Interim Results
Standard Life Invs Property Inc Tst
19 September 2005
Highlights for 6 months to 30 June 05:
Published Net Asset Value per share has increased by 6.3%
Share price has increased by 9.7% to 119.25 pence
Dividend of 6.5 pence per share maintained
Value of property portfolio increased by £12.6m to £176.7m
Chairman's Statement
I am pleased to report another strong period of performance from the Company
over the first six months of 2005. The strong performance follows on from a
successful full year in 2004 and continues the strong track record established
by the Company. The Company's Net Asset Value has grown by 6.3% over the
reporting period and the Company's quarterly dividends of 1.625p per share were
paid in May and August of this year.
The increase in Net Asset Value of the Company over the first half of 2005 was
again primarily attributable to increasing capital values across the property
portfolio but the Company also continues to benefit from the positive effect of
financial gearing in a rising property market. The Company's ordinary share
price increased in value by 9.7% over the reporting period compared to the FTSE
All Share index growth of 6.2% over the same period.
In a competitive environment, the Company has invested £21m acquiring a further
five properties so far during 2005, with several other deals close to
completion. These properties complement the attractive income yield, long
unexpired lease term and high quality of tenants within the existing property
portfolio.
Conditions in the UK commercial property market remained positive in the first
half of 2005 as continued investor demand for property maintained upward
pressure on capital values. Rental values resumed their upward trend in 2005 as
the office sector confirmed its early signs of recovery, with corporate
occupiers, particularly in central London, increasing their demand for space.
Slowing consumer spending adversely affected some areas of the retail sector, as
slower house price growth and burgeoning consumer indebtedness prompted
increased consumer discipline. While this situation was widely expected, your
Company should continue to see the benefits of positive sectoral positioning in
the current economic climate which we expect to continue going forward.
The outlook for commercial property markets remains positive with investor
demand expected to put further upward pressure on capital values and a recovery
underway in a number of office markets. The Company's property portfolio is well
placed to continue to produce positive investment returns to its shareholders.
David Moore
Chairman of the Board
19 September 2005
Investment Manager's Commentary
UK Property Market
Returns from commercial property in the first half of 2005 have been healthy,
following an exceptionally strong year in 2004 where property returned 18.3%. In
the first seven months of 2005 the IPD Monthly Index showed returns from
commercial property at a robust 8.6%, on track to record double-digit returns by
the end of the year, albeit slightly lower than those seen in 2004.
Last year's strongest performer, the retail sector, has fallen from first place
reflecting the slowdown of retail sales growth from 6-7% p.a. recorded in 2003/4
to a more sustainable 1 - 2% p.a. witnessed in the early part of 2005. Retail
property returned 8.5% in the first seven months of the year, as recorded by the
IPD Monthly Index, driven by a combination of rental value growth and the
continued strong investor demand for retail property which has caused strong
capital value growth.
The office market has picked up strongly in 2005, due to improved occupier
demand which has stabilised rents, with rental growth beginning to be seen in
some locations. The Central London office markets are well into the recovery
cycle, with recent deals suggesting that prime rents in the City and West End
have moved forward and incentives have weakened. According to the IPD Monthly
Index, offices returned 8.4% in the first seven months of 2005, made up of a
small amount of rental growth combined with strong capital value appreciation as
investors continue to invest heavily in the sector.
Industrials have emerged as the top performer of the property market in 2005 so
far, outperforming both the retail and office sectors. The tentative recovery of
industrial output in 2004 has reversed so far in 2005 as the UK manufacturing
sector suffers under a lack of demand for exports from the Eurozone. Despite the
weak demand environment, industrial vacancy rates have slowly trended down over
the last few months. Investors continue to be drawn by the sector's high yield
with capital growth in the first seven months of the year measuring 5.2%. Total
returns from industrials in the first seven months of 2005 amounted to 9.5%.
Returns from all three sectors benefited from strong capital growth as
investment demand for property remained strong. Private investors, institutions,
quoted property companies, and overseas investors all increased their property
holdings, with overseas investors investing more than double their total for
2004 in the first seven months of 2005.
Portfolio Activity
The abolition of Stamp Duty exempt zones at the start of the year had a negative
impact on valuations, affecting 28% of the portfolio at the time. Returns from
the UK property market have since regained momentum, driven once again by
investor appetite for the sector. In line with our expectations, 2005 has seen a
change in the pattern of occupational demand; whilst demand in the office sector
continues to improve across most markets, retailers on the other hand are
feeling the effects of a slow down in consumer expenditure.
So far during 2005, the Company has acquired five properties totalling some £21m
with several other acquisitions very close to completion.
Our acquisition strategy has continued to focus on retaining the portfolio's
bias towards offices, in order to benefit from the upturn in occupational demand
in this sector. The Company's portfolio remains significantly underweight to
high street shops, with only one such investment. Industrial property, the best
performing sector of the market so far in 2005, remains an important part of the
portfolio with an exposure of 21.9% at the end of June.
As at 30 June 2005, the value of the portfolio was £176.74m with annual income
of £12.25m, representing a running income yield of 6.9%. The void rate on the
portfolio was 1.5% of total income. The total return from the portfolio for the
six months to 30 June was 7.9% (which compares with the IPD Monthly Index return
of 7.3%). At the end of the reporting period, the Company's portfolio comprised
26 properties with an average unexpired lease term of 10.65 years.
We have completed 2 rent reviews so far this year, increasing the total
portfolio rent roll by £91,497 p.a.. Unit D, Mildred Sylvester Way, Normanton
has been let, which was the last void unit on the estate. We have also converted
the developers' short term rental guarantees on Units 2 and 4, Century Plaza,
Edgware into long-term leases and this investment is also now fully let.
Investment Outlook
The further compression in borrowing costs combined with the strength of
domestic and international demand for property investments in the UK is likely
to result in a further year of strong double-digit returns in 2005. Thereafter
some of the recent aggressive pricing could unwind, particularly in poorer
quality stock as investors are disappointed by the reality of weaker than
expected rent growth. Whilst we continue to see rental growth opportunities in
the office sector over the next few years, overall we anticipate returns from
the property market as a whole will slow to single digits over a 2 to 3 year
period in line with a slower economic environment.
Unaudited Consolidated Income Statement
For the 6 months to 30 June 2005
01-Jan-05 19-Dec-03
to to
30-Jun-05 30-Jun-04
Note £ £
Income
Unrealised profit on
revaluation of investment
properties 8 6,839,904 58,341
Rental Income 6,065,091 4,341,440
--------- ----------
Total income and fair value
gains 12,904,995 4,399,781
========= ==========
Expenditure
Set up costs - (432,525)
Investment management fees 3 (729,282) (496,105)
Head lease payments (141,203) (142,830)
Other direct property costs (101,958) (53,217)
Directors' fees and
subsistence 5 (37,448) (43,877)
Valuation fees 3 (34,562) (59,941)
Other administration expenses (49,361) (250,030)
--------- ----------
(1,093,814) (1,478,525)
========= ==========
Operating profit 11,811,181 2,921,256
Finance costs
Interest payable 6 (1,986,011) (506,487)
Loan arrangement fee - (240,000)
Interest receivable 128,631 231,385
--------- ----------
--------- ----------
Profit before taxation 9,953,801 (515,102)
Taxation 7 - (12,372)
--------- ----------
Profit for the period 9,953,801 2,393,782
========= ==========
Earnings per share for the period
attributable to
the equity holders of the company
Basic and diluted 21 9.95 2.39
pence pence
All items in the above income statement derive from continuing
operations.
Unaudited Consolidated Balance Sheet
As at 30 June 2005
Audited
30-Jun-05 31-Dec-04
Note £ £
ASSETS
Non-current assets
Freehold investment 8 147,744,231 138,946,422
properties
Leasehold investment 8 33,754,265 29,663,013
properties
Interest rate swap asset 16 - 1,494,912
-------- --------
181,498,497 170,104,347
======== ========
Current assets
Trade and other receivables 9 1,558,503 2,679,982
Cash and cash equivalents 11 6,139,427 7,557,113
-------- --------
7,697,930 10,237,095
======== ========
-------- --------
Total assets 189,196,427 180,341,442
======== ========
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital 17 1,000,000 1,000,000
Retained earnings 18 1,861,222 702,259
Capital reserves 19 7,136,602 5,214,861
Other distributable reserves 20 95,397,826 96,692,892
-------- --------
Total equity 105,395,650 103,610,012
======== ========
Liabilities
Non-current liabilities
Interest rate swap 16 3,423,251 -
liability
Bank borrowings 12 63,532,082 60,709,776
Redeemable preference shares 13 6,564,799 6,373,591
Leasehold obligations 14 4,859,265 4,643,013
-------- --------
78,379,397 71,726,380
======== ========
Current liabilities
Trade and other payables 10 5,421,380 5,005,050
-------- --------
-------- --------
5,421,380 5,005,050
======== ========
Total liabilities 83,800,777 76,731,430
======== ========
Total equity and liabilities 189,196,427 180,341,442
======== ========
Unaudited Cash Flow Statement
For the period ended 30 June 2005
01-Jan-05 to 19-Dec-03 to
30-Jun-05 30-Jun-04
Note £ £
Cash flows from operating activities
Cash generated from operations 24 6,509,086 4,884,723
Interest paid (1,794,803) (341,145)
---------------- ---------
Net cash generated from operating
activities 4,714,283 4,543,578
---------------- ---------
Cash flows from investing activities
Acquisition of shares in subsidiaries - (17,366,354)
Purchase of investment properties 8 (5,832,905) (29,810,022)
Loan repayments made to related parties - (80,285,282)
Other loans repaid - -
Interest received 128,631 231,385
------------- ----------
Net cash used in investing activities (5,704,274) (127,230,273)
------------- ----------
Cash flows from financing activities
Proceeds from issuing of new ordinary
shares - 100,000,000
Proceeds from issuing of redeemable
preference shares - 6,000,000
Share issue costs - (2,307,108)
Dividends paid 22 (3,250,000) (1,625,000)
Debt issue costs - (240,000)
Proceeds from bank borrowings 12 2,822,305 28,110,370
------------ -----------
Net cash generated from financing
activities (427,695) 129,938,262
----------- ------------
Net (decrease) increase in cash and cash
equivalents (1,417,686) 7,251,567
Cash and cash equivalents at beginning of
period 7,557,113 -
----------- ------------
Cash and cash equivalents at end of period 6,139,427 7,251,567
=========== ============
Unaudited Consolidated Statement of Changes in Equity
For the period ended 30 June 2005
Share Retained Capital Other Total
capital earnings reserve distributable equity
reserve
Note £ £ £ £ £
Opening
Balance 1,000,000 702,259 5,214,861 96,692,892 103,610,012
Unrealised loss -
on revaluation
of interest
rate swap 16 - - (4,918,163) - (4,918,163)
Profit for
period - 9,953,801 - - 9,953,801
Reallocation
of launch
costs - 730,267 - (730,267) -
Reallocation
of preference
share interest - 564,799 - (564,799) -
Unrealised
profit on
revaluation
of investment
properties 8 - (6,839,904) 6,839,904 - -
Dividends 22 - (3,250,000) - - (3,250,000)
------- -------- -------- -------- ---------
Balance at 30
June 2005 1,000,000 1,861,222 7,136,602 95,397,826 105,395,650
======= ======== ======== ======== =========
Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2004
Share Retained Capital Share Total
capital earnings reserve remium equity
£ £ £ £ £
Issue of
ordinary share
capital 1,000,000 - - - 1,000,000
Share premium on -
issue of
ordinary share
capital - - - 99,000,000 99,000,000
Unrealised gain -
on revaluation
of interest
rate swap - - 1,675,069 - 1,675,069
Profit for
period - 2,393,782 - - 2,393,782
Dividends - (1,625,000) - - (1,625,000)
Share issue
costs - - - (2,307,108) (2,307,108)
------- -------- -------- -------- ---------
Balance at 30
June 2004 1,000,000 768,782 1,675,069 96,692,892 100,136,743
======= ======== ======== ======== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2005
1 GENERAL INFORMATION
Standard Life Investments Property Income Trust Limited ('the Company') and its
subsidiaries (together the 'Group') carry on the business of property investment
through a portfolio of freehold and leasehold investment properties located in
the United Kingdom. The Company is a limited liability company incorporated and
domiciled in Guernsey, Channel Islands. The Company has its primary listing on
the London Stock Exchange with a secondary listing on the Channel Islands
Exchange. These unaudited consolidated financial statements have been approved
for issue by the Board of Directors on 19th September 2005.
The address of the registered office is Trafalgar Court, Les Banques, St Peter
Port, Guernsey, GY1 3QL.
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
('IFRS'), and all applicable requirements of Guernsey Company Law. The Company
has chosen to early adopt all IFRS issued as at the period end. The 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.
Segmental reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risk and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular environment that are subject
to risks and returns that are different from those of segments operating in
other economic environments.
Segregated analysis is shown in note 25.
Basis of consolidation
The unaudited consolidated financial statements comprise the financial
statements of Standard Life Investments Property Income Trust Limited and its
only material wholly owned subsidiary undertaking, Standard Life Investments
Property Holdings Limited, a company with limited liability incorporated and
domiciled in Guernsey, Channel Islands.
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating polices generally accompanying a share holding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group and they
are deconsolidated from the date that control ceases.
The cost of an acquisition is measured as the fair value of the assets given
plus costs directly attributable to the acquisition including equity instruments
issued and liabilities assumed or incurred at the date of exchange.
Intercompany transactions, balances and unrealised gains on transactions between
Group companies are eliminated. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the
Group.
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The unaudited consolidated
financial statements are presented in pounds sterling, which is the Company's
and Groups functional and presentation currency.
Revenue recognition
Revenue is recognised as follows;
a) Bank interest
Bank interest income is recognised on an accruals basis.
b) Rental income
Rental income from operating leases is net of sales taxes and VAT and is
recognised on a straight line basis over the lease term. The cost of any lease
incentives provided are recognised over the lease term, on a straight line basis
as a reduction of rental income.
Expenditure
All expenses are accounted for on an accruals basis. The investment management
and administration fees, formation and set up costs, finance and set up costs
(including interest on the bank facility and the finance cost of the redeemable
preference shares) and all other expenses are charged through the income
statement.
Share issue costs
Costs directly attributable to the issue of equity that would otherwise have
been avoided are written off against share premium and reflected in the
Statement of Changes in Equity.
Taxation
The Company and its wholly owned Guernsey registered subsidiary, Standard Life
Investments Property Holdings Limited, have obtained exempt company status in
Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 so that they are exempt from Guernsey taxation on income arising outside
Guernsey and bank interest receivable in Guernsey. Each Company is, therefore,
only liable to a fixed fee of £600 per annum. No charge to Guernsey taxation
will arise on capital gains derived from the disposal of the investment
properties.
The Directors intend to conduct the Group's affairs such that the Company and
its Guernsey registered subsidiary continue to remain eligible for exemption.
Standard Life Investments Property Holdings Limited is subject to United Kingdom
income tax on assessable income arising on the United Kingdom investment
properties held.
Deferred income tax
Deferred income tax is provided for in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is
settled.
Freehold investment properties
Freehold investment properties are initially recognised at cost, being the fair
value of the consideration given, including transaction costs associated with
the acquisition of the investment property.
After initial recognition, freehold investment properties are measured at fair
value, with movements in the unrealised gains and losses recognised in the
Income Statement. Fair value is based upon the market valuations of the
properties as provided by DTZ Debenham Tie Leung Limited, a firm of independent
chartered surveyors, at the balance sheet date.
Leasehold investment properties
Leasehold investment properties held which meet the criteria of an investment
property as defined by IAS 40 but are held by the Group under a finance lease,
are initially recognised at cost, being the fair value of the consideration
given together with the discounted present value of all minimum lease payments
(ie. Head lease payments). After initial recognition, leasehold investment
properties are measured at market value with movements in the unrealised gains
and losses recognised in the Income Statement. Fair value as disclosed in the
financial statements is based on the market valuations of the properties as
provided by DTZ Debenham Tie Leung Limited, a firm of independent chartered
surveyors, as at the balance sheet date as adjusted for recognised lease
liabilities.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and
highly liquid investments readily convertible within three months or less to
known amounts of cash and subject to insignificant risk of changes in value.
Share capital
Ordinary shares are classified as equity. Preference shares, which are
redeemable on a specific date, are classified as liabilities.
Dividends
Dividend distributions to the Group's shareholders are recognised as a liability
in the Group's unaudited consolidated financial statements in the period in
which the dividends are approved by the Board of Directors. The redeemable
preference shareholders are not entitled to payment of any dividends.
Borrowings
All loans and borrowings are initially recognised at fair value of the
consideration received, less issue costs where applicable. After initial
recognition, all interest-bearing loans and borrowings are subsequently measured
at amortised cost. Amortised cost is calculated by taking into account any
discount or premium on settlement. Finance costs relating to the preference
shares are recognised in the income statement using the effective interest rate
method, the effective interest rate is 6% per annum.
3 FEES
Investment management fees
On 19 December 2003 Standard Life Investments (Corporate Funds) Limited ('the
investment manager') was appointed as investment manager to manage the property
assets of the Group. Under the terms of the Investment Management Agreement the
Investment Manager is entitled to receive a fee at the annual rate of 0.85% of
the total assets (less any amounts drawn down under the facility agreement but
not yet invested in property assets), payable quarterly in arrears. Total fees
charged for the period ended 30 June 2005 amounted to £729,282 (June 2004:
£496,105). The amount due and payable at period end amounted to £nil (June 2004:
£227,418).
Administration, secretarial and registrar fees
On 19 December 2003 Northern Trust International Fund Administration Services (
Guernsey) Ltd, formerly known as Guernsey International Fund Managers Limited,
were appointed administrators, secretary and registrar to the Group. Northern
Trust International Fund Administration Services (Guernsey) Ltd are entitled to
an annual fee, payable quarterly in arrears, of £65,000. Northern Trust
International Fund Administration Services (Guernsey) Ltd are also entitled to
reimbursement of reasonable out of pocket expenses. Total fees charged for the
period ended 30 June 2005 amounted to £33,226 (June 2004: £32,500). The amount
due and payable at period end amounted to £16,250 (June 2004: £16,500).
Valuation fees
On 19 December 2003, DTZ Debenham Tie Leung Limited ('The Valuer'), Chartered
Surveyors, were appointed as valuers in respect of the assets comprising the
property portfolio. The valuer is entitled to an annual fee of £2,500 per
property together with all reasonable out of pocket expenses and a start up fee
of 0.0275% of the value of each property added to the portfolio. Total fees
charged for the period ended 30 June 2005 amounted to £34,562 (June 2004:
£59,941). The amount due and payable at period end amounted to £20,000 (June
2004: £9,000).
4 FINANCIAL INSTRUMENTS
The Group's activities expose it to various financial risks, the adverse effects
of which the Group seeks to minimise through the use of financial instruments.
The Group has not entered into any derivative transactions during the period
under review other than the interest rate cap and interest rate swap contracts
as hedges of interest rate exposure on the bank borrowings. It is the Group's
policy that no trading in financial instruments will be undertaken. The main
financial risks arising from the Group's activities are credit risk, market
risk, liquidity risk and interest rate risk.
Credit risk
Credit risk is the risk that a counter party will be unable to meet a commitment
that it has entered into with the Group. In the event of default by an
occupational tenant, the Group will suffer a rental shortfall and incur
additional related costs. The Board receives regular reports on the
concentration of risk and any tenants in arrears.
Market risk
The Group's exposure to market risk is comprised mainly of movements in the
value of the Group's property investments. The investment property portfolio is
managed within the parameters disclosed in the Group's prospectus.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or
otherwise raising funds to meet its financial commitments. In certain
circumstances, the terms of the Group's loan facility entitle the lender to
require early value repayment and under such circumstances the Group's ability
to maintain dividend levels and the net asset value attributable to the ordinary
shares, could be adversely affected.
Interest rate risk
Interest rate risk relates primarily to the Group's long term debt obligations.
The Group's policy is to manage its interest cost using an interest rate swap,
in which the Group has agreed to exchange the difference between fixed and
variable interest amounts based on a notional principal amount. The fair value
of the interest rate swap is calculated as the present value of the estimated
future cash flows.
Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at cost on the date a derivative contract
is entered into and are subsequently remeasured at their fair value. The method
of recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged. The Group documents at the inception of the transaction the relationship
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment both at hedge inception and on an ongoing basis of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges are recognised as gains or losses in
equity. The gains or losses relating to the ineffective portion are recognised
immediately in the income statement.
Fair value estimation
Property and related assets are inherently difficult to value due to the
individual nature and as a result, valuations can be subject to substantial
uncertainty. Valuation will not necessarily reflect the actual sales price, even
if a sale were to occur shortly after the valuation date. The fair value of
financial instruments not traded in active markets (for example over-the counter
derivatives)
is determined by using valuation techniques. The Group uses a variety of methods
and makes assumptions that are based on market conditions existing at each
balance sheet date. Other techniques, such as estimated discounted cash flows,
are used to determine fair value of the remaining financial instruments. The
fair value of interest rate swaps is calculated as the present value of
estimated cash flows.
The nominal value less estimated credit adjustments of trade receivables and
payables are assumed to be their fair values.
5 RELATED PARTY DISCLOSURES
Redeemable preference shares
On 29 December 2003 the Company issued 6,000,000 25p redeemable zero dividend
preference shares for £6,000,000 to The Standard Life Assurance Company. These
shares have a nominal value of £1,500,000 and are redeemable by the Company at a
price of £1.7908. These shares do not carry any voting rights. See note 13.
Ordinary share capital
The Standard Life Assurance Company have held 21,769,609 of the issued ordinary
shares throughout the period on behalf of its Unit Linked Property Funds.
Directors
The Directors each hold the following number of Ordinary Shares in the Company:
David Moore 15,000
Richard Barfield 15,000
John Hallam 15,000
Shelagh Mason 15,000
Paul Orchard-Lisle 25,000
No Director has any interest in any transactions which are or were unusual in
their nature or conditions or significant to the business of the Group and which
were effected by any member of the Group since its date of incorporation. Total
fees relating to the directors in the period under review were £37,448 (June
2004: £43,877), being £36,000 in respect of emoluments and £1,448 in respect of
subsistence.
Investment Manager
Standard Life Investment (Corporate Funds) Limited is the Investment Manager.
Transactions with the Investments Manager in the period are detailed on note 3.
6 INTEREST PAYABLE
01-Jan-05 to 19-Dec-03 to
30-Jun-05 30-Jun-04
£ £
Interest payable in relation to
redeemable preference shares 191,208 165,342
Loan arrangement fee - 240,000
Other interest payable 1,794,803 341,145
-------- ---------
1,986,011 746,487
======== =========
7 TAXATION
Current tax
A reconciliation of the income tax charge applicable to the profit from ordinary
activities at the statutory income tax rate to income tax expense at the Groups
effective income tax rate for the period is as follows:
01-Jan-05 to 19-Dec-03 to
30-Jun-05 30-Jun-04
£ £
Profit before taxation 9,953,801 2,406,154
Tax calculated at UK statutory income
tax rate of 22% 2,189,836 529,354
Unrealised profit on revaluation of
investment property not subject to tax (1,504,779) -
Holding company profits not subject to
tax (612,808) (466,230)
Interest income not subject to tax (17,917) (4,879)
Expenditure not alllowed for tax
purposes 2,054 -
Capital allowances and other allowances (56,386) (65,873)
--------- -----------
Current income tax charge - 12,372
========= ===========
The Group tax policy is to exchange all written down allowances on disposal for
£1.
8 FREEHOLD AND LEASEHOLD INVESTMENT PROPERTIES
30-Jun-05 30-Jun-05 30-Jun-05
£ £ £
Freehold Leasehold Total
Market value at 31 December
2004 138,946,422 25,020,000 163,966,422
Capital expenditure 3,046,703 2,786,202 5,832,905
Gain arising on adjustment
to fair value of investment
properties 5,751,106 1,088,798 6,839,904
---------- ---------- -----------
Market value at 30 June 2005 147,744,231 28,895,000 176,639,231
---------- ---------- -----------
Discounted present value of
minimum lease payments - 4,859,265 4,859,265
---------- ---------- -----------
Fair value at 30 June 2005 147,744,231 33,754,265 181,498,497
---------- ---------- -----------
31-Dec-04 31-Dec-04 31-Dec-04
£ £ £
Freehold Leasehold Total
Cost of properties
transferred from subsidiary
companies 77,170,946 20,480,690 97,651,636
Cost of properties purchased 58,526,291 4,068,546 62,594,837
Gain arising on adjustment
to fair value of investment
properties 3,249,185 470,764 3,719,949
---------- ---------- -----------
Market value at 31 December
2004 138,946,422 25,020,000 163,966,422
---------- ---------- -----------
Discounted present value of
minimum lease payments - 4,643,013 4,643,013
---------- ---------- -----------
Fair value at 31 December
2004 138,946,422 29,663,013 168,609,435
---------- ---------- -----------
Investment properties were revalued at period end by DTZ Debenham Tie Leung
Limited, Chartered Surveyors on the basis of the market value for existing use.
In accordance with the accounting policy in note 2, the market values of
leasehold investment properties have been adjusted to reflect the discounted
present value of minimum lease payments to reflect their fair value in
accordance with IFRS. The market for existing use provided by DTZ Debenham Tie
Leung Limited at the period end was £176,740,000 (Dec 04: £164,135,000) however
an adjustment has been made for lease incentives of £100,769 (Dec 04: £168,578)
that are already accounted for.
9 TRADE AND OTHER RECEIVABLES
30-Jun-05 31-Dec-04
£ £
Trade debtors 155,651 582,350
Other debtors 273,408 335,061
Rental deposits held on behalf of tenants 1,129,444 1,069,397
VAT receivable - 693,174
---------- -----------
1,558,503 2,679,982
========== ===========
10 TRADE AND OTHER PAYABLES
30-Jun-05 31-Dec-04
£ £
Trade creditors - 403,839
Rental deposits due to tenants 1,129,444 1,069,397
VAT payable 524,905 -
Sundry creditors 767,408 669,250
Deferred rental income 2,801,291 2,695,244
Retentions relating to property purchase 198,332 167,320
---------- -----------
5,421,380 5,005,050
========== ===========
11 CASH AND CASH EQUIVALENTS
30-Jun-05 31-Dec-04
£ £
Cash held at bank 6,139,427 7,557,113
========== ===========
12 BANK BORROWINGS
30-Jun-05 31-Dec-04
£ £
Loan facility 80,000,000 80,000,000
========== ===========
Opening bank borrowings drawn down 60,709,776 -
Amounts drawn down during period 2,822,306 60,709,776
---------- -----------
Closing bank borrowings drawn down 63,532,082 60,709,776
========== ===========
On 4 December 2003 the Company entered into a term loan facility with the Royal
Bank of Scotland plc for an amount not exceeding the lower of £80 million and
76% of the gross proceeds of the ordinary share issue and the issue of the
redeemable preference shares. Interest is payable by the Company at a rate equal
to the aggregate of LIBOR, a margin of 0.675% per annum and a mandatory cost
rate of 0.0164% per annum. A non-utilisation fee of 0.15% is payable on any
undrawn amounts under the loan facility. The interest rate on the loan drawn
down at the balance sheet date of £63,532,082 was 5.4855% (Dec 2004: 5.5862%).
The loan is due to be repaid on 29 December 2013.
Under the terms of the loan facility there are certain events which would
entitle the Royal Bank of Scotland plc to terminate the loan facility and demand
repayment of all sums due. Included in these events of default are financial
undertakings relating to the loan to value percentage and the amount of interest
cover available. The Group has undertaken to ensure that the loan to value
percentage does not at any time exceed 55% and also that net rental income is
not less than 170% of the projected finance costs for any three month period.
The loan facility is secured by fixed and floating charges over the assets of
the Company and it's wholly owned subsidiary, Standard Life Property Holdings
Limited.
The amortised cost noted above is considered to be a close approximation to fair
value and is deemed by the directors to be the fair value.
13 REDEEMABLE PREFERENCE SHARES
The Company issued 6,000,000 25p redeemable zero dividend preference shares at a
value of £1 on 19 December 2003. The preference shares will be redeemed by the
Company on the tenth anniversary of admission at a redemption price of £1.7908.
The redemption price represents a redemption yield of 6% per annum on the issue
price of £1.
The liability at 30 June 2005 comprise:
30-Jun-05 31-Dec-04
£ £
Proceeds from issue of redeemable
preference shares 6,000,000 6,000,000
Accrued finance cost charges to income
statement 564,799 373,591
---------- -----------
6,564,799 6,373,591
========== ===========
As a return of capital the holders of the preference shares are entitled to the
payment of 25p per share increased at the rate of 21.8% per annum compounded
daily from the date of admission up to the tenth anniversary of admission.
The capital liability for the purpose of calculation of the net asset value at
the balance sheet date is as follows:
30-Jun-05 31-Dec-04
£ £
Par value of preference shares 1,500,000 1,500,000
Compounded daily interest 528,514 339,962
---------- -----------
2,028,514 1,839,962
========== ===========
14 LEASEHOLD OBLIGATIONS
At 30 June 2005 the Group owned four leasehold properties at an open market
value of £28,895,000 as valued by the independent valuers DTZ Debenham Tie Leung
Limited. In accordance with the accounting policy for leasehold investment
property an adjustment is required to reflect the discounted present value of
minimum lease payments. This adjustment effectively values the leasehold
properties as if they were held as freeholds.
30-Jun-05 31-Dec-04
£ £
Leasehold Obligations 4,859,265 4,643,013
========== ===========
15 LESSOR ANALYSIS
Lessor Length
At the period end the total contractually agreed rental income based on the
leases in operation is
as follows:
30-Jun-05 31-Dec-04
£ £
Less than one year 11,712,503 11,655,628
Between one and five years 45,413,709 46,620,420
Over five years 70,718,241 89,903,455
---------- -----------
Total 127,844,453 148,179,503
========== ===========
The largest single tenant at the period end accounts for 9.775% of the annual
rent income.
16 INTEREST RATE SWAP
The Company entered into swap agreements with the Royal Bank of Scotland plc for
90% of the total £80,000,000 debt facility (£72,000,000) from 29 December 2004
to 29 December 2013. The Swap qualifies as a cashflow hedge and fair value
changes are taken to capital reserves. The effective interest rate of the Swap
was 5.115% in the period to 30 June 2005 (Dec 2004: 5.115%).
The value of the interest rate swap was misstated at 31 December 2004. This was
recorded as an asset of £1,494,912 when in fact the value was a liability of
£1,494,912. As the fair value change in the swap value was taken to capital
reserves, the misstatement has resulted in the assets and equity reserves in the
balance sheet being overstated by £2,989,824 at 31 December 2004.
The misstatement has no effect of the income statement or on the published net
asset values. It is not regarded as a fundamental error and as such the 2004
comparatives have not been restated.
The movement between the misstated value at 31 December 2004 and the current
value is recognised through the Statement of Changes in Equity for the six month
period ended 30 June 2005 (£4,918,163), effectively reversing in this period the
incorrect movement that was recorded in the period to 31 December 2004.
30-Jun-05 31-Dec-04
Fair Value of the financial instruments £ £
Interest rate swap - £72,000,000 from 29/12/04
to 29/12/13 (3,423,251) 1,494,912
========== ===========
17 SHARE CAPITAL
30-Jun-05 31-Dec-04
£ £
Authorised
130,000,000 ordinary shares of 1p each 1,300,000 1,300,000
========== ===========
Allotted, called up and fully paid:
100,000,000 ordinary shares of 1p each 1,000,000 1,000,000
========== ===========
18 RETAINED EARNINGS
30-Jun-05 31-Dec-04
£ £
Opening balance brought forward 702,259 -
Profit for the period 9,953,801 9,297,208
Reallocation of launch costs 730,267 -
Reallocation of preference share costs 564,799 -
Unrealised profit on revaluation of
investment properties (6,839,904) (3,719,949)
Dividends (3,250,000) (4,875,000)
---------- -----------
At 30 June 2005 1,861,222 702,259
========== ===========
This is a distributable reserve.
19 CAPITAL RESERVES
30-Jun-05 31-Dec-04
£ £
Opening balance brought forward 5,214,861 -
Correction to previous year's swap valuation (2,989,824) -
Unrealised profit (loss) on revaluation of
interest rate swap (1,928,339) 1,494,912
Unrealised profit on revaluation of investment
properties 6,839,904 3,719,949
---------- -----------
At 30 June 2005 7,136,602 5,214,861
========== ===========
This reserve will not be used to make distributions to the equity shareholders.
20 OTHER DISTRIBUTABLE RESERVES
30-Jun-05 31-Dec-04
£ £
Opening balance brought forward 96,692,892 -
Share premium reclassified as other
distributable reserve - 96,692,892
Reallocation of launch cost (730,267) -
Reallocation of preference share interest (564,799) -
--------- ----------
At 30 June 2005 95,397,826 96,692,892
========== ===========
21 EARNINGS PER SHARE
Basic and diluted earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted average number of
ordinary shares issued in the period.
30-Jun-05 30-Jun-04
£ £
Profit for the period 9,953,801 2,393,782
Ordinary shares issued 100,000,000 100,000,000
---------- -----------
Earnings per ordinary share (pence) 9.95 2.39
========= =========
There is no difference between the basic earnings per share and the diluted
earnings per share.
22 DIVIDENDS
The interim dividends paid to date in 2005 are as follows:
£1,625,000 (1.625p per ordinary share) paid in February relating to the quarter
ended 31 December 2004
£1,625,000 (1.625p per ordinary share) paid in May relating to the quarter ended
31 March 2005
A further interim dividend of 1.625p per ordinary share in respect of the
quarter to 30 June 2005 was paid in August 2005. These unaudited consolidated
financial statements do not reflect this dividend, however, the published net
asset value does.
23 RECONCILIATION OF CONSOLIDATED NET ASSET VALUE TO PUBLISHED NET ASSET VALUE
The net asset value attributable to Ordinary Shares is published quarterly and
is based on the properties' most recent valuations and calculated on an adjusted
capital basis under United Kingdom Generally Accepted Accounting Principles (UK
GAAP) and practice for investment trust companies taking into account the
prevailing capital entitlement from time to time of the Preference Shares under
the Articles of the Company.
30-Jun-05 31-Dec-04
£ £
Net asset value per unaudited consolidated
financial statements 105,395,650 103,610,012
Adjustments:
Re-classification of redeemable preference
shares as equity 6,564,799 6,373,591
Unrealised loss on revaluation of interest
rate swap 3,423,251 (1,494,912)
Preference share adjustment to reflect
capital redemption rights (2,028,514) (1,839,962)
Proposed dividend for quarter ending 30
June 2005 (1,625,000) (1,625,000)
Adjustment to fair value of investment
properties 100,767 168,578
Other adjustments (9,194) (35,490)
---------- -----------
Published Net Asset Value 111,821,759 105,156,817
========== ===========
24 CASH GENERATED FROM OPERATIONS
01-Jan-05 to 19-Dec-03 to
30-Jun-05 30-Jun-04
£ £
Profit for the period 9,953,801 2,393,782
Movement in debtors 1,121,479 (1,185,619)
Movement in creditors 416,330 3,207,427
Income tax - 12,372
Finance cost of preference shares 191,208 -
Interest payable 1,794,803 506,487
Interest receivable (128,631) (231,385)
Unrealised profit on revaluation of
investment properties (6,839,904) (58,341)
Bank loan arrangement fees - 240,000
--------- -----------
(3,444,715) 2,490,941
---------- -----------
Cash generated from operations 6,509,086 4,884,723
========== ===========
25 SEGMENTAL REPORTING
Primary reporting format - business segments
The group is organised into four main business segments determined in accordance
with the type
of investment property:
Retail - Mainly shops and retail warehouse parks
Office - Mainly in large Cities
Industrial - Distribution warehouses and industrial units
Other - Leisure centres and Cinema complexes
Segmental analysis by business segment
Retail Office Industrial Other Total
£ £ £ £ £
Rental 926,523 3,220,233 1,239,767 678,568 6,065,091
income
Unrealised
profit on 2,004,092 2,114,634 1,657,600 1,063,578 6,839,904
investment
properties
Property
related
expenditure (18,499) (192,710) (28,953) (3,000) (243,162)
------- ------- ------- ------- -------
Segment result 2,912,116 5,142,157 2,868,414 1,739,146 12,661,833
Unallocated
costs (850,652)
--------
Operating
profit 11,811,181
Finance costs
- net (1,857,380)
--------
Profit for the
period 9,953,801
Segmental
assets 27,613,788 83,853,235 35,795,969 18,816,387 166,079,379
Gains on
assets 4,631,212 1,731,765 2,809,031 1,488,613 10,660,621
Lease
incentive
adjustment (100,767)
---------
Discount
present
value 4,859,245
of
Minimum
lease ---------
payments
Investment
properties 181,057,000
Other 1,558,503
assets ---------
183,057,000
Value of (63,532,082)
loan
Other
liabilities (5,421,380)
---------
(68,953,462)
There were no transactions between the business segments. Segmental assets
consists primarily of investment property. Property related expenditure relates
to head lease payments, valuation fees and other direct property costs.
Secondary reporting format - geographical segments
The group invests in the UK Property investment market and is diversified across
the geographical locations below
Segmental analysis by geographical location:
South West Midlands Northern Wales Scotland
England
£ £ £ £ £
Rental 535,604 469,633 1,072,353 480,894 326,363
income
Unrealised
profit on 525,000 124,675 2,115,019 416,652 480,000
investment
properties
Property
related
expenditure (9,112) (3,000) (37,157) (5,062) (8,174)
-------- -------- -------- -------- --------
Segment result 1,051,492 591,307 3,150,215 892,484 798,189
Unallocated
costs
Operating
profit
Finance costs
- net
Profit for the
period
Segmental
assets 12,387,344 11,826,393 35,134,255 15,065,198 8,740,198
Gains on
assets 817,656 813,607 3,265,745 579,802 1,999,802
London Rest of London South East Total
Mid Town London West End
£ £ £ £ £
Rental 724,024 1,134,070 262,658 1,059,492 6,065,091
income
Unrealised
gain 830,000 1,428,559 260,000 660,000 6,839,904
Property
related
expenditure (146,196) (20,943) (1,500) (12,018) (243,162)
-------- -------- -------- -------- --------
Segment result 1,407,828 2,541,686 521,158 1,707,474 12,661,833
Unallocated
costs (850,651)
--------
Operating
profit 11,811,181
Finance costs
- net (1,857,380)
--------
Profit for the
period 9,953,801
Segmental
assets 16,277,274 32,781,521 6,846,220 27,020,976 166,079,378
Gains on
assets 652,725 1,648,479 533,780 349,023 10,660,621
Lease
incentive
adjustment (100,767)
---------
Discount
present
value 4,859,265
of
Minimum
lease ---------
payments
Investment
properties 181,498,497
Other 1,558,503
assets ---------
183,057,000
Value of loans (63,532,082)
Other
liabilities (5421,380)
---------
(68,953,462)
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