Net Asset Value(s)
January 21 2008 - 8:34AM
UK Regulatory
RNS Number:1991M
Standard Life Invs Property Inc Tst
21 January 2008
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED
31 December 2007 - Net Asset Value Announcement
The unaudited net asset value per ordinary share of Standard Life Investments
Property Income Trust Limited at 31 December 2007 was 111.6 pence. This is a
decrease of 14.6 percentage points over the net asset value of 130.7 pence per
share at 30 September 2007
The net asset value is calculated under International Financial Reporting
Standards ("IFRS") and includes a provision for payment of a proposed interim
dividend of 1.69p per ordinary share for the quarter to 31 December 2007.
The net asset value incorporates the external portfolio valuation by Jones Lang
LaSalle at 31 December 2007. The property portfolio will next be valued by an
external valuer during March 2008 and the next quarterly net asset value will be
published in early April 2008. Prior to the December valuation DTZ valued the
property portfolio, however their contract expired in November 2007. Jones Lang
LaSalle have been appointed on a new 3 year contract after a competitive tender
process through which the Company has achieved a substantial cost saving.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited net asset value per
share calculated under IFRS over the period 30 September 2007 to 31 December
2007.
Pence per % of opening
share NAV
Net Asset Value per share as at 30 130.7 -
September 2007
Unrealised decrease in valuation of (17.0) (13.0%)
property portfolio (including the effect of
gearing)
Decrease in interest rate swap valuation (1.6) (1.2%)
Other movement in reserves (0.5) (0.4%)
Net Asset Value per share as at 31 December 111.6 (14.6%)
2007
The ungeared decrease in the valuation of the property portfolio over the
quarter to 31 December 2007 was 9.0%. This compares to the IPD Monthly Index
Capital return for the quarter of -9.7%.
Total Asset Analysis as at 31 December 2007 (unaudited)
+----------------------------+-----------+------------+
| |�m |% |
+----------------------------+-----------+------------+
|Office |68.1 |31.1 |
+----------------------------+-----------+------------+
|Retail |37.7 |17.2 |
+----------------------------+-----------+------------+
|Industrial |51.3 |23.4 |
+----------------------------+-----------+------------+
|Other |21.1 |9.6 |
+----------------------------+-----------+------------+
|Total Property Portfolio |178.2 |81.3 |
+----------------------------+-----------+------------+
|Cash |34.5 |15.7 |
+----------------------------+-----------+------------+
|Other Assets* |6.6 |3.0 |
+----------------------------+-----------+------------+
|Total Gross Assets |219.3 |100.0 |
+----------------------------+-----------+------------+
* other assets represent capitalised leasehold obligations and debtors
Cash Position
As at 31 December 2007, the Company has borrowings of �84.4m and a cash position
of �34.5m therefore cash as a percentage of debt was 40.9%.
Breakdown in valuation movements over the period 30 September to 31 December
2007.
+---------------------------+-------------+-------------+---------+
| | Exposure as |Capital Value| �m |
| | at 31 |Movement (%) | |
| |December 2007| | |
| | (%) | | |
+---------------------------+-------------+-------------+---------+
|External Valuation at 30/09| | | 195.83 |
|/07 | | | |
+---------------------------+-------------+-------------+---------+
|Sub Sector Analysis: | | | |
+---------------------------+-------------+-------------+---------+
|RETAIL | 21.2 | -4.2 | -1.64 |
+---------------------------+-------------+-------------+---------+
|South East Standard Retail | 4.1 | -9.2 | |
+---------------------------+-------------+-------------+---------+
|Retail Warehouses | 17.1 | -2.9 | |
+---------------------------+-------------+-------------+---------+
| | | | |
+---------------------------+-------------+-------------+---------+
|OFFICES | 38.2 | -15.3 | -12.32 |
+---------------------------+-------------+-------------+---------+
|Central London Offices | 20.5 | -15.0 | |
+---------------------------+-------------+-------------+---------+
|South East Offices | 6.1 | -14.7 | |
+---------------------------+-------------+-------------+---------+
|Rest of UK Offices | 11.6 | -16.1 | |
+---------------------------+-------------+-------------+---------+
| | | | |
+---------------------------+-------------+-------------+---------+
|INDUSTRIAL | 28.8 | -6.1 | -3.34 |
+---------------------------+-------------+-------------+---------+
|South East Industrial | 2.9 | -7.6 | |
+---------------------------+-------------+-------------+---------+
|Rest of UK Industrial | 25.9 | -5.9 | |
+---------------------------+-------------+-------------+---------+
| | | | |
+---------------------------+-------------+-------------+---------+
|OTHER | 11.8 | -1.5 | -0.33 |
+---------------------------+-------------+-------------+---------+
| | | | |
+---------------------------+-------------+-------------+---------+
|External Valuation at 31/12| | | 178.20 |
|/07 | | | |
+---------------------------+-------------+-------------+---------+
Investment Manager Commentary
UK Property Market
Although much anticipated, the pricing correction currently underway in the UK
commercial property market has been more rapid and aggressive than predicted.
The domestic market has looked expensive for some twelve months now following a
four year bull run on the sector. Accelerating cost of debt at the end of the
summer sparked a sharp reappraisal of risk across all asset classes and,
although the inclusion of real estate as a diversifier in a multi-asset
portfolio on a global basis remains widely accepted, UK property must return to
fair value to regain investor confidence. It is anticipated that this should
occur in the course of 2008 as UK commercial property yields move back towards
their long term average.
The final quarter of 2007 witnessed a further slowing of returns from the UK
listed and off-shore sectors. The UK FTSE Real Estate Index fell by 15.0% over
the quarter with much of the 2006 gains made in the run up to the introduction
of REITs reversing over the course of the last twelve months. The off-shore
sector has experienced a similar fortune, falling by 31% on average in the
quarter as the sharp adverse swing in sentiment towards the sector took its
toll.
Against the backdrop of property prices falling generally, the recent long term
trend of offices outperforming on a quarterly basis came to an end over this
quarter. At -8.3% over the 3 months to end December, Industrials recorded the
least negative return this quarter. This compares to offices at -10.5% and
retail at -9.8%. Across the sectors, the occupier markets have been resilient
although it is anticipated there may be some softening of demand as a result of
the general economic slowdown taking place and the fall out of the credit
markets, this is likely to have most effect on the City specifically and the
Central London office markets to a lesser extent. Unlike in the early 1990's
slowdown, there has been an absence of widespread speculative building in the UK
commercial property market in this cycle apart from in the City and some of the
larger regional office markets. Also in this period, economic growth has been
robust and despite some softening it is forecast to remain so, albeit at below
current levels. This is in sharp contrast to the recessionary environment of the
early 1990's.
During the quarter, the decline in the direct property market intensified,
however it was in the offshore listed sector that the greatest movement was
seen. Discounts have moved from an average of 20% at end September 2007 to circa
38% at end December 2007. A trigger for the fall was the greater than expected
fall in NAVs in a couple of the companies in the sector, and ensuing concern
over how close to breaching banking covenants some companies in the sector might
be. Trading volumes have generally been low, and only the larger companies have
undertaken share buy backs. The buybacks have not been in great quantity and
have had little impact on discounts.
Investment Outlook
The bull run in UK Commercial property over the four years to 2007 led to
unsustainable pricing, with property income yields below the risk free rate.
This triggered a faster than expected price correction. The credit crisis
contributed to the speed of the correction, and the market has returned to a
more rational pricing level with IPD monthly index initial yields at 5.2% at end
December. This is more in line with the long term premium to the adjusted risk
free rate. IPD equivalent yields as at end December were 6.3% which provides a
margin again over Libor and 5 year swaps.
From a landlord's perspective, the fundamentals supporting the occupier markets
remain in place. This should help to provide solid grounds for continued tenant
demand and consequently an environment that enables rents to be moved forward.
The economy remains in good shape and although momentum may soften going
forward, economists continue to forecast robust economic expansion next year.
Similarly, financial and business services data along with manufacturing and
industrial production forward looking surveys suggest that the occupier market
has a firm foundation. As a consequence of the pricing correction currently
underway, and despite rental growth expected to be firm, the returns in the
coming year are expected to be at levels well below the above average returns
investors have experienced from commercial property in the past decade. A return
to healthy single digit returns is expected thereafter.
Strategy Update:
The sale of six properties for �41.5m in July 2007 proved propitious timing
given the subsequent downturn in the UK commercial property market in the last
quarter. As at 31 December 2007, the Company had cash resources of �34.5m
representing 40.9% of the outstanding borrowings.
In the current volatile markets the Board and Investment Manager are focussed on
keeping the Company's gearing levels down. Taking account of the current outlook
for the UK Commercial Property market and the Company's current level of gearing
the Board and the Investment Manager remain confident that the Company is well
placed to maintain its dividend and meet all banking covenants. The Board and
the Investment Manager will keep under review the best use for the Company's
cash resources taking account of all market factors.
Portfolio Activity:
Purchases and Sales:
During the quarter the Company exchanged on the purchase of a well let
industrial unit in the Thames Gateway for �7.5m, which shows an initial yield of
6.5%. Completion is due in early February 2008. The purchase was undertaken to
capitalise on an off market opportunity to buy a good quality building with an
above average income return and strong prospects for income and capital growth,
in line with the company strategy.
Asset Management:
Hollywood Green, London: The Company has reached an agreement to surrender with
Hoyts, and an agreement for lease with Cineworld. Although the rental income
will be lower under the new lease, Cineworld are a stronger covenant and the new
lease has fixed increases throughout its term. Hoyts no longer trade from any
other cinemas in the UK or Europe, and a premium is payable by Hoyts for the
surrender of their lease. The transaction is conditional on Office of Fair
Trading approval, and an application has been made.
Storage Land, Witham: A planning application has been made for a new industrial
unit and the outstanding rent review has been agreed at �14,500 p.a. (rent
passing �9,400 p.a.). The existing lease is being terminated in March 2008, and
the Company will either sell with the benefit of planning or undertake the
development itself.
Ocean Trade Centre, Aberdeen: The new lease to unit 8 completed in the first
week of January 2008, and solicitors have been instructed on the letting of unit
17 at a new rental level of �7.50 per sq ft.
Crown Farm, Mansfield: The tenant vacated unit 1B on lease expiry and a minor
refurbishment has been undertaken using the dilapidations monies received.
Marketing of the unit is underway.
Enquiries:
Richard England
Press Manager, Standard Life Investments
Tel: 0131 245 2750
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court
Les Banques
GY1 3Q1
Tel: 01481 745439
Fax: 01481 745085
APPENDIX 1
Historical NAV per Ordinary Share are as follows:
Adjusted IFRS NAV Adjusted UK GAAP NAV
31/12/07 111.60p 115.96p
30/09/07 130.70p 133.47p
30/06/07 137.16p 137.79p
31/03/07 134.42p 137.23p
31/12/06 132.68p 136.47p
30/09/06 129.51p 134.37p
30/06/06 130.20p 134.87p
31/03/06 124.28p 130.46p
31/12/05 116.46p 124.00p
30/09/05 107.12p 114.31p
30/06/05 103.88p 111.82p
31/03/05 101.34p 106.63p
31/12/04 99.00p 105.16p
This information is provided by RNS
The company news service from the London Stock Exchange
END
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