3 November
2016
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
Unaudited Net Asset Value as at
30 September 2016
Key Highlights
- Net asset value per ordinary share was 79.0p ( June 2016 – 81.8p), a fall of 3.4%, resulting in
a NAV total return, including dividends, of -2.1% for Q3;
- The portfolio valuation decreased by 2.2% on a like for like
basis, whilst the IPD/MSCI Monthly Index fell by 3.6% over the same
period;
- Positive share price performance in the quarter with share
price total return of 5.0% resulting in the Company’s shares
trading at a premium to NAV of 3.5% as at 30
Sep 2016;
- Successful asset management initiatives up to the date of this
announcement included
·
3 new lettings of industrial units in Aberdeen and one lease renewal
·
Refurbishment completed on largest void in the portfolio –
Broadgate Oldham
·
Terms agreed for letting of one of three vacant units at Trafford
Park Manchester
- Low void rate of 4.4% as at 30 Sep
2016 (which will decrease by 1% on completion of sale of a
property in Bristol);
- Dividend yield of 5.8% based on a quarterly dividend of 1.19p
as at 30 Sep 2016 compares favourably
to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE
All Share Index (3.5%) as at the same date; it is anticipated the
dividend will be covered for the financial year.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
30 September 2016 was 79.0p. The net
asset value is calculated under International Financial Reporting
Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Jones Lang LaSalle and
Knight Frank at 30 September 2016.
The caveat that was in place for the Company’s valuations as at
30 June 2016, following the result of
the EU referendum, has been removed.
The information in this announcement was inside information.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
per share calculated under IFRS over the period 1 July 2016 to 30
September 2016.
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
|
Net assets
as at 30 June 2016 |
81.8 |
311.6 |
|
|
Unrealised
decrease in valuation of property portfolio |
-2.6 |
-9.9 |
Like for
like decrease of 2.2% in property portfolio. |
|
Net income
in the quarter after dividend |
0.2 |
0.6 |
Continued
strong income generation with dividend cover of 126% in the
quarter. |
|
Interest
rate swaps mark to market revaluation |
-0.3 |
-1.1 |
Increase
in swap liabilities as a result of a continuing expectation that
interest rates will be lower for longer as a result of the EU
referendum. |
|
Other
movement in reserves |
-0.1 |
-0.5 |
Movement
in lease incentives and capital expenditure in the quarter. |
|
Net assets
as at 30 September 2016 |
79.0 |
300.7 |
|
|
|
European Public Real Estate Association (“EPRA”)* |
30 Sep 2016 |
30 Jun 2016 |
|
|
EPRA Net Asset
Value |
£307.3m |
£317.0m |
|
|
EPRA Net Asset Value per
share |
80.7p |
83.3p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Net Asset Value per share is calculated using 380,690,419
shares of 1p each being the number in issue on 30 September 2016.
* The EPRA net asset value measure is to highlight the fair
value of net assets on an on-going, long-term basis. Assets and
liabilities that are not expected to crystallise in normal
circumstances, such as the fair value of financial derivatives, are
therefore excluded.
Investment Manager Commentary
The third quarter of 2016 was, of course, dominated by the
outcome of the EU Referendum. Perhaps attributable to this, the
summer months were quieter than usual, with many people away and
little desire for decisions to be made. We noticed this for
lettings, with transactions being slow to progress. We are pleased
to report, however, that more recently we have since seen signs of
“business as usual” from many of our tenants, especially in the
industrial and logistics sector.
Although the market appears to be stabilising, and several
economic indicators are better than expected, we retain our
cautious outlook and will seek to take risk off the table,
especially where this can be done above present valuations. Our
void level has increased slightly over the quarter, but is still
very low at 4.4% compared to the IPD benchmark of 7.1%. Across the
portfolio we have about 225 tenants, and have 18 units available to
let, ranging in size from 215sq.ft (a kiosk worth £11,000 per
annum) to a 101,000sq.ft logistics unit worth £520,000 per annum.
Income remains key to us, and our focus is on letting these vacant
units, and interest is encouraging in a number of them. It is
pleasing however that the dividend cover remains robust at
126%.
Since the quarter end we have exchanged contracts to sell an
asset in Bristol that included our
second largest void (an industrial unit of 51,000sq.ft worth
£308,000 pa). Encouragingly, the sale price is above the June
valuation and the sale proceeds will be used, at least initially,
to repay part of the revolving credit facility (“RCF”). This
transaction is due to complete in early November and will reduce
the void rate in the Company to 3.4%.
Last quarter we highlighted the new debt facility the Company
had entered into in April this year and the disadvantageous
movement in the mark to market value of the interest rate swap.
As at the end of September, the Company had a term loan of
£110m and £21m outstanding under the RCF. This provided a Loan to
Value Ratio of 27.3%. The all in cost of the debt is 2.56%, however
the NAV recognises another £1.1m adverse movement in the value of
the interest rate swap – taking the liability recognised to £6.5m.
This will revert to £0 at maturity of the swap in April 2023, or sooner if longer term interest
rates were to rise.
Market Commentary
The economic data following the referendum has not been as
negative as feared although the heightened uncertainty has had some
impact on overall activity and this is likely to continue.
Significant monetary support and the rapid formation of a workable
government have helped support the wider economy also. Although the
recent economic data makes an immediate recession after the vote
less likely, potential longer term constraints on economic growth
in the UK remain as uncertainty dampens business investment. The
weaker pound should help to boost net export growth and the
depreciated currency also makes UK real estate more attractive to
overseas investors.
Over the twelve months to end September, the All Property
Monthly Index recorded a total return of 3.2% against 9.2% in the
twelve months to end June this year. The sharp capital decline
following the unexpected result of the EU Referendum was the main
contributor to the fall in returns, with capital values in the
Monthly Index falling by 3.6% over the quarter to September 2016, although market conditions and
sentiment have stabilised in recent weeks. Encouragingly, rental
growth remained stable at 2.7% in the twelve months to end
September.
As for the equity markets, the FTSE All Share and the FTSE 100
total returns were 7.8% and 7.1% respectively in the third quarter.
For listed real estate equities, total returns have regained the
declines they experienced immediately after the vote to leave the
EU, closing the quarter end with a rise of nearly 5%.
Investment Outlook
The measures taken by real estate funds after the unexpected
referendum vote to protect existing fund investors and stem the
initial liquidity driven outflows are gradually being unwound and
stability and a level of normality is returning to the UK property
market. In the environment where the economic fundamentals are
expected to soften further and with uncertainty remaining above
“normal” levels, we expect lower returns from property than has
been the case over the last few years. Given this background, the
steady secure income component generated by the asset class is
likely to be the key driver of returns going forward.
In the short term, the market is likely to be sentiment driven,
which will further affect capital values until there is clarity on
the timeline and nature of the EU exit, while the medium term
impact will hinge on the economic effects. From a sector
perspective, we continue to expect Central London offices to be the most impacted
sector in the near term given the linkages to European markets via
cross border trading. Industrial and retail assets are expected to
be comparatively resilient, although not immune, given their close
connection to consumers. Despite the uncertain outlook, UK real
estate continues to provide an elevated yield compared to other
assets and, unlike in the financial crisis, lending to the sector
is at a much lower level than in 2007/2008. Furthermore, existing
vacancy rates are below average levels in most markets and
development remains relatively constrained, which should all help
stabilise the market further out. The “global hunger for yield” can
only strengthen the demand for real estate in the current ultra-low
interest rate environment. The retention of the UK’s safe haven
status should also ensure the asset class is better placed longer
term.
Cash and Borrowing position
As at 30 September 2016 the
Company had cash of £13.3million. The LTV as at this date
(Borrowings less cash divided by portfolio value) was 27.3%.
Dividends
The Company paid total dividends in respect of the quarter ended
30 June 2016 of 1.19p per Ordinary
Share, with a payment date of 31 August
2016.
Net Asset analysis as at 30 September 2016 (unaudited)
|
£m |
% of net
assets |
Office |
182.8 |
60.8 |
Retail |
97.2 |
32.3 |
Industrial |
151.1 |
50.2 |
Total Property Portfolio |
431.1 |
143.3 |
Adjustment for lease incentives |
(3.7) |
(1.2) |
Fair value of Property
Portfolio |
427.4 |
142.1 |
Cash |
13.3 |
4.4 |
Other Assets |
7.2 |
2.4 |
Total Assets |
447.9 |
148.9 |
Non-current liabilities (bank loans
& swap) |
(136.5) |
(45.4) |
Current liabilities |
(10.7) |
(3.5) |
Total Net Assets |
300.7 |
100.0 |
Breakdown in valuation movements over the period 1 Jul 2016 to 30 Sep
2016
|
Portfolio Value as at 30 Sep 2016 (£m) |
Exposure as at 30 Sep |
Like
for Like Capital Value Shift |
Capital Value Shift |
2016
(%) |
(%) |
Valuation as of 30
Jun 2016 |
|
|
|
450.1 |
|
|
|
|
|
Retail |
97.2 |
22.5 |
-1.4 |
-1.3 |
South East Retail |
|
6.4 |
-0.8 |
-0.2 |
Rest of UK Retail |
|
1.2 |
-2.0 |
-0.1 |
Retail Warehouses |
|
14.9 |
-1.6 |
-1.0 |
|
|
|
|
|
Offices |
151.1 |
35.1 |
-3.6 |
-5.7 |
London City
Offices |
|
4.7 |
-5.4 |
-1.2 |
London West End
Offices |
|
2.6 |
0.0 |
0.0 |
South East
Offices |
|
22.4 |
-3.5 |
-3.5 |
Rest of UK
Offices |
|
5.4 |
-4.2 |
-1.0 |
|
|
|
|
|
Industrial |
182.8 |
42.4 |
-1.5 |
-2.8 |
South East
Industrial |
|
11.1 |
-0.2 |
-0.1 |
Rest of UK
Industrial |
|
31.3 |
-1.9 |
-2.7 |
|
|
|
|
|
Sale of Teddington and
Kingston-upon-Thames |
|
|
|
-9.2 |
|
|
|
|
|
External valuation
at 30 Sep 2016 |
431.1 |
100.0 |
-2.2 |
431.1 |
Top 10 Properties
|
30 Sep 16 (£m) |
|
|
White Bear Yard, London |
20-25 |
Elstree Tower, Borehamwood |
15-20 |
Denby 242, Denby |
15-20 |
DSG, Preston |
15-20 |
Symphony, Rotherham |
15-20 |
Chester House, Farnborough |
15-20 |
Charter Court, Slough |
10-15 |
3B - C Michigan Drive, Milton
Keynes |
10-15 |
Ocean Trade Centre, Aberdeen |
10-15 |
Hollywood Green, London |
10-15 |
Top 10 tenants:
|
Tenant
group |
Passing
rent |
As % of total
rent |
1 |
Sungard Availability
Services (UK) Ltd |
1,320,000 |
4.6 % |
2 |
BAE Systems |
1,257,640 |
4.4
% |
3 |
Techno Cargo Logistics
Ltd |
1,242,250 |
4.3 % |
4 |
DSG |
1,177,677 |
4.1 % |
5 |
The Symphony Group
Plc |
1,080,000 |
3.8 % |
6 |
Bong UK |
727,240 |
2.5 % |
7 |
Euro Car Parts
Ltd |
703,430 |
2.5 % |
8 |
Royal Bank of Scotland
Plc |
700,000 |
2.4 % |
9 |
Ricoh UK Limited |
696,995 |
2.4 % |
10 |
Matalan |
696,778 |
2.4 % |
|
|
9,602,010 |
33.5 % |
|
Total Fund Passing
Rent |
28,666,652 |
|
Regional Split:
South East |
39.9% |
East Midlands |
15.1% |
North West |
12.0% |
North East |
8.6% |
South West |
6.1% |
West Midlands |
5.9% |
Scotland |
5.1% |
London City |
4.7% |
London West End |
2.6% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
Sep 2016 and the date of publication of this statement which
would have a material impact on the financial position of the
Company.
Details of the Company may also be found on the Investment
Manager’s website which can be found at:
www.standardlifeinvestments.com/its
For further information:-
Jason Baggaley – Real Estate Fund
Manager, Standard Life Investments
Tel +44 (0) 131 245 2833 or jason_baggaley@standardlife.com
Graeme McDonald - Real Estate
Finance Manager, Standard Life Investments
Tel +44 (0) 131 245 3151 or graeme_mcdonald@standardlife.com
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001