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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 |
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STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
ANNUAL FINANCIAL REPORT IN RESPECT OF THE YEAR ENDED 31 DECEMBER 2015
Strategic Report: Financial Highlights
- The company has grown by over 70% in the year with NAV now standing at GBP
312.8m (2014: GBP184.4m) driven by portfolio capital growth, NAV accretive share
issuance and successful asset management initiatives;
- NAV total return of 15.5% and share price total return of 15.5% in the
year, both outperforming the FTSE REIT Index total return of 10.6% and FTSE All
Share Index of 1.0%;
- NAV accretive share issuance of GBP110m in the year the proceeds of which
have been timeously invested;
- In order to help finance the purchase of the portfolio of assets described
below, the Company increased its borrowing facilities from GBP84.4million to GBP
139.4million in the form of an additional term loan of GBP40.6million and a
revolving credit facility of GBP14.4million. As at 31 December 2015 this resulted
in a loan to value of 28.1% (31 Dec 2014 - 29.2%) and a weighted average
interest rate on loan facilities as at 31 December 2015 of 2.7% (31 Dec 2014 -
3.66%);
- In the absence of unforeseen circumstances it is the intention of the
Company to increase the annual dividend in 2016 to 4.76p, an increase of 2.5%.
This equates to a yield of 5.5% based on the share price as at 31 March 2016
compared to the FTSE All-Share REIT Index of 3.3% and the FTSE All-Share Index
of 3.8% at the same date;
- Ongoing charges of 1.1% as at 31 December 2015 (2014: 1.6%) underlining the
benefits of the significant rise in the Company's NAV in the year and strong
cost control.
Property Highlights
- As at 31 December 2015, the portfolio was valued at GBP452m;
- Portfolio total return for the year of 13.1%, just ahead of the IPD
Quarterly version of Monthly Index total return of 13.0% .The standing
portfolio (assets held throughout the period) had a total return of 14.7%
against a benchmark return of 13.3%;
- Acquired GBP217m of assets in the year, including a portfolio of 22 assets
for GBP165m in December 2015 which complemented the existing portfolio, will
strengthen dividend cover and provide a number of asset management
opportunities;
- Sales totalling GBP55m in the year undertaken to realise profits as well as
remove future underperformance risk from the portfolio;
- A number of successful asset management initiatives, contributing to
income and capital values, completed during the year including:
- five new lettings completed during the year securing GBP0.8m
pa of new rent
- nine lease extensions agreed with existing tenants securing
GBP2.2m pa
- Successful lease renewals and lettings at White Bear Yard, an office
investment in London which is the Company's largest asset, to drive performance
- Multi let industrial estate in Aberdeen fully let at year end with two large
lettings for ten years to the Scottish Ministers and CCF adding to income
security.
- Void rate of 1.1% at 31 December 2015 (1.4% in 2014), significantly below
the benchmark figure of 8.4%;
- Continuing strong rent collection rates of 100% within 28 days highlighting
the continued strength of tenant covenants and the Investment Manager's credit
management process for rent collection.
Capital Values & Gearing 31 December 31 December
2015 2014 % Change
Total assets (GBPm) 467.3 278.7 67.7
Net asset value per share (p) 82.2 75.5 8.9
Ordinary Share Price (p) 84.5 78.3 7.9
Premium/(Discount) to net asset value 2.8 3.7
(%)
Loan to Value* 28.1 29.2
Total Return 1 year % return 3 year % 5 year %
return return
NAV** 15.5 78.1 84.8
Share Price** 15.5 77.3 84.3
FTSE Real Estate Investment Trusts 10.6 63.6 94.8
Index
FTSE All-Share Index 1.0 23.4 33.8
Property Returns & Statistics (%) Year ended Year ended
31 December 31 December
2015 2014
Property income return 6.1 7.5
IPD property income monthly index 4.9 5.6
Property total return 13.1 18.0
IPD property total return monthly 13.0 17.9
index
Void rate 1.1 1.4
Earnings & Dividends 31 December 31 December
2015 2014
Dividends declared per ordinary share 4.644 4.616
(p)
Dividend Yield (%)*** 5.5 5.9
FTSE Real Estate Investment Trusts 3.0 3.0
Index Yield (%)
FTSE All-Share Index Yield (%) 3.7 3.4
Ongoing Charges****
As a % of average net assets 1.5 2.3
including direct property cost
As a % of average net assets 1.1 1.6
excluding direct property cost
* Calculated as bank borrowings less all cash as a percentage of the open
market value of the property portfolio as at the end of each year.
** Assumes re-investment of dividends excluding transaction costs.
*** Based on an annual dividend of 4.644p and the share price at 31 December.
**** Calculated as investment manager fees, auditor's fees, directors' fees and
other administrative expenses divided by the average NAV for the year.
Sources: Standard Life Investments, Investment Property Databank ("IPD").
Strategic Report: Chairman's Statement
In what has been a transformational year, I have much pleasure in reporting
that the net asset value of your Company grew by 70% in its first full year as
a REIT. This growth was achieved through the issue of over GBP110million of
shares in the year to fund acquisitions combined with continued growth in the
property portfolio, which comfortably beat its benchmark over the 12 month
period. The Company has also announced an increase in its dividend for 2016.
Property Portfolio
In December 2015, the Company announced that it had acquired a portfolio of 22
assets for GBP165 million funded through a mixture of equity issuance, debt and
existing cash resources. The successful acquisition of this portfolio further
diversifies the sector, tenant and regional exposure of the Company, offers
significant asset management opportunities to create further value and will
enhance dividend cover going forward. In addition to this, the Company acquired
a further 9 properties in the year for GBP49.5million and disposed of 10
properties for a total of GBP58.7million. As a result of this activity the
portfolio is now valued at GBP452million, an increase of GBP182million in the year.
Further details on the portfolio can be found in the Investment Manager's
report.
Share Issuance
As part of the portfolio acquisition above, the Company issued shares to the
value of GBP75.7million at a premium to NAV. In addition, in the first half of
the year, the Company issued shares to the value of GBP34.8million at a minimum
premium to NAV of 5%, all of which was efficiently invested into the portfolio
to help generate positive returns and minimise cash drag. The share issuance
programme the Company has undertaken has helped the Company grow significantly
in the year, boosting the liquidity of the Company's shares and resulting in
the ongoing charges of the Company falling from 1.6% at the end of December
2014 to 1.1% at the end of 2015 with a further fall expected in 2016.
Performance
The Company has delivered both strong NAV and share price performance over the
year. The NAV total return for the year was 15.5%, driven by strong capital
growth in the property portfolio. The share price total return was 15.5% and
the Company's shares continued to trade at a premium to NAV of 2.8% as at 31
December 2015. Both the NAV and share price total return outperformed the FTSE
All-Share REIT index total return of 10.6% and the FTSE All-Share Index of
1.0%.
Debt
In order to help fund the acquisition of the portfolio mentioned above the
Company restructured its borrowings with RBS in December 2015. The Company
increased its borrowing facilities from GBP84.4million to GBP139.4million. The
additional borrowing was in the form of an additional term loan of GBP40.6million
and a revolving credit facility ("RCF") of GBP14.4million (with the potential to
draw a further GBP15.6million of the RCF) all of which is due to expire in June
2017. As at 31 December the loan to value ratio (assuming all cash is placed
with RBS as an offset to the loan balance) was 28.1%. The bank covenant level
is 65 %.
The Company is in advanced negotiations to refinance all its existing loan
facilities on favourable terms and expects to make a further announcement on
this shortly.
Dividends
The Company paid dividends totalling 4.644p relating to the 2015 financial
year. Subsequent to the acquisition of the portfolio described above, which
should boost dividend cover going forward in the absence of unforeseen
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circumstances, the Board announced their intention to increase the dividend by
2.5% in 2016 to four quarterly payments of 1.19p. Based on the share price as
at 31 March 2016 this equates to a yield of 5.5% which compares favourably to
the yield on both the FTSE All Share REIT Index of 3.3% and the FTSE All-Share
Index of 3.8% at the same date.
Board Changes
As announced in the Interim Report it is my intention to stand down from the
Board at the AGM in June 2016, to be replaced by Robert Peto. I am also pleased
to report that, subsequent to the year end, the Company has appointed Mike
Balfour as a new director. He was previously Chief Executive Officer of Thomas
Miller Investment Management and has a wealth of experience in investment
management and closed ended funds.
Base Erosion and Profit Shifting
In early October 2015, the OECD published guidance relating to base erosion and
profit shifting ("BEPS"). In light of this guidance, the recent budget
introduced changes to the rules on interest deductibility for tax purposes
which will come into force in 2017. It is too early to be definitive as to the
impact, if any, that this change will have on the Company given its REIT
status. However, the Company and its advisers will continue to closely monitor
the situation.
Outlook
The UK economy is expected to continue to grow, although at below trend levels,
despite elevated risks both at home and abroad. Occupier markets remain
relatively strong which should maintain rental growth momentum over the next
few years, although there are signs of some occupiers putting decisions on hold
pending greater certainty on the outcome of the EU referendum. However, given
the fall in yields for real estate in recent years, which is not expected to
continue, and the recent 1% stamp duty rise in the budget, it is anticipated
that commercial property returns will moderate with total returns being driven
by income.
Against this background, the Company's portfolio is well positioned to continue
to grow. The portfolio acquisition in December 2015 increased the scale and
diversity of the portfolio and will give rise to further asset management
opportunities which will be crucial in an environment where yield compression
is limited. Importantly, the new portfolio should also boost income generation
at a time when income is becoming the main driver of performance. Combined with
the upcoming refinancing of the Company's debt facilities, which should
generate significant interest savings, your Company is in a strong position for
the future.
Richard Barfield
Chairman
18 April 2016
Strategic Report: Strategic Overview
Objective
The objective of the Company is to provide shareholders with an attractive
level of income together with the prospect of income and capital growth.
Investment Policy and Business Model
The Board intends to achieve the investment objective by investing in a
diversified portfolio of UK commercial properties. The majority of the
portfolio will be invested in direct holdings within the three main commercial
property sectors of retail, office and industrial although the Company may also
invest in other commercial property such as hotels, nursing homes and student
housing. Investment in property development and investment in co-investment
vehicles, where there is more than one investor, is permitted up to a maximum
of 10% of the property portfolio.
In order to manage risk, without compromising flexibility, the Board applies
the following restrictions to the property portfolio, in normal market
conditions:
- No property will be greater by value than 15% of total assets.
- No tenant (excluding the Government) will be responsible for more than 20%
of the Company's rent roll.
- Gearing, calculated as borrowings as a percentage of gross assets, will not
exceed 65%. The Board's current intention is that the Company's loan to value
ratio (calculated as borrowings less all cash as a proportion of property
portfolio valuation) will not exceed 45%.
As part of its strategy, the Board has contractually delegated the management
of the property portfolio, and other services, to Standard Life Investments
(Corporate Funds) Limited ('Investment Manager').
Strategy
During the year, the Board reassessed its strategy, with the help of its
Investment Manager and other advisers.
The overall intention is to continue to distribute an attractive income return
alongside growth in the NAV and a good overall total return.
At property level, it is intended that the Company remains primarily invested
in the commercial sector, while keeping a watching brief on other classes such
as student accommodation and care homes. The Company is principally invested in
office, industrial and retail properties and intends to remain so. In all
sectors, poor secondary and tertiary locations are regarded as high risk and
will be avoided.
The Board's preference is to buy into good but not necessarily prime locations,
where it perceives there will be good continuing tenant demand, and to seek out
properties where the asset management skills within the Investment Manager can
be used to beneficial effect. The Board will continue to have very careful
regard to tenant profiles.
The Board continues to seek out opportunities for further growth in the Company
and achieved this during 2015 by raising an additional GBP110m of capital through
new share issues, as detailed in the Chairman's Statement.
The maintenance of a tax efficient structure was achieved by converting the
Company to a UK REIT on 1 January 2015.
The Board
The Board currently consists of a non-executive Chairman and four non-executive
Directors. There is a commitment to achieve the proper levels of diversity. At
the date of this report, the Board consisted of one female and four male
Directors. The Company does not have any employees.
Key Performance Indicators
The Board meets quarterly and at each meeting reviews performance against a
number of key measures:
- Property income and total return against the Quarterly Version of the
Investment Property Databank Balanced Monthly Funds Index ('the Index').
The Index provides a benchmark for the performance of the Company's property
portfolio and enables the Board to assess how the portfolio is performing
relative to the market. A comparison is made of the Company's property returns
against the Index over a variety of time periods (quarter, annual, three years
and five years)
- Property voids
Property voids are unlet properties. The Board reviews the level of property
voids within the Company's portfolio on a quarterly basis and compares the
level to the market average, as measured by the Investment Property Databank.
The Board seeks to ensure that proper priority is being given by the Investment
Manager to replacing the Company's income.
- Rent collection dates
The Board assesses rent collection by reviewing the percentage of rents
collected within 21 days of each quarter end.
- Net asset value total return
The net asset value total return reflects both the net asset value growth of
the Company and also the dividends paid to shareholders. The Board regards this
as the best overall measure of value delivered to shareholders. The Board
assesses the net asset value total return of the Company over various time
periods (quarter, annual, three years, five years) and compares the Company's
returns to those of its peer group of listed, closed-ended property investment
companies.
- Premium or discount of the share price to net asset value
The Board closely monitors the premium or discount of the share price to the
net asset value and believes that a key driver to the level of the premium or
discount is the Company's long term investment performance. However, there can
be short term volatility in the premium or discount and the Board takes powers
at each AGM to enable it to issue or buy back shares with a view to limiting
this volatility.
- Dividend per share and dividend yield
A key objective of the Company is to provide an attractive, sustainable level
of income to shareholders and the Board reviews, at each Board meeting, the
level of dividend per share and the dividend yield, in conjunction with
detailed financial forecasts, to ensure that this objective is being met and is
sustainable.
The Board considers the performance measures both over various time periods and
against similar funds.
A record of these measures are disclosed in the Financial Highlights,
Chairman's Statement and Investment Manager's Report.
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:
- The Company and its objectives become unattractive to investors. This is
mitigated through regular contact with shareholders, a regular review of share
price performance and the level of the discount or premium at which the shares
trade to net asset value and regular meetings with the Company's broker to
discuss these points and address any issues that arise.
- Poor selection of new properties for investment. A comprehensive and
documented initial due diligence process, which will filter out properties that
do not fit required criteria, is carried out by the Investment Manager. Where
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appropriate, this is followed by detailed review and challenge by the Board
prior to a decision being made to proceed with a purchase. This process is
designed to mitigate the risk of poor property selection.
- Tenant failure or inability to let property. Due diligence work on
potential tenants is undertaken before entering into new lease arrangements. In
addition, tenants are kept under constant review through regular contact and
various reports both from the managing agents and the Investment Manager's own
reporting process. Contingency plans are put in place at units that have
tenants that are believed to be in financial trouble. The Company subscribes to
the Investment Property Databank Iris Report which updates the credit and risk
ranking of the tenants and income stream, and compares it to the rest of the UK
real estate market.
- Breach of loan covenants. The Investment Manager monitors the loan
covenants on a regular basis and provides a monthly certificate to the bank
confirming compliance with the covenants. Compliance is also reviewed by the
Board each quarter and there is regular dialogue between the Investment Manager
and the bank on Company activity and performance.
- Loss on financial instruments. The Company has entered into a number of
interest rate swap arrangements. These swap instruments are valued and
monitored on a monthly basis by the counterparty bank. The Investment Manager
checks the valuations of the swap instruments internally to ensure they are
accurate. In addition, the credit rating of the bank that the swaps are taken
out with is assessed regularly.
Other risks faced by the Company include the following:
- Strategic - incorrect strategy, including sector and property allocation
and use of gearing, could all lead to poor return for shareholders.
- Tax efficiency - the structure of the Company or changes to legislation
could result in the Company no longer being a tax efficient investment vehicle
for shareholders.
- Regulatory - breach of regulatory rules could lead to the suspension of the
Company's Stock Exchange Listing, financial penalties or a qualified audit
report.
- Financial - inadequate controls by the Investment Manager or third party
service providers could lead to misappropriation of assets. Inappropriate
accounting policies or failure to comply with accounting standards could lead
to misreporting or breaches of regulations.
- Operational - failure of the Investment Manager's accounting systems or
disruption to the Investment Manager's business, or that of third party service
providers, could lead to an inability to provide accurate reporting and
monitoring, leading to loss of shareholder confidence.
- Economic - inflation or deflation, economic recessions and movements in
interest rates could affect property valuations and also bank borrowings.
- Geopolitical - geopolitical instability or change could have an adverse
affect on UK real estate and stock markets.
The implementation of AIFMD during 2014 and the conversion of the Company to a
UK REIT on 1 January 2015 have introduced additional regulatory risks to the
Company in the form of ensuring compliance with the respective regulations. In
relation to AIFMD, the Board receives regular reporting from the AIFM and the
depositary to ensure both are meeting their regulatory responsibilities in
respect of the Company. In relation to UK REIT status, the Board has put in
place a system of regular reporting to ensure that the requirements of the UK
REIT regime are being adequately monitored and fully complied with.
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.
Social, Community and Employee Responsibilities
The Company has no direct social, community or employee responsibilities. The
Company has no employees and accordingly no requirement to separately report in
this area as the management of the portfolio has been delegated to the
Investment Manager. In light of the nature of the Company's business there are
no relevant human rights issues and there is thus no requirement for a human
rights policy. The Board does, however, closely monitor the policies of its
suppliers to ensure that proper provision is in place.
Environmental Policy
The Investment Manager acquires and manages properties on behalf of the
Company. It is recognised that these activities have both direct and indirect
environmental impacts.
The Board has endorsed the Investment Manager's own environmental policy which
is to work in partnership with contractors, suppliers, tenants and consultants
to minimise those impacts, seeking continuous improvements in environmental
performance and conducting regular reviews.
The Investment Manager's policy focuses on energy conservation, mitigating
greenhouse gas ('GHG') emissions, maximising waste recycling and water
conservation.
As an investment company, the Company's own direct environmental impact is
minimal and GHG emissions are therefore negligible. Information on the GHG
emissions in relation to the Company's real estate portfolio is disclosed in
the Standard Life Investments annual Sustainable Real Estate Investment report,
a copy of which can be obtained on request from the Investment Manager. The
Company was awarded Green Star ranking from the Global Real Estate
Sustainability Benchmark for 2015.
Viability Statement
The Board considers viability as part of its ongoing programme of monitoring
risk. The Board considers five years to be a reasonable time horizon over which
to review the continuing viability of the Company, although it does have regard
to viability over the longer term, in particular to key points outside this
time frame, such as the due dates for the repayment of long-term debt.
The Board has considered the nature of the Company's assets and liabilities and
associated cash flows and has determined that five years is the maximum
timescale over which the performance of the Company can be forecast with a
material degree of accuracy and so is an appropriate period over which to
consider the Company's viability.
In assessing the Company's viability, the Board has carried out thorough
reviews of the following:
- Detailed NAV, cash resources and income forecasts, prepared by the
Investment Manager, for a five year period under both normal and stressed
conditions;
- The Company's ability to pay its operational expenses, bank interest and
dividends over a five year period;
- Future debt repayment dates and debt covenants, in particular those
relating to LTV and interest cover; and
- The valuation and liquidity of the Company's property portfolio, Investment
Manager's portfolio strategy for the future and the market outlook.
The Board has also carried out a robust assessment of the principal risks faced
by the Company. The Board takes any potential risks to the ongoing success of
the Company and its ability to perform, including the refinancing of its
current debt facility, very seriously and works hard to ensure that risks are
kept to a minimum at all times.
Based on the results of the analysis outlined above, the Board has a reasonable
expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the five year period of its assessment.
Approval of Strategic Report
The Strategic Report comprises the Financial Highlights, Chairman's Statement,
Strategic Overview and Investment Manager's Report. The Strategic Report was
approved by the Board on 18 April 2016 and signed on its behalf by:
Richard Barfield
Chairman
18 April 2016
Strategic Report: Investment Manager's Report
UK Real Estate Market
Despite recent market volatility the UK economic fundamentals remain intact,
providing a solid base for real estate occupier demand. A key risk to the
outlook remains weak global growth particularly among emerging markets and an
appreciating currency could weigh on the UK recovery further out. The
uncertainty surrounding a vote on Brexit also has scope to disrupt both the
economy and investment markets. Returns for the real estate asset class
continue to moderate but remain compelling relative to other asset classes.
Over the twelve months to 31 December 2015, all Property recorded a total
return of 13.0% p.a. according to the quarterly version of the IPD Monthly
Index whilst rental growth continued to improve at 4.2% p.a. in the twelve
months period.
UK listed real estate equities total returns were 10.6% over the year to 31
December 2015, outperforming the FTSE100 which fell by 1.3% in total return
terms and the FTSE All Share which rose by 1.0%.
In the year to end December, the office sector continued to generate the
highest returns. The sector recorded a total return of 17.2% whilst the
industrial sector recorded the next strongest returns at 16.6%. Retail remains
the laggard sector with a total return of 8.1% in the year. As in 2014 capital
growth was fuelled by falling yields, driven mainly by the weight of money, and
the relatively attractive yield on real estate. Over the last three months of
2015 (and continuing into 2016) the rate of capital growth slowed and yield
compression appears to have stopped.
Investment Outlook
Total returns for UK real estate look to have peaked for this cycle and income
is likely to be the main component of returns going forward as opposed to
capital growth which has been a key element of returns over the past few years.
During the last three months of 2015 yield compression slowed as investors
expectations of interest rate rises grew. That sentiment moderated in the first
two months of 2016, to be replaced by a concern over global growth, and the
impact that will have on occupier demand. Despite heightened global
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April 19, 2016 02:00 ET (06:00 GMT)
uncertainty, projections for UK economic growth are likely to remain in
positive territory and provide a reasonable backdrop for the domestic real
estate outlook. Relative to longer term government bonds, the yield gap remains
significant by historic standards, and that should lead to continued investor
demand for real estate as investors search for attractive, stable and
predictable sources of income. Indeed, the sector remains attractive from a
fundamental point of view, with reasonable economic drivers and a limited
pipeline of future new developments expected to maintain rental growth. We
anticipate reasonable positive total returns for investors on a three year hold
period due to the elevated yield and income growth prospects.
The great unknown at the time of writing is what the outcome, and impact, of
the referendum on EU membership will be. At the very least one can expect a
slowdown in occupier demand in the lead up to it, especially in central London.
In the short term at least the rest of the UK is likely to be insulated to some
degree. If the vote is to remain in the EU then this slowdown in demand is
likely to be temporary. If the vote is to leave, then the impact is not
possible to predict currently due to the range of possible outcomes, but will
be negative on pricing for the short to medium term at least.
Investment Management Strategy
The investment strategy remains focused on achieving the Company's objective of
producing an attractive income return with the prospect of income and capital
growth. During the year the Company's NAV per share grew by 8.9%. At the year
end share price of 84.5p the dividend yield was 5.5%. The Company's Board
continues to target a covered dividend.
2015 was another year of growth for the Company. An important part of the
growth strategy was to protect and enhance existing shareholders interests.
This was done by issuing shares at a reasonable premium to the then NAV
(normally 5%), and minimising cash drag by only raising funds when we were
confident the money could be deployed in a reasonable time period on attractive
investments.
At the end of the reporting period the Company undertook a large transaction
whereby it bought a fund of 22 assets ('the new portfolio') for GBP165m using a
combination of new equity, debt, and existing cash. No stamp duty was payable
on the purchase and the new equity was raised at a premium of 2.8%.
Even during times of growth it is important to manage existing assets, and we
remained focussed on regearing leases and disposing of assets that have
specific risk to the fund; more details of which can be found below.
Performance
The Company's aim is to provide investors with an attractive income return,
with potential for growth in income and capital.
The income yield on the portfolio has to be sufficient to maintain the covered
dividend. The income yield from the Company's portfolio has been consistently
higher than the more general market as recorded by the IPD monthly index.
Although income is a key focus for us, the NAV total return to investors is
also important, as is raising new equity at a reasonable premium to the then
NAV so that purchase costs do not negatively impact existing shareholders. It
is also important, when raising equity in a rising market to try and avoid cash
drag by not raising too much at one time and being unable to invest it. The
cash drag impacts both capital returns and also the ability to maintain a
covered dividend.
Portfolio Valuation
The Company's investment portfolio was valued by Jones Lang La Salle on a
quarterly basis throughout 2015. For the December valuation (and ongoing
valuations) the new portfolio was valued by Knight Frank. At the year end the
total portfolio was valued at GBP452.0m, and the Company held GBP12.4m of cash.
This compares to GBP270.1m (this is the open market value adjusted for
anticipated sales costs on properties held for sale) and GBP5.4m respectively as
at end 2014.
Lease Expiry Profile
The Company has an average unexpired lease term to the earliest of lease end or
tenant break of 5.8 years. This compares to the IPD average of 7.5 years
(excluding leases over 35 years). The portfolio before the purchase of the new
portfolio had an unexpired lease term of 7.2 years, and one of the attractions
of buying the new portfolio was the opportunity for asset management.
Approximately 10% of the Company's income is subject to a lease expiry or break
in 2016, and 9% in 2017.
Purchases
The philosophy of the Company is to acquire assets that offer an attractive
income return and have good medium/long term prospects. We like to be able to
add value through asset management, and seek to buy in lot sizes where there is
less competition. We focus on good quality assets, in good locations, let to
good tenants. We are less concerned about lease length, as past experience has
shown tenant retention is high where the assets are of good quality and meet
occupier needs.
During the first nine months of the year the Company acquired 9 assets for a
total of GBP49.5m excluding costs.
In the final quarter the Company completed the purchase of the new portfolio -
22 assets for GBP165m excluding costs. The portfolio was a very good fit for the
Company as it had a similar structure with over exposure to office and
industrial, and an underweight position to retail. The geographical split was
also beneficial with nothing in central London but 28% in Greater London and a
further 27% in the South East. The new portfolio has plenty of opportunity for
asset management, with a number of shorter leases, and with an initial yield of
5.9% there is scope to increase rents in the short term.
Sales
The Company undertook several sales to reduce specific expiry risk, exiting
some smaller assets that we felt would not perform in line with expectations,
and taking profit from others. We completed on the sale of 10 assets for a
total of GBP58.7m
Asset Management
Asset management is central to how we run the portfolio. We like to meet with
our tenants and make sure that the property we own meets occupiers needs.
During the course of 2015 we completed 6 new lettings and 8 lease regears. As a
result we ended the year with voids of just 1.1%, well below the IPD benchmark
level of 8.4%.
It is noticeable that in many parts of the UK the supply of good quality
accommodation is limited, with increasing tenant demand. This is leading to
rental growth from competition between tenants. In this environment it is
important to understand tenant needs to maintain income security, and to add
value through lease regears and taking surrenders to refurbish space and
upgrade it.
Jason Baggaley
Fund Manager
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group
financial statements for each year which give a true and fair view, in
accordance with the applicable Guernsey law and those International Financial
Reporting Standards ("IFRSs") as adopted by the European Union.
The Directors are required to prepare Group financial statements for each
financial year which give a true and fair view of the state of affairs of the
Group and of the financial performance and cash flows of the Group for that
period. In preparing those Financial Statements, the Directors are required to:
- select suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
- make judgement and estimates that are reasonable and prudent;
- present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
- provide additional disclosures when compliance with the specific
requirements in IFRSs as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the Group's financial position and financial performance;
- state that the Group has complied with IFRSs as adopted by the European
Union, subject to any material departures disclosed and explained in the Group
financial statements; and
- prepare the Group Financial Statements on a going concern basis unless it
is inappropriate to presume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in
preparing the Financial Statements.
The Directors are responsible for keeping adequate accounting records, that are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy at any time, the financial position of the Group and to
enable them to ensure that the Financial Statements comply with The Companies
(Guernsey) Law, 2008. They are also responsible for safeguarding the assets of
the Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non compliance with law and regulations.
The maintenance and integrity of the Company's website is the responsibility of
the Directors; the work carried out by the auditors does not involve
considerations of these matters and, accordingly, the auditors accept no
responsibility for any change that may have occurred to the Financial
Statements since they were initially presented on the website. Legislation in
Guernsey governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors' in respect of the Consolidated
Annual Report
Statement under the Disclosure and Transparency Rules
The Directors each confirm to the best of their knowledge that:
- the Consolidated Financial Statements, prepared in accordance with IFRSs as
adopted by European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
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- the management report, which is incorporated into the Strategic Report,
Directors' Report and Investment Manager's 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 that they
face.
Statement under the UK Corporate Governance Code
The Directors each confirm to the best of their knowledge and belief that:
- the Annual Report and Consolidated Financial Statements taken as a whole
are fair, balanced and understandable and provide the information necessary to
assess the Group's performance, business model and strategy.
Approved by the Board on 18 April 2016
Richard Barfield
Chairman
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
AUDITED FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
Notes 2015 2014
GBP GBP
Rental income 20,142,180 16,145,930
Surrender premium income 120,000 38,469
Valuation gain from investment 7 17,636,973 21,197,869
properties
Costs on business acquisition 10 (1,942,498) -
(Loss) / gain on asset acquisition 9 (75,181) 136,938
(Profit) / (loss) on disposal of 3,024,748 (1,840,412)
investment properties
Investment management fees 4 (2,105,104) (1,690,233)
Other direct property operating expenses (929,165) (1,000,785)
Directors' fees and expenses 23 (124,296) (145,997)
Valuer's fee 4 (92,324) (56,542)
Auditor's fee 4 (82,308) (46,513)
Other administration expenses (376,776) (358,161)
Operating profit 35,196,249
32,380,563
Finance income 5 68,186 72,326
Finance costs 5 (3,324,782) (3,282,172)
Profit for the year before taxation 31,939,653 29,170,717
Taxation
Tax charge 6 - (587,315)
Profit for the year, net of tax 31,939,653 28,583,402
15 589,647 (2,643,942)
Other comprehensive income
Valuation gain/(loss) on cash flow
hedges
Total comprehensive income for the year, 32,529,300 25,939,460
net of tax
Earnings per share: pence pence
Basic and diluted earnings per share 19 11.39 15.40
Adjusted (EPRA) earnings per share 19 4.05 4.90
All items in the above Consolidated Statement of Comprehensive Income derive
from continuing operations.
Consolidated Balance Sheet
as at 31 December 2015
Notes 2015 2014
GBP GBP
ASSETS
Non-current assets
Investment properties 7 448,616,754 261,672,121
Lease incentives 7 3,457,588 2,436,976
452,074,342 264,109,097
Current assets 8 - 6,550,100
Investment properties held for sale
Trade and other receivables 11 2,858,851 2,660,440
Cash and cash equivalents 12 12,395,516 5,399,095
15,254,367 14,609,635
Total assets 467,328,709 278,718,732
LIABILITIES
Current liabilities
Trade and other payables 13 12,788,999 7,205,415
Interest rate swaps 15 908,751 1,386,451
Other liabilities - 500
13,697,750 8,592,366
Non-current liabilities
Bank borrowings 14 139,048,848 83,980,382
Interest rate swaps 15 1,176,541 1,288,488
Other liabilities - 6,094
Rental deposits due to tenants 622,283 483,880
140,847,672 85,758,844
Total liabilities 154,545,422 94,351,210
Net assets 312,783,287 184,367,522
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital 17 204,820,219 96,188,648
Retained earnings 18 6,167,329 7,634,503
Capital reserves 18 3,957,367 (17,294,001)
Other distributable reserves 18 97,838,372 97,838,372
Total equity 312,783,287 184,367,522
Net Asset Value (NAV) per share
NAV 21 82.2p 75.5p
EPRA NAV 21 82.7p 76.6p
Approved by the Board of Directors on 18 April 2016 and signed on its behalf
by:
Richard Barfield
Director
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total equity
GBP GBP GBP GBP GBP
Opening balance 1 96,188,648 7,634,503 (17,294,001) 97,838,372 184,367,522
January 2015
Profit for the year - 31,939,653 - - 31,939,653
Valuation gain on
cash
flow hedges 15 - - 589,647 - 589,647
Total comprehensive - 31,939,653 589,647 - 32,529,300
gain for the year
Ordinary shares
issued
net of issue costs 17 108,631,571 - - - 108,631,571
Dividends Paid 20 - (12,745,106) - - (12,745,106)
Valuation gain of
investment 7 - (17,636,973) 17,636,973 - -
properties
Profit on disposal - (3,024,748) 3,024,748 - -
of investment
properties
Balance at 31 204,820,219 6,167,329 3,957,367 97,838,372 312,783,287
December 2015
Consolidated Statement of Changes in Equity
for the year ended 31 December 2014
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total
equity
GBP GBP GBP GBP GBP
Opening balance 1 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795
January 2014
Profit for the year - 28,583,402 - - 28,583,402
Valuation loss on
cash
flow hedges 15 - - (2,643,942) - (2,643,942)
Total comprehensive - 28,583,402 (2,643,942) - 25,939,460
gain for the year
Ordinary shares
issued
net of issue costs 17 64,851,624 - - - 64,851,624
Dividends Paid 20 - (8,015,357) - - (8,015,357)
Valuation gain of
investment 7 - (21,197,869) 21,197,869 - -
properties
Gain on asset - (136,938) 136,938 - -
acquisition
Loss on disposal of - 1,840,412 (1,840,412) - -
investment
properties
Balance at 31 96,188,648 7,634,503 (17,294,001) 97,838,372 184,367,522
December 2014
Consolidated Cash Flow Statement
for the year ended 31 December 2015
Notes 2015 2014
GBP GBP
Cash flows from operating activities
Profit for the year before taxation 31,939,653 29,170,717
Movement in non-current lease incentives 270,464 (1,290,976)
Movement in trade and other receivables 1,230,084 (1,354,916)
Movement in trade and other payables 3,735,996 2,917,533
Finance costs 5 3,324,782 3,282,172
Finance income 5 (68,186) (72,326)
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Valuation gain from investment properties 7 (17,636,973) (21,197,869)
Loss / (gain) on asset acquisition 9 75,181 (136,938)
(Profit) / loss on disposal of investment (3,024,748) 1,840,412
properties
Net cash inflow from operating activities 19,846,253 13,157,809
Cash flows from investing activities
Interest received 5 68,186 72,326
Purchase of investment properties 7 (52,198,123) (97,853,799)
Business acquisition net of cash acquired 10 (165,060,458) -
Capital expenditure on investment properties 7 (1,144,434) (2,708,022)
Net proceeds from disposal of investment 7 57,854,848 26,759,588
properties
Net cash outflow from investing activities (160,479,981) (73,729,907)
Cash flows from financing activities
Proceeds on issue of ordinary shares 17 110,462,680 65,868,956
Transaction costs of issue of shares 17 (1,831,109) (1,017,332)
Bank borrowing 14 55,000,000 -
Bank borrowing arrangement costs 14 (173,450) -
Interest paid on bank borrowings 5 (1,869,338) (1,931,665)
Payment on interest rate swaps 5 (1,213,528) (1,236,719)
Dividends paid to the Company's shareholders 20 (12,745,106) (8,015,357)
Net cash inflow from financing activities 147,630,149 53,667,883
Net increase/(decrease) in cash and cash 6,996,421 (6,904,215)
equivalents in the year
Cash and cash equivalents at beginning of the 5,399,095 12,303,310
year
Cash and cash equivalents at end of year 12 12,395,516 5,399,095
Standard Life Investments Property Income Trust Limited
Notes to the Consolidated Financial Statements
for the year ended 31 December 2015
1 GENERAL INFORMATION
Standard Life Investments Property Income Trust Limited ("the Company") and its
subsidiaries (together the "Group") carries on the business of property
investment through a portfolio of freehold and leasehold investment properties
located in the United Kingdom. The Company is a limited liability company
incorporated in Guernsey, Channel Islands. The Company has its listing on the
London Stock Exchange.
The address of the registered office is Trafalgar Court, Les Banques, St Peter
Port, Guernsey.
These audited Consolidated Financial Statements were approved for issue by the
Board of Directors on 18 April 2016.
2 ACCOUNTING POLICIES
2.1 Basis of preparation
The audited Consolidated Financial Statements of the Group have been prepared
in accordance with and comply with International Financial Reporting Standards
as adopted by the European Union ("IFRS"), and all applicable requirements of
The Companies (Guernsey) Law, 2008. The audited Consolidated Financial
Statements of the Group have been prepared under the historical cost convention
as modified by the measurement of investment property and derivative financial
instruments at fair value. The consolidated financial statements are presented
in pounds sterling and all values are not rounded except when otherwise
indicated.
Changes in accounting policy and disclosure
The accounting policies adopted are consistent with those of the previous
financial year. The following amendments to existing standards and
interpretations were effective for the year, but either they were not
applicable to or did not have a material impact on the group:
- Annual Improvements to IFRSs 2011-2013 Cycle
- IFRIC 21 Levies
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in issue are
adopted by the EU but are not yet effective and have not been applied by the
Group:
Effective date
IAS 19 Employee Benefits - Defined Benefit Plans: 1 February 2015
Employee Contributions (Amendments)
Annual Improvements to IFRSs 2010-2012 Cycle 1 February 2015
Amendments to IFRS 11: Accounting for Acquisitions 1 January
of Interests in Joint Operations 2016
Amendments to IAS 16 and IAS 41: Agriculture: Bearer 1 January 2016
Plants
Amendments to IAS 16 and IAS 38: Clarification of 1 January 2016
Acceptable Methods of Depreciation and Amortisation
Amendments to IAS 27: Equity Method in Separate 1 January 2016
Financial Statements
Amendments to IAS 1: Disclosure Initiative 1 January 2016
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016
The directors do not expect the adoption of these standards and interpretations
to have a material impact on the consolidated or company financial statements
in the period of initial application.
2.2 Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial statements requires management to make
judgements, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the disclosure of contingent
liabilities, at the reporting date. However, uncertainty about these
assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability affected
in the future periods. The most significant estimates and judgements are set
out below.
Fair value of investment properties
Investment properties are stated at fair value as at the Balance Sheet date.
Gains or losses arising from changes in fair values are included in the
Consolidated Statement of Comprehensive Income in the year in which they arise.
The fair value of investment properties is determined by independent real
estate valuation experts using recognised valuation techniques. The fair values
are determined based on recent real estate transactions with similar
characteristics and locations to those of the Group's assets.
The determination of the fair value of investment properties requires the use
of valuation models which use a number of judgements and assumptions. The only
model used was the income capitalisation method. Under the income
capitalisation method, a property's fair value is judged based on the
normalised net operating income generated by the property, which is divided by
the capitalisation rate (discounted by the investor's rate of return). Under
the income capitalisation method, over (above market rent) and under-rent
situations are separately capitalised (discounted).
The sensitivity analysis in note 7 details the decrease in the valuation of
investment properties if equivalent yield increases by 25 basis points or
rental rates (ERV) decreases by 5%.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in
the Consolidated Balance Sheet cannot be derived from active markets, they are
determined using a variety of valuation techniques that include the use of
mathematical models. The input to these models are taken from observable
markets where possible, but where this is not feasible, a degree of judgement
is required in establishing fair value. The judgements include considerations
of liquidity and model inputs such as credit risk (both own and
counterparty's), correlation and volatility. Changes in assumptions about these
factors could affect the reported fair value of financial instruments. The
models are calibrated regularly and tested for validity using prices from any
observable current market transactions in the same instrument (without
modification or repackaging) or based on any available observable market data.
The valuation of interest rate swaps used in the Balance Sheet is provided by
The Royal Bank of Scotland. These values are validated by comparison to
internally generated valuations prepared using the fair value principles
outlined above.
The sensitivity analysis in note 3 details the increase and decrease in the
valuation of interest rate swaps if market rate interest rates had been 100
basis points higher and 100 basis points lower.
Business Combinations
During the year the Group acquired subsidiaries that own real estate. At the
time of acquisition, the Group considers whether each acquisition represents
the acquisition of a business or the acquisition of an asset. The Group
accounts for an acquisition as a business combination where an integrated set
of activities is acquired in addition to the property. More specifically,
consideration is made of the extent to which significant processes are acquired
and, in particular, the extent of services provided by the subsidiaries. The
Group assessed the acquisition of Aviva Investors UK Real Estate Recovery II
Unit Trust (the "Unit Trust" or "UT"), a Jersey Property Unit Trust "JPUT", as
detailed in note 10, in the current year as a purchase of a business because
the strategic management function and associated processes were purchased along
with the investment properties.
When the acquisition of subsidiaries does not represent a business, it is
accounted for as an acquisition of a group of assets and liabilities. The cost
of the acquisition is allocated to the assets and liabilities acquired based
upon their relative fair values, and no goodwill or deferred tax is recognised.
2.3 Summary of significant accounting policies
A Basis of consolidation
The audited consolidated financial statements comprise the financial statements
of Standard Life Investments Property Income Trust Limited and its material
wholly owned subsidiary undertakings.
Control is achieved when the Group is exposed, or has rights, to variable
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returns from its involvement with subsidiaries and has the ability to affect
those returns through its power over the subsidiary. Specifically, the Group
controls a subsidiary if, and only if, it has:
- Power over the subsidiary (i.e., existing rights that give it the current
ability to direct the relevant activities of the subsidiary)
- Exposure, or rights, to variable returns from its involvement with the
subsidiary
- The ability to use its power over the subsidiary to affect its returns
The Group assesses whether or not it controls a subsidiary if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of
the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated statement of other
comprehensive income from the date the Group gains control until the date when
the Group ceases to control the subsidiary.
The financial statements of the subsidiaries are prepared for the same
reporting period as the parent company, using consistent accounting policies.
All intra-group balances, transactions and unrealised gains and losses
resulting from intra-group transactions are eliminated in full.
B 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 consolidated financial
statements are presented in pounds sterling, which is also the Company's
functional currency.
C Revenue recognition
Revenue is recognised as follows;
i) Bank interest
Bank interest income is recognised on an accruals basis.
ii) Rental income
Rental income from operating leases is net of sales taxes and value added tax
("VAT") recognised on a straight line basis over the lease term including lease
agreements with stepped rent increases. The initial direct costs incurred in
negotiating and arranging an operating lease are recognised as an expense over
the lease term on the same basis as the lease income. The cost of any lease
incentives provided are recognised over the lease term, on a straight line
basis as a reduction of rental income. The resulting asset is reflected as a
receivable in the Consolidated Balance Sheet. The valuation of investment
properties is reduced by the total of the unamortised lease incentive balances.
Any remaining lease incentive balances in respect of properties disposed of are
included in the calculation of the profit or loss arising at disposal.
Contingent rents, being those payments that are not fixed at the inception of
the lease, for example increases arising on rent reviews, are recorded as
income in periods when they are earned. Rent reviews which remain outstanding
at the year end are recognised as income, based on estimates, when it is
reasonable to assume that they will be received.
The surrender premiums received for the year ended 2015 were GBP120,000 (2014: GBP
38,469) as detailed in the Statement of Comprehensive Income and related to a
tenant break during the year.
iii) Property disposals
Where revenue is obtained by the sale of properties, it is recognised when the
significant risks and returns have been transferred to the buyer. This will
normally take place on exchange of contracts unless there are significant
conditions attached. For conditional exchanges, sales are recognised when these
conditions are satisfied.
D Expenditure
All expenses are accounted for on an accruals basis. The investment management
and administration fees, finance and all other revenue expenses are charged
through the Consolidated Statement of Comprehensive Income as and when
incurred. The Group also incurs capital expenditure which can result in
movements in the capital value of the investment properties. The movements in
capital expenditure are reflected in the Statement of Comprehensive Income as a
valuation gain/(loss). Portrack Interchange in Stockton On Tees did not earn
any income until it was sold on 2 September 2015 (2014: no non-income producing
properties).
E Taxation
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively
enacted by the reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the income statement.
Positions taken in tax returns with respect to situations in which applicable
tax regulations are subject to interpretation are reviewed periodically and
provisions are established where appropriate.
The Group recognises liabilities for current taxes based on estimates of
whether additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such
differences will impact the income and deferred tax provisions in the period in
which the determination is made.
Deferred tax assets and liabilities are recognised on a net basis to the extent
they relate to the same fiscal unity and fall due in approximately the same
period.
F Investment property
Investment properties comprise completed property and property under
construction or re-development that is held to earn rentals or for capital
appreciation or both. Property held under a lease is classified as investment
property when the definition of an investment property is met.
Investment properties are measured initially at cost including transaction
costs. Transaction costs include transfer taxes, professional fees for legal
services and initial leasing commissions to bring the property to the condition
necessary for it to be capable of operating. The carrying amount also includes
the cost of replacing part of an existing investment property at the time that
cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment properties are stated at fair
value. Fair value is based upon the market valuation of the properties as
provided by the independent valuers as described in note 2.2. Gains or losses
arising from changes in the fair values are included in the Consolidated
Statement of Comprehensive Income in the year in which they arise. For the
purposes of these financial statements, in order to avoid double counting, the
assessed fair value is:
i) Reduced by the carrying amount of any accrued income resulting from the
spreading of lease incentives and/or minimum lease payments.
ii) Increased by the carrying amount of any liability to the superior
leaseholder or freeholder that has been recognised in the Balance Sheet as a
finance lease obligation.
Acquisitions of investment properties are considered to have taken place on
exchange of contracts unless there are significant conditions attached. For
conditional exchanges acquisitions are recognised when these conditions are
satisfied.
Investment properties are derecognised when they have been disposed of or
permanently withdrawn from use and no future economic benefit is expected from
the disposal. Any gains or losses on the retirement or disposal of investment
properties are recognised in the Consolidated Statement of Comprehensive Income
in the year of retirement or disposal.
Gains or losses on the disposal of investment properties are determined as the
difference between net disposal proceeds and the carrying value of the asset in
the previous full period financial statements.
G Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amount will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale is
highly probable and the asset (or disposal group) is available for immediate
sale in its present condition. Management must be committed to the sale which
should be expected to qualify for recognition as a completed sale within one
year from the date of classification.
When the Group is committed to a sale plan involving loss of control of a
subsidiary, all of the assets and liabilities of that subsidiary are classified
as held for sale when the criteria described above are met, regardless of
whether the Group will retain a non-controlling interest in its former
subsidiary after the sale.
H Trade and other receivables
Trade receivables are recognised and carried at the lower of their original
invoiced value and recoverable amount. Where the time value of money is
material, receivables are carried at amortised cost. A provision for impairment
of trade receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganisation,
and default or delinquency in payments (more than 30 days overdue) are
considered indicators that the trade receivable is impaired. The amount of the
provision is the difference between the asset's carrying amount and the present
value of estimated future cash flows, discounted at the original effective
interest rate. The carrying amount of the asset is reduced through use of an
allowance account, and the amount of the loss is recognised in the Consolidated
Statement of Comprehensive Income. When a trade receivable is uncollectible, it
is written off against the allowance account for trade receivables. Subsequent
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recoveries of amounts previously written off are credited in the Consolidated
Statement of Comprehensive Income.
I Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and
other short-term highly liquid investments readily convertible within three
months or less to known amounts of cash and subject to insignificant risk of
changes in value.
J Borrowings and interest expense
All loans and borrowings are initially recognised at the 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. Borrowing costs are recognised within
finance costs in the Consolidated Statement of Comprehensive Income as
incurred.
K Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value 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 hedging 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 in other
comprehensive income in the Consolidated Statement of Comprehensive Income. The
gains or losses relating to the ineffective portion are recognised in operating
profit in the Consolidated Statement of Comprehensive Income.
Amounts taken to equity are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when the hedged financial income or
financial expense is recognised.
When a derivative is held as an economic hedge for a period beyond 12 months
after the end of the reporting period, the derivative is classified as
non-current consistent with the classification of the underlying item. A
derivative instrument that is a designated and effective hedged instrument is
classified consistent with the classification of the underlying hedged item.
L Service charge
The Company has appointed a managing agent to deal with the service charge at
the investment properties and the Company is acting as an agent for the service
charge and not a principal. As a result the Group recognises void expenses in
the Consolidated Statement of Comprehensive Income. The table in note 22 is a
summary of the service charge during the year. It shows the amount the service
charge has cost the tenants for the 12 months to 31 December 2015, the amount
the tenants have been billed based on the service charge budget and the amount
the Group has paid in relation to void units over the year. The table also
shows the balancing service charge that is due back to the tenants as at the
Balance Sheet date.
M Other financial liabilities
Trade and other payables are recognised and carried at invoiced value as they
are considered to have payment terms of 30 days or less and are not interest
bearing. The balance of trade and other payables are considered to meet the
definition of an accrual and have been expensed through the income statement or
Balance Sheet depending on classification. VAT payable at the Balance Sheet
date will be settled within 31 days of the Balance Sheet date with Her
Majesty's Revenue and Customs ("HMRC") and deferred rental income is rent that
has been billed to tenants but relates to the period after the Balance Sheet
date. Rent deposits recognised in note 13 are those that are due within one
year as a result of upcoming tenant expiries.
3 FINANCIAL RISK MANAGEMENT
The Group's principal financial liabilities, other than derivatives, are loans
and borrowings. The main purpose of the Group's loans and borrowings is to
finance the acquisition and development of the Group's property portfolio. The
Group has rent and other receivables, trade and other payables and cash and
short-term deposits that arise directly from its operations.
The Group is exposed to market risk (including interest rate risk and real
estate risk), credit risk, capital risk and liquidity risk. The Group is not
exposed to currency risk or price risk. The Group is engaged in a single
segment of business, being property investment in one geographical area, the
United Kingdom. Therefore the Group only engages in one form of currency being
pounds sterling. The Group currently invests in direct non-listed property and
is therefore not exposed to price risk.
The Board of Directors reviews and agrees policies for managing each of these
risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial instruments will
fluctuate because of changes in market prices. The financial instruments held
by the Group that are affected by market risk are principally the derivative
financial instruments.
i) Interest Rate risk
The Group invests cash balances with RBS and Citibank. These balances expose
the Group to cash flow interest rate risk as the Group's income and operating
cash flows will be affected by movements in the market rate of interest. There
is considered to be no fair value interest rate risk in regard to these
balances.
The bank borrowings as described in note 14 also expose the Group to cash flow
interest rate risk. The Group's policy is to manage its cash flow interest rate
risk using interest rate swaps, in which the Group has agreed to exchange the
difference between fixed and floating interest amounts based on a notional
principal amount (see note 15). The Group has floating rate borrowings of GBP
72,000,000 and GBP12,432,692, all of which has been fixed via interest rate
swaps. The Group increased borrowings by GBP55,000,000 on 22 December 2015 to
fund the purchase of the units in Aviva Investors UK Real Estate Recovery II
Unit Trust. As a result of this the margin interest rate on borrowings
decreased from 1.65% to 1.25% from 22 December 2015. The terms of the interest
rate swap were unchanged from the existing agreement and resulted in an
ineffective hedge from 22 December 2015.
The bank borrowings are carried at amortised cost and the Group considers this
to be a close approximation to fair value. The fair value of the bank
borrowings is affected by changes in the market interest rate. The fair value
of the interest rate swaps is exposed to changes in the market interest rate as
their fair value is calculated as the present value of the estimated future
cash flows under the agreements. The accounting policy for recognising the fair
value movements in the interest rate swaps is described in note 2.3.
Trade and other receivables and trade and other payables are interest free and
have settlement dates within one year and therefore are not considered to
present a fair value interest rate risk.
The following tables set out the carrying amount of the Group's financial
instruments excluding the amortisation of borrowing costs as outlined in note
5. Bank borrowings have been fixed due to interest rate swaps and are detailed
further in note 15:
As at 31 December 2015:
Weighted
Fixed Rate Variable average
GBP rate interest rate
GBP GBP
Cash and cash equivalents - 12,395,516 0.402%
Bank borrowings 72,000,000 - 3.302%
Bank borrowings 12,432,692 - 3.021%
Bank borrowings - 55,000,000 1.753%
As at 31 December 2014:
Weighted
Fixed Rate Variable average
GBP rate interest rate
GBP GBP
Cash and cash equivalents - 5,399,095 0.645%
Bank borrowings 72,000,000 - 3.802%
Bank borrowings 12,432,692 - 3.521%
At 31 December 2015, if market rate interest rates had been 100 basis points
higher with all other variables held constant, the profit for the year would
have been GBP183,654 higher (2014: GBP182,269 higher profit) as a result of the
higher interest income on cash and cash equivalents. Other Comprehensive Income
and the Capital Reserve would have been GBP2,266,614 higher (2014: GBP2,313,008
higher) as a result of an increase in the fair value of the derivative
designated as a cash flow hedge of floating rate borrowings.
At 31 December 2015, if market rate interest rates had been 100 basis points
lower with all other variables held constant, the profit for the year would
have been GBP183,654 lower (2014: GBP127,268 lower profit) as a result of the lower
interest income on cash and cash equivalents. Other Comprehensive Income and
the Capital Reserve would have been GBP2,350,900 lower (2014: GBP3,254,898 lower)
as a result of a decrease in the fair value of the derivative designated as a
cash flow hedge of floating rate borrowings.
ii) Real estate risk
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The Group has identified the following risks associated with the real estate
portfolio:
a) The cost of the development schemes may increase if there are delays in the
planning process. The Group uses advisers who are experts in the specific
planning requirements in the scheme's location in order to reduce the risks
that may arise in the planning process.
b) A major tenant may become insolvent causing a significant loss of rental
income and a reduction in the value of the associated property (see also credit
risk below). To reduce this risk, the Group reviews the financial status of all
prospective tenants and decides on the appropriate level of security required
via rental deposits or guarantees.
c) The exposure of the fair values of the portfolio to market and occupier
fundamentals. The Group aims to manage such risks by taking an active approach
to asset management (working with tenants to extend leases and minimise voids),
capturing profit (selling when the property has delivered a return to the Group
that the Group believes has been maximised and the proceeds can be reinvested
into more attractive opportunities) and identifying new investments (generally
at yields that are accretive to the revenue account and where the Group
believes there will be greater investment demand in the medium term).
Credit risk
Credit risk is the risk that a counterparty 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 income shortfall and incur
additional related costs. The Investment Manager regularly reviews reports
produced by Dun and Bradstreet and other sources, including the IPD IRIS
report, to be able to assess the credit worthiness of the Group's tenants and
aims to ensure that there are no excessive concentrations of credit risk and
that the impact of default by a tenant is minimised. In addition to this, the
terms of the Group's bank borrowings require that the largest tenant accounts
for less than 20% of the Group's total rental income, that the five largest
tenants account for less than 50% of the Group's total rental income and that
the ten largest tenants account for less than 75% of the Group's total rental
income. The maximum credit risk from the tenant arrears of the Group at the
financial year end was GBP1,696,704 (2014: GBP1,738,063) as detailed in note 11.
With respect to credit risk arising from other financial assets of the Group,
which comprise cash and cash equivalents, the Group's exposure to credit risk
arises from default of the counterparty bank with a maximum exposure equal to
the carrying value of these instruments. As at 31 December 2015 GBP7,821,163
(2014:GBP4,634,184) was placed on deposit with The Royal Bank of Scotland plc
("RBS"), GBP1,193,437 (2014: GBP764,911) was held with Citibank and GBP3,380,916 was
held with RBS on behalf of Standard Life Investments Unit Trust and Standard
Life Investment Limited Partnership, two subsidiaries as mentioned in note 9.
The credit risk associated with the cash deposits placed with RBS is mitigated
by virtue of the Group having a right to off-set the balance deposited against
the amount borrowed from RBS should RBS be unable to return the deposits for
any reason. Citibank is rated A-2 Stable by Standard & Poor's and P-2 Stable
by Moody's. RBS is rated A-3 Positive by Standard & Poor's and NP Positive by
Moody's.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments. The
investment properties in which the Group invests are not traded in an organised
public market and may be illiquid. As a result, the Group may not be able to
liquidate its investments in these properties quickly at an amount close to
their fair value in order to meet its liquidity requirements. The following
table summarises the maturity profile of the Group's financial liabilities
based on contractual undiscounted payments.
Year ended 31 December 2015
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing - 2,565,213 140,715,298 - 143,280,511
loans
Interest rate - 1,201,368 2,398,705 - 3,600,073
swaps
Trade and other 5,309,803 - - - 5,309,803
payables
Rental deposits - 173,072 611,458 10,825 795,355
due
to tenants
5,309,803 3,939,653 143,725,461 10,825 152,985,742
Year ended 31 December 2014
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing - 1,868,495 90,038,178 - 91,906,673
loans
Interest rate - 1,223,953 3,665,814 - 4,889,767
swaps
Leasehold - 500 2,000 52,500 55,000
obligations
Trade and other 2,066,393 - - - 2,066,393
payables
Rental deposits - 155,728 386,380 97,500 639,608
due
to tenants
2,066,393 3,248,676 94,092,372 150,000 99,557,441
The disclosed amount for interest rate swaps in the above table are the
estimated net undiscounted cash flows.
The Group's liquidity position is regularly monitored by management and is
reviewed quarterly by the Board of Directors.
Capital risk
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders, issue
new shares, increase or decrease borrowings or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is
calculated as net debt divided by gross assets. Net debt is calculated as total
borrowings less cash and cash equivalents. Gross assets are calculated as
non-current assets and current assets as shown in the Consolidated Balance
Sheet.
The gearing ratios at 31 December 2015 and at 31 December 2014 were as follows:
2015 2014
GBP GBP
Total Borrowings (excluding amortisation of 139,432,692 84,432,692
arrangement fees)
Less: cash and cash equivalents (12,395,516) (5,399,095)
Net debt 127,037,176 79,033,597
Gross Assets 467,328,709 278,718,732
Gearing ratio 27% 28%
Gearing, calculated as net debt as a percentage of gross assets at 31 December
2015 was 27% and must not exceed 65%. The Board's current intention is that the
Company's loan to value ratio (calculated as borrowings less all cash as a
proportion of the property portfolio valuation) will not exceed 45%.
Fair values
Set out below is a comparison by class of the carrying amounts and fair value
of the Group's financial instruments that are carried in the financial
statements.
Carrying Amount Fair Value
2015 2014 2015 2014
Financial Assets GBP GBP GBP GBP
Cash and cash 12,395,516 5,399,095 12,395,516 5,399,095
equivalents
Trade and other 2,858,851 2,660,440 2,858,851 2,660,440
receivables
Financial Liabilities
Bank borrowings 139,048,848 83,980,382 139,415,524 84,202,020
Interest rate swaps 2,085,292 2,674,939 2,085,292 2,674,939
Trade and other 6,105,159 2,706,001 6,105,159 2,706,001
payables
The fair value of the financial assets and liabilities are included at an
estimate of the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. The following methods and assumptions were used to estimate the fair
value:
- Cash and cash equivalents, trade and other receivables are the same as fair
value due to the short-term maturities of these instruments.
- The fair value of bank borrowings is estimated by discounting future cash
flows using rates currently available for debt on similar terms and remaining
maturities. The fair value approximates their carrying values gross of
unamortised transaction costs. This is considered as being valued at level 2 of
the fair value hierarchy and has not changed level since 31 December 2014.
- The fair value of the interest rate swap contract is estimated by
discounting expected future cash flows using current market interest rates and
yield curve over the remaining term of the instrument. This is considered as
being valued at level 2 of the fair value hierarchy and has not changed level
since 31 December 2014. The definition of the valuation techniques are
explained in the significant accounting judgements, estimates and assumptions.
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*:
Level 1 Level 2 Level 3 Total
fair
value
31 December 2015
Interest rate swaps - 2,085,292 - 2,085,292
31 December 2014
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April 19, 2016 02:00 ET (06:00 GMT)
Interest rate swaps - 2,674,939 - 2,674,939
*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.
4 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. 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 IMA dated 19 December 2003, the Investment Manager was
entitled to receive a fee at the annual rate of 0.85% of the total assets,
payable quarterly in arrears except where cash balances exceed 10% of the total
assets. The fee applicable to the amount of cash exceeding 10% of total assets
was altered to be 0.20% per annum, payable quarterly in arrears. The Investment
Manager also agreed to reduce its charge to 0.75% of the total assets of the
Group until such time as the net asset value per share returns to the launch
level of 97p. This was applicable from the quarter ending 31 December 2008
onwards and did not affect the reduced fee of 0.20% on cash holdings above 10%
of total assets.
Under the terms of the IMA dated 7 July 2014, the above fee arrangements apply
up to 31 July 2014. From 1 August 2014, the fee was changed to 0.75% of total
assets up to GBP200 million; 0.70% of total assets between GBP200 million and GBP300
million; and 0.65% of total assets in excess of GBP300 million. The total fees
charged for the year ended 31 December 2015 amounted to GBP2,105,104 (year ended
31 December 2014: GBP1,690,233). The amount due and payable at the year end
amounted to GBP400,767 excluding VAT (year ended 31 December 2014: GBP500,165
excluding VAT).
In respect of the annual management fee for the year ended 31 December 2015,
the Investment Manager agreed to rebate GBP400,000 of the fee following the
successful completion of the fund raising and new property portfolio
acquisition in December 2015.
Administration, secretarial and registrar fees
On 19 December 2003 Northern Trust International Fund Administration Services
(Guernsey) Limited ("Northern Trust") was appointed administrator, secretary
and registrar to the Group. Northern Trust is entitled to an annual fee,
payable quarterly in arrears, of GBP65,000. Northern Trust is also entitled to
reimbursement of reasonable out of pocket expenses. Total fees and expenses
charged for the year ended 31 December 2015 amounted to GBP82,046 (2014: GBP
82,927). The amount due and payable at the year end amounted to GBP18,331 (2014:GBP
nil).
Valuer's fee
Jones Lang LaSalle and Knight Frank ("the Valuers"), independent international
real estate consultants, were appointed as valuers in respect of the assets
comprising the property portfolio. The total valuation fees charged for the
year ended 31 December 2015 amounted to GBP92,324 (2014: GBP56,542) of which
minimum fees of GBP2,500 per property (2014: GBP2,500) were incurred for new
properties added to the portfolio. The amount due and payable at the year end
amounted to GBP12,727 excluding VAT (2014: GBP10,590 excluding VAT).
Auditor's fee
At the year end date Ernst & Young LLP continued as independent auditor of the
Group. The auditor's fees for the year ended 31 December 2015 amounted to GBP
82,308 (2014: GBP46,513) and relate to audit services provided for the 2015
financial year. Ernst & Young LLP also provided non-audit services in 2015 in
respect of advice relating to the social security position of the Group's
directors of GBP1,100 (2014; GBPnil) and advice in relation to the UK REIT
distribution rules of GBP950 (2014; GBPnil). Ernst & Young LLP also provided non-
audit services in respect of due diligence costs for asset acquisitions and tax
accounting advice for the prospectus in 2015 amounting to GBP110,000 (2014: GBP
32,000) and GBP47,000 (2014: GBPnil) respectively. Total non-audit fees incurred up
to the Balance Sheet date amounted to GBP159,050 (2014: GBP126,000).
5 FINANCE INCOME AND COSTS
2015 2014
GBP GBP
Interest income on cash and cash 68,186 72,326
equivalents
Finance income 68,186 72,326
Interest expense on bank borrowings 1,869,338 1,931,665
Payments on interest rate swaps 1,213,528 1,236,719
Amortisation of arrangement costs 241,916 113,788
(See Note 14)
Finance costs 3,324,782 3,282,172
6 TAXATION
Current income tax
The major components of income tax expense for the years ended 31 December are:
2015 2014
GBP GBP
Consolidated Income Statement
Current Income Tax
Current Income Tax Charge - -
Deferred Income Tax
Utilisation of deferred tax asset - 587,315
Income Tax charge/(credit) reported in the - 587,315
income statement
A reconciliation between the tax charge / (credit) and the product of
accounting profit multiplied by the applicable tax rate for the year ended 31
December 2015 and 2014 is, as follows:
2015 2014
GBP GBP
Profit before tax 31,939,653 29,170,717
Tax calculated at UK statutory income tax/ 6,467,780 5,834,143
corporation
tax rate of 20.25% (2014: 20%)
UK REIT exemption on net income and gains (3,304,893) -
Valuation gain in respect of investment (3,571,487) (4,266,961)
properties
not subject to tax
Profit / (loss) on disposal of investment 15,244 368,082
properties
not subject to tax
Income not subject to tax - (716,760)
Expenditure not allowed for corporation tax/ 393,356 86,711
income
tax purposes
Tax loss utilised - (1,305,215)
Utilisation of Deferred Tax Asset - 587,315
Current income tax charge - 587,315
Consolidated Balance Consolidated Income
Sheet Statement
2015 2014 2015 2014
GBP GBP GBP
Deferred income tax assets
Losses available for offset against - - - 587,315
future taxable income
Deferred income tax asset/ - - - 587,315
(credit)
Unrecognised deferred tax
As at 31 December 2015, the Group had an unrecognised deferred tax asset of GBP
nil (2014: GBP2,075,946). Tax losses of the Group generated prior to entry to the
UK REIT regime can no longer be utilised and are lost. If a UK REIT sells a
property within 3 years of completion of development, the REIT tax exemption
does not apply. There were no such properties at 31 December 2014 or 31
December 2015.
UK REIT status
The Group migrated tax residence to the UK and elected to be treated as a UK
REIT with effect from 1 January 2015. As a UK REIT, the income profits of the
Group's UK property rental business are exempt from corporation tax as are any
gains it makes from the disposal of its properties, provided they are not held
for trading or sold within three years of completion of development. The Group
is otherwise subject to UK corporation tax at the prevailing rate.
As the principal company of the REIT, the Company is required to distribute at
least 90% of the income profits of the Group's UK property rental business.
There are a number of other conditions that also require to be met by the
Company and the Group to maintain REIT tax status. These conditions were met in
the period and the Board intends to conduct the Group's affairs such that these
conditions continue to be met.
The Company and its material Guernsey subsidiaries have obtained exempt company
status in Guernsey so that they are exempt from Guernsey taxation on income
arising outside Guernsey and bank interest receivable in Guernsey.
7 INVESTMENT PROPERTIES
Country UK UK UK UK
Class Industrial Office Retail Total
2015 2015 2015 2015
GBP GBP GBP GBP
Market value as at 108,660,000 114,265,100 47,125,000 270,050,100
1 January
Purchase of 11,217,775 19,005,390 21,974,958 52,198,123
investment
properties
Acquired through 69,050,000 59,850,000 36,100,000 165,000,000
business
combination (note
10)
Capital expenditure 1,034,205 72,989 37,240 1,144,434
on investment
properties
Carrying value of (11,405,000) (38,325,100) (5,100,000) (54,830,100)
disposed investment
properties
Valuation gain from 8,404,316 8,529,645 703,012 17,636,973
investment
properties
Movement in lease 108,704 666,976 9,790 785,470
incentives
receivable
Market value at 31 187,070,000 164,065,000 100,850,000 451,985,000
December
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Adjustment for (353,854) (2,383,140) (631,252) (3,368,246)
lease incentives*
Carrying value at 186,716,146 161,681,860 100,218,748 448,616,754
31 December
*Lease incentives are split between non current assets of GBP3,457,588 and
current liabilities of GBP89,342 (note 13).
The valuations were performed by Jones Lang Lasalle and Knight Frank,
accredited independent valuers with a recognised and relevant professional
qualification and recent experience of the location and category of the
investment properties being valued. The valuation model in accordance with
Royal 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 market value provided by Jones Lang Lasalle and Knight Frank at the
year end was GBP451,985,000 (2014: GBP270,225,000) however an adjustment has been
made for lease incentives of GBP3,368,246* (2014: GBP1,834,473) that are already
accounted for as an asset. In accordance with the accounting policy in note
2.3, in order to arrive at fair value the market values of leasehold investment
properties have been adjusted to reflect the fair value of finance lease
obligations. Valuation gains and losses from investment properties are
recognised in the Consolidated Statement of Comprehensive Income for the period
and are attributable to changes in unrealised gains or losses relating to
investment properties (completed and under construction) held at the end of the
reporting period.
At 31 December 2014 the Group disclosed a number of post balance sheet events
including the sale and purchase of investment properties. During the year the
Group completed the purchase of DSG in Preston for GBP15.8m excluding costs and
the sale of De Ville Court in Weybridge for GBP3.15m excluding costs.
Country UK UK UK UK
Class Industrial Office Retail Total
2014 2014 2014 2014
GBP GBP GBP GBP
Market value as at 48,175,000 79,945,000 48,295,000 176,415,000
1 January
Purchase of 72,084,707 15,097,439 10,671,653 97,853,799
investment
properties
Capital expenditure 29,971 2,779,559 (101,508) 2,708,022
on investment
properties
Carrying value of (14,550,000) - (14,050,000) (28,600,000)
disposed investment
properties
Valuation gain from 2,961,019 16,132,344 2,104,506 21,197,869
investment
properties
Movement in lease (40,697) 310,758 205,349 475,410
incentives
receivable
Investment - (6,550,100) - (6,550,100)
properties
recategorised as
held for sale
Market value at 31 108,660,000 107,715,000 47,125,000 263,500,000
December
Adjustment for (462,673) (800,767) (571,033) (1,834,473)
lease incentives
Adjustment for - 6,594 - 6,594
finance lease
obligations
Carrying value at 108,197,327 106,920,827 46,553,967 261,672,121
31 December
In the Consolidated Cash Flow Statement, proceeds from disposal of investment
properties comprise:
2015 2014
GBP GBP
Carrying value of disposed investment properties 54,830,100 28,600,000
Profit / (loss) on disposal of investment properties 3,024,748 (1,840,412)
Net proceeds from disposal of investment properties 57,854,848 26,759,588
Valuation Methodology
The fair value of completed investment properties are determined using the
income capitalisation method.
The income capitalisation method is based on capitalising the net income stream
at an appropriate yield. In establishing the net income stream the valuer has
reflected the current rent (the gross rent) payable to lease expiry, at which
point the valuer has assumed that each unit will be re-let at their opinion of
ERV. The valuer has made allowances for voids and rent free periods where
appropriate, as well as deducting non recoverable costs where applicable. The
appropriate yield is selected on the basis of the location of the building, its
quality, tenant credit quality and lease terms amongst other factors.
No properties have changed the valuation technique during the year. At the
Balance Sheet date the income capitalisation method is appropriate for valuing
all assets.
The Group appoints suitable valuers (such appointment is reviewed on a periodic
basis) to undertake a valuation of all the direct real estate investments on a
quarterly basis. The valuation is undertaken in accordance with the then
current RICS guidelines and requirements as mentioned above.
The Investment Manager meets with the valuer on a quarterly basis to ensure the
valuer is aware of all relevant information for the valuation and any change in
the investment over the quarter. The Investment Manager then reviews and
discusses the draft valuations with the valuer to ensure correct factual
assumptions are made. The valuer reports a final valuation that is then
reported to the Board.
The management group that determines the Company's valuation policies and
procedures for property valuations is the Property Valuation Committee. The
Committee reviews the quarterly property valuation report produced by the
Valuer (or such other person as may from time to time provide such property
valuation services to the Company) before its submission to the Board,
focussing in particular on:
- significant adjustments from the previous property valuation report
- reviewing the individual valuations of each property
- compliance with applicable standards and guidelines including those issued
by RICS and the UKLA Listing Rules
- reviewing the findings and any recommendations or statements made by the
valuer
- considering any further matters relating to the valuation of the properties
The Chairman of the Committee makes a brief report of the findings and
recommendations of the Committee to the Board after each Committee meeting. The
minutes of the Committee meetings are circulated to the Board. The Chairman
submits an annual report to the Board summarising the Committee's activities
during the year and the related significant results and findings.
All investment properties are classified as Level 3 in the fair value
hierarchy. There were no movements between levels during the year.
There are currently no restrictions on the realisability of investment
properties or the remittance of income and proceeds of disposal.
The table below outlines the valuation techniques used to derive Level 3 fair
values for each class of investment properties:
- The fair value measurements at the end of the reporting period.
- The level of the fair value hierarchy (e.g. Level 3) within which the fair
value measurements are categorised in their entirety.
- A description of the valuation techniques applied.
- Fair value measurements, quantitative information about the significant
unobservable inputs used in the fair value measurement.
- The inputs used in the fair value measurement, including the ranges of rent
charged to different units within the same building.
Country & Fair value Valuation Key unobservable Range (weighted
Class (GBP) technique input average)
UK Industrial 186,716,146 · Income · Initial Yield ·0% to 15.84% (5.88%)
Level 3 Capitalisation · Reversionary Yield ·5.53% to 10.65%
· Equivalent Yield (6.91%)
· Estimated rental ·5.65% to 9.09%
value (6.60%)
per Sq.m ·GBP19.15 to GBP132.76 (GBP
58.45)
UK Office 161,681,860 · Income · Initial Yield ·0% to 12.04% (5.87%)
Level 3 Capitalisation · Reversionary Yield ·5.62% to 10.78%
· Equivalent Yield (6.81%)
· Estimated rental ·4.74% to 9.01%
value per Sq.m (6.25%)
·GBP137.47 to GBP669.67 (GBP
276.85)
UK Retail 100,218,748 · Income · Initial Yield ·2.79% to 9.47%
Level 3 Capitalisation · Reversionary Yield (6.31%)
· Equivalent Yield ·3.85% to 8.23%
· Estimated rental (5.85%)
value per Sq.m ·5.55% to 7.92%
(6.50%)
·GBP95.24 to GBP834.77 (GBP
173.14)
448,616,754
Descriptions and definitions
The table above includes the following descriptions and definitions relating to
valuation techniques and key unobservable inputs made in determining the fair
values.
Estimated rental value (ERV)
The rent at which space could be let in the market conditions prevailing at the
date of valuation.
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Equivalent yield
The equivalent yield is defined as the internal rate of return of the cash flow
from the property, assuming a rise to ERV at the next review, but with no
further rental growth.
Initial yield
Initial yield is the annualised rents of a property expressed as a percentage
of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial yield will
rise (or fall) once the rent reaches the ERV.
The table below shows the ERV per annum, area per square foot, average ERV per
square foot, initial yield and reversionary yield as at the Balance Sheet date.
2015 2014
GBP GBP
ERV p.a. 32,111,174 20,460,185
Area sq. ft. 3,933,195 2,736,927
Average ERV per sq. ft. GBP8.16 GBP7.48
Initial Yield 5.97% 6.59%
Reversionary Yield 4.97% 5.13%
The table below presents the sensitivity of the valuation to changes in the
most significant assumptions underlying the valuation of completed investment
properties.
2015 2014
GBP GBP
Increase in equivalent yield of 25 (18,600,000) (10,100,000)
bps
Decrease in rental rates of 5% (ERV) (17,700,000) (10,100,000)
Below is a list of how the interrelationships in the sensitivity analysis above
can be explained.
In both cases outlined in the sensitivity table the estimated Fair Value would
increase (decrease) if:
· The ERV is higher (lower)
· Void periods were shorter (longer)
· The occupancy rate was higher (lower)
· Rent free periods were shorter (longer)
· The capitalisation rates were lower (higher)
8 INVESTMENT PROPERTIES HELD FOR SALE
As at 31 December 2015 the Group had no investment properties classified as
held for sale.
As at 31 December 2014 the Group had exchanged contracts with third parties for
the sale of De Ville Court, Weybridge for a price of GBP3,150,000 and Chancellors
Place, Chelmsford for GBP3,525,000. The sale of De Ville Court completed on 20
January 2015 and the sale of Chancellors Place completed on 30 June 2015. The
independently assessed market value of De Ville Court as at 31 December 2014
was GBP3,150,000 and the independently assessed market value of Chancellors Place
as at 31 December 2014 was GBP3,575,000. As at 31 December 2014 the carrying
value of De Ville Court was GBP3,038,250 (net of transaction costs of GBP111,750)
and the carrying value of Chancellors Place was GBP3,511,850 (net of transaction
costs of GBP63,150).
Reconciliation of investment properties held for sale to independent valuers
report:
2015 2014
GBP GBP
De Ville Court - 3,150,000
Chancellors Place - 3,575,000
Less: transaction costs - (174,900)
Adjusted Market Value at 31 December - 6,550,100
9 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.
The Group, through its subsidiary, owns 100 per cent of the issued ordinary
share capital of Huris (Farnborough) Limited, a company incorporated in the
Cayman Islands whose principal business is property investment.
The Group, through its subsidiary, owns 100 per cent of the issued ordinary
share capital of HEREF Eden Main Limited, a company incorporated in Jersey
whose principal business is property investment.
The acquisitions of Huris (Farnborough) Limited and HEREF Eden Main Limited
were accounted for as acquisitions of assets in 2014 which generated a loss of
GBP75,181 (2014: GBP136,938 gain) in the year ended 31 December 2015 as detailed in
the Consolidated Statement of Comprehensive Income. The directors believe that
such treatment is appropriate as it better reflects the substance of the
transactions i.e. the acquired companies are shell companies which hold
investment properties and had immaterial other net assets. The investment
properties owned by Huris (Farnborough) Limited and HEREF Eden Main Limited
were transferred to Standard Life Investments Property Holdings Limited in
2014. The remaining assets of both companies total GBP59,727 (2014: GBP44,273
liability) at the Balance Sheet date and have been included in trade and other
receivables.
During the year 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 has 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:
- Standard Life Investments Property Holdings Limited, a company with limited
liability incorporated in Guernsey, Channel Islands.
- Standard Life Investments SLIPIT Unit Trust, a Jersey Property Unit Trust
domiciled in Jersey, Channel Islands (formerly Aviva Investors UK Real Estate
Recovery II Unit Trust).
- Standard Life Investments (SLIPIT) Limited Partnership, a limited
partnership established in England (formerly Aviva Investors UK Real Estate
Recovery II Limited Partnership).
- Standard Life Investments SLIPIT (General Partner) Limited, a company with
limited liability incorporated in the United Kingdom (formerly Aviva Investors
UK Real Estate Recovery II (General Partner) Limited).
- Standard Life Investments SLIPIT (Nominee) Limited, a company with limited
liability incorporated and domiciled in the United Kingdom (formerly Aviva
Investors UK Real Estate Recovery II (Nominee) Limited).
- Ceres Court Properties Limited , a company with limited liability
incorporated and domiciled in the United Kingdom.
10 BUSINESS COMBINATIONS
On 23 December 2015, the Group acquired 100% of the shares of 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 Standard Life Investments SLIPIT (General Partner) Limited which
holds, through Standard Life Investments (SLIPIT) Limited Partnership, the new
portfolio of 22 UK real estate assets. Standard Life Investments Limited
Partnership (previously Aviva Investors UK Real Estate Recovery II Limited
Partnership) holds a portfolio of retail, office and industrial buildings let
under operating leases and the acquisition was made to give the Group access to
those assets. The existing strategic management function and associated
processes were acquired with the property and, as such, the Directors consider
this transaction the acquisition of a business, rather than an asset
acquisition.
The fair value of the identifiable assets and liabilities of Aviva Investors UK
Real Estate Recovery II Unit Trust (now re-named Standard Life Investments
SLIPIT Unit Trust) as at the date of acquisition were:
Fair value
recognised
on acquisition
GBP
Investment property 165,000,000
Trade receivables 1,428,495
Cash and cash equivalents 132,045
166,560,540
Trade payables (1,368,037)
165,192,503
The purchase consideration of GBP165,192,503 for the 100% interest acquired
consists of GBP75,027,974 raised from issuing new shares net of costs, borrowings
of GBP54,826,550 net of loan arrangement costs and GBP35,337,979 from existing cash
reserves. The due diligence costs of GBP1,942,498 incurred in connection with the
acquisition have been expensed and are included in the Consolidated Statement
of Comprehensive Income. From the date of acquisition, Standard Life
Investments Unit Trust has contributed GBP582,685 to the profit after tax of the
Group and revenues of GBP350,212 in the form of property rental income. If the
acquisition had occurred on 1 January 2015 the Standard Life Investments SLIPIT
Unit Trust would have contributed GBP29,053,934 to the profit after tax of the
Group and GBP11,013,373 revenues in the form of property rental income.
11 TRADE AND OTHER RECEIVABLES
2015 2014
GBP GBP
Trade receivables 1,710,199 1,745,004
Less: provision for impairment of (13,495) (6,941)
trade receivables
Trade receivables (net) 1,696,704 1,738,063
Rental deposits held on behalf of 795,355 639,608
tenants
Other receivables 366,792 282,769
Total trade and other receivables 2,858,851 2,660,440
Reconciliation for changes in the provision for impairment of trade
receivables:
2015 2014
GBP GBP
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Opening balance (6,941) (114,622)
Charge for the year (13,495) (6,941)
Reversal of provision 6,941 114,622
Closing balance (13,495) (6,941)
The estimated fair values of receivables are the discounted amount of the
estimated future cash flows expected to be received and approximate their
carrying amounts.
The trade receivables above relate to rental income receivable from tenants of
the investment properties. When a new lease is agreed with a tenant the
Investment Manager performs various money laundering checks and makes a
financial assessment to determine the tenant's ability to fulfil its
obligations under the lease agreement for the foreseeable future. The majority
of tenants are invoiced for rental income quarterly in advance and are issued
with invoices at least 21 days before the relevant quarter starts. Invoices
become due on the first day of the quarter and are considered past due if
payment is not received by this date. Other receivables are considered past due
when the given terms of credit expire.
Amounts are considered impaired when it becomes unlikely that the full value of
a receivable will be recovered. Movement in the balance considered to be
impaired has been included in other direct property costs in the Consolidated
Statement of Comprehensive Income. As of 31 December 2015, trade receivables of
GBP13,495 (2014: GBP6,941) were considered impaired and provided for.
The ageing of these receivables is as follows:
2015 2014
GBP GBP
0 to 3 months 12,905 1,562
3 to 6 months 352 5,379
Over 6 months 238 -
13,495 6,941
As of 31 December 2015, trade receivables of GBP1,696,704 (2014: GBP1,738,063) were
less than 3 months past due but considered not impaired.
12 CASH AND CASH EQUIVALENTS
2015 2014
GBP GBP
Cash held at bank 4,574,353 764,911
Cash held on deposit with RBS (see 7,821,163 4,634,184
note 14)
12,395,516 5,399,095
Cash held at banks earns interest at floating rates based on daily bank deposit
rates. Deposits are made for varying periods of between one day and three
months, depending on the immediate cash requirements of the Group, and earn
interest at the applicable short-term deposit rates.
13 TRADE AND OTHER PAYABLES
2015 2014
GBP GBP
Trade payables 541,091 553,969
Other payables 4,768,713 1,512,424
VAT payable 680,674 473,469
Deferred rental income 6,536,107 3,907,322
Rental deposits due to tenants 173,072 155,728
Lease incentives due within one year 89,342 602,503
12,788,999 7,205,415
Trade payables are non-interest bearing and are normally settled on 30-day
terms.
14 BANK BORROWINGS
2015 2014
GBP GBP
Loan facility and drawn down 139,432,692 84,432,692
outstanding balance
Opening carrying value 83,980,382 83,866,594
Borrowings during the year 55,000,000 -
Arrangement costs of additional (173,450) -
facility
Amortisation of arrangement costs 241,916 113,788
Closing carrying value 139,048,848 83,980,382
On 20 January 2012 the Company completed the drawdown of GBP84,432,692 loan with
The Royal Bank of Scotland plc ("RBS"). The facility was repayable on 16
December 2018, however this date was re-negotiated during the year as detailed
below. Interest is payable at a rate equal to the aggregate of 3 month Libor, a
margin of 1.65% (below 40% LTV) or 1.75% (40% to 60% LTV inclusive) or 1.95%
(above 60% LTV) until 21 December 2015.
On 22 December 2015 the Company increased its borrowing facilities from GBP
84,432,692 to GBP139,432,692. The additional borrowing was in the form of an
additional term loan of GBP40,567,308 and a revolving credit facility ("RCF") of
GBP14,432,692 (with the potential to draw a further GBP15,567,308 of the RCF) all
of which is due to expire in June 2017. Interest from 22 December 2015 is
payable at a rate equal to the aggregate of 3 month Libor, a margin of 1.25%.
Under the terms of the loan facility there are certain events which would
entitle RBS to terminate the loan facility and demand repayment of all sums
due. Included in these events of default is the financial undertaking relating
to the loan to value percentage. The loan agreement notes that the loan to
value percentage is calculated as the loan amount less the amount of any
sterling cash deposited within the security of RBS divided by the gross secured
property value, and that this percentage should not exceed 65% for the period
to and including 22 December 2016 and should not exceed 60% after 22 December
2016 to maturity.
2015 2014
GBP GBP
Loan amount 139,432,692 84,432,692
Cash deposited within the security of (7,821,163) (4,634,184)
RBS
131,611,529 79,798,508
Investment properties valuation 451,985,000 270,225,000
Loan to value percentage 29.1% 29.5%
Loan to value percentage covenant 65.0% 65.0%
Loan to value percentage if all cash 28.1% 29.2%
is deposited within the security of
RBS
Other loan covenants that the Group is obliged to meet include the following:
- that the net rental income is not less than 150% of the finance costs for
any three month period
- that the largest single asset accounts for less than 15% of the Gross
Secured Asset Value
- that the largest ten assets accounts for less than 75% of the Gross Secured
Asset Value
- that sector weightings are restricted to 55%, 45% and 45% for the Office,
Retail and Industrial sectors respectively
- that the largest tenant accounts for less than 20% of the Group's annual net
rental income
- that the five largest tenants account for less than 50% of the Group's
annual net rental income
- that the ten largest tenants account for less than 75% of the Group's annual
net rental income
During the year the Group did not default on any of its obligations under its
loan agreement.
The loan facility is secured by fixed and floating charges over the assets of
the Company and its wholly owned subsidiary, Standard Life Investments Property
Holdings Limited.
15 INTEREST RATE SWAPS
The Company has 2 interest rate swap agreements with RBS which both have a
maturity date of 16 December 2018.
On 20 January 2012 the Company completed an interest rate swap of a notional
amount of GBP12,432,692 with RBS. This interest rate swap has a maturity of 16
December 2018. Under the swap the Company has agreed to receive a floating
interest rate linked to 3 month Libor and pay a fixed interest rate of
1.77125%.
On 20 January 2012 the Company completed an interest rate swap of a notional
amount of GBP72,000,000 with RBS which replaces the interest rate swap entered
into on 29 December 2003. This interest rate swap effective date is 29 December
2013 and has a maturity date of 16 December 2018. Under the swap the Company
has agreed to receive a floating interest rate linked to 3 month Libor and pay
a fixed interest rate of 2.0515%.
2015 2014
GBP GBP
Opening fair value of interest rate (2,674,939) (30,997)
swaps at 1 January
Valuation gain/(loss) on interest 589,647 (2,643,942)
rate swaps
Closing fair value of interest rate (2,085,292) (2,674,939)
swaps at 31 December
Interest rate swaps due:
Less than one year (908,751) (1,386,451)
Between one and five years (1,176,541) (1,288,488)
Closing fair value of interest rate (2,085,292) (2,674,939)
swaps at 31 December
The individual swap assets and liabilities are listed below:
Interest rate swap with a start date (220,107) (278,270)
of 20 January 2012 maturing on 16
December 2018
Interest rate swap with a start date (1,865,185) (2,396,669)
of 29 December 2013 maturing on 16
December 2018
(2,085,292) (2,674,939)
16 LEASE ANALYSIS
Lessor length
The Group has entered into leases on its property portfolio. This property
portfolio as at 31 December 2015 had an average lease expiry of 5 years and 10
months. Leases include clauses to enable periodic upward revision of the rental
charge according to prevailing market conditions. Some leases contain options
to break before the end of the lease term.
Future minimum rentals receivable under non-cancellable operating leases as at
31 December are as follows:
2015 2014
GBP GBP
Within one year 26,596,634 17,200,407
After one year, but not more than 85,580,067 54,964,023
five years
More than five years 52,490,484 48,214,243
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Total 164,667,185 120,378,673
The largest single tenant at the year end accounts for 4.6% (2014: 6.7%) of the
current annual passing rent.
17 SHARE CAPITAL
Under the Company's Articles of Incorporation, the Company may issue an
unlimited number of ordinary shares of 1 pence each. As at 31 December 2015
there were 380,690,419 ordinary shares of 1 pence each in issue. All ordinary
shares rank equally for dividends and distributions and carry one vote each.
There are no restrictions concerning the transfer of ordinary shares in the
Company, no special rights with regard to control attached to the ordinary
shares, no agreements between holders of ordinary shares regarding their
transfer known to the Company and no agreement which the Company is party to
that affects its control following a takeover bid.
Allotted, called up and fully paid: 2015 2014
GBP GBP
Opening balance 96,188,648 31,337,024
Shares issued between 25 February 110,462,680 -
2015 and
21 December 2015 at a price of
between
78.1p and 82.0p per share
Shares issued between 7 March 2014 - 65,868,956
and 19 November 2014 at a price of
between 71.5p and 76.0p per share
Issue costs associated with new (1,831,109) (1,017,332)
ordinary shares
Closing balance 204,820,219 96,188,648
2015 2014
Number of Number of
shares shares
Opening balance 244,216,165 154,994,237
Issued during the year 136,474,254 89,221,928
Closing balance 380,690,419 244,216,165
18 RESERVES
Retained earnings
This is a distributable reserve and represents the cumulative revenue earnings
of the Group less dividends declared as payable to the Company's shareholders.
Capital reserves
This reserve represents realised gains and losses on disposed investment
properties and unrealised valuation gains and losses on investment properties
and cash flow hedges since the Company's launch. This reserve also represents
the realised gain on the acquisition of two subsidiaries during the year to 31
December 2014 as detailed in note 9.
Other distributable reserves
This reserve represents the share premium raised on launch of the Company which
was subsequently converted to a distributable reserve by special resolution
dated 4 December 2003. This balance has been reduced by the allocation of
preference share finance costs.
The detailed movement of the above reserves for the years to 31 December 2015
and 31 December 2014 can be found in the Consolidated Statement of Changes in
Equity.
19 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing profit for the year
net of tax attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the year. As there are no dilutive
instruments outstanding, basic and diluted earnings per share are identical.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2015 2014
GBP GBP
Profit for the year net of tax 31,939,653 28,583,402
2015 2014
Number of Number of
shares shares
Weighted average number of ordinary 280,330,039 185,548,062
shares outstanding during the year
Profit per ordinary share 11.39p 15.40p
EPRA publishes guidelines for calculating adjusted earnings that represent
earnings from the core operational activities. Therefore, it excludes the
effect of movements in the fair value of, and results from sales of, investment
properties together with the effect of movements in the fair value of financial
instruments.
2015 2014
GBP GBP
Profit for the year net of tax 31,939,653 28,583,402
Less: revaluation movements on (17,636,973) (21,197,869)
investment properties
Less: loss / (gain) on asset 75,181 (136,938)
acquisition
Less: (profit) / loss on disposal of (3,024,748) 1,840,412
investment properties
Adjusted (EPRA) profit for the year 11,353,113 9,089,007
2015 2014
Number of Number of
shares shares
Weighted average number of ordinary 280,330,039 185,548,062
shares outstanding during the year
Adjusted (EPRA) profit per share 4.05p 4.90p
20 DIVIDENDS AND PROPERTY INCOME DISTRIBUTION GROSS OF INCOME TAX
2015 2014
GBP GBP
Non Property Income Distributions
1.161p per ordinary share paid in 2,835,350 1,756,085
February relating to the quarter
ending 31 December (2014: 1.133p)
1.161p per ordinary share paid in May - 1,865,834
relating to the quarter ending 31
March (2014: 1.161p)
1.161p per ordinary share paid in - 1,865,834
August relating to the quarter ending
30 June (2014: 1.161p)
1.161p per ordinary share paid in 2,220,581 2,527,604
November relating to the quarter
ending 30 September (2014: 1.161p)
Property Income Distributions
1.161p per ordinary share paid in May 3,213,406 -
relating to the quarter ending 31
March
1.161p per ordinary share paid in 3,348,175 -
August relating to the quarter ending
30 June
1.161p per ordinary share paid in 1,127,594 -
November relating to the quarter
ending 30 September
12,745,106 8,015,357
On 1 January 2015 the Company converted to a UK REIT from a Guernsey Investment
Company (GIC). The payment in February 2015 is the dividend relating to the
period prior to REIT conversion for the quarter ended 31 December 2014 and
relates to when the Company was a GIC. The payment in May 2015 is the first
property income distribution (gross of income tax) following REIT conversion
for the quarter ended 31 March 2015.
21 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 most recent valuation of the investment properties.
2015 2014
Number of Number of
shares shares
Number of ordinary shares at the 380,690,419 244,216,165
reporting date
2015 2014
GBP GBP
Total equity per audited consolidated 312,783,287 184,367,522
financial
statements
Net asset value per share 82.2p 75.5p
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.
2015 2014
GBP GBP
Total equity per audited consolidated 312,783,287 184,367,522
financial
statements
Adjustments:
Add: fair value of derivatives 2,085,292 2,674,939
EPRA net asset value 314,868,579 187,042,461
EPRA net asset value per share 82.7p 76.6p
22 SERVICE CHARGE
The Company has appointed an agent to manage the service charge at the
investment properties. The table below is a summary of the service charge
during the year. The table shows the service charge cost to the tenants, the
amount the tenants have been billed based on the service charge budget and the
amount the Company has paid in relation to void units over the year. The table
also shows the balancing service charge that is due to/from the tenants as at
the Balance Sheet date.
2015 2014
GBP GBP
Total service charge expenditure incurred 1,685,569 1,557,269
Total service charge billed to tenants 1,492,339 1,663,864
excluding void units and service charge
caps
Service charge billed to the Group in 74,448 120,164
respect of void units and service charge
caps
Service charge due from/(to) tenants as at 118,782 (226,759)
31 December
1,685,569 1,557,269
23 RELATED PARTY DISCLOSURES
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions.
Ordinary share capital
Standard Life Assurance Limited held 34,439,001 (2014: 19,644,001) of the
issued ordinary shares at the Balance Sheet date on behalf of its Unit Linked
Property Funds. This equates to 9.0% (2014: 8.0%) of the ordinary share capital
in issue at the Balance Sheet date.
Directors remuneration
The remuneration of the key management personnel is detailed below which
includes pay as you earn tax and national insurance contributions. Further
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details on the key management personnel can be found in the Director's
Remuneration Report and The Corporate Governance Report.
2015 2014
GBP GBP
Richard Barfield (appointed chairman 33,000 31,223
29 May 2014)
Sally-Ann Farnon (appointed 16 July 28,500 29,500
2010)
Shelagh Mason (retired 31 December - 26,500
2014)
Huw Evans (appointed 11 April 2013) 26,000 26,500
Robert Peto (appointed 28 May 2014) 26,000 16,736
Paul Orchard-Lisle (retired 28 May - 13,107
2014)
Employers national insurance 5,872 -
contributions
119,372 143,566
Directors expenses 4,924 2,431
124,296 145,997
Investment Manager
Management of the property portfolio is contractually delegated to Standard
Life Investments (Corporate Funds) Limited as Investment Manager and the
contract with the Investment Manager can be terminated by the Company.
Transactions with the Investment Manager in the year are detailed in note 4.
24 SEGMENTAL INFORMATION
The Board has considered the requirements of IFRS 8 'operating segments'. The
Board is of the view that the Group is engaged in a single segment of business,
being property investment and in one geographical area, the United Kingdom.
25 EVENTS AFTER THE BALANCE SHEET DATE
On 29 February 2016 the Group started the process of liquidating Standard Life
Investments SLIPIT Unit Trust. As part of the liquidation process the trustees
of the Standard Life Investments SLIPIT Unit Trust distributed the interests in
the Standard Life Investments (SLIPIT) Limited Partnership to Standard Life
Investments Property Holdings Limited (99%) and Standard Life Investments
Property Income Trust Limited (1%).
On 31 March 2016 a fourth interim dividend for the period 1 October 2015 to 20
December 2015 of 1.022 pence per share was paid. The dividend was split as a
property income dividend of 0.528 pence per share and an ordinary dividend of
0.494 pence per share.
On 31 March 2016 a fifth interim dividend for the period 21 December 2015 to 31
December 2015 of 0.139 pence per share was paid. The dividend was split as a
property income dividend of 0.072 pence per share and an ordinary dividend
0.067 pence per share.
Additional Notes to the Annual Financial Report
This Annual Financial Report announcement is not the Company's statutory
accounts for the year ended 31 December 2015. The statutory accounts for the
year ended 31 December 2015 received an audit report which was unqualified and
did not include a reference to any matters to which the auditors drew attention
by way of emphasis without qualifying their report.
The statutory accounts for the financial year ended 31 December 2015 were
approved by the Directors on 18 April 2016. The Company's AGM is to be held on
2 June 2016. The Annual Report and Notice of AGM will be posted to shareholders
in April 2016 and will be available for download from the Company's website
hosted by the Investment Manager (www.standardlifeinvestments.com/its).
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
END
END
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