30 January
2018
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
31 December 2017
Key Highlights
Solid Performance
- Net asset value (“NAV”) per ordinary share was 87.6p
(Sep 2017 – 86.0p), a rise of 1.9%,
resulting in a NAV total return, including dividends, of 3.3% for
Q4;
- The portfolio valuation increased by 1.7% on a like for like
basis, whilst the IPD/MSCI Monthly Index rose by 2.0% over the same
period.
Portfolio activity - Selling assets
with limited future return prospects and reinvesting into assets in
favoured sectors that provide secure income
Sales
- Sale of two retail warehouse units let to DSG in Preston for £16.35m. The sale was 5.4% ahead
of the end September valuation.
- Sale of a further retail unit let to Matalan at Kings Lynn, for £4.4m, marginally ahead of the
previous valuation.
- Sale of office building at 1 Dorset Street, Southampton for £5.2m, in-line with previous
valuation. This sale enables the Company to avoid future capital
expenditure and re-letting risk on the building.
- Post the quarter end, sale of Bathgate Retail Park in
Scotland for £5.2m, further
reducing the Company’s retail exposure.
- Purchase of a multi let office at 1 Station Square, in
Bracknell for £12m, reflecting a yield of 6.9% on the topped up
rent. The office has had a substantial refurbishment and is located
adjacent to Bracknell train station and close to the newly opened
town centre retail scheme which should provide scope for rental
growth.
- Post the quarter end purchase of a 216,180 sq ft logistics
facility in Shellingford, Oxfordshire on the established White Horse
Business Park, for £11.5m, reflecting an initial yield of 6.5%. The
unit is let for 25 years without a break, and is subject to
five yearly upwards only rent reviews fixed at 2.5%pa.
Overall the above transactions have reduced risk in the
portfolio by selling assets, particularly in the retail sector,
where future returns are expected to come under pressure. Proceeds
have been reinvested into assets in favoured sectors that offer
secure income and better future performance characteristics.
Successful asset management
activity
- The Company’s largest void at year end was an industrial unit
in Rainham, which became vacant in June
2017 on lease expiry. In January, we signed an agreement on
the unit for a new 15 year lease with a tenant break in year 10.
Post this new lease, the void rate, which stood at 7.5% at the
quarter end drops to 5.4%.
Strong balance sheet with prudent
gearing
- LTV of 18.0%* with uncommitted cash (post quarter end
transactions) of £18.3m and RCF of £35m still available for
investment in future opportunities.
Premium rating
- Continued strong demand for the Company’s shares with
2.25m shares issued in the quarter
raising proceeds of £2.0m. As at 31 Dec
2017 the share price was 93.25p - a premium to the 31
December NAV of 6.4%.
Attractive dividend yield
- Dividend yield of 5.1% based on a quarterly dividend of 1.19p
as at 31 Dec 2017 compares favourably
to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE
All Share Index (3.4%) as at the same date.
*LTV calculated as Debt less cash (incl cash held by solicitors)
divided by portfolio value
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
31 Dec 2017 was 87.6p. The net asset
value is calculated under International Financial Reporting
Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Knight Frank at 31 Dec
2017.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 1 Oct
2017 to 31 Dec 2017.
|
|
|
|
|
|
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets
as at 30 Sept 2017 |
86.0 |
337.5 |
|
Unrealised
increase in valuation of property portfolio |
1.7 |
6.9 |
Mainly
relates to like for like increase of 1.7% in property
portfolio |
Gain on
sales |
0.3 |
1.1 |
Gains on
sale of DSG, Matalan, Kings Lynn and Dorset Street,
Southampton |
CAPEX
& purchase costs in the quarter |
-0.3 |
-1.0 |
Predominantly acquisition costs incl SDLT plus CAPEX at
Explorer 1 & 2 and Unit 6 Broadgate, Oldham |
Net income
in the quarter after dividend |
0.0 |
0.0 |
Dividend
cover for the quarter of 100% (104% for the full year) with
uncommitted cash resources of £18.3m plus £35m RCF still available
for investment. |
Interest
rate swaps mark to market revaluation |
-0.1 |
-0.4 |
Increase
in swap liabilities in the quarter |
Share
issues |
0.0 |
2.0 |
NAV
accretive issue of 2.25m shares in the quarter raising £2.0m |
Other
movement in reserves |
0.0 |
-0.1 |
Movement
in lease incentives in the quarter |
Net assets
as at 31 Dec 2017 |
87.6 |
346.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Public Real Estate Association (“EPRA”)* |
31 Dec 2017 |
30 Sep 2017 |
|
|
EPRA Net Asset
Value |
£348.2 |
£339.4m |
|
|
EPRA Net Asset Value per
share |
88.2p |
86.4p |
|
|
|
|
|
|
|
|
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|
|
|
The Net Asset Value per share is calculated using 394,865,419
shares of 1p each being the number in issue on 31 Dec 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 focus during 2017 was relatively simple – firstly, to reduce
future risk of capex/voids and to reduce exposure to retail
warehousing, which we feel is going to continue to face headwinds.
Secondly, we wanted to control the void level and secure
future income at risk from lease expiry and void. The year ahead is
likely to have a similar theme, although we have more or less
completed the portfolio rebalancing, with the main focus being on
maintaining and growing the income stream.
Whilst 2017 surprised with the extent of capital growth (5.4%),
we remain cautious on the outlook for 2018. Initial indications are
that tenant interest in industrial and office property remains
relatively strong, however the prospect of mixed news on Brexit,
and a slowing economy, means that we want to continue to focus on
reducing voids. We completed several lease renewals in Q4
2017 and an agreement for lease on our largest void in January 2018. We are encouraged by the number of
viewings on our largest remaining void – a logistics unit in
Oldham - and although we are aware
of several future voids over the course of 2018, early interest in
them is also encouraging.
The last quarter of 2017 and the first weeks of 2018 saw
continued rebalancing of the portfolio, rotating out of retail
warehouse units that had future risk (Preston was over-rented and planning had
recently been granted for a new park on the opposite side of town)
and buying into assets that we believe tenants will want to occupy,
such as well-located offices and industrial units.
The Company retains its undrawn Revolving Credit Facility (£35m)
as well as unallocated cash (£18.3m) for reinvestment, and had an
LTV of 18% as at 31 December, reflecting the relatively cautious
outlook we have. The cost of the debt has been hedged, and is fixed
at 2.7%, as compared to a running yield on the investment portfolio
of 5.6%. The interest rate swap has a liability of £2.2m held in
the NAV. This will revert to £0 at maturity.
Market Commentary
As we move into 2018, economists generally expect relatively
subdued economic growth for the year ahead and then some further
moderation in economic momentum in 2019 as the impact of leaving
the European Union becomes more pronounced. Despite the relatively
weak economic backdrop, UK real estate returns were stronger than
most analysts originally anticipated at the start of 2017. Up to
the end of December, UK real estate recorded total returns of 11.2%
for the year. Capital growth was relatively strong over the year
also with values rising by 5.4%, .an improvement on the 4.5% growth
in the twelve months to end September. Rents increased by 1.9% over
the year which marginally improved from the increase in the year to
end September.
As for the equity markets, the FTSE All Share and the FTSE 100
both produced total returns of 5% respectively over the period
30/09/17 to 31/12/17. Over the same
period, listed real estate equities delivered a return of 8.3%.
In sector terms, the industrial sector has continued to
demonstrate its strength, generating a total return of 21.1% in the
twelve months to end December. Retail was the laggard sector in the
same period, recording total returns of 7.7%. Despite the political
uncertainty associated with the sector, offices recorded a total
return of 8.5% in the year to end December. Retail capital growth
continues to be the weakest with values increasing by 1.5% over the
twelve months to end December, whilst office values grew by 3.5%
over the same time frame. Rental growth remained positive over the
last 12 months with office rental growth of 1.4% and industrials at
4.9%. Retail rental growth, at 0.4% continued to be considerably
weaker than the other sectors.
Investment Outlook
UK real estate continues to provide an elevated yield compared
to other assets and market values are now ahead of the level they
attained before the Brexit upheaval in 2016. Furthermore,
lending to the sector remains prudent 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, although there are pockets of
oversupply in some markets such as Central London. The positive fundamentals
should help to maintain positive returns. In this environment, the
steady secure income component generated by the asset class is
likely to be the key driver of returns. 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
European Union continues to evolve. The retail sector continues to
face a series of headwinds that may hold back recovery in less
strong locations due to oversupply and structural issues. Within
this sector, however, the prospects for retail towards the South
East and Central London are
expected to remain more robust. Given the backdrop of continuing
heightened macro uncertainty, investors are becoming more risk
averse and better quality assets are once again broadly
outperforming those of poorer quality. Prime/good quality assets
with stronger tenants on longer leases are likely to provide the
best opportunities in the weaker economic environment we anticipate
further into 2018.
Dividends
The Company paid total dividends in respect of the quarter ended
30 September 2017 of 1.19p per
Ordinary Share, with a payment date of 30
November 2017.
Net Asset analysis as at 31 Dec 2017 (unaudited)
|
£m |
% of
net assets |
Office |
150.5 |
40.2 |
Retail |
69.6 |
20.1 |
Industrial |
213.1 |
64.9 |
Total Property
Portfolio |
433.2 |
125.2 |
Adjustment for lease
incentives |
-3.7 |
-1.1 |
Fair value of
Property Portfolio |
429.5 |
124.1 |
Cash |
14.3 |
4.1 |
Other Assets |
24.2 |
7.0 |
Total
Assets |
468.0 |
135.2 |
Current
liabilities |
-10.5 |
-3.0 |
Non-current
liabilities (bank loans & swap) |
-111.5 |
-32.2 |
Total Net
Assets |
346.0 |
100.0 |
Breakdown in valuation movements over
the period 1 Oct 2017 to 31 Dec 2017
|
Portfolio Value as at 31 Dec 2017 (£m) |
Exposure as at 31 Dec 2017 (%) |
Like
for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 30 Sep 17 |
|
|
|
441.1 |
|
|
|
|
|
Retail |
69.6 |
16.1 |
0.4 |
-20.6 |
South East Retail |
|
5.7 |
1.2 |
0.3 |
Rest of UK Retail |
|
0.0 |
0.0 |
0.0 |
Retail Warehouses |
|
10.4 |
-0.1 |
-20.9 |
|
|
|
|
|
Offices |
150.5 |
34.7 |
0.1 |
6.3 |
London City
Offices |
|
0.0 |
0.0 |
0.0 |
London West End
Offices |
|
3.1 |
0.7 |
0.1 |
South East
Offices |
|
27.2 |
-0.5 |
5.6 |
Rest of UK
Offices |
|
4.4 |
3.2 |
0.6 |
|
|
|
|
|
Industrial |
213.1 |
49.2 |
3.1 |
6.4 |
South East
Industrial |
|
13.1 |
5.9 |
3.2 |
Rest of UK
Industrial |
|
36.1 |
2.2 |
3.2 |
|
|
|
|
|
External valuation
at 31 Dec 2017 |
433.2 |
100.0 |
1.7 |
433.2 |
Top 10 Properties
|
31 Dec 17 (£m) |
|
|
Elstree Tower, Borehamwood |
20-25 |
Denby 242, Denby |
15-20 |
Symphony, Rotherham |
15-20 |
Chester House, Farnborough |
15-20 |
The Pinnacle, Reading |
10-15 |
New Palace Place, London |
10-15 |
Howard Town Retail Park, High
Peak |
10-15 |
Hollywood Green, London |
10-15 |
Charter Court, Slough |
10-15 |
Eden Street, Kingston Upon
Thames |
10-15 |
Top 10 tenants
|
Tenant
group |
Passing
rent |
As % of total
rent |
1 |
Sungard Availability
Services (UK) Ltd |
1,320,000 |
5.0 |
2 |
BAE Systems plc |
1,257,640 |
4.7 |
3 |
Techno Cargo Logistics
Ltd |
1,242,250 |
4.6 |
4 |
The Symphony Group
Plc |
1,080,000 |
4.1 |
5 |
Bong UK |
741,784 |
2.8 |
6 |
Euro Car Parts
Ltd |
736,355 |
2.8 |
7 |
Ricoh UK Limited |
696,995 |
2.6 |
8 |
CEVA Logistics
Limited |
633,385 |
2.4 |
9 |
Thyssenkrupp Materials
(UK) Ltd |
590,000 |
2.2 |
10 |
Public Sector |
559,148 |
2.1 |
|
|
8,857,557 |
33.3 |
|
Total Fund Passing
Rent |
26,654,667 |
|
Regional Split
South East |
46.0% |
East Midlands |
15.1% |
North West |
11.0% |
North East |
8.4% |
West Midlands |
7.5% |
Scotland |
5.0% |
South West |
3.8% |
London West End |
3.2% |
The Board is not aware of any other significant events or
transactions which have occurred between 31
Dec 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.slipit.co.uk
For further information:-
Jason Baggaley – Real Estate Fund
Manager, Standard Life Investments
Tel +44 (0) 131 245 2833 or jason.baggaley@aberdeenstandard.com
Graeme McDonald - Real
Estate Finance Manager, Standard Life Investments
Tel +44 (0) 131 245 3151 or
graeme.mcdonald@aberdeenstandard.com
The Company Secretary
Northern Trust International Fund Administration Services
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Trafalgar Court
Les Banques
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Tel: 01481 745001