate Market

The total return for the UK commercial real estate market in 2012, as measured by the IPD Quarterly version of the Monthly Index, was 1.6%, a decline on the 2011 total return of 7.8%. Capital values declined steadily throughout 2012, falling by a total of -4.3%. This compares to a total return from equities of 10.2% and gilts 4.7%. Again, in 2012 it was because of the strong income characteristics of real estate that the total return was positive, with an income return of 6.2% according to IPD.

Although forecasting in the current market is extremely difficult the consensus appears to suggest prices stabilising during 2013.

Relative to other asset classes UK real estate remains attractively priced. The recent outward shift in gilt yields has reduced the margin slightly, but it still remains at historically high levels.

During 2012 there was a continued polarisation between prime and secondary in both the occupational and investment markets. This covered all sectors of the market, but was most prevalent in the retail market, where retailers are generally only taking stores in major centres that offer a complete retail and leisure experience, leaving secondary centres to flounder. We expect this to continue, and some of the poorer high streets and shopping centres are unlikely to recover. In many markets however, supply remains constrained. Tenant demand may remain muted as companies generally don't want to incur the cost of moving and fitting out a new office, however we are beginning to see examples of companies looking to acquire new accommodation as they become more comfortable with the economic outlook - some of them have been surprised at the lack of choice of good quality accommodation, and this theme is likely to continue with little prospect of new speculative development.

In the office sector risk aversion has continued with investors favouring prime buildings let on long leases. Central London has attracted overseas investors seeking a safe haven, and pricing has reached pre crash levels. As a result, there is increased interest in South East markets as domestic investors seek a bit more yield.

Outlook

A number of risks remain, such as the US fiscal cliff and the implosion of Europe, however generally these risks seem to be receding, and the outlook for 2013 is better than 2012. Although economic recovery is going to be protracted, we do believe the UK economy is past the worst, and as growth and confidence returns prices will stabilise, and return to moderate growth in the latter half of 2013 and into 2014. The shortage of supply of good quality accommodation bodes well for rental values as demand increases on the back of the economic improvement. Standard Life Investments forecasts an average total return of 7.9% pa for the next three years from UK Commercial real estate. The underlying property fundamentals will be critical to achieving these returns - good properties, in good locations, let to good tenants will do best, and income will be the main component of the total return. We will also start to see the benefit from higher yielding good quality properties let on shorter leases as asset management again becomes a driver for returns, and investors risk appetite returns. The trend of shorter leases is going to continue, and investors will have to get used to buying shorter income. Increasingly the fundamentals of the location and asset quality will prevail, along with an ability to actively manage the tenants and properties.

Investment Management Strategy:

The investment strategy we follow is closely aligned to the Company's objective of providing an attractive income return with the prospects for growth. We manage a high yield portfolio, concentrating on holding good quality assets in good locations, let to good tenants that are able to pay their rent. We rely on taking an active approach to managing these assets to maintain a strong income return, and will take profit by selling an asset that has poorer prospects of meeting our return requirements. We look to remain fully invested in higher yielding assets so that we can sustain a covered dividend policy.

Purchases:

The Company completed the purchase of two assets over the reporting period, both in the first half of 2012.

St James House Cheltenham: We bought this multi let office investment in Q2 for £8.4m. The 83,000 sqft building was originally built in 1982 but underwent major refurbishment in 2000 and 2010. Since purchase we have refurbished the reception and the 4th floor. The building is located in an established office location close to the town centre, and provides some of the best office accommodation in Cheltenham. It is let to 9 tenants with an average lease length of 8 years (6 years to break) at rents of circa £12psf. We have refurbished the 4th floor following lease expiry and are marketing it with an expected rent of £15psf. The building yielded 7.9% at year end, with an expected yield of circa 10% once the 4th floor is income producing.

140 West George Street Glasgow: At £4m this was a smaller investment than we normally make, but it is a delightful multi let office in the prime pitch of Glasgow. The grade 2 listed building was comprehensively refurbished in 2009 to a very high standard, and let of low rents of £17psf in the downturn. The purchase price reflected a yield of 9.5%, and a capital value of £170psf - close to the rebuild cost. Since purchase we have let the vacant 2nd floor and have removed two breaks in 2015.

Sales:

The Company sold its Virgin Active gym in Chislehurst in Q4 for £3.95m, a yield of 6.15%. The sale price was ahead of valuation, and although the property was let on a long lease with fixed increases, the first one was not due until 2018, so we took the opportunity to sell an asset that had weaker fundamentals but was keenly sought after in the investment market. The sale proceeds will be reinvested in a higher yielding asset similar to recent purchases, which will be accretive to the revenue account and provide opportunity for greater returns.

Portfolio Valuation:

The portfolio was valued quarterly by Jones Lang LaSalle. At year end the investment portfolio was valued at £161.6m and the Company had cash of £13.5m. This compares to a portfolio value of £162.1m and cash of £17.8m at year end 2011.

The relatively high cash level was due to the sale of Chislehurst in November, and the receipt of a large surrender premium in December. Circa £1.6m is allocated to the Q4 dividend payment, £2m for current refurbishment projects, and we are considering a number of attractive investment opportunities and asset management initiatives.

The portfolio yield at year end was 7.5% and the equivalent yield was 7.9%.

Asset Management:

We continue to focus on securing the future income stream for the Company.

During 2012 we secured 84% of the income at risk through lease break option or expiry in 2013, and we have now secured 30% of the income at risk in 2014. Although we have just over half of the income at risk over the next five years the majority is in 2014 - 2016, at a time when we expect an improvement in the economic environment and limited new development to have started.

Keeping voids to a minimum is important for an income fund. Generally during the year the Company reported a void rate of circa 6%, compared to IPD 9% (IPD calculated the Company's void rate at circa 3.5% on a like for like basis). In December the Company took a surrender of a lease from one of its biggest tenants at Bourne House in Staines, increasing voids to just under 11%. The tenant did, however, pay all the rent due up to the end of the lease in 2016 as part of the surrender premium. The Company will now refurbish the property and market it to new tenants.

As a result of taking back the lease at Staines the Company had a vacancy rate at year end of 10.9%. Of this, 5.6% is under refurbishment, and a further 1.6% is in solicitors hands. The Company suffered no tenant failure during the reporting period.

The major items of asset management during the year were:

Bourne House Staines: At the end of Q4 the Company took a surrender of the lease on its office investment in Staines. The lease was due to expire in March 2016, and the Company has received all rent due under the lease to that date, as well as dilapidations as a surrender premium. The Company is about to undertake a refurbishment of the office, prior to marketing for a new lease. The ERV represents 4.7% of the fund income, however the surrender premium provides rental cover and the refurbishment costs until the property is relet, and a longer term tenant is found.

Ocean Trade Centre Aberdeen: The 25 unit industrial estate was fully let at year end, following several lettings and lease extensions during 2012. Three units are due to become vacant in 2013, and we have extended the leases on two others already. Demand remains strong for this estate, and we have seen rental growth in 2012, although leases are short.

Clough Rd Hull: We let the old John Peters unit to Smyth's Toys on a new 15 year lease, so again the holding in Hull is fully let.

Ex Focus Unit Norwich: We continue to try and achieve a more beneficial planning consent and are pursuing an appeal to achieve this, in the meantime the unit is being marketed under the current planning consent.

Unit 1b Mansfield: We let this unit, which had been vacant for just over 2 years, and have agreed terms to let unit 5, which has also been vacant for a while.

140 West George St Glasgow: In addition to letting the second floor shortly after purchase two leases were extended and breaks removed to give 5 years term certain on the income.

Halfords Paisley: The property had 2 years left on the lease, and was in poor condition. We have regeared the lease for ten years term without a break, and have financed improvement works to the unit.

Easter Park Bolton: Working with the tenant we have installed photo voltaic panels to the roof, and are receiving both a feed in tariff and income from the power used by the tenant. The provision of "green energy" to the unit creates a long term income stream to the Company, and enhances the appeal of the unit to occupiers.

Performance:

The Company aims to provide an attractive income return to investors. It has a policy of a covered dividend, and so the underlying portfolio income return is important. The Company has consistently provided an above market income return.

Although providing an attractive income return is our main driver, we also want to provide an attractive total return to investors. At a property level the Company has also maintained a strong total return performance relative to the IPD Monthly Index.

Shareholder returns obviously differ from the underlying asset returns, and the table below shows the share price performance (with dividends reinvested) over the period for the peer group.

Total Returns (dividends reinvested)	%
Schroder Real Estate Income Trust	30.16
Standard Life Investments Property Income Trust	21.14
F&C Commercial Property Trust	8.19
Picton Property Income	6.16
ISIS Property Trust	5.59
UK Commercial Property Trust	2.55
IRP Property Investments	-3.14
Invesco Property Income Trust	-76.92
FTSE ALL SHARE	12.30
FTSE EPRA/NAREIT UK	29.89

Source: Datastream

Bank Debt:

In January 2012 the Company entered into its new debt facility with RBS. The original facility of £84m was due to expire in December 2013. The new facility, for the same amount (the previous debt was repaid), is for a term of 7 years expiring in December 2018, at a margin of 175bps (the margin can vary depending on LTV).

The Company has three interest rate swaps in place. The first, for £72m, matures in December 2013. The Company kept this swap in place rather than pay the £6.1m break cost. As at 31 December 2012 this swap had a liability value of £3.2m. This will reduce to £0 by December 2013, which equates to a benefit to the NAV of 2.3p per share. The two new swaps, entered into in January 2012 and expiring in December 2018 had a negative value of £3.6m at year end.

The new swap arrangements mean that from December 2013 the cost of debt will drop from 6.3% to 3.8%, a saving to the Company of £1.8m pa.'

All enquires to:

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey

GY1 3Ql

Tel: [phone]

Fax: [phone]

Gordon Humphries

Standard Life Investments Limited

Tel: [phone]

Jason Baggaely

Standard Life Investments Limited

Tel : [phone]

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 the applicable Guernsey law and International Financial Reporting Standards as adopted by the European Union, 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 and estimates that are reasonable;

·      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 adequate 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 Directors are also responsible for preparing the Directors' Report, the Directors' Remuneration Report and the Corporate Governance Statement in accordance with the Companies (Guernsey) Law 2008 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.

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 considerations 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 the financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors' in respect of the Consolidated Annual Report

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

(a)           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

(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.

Approved by the Board on 11 April 2013.

Paul Orchard-Lisle              Sally-Ann Farnon

Chairman                              Director

AUDITED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

		2012	2011
		£	£
Rental income		13,488,771	14,165,830
Surrender premium income		2,448,000	-
Valuation loss from investment properties		(9,216,816)	(2,668,104)
Profit on disposal of investment properties		176,215	612,645
Investment management fees		(1,305,792)	(1,319,497)
Other direct property operating expenses		(867,750)	(930,112)
Directors' fees and expenses		(123,441)	(122,127)
Valuer's fee		(30,503)	(33,947)
Auditor's fee		(41,440)	(38,764)
Other administration expenses		(232,499)	(217,447)
Operating profit		4,294,745	9,448,477
Finance income		46,856	51,732
Finance costs		(5,765,295)	(5,320,093)
(Loss) / profit for the year		(1,423,694)	4,180,116
Other comprehensive income
Valuation (loss) / gain on cash flow hedges		(786,410)	1,320,954
Total comprehensive (loss) / income for the year, net of tax		(2,210,104)	5,501,070
Earnings per share:		Pence	Pence
Basic and diluted earnings per share		(1.03)	3.35
Adjusted (EPRA) earnings per share		5.53	5.00

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

Consolidated Balance Sheet

as at 31 December 2012

		2012	2011
		£	£
ASSETS
Non-current assets
Investment properties		158,073,412	157,212,659
Lease incentives		3,246,707	3,516,748
		161,320,119	160,729,407
Investment property held for sale		-	998,000
Current assets
Trade and other receivables		1,171,842	1,642,602
Prepaid expenses		-	675,462
Cash and cash equivalents		13,527,186	17,825,381
		14,466,028	20,143,445
Total assets		176,019,147	181,870,852
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital		22,280,186	20,440,011
Retained earnings		7,711,894	6,349,453
Capital reserves		(47,199,621)	(37,372,610)
Other distributable reserves		97,838,372	97,838,372
Total equity		80,630,831	87,255,226
LIABILITIES
Non-current liabilities
Bank borrowings		83,752,959	84,238,408
Interest rate swaps		2,757,732	3,007,460
Other liabilities		6,094	6,094
Rental deposits due to tenants		353,535	341,660
		86,870,320	87,593,622
Current liabilities
Trade and other payables		4,415,120	3,955,266
Interest rate swaps		4,102,376	3,066,238
Other liabilities		500	500
		8,517,996	7,022,004
Total liabilities		95,388,316	94,615,626
Total equity and liabilities		176,019,147	181,870,852
Net Asset Value per share		57.7 pence	63.9 pence
Adjusted (EPRA) NAV		62.7 pence	68.3 pence

Approved by the Board of Directors on 11 April 2013.

Consolidated Statement of Charges in Equity

for the year ended 31 December 2012

				Other
	Share	Retained	Capital	distributable
	Capital	earnings	reserves	reserves	Total equity
	£	£	£	£	£
Opening balance 1 January 2012	20,440,011	6,349,453	(37,372,610)	97,838,372	87,255,266
Loss for the year	-	(1,423,694)	-	-	(1,423,694)
Valuation loss on cash flow hedges	-	-	(786,410)	-	(786,410)
Total comprehensive income for the year	-	(1,423,694)	(786,410)	-	(2,210,104)
Ordinary shares issued	1,840,175	-	-	-	1,840,715
Dividends Paid	-	(6,254,466)	-	-	(6,254,466)
Valuation loss from investment properties	-	9,216,816	(9,216,816)	-	-
Profit on disposal of investment properties	-	(176,215)	176,215	-	-
Balance as at 31 December 2012	22,280,186	7,711,894	(47,199,621)	97,838,372	80,630,831

Consolidated Statement of Charges in Equity

for the year ended 31 December 2011

				Other
	Share	Retained	Capital	distributable
	capital	earnings	reserves	reserves	Total equity
	£	£	£	£	£
Opening balance 1 January 2011	6,671,438	5,158,901	(36,638,104)	98,138,586	73,330,821
Profit for the year	-	4,180,116	-	-	4,180,116
Valuation gain on cash flow hedges	-	-	1,320,954	-	1,320,954
Total comprehensive income for the year	-	4,180,116	1,320,954	-	5,501,070
Ordinary shares issued	13,768,573	-	-	-	13,768,573
Dividends Paid	-	(5,345,238)	-	-	(5,345,238)
Valuation loss from investment properties	-	2,668,105	(2,668,105)	-	-
Profit on disposal of investment properties	-	(612,645)	612,645	-	-
Transfer between reserves*	-	300,214	-	(300,214)	-
Balance as at 31 December 2011	20,440,011	6,349,453	(37,372,610)	97,838,372	87,255,226

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

Consolidated Cash Flow Statement

for the year ended 31 December 2012

		2012	2011
		£	£
Cash flows from operating activities		14,249,201	11,965,530
Cash flows from investing activities
Finance income		46,856	51,732
Purchase of investment properties		(13,165,401)	(22,274,624)
Capital expenditure on investment properties		(306,514)	(747,844)
Proceeds from disposal of investment properties		4,905,048	14,175,639
Net cash used in investing activities		(8,520,011)	(8,795,097)
Cash flows from financing activities
Ordinary shares issued net of issue costs		1,840,175	4,427,299
Bank borrowing arrangement costs		(112,159)	(675,462)
Interest paid on bank borrowings		(2,209,219)	(1,774,420)
Payment on interest rate swaps		(3,291,716)	(3,147,947)
Dividends paid to the Company's shareholders		(6,254,466)	(5,345,238)
Net cash used in financing activities		(10,027,385)	(6,515,768)
Net decrease in cash and cash equivalents in the year		(4,298,195)	(3,345,335)
Cash and cash equivalents at beginning of the year		17,825,381	21,170,716
Cash and cash equivalents at end of year		13,527,186	17,825,381

Standard Life Investments Property Income Trust Limited

Notes to the Consolidated Financial Statements

For the year ended 31 December 2012

1.     Accounting Polices

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 and IFRIC interpretations as of 1 January 2012:

- IAS 12 Income Taxes - Recovery of Underlying Assets

- IFRS 7 Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements

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, uncertainty about these assumptions and estimates could result in outcomes that could require 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.

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, 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 fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise. The fair value of investments 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 investment properties requires the use of estimates such as future cash flows from the assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. Future revenue streams comprise contracted rent (passing rent) and estimated rental income (ERV) after the contract period. In calculating ERV, the potential impact of future lease incentives to be granted to secure new contracts is taken into consideration. All these estimates are based on local market conditions existing at the reporting date.

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 is 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.

3.    Related party disclosure

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.

Ordinary share capital

Standard Life Investment Funds Limited held 14,982,501 (2011: 14,982,501) of the issued ordinary shares at the Balance Sheet date on behalf of its Unit Linked Property Funds. This equates to 10.7% (2011: 11.0%) of the ordinary share capital in issue at the Balance Sheet date. Standard Life Assurance Limited held 14,724,580 (2011: 14,724,580) of the issued ordinary shares at the balance sheet date on behalf of its

heritage with profits fund. This equates to 10.5% (2011: 10.8%) of the ordinary share capital in issue at the balance sheet date. Neither Standard Life Investments Funds Limited or Standard Life Assurance Limited are considered to exercise control of the Group individually or together. 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.

Director's remuneration

2012 2011 £ £ David Moore (resigned as chairman 24 May 2011) 22,500 24,955 Richard Barfield 22,500 22,500 Sally-Ann Farnon 23,500 22,500 Shelagh Mason 22,500 22,500 Paul Orchard-Lisle (appointed chairman 24 May 2011) 30,000 26,260 121,000 118,715 Directors expenses 2,441 3,412 123,441 122,127

David Moore was until January 2013 a partner of Mourant Ozannes Advocates and Notaries Public (Guernsey) who are the Group's solicitors. As at 31 December 2012, the fees paid during the year to Mourant Ozannes Advocates and Notaries Public (Guernsey) were £15,330 (2011: £28,161).

Investment Manager

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

4      EVENTS AFTER THE BALANCE SHEET DATE

Shares and Dividends

On 22 February 2013 a dividend of £1,582,028 (2011: £1,548,038) in respect of the quarter to 31 December 2012 was paid.

Between 6 February and 20 March 2013, the Company approved the allotment of 5,300,000 ordinary shares of 1p each, which rank pari passu with the existing shares in issue, under the Company's blocklisting facility at a price of 58.5p per share. As a result of these allotments, the total number of ordinary shares in issue stands at 144,931,746.

Additional Notes to the Annual Financial Report

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 December 2012. The statutory accounts for the year ended 31 December 2012 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 2012 were approved by the Directors on 11 April 2013. The Company's AGM is to be held on the 14 May 2013. The Annual Report and Notice of AGM will be sent to shareholders in April 2013 and will be available for 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.

END

 

END

 

 

FR SFAFMFFDSEEL