Final Results

RNS Number : 9577E

Standard Life Invs Property Inc Tst

14 April 2011

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2010

Financial Highlights

- Dividend of 4.55p paid in respect of the 12 months to 31 December 2010
- Dividend yield of 6.8% based on year end share price
- 2010 dividend increased by 13.8% from 2009
- Net Asset Value per share increased by 11.3% to 63.0p

Financial Summary
	31 December 2010	31 December 2009	% Change

IFRS Net Asset Value per share 1	64.1p	57.6p	11.3%
Published adjusted IFRS Net Asset Value per share 2	63.0p	56.6p	11.3%
Share Price	64.75p	64.5p	0.4%

Value of total assets	£177.4m	£169.1m	4.9%
Loan to value 3	40.8%	39.2%
Cash balance	£21.2m	£30.8m

Dividends per share 4	4.55p	4.00p	13.8%

Property Performance
	Year ended	Year ended
	31 December 2010	31 December 2009
Property income return	7.1%	12.3%
IPD property income monthly index 5	6.4%	8.2%
Property total return (property only)	16.4%	4.5%
Property total return (property and cash only)	13.7%	4.3%
IPD property total return monthly index 5	13.3%	2.2%


1 Calculated under International Financial Reporting Standards.
2 Calculated under International Financial Reporting Standards, adjusted to include the dividend of 1.1p per share
in respect of the quarter ending 31 December 2010.
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 2010.
4 Dividends paid during the 12 months to 31 December 2010.
5 Source: IPD

The Chairman, David Moore, stated:

'Overview of 2010 for the Company

The Company has been very active during 2010 investing its cash resources to enhance the revenue account whilst remaining within its targeted loan to value (LTV) range of 35% to 45%.

• Five properties purchased at an average yield of 8.0% and five properties sold at an average yield of 6.5%.

• Net reduction in cash of £9.7m through property investment resulting in an improvement in the dividend cover position.

• Strong Net Asset Value performance out performing the IPD Monthly Index.

• Annualised dividend increased to 4.4p per share from 4.0p per share.

Market Background

Real Estate values staged a rebound in 2010 with capital values increasing by 7.0% compared to a reduction in 2009 of 6.4% (source IPD Monthly). During 2010 central London offices and central London retail performed best driven by strong fundamentals with both sectors having limited future supply and recovering demand. Over the last ten and fifteen years UK real estate has now out performed equities, gilts and real estate equities.

Strategy

The Company is focussed on providing its shareholders with a sustainable dividend with scope for growth. The Board believes in a covered dividend policy, and anticipates at least a covered dividend for 2011. During 2010 the Company undertook a pre let development, which did not produce income until completion, and the Board therefore utilised revenue reserves during the year to support an increased dividend of 4.4p per share. The Board was able to increase the dividend given the substantial investment progress made by the Investment Manager during 2010. The Company still has over £5.1m of retained earnings.

The desire to maintain a strong revenue account drives the Company's philosophy and approach to the portfolio. The Investment Manager takes an active approach to managing the portfolio, and has undertaken purchases and sales to improve the quality of the portfolio and to increase its income generation. However the strong revenue reserve position enables the Company to take advantage of development and other asset management opportunities to generate capital growth but importantly the longer term revenue position should also be strengthened.

The Board and its Investment Manager have an objective of increasing the size of the Company's net assets to at least £100m over the short to medium term to lower the total expense ratio and improve liquidity in the ordinary shares as well as providing a stronger base to further increase the Company's size as long as this is in shareholders interests.

The Board is currently considering proposals to simplify the capital structure of the Company and to expand its capital base. The Board hopes to be in a position to recommend proposal to shareholders in the near future.

Performance: Property Income and Total Return

The Company generated a property income return of 7.1% on its properties which was slightly ahead of IPD monthly index of 6.4% in respect of the year ended 31 December 2010. The Company's property total return was 16.4% compared with the IPD Monthly Index of 13.3%. The Company's total return for its investment portfolio (property and cash) over the period was 13.7%.

Performance: Net Asset Value

The Company's published net asset value ("NAV") increased over the reporting period from 56.6p per share to 63.0p. As can be seen from the table below, the vast majority of the uplift in published net asset value related to the increase in the valuation of the Company's commercial property, including the impact of gearing, which accounted for 9.3p of the increase in net asset value over the period. 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 reduced the net asset value by 1.1p. Other reserve movements reduced the NAV by 1.8p.

	Pence per share	% of opening NAV
Published NAV as at 31 December 2009	56.6	100.0
Increase in valuation of property portfolio	9.3	16.4
Decrease in interest rate SWAP valuation	(1.1)	(1.9)
Other reserve movements	(1.8)	(3.2)
Published NAV as at 31 December 2010	63.0	111.3

The net asset value is calculated under International Financial Reporting Standards ("IFRS") and includes a provision for the payment of the fourth interim dividend of 1.10p per ordinary share for the quarter to 31 December 2010.

Earnings and Dividends

	2010 Pence per share	2009 Pence per share
Interim dividend paid in May relating to quarter ending 31 March	1.10	1.00
Interim dividend paid in August relating to quarter ending 30 June	1.10	1.00
Interim dividend paid in November relating to quarter ending 30 September	1.10	1.00
Interim dividend paid in February relating to quarter ending 31 December	1.10	1.00
Special dividend paid in February relating to year ending 31 December		0.25
	4.40	4.25

During 2010 the Company paid total dividends of 4.55p per share, including a special dividend of 0.25p per share. This represented an increase of 13.8% over the dividends paid in 2009. As indicated in my last statement the Board decided to utilise the exceptional surrender income of £4.2m received during 2009 that significantly strengthened the revenue position, to help finance dividends paid in 2010. Now that the pre-let Aberdeen development has been completed and cash resources have been reduced through investment in further UK commercial properties the Company expects the level of annualised dividends (currently 4.4p per share) to be covered.

The Board has always targeted a high level of dividend cover and continues to believe that this is an appropriate discipline for the Company to follow.

Borrowings and Cash Position

As at 31 December 2010 the Company had borrowings of £84.4m and a cash position of £21.2m (excluding rent deposits) therefore cash as a percentage of debt was 25.1%.

As a reminder to shareholders £72m of the Company's borrowings are 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 2.05% and this is being rolled over monthly. The swap liability as at 31 December 2010 was £7.4m.

Loan to Value Ratio

As at 31 December 2010 the LTV ratio (assuming all cash is placed with RBS as an offset to the loan balance) was 40.8% and the board is targeting the LTV to remain in the range of 35% to 45%. The maximum LTV covenant level is 65%, however the Company has no intention to increase borrowings, and intends to continue operating with a LTV of 35 - 45% depending on market cycle.

Activity

The Company has been very active during the financial year with the purchase of five properties for a total consideration of £42.3m at an average yield of 8%.

As reported in the last set of accounts the Company accepted a bid of £19.2m, considerably in excess of the year end valuation, for its Uxbridge property and has been utilising the proceeds to invest in other properties at higher yields to enhance the Company's revenue account. The Company also sold four other properties for £18.5m at an average yield of 6.5%. Further details of the activity during the year can be found in the Investment Manager's Report.

Discount and Share Price

The share price at 31 December 2010 of 64.75p per share represented a premium of 2.8% to the net asset value of 63.0p. At the date of writing the share price is 67.25p equivalent to a premium to the 31 December 2010 NAV of 6.7%.

Dividend Yield

The current share price represents an attractive dividend yield of 6.5%. The current dividend yield compares with bank deposit rates of around 0.5% and redemption yields on UK gilts of 3.7%.

Directors

Sally-Ann (Susie) Farnon was appointed to the board on 30 June 2010 as the audit committee chairman following the resignation on the same date of John Hallam. The Board would like to thank John for all his efforts on behalf of the Company and wishes him well for the future. Susie was a banking and finance partner with KPMG for over 10 years and is a director of a number of property and investment companies.

A business acquisition by the Standard Life Group during the course of 2010 means that I am no longer eligible to act as Chairman on an ongoing basis. I intend therefore to stand down as Chairman at the next AGM although I shall continue as a director of the Company. I am grateful for the support, counsel and guidance I have received from my fellow Board members during my tenure as Chairman and I am delighted to report that Paul Orchard-Lisle has agreed to succeed me as Chairman.

The Articles of Association of the Company are proposed at the AGM to be amended to bring them into line with changes made to Guernsey company law since 2008 and a summary of the principal changes proposed accompany the Notice convening the meeting. The opportunity is therefore being taken to remove the restriction in the Articles from the Chairman being a UK resident in order to enable Paul to take up this post.

Fund Raising

During the year to 31 December 2010, the Company's share capital remained unchanged. Since the year end, the Company has issued 1,000,000 new ordinary shares at 65p per share.

Investment Outlook

UK Real Estate continues to look reasonably priced relative to other assets although recent increases in bond yields have reduced the margin property provides relative to these other assets. Despite some concerns over the economic recovery in the short term, the medium term prospects for UK Real Estate look encouraging and the Board anticipate high single figure total returns over the next three years, driven by income. The yield margin between prime and secondary assets is at record levels and continues to reflect the market's concern about income resilience. These market conditions should play to the Investment Manager's strengths given their ability to source attractively values properties and actively manage these assets for shareholders benefit.'

Jason Baggaley, on behalf of Investment Manager, stated:

'UK Real Estate Market 2010

Generally, 2010 was similar to 2009 in that there were two distinct halves to the year. However, unlike 2009, capital values staged a sharp rebound and consequently, total returns at 15.2% for the year were well ahead of last years 3.4% out-turn. Boosted by demand from overseas investors and institutions, capital values rose 8.5% over the year. This compares to -3.8% in 2009. As illustrated below, the strong rebound led to UK Real Estate being the best performing major asset class last year. UK real estate has outperformed equities, gilts and real estate equities over ten and fifteen year periods also.

Over the year, investor demand was greatest for segments of the market with the strongest fundamentals. Specifically, central London offices and also central London retail. Both sectors have limited future supply and demand is reviving. Central London offices are generally geared to global recovery and benefitted from several unusually large deals over the year as a result of a higher than normal looming number of lease expiries and diminishing new supply. Some of the large City deals included UBS signing for a large amount of space at Broadgate and Bloomberg committing to a sizeable amount of space at the Walbrook. Although central London retail is a relatively small sector, its outperformance was driven by a large number of overseas shoppers attracted by favourable exchange rates and significant overseas retailer demand. Investors broadly remain risk averse and due to the relatively weak economy are reluctant to take on assets with significant risk to income. Hence the market remains polarised between prime/good quality secondary buildings with an asset management angle and poorer quality secondary assets. There is also a distinct North/South divide with assets outside the south suffering from steeper rental declines and less resilience in prices.

From a pricing perspective, UK property continues to look reasonably priced relative to other assets although recent increases in bond yields have reduced the margin property provides relative to other assets. The yield margin between prime and secondary assets is at record levels and continues to reflect on-going concerns about income resilience. Opportunities are arising to pick up relatively good value secondary assets where the pricing reflects the risk and the fundamentals of future demand and supply are positive in the specific location. For prime property, pricing is beginning to become stretched in some areas, notably the parts of the market where pricing has rebounded most sharply, i.e. central London offices and retail warehouses. These areas are beginning to look fully priced and there is better value in other parts of the market, for example, offices in the south east. This is also an area we would expect to benefit further out as the economic recovery becomes more pronounced.

Outlook

2011 is likely to see a continuation of prime assets outperforming secondary as investors remain risk adverse and banks (especially NAMA) release an increased supply of poor quality stock.

The historically large yield gap between prime and secondary will, however, increasingly provide opportunity for active managers. Opportunity funds have already shown a desire to get hold of assets that they can work, and in a number of markets there is a low level of supply of good quality accommodation and little prospect of new development.

Rental growth is likely to remain broadly negative in 2011, but as the economy recovers through 2012/13 we are likely to see rental growth in most markets driven by increasing demand and little supply.

Real estate fundamentals once again come to the fore. Good quality properties in good locations will be the first to benefit from rental growth and tenant demand.

Purchases:

The Company had an active year with five purchases during the period, and one just after. The purchases have all been accretive to the revenue account:

Focus DIY Unit, Wymondham, Norwich: The Company bought the 2009 built retail warehouse in Jan 2010 for £5.0m, reflecting a yield of 8%. It is let for 24 years.

Hydrasun, Aberdeen:The Company undertook a funding of a pre let development, which commenced in February 2010 and completed 14 December 2010. The cost to the Company was £11.7m, giving a yield of 8%, and on completion the property was valued at £13.2m. It is let for 20 years with fixed increases in rent every 5 years.

Tesco logistics Unit, Bolton: The Company acquired the 270,000sqft modern logistics unit in January 2010 for £14.06m, reflecting an income yield of 8%. It is let to Tesco until 2016.

B&Q Bury:The Company acquired the 41,280sqft B&Q retail warehouse store in March 2010 for £5.3m, reflecting an income yield of 7%. The store has an open A1 (non food) planning consent and is let until 2022.

Monck St, Westminster, London: The Company acquired a mixed use ground floor parade in November for £6.35m, reflecting an income yield of 8%. The block has residential above, but consists of the commercial element only, with a restaurant, offices and retail units including a Tesco metro.

Purchased after year end:

Bourne House Staines:Although the purchase exchanged in December 2010 it did not complete until January 2011. The 26,560sqft office building is let to UB Group until 2015 and the investment offers scope for asset management. The purchase price of £ 8.38m reflected an income yield of 9.2%.

Sales:

The Company undertook five sales during the period, two of which were of vacant properties to owner occupiers. The sales have realised profit and reduced risk to the Company:

Capital Court, Uxbridge:The office was sold in January 2010 for £19.2m, giving a yield of 6.5%, 9 months after it was purchased for £11.5m. £2.0m was invested in the building in asset management initiatives during the period of ownership.

Century Plaza, Edgware:The mixed use retail, leisure, and residential block were sold for £6.4m, giving a yield of 6.9% in February 2010.

2-4 Bucknall St, London:The office was sold in September 2010 for £8.6m, giving a yield of 6.4% to capture the demand for Central London offices, but reduce exposure to over rented stock with a lease expiry in 2014.

Kings logistics unit, Skelmersdale: Following the tenant going into liquidation and receiving £1m from the lease guarantor (3 years rent), the property was sold with vacant possession to an owner occupier for £2.8m.

Onslow House Chelmsford:The grade II listed building was sold to an owner occupier for £0.7m.

Acquisitions	Location	Type	Cost (£m)	Initial Yield (%)
January	Norwich	Retail warehouse	5.0	8.0
February	Aberdeen	Industrial unit development	11.50	8.0
February	Bolton	Logistics warehouse	14.1	8.0
April	Manchester	Retail warehouse	5.3	7.0
October	Westminster	Mixed use	6.4	8.0
January 2011	Staines	Office	8.4	9.2
Total			50.7
Disposals			Proceeds (£m)	Premium to carrying value
January	Uxbridge	Office	19.2	12.9
February	Edgware	Mixed use	6.4	12.2
June	London	Office	8.6	11.0
October	Skelmersdale	Industrial	2.8	7.6
December	Chelmsford	Office	0.7	0.0
Total			37.7
Net investment			13.0

Portfolio Valuation:

The Company's portfolio of UK commercial property was valued by Jones Lang La Salle throughout 2010. At the year end the Company's investment portfolio was valued at £155.0m with cash holdings of £21.2m. This compared to £136.8m and £30.8m at the beginning of the reporting period. Since the year end the Company has completed a further purchase, and the unallocated cash following the purchase and committed costs on the pre let development in Aberdeen reduce the cash held to £11.5m.

At the year end the property portfolio had an initial yield of 7.8%, similar to last year's value of 7.7%. The Company has however reduced the level of voids in the portfolio from 6.5% at December 2009 to 3.3% in December 2010.

Asset Management:

The Investment Manager is focused on protecting and enhancing the income stream through active asset management. During the reporting period three voids were let securing future income of circa £435,000pa, 2 leases were renewed protecting just over £100,000pa, and several rent reviews were settled at an uplift.

In addition, a lease break in 2012 has been removed to protect future income, and all leases expiring in 2011 have been renewed (two are subject to formal documentation being completed at time of reporting). Discussions have started with all tenants with lease events in 2012 and 2013.

As at the year end the Company had approximately £10m available to invest, and we will seek to find a suitable investment in the first quarter of 2011. We will also maintain the drive to capture profit and rebalance the portfolio through sales where appropriate, but as the chart below shows, cash has underperformed over the last 18 months, and will, we believe, continue to do so over the medium term.

Although we focus on income, capital growth is important, and through 2010 we maintained strong growth in the NAV even although the share price performance was weak compared to peers - driven by our small premium to NAV during the year remaining broadly static whilst many of the Trusts on larger discounts at the beginning of the period have seen a partial re rating.

Debt and Cash Management:

The Company currently has £84.4m of debt from RBS under a facility maturing in December 2013. The facility is fully drawn down. The Company has an interest rate hedge in place of £72.0m giving a fixed rate of 5.015% plus the margin of 150bps. The remaining debt is floating on 1 month LIBOR plus margin of 150bps. The interest rate swap is held in the accounts at a liability of £7.4m at the year end compared to a liability of £6.1m in December 2009. Assuming it is held until maturity the SWAP will be worth £nil on maturity, thus adding approximately 6.5p (2009: 5.4p) per share.

The bank facility has a LTV covenant of 65% and interest cover ratio ("ICR") of 170%. The Company is comfortably within these limits with a year end LTV of 40.8% (if all Group cash was deposited with RBS) and ICR of 233%.

RBS has informed the Company that the loan will be transferred to Santander Bank during 2011. The transfer is a consequence of an agreement RBS reached with the European Commission in December 2009 to reduce RBS share of the UK banking market as a result of the state aid RBS received. The Company has already made contact with Santander and does not believe there is any adverse impact for the Company.'

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: 01481 745001

Fax: 01481 745051

Gordon Humphries

Standard Life Investments Limited

Tel: 0131 245 2735

Jason Baggaely

Standard Life Investments Limited

Tel : 0131 245 2833

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 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 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 in 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 considerations of these matters and, accordingly, the auditors accept no responsibility for any change that may have occurred to the Financial Statements since that 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 European Union, 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.

Approved by the Board on 13 April 2011.

David Moore Sally-Ann Farnon

Chairman Director

AUDITED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

	2010	2009
	£	£
Rental income	11,450,575	11,428,246
Surrender premium income	-	4,248,793
Gain / (loss) on valuation on investment properties	6,909,885	(10,834,835)
Gain / (loss) on disposal of investment properties	3,795,227	(27,391)
Investment management fee	(1,263,779)	(1,086,828)
Head lease payments	(500)	(500)
Surrender premium expense	-	(100,000)
Other direct property operating expenses	(1,182,564)	(878,096)
Directors' fees and expenses	(112,091)	(104,053)
Valuer's fee	(37,936)	(23,520)
Auditor's fee	(33,500)	(44,700)
Other administration expenses	(181,521)	(287,808)
Operating profit	19,343,796	2,289,308

Finance income	91,338	454,917
Finance cost	(5,539,955)	(4,924,425)
Profit / (loss) for the year	13,895,179	(2,180,200)

Other comprehensive income
Valuation (loss) / profit on cash flow hedges	(1,287,454)	1,468,003

Total comprehensive income for the year, net of tax	12,607,725	(712,197)


Earnings per share:
Basic and diluted earnings / (losses) per share	12.15	(2.06)
	pence	Pence

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

Consolidated Balance Sheet

as at 31 December 2010

	2010	2009
	£	£
ASSETS
Non-current assets
Freehold investment properties	119,911,195	108,475,658
Leasehold investment properties	31,481,594	24,316,594
Lease incentives	3,273,974	3,878,541
	154,666,763	136,670,793
Current assets
Trade and other receivables	1,607,101	1,608,329
Cash and cash equivalents	21,170,716	30,796,998
	22,777,817	32,405,327

Total assets	177,444,580	169,076,120

EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital	6,671,438	6,671,438
Share premium	-	5,217,022
Retained earnings	5,158,901	6,662,276
Capital reserves	(36,638,104)	(46,055,762)
Other distributable reserves	98,138,586	93,433,322
Total equity	73,330,821	65,928,296

LIABILITIES
Non-current liabilities
Bank borrowings	84,140,896	84,043,766
Interest rate swap	4,578,987	3,032,234
Redeemable preference shares	9,041,060	8,529,302
Leasehold obligations	6,094	6,094
	97,767,037	95,611,396
Current liabilities
Trade and other payables	3,530,557	4,460,964
Interest rate swap	2,815,665	3,074,964
Leasehold obligations	500	500
	6,346,722	7,536,428
Total liabilities	104,113,759	103,147,824

Total equity and liabilities	177,444,580	169,076,120

Approved by the Board of Directors on 13 April 2011

Consolidated Statement of Charges in Equity

for the year ended 31 December 2010

					Other
	Share	Share	Retained	Capital	distributable
	capital	premium	earnings	reserves	reserves	Total equity
	£	£	£	£	£	£
Opening balance 1 January 2010	6,671,438	5,217,022	6,662,276	(46,055,762)	93,433,322	65,928,296

Profit for the year	-	-	13,895,179	-	-	13,895,179
Valuation loss on cash flow hedges	-	-	-	(1,287,454)	-	(1,287,454)
Total comprehensive income for the year	-	-	13,895,179	(1,287,454)	-	12,607,725

Dividends			(5,205,200)			(5,205,200)
Gain on valuation of investment properties	-	-	(6,909,885)	6,909,885	-	-
Gain on disposal of investment properties	-	-	(3,795,227)	3,795,227	-	-
Transfer between reserves*	-	-	511,758	-	(511,758)	-
Transfer between reserves**	-	(5,217,022)	-	-	5,217,022	-
Balance as at 31 December 2010	6,671,438	-	5,158,901	(36,638,104)	98,138,586	73,330,821

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

** on 18 March 2010 the Audit Committee approved the re-categorisation of the share premium to other distributable reserves under the provisions of The Companies (Guernsey) Law, 2008.

Consolidated Statement of Charges in Equity

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
Dividends	-	-	(4,220,000)	-	-	(4,220,000)
Loss on valuation of investment properties	-	-	10,834,835	(10,834,835)	-	-
Loss on disposal of investment properties	-	-	27,391	(27,391)	-	-
Transfer between reserves*	-	-	482,792	-	(482,792)	-
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

Consolidated Cash Flow Statement

for the year ended 31 December 2010

	2010	2009
	£	£

Cash flows from operating activities	8,291,372	11,548,205

Cash flows from investing activities
Interest received	91,338	454,917
Purchase of investment property	(32,430,642)	(22,092,080)
Capital expenditure on investment properties	(10,767,410)	(136,534)
Proceeds from / (costs of) disposal of investment properties	35,325,327	(27,391)
Net cash used in investing activities	(7,781,387)	(21,801,088)

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	(1,719,974)	(1,460,332)
Interest rate swap cost	(3,211,093)	(2,948,063)
Dividends paid to the Company's shareholders	(5,205,200)	(4,220,000)
Net cash used in financing activities	(10,136,267)	(3,419,121)

Net decrease in cash and cash equivalents in the year	(9,626,282)	(13,672,004)

Cash and cash equivalents at beginning of the year	30,796,998	44,469,002
Cash and cash equivalents at end of year	21,170,716	30,796,998

Standard Life Investments Property Income Trust Limited

Notes to the Consolidated Financial Statements

For the year ended 31 December 2010

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 interpretations as of 1 January 2010:

IFRS 3 Business Combinations (Revised)

IAS 27 Consolidated and Separate Financial Statements

IAS 17 Leases - amendment

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 revenue, 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.

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 Consolidation 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 location 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. 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 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 consideration of liquidity and model inputs such as credit risk (both own and counterparty's), correlation and volatility. Changes in assumption 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.

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. Theses shares have a nominal value of £1,500,000 and are redeemable by the Company on the tenth anniversary of admission at a redemption price of £1,7908. These shares do not carry any voting rights.

Ordinary share capital

Standard life Investment Funds Limited held 16,644,609 of the issued ordinary shares at the balance sheet on behalf of its Unit Linked Property Funds (2009:21,769,609). This equates to 14.5% (2009:19.0%) of the ordinary share capital in issue at the balance sheet date, however, Standard Life Investment 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.

Director's remuneration

	2010	2009
	£	£

David Moore	26,875	25,000
Richard Barfield	20,625	18,750
John Hallam (resigned 30 June 2010)	9,375	18,750
Sally Ann Farnon (appointed 30 June 2010)	11,250	-
Shelagh Mason	20,625	18,750
Paul Orchard-Lisle	20,625	18,750
	109,375	100,000

David Moore is a partner of Mourant Ozannes Advocates and Notaries Public (Guernsey) who are the Group's solicitors. As at 31 December 2010, the fees paid during the year to Mourant Ozannes Advocates and Notaries Public (Guernsey) were £1,252 (2009:£5,446).

Investment Manager

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

4 COMMITMENTS

As at 31 December 2010, the Group has agreed construction contracts with third parties and is committed to future expenditure of £1.0m (31 December 2009: £nil) for Hydrasun, Aberdeen.

As at 31 December 2010, the Group had exchange contracts with third parties and is committed to purchase an office investment in Staines for £8.375m.

5 EVENTS AFTER THE BALANCE SHEET DATE

Property Sales and Purchases

On 11 January 2011 the Group completed the purchase of an office investment in Staines for £8.375m. The 25,650sq ft office was built in 1991 and is let to UB Group Ltd on an FRI lease expiring in 2016 at a current rent of £816,000 pa. The purchase price reflects an initial yield of 9.2%

Dividend and Shares

On 15 February 2011 the Company obtained approval from the UK Listing Authority to allot shares pursuant to a block listing facility of 11,439,998 ordinary shares.

ON 16 February 2011 the Company approved the allotment of 500,000 ordinary shares from the block listing facility to Winterflood Securities Limited at an issue price of 65.0p per share.

On 25 February 2011 a dividend of £1,258,400 (2009: £1,430,000) in respect of the quarter to 31 December 2010 was paid.

On 7 March 2011 the Company approved the allotment of 500,000 ordinary shares from the block listing facility to Winterflood Securities Limited at an issue price of 65.0p per share.

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 2010. The statutory accounts for the year ended 31 December 210 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 2010 were approved by the Directors on 13 April 2011. The Company's AGM is to be held on the 24 May 2011. The Annual Report and Notice of AGM will be sent to shareholders in April 2011 and can be downloaded 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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