Half Yearly Report

RNS Number : 8036M

Standard Life Invs Property Inc Tst

30 August 2013

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST

RESULTS IN RESPECT OF THE PERIOD ENDED 30 June 2013

Financial Highlights
- Dividend of 2.266p paid in respect of the six months to 30 June 2013 - Dividend yield of 7.5% based on 30 June 2013 share price of 60.5p - One property purchased during the period for £9.9m - One property sold during the period for £0.9m
Financial Summary

	30 June 2013	31 Dec 2012	% Change
Net Asset Value per share ¹ Share Price Premium / (Discount) Value of total assets Loan to value ² Cash balance EPRA Net Asset Value³	58.3p 60.5p 3.8% £179.5m 44.8% £8.6m 60.3p	57.7p 58.25p 1.0% £176.0m 43.9% £13.5m 62.7p	+1.1% +3.9% +2.8% +2.0% +0.9% -36.3% -3.8%

	30 June 2013	30 June 2012	% Change
Dividends per share ⁴	2.266p	2.266p	-
	6 months to 30 June 2013	12 months to 31 Dec 2012

Property income return IPD property income ⁵ Property total return (property only) Property total return (property and cash only) IPD property total return ⁵	3.4% 3.4% 2.1% 1.9% 2.9%	9.7% 6.2% 4.1% 3.7% 1.6%

1. Calculated under International Financial Reporting Standards, before the deduction of the dividend of 1.133p per share in respect of the quarter ending 30 June 2013.

2. Calculated as bank borrowings less full cash balance as a percentage of the open market value of the property portfolio as at 30 June 2013.

3. EPRA NAV represents the fair value of an entity's equity on a long-term basis, such as fair value of derivatives, are therefore excluded.

4. Dividends paid during the 6 months to 30 June 2013.

5. source: IPD quarterly version of monthly index funds (excluding cash).

The Chairman, Paul Orchard-Lisle, stated:

'Media commentary on the property market in the last few weeks has been generally upbeat. Against a background of a strengthening economy and rising employment in the UK, there are reports of increasing demand from occupiers. The major concerns that remain appear to relate to the future of the High Streets (in which your fund is barely represented) and particularly to the ability of a handful of debt laden retailers to survive. I expect to see the positive sentiments relating to industrial and office property finding their way into valuers' calculations of investments in real estate over the next twelve months.

Your Company's income return has been maintained. We were able to collect 99.5% of the rents due to us within 14 days of the end of the last quarter and as a result maintained our dividend at 2.266p per share for the six month period showing a 7.5% yield on our share pricing at the end of the six month period. The Company's NAV rose by 4.8% in the second quarter largely due to reduced finance costs (swap liability) and a strong performance from the London office properties. The certified value of our properties rose by 2.0% in the same period. Over the six month period, the NAV rose by 1.1% and the value of the fund's assets rose by 2.0%.

As I wrote in our last Annual Report, our property investment strategy is to buy into assets where astute asset management can enhance rental and capital values. With that in mind, we have bought a substantial office investment in Rickmansworth. While it shows an attractive initial income return of 11%, we believe that over time, we will be able to improve and possibly extend the building.

On the other hand, we have a policy of taking profits from investments that we consider have served their purpose and, if necessary, in cutting losses where the performance has been below our expectations and the potential for gain looks uncertain. Accordingly we have sold a small warehouse in Manchester and more recently we have taken profits from the office development that we forward funded in Aberdeen. Details of the transaction and of other changes to the property portfolio are set out in the Investment Manager's report.

We have made a small reduction in the voids in the portfolio (10.9% to 10.3%). The elimination of all voids is a priority target. Other portfolio matters are covered in the Investment Manager's report. Since the period end your Company has completed the letting of the retail warehouse in Wymondham, Norwich to Poundstretcher. This letting along with the letting at Aberdeen Ocean Trade takes the void rate to 6.7% and reduces void property costs by circa £175,000 pa.

In the last Annual Report, I highlighted the benefits of the maturity of one of our three interest rate swaps in December 2013 and of the new banking facility with RBS. The revised terms of our bank facility will improve our earnings by £1.8m per annum, and enhance our dividend cover next year.

I am pleased to report that the Company's equity base was increased by 9.2% in the financial year to date through the issue of 12.9m new ordinary shares at a premium to NAV. At 30 June, the Company's shares were priced at 60.5p in contrast to 58.25p at the start of the reporting year. The Directors' ability to issue more shares is constrained for the time being due to the pre-emption right restrictions.

While forecasting share price movement is beyond logic, I am confident that at portfolio level we are headed in the right direction. I expect our income levels to improve over the year, while we are controlling our outgoings satisfactorily. As stated above, I am looking for a general increase in capital values in the next twelve months.

Considerable time will need to be allocated in the immediate future to comply with the AIFM Directive. It is inevitable that there will be some costs but sadly little obvious benefit to the fund. Also, in common with Boards of many Guernsey-based investment vehicles, we have to consider whether the current tax structure will be the best for shareholders going forward. I expect to report in some detail on both matters over the next few months.'

Fund Manager, Jason Baggaley, stated:

'UK Commercial Real Estate Market

The UK real estate market has made steady progress over the six month reporting period. Total returns improved to 2.9% in the first half of this year compared to a 1.1% total return in the second half of last year. With the income component remaining relatively stable, the most significant influence on the upward movement in returns was capital values falling at a slower rate. Values fell by 0.4% in the six months to end June against a decline of 2.2% in the six months to end December 2012. Rents have stabilised over the last six months recording a flat return over this period. This is a modest improvement on the 0.3% decline in the last six months of 2012.

The uncertainty caused by the market's changing perception that interest rates may rise sooner than expected impacted the listed real estate sector returns in the latter part of the last six months. Listed real estate equities rose by 7.4% over the period 1 January 2013 to 30 June 2013. The positive performance of the sector reduced towards the end of this period as sharper interest rate movements were priced in by investors. The sector outperformed the FTSE All Share which rose by 6.4% over this timeframe.

Within sectors, the highest total returns over the last six months were in the industrial sector and the lowest in the retail sector. Industrial total returns strengthened in this reporting period and rose above those in the office sector. Total returns in the industrial sector firmed to 3.9% over the six months to end June against a 1.5% increase in the final six months of last year. Office total returns were modestly higher in the first half of this year compared to the last six months of 2012 at 3.7% versus 2.2%. Retail continues to be the laggard with total returns of 2.2% in the first half of the year, an improvement on the 0.2% decline in the last half of 2012.

In contrast to the final six months of last year where values fell by 1%, office capital values rose by 0.5% in the first half of this year. Values were unchanged for industrials over the past six months and they fell by 1.1% for retail over this period. This is an improvement on the 2.3% and 3% declines respectively for each of these sectors in the last six months of 2012.

Investment Outlook

Our view is that prices are likely to increase slightly over the next few months. We continue to expect reasonable positive total returns for investors on a three year hold period with income return being the main component of total return over the period. The sector remains attractive from a fundamental point of view, i.e. reasonable economic drivers and a constrained pipeline of future new developments. Rising interest rates are an emerging risk although there is a reasonable buffer in pricing to compensate if the market prices in a further acceleration of rate rises.

Poorer quality secondary and tertiary assets price declines have generally been more pronounced than for good quality assets, and we expect that to continue. Ensuring the quality and sustainability of income remains a key investment decision making criterion given that despite recent signs of modest strengthening, the economic backdrop continues to be relatively weak. Investors remain cautious towards poorer quality secondary and tertiary stock and it is these types of assets that continue to be most vulnerable to a further decline in pricing because of the relatively high levels of availability, the weaker prospects for economic growth in most secondary centres, the increasing supply of these assets from banks as they work through their problem loan books and also less demand from investors for this kind of stock. 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.

Opportunities are, however, arising in the transactions market for reasonable quality secondary buildings where these assets can be repositioned as prime. We continue to expect asset management initiatives and locational choices to be the defining characteristics contributing to income returns in the latter part of 2013. We also expect income to be the main component of returns over this period with only minor capital value growth. Prime/good quality secondary assets in stronger locations are likely to be most resilient in the weak economic environment we anticipate across the remainder of 2013.

Performance

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

Property Income Return

Fund (ex Cash)

IPD*

12 months to 30 June 2013

3 years to 30 June 2013

5 years to 30 June 2013

9.1

8.1

8.7

6.9

6.8

7.1

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

Property Total Return

Fund (ex Cash)

IPD*

12 months to 30 June 2013

3 years to 30 June 2013

5 years to 30 June 2013

3.2

6.1

2.7

4.1

6.0

1.9

*Source IPD Quarterly version of Monthly Index funds

Investment Strategy

The Investment Manager and the Board remain focused on providing an attractive level of income to investors, with the prospect of income and capital growth. We believe that by having good quality buildings in good locations let to good tenants we can meet the Company's objective, and so take an active approach to asset management and investment activity, to provide a sustainable income stream from investments tenants will want to occupy. The Board continues to maintain a policy of achieving a covered dividend, which the Company had in 2011 and 2012. For the 6 months to end June 2013 the cover was 71.7%, the dip mainly the result of a lease surrender taken in December 2012, where the outgoing tenant paid all the rent due up to its lease expiry in 2016, which under accounting practice was all booked at the time of receipt, adding to the Company's revenue reserves of £6.8m. Based on forecast revenues and expenses, the Board believes that the Company will return to a covered dividend position by the first quarter of 2014.

Portfolio Valuation

The investment portfolio continues to be valued on a quarterly basis by Jones Lang La Salle. As at 30 June 2013 the real estate portfolio was valued at £169.2m with cash of £8.6m, which compares to £161.6m and £13.5m respectively in December 2012.

Investment Activity

Purchases

The Company completed on one purchase during the reporting period, an office building in Maple Cross, Rickmansworth (Hertfordshire) that is let to Trebor Basset for a further 9 years. The property was purchased for £9.85m, reflecting a yield of 11.1%, with an annual rent of £1.15m pa.

Sales

The Company completed one sale during the period, and a larger one just after the reporting period.

A vacant warehouse unit in Greater Manchester was sold (at valuation) for £900,000 to an owner occupier, and then in July the Company completed on the sale of an investment in Aberdeen for £14.8m. This was the largest asset the Company had held, having originally funded the development of the mixed office and industrial complex in 2010 for £11.5m. The property produced a rent of £1.0m pa, however we believed that it was a good time to secure the profit generated as investments in Aberdeen are currently keenly priced, with no yield discount for mixed use facilities. It also enabled the Company to reduce exposure to Scottish assets in the period of uncertainty over independence.

Asset Management

Voids

At the period end the Company's voids represented 10.3% of rental value. This is an increase from the same time last year of 6.3%. The table below details the voids, however it should be noted that the largest void, Bourne House Staines, is subject to a refurbishment, and the Company has already received all the rent due on it to March 2016 from the previous tenant. We have already received an offer on the building, subject to completing the refurbishment, which is currently under negotiation.

After the reporting period we completed the letting of the vacant retail warehouse in Wymondham, Norwich to Poundstretcher. The letting contains several break clauses that will permit vacant possession to be gained if we do finally manage to get a food consent, but protects the Company on the downside if the planning does not come through. The new lease is at a rent of £250,000 pa (subject to a market rent free period) and the Company saves £175,000 pa of vacant costs.

Since the period end the void rate has been reduced to 6.7%.

Property	ERV	% ERV	Comment

Bourne House, Staines	£666,604	4.5%	Refurbishment, under negotiation for new lease
Ex-Focus, Wymondham, Norwich	£555,000	3.7%	New lease completed Aug 2013
Clough Road Retail Park, Hull	£230,000	1.5%	Interest received from 2 retailers
St James House, Cheltenham	£130,494	0.9%
Ocean Trade Centre, Aberdeen	£36,000	0.2%	New lease completed Aug 2013
Monck Street, London	£11,322	0.1%	Solicitors instructed on new lease

Total voids - as a % of rent	£1,629,420	10.3%
Total rent	£14,126,041
ERV	£14,927,086

Lettings

During the reporting period the Company completed two new lettings with a total rental value of £77,300pa.

Lease Regears

We seek to regear leases before lease end or tenant break to retain tenants wherever we can. During the reporting period we regeared a lease on an industrial unit in Witham due to expire in 2016 and granted a new ten year term. Although the rent was reduced by £130,000pa the new lease is guaranteed by a much stronger tenant, giving security of income.

We also took a surrender of a unit where the lease was due to expire in 2014, and granted a new 7 year lease direct with the sub tenant at the same rent.

Refurbishments

At the beginning of the reporting period we completed the refurbishment of the 4th floor office at Cheltenham, and created the best space available in the town. We have received two offers, but they were not acceptable, and so we are talking to other parties who have expressed interest.

During the reporting period we applied for planning consent for the comprehensive refurbishment of our office in Staines. The planning is not contentious, and we are expecting to start on site shortly. We already have good interest in the building.

Debt

The Company has a debt facility with RBS due to expire in December 2018. The Company is comfortably within its main covenants, with a LTV as at 30 June 2013 of 44.8% and interest cover of 225% against a covenant of 65% and 150% respectively.

The Company has three interest rate swaps in place to hedge its interest rates under the loan, with a current liability of £3.1m on the balance sheet.

The original swap matures in December 2013. When it matures the all-in cost to the Company will fall from 6.3% to 3.8%.'

End of Investment Manager Report

Principal Risks and Risk Uncertainties

The Company's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants. The Directors, along with the Investment Manager seek to mitigate these risks through continual review of the portfolio, active asset management initiatives, and carrying out due diligence work on potential tenants before entering into new lease agreements. All of the properties in the portfolio are insured. Other risks faced by the Company include economic, strategic, regulatory, financial and operational.

The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's property portfolio. More detailed explanations of these risks and the way in which they are managed are provided in the 2012 Annual Report.

The Board and the Investment Manager recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Investment Manager meets with current and potential shareholders on a regular basis, as well as with investment company analysts.

These principal risks and uncertainties have not changed from those disclosed in the 2012 Annual Report.

Directors' Responsibility Statement

The Directors are responsible for preparing the Interim Management Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

▸ The condensed set of Financial Statements have been prepared in accordance with IAS34; and

▸ The Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure and Transparency Rules.

▸ In accordance with 4.2.9R of the Financial Conduct Authority's Disclosure and Transparency Rules, it is confirmed that this publication has not been audited, or reviewed by the Company's auditors.

The Interim Report, for the six months ended 30 June 2013, comprises an Interim Management Report in the form of the Chairman's Statement, the Investment Manager's Report, the Directors' Responsibility Statement and a condensed set of Unaudited Consolidated Financial Statements.

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

a. the Unaudited Consolidated Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

b. the Interim 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.

For and on behalf of the Directors of Standard Life Investments Property Income Trust Limited

Paul Orchard-Lisle CBE

Chairman

29 August 2013

UNAUDITED FINANCIAL STATEMENTS

Unaudited Consolidated Statement of Comprehensive Income

for the period ended 30 June 2013

	1 Jan 13 to 30 Jun 2013	1 Jan 12 to 30 Jun 2012
	£	£
Rental income	6,520,056	6,625,144
Valuation loss from investment properties	(2,016,259)	(1,860,439)
Profit on disposal of investment properties	7,232	21,865
Investment management fees	(649,986)	(657,861)
Other direct property operating expenses	(588,174)	(459,408)
Directors' fees and expenses	(69,030)	(67,592)
Valuer's fee	(13,771)	(13,649)
Auditor's fee	(19,500)	(19,500)
Other administration expenses	(109,111)	(130,435)
Operating profit	3,061,457	3,438,125

Finance income	30,118	18,905
Finance costs	(2,685,413)	(2,964,396)
Profit for the period	406,162	492,634

Other comprehensive income
Valuation gain / (loss) on cash flow hedges	3,752,184	(760,634)

Total comprehensive income / (loss) for the period, net of tax	4,158,346	(268,000)

Earnings per share:	Pence	Pence
Basic and diluted earnings per share	0.28	0.36
Adjusted (EPRA) earnings per share	1.68	1.70

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

Unaudited Consolidated Balance Sheet

as at 30 June 2013

	30 Jun 2013	31 Dec 2012
	£	£
ASSETS
Non-current assets
Investment properties	151,169,219	158,073,412
Lease incentives	3,258,605	3,246,707
	154,427,824	161,320,119

Investment property held for sale	14,630,000	-

Current assets
Trade and other receivables	1,841,921	1,171,842
Cash and cash equivalents	8,600,870	13,527,186
	10,442,791	14,699,028

Total assets	179,500,615	176,019,147

EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital	28,989,849	22,280,186
Retained earnings	6,862,191	7,711,894
Capital reserves	(45,456,464)	(47,199,621)
Other distributable reserves	97,838,372	97,838,372
Total equity	88,233,948	80,630,831

LIABILITIES
Non-current liabilities
Bank borrowings	83,809,290	83,752,959
Interest rate swaps	747,608	2,757,732
Other liabilities	6,094	6,094
Rental deposits due to tenants	350,574	353,535
	84,913,566	86,870,320
Current liabilities
Trade and other payables	3,992,285	4,415,120
Interest rate swaps	2,360,316	4,102,376
Other liabilities	500	500
	6,353,101	8,517,996

Total liabilities	91,266,667	95,388,316

Total equity and liabilities	179,500,615	176,019,147

Net Asset Value (NAV) per share Basic and diluted NAV	58.3 pence	57.7 pence
EPRA NAV	60.3 pence	62.7 pence

Approved by the Board of Directors on 29 August 2013 and signed on its behalf by:

Sally-Ann Farnon

Director

Unaudited Consolidated Statement of Changes in Equity

for the period ended 30 June 2013

				Other
	Share	Retained	Capital	distributable	Total
	Capital	earnings	reserves	reserves	equity
	£	£	£	£	£
Opening balance 1 January 2013	22,280,186	7,711,894	(47,199,621)	97,838,372	80,630,831

Profit for the period	-	406,162	-	-	406,162
Valuation gain on cash flow hedges	-	-	3,752,184	-	3,752,184
Total comprehensive income for the period	-	406,162	3,752,184	-	4,158,346

Ordinary shares issued*	6,709,663	-	-	-	6,709,663
Dividends paid	-	(3,264,892)	-	-	(3,264,892)
Valuation loss from investment properties	-	2,016,259	(2,016,259)	-	-
Profit on disposal of investment properties	-	(7,232)	7,232	-	-
Balance as at 30 June 2013	28,989,849	6,862,191	(45,456,464)	97,838,372	88,233,948

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

Unaudited Consolidated Statement of Changes in Equity

for the period ended 30 June 2012

				Other
	Share	Retained	Capital	distributable	Total
	capital	earnings	reserves	reserves	equity
	£	£	£	£	£
Opening balance 1 January 2012	20,440,011	6,349,453	(37,372,610)	97,838,372	87,255,226

Profit for the period	-	492,634	-	-	492,634
Valuation loss on cash flow hedges	-	-	(760,634)	-	(760,634)
Total comprehensive income for the period	-	492,634	(760,634)	-	(268,000)

Ordinary shares issued	472,678	-	-	-	472,678
Dividends paid	-	(3,104,573)	-	-	(3,104,573)
Valuation loss from investment properties	-	1,860,439	(1,860,439)	-	-
Profit on disposal of investment properties	-	(21,865)	21,865	-	-
Balance as at 30 June 2012	20,912,689	5,576,088	(39,971,818)	97,838,372	84,355,331

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

Unaudited Consolidated Cash Flow Statement

for the period ended 30 June 2013

	1 Jan 13 to 30 Jun 13	1 Jan 12 to 30 Jun 12
	£	£

Cash generated from operating activities	3,962,710	5,764,744

Cash flows from investing activities
Finance income	30,118	18,905
Purchase of investment properties	(10,354,650)	(13,079,607)
Capital expenditure on investment properties	(287,416)	(162,596)
Proceeds from disposal of investment properties	907,232	1,019,865
Net cash used in investing activities	(9,704,716)	(12,203,433)

Cash flows from financing activities
Ordinary shares issued net of issue costs	6,709,663	472,678
Bank borrowing arrangement costs	-	(112,159)
Repayment of bank borrowings	-	(84,432,692)
Drawdown of bank borrowings	-	84,432,692
Interest paid on bank borrowings	(885,749)	(1,126,928)
Payment on interest rate swaps	(1,743,332)	(1,592,522)
Dividends paid to the Company's shareholders	(3,264,892)	(3,104,573)
Net cash used in financing activities	815,690	(5,463,504)

Net decrease in cash and cash equivalents in the period	(4,926,316)	(11,902,193)

Cash and cash equivalents at beginning of the period	13,527,186	17,825,381
Cash and cash equivalents at end of period	8,600,870	5,923,188

Standard Life Investments Property Income Trust Limited

Notes to the Unaudited Consolidated Financial Statements

for the period ended 30 June 2013

1. General Information

Standard Life Investments Property Income Trust Limited ("the Company") and its subsidiary (together the "Group") carries 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 listing on the London Stock Exchange.

The address of the registered office is Trafalgar Court, Les Banques, St Peter Port, Guernsey.

These Unaudited Consolidated Financial Statements were approved for issue by the Board of Directors on 29 August 2013

The Audited Consolidated Financial Statements of the company for the year ended 31 December 2012 are available on request from the registered office.

2. Accounting Policies

Basis of preparation

The Unaudited Consolidated Financial Statements of the Group have been prepared in accordance with and comply with International Financial Reporting Standards as adopted by the European Union ("IFRS"), and all applicable requirements of The Companies (Guernsey) Law, 2008. The Unaudited 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. The consolidated financial statements are presented in pound sterling and all values are not rounded except when otherwise indicated.

These statements do not contain all of the information required for full annual statements and should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended 31 December 2012. The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2012, except for the adoption of new standards and interpretations effective as of 1 January 2013.

The Group applies, for the first time, certain standards and amendments that require restatement of previous financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 13 Fair Value Measurement and amendments to IAS 1 Presentation of Financial Statements. As required by IAS 34, the nature and the effect of these changes are disclosed below.

Several other new standards and amendments apply for the first time in 2013. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.

The nature and the impact of each new standard/amendment are described below:

IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1

The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) now have to be presented separately from items that will never be reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendment affected presentation only and had no impact on the Group's financial position or performance.

IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements

IFRS 10 establishes a single control model that applies to all entities including special purpose entities. IFRS 10 replaces the parts of previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12 Consolidation - Special Purpose Entities. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. IFRS 10 had no impact on the consolidation of investments held by the Group.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required for financial instruments by IAS 34.16A(j), thereby affecting the interim condensed consolidated financial statements period.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

3. Related Party Disclosures

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

Ordinary share capital

Standard Life Assurance Limited held 29,707,081 of the issued ordinary shares at the balance sheet date (31 December 2012: 29,707,081). This equates to 19.6% (31 December 2012: 21.2%) of the ordinary share capital in issue at the balance sheet date, however, Standard Life Assurance 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.

Investment Manager

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, payable quarterly in arrears except where cash balances exceed 10% of the total assets. The fee applicable to the amount of cash exceeding 10% of total assets is altered to be 0.20% per annum, payable quarterly in arrears. The Investment Manager has also agreed to reduce its charge to 0.75% of the total assets of the Group until such time as the net asset value per share returns to the launch level of 97p. This is applicable from the quarter ending 31 December 2008 onwards and does not affect the reduced fee of 0.20% on cash holdings above 10% of total assets. The total fees charged for the period ended 30 June 2013 amounted to £649,986 (period ended 30 June 2012: £657,861). The amount due and payable at the period end amounted to £329,025 excluding VAT (period ended 30 June 2012: £328,526 excluding VAT).

4. Taxation

Current income tax

A reconciliation of the income tax charge applicable to the profit from ordinary activities at the UK statutory income tax rate to the income tax rate charged in the unaudited Consolidated Statement of Comprehensive Income for the period is as follows:

	30 Jun 13	30 June 12
	£	£

Profit before income tax	406,162	492,634

Tax calculated at UK statutory income tax rate of 20% (30 June 2012:20%)	81,232	98,527
Losses arising on investment property not subject to tax	401,806	367,715
Holding company profits not subject to tax	(65,497)	(558,493)
Income not subject to tax	(10,042)	(7,850)
Expenditure not allowed for income tax purposes	34,481	23,817
Capital and other allowances	-	(59,394)
Tax loss (utilised) / created	(441,980)	135,678
Current income tax charge	-	-

The Group has not recognised a deferred tax asset of £2,606,977 (30 June 2012 £3,838,501) arising as a result of the tax loss carried forward. This will only be utilised if the Group has profits chargeable to income tax in the future.

The Company and its subsidiary have obtained exempt company status in Guernsey so that they are exempt from Guernsey taxation on income arising outside Guernsey and bank interest receivable in Guernsey. The Board intend to conduct the Group's affairs such that the Company and its subsidiary continue to remain eligible for exemption.

5. Investment Properties

	30 Jun 13	31 Dec 12
	£	£

Market value as at 1 January	161,600,000	161,075,000
Purchase of investment property	10,354,650	13,165,401
Capital expenditure on investment properties	287,416	306,514
Carrying value of disposed investment properties	(900,000)	(3,700,000)
Valuation loss from investment properties	(2,016,259)	(9,216,816)
Movement in lease incentives receivable	24,193	(30,099)
Investment property recategorised as held for sale (note 6)	(14,630,000)	-
Market value at 30 Jun / 31 Dec	154,720,000	161,600,000

Adjustment for lease incentives	(3,557,375)	(3,533,182)
Adjustment for finance lease obligations	6,594	6,594
Fair value at 30 June / 31 Dec	151,169,219	158,073,412

Investment properties were revalued at the period end by Jones Lang LaSalle, independent international real estate consultants, on the basis of the market value. In order to arrive at fair value the market values of leasehold properties have been adjusted to reflect the value of finance lease obligations. The market value provided by Jones Lang LaSalle at the period end was **£169,220,000 (31 December 2012 £161,600,000). An adjustment has been made for lease incentives of £3,557,375* (31 December 2012: £3,533,182) that are already accounted for as an asset.

*Lease incentives are split between non-current of £3,258,605 and current of £298,770.

The valuations have been prepared in accordance with the RICS Valuation - Professional Standards, March 2012 published by the Royal Institution of Chartered Surveyors.

** The Market value at 30 June 2013 was £169,220,000 and includes £14,500,000 in relation to Aberdeen Gateway Business Park, an investment property held for sale (see note 6).

	30 Jun 2013 Number of properties	31 Dec 2012 Number of properties	30 Jun 2013	31 Dec 2012
			£	£

Freehold	26	26	149,850,000	142,425,000
Leasehold	5	5	19,500,000	19,175,000
Market value at 30 Jun / 31 Dec	31	31	169,350,000	161,600,000

The significant judgements, estimates and assumptions made relating to valuations are set out below:

	30 Jun 2013	31 Dec 2012

ERV p.a.	£14,927,086	£14,274,892
Area sq. ft.	1,764,274	1,721,366
Average ERV per sq. ft.	£8.46	£8.29
Initial Yield	7.87%	7.47%
Reversionary Yield	7.35%	7.31%

Sensitivity analysis

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of completed investment property.

	30 Jun 2013	31 Dec 2012
	£	£

Increase in yield of 25 bps	(6,090,000)	(5,700,000)
Decrease in rental rates of 5%	(6,420,000)	(5,900,000)

6. Investment property held for sale

As at 30 June 2013 the Group was actively making Aberdeen Gateway Business Park available for sale and exchanged contracts with a third party for a price of £14,766,000 on the 16 July 2013 (see note 10). The independently assessed market value of this property as at 30 June 2013 was £14,500,000. As at 30 June 2013 the carrying value of the investment property held for sale was £14,630,000 (net of transaction costs of £136,000). No investment property was held for sale at 31 December 2012.

7. Dividends

	30 June 13	30 Jun 12
	£	£

1.133p per ordinary share paid in February relating to the quarter ending 31 December 2012 (30 June 2012:1.133p)	1,599,022	1,548,038
1.133p per ordinary share paid in May relating to the quarter ending 31 March 2013 (30 June 2012: 1.133p)	1,665,870	1,556,535
	3,264,892	3,104,573

On 23 August 2013 a dividend of £1,728,043, 1.133p per ordinary share (30 June 2012: £1,567,865.18, 1.133p per ordinary share) in respect of the quarter to 30 June 2013 was paid.

8. Cash generated from operations

	1 Jan 13 to 30 Jun 13	1 Jan 12 to 30 Jun 12
	£	£

Profit for the period	406,162	492,634

Movement in lease incentives	(11,898)	56,763
Movement in trade and other receivables	(670,077)	(233,262)
Movement in trade and other payables	(425,799)	664,544
Finance costs	2,685,413	2,964,396
Finance income	(30,118)	(18,905)
Valuation loss from investment properties	2,016,259	1,860,439
Profit on disposal of investment properties	(7,232)	(21,865)
Cash generated from operations	3,962,710	5,764,744

In the Unaudited Consolidated Cash Flow Statement, proceeds from disposal of investment properties comprise:

	1 Jan 13 to 30 Jun 13	1 Jan 12 to 30 Jun 12
	£	£

Carrying value of disposed investment properties (note 5)	900,000	998,000
Profit on disposal of investment properties	7,232	21,865
Proceeds from disposal of investment properties	907,232	1,019,865

9. Segmental information

The board has considered the requirements of IFRS 8 'operating segments'. The board is of the view that the Group is engaged in a single segment of business, being property investment and in one geographical area, the United Kingdom.

10. Events after the balance sheet date

Property Sales and Purchases

On 16 July 2013 the Group completed the sale of Aberdeen Gateway Business Park, an office investment in Aberdeen for £14,766,000 (see note 6).

Shares and Dividends

On 29 July 2013 the Group allotted 1,144,318 ordinary shares of 1p each, which rank parri passu with the existing shares in issue, at a price of 62.0p per share

On 23 August 2013 a dividend of £1,728,043 in respect of the quarter to 30 June 2013 was paid.

End of Notes to the Unaudited Consolidated Financial Statements

for the period ended 30 June 2013

Directors and Company Information

Directors Paul David Orchard-Lisle CBE (Chairman) ¹

Richard Arthur Barfield ²

Huw Griffith Evans (Appointed 11 April 2013)

Sally-Ann Farnon ³

Shelagh Yvonne Mason ⁴

David Christopher Moore (Resigned 14 May 2013)

Registered Office Trafalgar Court

Les Banques

St. Peter Port

Guernsey GY1 3QL

Registered Number 41352

Administrator & Secretary Northern Trust International Administration

Services (Guernsey) Limited

Trafalgar Court

Les Banques

St. Peter Port

Guernsey GY1 3QL

Registrar Computershare Investor Services (Guernsey) Limited

Le Truchot

St. Peter Port

Guernsey GY1 1WD

Investment Manager Standard Life Investments (Corporate Funds) Limited

1 George Street

Edinburgh EH2 2LL

Telephone: 0845 60 60 062

Independent Auditors Ernst & Young LLP

Royal Chambers

St Julian's Avenue

St Peter Port

Guernsey GY1 4AF

Solicitors Dickson Minto W.S. Mourant Ozannes

16 Charlotte Square 1 Le Marchant Street

Edinburgh EH2 4DF St Peter Port

Guernsey GY1 4HP

Broker Winterflood Securities Limited

The Atrium Building

Cannon Bridge

25 Dowgate Hill

London EC4R 2GA

Principal Bankers The Royal Bank of Scotland plc

135 Bishopsgate

London EC2M 3UR

Property Valuers Jones Lang LaSalle Limited

22 Hanover Square

London W1A 2BN

¹ Chairman of the Property Valuation Committee.

² Chairman of the Nomination Committee and Remuneration Committee. Designated as Senior Independent Director.

³ Chairman of the Audit Committee.

⁴ Chairman of the Management Engagement Committee.

Additional Notes to the Interim Financial Report

The Interim Report and Condensed Financial Statements 1 January 2013 to 30 June 2013 will shortly 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.

All enquiries 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