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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Standard Life Investments Property Income Trust Ld | LSE:SLI | London | Ordinary Share | GB0033875286 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 79.00 | 79.00 | 79.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
7 September 2016
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
RESULTS IN RESPECT OF THE PERIOD ENDED 30 JUNE 2016
Financial Highlights
Property Highlights
PERFORMANCE SUMMARY
| Capital Values & Gearing | 30 June 2016 |
31 December 2015 | % Change |
|
| Total Assets | 470. 6 | 467.3 | 0.7 | |
| NAV per share (p) | 81.8 | 82.2 | (0.5) | |
| Ordinary Share Price (p) | 79.3 | 84.5 | (6.3) | |
| (Discount)/Premium to NAV (%) | (3.1) | 2.8 | - | |
| LTV* | 29.4 | 28.1 | - |
| Total Return % | 6 Month | 1 Year | 3 Year | 5 Year |
| NAV** | 2.3 | 10.3 | 70.0 | 85.1 |
| Share Price** | (4.8) | (0.1) | 56.4 | 66.6 |
| FTSE Real Estate Investment Trusts Index | (11.8) | (8.3) | 35.7 | 47.6 |
| FTSE All-Share Index | 4.3 | 2.2 | 18.6 | 35.5 |
| Property Returns & Statistics % | 6 months to 30 June 2016 | 6 months to 30 June 2015 | ||
| Property income return | 3.1 | 3.1 | ||
| IPD property monthly index | 2.3 | 2.5 | ||
| Property total return (property only) | 3.9 | 5.8 | ||
| IPD property total return monthly index | 2.5 | 6.3 | ||
| Void rate | 3.8 | 2.8 |
| Earnings & Dividends | 30 June 2016 | 30 June 2015 | ||
| Dividends declared per ordinary share (p) | 2.351 | 2.322 | ||
| Dividend Yield (%)*** | 6.0 | 5.5 | ||
| FTSE Real Estate Investment Trusts Index Yield (%) | 3.7 | 2.8 | ||
| FTSE All-Share Index Yield (%) | 3.7 | 3.5 |
European Public Real Estate Association (“EPRA”) NAV at 30 June 2016 (excluding swap liabilities) – 83.3p (31 Dec 2015 – 82.7p)
* Calculated as bank borrowings less all offset cash as a percentage of the open market value of the property portfolio as at 30 June 2016.
** Assumes re-investment of dividends excluding transaction costs.
*** Based on an annual dividend of 4.76p (30 June 2015: 4.644p) and a share price of 79.3p (30 June 2015: 83.8p).
Sources: Standard Life Investments, Investment Property Databank (“IPD”)
CHAIRMAN’S STATEMENT
In what has been a volatile period for the UK, I present my first statement as Chairman of your Company. My predecessor, Dick Barfield, retired at the AGM in June after 13 years on the board, the last two as Chairman. He was a founding director and helped to steer the company successfully through the Global Financial Crisis. During his Chairmanship he oversaw the doubling of the gross value of your assets, the on-shoring of the company for tax purposes and the refinancing of all the debt leaving the company with low gearing and well positioned to meet the current challenges.
I am pleased to welcome James Clifton-Brown to your board with effect from 17 August 2016. He brings many years of experience in the real estate investment management field. He joined CBRE Global Investors in 1984 as a fund manager on one of their pension fund segregated accounts which focused on high income secondary real estate attaining strong results. He became the firm's UK Chief Investment Officer in 1996. Since 2004, he has also been a director on a number of boards relating to CBRE Global Investors Limited and is a voting member on the USA, European and Asian Investment Committees and Chairman of CBRE’s Global Separate Accounts team. He has been appointed chairman of the Property Valuation Committee.
At the time of writing there is an unusual level of uncertainty following the decision of the UK electorate to leave the EU. This uncertainty is likely to continue, and although the markets have shown some stabilisation since the election of a new Conservative prime minister, it is not yet possible to forecast what the impact of the decision to leave the EU will mean for UK growth, and in particular the UK commercial real estate market. In the short term at least the sentiments are negative. A number of the open ended property funds have either closed to redemptions or imposed pricing adjustments within days of the vote as retail investors quickly sought liquidity. The share prices of REITS and other closed ended companies were also affected by this negative sentiment with the FTSE All-Share REIT index falling by 12% in the first week after the referendum. Your own Company’s share price has been volatile over this period, with a low of 68p on 6 July 2016, compared to 84.5p on the day of the vote. The price recovered quickly following the initial shock and the shares are now trading at 81.25p (as at 26 August 2016) - a discount to net assets of 0.7%.
Performance
Although asset valuations have been caveated for the June quarter end given their proximity to the referendum, your Company has performed well over the six month period to 30 June 2016 with a NAV total return of 2.3%. This performance was driven by continued growth in the property portfolio and strong income generation with both the capital and income performance of the Company exceeding that of the IPD benchmark. It was delivered even after allowing for a negative movement in the value of the interest rate swap, caused by interest rate movements as a result of the EU referendum result, resulting in a swap liability of £5.4m as at 30 June 2016. Performance has also been boosted by the sale of two assets in the period, both ahead of most recent valuations, raising £6.25m. This trend was continued post the period end with a further two assets sold for £9m. The proceeds of these sales have all been used to reduce the debt of the Company.
Debt
On 28 April 2016 the Company refinanced its existing debt facilities with RBS. A new £110m seven year facility was taken out which was hedged to fix the rate on this loan at 2.725%. In addition, to introduce flexibility into the capital structure and allow the Company to act quickly should opportunities arise, a £35m RCF was also taken out with RBS. Securing these loan facilities as early as possible following the Pearl Portfolio acquisition was a clear Board strategy and the timing has turned out to be fortuitous given the current market environment. The Company is now in a good position of having low cost debt (all-in rate of 2.6% at the date of this report) along with a prudent LTV, net of cash, of 28.4%.
Dividends
As part of the fundraising exercise in December 2015 in order to acquire the Pearl portfolio of 22 assets, the Company announced that it would increase its dividend by 2.5%. Following the successful completion of this acquisition the dividend relating to the first quarter of this year, paid on 31 May 2016, was increased to 1.19p per share. Based on an annual dividend of 4.76p, the yield on the Company’s shares as at 26 August 2016 was 5.9%. This compares favourably with the yield on the FTSE All-Share Index (3.5%) and the FTSE ALL-Share REIT Index of (3.5%) at a time when attractive, sustainable income returns are much sought after. It should also be highlighted that the Company’s dividend cover for the first six months of the year, even given this increase in dividend, was 111%.
Outlook
The UK economy has now entered a period of heightened uncertainty which most forecasters predict will impact on future growth. The International Monetary Fund, for example, recently cut their forecast for UK economic growth in 2017 down to 1.3%, a fall of 0.9% from previous forecasts. One key measure that drives economic performance is confidence and there are early signs that businesses are now less confident than before the referendum which may have an impact on future investment plans. How the real economy reacts to any easing in monetary policy by the Bank of England will be key to the extent of any downturn as will the Government’s ability to set out more clearly how the UK will interact with the EU going forward.
The performance of the UK commercial property market has always been closely linked to that of the economy. Hence there can be no doubt that any economic downturn will impact capital values which were already deflated as a result of the 1% increase in stamp duty land tax in the March budget. However, unlike in previous downturns, the sector is in better shape with lower gearing, higher occupancy rates, lower levels of speculative development and a significant yield premium over other asset classes.
Within this overall framework, the Company exhibits good defensive qualities. With a diversified portfolio both in terms of the sectors in which it invests and the area of the country where the assets are situated the portfolio will not be overly exposed to the potential underperformance of any one region or sector e.g. Central London offices. In addition, the Company has a secure tenant base and low void rate which, when combined with the proven ability of the asset manager to implement successful asset management initiatives, should ensure a sustainable income stream which underpins the high dividend yield. In an environment where attractive income returns are in demand this is positive for the Company. Finally, with the rollover of the debt facility and the introduction of flexibility into the capital structure through the RCF, the Investment Manager has the ability to reduce gearing while still having the resources to act quickly should suitable opportunities arise which is likely in such a volatile environment. Overall, I am optimistic that your company is well positioned for the current market.
Robert Peto
Chairman
6 September 2016
PRINCIPAL RISKS AND 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 Board and Investment Manager seek to mitigate these risks through a strong initial due diligence process, continual review of the portfolio and active asset management initiatives. All of the properties in the portfolio are insured, providing protection against risks to the properties and also protection in case of injury to third parties in relation to the properties.
The Board has also identified a number of other specific risks that are reviewed at each Board meeting. These are as follows:
Other risks faced by the Company include the following:
The Board seeks to mitigate and manage all 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, levels of gearing and the overall structure of the Company.
As a result of uncertainty following the UK’s referendum decision to exit the EU, the Company’s valuers, JLL Limited and Knight Frank LLP, included the following caveat with their valuations for the quarter ended 30 June 2016 as they did for all valuations they undertook at that date:
“Following the Referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit. We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets. Since the Referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the market place. The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced. We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.”
The company is aware that JLL Limited and Knight Frank LLP, in undertaking more current valuations for other organisations, continue to apply a similarly worded caveat based on a continued shortage of comparable evidence of arm’s length transactions since the Referendum.
Going Concern
The Directors have reviewed detailed cash flow, income and expense projections in order to assess the Company’s ability to pay its operational expenses, bank interest and dividends for the foreseeable future. The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular those relating to LTV and interest cover. They have not identified any material uncertainties which cast significant doubt on the ability to continue as a going concern for a period of not less than 12 months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Company has adequate resources to continue in operational existence for the foreseeable future and the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.
INVESTMENT MANAGER’S REPORT
UK Real Estate Market
The implications of the Referendum have caused a complex interaction between politics, economics and markets which makes the situation difficult to predict. Given the political and financial uncertainties experienced so far, the UK economy is expected to be affected negatively, although as market volatility rises, safe haven assets will benefit. It would seem that the negative sentiment and heightened uncertainty is likely to impact adversely on UK real estate capital values although this is not reflected in the June valuations. Unclear messages are emerging in respect of post referendum transactions with a mixture of deal withdrawals, price renegotiations but also completions at previously agreed figures.
Against that background, UK listed real estate equities total returns fell by nearly 13.3% over the six month period to 30 June 2016. This decline is in contrast to the FTSE All Share and the FTSE 100 total returns where the returns were a positive 4.7% and 6.5% respectively. REIT pricing since the referendum has been volatile, with discounts to NAV moving to over 25% for some of the majors, before recovering to around 10% on average. The Company has also suffered from share price volatility but, more recently, the Company’s share price has recovered to a 0.7% discount to NAV as at 26 August 2016.
Investment Outlook
The slowdown in UK real estate that was materialising prior to the referendum has been exacerbated by the vote outcome. The heightened uncertainties following the result and the subsequent retreat in business and consumer confidence are likely to impact negatively on the outlook for the economy. This is likely to have detrimental consequences for UK real estate given the direct linkage to economic activity. We therefore anticipate increased downward pressure on UK commercial real estate capital values. The magnitude of any declines will depend on the impact on the domestic economy and the level of interest rates and yields from alternative investment classes. The impact will vary by sector and geography. From a sector perspective, we expect Central London offices to be the most negatively impacted in the near term given the linkages to European markets via cross border trading. We expect industrial, given its higher yield, and retail assets to be comparatively resilient, although not immune. Long income assets should provide most resilience in any downturn. Despite the negative outlook, UK real estate continues to provide a higher yield than other assets and, unlike during the Financial Crisis, lending to the sector is at a much lower level than in 2007/2008. Furthermore, existing vacancy rates are at below average levels in most markets and development remains relatively constrained which should all help stabilise the market further out. The current “lower for even longer” interest rate environment coupled with an increasing investor global search for yield and the retention of the UK’s safe haven status should all ensure the asset class is reasonably placed longer term.
Performance
Over the first six months of the year the Company had a NAV total return of 2.3% and a share price total return (with dividends reinvested) of -4.8%. The difference in these figures illustrates the change in sentiment in the sector, particularly at the end of the period, when property shares were marked down. At an underlying property level the Company’s portfolio has continued to deliver a relatively strong performance with a 3.9% total return for the 6 months against the MSCI / IPD benchmark of 2.5%.
Over the last 24 months the Company has witnessed increased levels of activity with the purchase of several portfolios (the largest being the Pearl Portfolio for £165m in December 2015) and sales of several assets that we did not believe would perform as well in the future. Despite the relatively high level of transaction costs associated with real estate, performance has been reasonably strong and is supported by a high income return (6% for the Company’s portfolio versus the benchmark’s 5%).
In the short term, the share price performance has been disappointing as the Company moved from a premium to a discount but the performance is relatively strong compared to peers.
Investment Strategy
The Company remains focused on delivering an attractive income to investors through investing in a diversified portfolio of UK commercial real estate assets. We target assets that are well located, and are in good condition, which we believe will appeal to occupiers. We aim to actively manage the assets to renew and extend leases to give the Company a sustainable income for its covered dividend policy.
It was apparent early in the reporting period that the UK commercial property market was nearing the end of the capital cycle, and that returns were not going to be as high in 2016 as they were in 2014 and 2015. We took the opportunity to sell several assets, detailed later, that we believed would not perform as well in the future or provided risk to the Company, and used the proceeds to reduce leverage. This cautious approach will continue into the second half of the year, a period with greater uncertainty. We believe the Company is well positioned for the next few years, with a relatively high exposure to industrial / logistics units, and a negligible exposure to core City of London, financial or recruitment tenants.
Portfolio Valuation
The investment portfolio is valued on a quarterly basis by two valuers, JLL Limited and Knight Frank LLP. The investment portfolio comprised a total of 60 assets as at 30 June 2016 valued at £450.1m, with cash of £18.3m. This compares with £288.4m and £27.3m respectively as at end June 2015.
Given the proximity of the 30 June 2016 valuation date to the decision of the UK to leave the EU, and the lack of comparable evidence after that decision, the valuers issued a caveat with their valuations for the quarter ended 30 June 2016. This is reproduced in Principal Risks and Uncertainties.
Portfolio Allocation
The Company is invested in Industrial, Office and Retail properties throughout the UK. With a focus on income the Company is structurally underweight to retail as prime retail assets are low yielding, and we believe that secondary retail is going to underperform generally given the structural shift from sales in retail premises to internet sales. Instead, we seek to buy logistics units that meet the needs of modern distribution networks for retailers, and retail warehouse units that are also efficient for “click and collect” retail. Although we have had a high exposure to Greater London offices we have modest exposure to core City offices or financial tenants as again that was a low yielding sector.
The main geographic allocation changes since the first half of 2015 are an increase in exposure to the South East whilst reducing the exposure to Central London and Scotland. This has reflected our House View that Central London was approaching the end of the investment cycle ahead of the rest of the UK, whilst the South East would continue to benefit from demand from greater population density.
Investment Activity
Purchases
No purchases were undertaken in the first half of 2016.
Sales
The Company sold two assets in the six month period, and a further two assets in early July 2016.
1. Turin Court Stockport was sold in March for £2.9m (valuation at 31 Dec 2015: £2.7m). The office property was due to become vacant in July 2016, and although we had been marketing it for a while had almost no demand for leasing. The sale was to a local occupier for their own occupation.
2. Perry Ellis Witham was sold in June for £3.4m (valuation at 31 Dec 2015: £3.5m). The industrial unit was let for a further 6 years, but we felt the value could fall as the building did not meet the occupier’s current needs, and would be difficult to relet.
3. Causeway House Teddington was sold in July for £6.3m (valuation at 31 Dec 2015: £6.0m). The property had lease expiries in 2017 and was in need of substantial capital expenditure to refurbish it, and even then we were concerned over the tenant demand. It was sold to an owner occupier.
4. Ceres Court Kingston was sold in July for £2.75m (valuation at 31 Dec 2015: £2.5m). The retail parade with residential above was held on a long leasehold basis on unattractive terms with the sale being to the party who held the freehold interest in the asset.
The proceeds from the sales were used to pay down debt under the RCF.
Asset Management
The Company has actively sought to renew and extend leases to ensure income continues, and grows, where possible. In a period of uncertainty, or where capital values are slowing, income is the main driver of total return.
Four rent reviews were settled, all above the rent passing, and a further four leases renegotiated to extend the term, along with three lease renewals and four new lettings.
Voids increased to 3.8% (2.8% at 30 June 2015) on the expiry of a lease on an industrial unit in Oldham where the tenant vacated. The Company’s void rate is roughly half the market average, and is concentrated in two industrial assets, one of which was bought vacant to be refurbished and has been available for rent since the end of May, and the other is still being refurbished.
Debt
In April 2016 the Company put in place a new debt facility with RBS which replaces the short term facility agreed as part of the Pearl portfolio acquisition in December 2015. The refinanced facility provides flexibility by having a term loan for 7 years for £110m, and a RCF for £35m. During the period the Company repaid £3.5m with a further £10.5m repaid in July 2016 resulting in the drawn amount on the RCF now being £21m. The refinanced facility was completed in April and the term loan was matched with an interest rate swap entered into at the same time. The swap was entered into to protect shareholders from the impact of higher interest rates and give certainty on the interest cost. The all in cost as at 30 June 2016 was 2.5% pa. However, the movement in the interest rate curve following the vote to leave the EU has led to a negative movement in the value of the interest rate swap resulting in a swap liability of £5.4m as at 30 June 2016. It should be highlighted however that at maturity the value of the swap will be zero. The current LTV is 28.4%, compared with the maximum LTV covenant in the debt facility of 60%.
Jason Baggaley
Fund Manager
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 Interim Report, for the six months ended 30 June 2016, 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
Robert Peto
Chairman
6 September 2016
UNAUDITED FINANCIAL STATEMENTS
| Unaudited Consolidated Statement of Comprehensive Income | ||||
| for the period ended 30 June 2016 | 1 Jan 16 to 30 Jun 16 | 1 Jan 15 to 30 Jun 15 | 1 Jan 15 to 31 Dec 15 | |
| Notes | £ | £ | £ | |
| Rental income | 14,918,244 | 9,739,210 | 20,142,180 | |
| Surrender premium income | - | - | 120,000 | |
| Valuation gain from investment properties | 3 | 2,716,962 | 7,529,522 | 17,636,973 |
| Costs of business acquisition | - | - | (1,942,498) | |
| (Loss) on asset acquisition | - | (65,129) | (75,181) | |
| Profit/ (Loss) on disposal of investment properties | 94,361 | (796,363) | 3,024,748 | |
| Investment management fees | 2 | (1,620,379) | (1,121,035) | (2,105,104) |
| Other direct property operating expenses | (526,659) | (504,924) | (929,165) | |
| Directors’ fees and expenses | (75,326) | (62,150) | (124,296) | |
| Valuers fees | (53,745) | (37,809) | (92,324) | |
| Auditor’s fee | (45,714) | (23,008) | (82,308) | |
| Other administration expenses | (226,067) | (163,143) | (376,776) | |
| Operating profit | 15,181,677 | 14,495,171 | 35,196,249 | |
| Finance income | 16,103 | 26,256 | 68,186 | |
| Finance costs | (2,341,813) | (1,597,490) | (3,324,782) | |
| Loss on derecognition of interest rate swaps | 10 | (2,735,000) | - | - |
| Profit for the period | 10,120,967 | 12,923,937 | 31,939,653 | |
| Other Comprehensive Income | ||||
| Net change in fair value of the swap reclassified to profit and loss | 10 | 2,735,000 | - | - |
| Valuation (loss)/gain on cash flow hedge | (6,078,345) | 757,123 | 589,647 | |
| Total Other Comprehensive Income | (3,343,345) | 757,123 | 589,647 | |
| Total comprehensive income for the period, net of tax | 6,777,622 | 13,681,060 | 32,529,300 | |
| Earnings per share: | pence | pence | pence | |
| Basic and diluted earnings per share | 2.66 | 4.84 | 11.39 | |
| Adjusted (EPRA) earnings per share | 1.92 | 2.34 | 4.05 |
All items in the above Unaudited Consolidated Statement of Comprehensive Income derive from continuing operations.
| Unaudited Consolidated Balance Sheet | ||||
| as at 30 June 2016 | 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| Notes | £ | £ | £ | |
| ASSETS | ||||
| Non-current assets | ||||
| Investment properties | 3 | 437,297,884 | 272,669,703 | 448,616,754 |
| Lease incentives | 3 | 3,267,928 | 2,471,229 | 3,457,588 |
| 440,565,812 | 275,140,932 | 452,074,342 | ||
| Current assets | ||||
| Investment properties held for sale | 4 | 8,886,675 | 13,010,300 | - |
| Trade and other receivables | 2,900,839 | 4,884,695 | 2,858,851 | |
| Cash and cash equivalents | 18,257,372 | 27,329,945 | 12,395,516 | |
| 30,044,886 | 45,224,940 | 15,254,367 | ||
| Total assets | 470,610,698 | 320,365,872 | 467,328,709 | |
| LIABILITIES | ||||
| Current liabilities | ||||
| Trade and other payables | 12,804,358 | 7,485,896 | 12,788,999 | |
| Interest rate swap | 990,627 | 832,034 | 908,751 | |
| 13,794,985 | 8,317,930 | 13,697,750 | ||
| Non-current liabilities | ||||
| Bank borrowings | 140,389,061 | 84,036,866 | 139,048,848 | |
| Interest rate swap | 4,438,010 | 1,085,782 | 1,176,541 | |
| Rent deposits due to tenants | 434,425 | 525,002 | 622,283 | |
| 145,261,496 | 85,647,650 | 140,847,672 | ||
| Total liabilities | 159,056,481 | 93,965,580 | 154,545,422 | |
| Net assets | 311,554,217 | 226,400,292 | 312,783,287 | |
| EQUITY | ||||
| Capital and reserves attributable to Company’s equity holders | ||||
| Share capital | 204,820,219 | 130,589,115 | 204,820,219 | |
| Retained earnings | 5,470,281 | 7,776,524 | 6,167,329 | |
| Capital reserves | 3,425,345 | (9,803,719) | 3,957,367 | |
| Other distributable reserves | 97,838,372 | 97,838,372 | 97,838,372 | |
| Total equity | 311,554,217 | 226,400,292 | 312,783,287 | |
| NAV per share | ||||
| NAV | 8 | 81.8p | 78.5p | 82.2p |
| EPRA NAV | 8 | 83.3p | 79.2p | 82.7p |
| Unaudited Consolidated Statement of Changes in Equity | ||||||
| for the period ended 30 June 2016 | Share Capital | Retained earnings | Capital reserves | Other distributable reserves | Total equity | |
| Notes | £ | £ | £ | £ | £ | |
| Opening balance 1 January 2016 | 204,820,219 | 6,167,329 | 3,957,367 | 97,838,372 | 312,783,287 | |
| Profit for the period | - | 10,120,967 | - | - | 10,120,967 | |
| Other comprehensive income | - | - | (3,343,345) | - | (3,343,345) | |
| Total comprehensive gain for the period | - | 10,120,967 | (3,343,345) | - | 6,777,622 | |
| Dividends paid | 7 | - | (8,006,692) | - | - | (8,006,692) |
| Valuation gain from investment properties | 3 | - | (2,716,962) | 2,716,962 | - | - |
| Profit on disposal of investment properties | - | (94,361) | 94,361 | - | - | |
| Balance at 30 June 2016 | 204,820,219 | 5,470,281 | 3,425,345 | 97,838,372 | 311,554,217 |
| Unaudited Consolidated Statement of Changes in Equity | ||||||
| for the period ended 30 June 2015 | Share Capital | Retained earnings | Capital reserves | Other distributable reserves | Total equity | |
| Notes | £ | £ | £ | £ | £ | |
| Opening balance 1 January 2015 | 96,188,648 | 7,634,503 | (17,294,001) | 97,838,372 | 184,367,522 | |
| Profit for the period | - | 12,923,937 | - | - | 12,923,937 | |
| Other comprehensive income | - | - | 757,123 | - | 757,123 | |
| Total comprehensive gain for the period | - | 12,923,937 | 757,123 | - | 13,681,060 | |
| Dividends paid | 7 | - | (6,048,757) | - | - | (6,048,757) |
| Ordinary shares issued net of issue costs* | 34,400,467 | - | - | - | 34,400,467 | |
| Valuation gain from investment properties | - | (7,529,522) | 7,529,522 | - | - | |
| Loss on disposal of investment properties | - | 796,363 | (796,363) | - | - | |
| Balance at 30 June 2015 | 130,589,115 | 7,776,524 | (9,803,719) | 97,838,372 | 226,400,292 |
* this value represents both the nominal and the premium raised on issuing the ordinary shares.
| Unaudited Consolidated Statement of Changes in Equity | ||||||
| for the year ended 31 December 2015 | Share Capital | Retained earnings | Capital reserves | Other distributable reserves | Total equity | |
| Notes | £ | £ | £ | £ | £ | |
| Opening balance 1 January 2015 | 96,188,648 | 7,634,503 | (17,294,001) | 97,838,372 | 184,367,522 | |
| Profit for the period | - | 31,939,653 | - | - | 31,939,653 | |
| Other comprehensive income | - | - | 589,647 | - | 589,647 | |
| Total comprehensive gain for the period | - | 31,939,653 | 589,647 | - | 32,529,300 | |
| Dividends paid | 7 | - | (12,745,106) | - | - | (12,745,106) |
| Ordinary shares issued net of issue costs* | 108,631,571 | - | - | - | 108,631,571 | |
| Valuation gain from investment properties | - | (17,636,973) | 17,636,973 | - | - | |
| Profit on disposal of investment properties | - | (3,024,748) | 3,024,748 | - | - | |
| Balance at 31 December 2015 | 204,820,219 | 6,167,329 | 3,957,367 | 97,838,372 | 312,783,287 |
* 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 2016 | 1 Jan 16 to 30 Jun 16 | 1 Jan 15 to 30 Jun 15 | 1 Jan 15 to 31 Dec 15 | |
| Notes | £ | £ | £ | |
| Cash generated from operating activities | ||||
| Profit for the period | 10,120,967 | 12,923,937 | 31,939,653 | |
| Movement in non-current lease incentives | (189,660) | 19,373 | 270,464 | |
| Movement in trade and other receivables | (41,988) | (2,224,255) | 1,230,084 | |
| Movement in trade and other payables | (297,315) | 324,462 | 3,735,996 | |
| Finance costs | 2,341,813 | 1,597,490 | 3,324,782 | |
| Loss on derecognition of interest rate swaps | 10 | 2,735,000 | - | - |
| Finance income | (16,103) | (26,256) | (68,186) | |
| Valuation gain from investment properties | 3 | (2,716,962) | (7,529,522) | (17,636,973) |
| Loss on asset acquisition | - | - | 75,181 | |
| (Profit)/loss on disposal of investment properties | (94,361) | 796,363 | (3,024,748) | |
| Net cash inflow from operating activities | 11,841,391 | 5,881,592 | 19,846,253 | |
| Cash flows from investing activities | ||||
| Interest received | 16,103 | 26,256 | 68,186 | |
| Purchase of investment | - | (21,441,843) | (52,198,123) | |
| Business acquisition net of cash acquired | - | - | (165,060,458) | |
| Capital expenditure on investment properties | 3 | (888,612) | (593,112) | (1,144,434) |
| Net proceeds from disposal of investment properties | 6,219,361 | 11,303,737 | 57,854,848 | |
| Net cash used in investing activities | 5,346,852 | (10,704,962) | (160,479,981) | |
| Cash flows from financing activities | ||||
| Ordinary shares issued net of issue costs | - | 34,400,467 | 110,462,680 | |
| Transaction costs of issues of shares | - | - | (1,831,109) | |
| Bank borrowing | 1,340,213 | - | 55,000,000 | |
| Bank borrowing arrangement costs | - | - | (173,450) | |
| Interest paid on bank borrowing | (1,476,865) | (988,882) | (1,869,338) | |
| Payments on interest rate swap | (3,183,043) | (608,608) | (1,213,528) | |
| Dividends paid to the Company’s shareholders | 7 | (8,006,692) | (6,048,757) | (12,745,106) |
| Net cash used in financing activities | (11,326,387) | 26,754,220 | 147,630,149 | |
| Net increase in cash and cash equivalents in the period | 5,861,856 | 21,930,850 | 6,996,421 | |
| Cash and cash equivalents at beginning of period | 12,395,516 | 5,399,095 | 5,399,095 | |
| Cash and cash equivalents at end of period | 18,257,372 | 27,329,945 | 12,395,516 |
Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2016
1 Accounting Policies
The unaudited consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (‘IFRS’) IAS 34 ‘Interim Financial Reporting’ and, except as described below, the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2015. The condensed unaudited consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2015, which were prepared under full IFRS requirements.
2 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.
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. A new Investment Management agreement (“IMA”) was entered into on 7 July 2014, appointing the Investment Manager as the AIFM (“Alternative Investment Fund Manager”).
Under the terms of the current IMA, the Investment Manager is entitled to receive fees of 0.75% of total assets up to £200 million; 0.70% of total assets between £200 million and £300 million; and 0.65% of total assets in excess of £300 million. The total fees charged for the period ended 30 June 2016 amounted to £1,620,379 (period ended 30 June 2015: £1,121,035). The amount due and payable at the period end amounted to £807,041, excluding VAT (period ended 30 June 2015: £571,005 excluding VAT).
3 Investment Properties
| Country | UK | UK | UK | |
| Class | Industrial | Office | Retail | Total |
| 30 Jun 16 | 30 Jun 16 | 30 Jun 16 | 30 Jun 16 | |
| £ | £ | £ | £ | |
| Market value as at 1 January 2016 | 187,070,000 | 164,065,000 | 100,850,000 | 451,985,000 |
| Capital expenditure on investment properties | 707,905 | 47,372 | 133,335 | 888,612 |
| Carrying value of disposed investment properties | (3,450,000) | (2,675,000) | - | (6,125,000) |
| Valuation gain from investment properties | 929,022 | 1,585,172 | 202,768 | 2,716,962 |
| Costs to sell for investment properties recognised as held for sale | - | 111,325 | 198,000 | 309,325 |
| Movement in lease incentives receivable | 263,073 | (67,869) | 80,897 | 276,101 |
| Closing market value | 185,520,000 | 163,066,000 | 101,465,000 | 450,051,000 |
| Investment properties recognised as held for sale | - | (6,296,000) | (2,900,000) | (9,196,000) |
| 185,520,000 | 156,770,000 | 98,565,000 | 440,855,000 | |
| Adjustment for lease incentives* | (600,347) | (2,244,619) | (712,150) | (3,557,116) |
| Closing carrying value | 184,919,653 | 154,525,381 | 97,852,850 | 437,297,884 |
*Lease incentives are split between non-current assets of £3,267,928 and current assets of £289,188.
The valuations were performed by JLL Limited and Knight Frank LLP, both accredited independent valuers with recognised and relevant qualifications and recent experience of the location and category of the investment properties being valued. The valuation model in accordance with Institute of Chartered Surveyors (‘RICS’) requirements on disclosure for Regulated Purpose Valuations has been applied (RICS Valuation – Professional Standards January 2014 published by the Royal Institution of Chartered Surveyors). These valuation models are consistent with the principles in IFRS 13.
The combined market value provided by JLL Limited and Knight Frank LLP at the period ended 30 June 2016 was £450,051,000 (30 June 2015: £288,390,000) however an adjustment has been made for lease incentives of £3,557,116 (30 June 2015: £2,195,297) that are already accounted for as an asset and for costs to sell of £309,325 for the two properties which are currently held for sale. The valuation at 30 June 2016 of £450,051,000 includes £2,900,000 in relation to Ceres Court, Kingston Upon Thames and £6,296,000 in relation to Causeway House, Teddington, two investment properties held for sale at the Balance Sheet date (see note 4).
Valuation gains and losses from investment properties are recognised in profit and loss for the period and are attributable to changes in unrealised gains or losses relating to investment property (completed and under construction) held at the end of the reporting period.
4 Investment Properties Held For Sale
As at 30 June 2016 the Group held for sale Ceres Court, Kingston Upon Thames for £2,900,000 excluding related sale costs and Causeway House, Teddington for £6,296,000 excluding related sale costs. The independently assessed market value of each property held for sale at 30 June 2016 is detailed below:
| 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| £ | £ | £ | |
| Portrack Interchange | - | 1,300,000 | - |
| Windsor Court and Crown Farm | - | 3,550,000 | - |
| Units 2001 & 2002 Coal Road | - | 3,725,000 | - |
| 140 West George Street | - | 4,950,000 | - |
| Ceres Court, Kingston Upon Thames | 2,900,000 | - | - |
| Causeway House, Teddington | 6,296,000 | - | - |
| 9,196,000 | 13,525,000 | - | |
| Less: costs to sell | (309,325) | (514,700) | - |
| 8,886,675 | 13,010,300 | - |
5 Earnings Per Share
The earnings per Ordinary share are based on the net profit for the period of £10,120,967 (30 June 2015: £12,923,937 and 31 December 2015: £31,939,653) and 380,690,419 (30 June 2015: 267,039,746 and 31 December 2015: 280,330,039) ordinary shares, being the weighted average number of shares in issue during the period.
Earnings for the period to 30 June 2016 should not be taken as a guide to the results for the year to 31 December 2016.
6 Investment In Subsidiary Undertakings
The Company owns 100 per cent of the issued ordinary share capital of Standard Life Investments Property Holdings Limited, a company with limited liability incorporated and domiciled in Guernsey, Channel Islands, whose principal business is property investment.
During the year to 31 December 2015 the Group acquired 100% of the units in Aviva Investors UK Real Estate Recovery II Unit Trust (the “Unit Trust” or “UT”), a Jersey Property Unit Trust “JPUT”. The acquisition included the entire issued share capital of a General Partner which holds, through a Limited Partnership, the new portfolio of 22 UK real estate assets. The transaction completed on 23 December 2015 and the Group treated the acquisition as a Business Combination in accordance with IFRS 3. The Group Undertakings consist of the following entities at the Balance Sheet date:
7 Dividends And Property Income Distribution Gross Of Income Tax
| 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| £ | £ | £ | |
| Non Property Income Distributions | |||
| 1.161p per ordinary share paid in February relating to the quarter ending 31 December 2014 | - | 2,835,350 | 2,835,350 |
| 0.391p per ordinary share paid in November relating to the quarter ending 30 September 2015 | - | - | 1,127,594 |
| 0.561p per ordinary share paid in March relating to the quarter ending 31 December 2015 | 1,679,848 | - | - |
| Property Income Distributions | |||
| 1.161p per ordinary share paid in May relating to the quarter ending 31 March 2015 | - | 3,213,407 | 3,213,406 |
| 1.161p per ordinary share paid in August relating to the quarter ending 30 June 2015 | - | - | 3,348,175 |
| 0.770p per ordinary share paid in November relating to the quarter ending 30 September 2015 | - | - | 2,220,581 |
| 0.600p per ordinary share paid in March relating to the quarter ending 31 December 2015 | 1,796,628 | - | - |
| 1.19p per ordinary share paid in May relating to the quarter ending 31 March 2016 | 4,530,216 | - | - |
| 8,006,692 | 6,048,757 | 12,745,106 |
A property income dividend of 1.19p per share was declared on 09 August 2016 in respect of the quarter to 30 June 2016 – a total payment of £4,530,216. This was paid on 31 August 2016.
8 Reconciliation of Consolidated NAV To Published NAV
The NAV attributable to ordinary shares is published quarterly and is based on the most recent valuation of the investment properties and calculated on a basis which adjusts the underlying reported IFRS numbers. The adjustment made is to include a provision for payment of a dividend in respect of the quarter then ended.
| 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| Number of shares | Number of shares |
Number of shares | |
| Number of ordinary shares at the reporting date | 380,690,419 | 288,387,160 | 380,690,419 |
| 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| £ | £ | £ | |
| Total equity per consolidated financial statements | 311,554,217 | 226,400,292 | 312,783,287 |
| NAV per share | 81.8p | 78.5p | 82.2p |
The EPRA publishes guidelines for calculating adjusted NAV. EPRA NAV represents the fair value of an entity’s equity on a long-term basis. Items that EPRA considers will have no impact on the long term, such as fair value of derivatives, are therefore excluded.
| 30 Jun 16 | 30 Jun 15 | 31 Dec 15 | |
| £ | £ | £ | |
| Total equity per consolidated financial statements | 311,554,217 | 226,400,292 | 312,783,287 |
| Adjustments: | |||
| Add: fair value of derivatives | 5,428,637 | 1,917,816 | 2,085,292 |
| Published adjusted EPRA NAV | 316,982,854 | 228,318,108 | 314,868,579 |
| Published adjusted EPRA NAV per share | 83.3p | 79.2p | 82.7p |
9 Financial Instruments And Investment Properties
Fair values
The fair value of financial assets and liabilities is not materially different from the carrying value in the annual financial statements.
Fair value hierarchy
The following table shows an analysis of the fair values of investment properties recognised in the balance sheet by the level of the fair value hierarchy:
| 30 June 2016 | Level 1 | Level 2 | Level 3 | Total fair value |
| Investment properties | - | - | 437,297,884 | 437,297,884 |
The lowest level of input is the underlying yields on each property which is an input not based on observable market data.
The following table shows an analysis of the fair values of financial instruments recognised in the balance sheet by the level of the fair value hierarchy:
| 30 June 2016 | Level 1 | Level 2 | Level 3 | Total fair value |
| Loan Facilities | - | 144,775,064 | - | 144,775,064 |
The lowest level of input is the interest rate payable on each borrowing which is a directly observable input.
| 30 June 2016 | Level 1 | Level 2 | Level 3 | Total fair value |
| Interest rate swap | - | 5,428,637 | - | 5,428,637 |
The lowest level of input is the three month LIBOR yield curve which is a directly observable input.
There were no transfers between levels of the fair value hierarchy during the six months ended 30 June 2016.
Explanation of the fair value hierarchy:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of investment properties is calculated using unobservable inputs as described in the annual report and accounts for the year ended 31 December 2015.
Sensitivity of measurement to variance of significant unobservable inputs:
A decrease in the estimated annual rent will decrease the fair value.
An increase in the discount rates and the capitalisation rates will decrease the fair value.
There are interrelationships between these rates as they are partially determined by the market rate conditions.
The fair value of the derivative interest rate swap contract is estimated by discounting expected future cash flows using current market interest rates and yield curves over the remaining term of the instrument.
The fair value of the loan facilities are estimated by discounting expected future cash flows using the current interest rates applicable to each loan.
10 Bank Borrowings
On 22 December 2015 the Company completed the drawdown of an additional £55,000,000 loan with RBS. The new facility and the existing facility was then repayable on 27 June 2017, which applied to the fully drawn down balance of £139,432,692. Interest from 22 December 2015 was payable at a rate equal to the aggregate of 3 month Libor, a margin of 1.25%.
On 28 April 2016 the Company entered into an agreement to extend £145 million of its existing £155 million debt facility with RBS. The debt facility consists of a £110 million seven year term loan facility (the “Term Loan”) and a £35 million five year RCF. The RCF may by agreement be extended by one year on two occasions. £145 million has been drawn down by the Group. Interest is payable on the Term Loan at LIBOR plus 1.375% and on the RCF at LIBOR plus 1.2%. This equates to a rate of 2.725% on the Term Loan and 1.78% on the RCF which together give an attractive current blended rate of 2.5% (based on the RCF being fully drawn). As part of this refinancing the existing swaps that were in place were repaid at a cost of £2.735 million and one new seven year swap was entered into that covers the £110 million Term Loan.
The restated facility agreement includes terms that are typical for a facility of this nature, including LTV (a maximum of 60% for the first five years and 55% thereafter) and interest cover ratio covenants (not less than 175% for the term of the facility) and the ability to substitute properties in the security pool.
11 Events After The Balance Sheet Date
Property Sales and Purchases
On 1 July 2016 the Company completed the sale of Causeway House, Teddington for £6.3 million excluding costs.
On 8 July 2016 the Company completed the sale of Ceres Court, Kingston Upon Thames for £2.75 million excluding costs.
Shares and Dividends
A property income dividend of 1.19p per share was declared on 09 August 2016 in respect of the quarter to 30 June 2016 – a total payment of £4,530,216. This was paid on 31 August 2016.
End of Notes to the Unaudited Consolidated Financial Statements for the period ended 30 June 2016
ADDITIONAL NOTES TO THE INTERIM FINANCIAL REPORT
The Interim Report and Unaudited Consolidated Condensed Financial Statements for the period from 1 January 2016 to 30 June 2016 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
Jason Baggaley
Standard Life Investments Limited
Tel: 0131 245 2833
Graeme McDonald
Standard Life Investments Limited
Tel: 0131 245 3151
END
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