27 April
2017
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
Unaudited Net Asset Value as at
31 March 2017
Key Highlights
Solid Performance
- Net asset value (“NAV”) per ordinary share was 81.4p
(Dec 2016 – 81.0p), a rise of 0.5%,
resulting in a NAV total return, including dividends, of 2.0% for
Q1;
- The portfolio valuation increased by 0.7% on a like for like
basis, whilst the IPD/MSCI Monthly Index rose by 0.9% over the same
period.
Positive investment activity while
maintaining low voids
- Sale of Quadrangle,
Cheltenham and the Company’s
largest asset White Bear Yard, City of
London sold for a combined £30.1m, removing future letting
risk and capital expenditure and also eliminating the Company’s
exposure to City of London
offices;
- Proceeds partially reinvested into acquisition of two higher
yielding properties in Sunderland
and Bristol, both in the Company’s
favoured industrial sector;
- Low void rate of 3.2% as at 31 March
2017.
Strong balance sheet with prudent
gearing
- Sale proceeds also used to
repay revolving credit facility with the LTV now standing at
21.2%;
- Company also has uncommitted cash of £15m still available for
investment in future opportunities.
NAV Accretive Share Issuance
- Over 8 million shares issued in the quarter under the Company’s
blocklisting authority at prices accretive to existing shareholders
while maintaining Company’s rating (see below);
- Share price total return of 2.8% in the quarter resulting in
the Company’s shares trading at a premium to NAV of 7.8% as at
31 March 2017.
Attractive dividend yield
- Dividend yield of 5.4% based on a quarterly dividend of 1.19p
as at 31 March 2017 compares
favourably to the yield on the FTSE All-Share REIT Index (3.7%) and
the FTSE All Share Index (3.5%) as at the same date.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
31 March 2017 was 81.4p. 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 31 March 2017. The
next valuation will be undertaken on 30 June
2017 with Knight Frank valuing the whole portfolio.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 1
January 2017 to 31 March
2017.
|
|
|
|
|
|
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
|
Net assets
as at 31 Dec 2016 |
81.0 |
308.5 |
|
|
Unrealised
increase in valuation of property portfolio |
0.8 |
3.0 |
Like for
like increase of 0.7% in property portfolio |
|
Loss on
sales |
-0.1 |
-0.2 |
Loss on
sales after costs at Quadrangle, Cheltenham & White Bear Yard,
City of London |
|
CAPEX
& transaction costs in the quarter |
-0.4 |
-1.7 |
Predominantly costs of acquisition at Sunderland and Bristol plus
asset management initiative at Foxhole, Hertford |
|
Net income
in the quarter after dividend |
0.0 |
0.0 |
Dividend
cover of 100% after net sales of £18.5m in the quarter. Significant
uncommitted cash resources of £15m still available for
investment. |
|
Interest
rate swaps mark to market revaluation |
0.0 |
-0.1 |
Marginal
increase in swap liabilities in the quarter |
|
Share
issuance in the period |
0.1 |
6.9 |
NAV
accretive share issuance raising net proceeds of £6.9m |
|
Other
movement in reserves |
0.0 |
0.0 |
Minimal
movement in lease incentives in the quarter |
|
Net assets
as at 31 March 2017 |
81.4 |
316.4 |
|
|
|
|
|
|
|
|
|
European Public Real Estate Association (“EPRA”)* |
31 Mar 2017 |
31 Dec 2016 |
|
EPRA Net Asset
Value |
£320.1m |
£312.1m |
|
EPRA Net Asset Value per
share |
82.3p |
82.0p |
|
|
|
|
|
|
|
|
|
|
|
|
The Net Asset Value per share is calculated using 388,815,419
shares of 1p each being the number in issue on 31 March 2017.
* 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 Company had a busy start to 2017 with the completion of the
sale of two offices for a total of £30.1m, and the purchase of two
industrial assets for £10.7m. The sales were undertaken where we
could exit at an attractive price and avoid future risk and capex
requirements, whilst the purchases were of industrial assets with
greater prospects for rental growth. Following the sale of White
Bear Yard we have no Central
London office exposure, other than a small office suite as
part of a mixed use investment in Westminster. The downside of the
repositioning is the impact of transaction costs in the
quarter.
Performance was negatively affected by adverse valuation
movement on a couple of the retail warehouse assets and on an
industrial asset as it gets closer to a lease end. There were
positives, however, from asset management with 4 rent reviews
settled resulting in increases in rent totalling £97,000, a lease
regear securing a rent of £360,000 pa for an additional 6 years
(giving 11 years term certain), and three new lettings securing
rents of £168,000 pa.
As a result of asset management the void rate stands at 3.2%
(under half the rate of the market average). The voids are
dominated by one unit, a logistics building in Oldham, North Manchester, where we have seen
an increase in interest from potential tenants.
The Company has now repaid all borrowings under the Revolving
Credit facility and the Company’s overall LTV at 31 March 2017 was 21.2%. The Company has
approximately £15m cash available to reinvest. The valuation of the
interest rate swap against the term loan moved slightly against the
Company during the quarter, and now stands at a liability of £3.7
million.
Market Commentary
The UK economy has clearly demonstrated its resilience post the
referendum vote with GDP growth for Q4 2016 recently being revised
up to +0.7%. The data, released thus far for Q1 2017, however, has
been mixed regarding the strength of the economy. Although the
manufacturing and production indicators remain strong, tentative
evidence of the rapid squeeze on consumers’ spending power has
appeared lately as a result of rising inflation. Furthermore, the
UK household savings ratio fell to a record low at the end of 2016,
bringing into question the scope for further drawdowns in savings.
With inflation now running at the same rate as wages growth in
March, real incomes are likely to fall over the coming months.
Although retail sales data have been volatile, the 3-month average
growth rate has clearly slowed. Not surprisingly, some retailers
are becoming more cautious about the outlook for spending including
Next, Tesco and John Lewis.
Over the twelve months to end March, All Property recorded a
total return of 3.8% p.a. The sharp capital decline following the
EU Referendum in July 2016 continued
to have a negative impact on the overall figures, but market
conditions and sentiment have stabilised in recent months with a
total return for Q1 2017 of 2.3%. Capital values fell by 1.7% p.a.
in the year to end March, but again Q1 2017 was positive at 0.9%.
Rental growth remained positive however and grew by 1.6% p.a. in
the twelve months to end March.
The industrial sector has continued to outperform with a total
return of 9.4% p.a. in the twelve months to end March. Retail
was no longer the laggard sector in the same period, recording
total returns of 2.3% p.a., noticeably ahead of offices which
recorded total returns of 1.4% p.a. reflecting the political
uncertainties associated with the Central
London market.
As for the equity markets, the FTSE All Share and the FTSE 100
total returns were 4.0% and 3.7% respectively over the quarter. For
listed real estate equities, total returns were relatively modest
growth at 1.7% over the quarter.
Investment Outlook
UK real estate continues to provide an elevated yield compared
to other asset classes with capital values more stable following
the post Brexit upheaval last year. Lending to the sector is
at a lower level than in 2007/2008 and liquidity remains
reasonable. Additionally, development continues to be relatively
constrained by historic standards, and vacancy rates are below long
term average levels. These factors should all help to maintain the
positive returns the sector is currently recording. In this
environment, the steady secure income component generated by the
asset class is likely to be the key driver of returns going
forward.
From a sector perspective, we continue to favour industrial and
logistics property, although pricing on prime assets is likely to
remain competitive as the stable income component and positive
fundamentals appeal to investors. As for the retail sector,
inflationary pressures may prove to be a significant headwind going
forward with static real wage growth despite a tight labour market.
Further polarisation within the market is likely to be experienced.
During the Brexit negotiations we continue to expect Central London offices to be the most impacted
sector given the linkages to European markets via cross border
trading. Overall, investor appetite is expected to be sustained in
an environment of low numbers and location and asset quality will
be crucial determinants of how markets respond to pressures in the
year ahead.
Dividends
The Company paid total dividends in respect of the quarter ended
31 December 2016 of 1.19p per
Ordinary Share, with a payment date of 31
March 2017.
Net Asset analysis as at 31 March
2017 (unaudited)
|
£m |
% of
net assets |
Office |
194.9 |
61.6 |
Retail |
121.3 |
38.3 |
Industrial |
97.5 |
30.8 |
Total Property
Portfolio |
413.7 |
130.7 |
Adjustment for lease
incentives |
-3.9 |
-1.2 |
Fair value of
Property Portfolio |
409.8 |
129.5 |
Cash |
22.3 |
7.0 |
Other Assets |
6.9 |
2.2 |
Total
Assets |
439.0 |
138.7 |
Current
liabilities |
-9.8 |
-3.1 |
Non-current
liabilities (bank loans & swap) |
-112.8 |
-35.6 |
Total Net
Assets |
316.4 |
100.0 |
Breakdown in valuation movements over
the period 1 Jan 2017 to 31 Mar 2017
|
Portfolio Value as at 31 Mar 2017 (£m) |
Exposure as at 31 Mar 2017 (%) |
Like
for Like Capital Value Shift (excl transactions) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Dec 2016 |
|
|
|
429.9 |
|
|
|
|
|
Retail |
97.5 |
23.6 |
-0.2 |
-0.2 |
South East Retail |
|
6.7 |
-0.4 |
-0.1 |
Rest of UK Retail |
|
1.3 |
3.2 |
0.2 |
Retail Warehouses |
|
15.6 |
-0.4 |
-0.3 |
|
|
|
|
|
Offices |
121.3 |
29.3 |
0.7 |
-29.2 |
London City
Offices |
|
0.0 |
0.0 |
-18.9* |
London West End
Offices |
|
2.8 |
2.4 |
0.3 |
South East
Offices |
|
23.3 |
0.1 |
0.1 |
Rest of UK
Offices |
|
3.2 |
3.1 |
-10.7** |
|
|
|
|
|
Industrial |
194.9 |
47.1 |
1.3 |
13.2 |
South East
Industrial |
|
12.4 |
2.8 |
1.4 |
Rest of UK
Industrial |
|
34.7 |
0.8 |
11.8*** |
|
|
|
|
|
External valuation
at 31 Mar 2017 |
413.7 |
100.0 |
0.7 |
413.7 |
* Includes sale of White Bear Yard,
City of London
** Includes sale of
Quadrangle Cheltenham
*** Includes purchases of
Stephenson’s Industrial Estate, Sunderland and Kings Business Park,
Bristol
Top 10 Properties
|
31 Mar 17 (£m) |
|
|
Elstree Tower, Borehamwood |
15-20 |
Denby 242, Denby |
15-20 |
Symphony, Rotherham |
15-20 |
DSG, Preston |
15-20 |
Chester House, Farnborough |
15-20 |
3B - C Michigan Drive, Milton
Keynes |
10-15 |
Charter Court, Slough |
10-15 |
Howard Town Retail Park, High
Peak |
10-15 |
Hollywood Green, London |
10-15 |
New Palace Place, London |
10-15 |
Top 10 tenants
|
Tenant
group |
Passing
rent |
As % of total
rent |
1 |
Sungard Availability
Services (UK) Ltd |
1,320,000 |
4.8 |
2 |
BAE Systems |
1,257,640 |
4.5 |
3 |
Techno Cargo Logistics
Ltd |
1,242,250 |
4.5 |
4 |
DSG |
1,177,677 |
4.2 |
5 |
The Symphony Group
Plc |
1,080,000 |
3.9 |
6 |
Bong UK |
741,784 |
2.7 |
7 |
Euro Car Parts
Ltd |
703,430 |
2.5 |
8 |
Ricoh UK Limited |
696,995 |
2.5 |
9 |
Matalan |
696,778 |
2.5 |
10 |
Grant Thornton UK
LLP |
680,371 |
2.5 |
|
|
|
|
|
|
9,596,925 |
34.6 |
|
Total Fund Passing
Rent |
27,752,278 |
|
Regional Split
South East |
42.4% |
East Midlands |
15.9% |
North West |
12.6% |
North East |
10.6% |
West Midlands |
6.5% |
Scotland |
5.0% |
South West |
4.2% |
London West End |
2.8% |
The Board is not aware of any other significant events or
transactions which have occurred between 31
Mar 17 and the date of publication of this statement which
would have a material impact on the financial position of the
Company.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014). Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
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
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Tel: 01481 745001