Interim Results

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

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Abrdn Property Income Trust Limited (API)

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