Interim results

 18 September 2017

Secure Income REIT Plc

(the "Company" or the "Group")

Interim results for the six months ended 30 June 2017

Secure Income REIT Plc (AIM: SIR), the specialist long term income UK REIT, today announces its interim results for the six months ended 30 June 2017.

Highlights

• EPRA NAV per share up:

- 9.9% to 355.5p over the six months to 30 June 2017

- over 100% since listing in June 2014

• Adjusted EPRA EPS up 24.1% to 6.7p in the six months to 30 June 2017

• Quarterly distributions currently yielding an annualised 3.9% on 30 June 2017 EPRA NAV, with strong and predictable growth prospects underpinned by annual contractual fixed and RPI linked rental uplifts

• EPRA NAV per share growth plus dividends result in Total Accounting Return of 11.9%, with Total Shareholder Return of 11.7% over six months

• Portfolio valuation up 4.8% since 31 December 2016 to £1.72 billion, valued at a blended net initial yield of 5.2% (5.3% as at 31 December 2016)

• Rents up 2.7% over six months to 30 June 2017 and up 3.0% including July's increases

• Net Loan To Value ratio of 51.0%, down from 53.5% at 31 December 2016

• Highly defensive portfolio of assets producing £95.2 million of passing rent with a weighted average unexpired lease term of 22.7 years as at 30 June 2017 with no break options

• External management team significantly aligned, with a 16.7% stake worth over £136 million

Martin Moore, Non-Executive Chairman of the Company, commented:

"I am delighted to announce another healthy increase in values for Secure Income REIT with EPRA NAV per share up 10% over six months and over 100% since float three years ago. The Group continues to benefit from being an early mover into the inflation protected, long lease alternative property sector where investment demand continues to build against a limited supply of high quality assets."

ENQUIRIES:

Prestbury Investments LLP Tel: 020 7647 7647

Nick Leslau

Mike Brown

Sandy Gumm

FTI Consulting Tel: 020 3727 1000

Richard Sunderland

Claire Turvey

Stifel Nicolaus Europe (Nominated Adviser and Broker) Tel: 020 7710 7600

Mark Young

David Arch

Tom Yeadon

Notes to Editors

Secure Income REIT Plc is a specialist UK REIT, investing in key operating real estate assets that provide long term rental income with inflation protection. Its investment strategy is designed to satisfy investors' growing requirements for high quality, secure, inflation protected income flows. The Group owns a portfolio of 81 high quality assets including some of the UK's top visitor attractions and theme parks (Alton Towers theme park and hotel, Thorpe Park and Warwick Castle), as well as 20 private hospitals and 55 Travelodge hotels in the UK.

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may differ materially from those made in, or suggested by, the forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's Statement

Dear shareholder,

I am pleased to report another positive set of results for the Group for the first half of 2017.

Results and financial position

The Group's EPRA NAV at 30 June 2017 is 355.5 pence per share, having grown by 9.9% since 31 December 2016 and which, when added to the dividends paid in the period, results in a Total Accounting Return of 11.9% over the six months.

* Amounts reported in the Group income statement adjusted by £6.0 million (2.6 pence per share) to remove the spreading of fixed rental uplifts over the term of the lease. The adjustment reduces rental income and increases revaluation movement in equal amounts.

In the six months to 30 June 2017, the portfolio valuation rose by 4.8% to £1.72 billion, showing a net initial yield of 5.2% (5.3% at 31 December 2016). The majority of the rent reviews occur before 30 June each year and rents increased by 2.7% from an annualised £92.6 million at 31 December 2016 to £95.2 million at 30 June 2017. On completion of the fixed rental uplifts on the German leisure portfolio on 29 July 2017, the total portfolio passing rent increased to £95.4 million or a 3.0% increase since 31 December 2016.

Following the uplift in the portfolio valuation, our net loan to value ratio has further reduced to 51.0%, down from 53.5% at the end of 2016. Annualised interest cover is 1.9 times and we maintain healthy headroom on financial covenants in our non-recourse facilities.

Adjusted EPRA EPS for the six months to 30 June 2017 was 6.7 pence per share compared to 5.4 pence per share for the six months to 30 June 2016. The Group's policy is to distribute Adjusted EPRA earnings and 6.6 pence per share of distributions were paid in the period. The quarterly distribution was increased to 3.5 pence per share for the third quarter dividend paid in August, reflecting an annualised yield on EPRA NAV of 3.9%. With fixed interest costs and our annually increasing property income, we remain confident that we can continue to deliver a growing dividend and attractive total returns to our shareholders.

The prospects for growth in the dividend and in Total Shareholder Return are underpinned by the Group's unusually long leases, with just under 23 years unexpired as at 30 June 2017 and no break options, and by the high degree of certainty of income growth inherent in the rent review structures. 58% of the Group's rental income is subject to annual minimum fixed rental uplifts averaging 2.8% per annum, with the remaining 42% of rental income subject to uncapped, upwards only RPI linked uplifts. 85% of portfolio rents are subject to annual reviews with the balance on a staggered five year cycle. The Group therefore generates annually increasing income even if there is no inflation, as well as the ability to capture further income growth during inflationary times.

Outlook

The commercial property market is currently polarised between strong investment demand for very well let properties but muted interest in short let or weak covenanted income streams. A similar divide operates between enthusiasm for assets in logistics and alternative sectors such as healthcare but much weaker interest elsewhere. This is reflected in REIT share prices with companies in the favoured sectors trading at or above NAV whilst the remainder typically trade at 20-30% discounts. This has been the position for over a year now since the Brexit vote and, in our view, is unlikely to change any time soon. In a lacklustre UK economy, interest rates and bond yields are likely to continue to remain low, underpinning the search for yield - particularly a sustainable, growing yield. With the outlook for rents in most property sectors now either flat or declining, an increasing amount of capital is bidding for the limited amount of stock that occupies the few remaining bright spots in the market. This continues to put upward pressure on our valuations, adding to our returns but makes sourcing new acquisitions that are accretive to shareholder returns more challenging.

Our goal remains to maximise shareholder returns without reducing the quality of our portfolio. Acquisitions need to meet two sets of criteria. Our financial hurdle is that deals should enhance earnings and NAV per share; in addition, the real estate should be secured on key operating assets in alternative sectors let to companies with strong covenants on long leases with guaranteed uplifts. Throughout 2017 the deals we have considered that have met our property selection criteria have been much lower yielding than our existing portfolio, so failed the financial hurdle. With a myriad of new long income vehicles coming to market we are now in a world where, in our judgement, it is easier to raise money than invest it wisely. In the rush to build up portfolios we now regularly see buyers loosening their criteria in order to secure deals but we remain resolute that shareholders' best interests are served in this climate by being patient and highly selective. Operating in this manner can prove a frustrating process, not least as all ambitious property operators are happiest when doing deals. However, as major shareholders, our manager is firmly aligned in putting shareholder returns first and foremost and fully supports the Board's approach to current market conditions.

What is increasingly apparent is how difficult it would be to replicate our current portfolio of £1.7 billion of high quality assets mainly secured on global covenants. This reinforces our view that the business is well positioned to continue to deliver attractive returns in the current environment and we view the future with confidence.

Martin Moore

Chairman

18 September 2017

Investment Adviser's Report

Prestbury Investments LLP is the investment adviser to Secure Income REIT Plc and is pleased to report on the operations of the Group for the six months ended 30 June 2017.

The portfolio

The portfolio comprises 81 properties with secure, long term rental income from key operating assets, with contractual uplifts offering inflation protection and producing £95.2 million of annualised passing rent at 30 June 2017. The majority of the rent is derived from large listed groups whose businesses offer global spread and which have performed very well over many years, demonstrating strong defensive qualities. The portfolio is fully let for a weighted average term of 22.7 years from 30 June 2017 on full repairing and insuring leases with no break options.

Healthcare assets (54% of portfolio value)

The healthcare assets comprise 20 freehold private hospitals: a portfolio of 19 located throughout England let to a subsidiary of Ramsay Health Care Limited, the listed Australian healthcare company, and one in central London let to a subsidiary of Groupe Sinoué, a French company specialising in mental health. Passing rent on the healthcare portfolio is as follows:

The leases on the acute hospitals are all guaranteed by Ramsay Health Care Limited, one of the top five private hospital operators in the world and a constituent of the ASX 50 index of Australia's largest listed companies, with a market capitalisation at 15 September 2017 of £7.4 billion.

The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 30 June 2017 of 19.9 years without break. The rent increases in May each year by a minimum of a fixed 2.75% per annum throughout the lease term. In addition, at Secure Income REIT's option, rent may be increased with effect from May 2017 to the higher of a 2.75% per annum uplift or 57.525% of site earnings before interest, tax, depreciation, amortisation, rent and head office costs, and every fifth year thereafter to the higher of a 2.75% per annum uplift and open market rental value. The May 2017 review is a calculation based on estimated site earnings and negotiations for any further uplift are ongoing with the tenant. As a result, these financial statements reflect only the 2.75% fixed uplift and not any further uplift on settlement of the review.

The lease on the London psychiatric hospital is guaranteed by Orpea SA, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at 15 September 2017 of £5.5 billion. The hospital is let on a full repairing and insuring lease with a term to expiry at 30 June 2017 of 27.1 years without break, and the rent increases by a fixed 3.0% per annum throughout the lease term in May each year.

Leisure assets (34% of portfolio value)

The leisure assets comprise four well known visitor attractions and two hotels, located in England and Germany, and include two of the UK's top three theme parks. The UK assets are Alton Towers theme park and the Alton Towers hotel, Thorpe Park theme park and Warwick Castle. The German assets are Heide Park theme park (the largest in Northern Germany) and the Heide Park hotel, both located in Soltau, Saxony. Passing rent on the leisure portfolio is as follows:

The properties are held freehold and are let to substantial operating subsidiaries of Merlin Entertainments Plc, the guarantor of the leases. Merlin is a FTSE 100 company with a market capitalisation at 15 September 2017 of £4.5 billion. Measured by the number of visitors, it is Europe's largest and the world's second largest operator of leisure attractions.

The average term to expiry of the leisure leases is 25.0 years from 30 June 2017 and the tenants have two successive rights to renew them for 35 years at the end of each term. The leases are on full repairing and insuring terms with no contractual break options. There are upwards only uncapped RPI-linked rent reviews every June throughout the term (based on RPI in the twelve months to April each year) for the UK assets, which in 2017 resulted in a rental increase of 3.5%. The German properties are subject to fixed annual increases of 3.34% every July throughout the term, as a result of which the German rents increased from £6.1 million to £6.3 million on 29 July 2017 (translated at the 30 June 2017 rate).

Hotel assets (12% of portfolio value)

The hotel assets comprise 55 Travelodge hotels, located in England and Scotland, let to Travelodge Hotels Limited which is the main operating company within the Travelodge Group trading in the UK, Ireland and Spain. Travelodge is the UK's second largest budget hotel brand, with 546 hotels and over 41,000 rooms as at 30 June 2017.

The average unexpired lease term is 26.0 years as at 30 June 2017 with no break clauses. The leases are on full repairing and insuring terms and Travelodge is also responsible for the cost of headlease rentals and any other amounts owing to the superior landlords of the 17 leasehold properties. There are upwards only uncapped RPI-linked rent reviews every five years throughout the term of each lease, with reviews falling due over a staggered pattern across the portfolio. 12% of the Hotel portfolio rents (1.8% of all Group rent) were reviewed in the six months to 30 June 2017, resulting in an 11.8% increase in rental income for those properties and a 1.5% overall increase in passing rent to £13.9 million for the Travelodge portfolio at the balance sheet date.

Portfolio valuation yields at 30 June 2017

* this takes no account of any uplift on the May 2017 site earnings review

† assuming RPI linked rents increase in line with the estimates of the external valuers, which amounted to 2.0% for UK leisure and 2.5% for Hotels

The healthcare valuation yields include the effect of the fixed rental uplifts that took effect in May 2017 but do not reflect any additional uplift that might arise from the May 2017 review based on site earnings, as this review is currently being negotiated and the extent of any uplift is uncertain. The UK leisure valuation yields include the effect of the RPI-linked rental uplifts that took effect in June 2017 and resulted in a 3.5% uplift on those rents. The German leisure valuation yield of 5.4% reflects the passing rent at 30 June 2017 and that yield has since increased to 5.6% following the July 2017 fixed rental uplifts. The hotels valuation yields include the effect of RPI-linked rental uplifts on three properties that took effect in April 2017 and resulted in a 1.5% increase in total hotels rent.

Portfolio valuation by location

The portfolio valuation uplift in the period comprised:

The favourable currency translation movement of £2.3 million has arisen on the German properties, reflecting the strength of the Euro against Sterling: the 31 December 2016 exchange rate was €1:£0.8583 and at 30 June 2017 was €1:£0.8779. This gain is partially offset by movements in the value of the Euro-denominated debt secured on those properties to leave a net currency translation effect on EPRA NAV of £0.9 million arising from the Group's German investments. These German investments make up 5% of EPRA NAV and the rest is all Sterling denominated.

In addition to these valuation movements, a rent smoothing adjustment to investment property revaluations arises from the Group's accounting policy, consistent with International Financial Reporting Standards, to spread the impact of fixed rental uplifts evenly over the term of each relevant lease. The adjustments relate to those rents on the healthcare assets which increase by 2.75% (on 96% of healthcare rents) and 3.0% (on 4% of healthcare rents) every May, and those rents on the German leisure assets which increase by 3.34% every July.

The impact of this accounting treatment is to reflect a receivable, included in the book value of investment property, for the amount of rent included in the income statement ahead of actual cash receipts. This receivable increases over the first half of each lease term then unwinds, reducing to zero over the second half of each lease term. The impact over time for each of the rental income flows subject to smoothing is as follows:

* at the period end Euro conversion rate of €1:£0.8779

In order that the rent smoothing receivable does not, when included in the book value of the investment properties, overstate the value of the portfolio, any movement in the receivable is offset against property revaluation movements. As a result, this adjustment affects only the income statement presentation, increasing rental income and reducing property revaluation gains, and does not change the Group's retained earnings or net assets. The annual impact of this adjustment is known in advance with certainty on the assumption that there are no acquisitions, disposals or lease variations. The additional revenue and reduced valuation movement that is expected to be recognised on the existing portfolio during the current year and the next three financial years is as follows:

* at the year to date average Euro conversion rate of €1:£0.8603

Financing

The Group's operations are financed by a combination of cash resources and non-recourse debt finance, where the assets at risk in the event of a loan default are limited to those within four ring-fenced sub-groups. Each sub-group is self-contained, with no cross default provisions between the four of them. The weighted average interest cost is 5.1% per annum and the weighted average term to maturity is 7.0 years from 30 June 2017. Key terms of the facilities are as follows:

* Comprising £316.8 million of senior and mezzanine Sterling loans secured on the UK assets and €71.8 million of senior and mezzanine Euro denominated loans secured on the German assets (translated at the period end exchange rate of €1:£0.8779) with all Leisure portfolio loans cross-collateralised. The amortisation in each of the years ending October 2021 and October 2022 comprises £3.2 million on the sterling facility and €0.7 million on the Euro facility.

The Group's gross and net debt at 30 June 2017 was as follows:

* including €71.8 million of Euro loans, €2.2 million of cash and €119.3 million of property translated at the period end exchange rate of €1:£0.8779

† interest cover for these purposes is measured as current passing rent divided by current annualised interest cost as at the balance sheet date

Following scheduled amortisation payments in July 2017, the total gross debt at the date of this report, including Euro denominated debt at the 30 June 2017 exchange rate, is £967.7 million.

The extent of headroom on financial covenants at the balance sheet date is analysed in the business review on the following pages. There have been no defaults or potential defaults in any facility during the period or since the balance sheet date.

Financial review

Key performance indicator - Total Accounting Return

The principal financial outcome that the Board seeks to achieve is attractive growth in shareholder returns. The Board monitors both Total Accounting Return, which is the movement in EPRA NAV per share plus distributions, and Total Shareholder Return, which is the share price movement plus distributions. As the share price is influenced by factors outside the control of the Group, the principal focus for the Board is Total Accounting Return.

The Group's EPRA NAV per share at 30 June 2017 was 355.5 pence, which represents a 9.9% increase over the six months since 31 December 2016. This 31.9 pence per share uplift, together with 6.6 pence per share of distributions, totals a 38.5 pence per share Total Accounting Return, equivalent to an 11.9% return over the period.

* adjusted by £6.0 million (2.6 pence per share) to remove from the gross rent and revaluation uplift amounts reported in the income statement of rent smoothing adjustments. These adjustments arise from the requirements of the accounting standards to spread the impact of fixed rental uplifts evenly over the term of relevant leases. The rent smoothing adjustments reflected in these financial statements increase rental income and reduce property valuation gains, and are adjusted in this table to better reflect the Group's actual rental income flows.

EPRA NAV takes the balance sheet measure of net asset value and excludes items that are considered to have no relevance to the assessment of long term performance. The Board considers EPRA NAV to be an appropriate measure as it provides for clearer and more consistent comparisons between the Company's performance and that of its peer group than the balance sheet measure of NAV.

In accordance with the EPRA guidance, to calculate EPRA NAV the Group's NAV is adjusted to exclude deferred tax on investment property revaluations relating to the German assets and is also adjusted to include the dilutive impact of any shares to be issued in satisfaction of the estimated incentive fee arising in the period. The latter adjustment arises because, despite the incentive fee being accounted for in the results for the period, basic net asset value per share does not include the impact of the shares to be issued in satisfaction of that fee.

EPRA NAV is reconciled to the balance sheet net asset value measured in accordance with IFRS in note 17 to the financial statements.

Key performance indicator - Adjusted EPRA earnings per share

The Company's intention is to distribute its Adjusted EPRA EPS through payment of a fully covered cash dividend, paid quarterly.

EPRA EPS excludes from basic EPS any investment property revaluations, profits on the sale of investment properties and related deferred tax to give a measure of underlying earnings from core operating activities.

Adjusted EPRA EPS takes EPRA EPS and removes the effect of smoothing the fixed rental uplifts (in order not to artificially flatter dividend cover calculations) and any significant non-recurring costs (such as the £2.0 million costs of the secondary placing in 2016). The measure also excludes any incentive fee and the associated irrecoverable VAT, which is considered to be linked to revaluation movements and therefore best treated consistently with revaluations.

Adjusted EPRA Earnings and EPS comprise:

Adjusted EPRA EPS is reconciled to basic EPS in note 8 to the financial statements.

The key components of the Group's earnings are its rental income, administrative expenses and financing costs. An analysis of the Group's rental income is included in the portfolio review earlier in this report and the other items are analysed below.

Adjusted EPRA earnings per share - administrative expenses

The administrative expenses included in Adjusted EPRA EPS for the period are as follows:

As an externally managed business, the majority of the Group's overheads are covered by the advisory fees paid to the Investment Adviser. It is the Investment Adviser that then meets all office running costs and remuneration for the whole management and support team. The other recurring administrative expenses are principally professional fees, including tax compliance and audit fees, which are billed directly to Group companies.

Corporate costs are those costs necessarily incurred as a result of the Company being listed and comprise:

· the cost of the Board of seven Directors, four of whom received fees totalling £0.1 million in the period. The other three Directors are partners in the Investment Adviser and receive no remuneration from the Company; and

· other costs of being listed, including listing fees, nominated advisers' fees and registrars' fees, which totalled £0.1 million in the period.

Because VAT cannot be charged on the rents on the healthcare assets, there is an element of irrecoverable VAT incurred on the Group's running costs and included within the relevant line items in the table above. The proportion of disallowed VAT on administrative expenses and corporate costs was 51% during the period and at the balance sheet date on an annualised basis.

An incentive fee becomes due if total returns to investors over a financial year exceed a compound growth rate of 10% per annum above the EPRA NAV per share the last time any incentive fee was paid. In the current year the threshold EPRA NAV plus distributions is 355.9 pence per share at 31 December 2017. If the threshold return is exceeded, the Investment Adviser receives 20% of any surplus above that priority return to shareholders, payable in shares. Any such shares received are not permitted to be sold, save in certain limited circumstances, for a period of between 18 and 42 months following the end of the year for which they were earned. The entitlement to any fee only arises after the publication of the Group's audited financial statements for the relevant year.

An incentive fee of £3.2 million plus irrecoverable VAT of £0.3 million has been recognised in the period, which if ultimately earned would be settled by the issue of 0.9 million shares (representing a 0.4% dilution). In order to make a reasonable assessment of whether or not such a fee will be payable, the Board has estimated the EPRA NAV of the Group at 31 December 2017, assuming that:

· the property portfolio valuation yields do not change from those applied as at 30 June 2017;

· there are no acquisitions, disposals or lease variations;

· any additional uplift in rent from the outstanding Ramsay rent review is not included, on the basis that the outcome of the review is not yet known with sufficient certainty;

· there are no currency translation gains or losses;

· RPI uplifts are consistent with the expectations reflected in the June 2017 external investment property valuations;

· shares are issued in settlement of the fee at the weighted average share price for the period; and

· the Group's Adjusted EPRA EPS over the remainder of the year is fully distributed on a quarterly basis.

This estimate does not constitute a forecast but represents an illustrative case considered to provide a reasonable basis for assessing whether an incentive fee will be payable, while recognising the limitations inherent in any estimate of future values. On the basis of these assumptions a fee of £6.4 million would be payable for the whole year on which irrecoverable VAT of £0.6 million would be incurred. Half of the estimated cost is recognised in the first half of the year, reflecting the period over which the services for which the fee is earned have been discharged so far. All other things being equal, the balance of the incentive fee would be incurred in the second half of 2017 resulting in a further £3.5 million charge to administrative expenses and a £3.2 million share issue. In total 1.9 million new shares would be issued, representing a 0.8% dilution, of which the impact of issuing 0.9 million is already reflected in these financial statements. The result would be further reductions of £0.3 million in EPRA NAV (reflecting the irrecoverable VAT) and 1.5 pence in EPRA NAV per share.

Adjusted EPRA earnings per share - tax

The Group operates under the UK REIT regime, so its UK and German rental operations (which make up the majority of the Group's earnings) are exempt from UK corporation tax, subject to the Group's continuing compliance with the UK REIT rules. The Group is otherwise subject to UK corporation tax.

German tax was payable in the period at an effective rate of 8% on realised profits from the Group's German rental operations and the resulting tax charge for the period was £0.2 million. The balance sheet also includes a deferred tax liability of £9.7 million relating to unrealised German capital gains tax on the investment properties which would only be crystallised on a sale of those assets. There are currently no plans to sell any of the Group's assets.

Adjusted EPRA earnings per share - currency translation

The majority of the Group's assets are located in the UK and the financial statements are therefore presented in Sterling. 5% of the Group's EPRA NAV relates to assets and liabilities relating to properties located in Germany, valued in and generating net earnings in Euros. The fact that both assets and liabilities are Euro denominated acts as a partial hedge of currency fluctuations, but the Group remains exposed to translation differences on the net results and net assets of these operations which are not hedged, with movements recognised in the statement of other comprehensive income.

The German properties are valued at €119.3 million as at 30 June 2017, with the Euro denominated secured debt amounting to €71.8 million. The Euro strengthened against Sterling over the period by over 2% and as a result there was a net currency translation gain of £0.9 million in EPRA NAV in relation to the German net assets.

Key performance indicator - headroom on debt covenants

Debt covenants have been negotiated with the aim of protecting the Group as far as possible from movements in investment property valuations which are not related to changes in the rental cash flows. Key financial covenants are as follows:

· the £310.6 million Healthcare facility and the £60.0 million Travelodge facility, which together account for 38% of gross secured debt, are subject to LTV and interest cover tests throughout the loan terms;

· the £218.3 million Healthcare facility, 23% of total gross secured debt, is tested annually for LTV with effect from September 2019 and an interest cover cash trap test operates throughout the loan term; and

· the £379.8 million Leisure facilities, which account for 39% of total secured debt, are not subject to any LTV default covenant or interest cover tests throughout the loan term. There are LTV tests from August 2018 which could if breached trigger a cash trap or full cash sweep.

The Board reviews the headroom on all financial covenants at least quarterly. The headroom on key financial covenants at 30 June 2017 is set out below, together with the net initial valuation yield, the fall in valuation or the fall in projected rent that would trigger a breach of the relevant covenant at the balance sheet date or the first test date if later:

* assuming RPI linked rents increase in line with the RPI swap curve as at 5 September 2017

Key performance indicator - Net Loan To Value ratio

The Board ensures that debt facilities are structured with a view to maintaining a capital structure that will withstand varying market conditions. During the period the Group's Net LTV fell from 53.5% to 51.0%, reflecting the impact of £76.1 million of property valuation uplifts and £2.1 million of scheduled debt amortisation.

Key performance indicator - uncommitted cash

The Board considers that the ability to manage potential debt covenant breaches is at least as important as the level of the financial covenants themselves. The Group has negotiated headroom on financial covenants considered appropriate to the business and also certain cure rights, including the ability to inject cash into ring-fenced financing structures in the event of actual or prospective breaches of financial covenants. Consequently, along with managing the execution risk inherent in arranging and documenting credit facilities, the Board regularly monitors the Group's levels of uncommitted cash. Uncommitted cash is measured as cash balances outside ring-fenced structures secured to lenders, net of any creditors or other cash commitments and net of any cash required to be retained under the regulatory capital rules of the AIFMD regime.

The Group's uncommitted cash was £63.4 million as at 30 June 2017, compared to £64.3 million as at 31 December 2016.

Cash flow

The movement in cash over the period comprises:

The Company's dividend policy is to fully distribute its earnings. The Group's investment properties are let on full repairing and insuring terms, with each tenant obliged to keep the premises in good and substantial repair and condition, including rebuilding, reinstating, renewing or replacing premises where necessary. Consequently, no capital expenditure, property maintenance or insurance costs have been incurred in the period and it is not expected that material costs of that nature will be incurred on the current portfolio in future. As a result, in the absence of asset purchases or disposals cash balances should remain relatively stable over time.

Nick Leslau

Chairman, Prestbury Investments LLP

18 September 2017

Group Income Statement

All amounts relate to continuing activities.

Group Statement of Other Comprehensive Income

The notes form part of this financial information.

Group Statement of Changes in Equity

Interim dividends totalling 6.6 pence per share (31 December 2016: 5.8 pence per share; 30 June 2016: nil) were paid during the period.

The notes form part of this financial information.

Group Balance Sheet

The notes form part of this financial information.

Group Cash Flow Statement

The notes form part of this financial information.

Notes to the Interim Report

The financial information set out in this report covers the six month period to 30 June 2017, with comparative amounts relating to the year to 31 December 2016 and the six month period to 30 June 2016, and includes the results and net assets of the Company and its subsidiaries, together referred to as the Group.

The Company is incorporated in the United Kingdom. The address of the registered office and principal place of business is Cavendish House, 18 Cavendish Square, London, W1G 0PJ.

The Company is listed on the AIM market of the London Stock Exchange. Further information about the Group and Company can be found on its website, www.SecureIncomeREIT.co.uk.

The financial information contained in this report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union, and on a going concern basis. The accounting policies adopted in this report are consistent with those applied in the Group's statutory accounts for the year ended 31 December 2016 and are expected to be consistently applied in the year to 31 December 2017.

The Directors are required to assess whether it is appropriate to make provision at the balance sheet date for the relevant proportion of any incentive fee payable for the current financial year. In making this assessment, the Directors estimate the EPRA NAV per share of the Group at the end of the financial year. As described in note 18, this estimate does not constitute a forecast but represents an estimated illustrative case only, and is considered to provide a reasonable basis for estimating whether an incentive fee will be payable while recognising the limitations inherent in any estimate of future values.

Euro denominated results for the German operations have been converted to Sterling at an average exchange rate for the period of €1:£0.8603 and period end balances converted to Sterling at the 30 June 2017 exchange rate of €1:£0.8779.

The condensed financial statements for the period are unaudited and do not constitute statutory accounts for the purposes of the Companies Act 2006. The annual report and financial statements for 2016 have been filed at Companies House. The independent auditor's report on the annual report and financial statements for 2016 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498 (2) or 498 (3) of the Companies Act 2006.

The Group's financial performance is not subject to material seasonal fluctuations.

The IASB has issued the following standards that are mandatory for periods subsequent to 31 December 2017 (the date to which the Group's next annual financial statements will be prepared), and which are relevant to the Group but have not been adopted early. The Directors' assessment of the impact of these new accounting standards remains unchanged from that reported in the 2016 financial statements. No other new or revised standard is expected to have a material effect on the Group's financial statements.

IFRS 9 deals with the classification and measurement of financial instruments and the Directors do not anticipate that its adoption will have a material impact on the Group's financial statements assuming that the existing capital structure and financing arrangements remain in place at the time that the standard becomes effective.

The Group's revenue is derived entirely from leases, which are outside the scope of IFRS 15 but within the scope of IFRS 16. IFRS 15 is not therefore expected to have an impact on the Group. Since IFRS 16 will not result in significant changes of accounting policies for lessors, the Directors do not expect that the adoption of this standard will have a material impact on the Group's financial statements.

IFRS 8 "Operating Segments" requires operating segments to be identified on a basis consistent with internal reports about components of the Group that are reviewed by the chief operating decision maker to make decisions about resources to be allocated between segments and assess their performance. The Group's chief operating decision maker is considered to be the Board.

The Group owns 81 properties originally acquired in three portfolios. Although certain information about these portfolios is described individually within the Investment Adviser's report, when considering resource allocation and performance the Board reviews quarterly management accounts prepared on a basis which aggregates the performance of the portfolios and focuses on Total Accounting Return. The Board has therefore concluded that the Group has operated in, and was managed as, one business segment of property investment in both the current period and prior year.

The geographical split of revenue and applicable non-current assets required by IFRS 8 was as follows:

Revenue, which is stated after taking account of the impact of rent smoothing adjustments, includes:

The rent smoothing adjustment arises through the Group's accounting policy in respect of leases, which requires the recognition of rental income on a straight line basis over the lease term in certain circumstances, including for the 58% (31 December 2016: 58%; 30 June 2016: 68%) of passing rent as at 30 June 2017 which increases by a fixed percentage each year. At this stage in the lease terms, which is before the midway point in each lease, this results in an increase in revenue and an offsetting entry is recognised in the income statement as a reduction in the gains on investment property revaluation.

Amounts shown above include irrecoverable VAT as appropriate.

At 30 June 2016, £1.4 million of costs had been incurred in exploring the feasibility of the Travelodge acquisition, which had been expensed as the decision to acquire the portfolio had not been made at the balance sheet date. When the acquisition completed in October 2016, these costs were included in the acquisition cost of the portfolio.

The tax assessed for the period varies from the standard rate of corporation tax in the UK applied to the profit before tax. The differences are explained below:

The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's UK and German property rental business from UK corporation tax. Gains on the Group's UK and German properties are also generally exempt from UK corporation tax, provided they are not held for trading or in certain circumstances sold in the three years after completion of a development.

To remain a UK REIT, there are a number of conditions to be met in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since entering the UK REIT regime the Group has met all applicable conditions.

The Group is subject to German corporation tax on its German property rental business at an effective rate of 8%, resulting in a tax charge of £0.2 million (year to 31 December 2016: £0.2 million; six months to 30 June 2016: £0.1 million). A deferred tax liability of £9.7 million (31 December 2016: £8.5 million; 30 June 2016: £6.9 million) is recognised for the German capital gains tax that would potentially be payable at 15.8% on the sale of the relevant investment properties.

Earnings per share is calculated as profit attributable to ordinary shareholders of the Company for each period divided by the weighted average number of ordinary shares in issue throughout the relevant period.

Diluted EPS reflects shares to be issued, including any to be issued in settlement of incentive fees that may be earned in the relevant period as if those shares had been issue throughout the period over which the incentive fee was earned. Where shares are issued in one reporting period relating to the results of the prior period, the shares are treated, for the purposes of calculating the weighted average of shares in issue, as having been issued on the earlier of the last day of that prior period and the actual date of issue.

The European Public Real Estate Association ("EPRA") publishes guidelines for calculating adjusted earnings designed to represent core operational activities. As well as the standard EPRA earnings figure, an adjusted EPRA earnings calculation has also been presented. This removes the effect of smoothing the fixed rental uplifts (in order not to artificially flatter dividend cover calculations) and any non-recurring costs, such as those for share placings or share issues. The adjusted measure also excludes any incentive fees, as they are considered to be linked to revaluation movements and are therefore best treated consistently with revaluations.

As a result of those adjustments, the various EPRA EPS figures are as follows:

As at 30 June 2017 the properties were externally valued at £1,720.2 million (31 December 2016: £1,641.7 million; 30 June 2016: £1,378.5 million) by either CBRE Limited or Jones Lang Lasalle Limited, Commercial Real Estate Advisors, in their capacity as external valuers. The valuations were prepared on a fixed fee basis, independent of the portfolio value, and were undertaken in accordance with RICS Valuation - Professional Standards January 2014 on the basis of fair value, supported by reference to market evidence of transaction prices for similar properties.

The following table reconciles the carrying values of the investment properties to their external valuations:

Included within the carrying value of investment properties at 30 June 2017 is £180.0 million (31 December 2016: £173.4 million; 30 June 2016: £166.2 million) in respect of the smoothing of fixed contractual rental uplifts as described in note 4. The difference between rents on a straight line basis and rents actually receivable is included within the carrying value of investment properties but does not increase that carrying value over fair value. The revaluation movement therefore comprises:

The historic cost of the Group's investment properties as at 30 June 2017 was £1,258.0 million (31 December 2016: £1,258.0 million; 30 June 2016: £1,063.6 million). All of the investment properties are held, within four ring-fenced security pools, as security under fixed charges in respect of secured debt.

The Board determines the Group's valuation policies and procedures, and is responsible for overseeing the valuations. Valuations are based on information provided from the Group's financial and property reporting systems, such as current rents and the terms and conditions of lease agreements, together with assumptions used by the valuers (based on market observation and their professional judgement) in the valuation models.

At each reporting date, certain partners of the Investment Adviser who have recognised professional qualifications and are experienced in valuing the types of property owned by the Group, initially analyse the external valuers' assessments of movements in the property valuations from the prior reporting date. Fair value changes (positive or negative) over a certain materiality threshold are considered. Changes in fair value are also compared to external sources (such as the Investment Property Databank and other relevant benchmarks) for reasonableness. Once the Investment Adviser has considered the valuations, the results are discussed with the Group's external valuers, focusing on properties with unexpected fair value changes or any with unusual characteristics. The Audit Committee considers the valuation process as part of its overall responsibilities, including meetings with the external valuers, and reports on its assessment of the procedures to the Board.

The fair value of the investment property portfolio has been determined using an income capitalisation technique, whereby contracted and market rental values are capitalised with a market capitalisation rate. This technique is consistent with the principles in IFRS 13 and uses significant unobservable inputs, such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair value hierarchy as defined in IFRS 13. There have been no transfers to or from other levels of the fair value hierarchy during the period.

The key inputs for the level 3 valuations were as follows:

The principal sensitivity of measurement to variations in the significant unobservable outputs is that decreases in net initial yield, decreases in running yield and increases in RPI will increase the fair value (and vice versa).