Final Results

Standard Life Invs Property Inc Tst 16 March 2005 16 March 2005 STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED Re Preliminary Profits Announcement Highlights: Published Net Asset Value per share has increased by 8.4% Share price has increased by 8.75% to 108.75 pence Dividend of 6.5 pence per share Â£62.6m of property acquired Chairman's Statement 2004 proved to be another good year for commercial property investors, improving on the healthy returns shown over the last few years in absolute terms and relative to equity, gilt and cash investments. Investor demand for commercial property was particularly strong in 2004 as debt backed investors maintained their appetite for property's relatively attractive income yield and pension funds increased their exposure to the asset class. In its first period of existence the Company has performed strongly. The Company's Published Net Asset Value and share price have increased by 8.4% and 8.75% respectively over the reporting period and the Company's total dividends in its first period of 6.5p per share have been paid to shareholders. The increase in the Published Net Asset Value of the Company over the reporting period was primarily attributable to increasing capital values across the property portfolio but was also due to the Company's financial gearing in a rising property market. In a very competitive market for property investments, your Company acquired 12 properties at a cost of Â£62.6m thereby increasing property assets under management to Â£164.1m from Â£93.5m at launch on 19th December 2003. Asset management opportunities have been implemented resulting in a number of new lettings and reducing the non-income producing element of the portfolio to 0.4% of total portfolio income. Looking forward, there are potential risks and opportunities to future returns from UK commercial property. The Company's property portfolio has limited exposure to those sectors most likely to be adversely impacted by any slowdown in consumer demand. On the other hand, the Company has been increasing its exposure to the Central London office market to benefit from an expected upturn in that market. Whilst for 2005 the Company does not expect the UK commercial property markets to deliver the same level of returns as that experienced in 2004, the environment for attractive high single digit or possibly double digit returns from those markets remains in place. David Moore Chairman of the Board Date: 15 March 2005 Investment Manager's Commentary UK Property Market With returns of around 18% from UK commercial property, 2004 has added to an already respectable track record for property beating equities, gilts and cash over 1, 3, 5, 10 & 15 years. 2004 looks to have been a record year for net investment in UK commercial property, with purchase activity exceeding Â£36bn for the year to end December compared to Â£29bn for 2003. At the start of the year we anticipated that institutional investors, particularly pension funds, would replace any private investors that were forced out of the market on the back of higher borrowing costs. Although the renewed demand from pension funds did occur as expected, demand for commercial property was compounded as debt funded investors remained as active as they were in 2003 on the back of lower debt finance rates in the second half of the year. Retail property proved to be the strongest sector in the UK market for the 3rd consecutive year in 2004. The strong performance shown by retail property was driven by continued growth in consumer spending and by strong investor demand for all retail property types. Whilst not exhibiting the same level of rental growth, industrial property also fared well with investors bidding up values as they sought the relatively attractive income yield shown by the sector. The office sector proved to be the laggard again in 2004. However, the last year has seen a marked change in the fortunes for office property with rents showing signs of stabilising, and growing in some areas, after 3 years of falling rental values for the sector. The gradual increase in the official interest rate by the Monetary Policy Committee of the Bank of England (MPC) during 2003 and 2004 appeared to have had limited impact on the voracious appetite shown by the UK consumer. However, during the last quarter of 2004 evidence began emerging that the consumer cycle was slowing with house prices static and a poorer reporting season from retailers. Whilst we do not anticipate a collapse in UK private consumption, we do expect expenditure growth to moderate further during 2005. Portfolio Activity The Company's property portfolio continues to be significantly underweight in High Street shops and overweight to offices, in general, and central London offices, in particular. This reflects our concerns about the pricing of High Street shops and the likelihood of reduced rental growth prospects given the poorer outlook for retail sales. We believe the downturn in the central London office market rental cycle is coming to an end. We have been actively increasing the Company's exposure to this market in order to benefit from an expected recovery already underway in certain areas. In an increasingly competitive market a further 12 properties were acquired by the Company during 2004 at a total cost of Â£62.6m and producing a running income yield of 7.7%. Whilst we were disappointed that around Â£19m of the debt facility remained uninvested at the period end we are pleased with the quality and yield profile of the properties acquired. A number of initiatives during the period have enhanced the portfolio. At Wellington House, London, a new letting was achieved to Tesco Stores Limited, where a 15 year lease was granted incorporating a minimum fixed uplift of 2.5% per annum compounded every 5 years. In addition we enjoyed a successful letting campaign at Eurolink Industrial Estate, Normanton where all the vacant units were let by the period end. The void rate on the Company's portfolio was reduced to 0.4% of total income from 1.8% at 30th June 2004, which compares favourably to the void rate on the IPD Monthly Index of 8.2% at the end of 2004. We were also able to agree rent reviews at Telelink Swansea and Halfords Paisley above that assumed in the valuations. As at 31st December 2004, the Company's portfolio included 25 properties with a combined value of Â£164.1m. The average unexpired lease term on the portfolio was 11.1 years at the end of 2004. Investment Outlook Continuing the trend of strong investor appetite for UK commercial property, 2005 is likely to experience some further lowering of income yields as capital values are pushed higher, primarily in the office and industrial markets, as investors buy into improving occupier activity in these sectors and an expected recovery in rents. We believe the exposure of the Company's portfolio to these sectors will enhance returns to shareholders over the next few years. During 2004, the volume of investment demand lowered income yields across all property markets. Although, in aggregate, we view this as a fundamental re-rating of property yields, we have become concerned about keen pricing in some secondary and tertiary markets, particularly for High Street shops. Some of these segments of the market could potentially disappoint investors over the next few years resulting in a reversal of some of the recent upward pressure on capital values, and consequently may result in falling capital values. By limiting the Company's exposure to these sectors we believe we have reduced the potential for such risks to affect what we believe remains a benign environment for commercial property investors over the next couple of years. Directors' Report The Directors of Standard Life Investments Property Income Trust Limited ('the Company') and its subsidiary Standard Life Investments Property Holdings Limited (together 'the Group') present their Annual Report and Audited Financial Statements for the period from 19 December 2003 to 31 December 2004. Background Standard Life Investments Property Income Trust Limited was incorporated in Guernsey on 18 November 2003 and commenced activities on 19 December 2003. The Company is a closed ended Investment Company and is registered under the provisions of The Companies (Guernsey) Law, 1994. Principal Activity The principal activity of the Company is property investment with the objective of providing Ordinary Shareholders with an attractive level of income along with the prospect of income and capital growth from investing in a diversified UK commercial property portfolio. Listings The Company is listed on the London Stock Exchange and the Channel Island Stock Exchange. Listings Requirements The Company has complied with the relevant provisions of paragraphs 21.2 to 21.25 and the requirements set out in paragraphs 21.27 to 21.34 of the United Kingdom Listing Authority regulations and also the relevant provisions of Chapter 7 of the Channel Islands Stock Exchange throughout the period under review. Substantial Shareholding At 31 December 2004, the Company had notification that the following shareholders had a beneficial interest of 3% or more of the Company's issued share capital. % of holding Standard Life Investments 21.77 M&G Investment Management 10.00 Rensburg Fund Management Ltd 5.78 Brewin Dolphin 5.27 Carr Sheppards Crosthwaite 4.00 HSBC Investment Management 3.09 Scottish Friendly Assurance 3.00 Results and Dividends The results for the period are set out in the Consolidated Income Statement. Details of all dividends paid or payable are set out in the Financial Statements. Directors The Directors of the Company during the period and at the date of this Report are set out below. Directors' and Other Interests The Directors each hold the following number of ordinary shares in the Company: David Moore 15,000 Richard Barfield 15,000 John Hallam 15,000 Shelagh Mason 15,000 Paul Orchard-Lisle 25,000 The shareholdings of the Directors have not changed from the original amounts purchased on 19 December 2003. Statement of Directors' Responsibilities The Directors are required by The Companies (Guernsey) Law, 1994, to prepare Financial Statements for each financial period, which give a true and fair view of the state of affairs of the Group as at the end of the financial period. 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; - prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business; and 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, 1994. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Going Concern After making enquiries, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Financial Statements. Corporate Governance The Directors report on Corporate Governance is detailed in the annual report. As a Company incorporated in Guernsey, the Company is not required to comply with the Combined Code on Corporate Governance. However, it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies. The Board believes that the Company has complied throughout the accounting period with the provisions set out in the Combined Code on Corporate Governance (the 'Code') issued by the Financial Reporting Council in July 2003, subject to the statements made in the Corporate Governance Report. Auditors Following the conversion of our auditors PricewaterhouseCoopers to a Limited Liability Partnership (LLP) from 1 October 2004, PricewaterhouseCoopers resigned on 3 November 2004 and the directors appointed its successor, PricewaterhouseCoopers CI LLP, as auditors. A resolution to reappoint PricewaterhouseCoopers CI LLP as auditors will be proposed at the annual general meeting. Approved by the board on 15 March 2005 John Hallam David Moore Director Director CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2004 Note Â£ Income Unrealised profit on revaluation of investment properties 8 3,719,949 Rental income 10,038,141 -------- Total income and capital gains 13,758,090 ======== Expenditure Set-up costs 3 (432,525) Investment management fees 3 (1,012,818) Head lease payments 2 (285,125) Valuation fees 3 (102,297) Other direct property costs (117,154) Directors' fees and subsistence 5 (81,739) Other administration expenses (412,305) -------- (2,443,963) ======== Operating profit 11,314,127 Finance costs Interest payable 6 (2,115,136) Loan arrangement fee (240,000) Interest receivable 338,217 -------- Profit before taxation 9,297,208 Taxation 7 - -------- (2,016,919) -------- Profit for the period 9,297,208 ======== Earnings per share for the period attributable to the equity holders of the company Basic and diluted 22 9.30 pence BALANCE SHEET AS AT 31 DECEMBER 2004 Note Â£ ASSETS Non-current assets Freehold investment properties 8 138,946,422 Leasehold investment properties 8 29,663,013 Interest rate swap asset 16 1,494,912 --------- 170,104,347 ========= Current assets Trade and other receivables 9 2,679,982 Cash and cash equivalents 11 7,557,113 --------- 10,237,095 ========= --------- Total assets 180,341,442 ========= EQUITY Capital and reserves attributable to Company's equity holders Share capital 17 1,000,000 Share premium 18 - Retained earnings 19 702,259 Capital reserves 20 5,214,861 Other distributable reserves 21 96,692,892 --------- Total equity 103,610,012 ========= Liabilities Non-current liabilities Bank borrowings 12 60,709,776 Redeemable preference shares 13 6,373,591 Leasehold obligations 14 4,643,013 --------- 71,726,380 ========= Current liabilities Trade and other payables 10 5,005,050 Income tax payable 7 - --------- 5,005,050 ========= Total liabilities 76,731,430 ========= Total equity and liabilities 180,341,442 ========= CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2004 Share Share Retained Capital Other Total capital premium earnings reserve distributable equity Note reserve Â£ Â£ Â£ Â£ Â£ Â£ Issue of ordinary share 17 1,000,000 1,000,000 capital Share premium on issue of ordinary share 18 99,000,000 99,000,000 capital Unrealised profit on revaluation of interest rate swap 16 1,494,912 1,494,912 Profit for period 9,297,208 9,297,208 Unrealised profit on revaluation of investment properties 8 (3,719,949) 3,719,949 - Dividends 23 (4,875,000) (4,875,000) Share issue costs 18 (2,307,108) (2,307,108) Transfer to other distributable reserves 18 (96,692,892) 96,692,892 - ------- -------- -------- -------- ---------- --------- Balance at 31 December 2004 1,000,000 - 702,259 5,214,861 96,692,892 103,610,012 ======= ======== ======== ======== ========== ========= CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2004 Note Â£ Cash flows from operating activities Cash generated from operations 25 9,751,927 Interest paid (1,741,545) ----------- Net cash generated from operating activities 8,010,382 ----------- Cash flows from investing activities Acquisition of shares in subsidiaries 5 (16,554,209) Loan repayments made to related parties 5 (80,285,282) Other loans repaid 5 (812,146) Purchase of investment properties 8 (62,427,517) Interest received 338,217 ----------- Net cash used in investing activities (159,740,937) ----------- Cash flows from financing activities Proceeds from issuing of new ordinary shares 18 97,775,951 Proceeds from issuing of redeemable preference shares 13 6,000,000 Share issue costs (83,059) Dividends paid 23 (4,875,000) Debt issue costs (240,000) Proceeds from bank borrowings 12 60,709,776 ----------- Net cash generated from financing activities 159,287,668 ----------- Net increase in cash and cash equivalents 7,557,113 Cash and cash equivalents at beginning of period - ---------- Cash and cash equivalents at end of period 7,557,113 =========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2004 1 GENERAL INFORMATION Standard Life Investments Property Income Trust Limited ('the Company') and its subsidiaries (together the 'Group') carry 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 and domiciled in Guernsey, Channel Islands. The Company has its primary listing on the Channel Islands Stock Exchange with a secondary listing on the London Stock Exchange. These audited consolidated financial statements have been approved for issue by the Board of Directors on 15th March 2005. The address of the registered office is Trafalgar Court, Les Banques, St Peter Port, Guernsey. 2 ACCOUNTING POLICIES Basis of preparation The audited consolidated financial statements of the Group have been prepared in accordance with and comply with International Financial Reporting Standards ('IFRS'), and all applicable requirements of Guernsey Company Law. The Company has chosen to early adopt all IFRS issued as at the period end. The audited consolidated financial statements have been prepared under the historical cost convention as modified by the measurement of investment property and derivative financial instruments at fair value. Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risk and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Segregated analysis is shown in note 26. Basis of consolidation The audited consolidated financial statements comprise the financial statements of Standard Life Investments Property Income Trust Limited and its only material wholly owned subsidiary undertaking, Standard Life Investments Property Holdings Limited, a company with limited liability incorporated and domiciled in Guernsey , Channel Islands. Subsidiaries are all entities over which the Group has the power to govern the financial and operating polices generally accompanying a share holding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and they are deconsolidated from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given plus costs directly attributable to the acquisition including equity instruments issued and liabilities assumed or incurred at the date of exchange. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 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 pounds sterling, which is the Company's and Groups functional and presentation currency. Revenue recognition Revenue is recognised as follows; a) Bank interest Bank interest income is recognised on an accruals basis. b) Rental income Rental income from operating leases is net of sales taxes and VAT and is recognised on a straight line basis over the lease term. The cost of any lease incentives provided are recognised over the lease term, on a straight line basis as a reduction of rental income. Expenditure All expenses are accounted for on an accruals basis. The investment management and administration fees, formation and set up costs, finance and set up costs (including interest on the bank facility and the finance cost of the redeemable preference shares) and all other expenses are charged through the income statement. Share issue costs Costs directly attributable to the issue of equity that would otherwise have been avoided are written off against share premium and reflected in the Statement of Changes in Equity. Taxation The Company and its wholly owned Guernsey registered subsidiary, Standard Life Investments Property Holdings Limited, have obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and bank interest receivable in Guernsey. Each Company is, therefore, only liable to a fixed fee of Â£600 per annum. No charge to Guernsey taxation will arise on capital gains derived from the disposal of the investment properties. The Directors intend to conduct the Group's affairs such that the Company and its Guernsey registered subsidiary continue to remain eligible for exemption. Standard Life Investments Property Holdings Limited is subject to United Kingdom income tax on assessable income arising on the United Kingdom investment properties held. Deferred income tax Deferred income tax is provided for in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Freehold investment properties Freehold investment properties are initially recognised at cost, being the fair value of the consideration given, including transaction costs associated with the acquisition of the investment property. After initial recognition, freehold investment properties are measured at fair value, with movements in the unrealised gains and losses recognised in the Income Statement. Fair value is based upon the market valuations of the properties as provided by DTZ Debenham Tie Leung Limited, a firm of independent chartered surveyors, at the balance sheet date. Leasehold investment properties Leasehold investment properties held which meet the criteria of an investment property as defined by IAS 40 but are held by the Group under a finance lease, are initially recognised at cost, being the fair value of the consideration given together with the discounted present value of all minimum lease payments (ie. Head lease payments). After initial recognition, leasehold investment properties are measured at market value with movements in the unrealised gains and losses recognised in the Income Statement. Fair value as disclosed in the financial statements is based on the market valuations of the properties as provided by DTZ Debenham Tie Leung Limited, a firm of independent chartered surveyors, as at the balance sheet date as adjusted for recognised lease liabilities. Cash and cash equivalents Cash and cash equivalents are defined as cash in hand, demand deposits, and highly liquid investments readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in value. Share capital Ordinary shares are classified as equity. Preference shares, which are redeemable on a specific date, are classified as liabilities. Dividends Dividend distributions to the Group's shareholders are recognised as a liability in the Group's consolidated financial statements in the period in which the dividends are approved by the Board of Directors. The redeemable preference shareholders are not entitled to payment of any dividends. Borrowings All loans and borrowings are initially recognised at 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. Finance costs relating to the preference shares are recognised in the income statement using the effective interest rate method, the effective interest rate is 6% per annum. 3 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. Under the terms of the Investment Management Agreement the Investment Manager is entitled to receive a fee at the annual rate of 0.85% of the total assets (less any amounts drawn down under the facility agreement but not yet invested in property assets), payable quarterly in arrears. Total fees charged for the period ended 31 December 2004 amounted to Â£1,012,818. The amount due and payable at period end amounted to Â£nil. Administration, secretarial and registrar fees On 19 December 2003 Guernsey International Fund Managers Limited (GIFM) were appointed administrators, secretary and registrar to the Group. GIFM are entitled to an annual fee from 1 January 2004, payable quarterly in arrears, of Â£65,000. GIFM are also entitled to reimbursement of reasonable out of pocket expenses. Total fees charged for the period ended 31 December 2004 amounted to Â£81,397. The amount due and payable at period end amounted to Â£nil. Valuation fees On 19 December 2003, DTZ Debenham Tie Leung Limited ('The Valuer'), Chartered Surveyors, were appointed as valuers in respect of the assets comprising the property portfolio. The valuer is entitled to an annual fee of Â£2,500 per property together with all reasonable out of pocket expenses and a start up fee of 0.0275% of the value of each property added to the portfolio. Total fees charged for the period ended 31 December 2004 amounted to Â£102,297. The amount due and payable at period end amounted to Â£29,375. Set-up costs Set-up costs not directly attributable to the issue of equity shares amounted to Â£432,525. These costs have been written off directly to the income statement. 4 FINANCIAL INSTRUMENTS The Group's activities expose it to various financial risks, the adverse effects of which the Group seeks to minimise through the use of financial instruments. The Group has not entered into any derivative transactions during the period under review other than the interest rate cap and interest rate swap contracts as hedges of interest rate exposure on the bank borrowings. It is the Group's policy that no trading in financial instruments will be undertaken. The main financial risks arising from the Group's activities are credit risk, market risk, liquidity risk and interest rate risk. Credit risk Credit risk is the risk that a counter party 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 shortfall and incur additional related costs. The Board receives regular reports on the concentration of risk and any tenants in arrears. Market risk The Group's exposure to market risk is comprised mainly of movements in the value of the Group's property investments. The investment property portfolio is managed within the parameters disclosed in the Group's prospectus. Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet its financial commitments. In certain circumstances, the terms of the Group's loan facility entitle the lender to require early value repayment and under such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the ordinary shares, could be adversely affected. Interest rate risk Interest rate risk relates primarily to the Group's long term debt obligations. The Group's policy is to manage its interest cost using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts based on a notional principal amount. The fair value of the interest rate swap is calculated as the present value of the estimated future cash flows. Accounting for derivative financial instruments and hedging activities Derivatives are initially recognised at cost 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 hedge 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 as gains or losses in equity. The gains or losses relating to the ineffective portion are recognised immediately in the income statement. Fair value estimation Property and related assets are inherently difficult to value due to the individual nature and as a result, valuations can be subject to substantial uncertainty. Valuation will not necessarily reflect the actual sales price, even if a sale were to occur shortly after the valuation date. The fair value of financial instruments not traded in active markets (for example over-the counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Other techniques, such as estimated discounted cash flows, are used to determine fair value of the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of estimated cash flows. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to be their fair values. 5 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 Acquisition of initial portfolio On the 19 December 2003 the Company purchased the wholly owned interest in the following companies from The Standard Life Assurance Company with the net consideration of Â£16,755,576 being satisfied by a cash payment of Â£16,554,209 and included within creditors as at the period end an amount of Â£201,367: Telelink Swansea Investments Limited Drakes Way Investments Limited Bathgate Retail Park Investments Limited Wellesley House Investments Limited Paisley Investments Limited Wellington House Investments Limited Shire Park Welwyn Investments Limited Viscount Way Investments Limited Hollywood Green Investments Limited Clough Road Hull Investments Limited Property Investments Eleven Limited These companies which were acquired in order to obtain the initial property portfolio have not been consolidated as they were acquired with the intention of liquidation and / or disposal within twelve months of purchase. As at 31 December 2004, assets and liabilities have been transferred from these companies and the liquidation processes have been initiated. The net assets acquired on acquisition of the companies shown overleaf were as follows; Â£ Investment properties at valuation 97,651,636 Loan from The Standard Life Assurance Company (80,285,282) Other assets and liabilities (610,778) ---------- 16,755,576 ========== The loan from the Standard Life Assurance Company was repaid on initial acquisition of the companies. No fair value adjustment to the book value of the net assets was required on acquisition and no goodwill arose on the acquisition. The properties were valued independently by DTZ Debenham Tie Leung Limited at Â£93,500,000. The difference between the independent valuation and the fair value amount noted above is Â£4,151,636. This amount represents an estimate of costs that would have been incurred had the properties been purchased on the open market. On 29 December 2003, the Company transferred all of the investment properties held within these companies to its wholly owned subsidiary, Standard Life Investments Property Holdings Limited at the fair value of Â£97,651,636. Redeemable preference shares On 29 December 2003 the Company issued 6,000,000 25p redeemable zero dividend preference shares for Â£6,000,000 to The Standard Life Assurance Company. These shares have a nominal value of Â£1,500,000 and are redeemable by the Company at a price of Â£1.7908. These shares do not carry any voting rights. See note 13. Ordinary share capital Standard Life unit linked property funds hold 21,769,609 of the issued ordinary shares. The maximum number of ordinary shares held in the period under review was 28,700,000 and the minimum was 21,769,609. Those parties related to the Investment Manager waived their rights to commission on the initial purchase of 28,700,000 ordinary shares in order to maintain the fairness of the transactions to all parties. Directors The Directors each hold the following number of Ordinary Shares in the Company: David Moore 15,000 Richard Barfield 15,000 John Hallam 15,000 Shelagh Mason 15,000 Paul Orchard-Lisle 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 period under review were Â£81,739, being Â£78,000 in respect of emoluments and Â£3,739 in respect of subsistence. Investment Manager Standard Life Investment (Corporate Funds) Limited is the Investment Manager. Transactions with the Investments Manager in the period are detailed on note 3. 6 INTEREST PAYABLE Â£ Interest payable in relation to redeemable preference shares 373,591 Other interest payable 1,741,545 ---------- 2,115,136 ========== 7 TAXATION Current tax A reconciliation of the income tax charge applicable to the profit from ordinary activities at the statutory income tax rate to income tax expense at the Groups effective income tax rate for the period is as follows: Â£ Profit before taxation 9,297,208 Tax calculated at UK statutory income tax rate of 22% 2,045,386 Holding company profits not subject to tax (446,230) Interest income not subject to tax (74,408) Capital allowances and other allowances (1,524,748) ---------- Current income tax charge - ========== The Group tax policy is to exchange all written down allowances on disposal for Â£1. Based upon the current allowances available the Group does not believe it appropriate to provide for Deferred Taxation. 8 FREEHOLD AND LEASEHOLD INVESTMENT PROPERTIES Â£ Â£ Â£ Cost of properties transferred from subsidiary companies 77,170,946 20,480,690 97,651,636 Cost of properties purchased 58,526,291 4,068,546 62,594,837 Gain arising on adjustment to fair value of investment properties 3,249,185 470,764 3,719,949 --------- --------- ---------- Market value at period end 138,946,422 25,020,000 163,966,422 --------- --------- ---------- Discounted present value of minimum lease payments - 4,643,013 4,643,013 --------- --------- ---------- Fair value at 31 December 2004 138,946,422 29,663,013 168,609,435 --------- --------- ---------- Investment properties were revalued at period end by DTZ Debenham Tie Leung Limited, Chartered Surveyors on the basis of the market value for existing use. In accordance with the accounting policy in note 2, the market values of leasehold investment properties have been adjusted to reflect the discounted present value of minimum lease payments to reflect their fair value in accordance with IFRS. The market for existing use provided by DTZ Debenham Tie Leung Limited at the period end was Â£164,135,000 however an adjustment has been made for lease incentives of Â£168,578 that are already accounted for. 9 TRADE AND OTHER RECEIVABLES Â£ Trade debtors 582,350 Other debtors 335,061 Rental deposits held on behalf of tenants 1,069,397 VAT receivable 693,174 ----------- 2,679,982 =========== 10 TRADE AND OTHER PAYABLES Â£ Trade creditors 403,839 Rental deposits due to tenants 1,069,397 Sundry creditors 669,250 Deferred rental income 2,695,244 Retentions relating to property purchase 167,320 ----------- 5,005,050 =========== 11 CASH AND CASH EQUIVALENTS Â£ Cash held at bank 7,557,113 =========== 12 BANK BORROWINGS Â£ Loan facility 80,000,000 =========== Bank borrowings drawn down 60,709,776 =========== On 4 December 2003 the Company entered into a term loan facility with the Royal Bank of Scotland plc for an amount not exceeding the lower of Â£80 million and 76% of the gross proceeds of the ordinary share issue and the issue of the redeemable preference shares. Interest is payable by the Company at a rate equal to the aggregate of LIBOR, a margin of 0.675% per annum and a mandatory cost rate of 0.0164% per annum. A non-utilisation fee of 0.15% is payable on any undrawn amounts under the loan facility. The interest rate on the loan drawn down at the balance sheet date of Â£60,709,776 was 5.5862%. The loan is due to be repaid on 29 December 2013. Under the terms of the loan facility there are certain events which would entitle the Royal Bank of Scotland plc to terminate the loan facility and demand repayment of all sums due. Included in these events of default are financial undertakings relating to the loan to value percentage and the amount of interest cover available. The Group has undertaken to ensure that the loan to value percentage does not at any time exceed 55% and also that net rental income is not less than 170% of the projected finance costs for any three month period. The loan facility is secured by fixed and floating charges over the assets of the Company and it's wholly owned subsidiary, Standard Life Property Holdings Limited. The amortised cost noted above is considered to be a close approximation to fair value and is deemed by the directors to be the fair value. 13 REDEEMABLE PREFERENCE SHARES The Company issued 6,000,000 25p redeemable zero dividend preference shares at a value of Â£1 on 19 December 2003. The preference shares will be redeemed by the company on the tenth anniversary of admission at a redemption price of Â£1.7908. The preference shares cannot be redeemed earlier. The redemption price represents a redemption yield of 6% per annum on the issue price of Â£1. Â£ Proceeds from issue of redeemable preference shares 6,000,000 Accrued finance cost charges to income statement 373,591 ----------- 6,373,591 =========== As a return of capital the holders of the preference shares are entitled to the payment of 25p per share increased at the rate of 21.8% per annum compounded daily from the date of admission up to the tenth anniversary of admission. The capital liability for the purpose of calculation of the net asset value at the balance sheet date is as follows: Â£ Par value of preference shares 1,500,000 Compounded daily interest 339,962 ----------- 1,839,962 =========== 14 LEASEHOLD OBLIGATIONS At 31 December 2004 the Group owned three leasehold properties at an open market value of Â£25,020,000 as valued by the independent valuers DTZ Debenham Tie Leung Limited. In accordance with the accounting policy for leasehold investment property an adjustment is required to reflect the discounted present value of minimum lease payments. This adjustment effectively values the leasehold properties as if they were held as freeholds. Â£ Leasehold Obligations 4,643,013 =========== 15 LESSOR ANALYSIS Lessor Length At the period end the total contractually agreed rental income based on the leases in operation is as follows: Â£ Less than one year 11,655,628 Between one and five years 46,620,420 Over five years 89,903,455 ----------- Total 148,179,503 =========== The largest single tenant at the period end accounts for 10.72% of the annual rent income. 16 INTEREST RATE SWAP The Company entered into swap agreements with the Royal Bank of Scotland plc for the initial drawdown of Â£5,000,000 from 29 December 2003 to 29 December 2004, and for 90% of the total Â£80,000,000 debt facility (Â£72,000,000) from 29 December 2004 to 29 December 2013. The Company also entered into a cap agreement with RBS on Â£67,000,000 of the loan facility from 29 December 2003 to 29 December 2004. The Swap qualifies as a cashflow hedge and fair value changes are taken to capital reserves. The effective interest rate of the Swap was 5.115% in the period to 31 December 2004. Fair Value of the financial instruments Â£ Interest rate swap - Â£72,000,000 from 29/12/04 to 29/12/13 1,494,912 ----------- 1,494,912 =========== 17 SHARE CAPITAL Â£ Authorised 130,000,000 ordinary shares of 1p each 1,300,000 =========== Allotted, called up and fully paid: 100,000,000 ordinary shares of 1p each 1,000,000 =========== 18 SHARE PREMIUM The share premium received on the initial offering of shares was as follows: Â£ Premium received on issue of ordinary shares 99,000,000 Premium received on issue of preference shares 4,500,000 ----------- 103,500,000 =========== The net amount received from the issue of ordinary shares amounted to Â£97,775,951. (Â£100,000,000 less issue costs deducted on placing of Â£2,224,049.) On 6 September 2004 the Royal Court of Guernsey granted an application to cancel the share premium account of the company and re-classify the following amounts as a distributable reserve. After reclassification Â£96,692,892 was transferred to other reserves Â£ 100,000,000 ordinary shares carrying a premium of 99p each 99,000,000 6,000,000 preference shares carrying a premium of 75p each 4,500,000 Share issue costs (2,307,108) Preference share premium treated as a liability (4,500,000) Transfer to other distributable reserves (96,692,892) ----------- - ========== 19 RETAINED EARNINGS Â£ Profit for the period 9,297,208 Unrealised profit on revaluation of investment properties (3,719,949) Dividends (4,875,000) ----------- At 31 December 2004 702,259 =========== This is a distributable reserve. 20 CAPITAL RESERVES Â£ Unrealised profit on revaluation of interest rate swap 1,494,912 Unrealised profit on revaluation of investment properties 3,719,949 ----------- At 31 December 2004 5,214,861 =========== This reserve will not be used to make distributions to the equity shareholders. 21 OTHER DISTRIBUTABLE RESERVES Â£ Share premium reclassified as other distributable reserve 96,692,892 ----------- 96,692,892 =========== 22 EARNINGS PER SHARE Basic and diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares issued in the period. Â£ Profit for the period 9,297,208 Ordinary shares issued 100,000,000 ----------- Earnings per ordinary share (pence) 9.30 ========== There is no difference between the basic earnings per share and the diluted earnings per share. 23 DIVIDENDS The interim dividends paid to date in 2004 are as follows: Â£1,625,000 (1.625p per ordinary share) paid in May relating to the quarter ending 31 March 2004 Â£1,625,000 (1.625p per ordinary share) paid in September relating to the quarter ending 30 June 2004 Â£1,625,000 (1.625p per ordinary share) paid in November relating to the quarter ending 30 September 2004 A further interim dividend of 1.625p per share in respect of the quarter to 31 December 2004 is to be proposed. These consolidated financial statements do not reflect this dividend, however, the Published Net Asset Value does. 24 RECONCILIATION OF CONSOLIDATED NET ASSET VALUE TO PUBLISHED NET ASSET VALUE The net asset value attributable to Ordinary Shares is published quarterly and is based on the properties' most recent valuations and calculated on an adjusted capital basis under United Kingdom Generally Accepted Accounting Principles (UK GAAP) and practice for investment trust companies taking into account the prevailing capital entitlement from time to time of the Preference Shares under the Articles of the Company. Â£ Net asset value per audited consolidated financial statements 103,610,012 Adjustments: Re-classification of redeemable preference shares as equity 6,373,591 Unrealised profit on revaluation of interest rate swap (1,494,912) Preference share adjustment to reflect capital redemption rights (1,839,962) Proposed dividend for quarter ending 31 December 2004 (1,625,000) Adjustment to fair value of investment properties 168,578 Adjustment for accrued creditors (35,490) ----------- Published Net Asset Value 105,156,817 =========== 25 CASH GENERATED FROM OPERATIONS Â£ Â£ Profit for the period 9,297,208 Movement in debtors (2,679,982) Movement in creditors 4,837,731 Finance cost of preference shares 373,591 Interest payable 1,741,545 Interest receivable (338,217) Unrealised profit on revaluation of investment properties (3,719,949) Bank loan arrangement fees 240,000 ---------- 454,719 ----------- Cash generated from operations 9,751,927 =========== 26 SEGMENTAL REPORTING Primary reporting format - business segments The group is organised into four main business segments determined in accordance with the type of investment property: Retail - Mainly shops and retail warehouse parks Office - Mainly in large Cities Industrial - distribution warehouses and industrial units Other - Leisure centres and Cinema complexes Segmental analysis by business segment Retail Office Industrial Leisure Total Â£ Â£ Â£ Â£ Â£ Rental 2,033,326 5,112,241 1,607,384 1,285,190 10,038,141 income Unrealised gains 2,606,849 (442,889) 1,130,954 425,035 3,719,949 Property related expenditure (36,588) (352,891) (110,097) (5,000) (504,576) ---------- ---------- ---------- ---------- ----------- Segment result 4,603,587 4,316,461 2,628,241 1,705,225 13,253,514 Unallocated costs (1,939,387) ----------- Operating profit 11,314,126 Finance costs - net (2,016,919) ----------- Profit for the period 9,297,207 Segmental assets 34,453,151 77,002,889 29,974,046 18,816,387 160,246,473 Gains on assets 2,606,849 (442,889) 1,130,954 425,035 3,719,949 Other 2,679,982 assets ----------- 166,646,404 Value of (9,412,500) (22,724,656) (19,927,200) (3,645,420) (55,709,776) loan Initial loan drawdown (5,000,000) ----------- (60,709,776) Other liabilities (5,005,050) ----------- (65,714,826) There were no transactions between the business segments. Segmental assets consists preliminary of investment property. Property related expenditure relates to head lease payments, valuation fees and other direct property costs. Secondary reporting format - geographical segments The group invests in the UK Property investment market and is diversified across the geographical locations below Segmental analysis by geographical location South West Midlands Northern Wales Scotland England Â£ Â£ Â£ Â£ Â£ Rental 980,205 399,546 1,591,046 355,529 677,531 income Unrealised gains 292,658 688,932 1,109,978 163,150 1,519,802 Property related expenditure (5,000) (32,408) (104,360) (14,197) (9,750) ---------- ---------- ---------- ---------- ----------- Segment result 1,267,863 1,056,070 2,596,664 504,482 2,187,583 Unallocated costs Operating profit Finance costs - net Profit for the period Segmental assets 12,387,342 11,821,068 32,345,022 12,026,850 8,740,198 Gains on assets 292,658 688,932 1,109,978 163,150 1,519,802 Other assets Value of loans - (11,848,000) (13,851,906) (7,825,000) - Other liabilities London Rest of London South East Total Mid Town London West End Â£ Â£ Â£ Â£ Â£ Rental 1,598,848 1,881,601 455,854 2,097,981 10,038,141 income Unrealised gains (177,275) 159,901 273,780 (310,977) 3,719,949 Property related expenditure (314,247) (13,588) (2,026) (9,000) (504,576) ---------- ---------- ---------- ---------- ----------- Segment result 1,107,326 2,027,914 727,608 1,778,004 13,253,514 Unallocated costs (1,939,387) ----------- Operating profit 11,314,127 Finance costs - net (2,016,919) ----------- Profit for the period 9,297,208 Segmental assets 16,277,275 32,781,521 6,846,220 27,020,977 160,246,473 Gains on assets (177,275) 159,901 273,780 (310,977) 3,719,949 Other 2,679,982 assets ----------- 166,646,404 Value of loans - (17,567,170) - (4,617,700) (55,709,776) Initial loan drawdown (5,000,000) ----------- (60,709,776) Other liabilities (5,005,050) ----------- (65,714,826) All Enquiries: The Company Secretary Guernsey International Fund Managers Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL Tel: 01481 745439 Fax: 01481 745085 END This information is provided by RNS The company news service from the London Stock Exchange

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