Final Results

RNS Number : 0077A

Standard Life Invs Property Inc Tst

26 March 2012

 



STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2011

Financial Highlights
- £84m debt facility extended to 2018 on attractive terms
- Dividend of 4.433p paid in respect of the 12 months to 31 December 2011
- Quarterly dividend increased by 3% from quarter ended 30 September 2011
- Dividend yield of 8.8% based on year end share price of 51.75p
- Net Asset Value per share decreased by 0.5% to 62.7p
Financial Summary
	31 December 2011		31 December 2010		% Change
Net Asset Value per share  1	63.9p		64.1p		-0.3%
Published adjusted Net Asset Value per share  2	62.7p		63.0p		-0.5%
Share Price	51.75p		64.75p		-20.1%
Value of total assets	£181.9m		£177.4m		+2.5%
Loan to value  3	41.1%		40.8%
Cash balance	£17.8m		£21.2m
Dividends per share 4	4.433p		4.30p*		+3.1%
Property Performance
	Year ended		Year ended
	31 December 2011		31 December 2010
Property income return	7.6%		7.1%
IPD property income monthly index  5	6.2%		6.4%
Property total return (property only)	6.5%		16.4%
Property total return (property and cash only)	5.9%		13.7%
IPD  property total return monthly index   5	7.4%		13.3%
1 Calculated under International Financial Reporting Standards.
2 Calculated under International Financial Reporting Standards, adjusted to deduct the dividend of 1.133p per share
in respect of the quarter ending 31 December 2011.
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 2011.
4 Dividends paid during the 12 months to 31 December 2011. *2010 excludes a special dividend of 0.25p per              ordinary share paid in February 2010 relating to the year 31 December 2009.
5  Source: IPD quarterly version of monthly index funds (excludes cash).

The Chairman, Paul Orchard-Lisle, stated:

'Overview of 2011 for the Company

As anticipated in my predecessor's statement last year, performance in the property sector during 2011 was driven by income. Standard Life Investments Property Income Trust has been successful in this regard, resulting in an uplift of 3.1% in the fully covered dividend paid to investors in the year.

A number of initiatives have combined to make this possible; we have worked with tenants to help them meet their rental obligations, we have sought to regear leases with short term expiries and breaks, and we have improved the quality of the property portfolio by some sales and purchases.

While this is good progress, the Company was not immune from the general fluctuations in the market, and its impact on our financial performance is set out below.

STRATEGY

Our focus is to provide investors with a rewarding income return that produces a fully covered dividend.

In 2011, our investment strategy was to protect and where possible to enhance income. To do so, we disposed of a small number of assets that seemed unlikely to contribute positively in the short to medium term and we acquired others that offer immediate security of income and the prospect of growth in years to come. This repositioning of elements of the portfolio inevitably meant that disposals completed ahead of purchases at times left us with more cash than is desirable, and indeed that was the position at year end.

As is set out both below and in the Investment Manager's report, we have also sought certainty and flexibility by rearranging the Company's principal debt, and I believe that the terms agreed with RBS for so doing are greatly to shareholders' advantage. We also simplified the capital structure by converting the zero dividend preference shares into ordinary shares.

KEY ACTIVITY IN 2011

Two properties were sold during the year, for a total of £14.4m, and a further property was sold after the year end for £1.0m. Funds were invested in three new properties during the course of the year at a total cost of £22.2m and I am pleased to say that all are showing signs that they will perform at least in line with our expectations.

On the occupational side, we, alongside many other funds, suffered from the unexpected failure of Focus (DIY) Ltd. Of the two properties let to the company, one was relet immediately, whilst the other is still vacant, but we have achieved an improved planning consent.

At year end, our void rate was 5.1% versus the IPD Monthly index rate of 10%. Much progress has been made with agreements with tenants whose leases will expire or have break clauses during 2012 and 2013, and I am pleased to report that we have secured 78% of the rent at risk over this period already, giving greater certainty of future income to the Company. Preliminary discussions with other tenants suggest that we should be able to reach satisfactory settlements on some of the major lease expiries and breaks in 2014 during the course of this year.

BORROWINGS

Since inception, the Company has had use of a debt package of £84m, with £72m fixed with an interest rate swap plus a margin until December 2013 and £12m at LIBOR plus a margin. The Board and Investment Managers have for some time held the view that given current market sentiment, it was important to the future management and growth of the portfolio to secure longer term certainty. After securing competitive bids, the Board accepted an offer from RBS, more details of which are contained in the Investment Manager's report. The legal documentation was completed early in the New Year, and I believe the result is to achieve the level of certainty and flexibility needed to assist the fund's performance even though in the short term we will need to work hard to cover the anticipated dividend fully.

FINANCIAL PERFORMANCE

Net Asset Value

At the end of the year, the NAV per share was 62.7p, approximately 0.5% below that recorded at 31 December 2010. The movement compares favourably with our peer group's performance but falls short of our ambitions. It is however worth noting that a number of our properties are subject to short term leases and while these can generate opportunities for enhancement, valuers tend to take a conservative approach to their assessment.

Set out below is an analysis of the movement in the NAV per share over the year.

	Pence per share	% of opening NAV
Published NAV as at 31 December 2010	63.0	100.0
Decrease in valuation of property portfolio	(1.6)	(2.5)
Increase in interest rate SWAP valuation	1.0	1.6
Other reserve movements	0.3	0.4
Published NAV as at 31 December 2011	62.7	99.5

The net asset value is calculated under International Financial Reporting Standards and includes a provision for the payment of the fourth interim dividend of 1.133p per share for the quarter to 31 December 2011.

Earnings and Dividend

During 2011, the Company paid total dividends of 4.433p per share. This represents a 3.1% increase on dividends paid in 2010, excluding the special dividend paid in February 2010 relating to 2009.

The Board increased the quarterly dividend by 3% to 1.133p per share with effect from the quarter ended 30 September 2011. Dividends payable in respect of the Company's financial year are shown in the table below.

	2011 Pence per share	2010 Pence per share
Interim dividend paid in May relating to quarter ending 31 March	1.100	1.100
Interim dividend paid in August relating to quarter ending 30 June	1.100	1.100
Interim dividend paid in November relating to quarter ending 30 September	1.133	1.100
Interim dividend paid in February relating to quarter ending 31 December	1.133	1.100
	4.466	4.400

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.

Loan to value ratio

At 31 December 2011 the LTV ratio (assuming all cash placed with RBS as an offset to the loan balance) was 41.1%.  The Board is targeting the LTV to remain in the range of 35% to 45%.  Under the terms of the new loan facility, the maximum LTV covenant level is 65% for the first five years of the facility, reducing to 60% for the last two years.

Share Price

At 31 December 2011 our share price was 51.75p, showing a discount of 17.5% to NAV, and a fall of 20.1% on the price at the end of 2010.

While disappointing is absolute terms, I consider the price reflected market conditions at that time.

At the time of our Board meeting on 13 March 2012, the share price had recovered ground and stood at 63.00p, an increase of 21.7% since the year end.

Dividend Yield

At the share price of 63.00p, our dividend gives investors a return of 7.2% which I believe to be extremely attractive, not least when contrasted with that obtainable from overnight bank deposit rates of less than 1% and 10 year government gilt yields of around 2%.

CORPORATE GOVERANCE

The membership of the Board remained unchanged during the year. I accepted the privilege of succeeding David Moore as Chairman on 24 May 2011.

During the year we have, as usual, completed a review of the performance of the Board (both collectively and individually). We also established and held meetings of formally constituted Nomination, Remuneration, and Management Engagement Committees. The Audit Committee continued its work under the firm chairmanship of Susie Farnon. The Valuation Committee completed reviews of our Independent Valuer's reports and held meetings with them to obtain a full understanding of their approach to the portfolio.

OUTLOOK

I believe the Company is well positioned to maintain an attractive income flow. There needs to be sustained positive growth in the UK economy before we can expect commercial property values to rise materially. In the mean- while, good fund management, astute estate and asset management should produce positive results.

I believe that during 2012 we will see some worthwhile opportunities to invest further in the market, but we will only make acquisitions where we are happy with the stability and prospects of an asset.

On a more aspirational note and longer term basis, the Board holds the view that with the help of our managers, it should seek the added flexibility and enhanced market share that would flow from the fund's net assets exceeding £100m, and we will seek attractive opportunities.'

Jason Baggaley, on behalf of Investment Manager, stated:

'UK Real Estate Market 2011

UK Real Estate recorded a credible performance in 2011 given the wider market volatility and on-going problems in the Euro zone. According to the IPD Quarterly index, total annual returns for UK real estate were 7.8% in 2011. This was below Gilts at 15.6% but ahead of equities at -3.5%. The majority of the return came from income at 6.0% over the year with capital growth broadly accounting for the remainder of the return. The Company had a higher income return than the index at 7.6% reflecting its purpose of providing shareholders an attractive income return. A distinct theme over the year was for the increase in capital values to moderate each quarter. Capital values declined in the last quarter of the year and this was most pronounced for retail and industrial assets with offices being more resilient mainly due to a stronger performance for Central London assets over the year. 

Liquidity was reasonable over the year with approximately £33bn of transactions during 2011, broadly in line with the level of transactions in 2010. Overseas investors were particularly active accounting for around a third of all transactions and just under two thirds of all deals in Central London. The listed sector and institutions were the other main purchasers over the year with private property companies, occupiers and banks the main sellers.  Again this year, the market was polarised between prime and secondary assets and regionally split between South and North. Prime assets held up best over the year and have been viewed as a "safe haven" given the wider market turmoil. Pricing for these sectors is understandably looking stretched and pricing in sectors that have recovered the most since the market rallied, i.e. central London offices, could be vulnerable if yields on other assets were to rise sharply. The markets view at present is that comparable government bond yields are likely to remain at low levels for some time yet.

On a relative basis, UK commercial property continues to look fairly valued. With initial yields at 6.2% at end December and longer term government Bond yields at close to 2%,  the additional yield margin real estate offers over government bonds remains close to 400 basis points. The additional quantitative easing delivered in February is likely to keep bond yields depressed unless international investors lose faith in the UK government's willingness to manage public debt effectively. At present, this looks unlikely. As mentioned earlier, some parts of the market look expensive when compared to their historical average and pricing in these sectors may soften a bit as a result. Secondary assets pricing is looking compelling in some sectors given the elevated margins, however, pricing is likely to moderate further in these sectors due to the weak economic fundamentals and hence stock selection is absolutely key to identifying undervalued assets where the pricing reflects the risk to future income in this part of the market.

Investment Management Strategy:

Income was the Company's main contributor to total return in 2011 at 7.6%, with capital values declining slightly by 1%. We expect income to remain the main constituent of total return in 2012 and therefore throughout 2011 we continued to focus on income as the general economic environment worsened. The activity that we undertook in 2011 (as described below) has been to protect future income and we secured 78% of the income at risk through lease expiries and breaks in 2012 and 2013, and in 2012 we will continue to look at ways of securing future income and maximising value to our shareholders.

Purchases:

The Company acquired three properties during 2011 for a total of £22.2m. Our strategy in purchasing new investments is to acquire good quality modern properties in strong locations, let to secure tenants. We are less concerned about lease length, as the high yield attainable for shorter leases is attractive, and as the lease restructuring we undertook in 2011 demonstrates, many occupiers will remain in their existing property by choice at lease end if it meets their occupational needs. We seek to maintain diversity of location, tenant, and lease expiry risk, as well as asset type.

Bourne House Staines: The purchase of this property completed in January 2011 for £8.83m, reflecting an income yield of 9.2%. The 26,500sqft office is let to UB Group until 2016, and is in a good location in Staines with strong tenant demand.

1 Dorset St Southampton: The purchase of this 25,000sqft office completed in July 2011 for £6.4m, reflecting an initial yield of 7.9%. The property was built in 2007 and is let to Grant Thornton, Santander, and Michael Page. The property is well located in Southampton and is one of the most modern offices in the City.

Explorer Crawley: We completed the purchase of this 46,000sqft office in September 2011 for £7.03m, reflecting a yield of 9.2%. The property is let to three tenants Amey, Grant Thornton and Trade Skills 4 U Ltd and was built in 2002. Amey had just taken a new lease and were fitting out the office when we acquired the investment - they have consolidated several offices into this location.

Disposals:

We continued our policy of selling smaller assets that have poor return expectations, or larger assets where we want to realise the profit from purchase.

Eurolink 31 Normanton: We completed the sale of this multi let industrial estate located close to Wakefield in July 2011 for £2.2m, a yield of 9.7%. The multi let property had short leases and we were concerned at the future security of income.

Northern & Shell Tower Docklands: We completed this sale in December 2011 for £12.2m, a yield of 7%. The property is located in a secondary location in the Docklands and is let until 2022. We purchased this property in 2009 for £10m, a yield of 8.6%, and felt the time was right to realise the profit and recycle the capital.

Lister House Leeds: Although the sale completed in January 2012 we exchanged on this sale in December 2011. The sale price was £1.03m, (a yield of 15.6%) and reflected the very short income duration and poor re- letting prospects.

Portfolio Valuation:

The Company's investment portfolio was valued throughout 2011 by Jones Lang La Salle. At the year end the Company's real estate assets were valued at £162.1m and the Company held cash of £17.8m (the high cash level was due to the sale of Northern & Shell Tower in the Docklands for £12.2m in December 2011). The investment portfolio's initial yield at the year end was 7.5% (compared to 7.8% at end 2010).

Asset Management:

During 2011 capital growth was muted, and returns were dominated by income. We expect this to continue in 2012. As a result we take an active approach to securing income, and over the course of 2011 secured 78% of the income at risk through lease expiries and breaks in 2012 and 2013. By securing the future income streams the Company was able to grow the dividend whilst maintaining its fully covered position.

The Company has an average unexpired lease term to earliest termination date of 7.5 years as at December 2011. Only 5.8% of total rental income remains subject to a lease expiry or break in 2012 / 2013, with the majority of the short term events being in 2014 and 2016, when we expect a stronger economic environment and continued low supply of good quality accommodation. There has been a consistent trend over the last decade to shorter leases, with most new leases on second hand accommodation having a break in year 5. The Company has a longer average lease length than several of its peers, and takes an active approach to understanding its tenants needs and managing future lease events.

Voids increased over the reporting period despite our best efforts to 5.1% from 3.3%. Although we completed several lettings during the year, we suffered two tenant failures in particular (Focus and John Peters Furniture), that represent 60% of the voids by rental value. The Company had seven void units as at end 2011. One has been let after the reporting period, and the second largest void is under offer. We are in the process of changing the planning consent on the largest void to increase its appeal, and continue to actively market the other units.

Performance:

The Company measures performance under a variety of metrics. During the year its direct real estate investments provided an income return of 7.6% (IPD quarterly version of monthly index 6.2%), thus continuing to meet its prime requirement of delivering a high income return to investors through a covered dividend. The Company suffered on a capital return basis against its benchmark due to a combination of purchase transaction costs, shortening lease lengths, and the failure of Focus as a tenant.

The NAV performance was relatively robust compared to peers, but lagged the larger F&C Commercial Property Trust in particular.

NAV Performance - 12 months	%
F&C Commercial Property Trust	4.3
Picton Property Income	0.0
Standard Life Investments Property Income Trust	-0.5
UK Commercial Property Trust	-1.9
ISIS Property Trust	-4.5
Invista Foundation Property Trust	-4.8
IRP Property Investments	-7.9

Source: Datastream

A final measure is share price total return to our investors. Over the course of 2011 the Company traded on a large premium of up to 10%, through to a large discount of 17%.

Price Performance - 12 months	%
F&C Commercial Property Trust	-2.8
ISIS Property Trust	-14.1
UK Commercial Property Trust	-16.7
Invista Foundation Property Trust	-14.7
IRP Property Investments	-18.1
Standard Life Investments Property Income Trust	-20.1
Picton Property Income	-30.4
SECTOR AVERAGE	-16.7
FTSE ALL SHARE	-4.5
FTSE EPRA/NAREIT UK	-8.1

Source: Datastream

Since the year end the Company's ordinary shares have been re-rated with the ordinary share price increasing to 63p per share, an increase of 21.7% since the year end.

Capital Structure:

In July 2011 shareholders approved the simplification of the capital structure with the conversion of the Zero Dividend Preference Shares into Ordinary shares. The ZDPs were due to mature in December 2013, and the conversion of the short term debt instrument into long term equity was part of our strategy to manage down the Company's gearing. At the same time as the conversion, £4.5m of new equity was also raised.  As a result, the ordinary share capital was increased by 19%.

Bank Debt:

During the period the Company had a bank debt facility of £84m with RBS, due to expire in December 2013. The debt was at a margin of 150bps, and the Company had a hedge in place over £72m of the debt giving an all in cost of debt of circa 6%. In order to have certainty over the future debt provision the Company signed a new debt facility in December 2011 that was completed in January 2012.

The new facility is for a term of 7 years and is for the full £84m (the new facility has been used to repay the old one, not to increase borrowings). The new facility is on broadly similar terms, with a maximum Loan to Value (LTV) of 65% for the first 5 years (reducing to 60% for the last two) - the current LTV is 41%. The new margin is set on a ratchet basis depending on the prevailing LTV, but is currently 175bps. The Company has entered into a new forward swap on the £72m currently hedged, and a new 7 year hedge on the remaining £12m. As a result of the new facility / hedges the cost of debt is fixed at 6.38% until December 2013, and then falls to 3.76% from January 2014 to maturity in December 2018 (excluding amortisation of costs and facility fees).

The original hedge maturing in December 2013 was held in the 2011 year end accounts as having a liability of £6.1m, equating to 4.5 pence per share. That hedge liability will unwind (although not on a straight line basis) to £0 by Dec 2013.

Outlook

Although there is a challenging year ahead for real estate given the projections of a weak economic backdrop, we continue to expect reasonable positive total returns for investors on a three year holding period as income yields compensate for any modest capital declines. The sector remains attractive from a fundamental point of view, i.e. strengthening underlying economic drivers and a constrained pipeline of future new developments. The retail sector continues to face a series of headwinds that may hold back recovery in weaker locations but the prospects for retail towards the south east and Central London are expected to improve as economic recovery gains more traction. It remains our view that asset management initiatives and locational choices will remain the defining characteristics contributing to income returns in the year ahead. We also expect income to be the main component of returns over 2012 as capital values moderate. Prime/good quality secondary assets in stronger locations are likely to be most resilient in the weak economic environment we anticipate across 2012. The Company had circa £14m available for investment as at the year end, and will seek to acquire good quality investments that will contribute to the portfolios' returns. We anticipate investing the cash in the first half of the year to benefit from the income return, and will seek to exploit mispricing from motivated sellers.'

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 and prudent;

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

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

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

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

The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve 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 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 23 March 2012.

Paul Orchard-Lisle              Sally-Ann Farnon

Chairman                              Director

AUDITED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

		2011	2010
		£	£
Rental income		14,165,830	11,450,575
Valuation (loss)/gain from investment properties		(2,668,104)	6,909,885
Profit on disposal of investment properties		612,645	3,795,227
Investment management fees		(1,319,497)	(1,263,779)
Other direct property operating expenses		(930,112)	(1,183,064)
Directors' fees and expenses		(122,127)	(112,091)
Valuer's fee		(33,947)	(37,936)
Auditor's fee		(38,764)	(33,500)
Other administration expenses		(217,447)	(181,521)
Operating profit		9,448,477	19,343,796
Finance income		51,732	91,338
Finance costs		(5,320,093)	(5,539,955)
Profit for the year		4,180,116	13,895,179
Other comprehensive income
Valuation gain/(loss) on cash flow hedges		1,320,954	(1,287,454)
Total comprehensive income for the year, net of tax		5,501,070	12,607,725
Earnings per share:
Basic and diluted earnings per share		3.35	12.15
		Pence	Pence

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

Consolidated Balance Sheet

as at 31 December 2011

		2011	2010
		£	£
ASSETS
Non-current assets
Freehold investment properties		137,181,065	119,911,195
Leasehold investment properties		20,031,594	31,481,594
Lease incentives		3,516,748	3,273,974
		160,729,407	154,666,763
Investment property held for sale		998,000	-
Current assets
Trade and other receivables		1,642,602	1,607,101
Prepaid expenses		675,462	-
Cash and cash equivalents		17,825,381	21,170,716
Total assets		181,870,852	177,444,580
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital		20,440,011	6,671,438
Retained earnings		6,349,453	5,158,901
Capital reserves		(37,372,610)	(36,638,104)
Other distributable reserves		97,838,372	98,138,586
Total equity		87,255,226	73,330,821
LIABILITIES
Non-current liabilities
Bank borrowings		84,238,408	84,140,896
Interest rate swaps		3,007,460	4,578,987
Redeemable preference shares		-	9,041,060
Other liabilities		6,094	6,094
Rental deposits due to tenants		341,660	450,799
		87,593,622	98,217,836
Current liabilities
Trade and other payables		3,955,266	3,079,758
Interest rate swaps		3,066,238	2,815,665
Other liabilities		500	500
		7,022,004	5,895,923
Total liabilities		94,615,626	104,113,759
Total equity and liabilities		181,870,852	177,444,580

Approved by the Board of Directors on 23 March 2011

Consolidated Statement of Charges in Equity

for the year ended 31 December 2011

					Other
	Share	Share	Retained	Capital	distributable
	capital	premium	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 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)
Valuation gain from investment properties	-	-	(6,909,885)	6,909,885	-	-
Profit 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 Cash Flow Statement

for the year ended 31 December 2011

		2011	2010
		£	£
Cash flows from operating activities		11,965,530	8,291,372
Cash flows from investing activities
Finance income		51,732	91,338
Purchase of investment property		(22,274,624)	(32,430,642)
Capital expenditure on investment properties		(747,844)	(10,767,410)
Proceeds from disposal of investment properties		14,175,639	35,325,327
Net cash used in investing activities		(8,795,097)	(7,781,387)
Cash flows from financing activities
Ordinary shares issued net of issue costs		4,427,299	-
Bank borrowing arrangement costs		(675,462)	-
Interest paid on bank borrowings		(1,774,420)	(1,719,974)
Payment on interest rate swaps		(3,147,947)	(3,211,093)
Dividends paid to the Company's shareholders		(5,345,238)	(5,205,200)
Net cash used in financing activities		(6,515,768)	(10,136,267)
Net decrease in cash and cash equivalents in the year		(3,345,335)	(9,626,282)
Cash and cash equivalents at beginning of the year		21,170,716	30,796,998
Cash and cash equivalents at end of year		17,825,381	21,170,716

Standard Life Investments Property Income Trust Limited

Notes to the Consolidated Financial Statements

For the year ended 31 December 2011

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 2011:

IAS 24 Related Party Disclosures (amendment) effective 1 January 2011.

IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010.

Improvements to IFRSs (May 2010).

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.

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. The estimates of the future cash flows reflect factors such as repair and conditions of the properties, 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 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.

Redeemable preference shares

On 19 December 2003 the Company issued 6,000,000 25p redeemable zero dividend preference shares for £6,000,000 to The Standard Life Assurance Company. On 10 July 2006 these shares were transferred to Standard Life Assurance Limited. These shares have a nominal value of £1,500,000 and are redeemable by the Company on the tenth anniversary of admission at a redemption price of £1,7908. These shares do not carry any voting rights. On 29 June 2011, an extraordinary general meeting was held which approved the conversion of the preference shares into ordinary shares in accordance with the terms of the Circular to Shareholders. On 21 July 2011, the redeemable preference shares were converted to ordinary shares. 

Ordinary share capital

Standard life Investment Funds Limited held 14,982,501 of the issued ordinary shares at the Balance Sheet date on behalf of its Unit Linked Property Funds (2010:16,644,609).  This equates to 11.0% (2010:14.5%) of the ordinary share capital in issue at the Balance Sheet date. Standard Life Assurance Limited held 14,724,580 of the issued ordinary shares at the Balance Sheet date on behalf of its heritage with profits fund (2010: £nil). This equates to 10.8% (2010: 0%) of the ordinary share capital in issue at the Balance Sheet date. Neither Standard Life Investment 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

2011 2010 £ £ David Moore (resigned as chairman 24 May 2011) 24,955 26,875 Richard Barfield 22,500 20,625 John Hallam (resigned 30 June 2010) - 9,375 Sally-Ann Farnon (appointed 30 June 2010) 22,500 11,250 Shelagh Mason 22,500 20,625 Paul Orchard-Lisle (appointed chairman 24 May 2011) 26,260 20,625 118,715 109,375 Directors expenses 3,412 2,716 122,127 112,091

David Moore is a partner of Mourant Ozannes Advocates and Notaries Public (Guernsey) who are the Group's solicitors.  As at 31 December 2011, the fees paid during the year to Mourant Ozannes Advocates and Notaries Public (Guernsey) were £28,161 (2010:£1,252).

Investment Manager

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

4      COMMITMENTS

As at 31 December 2011, the Group had exchanged conditional contracts with third parties and is committed to sell Lister House, Leeds for £1.025m (2010: £nil).

As at 31 December 2011, the Group had agreed heads of terms with RBS for a new loan facility of £84,432,692 with a maturity date of 16 December 2018.

5      EVENTS AFTER THE BALANCE SHEET DATE

On 1 January 2012 one of the Group's shareholders, Standard life Investment Funds Limited, transferred its assets to Standard Life Assurance Limited.

On 20 January 2012 the Group completed the sale of Lister House, an office investment in Leeds for £1.025m.

On 20 January 2012 the Company completed the drawdown of £84,432,692 loan with RBS and simultaneously repaid the old loan facility. The new facility is repayable on 16 December 2018. Interest is payable at a rate equal to the aggregate of 1 month Libor, a margin of 1.65% (below 40% LTV) or 1.75% (40% to 60% LTV inclusive) or 1.95% (above 60% LTV).

Under the terms of the loan facility there are certain events which would entitle RBS to terminate the loan facility and demand repayment of all sums due. Included in these events of default is the financial undertaking relating to the loan to value percentage. The loan agreement notes that the loan to value percentage is calculated as the loan amount less the amount of any Sterling cash deposited within the security of RBS divided by the gross secured property value, and that this percentage should not exceed 65% for the first five years and then 60% from the fifth anniversary to maturity. The arrangement fee for the new facility is £675,462 which was paid to RBS on signing of the heads of terms on 22 December 2011. Further directly attributable transaction costs of £116,538 are to be incurred and have not been accounted for as at the balance sheet date. The new loan facility took affect on 20 January 2012 which is why the transaction was not recorded at the balance sheet date.

On 20 January 2012 the Company completed an interest rate swap of a notional amount of £12,432,692 with RBS. This interest rate swap has a maturity of 16 December 2018. Under the swap the Company has agreed to receive a floating interest rate linked to 3 month Libor and pay a fixed interest rate of 1.77125%

On 20 January 2012 the Company completed an interest rate swap of a notional amount of £72,000,000 with RBS. The interest rate swap effective date is 30 December 2013 and a maturity date of 16 December 2018. Under the swap the Company has agreed to receive a floating interest rate linked to 3 month Libor and pay a fixed interest rate of 2.0515%.

On 24 February 2012 a dividend of £1,548,038 (2010: £1,258,400) in respect of the quarter to 31 December 2011 was paid.

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 2011. The statutory accounts for the year ended 31 December 2011 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 2011 were approved by the Directors on 23 March 2012. The Company's AGM is to be held on the 15 May 2012. The Annual Report and Notice of AGM will be sent to shareholders in April 2012 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

 

 

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