TIDMSLI
31 August 2017
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
RESULTS IN RESPECT OF THE PERIODED 30 JUNE 2017
Financial Highlights
- NAV total return of 6.6% in the six month period, driven by above benchmark
valuation increases and successful asset management activity.
- Strong share price total return over the period of 6.0% compared to total
return on FTSE All-Share Index of 5.5% and FTSE All-Share REIT Index of 3.5%
with the Company's shares trading at a premium to NAV of 6.4% as at 30 June
2017.
- The Company has continued to reduce gearing as proceeds from GBP22.3 million of
sales was used to reduce LTV to 19.9% at period end (31 Dec 2016: 26.0%). Post
the period end, significant net investment has been made into the portfolio but
with LTV still remaining prudent at 23.6% as at 23 August 2017.
- Dividend cover of 111% over the period (103% if one-off dilapidation receipts
excluded) as successful asset management activity helped negate effect of
sales.
- The yield on the Company's share price as at 30 June 2017 stood at 5.3% which
compares favourably to the FTSE All-Share Index (3.6%) and FTSE All-Share REIT
Index (3.6%) at the same date.
- A total of 8.125 million shares were issued under the Company's blocklisting
facility in the six month period generating net proceeds of GBP6.9 million for
investment into the portfolio.
- Overall, the Company, with a market capitalisation of GBP347 million as at 30
June 2017, has a secure and growing balance sheet, significant financial
resources and a portfolio of assets that continues to underpin an attractive
and covered dividend for shareholders.
Property Highlights
- As at 30 June 2017, the portfolio was valued at GBP418.1 million and yielded
5.9%.
- Property total return for the period was 5.6%, significantly ahead of the IPD
Quarterly version of Monthly Index total return of 4.5%. The capital return of
2.2% and the income return of 3.3% from the portfolio both continued to
outperform the comparative benchmark figures (2.0% and 2.4% respectively).
- Net sales totalled GBP22.3million in the period, including the Company's
largest and only City of London asset at White Bear Yard, in order to realise
profit and remove the risk of potential future underperformance.
- Post the period end, significant net investment was made into the portfolio
of GBP14.2 million in a number of income accretive assets, across the industrial
and office sectors, that offer asset management opportunities to enhance both
income and capital returns.
- A number of successful asset management initiatives, contributing to income
and capital values, completed during the period including:
- 7 new lettings completed during the year securing GBP519,000 of rent
- 7 rent reviews resulting in additional income of GBP111,000 per annum
- Void rate of 6.7% as at period end (31 Dec 2016: 3.3%) with main voids
relating to an industrial unit in Rainham, where there is an interested party
and an opportunity to capture significant reversionary potential and also
Oldham, where terms have been agreed to sell the unit.
- Positive rent collection rates of 99% within 21 days highlighting the
continued strength of tenant covenants in an environment where income will be
the key component of returns going forward.
PERFORMANCE SUMMARY
30 June 30 June
Earnings & Dividends 2017 2016
EPRA earnings per share 2.64 2.64
Dividends declared per ordinary share (p) 2.380 2.351
Dividend cover (%)* 111 111
Dividend yield (%)** 5.3 6.0
FTSE Real Estate Investment Trusts Index Yield (%) 3.6 3.7
FTSE All-Share Index Yield (%) 3.6 3.7
Capital Values & Gearing 31
30 June December
2017 2016 % Change
Total Assets (GBPmillion) 447.6 445.7 0.4
Net asset value per share (p) 83.9 81.0 3.6
Ordinary Share Price (p) 89.25 86.50 3.2
Premium/(Discount) to net asset value (%) 6.4 6.8 -
Loan to value (%)*** 19.9 26.0 -
Total Return % 6 Month 1 Year 3 Year 5 Year
NAV**** 6.6 8.7 42.0 93.3
Share Price**** 6.0 19.1 38.1 92.2
FTSE Real Estate Investment Trusts Index 3.5 9.2 19.6 78.3
FTSE All-Share Index 5.5 18.1 23.9 65.2
Property Returns & Statistics % Period Period
ended 30 ended 30
June 2017 June 2016
Property income return 3.3 3.1
IPD property income monthly index 2.4 2.3
Property total return 5.6 3.9
IPD property total return monthly index 4.5 2.5
Void rate 6.7 3.8
* Calculated as revenue earnings per share (excluding capital items & swap
breakage costs) as a percentage of dividends declared in the period.
** Based on an annual dividend of 4.76p and the share price at 30 June.
***Calculated as bank borrowings less all cash as a percentage of the open
market value of the property portfolio as at the end of each period.
****Assumes re-investment of dividends excluding transaction costs.
Sources: Standard Life Investments, Investment Property Databank ("IPD")
CHAIRMAN'S STATEMENT
I am pleased to report that your Company continued to perform well in the six
month period to 30 June 2017 against a backdrop of ongoing political
uncertainty. The property portfolio delivered an above benchmark performance
which underpinned a robust NAV total return. In addition, the Company produced
a strong share price total return as the Company maintained its premium rating.
The number of shares in issue increased marginally through the judicious use of
its blocklisting facility and, as at 30 June, your Company was capitalised at GBP
347 million.
Background
In what is becoming a common theme, uncertainty again took hold in the UK in
the first six months of 2017. Following on from the surprise EU referendum
outcome in 2016, the UK general election, called with the intention of
strengthening the Government's hand in Brexit negotiations, unexpectedly
produced a hung parliament. This result, on top of the fact that Brexit
negotiations have started with vastly differing views on what the eventual
outcome will mean for the UK, has resulted in a background of political
uncertainty not seen in this country for a generation.
While it is too early to say what the impact, if any, of the election result
will be on the UK economy, the resilience of the economy post the EU referendum
vote has started to wane. A weaker consumer sector, impacted by rising
inflation which has put a squeeze on spending power, caused the rate of growth
to slow to 0.3% in the second quarter of 2017 compared to 0.7% recorded in Q4
2016. The rise in inflation has put the spotlight on interest rates although it
is still very much expected that these will remain close to the historical low
levels experienced since the financial crisis for a prolonged period.
Against this economic background, the real estate sector has held up well. The
Company's benchmark, (MSCI/IPD Quarterly version of Monthly Index) delivered a
total return of 4.5% over the first six months of 2017 with both market
conditions and sentiment stabilising over the period following the volatility
experienced after the EU Referendum in 2016.
Performance
The Company produced a NAV total return of 6.6% over the six months to 30 June
2017 driven by the property portfolio which has continued the outperformance
that has been delivered over recent years. The portfolio total return was 5.6%
which compares favourably to the benchmark return referred to above with both
the capital and income returns from the portfolio delivering above benchmark
levels. Capital return of 2.2% was driven by strong returns from the Company's
industrial assets, the best performing sector of the market and an area where
the portfolio is 25% overweight compared to the benchmark. The property income
return was relatively stable at 3.3% for the period which bodes well in an
environment where income returns are expected to be the main driver of
performance going forward. It should also be highlighted that, over the longer
term, the Company has consistently produced attractive returns with a NAV total
return of 93.3% over five years, again driven by a portfolio which has produced
a total return of 68.6% over the same period compared to the benchmark total
return of 57.6%.
The share price total return for the six months was 6.0%, above that of both
the FTSE All-Share Index (5.5%) and the FTSE All-Share REIT Index (3.5%). This
return resulted in the premium at which the Company's shares trade above net
asset value being 6.4% as at 30 June. Over a five year period the shares have
produced a total return of 92.2%, again outperforming the FTSE All-Share Index
(65.2%) and the FTSE All -Share REIT Index (78.3%).
As mentioned in the Annual Report, in order to ensure that the premium does not
become excessive, the Company has issued shares under a blocklisting facility.
Up to 23 August, 11.425 million shares had been issued under this blocklisting
facility raising GBP9.9 million, all at prices that are accretive to NAV per
share for existing shareholders.
Dividends
The Company has paid out dividends totalling 2.380p per share for the six month
period. This equates to an annual dividend yield of 5.3% based on the share
price as at 30 June 2017, significantly above the yield on the FTSE All-Share
Index and FTSE All-Share REIT Index (both 3.6%). It should also be highlighted
that the dividend paid by the Company is fully covered, with dividend cover for
the six month period (excluding one-off dilapidation receipts) of 103%. This
was achieved despite net property sales of GBP22.3m in the period and is
testament to the successful asset management activity undertaken by the
Investment Manager.
Borrowings
In April 2016, the Company restructured its debt to include a revolving credit
facility ("RCF") in addition to a term loan. This introduced flexibility into
the capital structure and has proved to be invaluable in providing the
Investment Manager the ability tactically to increase or decrease the level of
debt as both purchase or sales opportunities arise. This is demonstrated by the
fact that, at the period end, the Company's LTV was a prudent 19.9% (31 Dec
2016 : 26.0%) as the proceeds from the GBP22.3 million of net sales referred to
above were used to repay all of the Company's RCF. Since then the RCF has been
utilised a number of times to acquire investments and then subsequently reduced
as planned sales were executed. As at 23 August, the LTV was 23.6% at an
attractive interest rate of 2.73%.
Investment Manager
The Board notes the recently completed merger between Standard Life and
Aberdeen Asset Management. It is too early in the integration process of the
two companies to comment on what, if any, implications this will have for the
Company. The Board continues to monitor developments very closely.
Outlook
The political uncertainty that has surrounded the UK since the EU referendum
vote has been ramped up with the result of the UK general election. The focus
for the next few years will undoubtedly be on the twists and turns in the
Brexit negotiations and what this may mean for politics in the UK. However,
while the economy has so far managed to shrug off this unprecedented level of
uncertainty, there can be no doubt that the devaluation of the pound following
the Brexit vote has led to an increase in the rate of inflation and has hit
consumer confidence. The benefits for manufacturing of a lower pound have taken
longer to come through which has also contributed to the slowdown in the
economy. With UK GDP growth forecasts for 2017 and 2018 now being pared back,
how the UK economy reacts to the ongoing political uncertainty combined with
inflationary pressures and the implications this may have for interest rates
will determine the extent of the slowdown.
In relation to the UK real estate market, normality has returned following the
volatility experienced after the EU referendum vote with the sector continuing
to provide a yield profile that is attractive when compared to other asset
classes. Looking forward, the fundamentals of the sector remain robust with
lending to the sector at a lower level than in 2007/2008, relatively limited
development and vacancy levels which are below the long term average.
Furthermore, unlike in the Financial Crisis, liquidity remains reasonable. In
this environment, the steady secure income component, with a yield that
continues to provide a significant margin compared to other asset classes, is
likely to be the key driver of returns going forward.
Against this background your Company's portfolio is well positioned. While
properties of a more secondary nature may experience more volatility in the
current risk averse environment, the portfolio is well diversified in terms of
sector coverage with a bias towards industrials which is expected to be the
best performing sector over the medium term. From a geographic point of view,
the portfolio has no exposure to the City of London, forecast to be one of the
weakest markets due to the uncertainties over how Brexit will affect the
financial services industry. Finally, although void rates have increased over
the period, the portfolio still produces an above benchmark income return
which, combined with a strong tenant base and strong rent collection profile,
underpins the Company's attractive dividend yield in a world where income is
still very much in demand. With a debt structure that remains prudent while
providing the resource and flexibility to act quickly should opportunities
arise and an Investment Manager which has a proven track record of delivering
above benchmark returns, I continue to believe that your Company is well placed
to meet the challenges that lie ahead.
Robert Peto
Chairman
30 August 2017
PRINCIPAL RISKS AND UNCERTAINTIES
The Board ensures that proper consideration of risk is undertaken in all
aspects of the Company's business on a regular basis. During the period, the
Board carried out an assessment of the risk profile of the Company, including
consideration of risk appetite, risk tolerance and risk strategy. The Board
regularly reviews the principal risks of the Company, seeking assurance that
these risks are appropriately rated and that appropriate risk mitigation is in
place.
The Company's assets consist of direct investments in UK commercial property.
Its principal risks are therefore related to the commercial property market in
general, but also the particular circumstances of the properties in which it is
invested, and their tenants. The Board and Investment Manager seek to mitigate
these risks through a strong initial due diligence process, continual review of
the portfolio and active asset management initiatives. All of the properties in
the portfolio are insured, providing protection against risks to the properties
and also protection in case of injury to third parties in relation to the
properties.
The Board has also identified a number of other specific risks that are
reviewed at each Board meeting. These are as follows:
- The Company and its objectives become unattractive to investors,
leading to a widening discount.
This risk is mitigated through regular contact with shareholders, a regular
review of share price performance and the level of the discount or premium at
which the shares trade to NAV and regular meetings with the Company's broker to
discuss these points and address any issues that arise.
- Net revenues fall such that the Company cannot sustain its level
of dividend, for example due to tenant failure or inability to let properties.
This risk is mitigated through regular review of forecast dividend cover and
regular review of tenant mix, risk and profile. Due diligence work on potential
tenants is undertaken before entering into new lease arrangements and tenants
are kept under constant review through regular contact and various reports both
from the managing agents and the Investment Manager's own reporting process.
Contingency plans are put in place at units that have tenants that are believed
to be in financial trouble. The Company subscribes to the IPD Iris Report which
updates the credit and risk ranking of the tenants and income stream, and
compares it to the rest of the UK real estate market.
- Uncertainty or change in the macroeconomic environment results
in property becoming an undesirable asset class, causing a decline in property
values.
This risk is managed through regular reporting from, and discussion with, the
Investment Manager and other advisors. Macroeconomic conditions form part of
the decision making process for purchases and sales of properties and for
sector allocation decisions.
The Board continues to closely monitor progress with the UK's exit from the EU,
the effect this may have on property values and the impact of any resultant
regulatory changes that may affect the Company.
- Breach of loan covenants.
This risk is mitigated by the Investment Manager monitoring the loan covenants
on a regular basis and providing a quarterly certificate to the bank confirming
compliance with the covenants. Compliance is also reviewed by the Board each
quarter and there is regular dialogue between the Investment Manager and the
bank on Company activity and performance.
- Loss on financial instruments.
The Company has entered into an interest rate swap arrangement. This swap
instrument is valued and monitored on a daily basis by the counterparty bank.
The Investment Manager checks the valuation of the swap instrument internally
to ensure this is accurate. In addition, the credit rating of the bank that the
swap is taken out with is assessed regularly.
Other risks faced by the Company include the following:
- Strategic - incorrect strategy, including sector and property
allocation and use of gearing, could all lead to poor return for shareholders.
- Tax efficiency - the structure of the Company or changes to
legislation could result in the Company no longer being a tax efficient
investment vehicle for shareholders.
- Regulatory - breach of regulatory rules could lead to the
suspension of the Company's Stock Exchange Listing, financial penalties or a
qualified audit report.
- Financial - inadequate controls by the Investment Manager or
third party service providers could lead to misappropriation of assets.
Inappropriate accounting policies or failure to comply with accounting
standards could lead to misreporting or breaches of regulations.
- Operational - failure of the Investment Manager's accounting
systems or disruption to the Investment Manager's business, or that of third
party service providers, could lead to an inability to provide accurate
reporting and monitoring, leading to loss of shareholder confidence.
- Economic - inflation or deflation, economic recessions and
movements in interest rates could affect property valuations and also bank
borrowings.
The Board seeks to mitigate and manage all risks through continual review,
policy setting and enforcement of contractual obligations. It also regularly
monitors the investment environment and the management of the Company's
property portfolio, levels of gearing and the overall structure of the Company.
INVESTMENT MANAGER'S REPORT
UK Real Estate Market
The resilience of the UK economy post the EU referendum vote in 2016 has
started to fade in 2017. A weaker consumer sector, impacted by a squeeze on
spending power, caused the economy to grow by only 0.3% in the second quarter
of 2017, a pronounced slowdown from the 0.7% growth recorded in Q4 2016.
Expectations are for slower growth in 2017 compared to 2016. Although economic
growth is moderating, the property sector (as measured by MSCI/IPD) recorded a
reasonable total return of 4.8% over the first six months of 2017. Market
conditions and sentiment have stabilised in recent months following the capital
decline after the referendum. Capital values rose by 2.0% in the first six
months of 2017 and rents also grew by 0.7% over this timeframe. As for the
equity markets, total returns from the FTSE All Share and the FTSE 100 were
5.5% and 4.7% respectively over the period. For listed real estate equities,
total returns were 4.0% over the first six months of 2017.
As was the case in 2016, the Industrial sector remained the best performing of
the main sectors, driven predominantly by the logistics market. Retail recorded
a 3.6% total return in the first six months of 2017 compared to 3.7% for
offices. Industrials though had a total return of 8.6% in the first half of
2017. Industrial values rose by 5.7% from the end of December 2016 to the end
of June 2017. Retail capital growth continued to be the weakest with values
rising by 0.6% p.a. over the first six months of the year, whilst office values
rose by 1.3%. In line with the strong returns for industrials, the sector also
recorded the strongest rental growth over the last six months at 2.0%. This
compares to 0.4% and 0.2% rental growth respectively for offices and retail
over this period.
Investment Outlook
UK real estate continues to provide an elevated yield compared to other assets
and the market has stabilised following the post Brexit upheaval last year.
Furthermore, lending to the sector is at a lower level than in the Financial
Crisis of 2007/2008 and liquidity remains reasonable. Additionally, development
continues to be relatively constrained by historic standards, and existing
vacancy rates are below average levels in most markets, which should all help
to maintain the positive returns the sector is currently recording. In this
environment, the steady and predictable income component generated by the asset
class is likely to be the key driver of returns going forward. The market is
likely to continue to be sentiment driven in the short term as the politics and
economic impact associated with the UK's withdrawal from the EU continue to
evolve. The retail sector continues to face a series of headwinds that may hold
back recovery in weaker locations due to oversupply and structural issues.
Given the backdrop of continued macro uncertainty, investors are becoming more
risk averse and better quality assets are once again broadly outperforming
those of poorer quality.
Performance
Given the nature of the underlying asset class and the Company you are invested
in, it is important to look at performance at four levels; the underlying
portfolio versus a property benchmark, the NAV total return against the peer
group, the share price total return against the market and real estate
companies, and finally, given the income focus of the Company, the dividend
yield.
Portfolio level performance
Over the six month reporting period, the Company's underlying investment
portfolio of UK commercial real estate has performed well, with a total return
of 5.6% against the IPD/ MSCI quarterly version of monthly valued funds
benchmark of 4.5%. The Company's portfolio has also performed well over longer
time periods, with top quartile performance over one, five and ten years
against the benchmark.
NAV performance
The Company has a strong NAV total return track record over most time periods.
The main influences on the NAV total return are the impact of the interest rate
swap, the impact of gearing and, of course, the performance of the underlying
portfolio.
Share Price Total return
Of all the measures reported here, the share price total return is the one the
investment manager has the least control over. Your Company has consistently
traded on a greater premium than the sector average over the reporting period,
to some extent reflecting the level of dividends paid and longer term
performance.
Dividend
The Company's main focus is on providing its investors with an attractive
income return. In order to do this, with the discipline of a covered dividend
policy, it is important that the Company maintains a high income level from its
portfolio.
Based on the share price at 30 June (89.25p) and the annualised dividend of
4.76p the dividend yield was 5.3%, which compares favourably to the yield on
the FTSE All-Share REIT Index (3.6%) and the FTSE All-Share Index (3.6%) as at
the same date.
Over the reporting period the Company had a dividend cover of 111% (103%
excluding non-recurring income).
Portfolio Valuation
The portfolio is valued quarterly. Since the acquisition of the Pearl portfolio
in December 2015 the Company had two valuers, with JLL valuing the original
portfolio, and Knight Frank the Pearl portfolio. For 30 June 2017 and
thereafter Knight Frank will be the sole valuer to improve efficiency.
As at 30 June 2017 the portfolio comprised 56 properties valued at a total of GBP
418.1 million with a cash balance of GBP26.7 million. This compares to 60 assets,
valued at GBP450.1 million and cash of GBP18.3 million as at 30 June 2016.
Investment Strategy
The Company remains focused on delivering an attractive income to investors
through investing in a diversified portfolio of UK commercial real estate
assets. We target assets that are well located and are in good condition, which
we believe will appeal to occupiers. We aim to actively manage the assets to
renew and extend leases to give the Company a sustainable income to support its
covered dividend policy.
With continued uncertainty in capital markets, and an expectation tenant demand
could dampen over the next 12 months given the ongoing Brexit negotiations, we
are focused on understanding our tenants' requirements and trying to address
lease events early. If we believe a property will appeal to other investors and
has a significant void risk or capex requirement then we will consider a sale
to reduce that risk, however we still believe that having good quality
buildings in strong locations means we can retain tenants and increase income.
Portfolio Allocation
The Company is invested in a portfolio of commercial real estate assets that
provide it with diversification by asset, sector, geography and income source.
As the Company has a focus on providing an attractive income yield it is
currently overweight in industrials and underweight in retail. The underlying
reason for this position is that only prime retail is likely to perform as
fundamental shifts in retail habits means the sector is very over supplied with
rental values likely to fall, if replacement tenants can be found at all.
Although prime retail will do well, it is very low yielding (circa 4.25%) and
so does not support the Company's covered dividend. The office sector remains
attractive, although we have gone underweight in Central London with the
Company selling its largest asset in March 2017 as we believe London is a
market that is most likely to be adversely affected by Brexit. When investing
in the office market we favour vibrant towns and city centre locations, with
good Universities, and supportive public transport with nearby housing. We are
less keen on out of town business parks. The overweight position in industrials
has benefited the Company, and is likely to continue to do so in the short to
medium term, but even then it is important to identify units that meet tenants'
locational and operational needs.
Investment Activity
Purchases
During the reporting period the Company completed on two industrial purchases:
- Kings Park Bristol - a multi let industrial estate close to the
city centre purchased for GBP5.3 million, an initial yield of 6.4%
- Snop Sunderland - a single let industrial building located close
to the Nissan plant in Teesside. The unit was bought for GBP5.5 million
reflecting a yield of 6.3%.
After the reporting period the Company completed the purchase of three further
investments:
- Pinnacle House Reading - a multi let office close to Reading
train station with prospects for asset management, purchased for GBP13.1 million,
and a yield of 6.75%.
- Princes St Manchester - a multi let office in a converted listed
mill building close to the city centre and let off very low rents, purchased
for GBP8.1 million, with a yield of 6.4%.
- Nexus Point Birmingham - a single let industrial unit close to
an existing holding, and recently let on a new 15 year lease, purchased for GBP
4.6 million, and a yield of 5.75%.
Sales
The Company completed the sale of three assets in the reporting period, with
three further sales in July and August.
- White Bear Yard, London - Sold for GBP19.0 million. The property
was the largest investment in the Company's portfolio and the sale was driven
by concerns over the effect of Brexit on the London office market, combined
with reletting risk in 2019 and the impact on rental values of the rates
revaluation in the neighbourhood.
- Quadrangle Cheltenham - sold for GBP11.1 million. The property had
a lease expiry in 2018 when the tenant will depart and substantial capex will
be required. The sale, above valuation, was undertaken to avoid the development
and letting risk.
- Matalan, Bradford - sold for GBP3.8 million. Although let on a
long lease, decided to reduce Company exposure to regional retail.
- Travis Perkins Cheltenham - Sold for GBP2.2 million in July. This
small asset was let on a long lease to Travis Perkins but the unit was in poor
condition and we agreed a sale, above valuation, that gives the tenant the
ability to demolish the unit and rebuild as it sees fit.
- IT Centre York - Sold for GBP4.4 million in August. This out of
town office was let on a short lease and we were not confident of reletting or
rental prospects, and so sold at a premium to valuation.
- The Range, Southend-on-Sea - Sold for GBP5.0 million in August.
The sale was to the local Council and realised a profit that we were not
confident could be achieved through future asset management.
Asset Management
In a period where income returns are a significant contributor to the total
return it is important to concentrate on asset management. In the first half of
the year the sales were part of reducing risk in the portfolio. However,
ongoing there are also a number of assets being prepared for refurbishment
where we want to be able to take on the letting risk at expiry as we believe
the assets will perform well in the future.
Although voids increased during the reporting period to 6.7%, this level is
still below the IPD market average. We completed seven lettings over the
period, for a total rent of GBP519,000pa, and agreed terms to sell the largest
void. The main increase in the void level was from three lease expiries at the
end of the reporting period. We are refurbishing these units, or have strong
interest in their current condition to relet them.
In addition, we have been able to settle a number of rent reviews at an uplift
to the old rent - a total of seven reviews were settled.
Borrowings
The Company has two debt facilities from RBS. The first is a GBP110m term loan,
which is due to expire in April 2023, and a revolving credit facility (RCF) of
GBP35 million, which expires in April 2021 but with options to extend.
As at the reporting date and 23 August 2017 the RCF was undrawn, however
inbetween it was used to help finance recent purchases.
As at 30 June the LTV for the Company was 19.9% (with a bank covenant of 60%).
The all in interest rate cost at that date was 2.73%.
Health and Safety
Following the tragic events of the Grenfell Tower the investment manager, like
most real estate investors, undertook a review of its managed assets. Your
Company does not own any assets that caused a concern from the review, as it
does not invest in high rise, or residential assets, and where it has multi let
assets they all have a thorough Health and Safety audit in place.
Jason Baggaley
Fund Manager
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Interim Management Report in
accordance with applicable law and regulations. The Directors confirm that to
the best of their knowledge:
- The condensed Unaudited Consolidated Financial Statements have been prepared
in accordance with IAS 34; and
- The Interim Management Report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure
and Transparency Rules.
- In accordance with 4.2.9R of the Financial Conduct Authority's Disclosure and
Transparency Rules, it is confirmed that this publication has not been audited
or reviewed by the Company's auditors.
The Interim Report, for the six months ended 30 June 2017, comprises an Interim
Management Report in the form of the Chairman's Statement, the Investment
Manager's Report, the Directors' Responsibility Statement and a condensed set
of Unaudited Consolidated Financial Statements.
The Directors each confirm to the best of their knowledge that:
a. the Unaudited Consolidated Financial Statements, prepared in accordance
with IFRSs as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Group; and
b. the Interim Report includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties faced.
For and on behalf of the Directors of Standard Life Investments Property Income
Trust Limited
Robert Peto
Chairman
30 August 2017
UNAUDITED FINANCIAL STATEMENTS
Unaudited Consolidated Statement of Comprehensive Income
for the period ended 30 June 2017 1 Jan 17 to 1 Jan 16 to 1 Jan 16 to
30 Jun 17 30 Jun 16 31 Dec 16
Notes GBP GBP GBP
Rental income 14,794,656 14,918,244 30,414,862
Surrender premium income - - 81,500
Valuation gain/(loss) from investment properties 3 9,501,318 2,716,962 (5,300,992)
(Loss)/gain on disposal of investment properties (470,987) 94,361 1,067,395
Investment management fees 2 (1,536,615) (1,620,379) (3,157,399)
Valuers' fees (34,686) (53,745) (99,001)
Audit fees (34,622) (45,714) (73,695)
Directors' fees and subsistence (97,315) (75,326) (164,225)
Other direct property expenses (976,737) (526,659) (1,372,597)
Other administration expenses (232,431) (226,067) (445,144)
Operating profit 20,912,581 15,181,677 20,950,704
Finance income 746 16,103 30,536
Finance costs (1,670,820) (2,341,813) (4,047,594)
Loss on derecognition of interest rate swaps - (2,735,000) (2,735,000)
Profit for the period before taxation 19,242,507 10,120,967 14,198,646
Taxation
Tax charge - - -
Profit for the period, net of tax 19,242,507 10,120,967 14,198,646
Other Comprehensive Income
Net change in fair value of the swap reclassified to profit and loss - 2,735,000 2,735,000
Valuation gain/(loss) on interest rate swap 969,520 (6,078,345) (4,212,250)
Total other comprehensive Income/(loss) 969,520 (3,343,345) (1,477,250)
Total comprehensive income for the period, net of tax 20,212,027 6,777,622 12,721,396
Earnings per share: Pence pence pence
Basic and diluted earnings per share 5 4.98 2.66 3.73
Adjusted (EPRA) earnings per share 2.64 2.64 5.56
All items in the above Unaudited Consolidated Statement of Comprehensive Income
derive from continuing operations.
Unaudited Consolidated Balance Sheet
as at 30 June 2017 30 Jun 17 30 Jun 16 31 Dec 16
Notes GBP GBP GBP
ASSETS
Non-current assets
Investment properties 3 385,014,067 437,297,884 395,782,781
Lease incentives 3 3,965,933 3,267,928 4,187,219
388,980,000 440,565,812 399,970,000
Current assets
Investment properties held for sale 4 29,080,000 8,886,675 29,975,000
Trade and other receivables 2,858,245 2,900,839 2,723,757
Cash and cash equivalents 26,685,541 18,257,372 13,054,057
58,623,786 30,044,886 45,752,814
Total assets 447,603,786 470,610,698 445,722,814
LIABILITIES
Current liabilities
Trade and other payables 8,425,360 12,804,358 8,784,217
Interest rate swap 8 1,040,745 990,627 1,341,101
9,466,105 13,794,985 10,125,318
Non-current liabilities
Bank borrowings 9 109,075,233 140,389,061 124,001,828
Interest rate swap 8 1,552,277 4,438,010 2,221,441
Rent deposits due to tenants 1,162,161 434,425 936,668
111,789,671 145,261,496 127,159,937
Total liabilities 121,255,776 159,056,481 137,285,255
Net assets 326,348,010 311,554,217 308,437,559
EQUITY
Capital and reserves attributable to Company's equity holders
Share capital 211,762,335 204,820,219 204,820,219
Retained earnings 8,500,932 5,470,281 7,532,448
Capital reserves 8,246,371 3,425,345 (1,753,480)
Other distributable reserves 97,838,372 97,838,372 97,838,372
Total equity 326,348,010 311,554,217 308,437,559
NAV per share
NAV 83.9 81.8 81.0
EPRA NAV 84.6 83.3 82.0
Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2017 Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance 1 January 2017 204,820,219 7,532,448 (1,753,480) 97,838,372 308,437,559
Profit for the period - 19,242,507 - - 19,242,507
Other comprehensive income - - 969,520 - 969,520
Total comprehensive income for the period - 19,242,507 969,520 - 20,212,027
Ordinary shares issued net of issue costs 6,942,116 - - - 6,942,116
Dividends paid 7 - (9,243,692) - - (9,243,692)
Valuation gain from investment properties 3 - (9,501,318) 9,501,318 - -
Loss on disposal of investment properties - 470,987 (470,987) - -
Balance at 30 June 2017 211,762,335 8,500,932 8,246,371 97,838,372 326,348,010
Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2016 Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance 1 January 2016 204,820,219 6,167,329 3,957,367 97,838,372 312,783,287
Profit for the period - 10,120,967 - - 10,120,967
Other comprehensive income - - (3,343,345) - (3,343,345)
Total comprehensive income for the period - 10,120,967 (3,343,345) - 6,777,622
Dividends paid 7 - (8,006,692) - - (8,006,692)
Valuation gain from investment properties - (2,716,962) 2,716,962 - -
Profit on disposal of investment properties - (94,361) 94,361 - -
Balance at 30 June 2016 204,820,219 5,470,281 3,425,345 97,838,372 311,554,217
Unaudited Consolidated Statement of Changes in Equity
for the year ended 31 December 2016 Other
Share Retained Capital distributable
Capital earnings reserves reserves Total equity
Notes GBP GBP GBP GBP GBP
Opening balance 1 January 2016 204,820,219 6,167,329 3,957,367 97,838,372 312,783,287
Profit for the year - 14,198,646 - - 14,198,646
Other comprehensive income - - (1,477,250) - (1,477,250)
Total comprehensive income for the year - 14,198,646 (1,477,250) - 12,721,396
Dividends paid 7 - (17,067,124) - - (17,067,124)
Valuation loss from investment properties - 5,300,992 (5,300,992) - -
Profit on disposal of investment properties - (1,067,395) 1,067,395 - -
Balance at 31 December 2016 204,820,219 7,532,448 (1,753,480) 97,838,372 308,437,559
Unaudited Consolidated Cash Flow Statement
for the period ended 30 June 2017 1 Jan 17 to 1 Jan 16 to 1 Jan 16 to
30 Jun 17 30 Jun 16 31 Dec 16
Notes GBP GBP GBP
Cash flows from operating activities
Profit for the period/year before taxation 19,242,507 10,120,967 14,198,646
Movement in non-current lease incentives 41,416 (189,660) (816,862)
Movement in trade and other receivables (134,488) (41,988) 135,094
Movement in trade and other payables (133,364) (297,315) (3,690,397)
Loss on derecognition of interest rate swaps - 2,735,000 2,735,000
Finance costs 1,670,820 2,341,813 4,047,594
Finance income (746) (16,103) (30,536)
Valuation (gain)/loss from investment properties 3 (9,501,318) (2,716,962) 5,300,992
Loss/(gain) on disposal of investment properties 3 470,987 (94,361) (1,067,395)
Net cash inflow from operating activities 11,655,814 11,841,391 20,812,136
Cash flows from investing activities
Interest received 746 16,103 30,536
Purchase of investment properties 3 (11,285,362) - -
Capital expenditure on investment properties 3 (1,394,736) (888,612) (1,479,788)
Net proceeds from disposal of investment properties 33,554,013 6,219,361 20,192,395
Net cash inflow from investing activities 20,874,661 5,346,852 18,743,143
Cash flows from financing activities
Proceeds on issue of ordinary shares 6,994,575 - -
Transaction costs of issue of shares (52,459) - -
Repayment of bank borrowing - - (139,432,692)
Bank borrowing - 1,340,213 145,000,000
Repayment of RCF (15,000,000) - (20,000,000)
Bank borrowing arrangement costs - - (1,138,458)
Interest paid on bank borrowing (1,052,219) (1,476,865) (2,594,070)
Payments on interest rate swap (545,196) (448,043) (929,394)
Swap breakage costs - (2,735,000) (2,735,000)
Dividends paid to the Company's shareholders 7 (9,243,692) (8,006,692) (17,067,124)
Net cash outflow from financing activities (18,898,991) (11,326,387) (38,896,738)
Net increase in cash and cash equivalents 13,631,484 5,861,856 658,541
Cash and cash equivalents at beginning of period/year 13,054,057 12,395,516 12,395,516
Cash and cash equivalents at end of period/year 26,685,541 18,257,372 13,054,057
Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2017
1 Accounting Policies
The Unaudited Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standard ("IFRS") IAS 34
'Interim Financial Reporting' and, except as described below, the accounting
policies set out in the statutory accounts of the Group for the year ended 31
December 2016. The condensed Unaudited Consolidated Financial Statements do not
include all of the information required for a complete set of IFRS financial
statements and should be read in conjunction with the Consolidated Financial
Statements of the Group for the year ended 31 December 2016, which were
prepared under full IFRS requirements.
2 Related Party Disclosures
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions.
Investment manager
Under the terms of the current Investment Management Agreement ("IMA"), the
Investment Manager is entitled to receive fees of 0.75% of total assets up to GBP
200million; 0.70% of total assets between GBP200million and GBP300million; and
0.65% of total assets in excess of GBP300million. The total fees charged for the
period ended 30 June 2017 amounted to GBP1,536,615 (period ended 30 June 2016: GBP
1,620,379). The total amount due and payable at the period end amounted to GBP
775,590 excluding VAT (period ended 30 June 2016: GBP807,041 excluding VAT).
3 Investment Properties
Country UK UK UK
Class Industrial Office Retail Total
30 Jun 17 30 Jun 17 30 Jun 17 30 Jun 17
GBP GBP GBP GBP
Market value at 1 January 181,735,000 150,475,000 97,735,000 429,945,000
Purchase of investment properties 11,285,362 - - 11,285,362
Capital expenditure on investment properties 1,291,505 - 103,231 1,394,736
Opening market value of disposed investment properties - (29,975,000) (4,050,000) (34,025,000)
Valuation gain from investment properties 6,089,855 3,366,437 45,026 9,501,318
Movement in lease incentives receivable 128,278 (216,437) 46,743 (41,416)
Market value at 30 June 200,530,000 123,650,000 93,880,000 418,060,000
Investment properties recognised as held for sale (7,850,000) (12,050,000) (9,180,000) (29,080,000)
Market value net of held for sale at 30 June 192,680,000 111,600,000 84,700,000 388,980,000
Adjustment for lease incentives (849,376) (1,813,515) (1,303,042) (3,965,933)
Carrying value at 30 June 191,830,624 109,786,485 83,396,958 385,014,067
The market value of the investment properties provided by Knight Frank LLP at
30 June 2017 was GBP418,060,000 (30 June 2016: GBP450,051,000); however an
adjustment has been made for lease incentives of GBP3,965,933 (30 June 2016: GBP
3,557,116) that are already accounted for as an asset.
In the consolidated Cash Flow Statement, (loss)/gain from disposal of
investment properties comprise:
1 Jan 17 to 1 Jan 16 to 1 Jan 16 to
30 Jun 17 30 Jun 16 31 Dec 16
GBP GBP GBP
Net proceeds from disposed investment properties 33,554,013 6,219,361 20,192,395
Less: opening market value of disposed investment properties (34,025,000) (6,125,000) (19,125,000)
(Loss)/gain on disposal of investment properties (470,987) 94,361 1,067,395
4 Investment Properties Held For Sale
As at 30 June 2017 the Group was actively seeking a buyer for the following six
properties:
- Matalan, Kings Lynn
- Travis Perkins, Cheltenham
- Unit 6, Broadgate, Oldham
- The IT Centre, York Science Centre
- The Kirkgate, Epsom
- The Range, Southend-on-Sea
The Group completed the sale of Travis Perkins, Cheltenham on 26 July 2017 for
a price of GBP2.175 million, the sale of The IT Centre, York Science Centre on 4
August 2017 for a price of GBP4.35 million and the sale of The Range,
Southend-on-Sea on 18 August 2017 for a price of GBP5 million.
5 Earnings Per Share
The earnings per Ordinary share are based on the net profit for the period of GBP
19,242,507 (30 June 2016: GBP10,120,967) and 386,333,375 (30 June 2016:
380,690,419) ordinary shares, being the weighted average number of shares in
issue during the period.
Earnings for the period to 30 June 2017 should not be taken as a guide to the
results for the year to 31 December 2017.
6 Investment In Subsidiary Undertakings
The Company owns 100 per cent of the issued ordinary share capital of Standard
Life Investments Property Holdings Limited, a company with limited liability
incorporated and domiciled in Guernsey, Channel Islands, whose principal
business is property investment.
The Group, through its subsidiary, owns 100 per cent of the issued share
capital of Huris (Farnborough) Limited, a company incorporated in the Cayman
Islands whose principal business is property investment. During the period
ended 30 June 2017 the Group initiated the process to liquidate Huris
(Farnborough) Limited.
The group undertakings consist of the following 100% owned subsidiaries at the
Balance Sheet Date:
-Standard Life Investments Property Holdings Limited, a company with limited
liability incorporated in Guernsey, Channel Islands.
- Standard Life Investments (SLIPIT) Limited Partnership, a limited partnership
established in England.
-Standard Life Investments SLIPIT (General Partner) Limited, a company with
limited liability incorporated in England.
-Standard Life Investments SLIPIT (Nominee) Limited, a company with limited
liability incorporated in England.
7 Dividends And Property Income Distribution Gross Of Income Tax
30 Jun 17 30 Jun 16 31 Dec 16
GBP GBP GBP
Non Property Income Distributions
0.561p per ordinary share paid in March 2016 relating to the quarter ending 31 - 1,679,695 1,679,695
December 2015
0.84p per ordinary share paid in March 2017 relating to the quarter ending 31 3,258,910 - -
December 2016
Property Income Distributions
0.600p per ordinary share paid in March 2016 relating to the quarter ending 31 - 1,796,781 1,796,781
December 2015
1.19p per ordinary share paid in May 2016 relating to the quarter ending 31 - 4,530,216 4,530,216
March 2016
1.19p per ordinary share paid in August 2016 relating to the quarter ending 30 - - 4,530,216
June 2016
1.19p per ordinary share paid in November 2016 relating to the quarter ending - - 4,530,216
30 September 2016
0.35p per ordinary share paid in March 2017 relating to the quarter ending 31 1,357,879 - -
December 2016
1.19p per ordinary share paid in May 2017 relating to the quarter ending 31 4,626,903 - -
March 2017
9,243,692 8,006,692 17,067,124
A property income dividend of 1.19p per share was declared on 9 August 2017 in
respect of the quarter to 30 June 2017 - a total payment of GBP4,666,173. This
will be paid on 31 August 2017.
8 Financial Instruments and Investment Properties
Fair values
The fair value of financial assets and liabilities is not materially different
from the carrying value in these financial statements.
Fair value hierarchy
The following table shows an analysis of the fair values of investment
properties recognised in the balance sheet by the level of the fair value
hierarchy:
30 June 2017 Level 1 Level 2 Level 3 Total fair
value
Investment properties - - 414,094,067 414,094,067
The lowest level of input is the underlying yields on each property which is an
input not based on observable market data.
The following table shows an analysis of the fair values of financial
instruments recognised in the balance sheet by the level of the fair value
hierarchy:
30 June 2017 Level 1 Level 2 Level 3 Total fair
value
Loan Facilities - 112,064,817 - 112,064,817
The lowest level of input is the interest rate payable on each borrowing which
is a directly observable input.
30 June 2017 Level 1 Level 2 Level 3 Total fair
value
Interest rate swap - 2,593,022 - 2,593,022
The lowest level of input is the three month LIBOR yield curve which is a
directly observable input.
There were no transfers between levels of the fair value hierarchy during the
six months ended 30 June 2017.
Explanation of the fair value hierarchy:
Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
The fair value of investment properties is calculated using unobservable inputs
as described in the annual report and accounts for the year ended 31 December
2016.
Sensitivity of measurement to variance of significant unobservable inputs:
- A decrease in the estimated annual rent will decrease the fair value.
- An increase in the discount rates and the capitalisation rates will decrease
the fair value.
- There are interrelationships between these rates as they are partially
determined by the market rate conditions.
- The fair value of the derivative interest rate swap contract is estimated by
discounting expected future cash flows using current market interest rates and
yield curves over the remaining term of the instrument.
- The fair value of the loan facilities are estimated by discounting expected
future cash flows using the current interest rates applicable to each loan.
9 Bank Borrowings
On 28 April 2016 the Company entered into a new agreement to extend GBP145
million of its existing GBP155 million debt facility with RBS. The debt facility
consists of a GBP110 million seven year term loan facility and a GBP35 million five
year RCF. The RCF may by agreement be extended by one year on two occasions.
During the year to 31 December 2016 GBP20 million of the RCF was repaid, with the
balance of GBP15 million remaining drawn down by the Group at 31 December 2016.
During the period to 30 June 2017, the remaining GBP15 million RCF was repaid.
Interest is payable on the Term Loan at 3 month LIBOR plus 1.375% and on the
RCF at LIBOR plus 1.2%. This equates to a rate of 2.725% on the Term Loan as at
30 June 2017.
Under the terms of the loan facility there are certain events which would
entitle RBS to terminate the loan facility and demand repayment of all sums
due. Included in these events of default is the financial undertaking relating
to the LTV percentage. The new loan agreement notes that the LTV percentage is
calculated as the loan amount less the amount of any sterling cash deposited
within the security of RBS divided by the gross secured property value, and
that this percentage should not exceed 60% for the period to and including 27
April 2021 and should not exceed 55% after 27 April 2021 to maturity.
10 Events After The Balance Sheet Date
Purchases
On 7 July 2017, the Group completed the purchase of Pinnacle, Reading, an
office building for GBP13.1 million excluding costs.
On 18 July 2017, the Group completed the purchase of 101 Princess Steet,
Manchester for GBP8.1 million excluding costs.
On 4 August 2017, the Group completed the purchase of Nexus Point, Birmingham
for GBP4.6 million excluding costs.
Sales
On 26 July 2017, the Group sold Travis Perkins, Cheltenham for GBP2.2 million.
On 4 August 2017, the Group sold The IT Centre, York Science Centre for GBP4.4
million.
On 18 August 2017, the Group sold The Range, Southend-on-Sea for GBP5.0 million.
Dividends
On 9 August 2017, the Company declared a property income dividend in respect of
the quarter to 30 June 2017 of 1.19 pence per share which will be paid on 31
August 2017.
Share Issues
During the period from 1 July 2017 to 23 August 2017 the Group has raised GBP2.95
million through the issue of 3.3 million shares.
The Interim Report and Unaudited Consolidated Condensed Financial Statements
for the period from 1 January 2017 to 30 June 2017 will shortly be available
for download from the Company's website hosted by the Investment Manager
(www.slipit.co.uk).
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Jason Baggaley
Standard Life Investments Limited
Tel: 0131 245 2833
Graeme McDonald
Standard Life Investments Limited
Tel: 0131 245 3151
END
END
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