1 May
2018
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
31 March 2018
Key Highlights
Solid Performance
- Net asset value (“NAV”) per ordinary share was 89.4p
(Dec 2017 – 87.6p), a rise of 2.1%,
resulting in a NAV total return, including dividends, of 3.4% for
Q1 2018;
- The portfolio valuation increased by 1.9% on a like for like
basis, whilst the IPD/MSCI Monthly Index rose by 1.0% over the same
period.
Portfolio activity
- 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.
- Purchase of the Grand National Retail Park in Aintree for a
price of £6.125m, reflecting an initial yield of 6.85%. The
park is adjacent to the race course, and consists of 4 units let as
a leisure park to Premier Inn, Pure Gym, Mitchells and Butler, and
KFC. The investment benefits from strong trade associated with the
race course and provides opportunity for asset management to extend
leases from the current 8.1 years.
- Purchase of an industrial complex in Sandy, Bedfordshire for £6.02m, reflecting a yield of
6.25%. The property is located immediately adjacent to a junction
of the A1, approximately 40 miles north of central London, and is let for an unexpired term of 19
years at a rent of £3.17psf, subject to indexed increases in rent
every five years.
Sales
- Completion of the sale of Elstree Tower in Borehamwood for £20m
previously announced in September
2017.
- Post the period end completed the sale of Charter Court, a
multi let office in Slough for £13.25m, 9.6% ahead of the end
December valuation.
The transactions above have continued the process of selling
assets where future returns are expected to come under pressure and
reinvesting into assets in favoured sectors that offer secure
income and better future performance characteristics.
Successful asset management
activity
- Completed the letting of 1 Marsh Way, Rainham, the Company’s
largest void. The property has been let on a 15 year lease (with
tenant break option in the tenth year) at a starting rent of
£636,200pa.
- Voids rate as at 31 March 2018
was 5.8% (Dec 2017 –
7.7%).
Strong balance sheet with prudent
gearing
- LTV* of 14.3% and uncommitted cash of £44.1m post the quarter
end transactions with RCF of £35m also still available for
investment in future opportunities.
- Two year extension of existing £35million Revolving Credit
facility (“RCF”) secured with Royal Bank of Scotland. While the margin over LIBOR on the
RCF will increase from 1.2% to 1.45% this extension will mean the
RCF will now expire at same time as the term loan in April 2023 providing the Company with increased
certainty of both availability and cost of financing to this date.
The interest rate on the Company’s £110 million term loan remains
fixed at 2.725%.
Premium rating
- Continued strong demand for the Company’s shares with
8.25m shares issued in the quarter
raising proceeds of £7.6m. As at 24 Apr
2018 the share price was 94.2p - a premium to the 31 March
NAV of 5.4%.
Attractive dividend yield
- Dividend yield of 5.1% based on a quarterly dividend of 1.19p
as at 24 Apr 2018 compares favourably
to the yield on the FTSE All-Share REIT Index (3.8%) and the FTSE
All Share Index (3.7%) as at the same date.
*LTV calculated as Debt less cash (after sale of Charter Court)
divided by portfolio value (excl Charter Court)
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
31 Mar 2018 was 89.4p. The net asset
value is calculated under International Financial Reporting
Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Knight Frank LLP at 31 Mar
2018.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 1 Jan
2018 to 31 Mar 2018.
|
|
|
|
|
|
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets
as at 31 Dec 2017 |
87.6 |
346.0 |
|
Unrealised
increase in valuation of property portfolio |
1.9 |
7.6 |
Mainly
relates to like for like increase of 1.9% in property
portfolio |
Loss on
sales |
0.0 |
-0.2 |
Loss on
sale of Bathgate |
CAPEX
& purchase costs in the quarter |
-0.4 |
-1.7 |
Predominantly acquisition costs plus CAPEX |
Net income
in the quarter after dividend |
-0.2 |
-0.7 |
Dividend
cover for the quarter of 86% with uncommitted cash resources of
£44m plus £35m RCF still available for investment which when
utilised will allow the Company to move back towards a covered
dividend. |
Interest
rate swaps mark to market revaluation |
0.4 |
1.8 |
Decrease
in swap liabilities in the quarter |
Share
issues |
0.2 |
7.6 |
NAV
accretive issue of 8.25m shares in the quarter raising £7.6m |
Other
movement in reserves |
-0.1 |
-0.2 |
Movement
in lease incentives in the quarter |
Net assets
as at 31 Mar 2018 |
89.4 |
360.2 |
|
|
|
|
|
|
|
|
European Public Real Estate Association (“EPRA”)* |
31 Mar 2018 |
31 Dec 2017 |
|
|
EPRA Net Asset
Value |
£360.7m |
£348.2m |
|
|
EPRA Net Asset Value per
share |
89.5p |
88.2p |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Net Asset Value per share is calculated using 403,115,419
shares of 1p each being the number in issue on 31 Mar 2018.
* 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 first quarter is generally fairly quiet as investors and
occupiers take stock and plan for the year ahead. This year,
however, activity seemed to continue on from the end of 2017 with
little change. The Company was no exception, with several
transactions rolling over from last year and some new activity. It
was pleasing to complete a new lease on the Company’s largest
vacant building in January, and over the quarter we found
inspection levels on all the vacant units was higher than in Q4
last year. Although lettings are taking longer to secure, the level
of interest is encouraging and generally new leases have been
agreed on better terms than assumed in the Company’s valuations.
The void level reduced over the quarter to 5.8%, and is likely to
be in a range between 5%-10% throughout the year as various leases
expire and new lettings are completed.
Three purchases were completed in Q1, with a total investment of
just over £23m. The two industrial / logistics units are let on
long leases with indexation, and although the units are older, they
provide cost efficient occupation for the tenants, with future
potential for redevelopment. The leisure scheme in Aintree is
adjacent to the race course, and we are already actively engaged in
extending leases to give long term secure income. As a result of
two sales of offices with potentially large capex requirements the
Company has a larger than normal cash holding (c10%) at quarter
end. This larger than normal cash holding obviously has a short
term impact on the level of dividend cover given the low yield on
cash holdings. We are, however, considering several investment
opportunities and will seek to invest the cash over the next 6
months into assets with lower capex requirements and stronger
growth potential. Investing the cash in suitable investments will
enable the Company to move back towards a covered dividend.
Market Commentary
UK economic growth was 0.4% in the fourth quarter of 2017 and
was revised down to 1.7% for the year as a whole. Early data for
the first quarter of 2018 has been underwhelming, particularly for
the services sector. Retail sales figures have been particularly
weak over the first quarter, however there are signs that the
economy will benefit from a recovery in household spending power
later this year as the tight labour market starts to feed through
into stronger wage growth. Regular pay growth reached 2.8% in
February, while consumer price inflation (CPI) fell to 2.5% in
March. The Bank of England has
signalled that further rate rises are coming although the recent
GDP announcement has cast some doubt over the timing of these.
The UK property market produced a total return of 2.3% in Q1,
according to the MSCI Monthly Index. Over the 12 month period to 31
March the total return was 11.3% after a year of consistent capital
growth resulting in 5.6% capital growth over the 12 month period.
The majority of this growth came from inward yield shift, with
rental value growth of only 2% over the 12 months.
Volatility in the financial markets in Q1 have been reflected in
the negative total returns of the FTSE All Share (-6.9%) and the
FTSE 100 (-7.2%). The FTSE All-Share REIT Index was also
negative over the first quarter of 2018 at -3.5%.
Industrials remained the clear outperformer at a sector level,
with a total return of 4.3% over the quarter, led by strong returns
in the South East and rental growth of 1.0%. Office and retail
total returns over the quarter were more muted at 1.9% and 1.2%
respectively, with a modest 0.4% growth in rents in the former but
flat rents in the latter. In the office sector, central
London underperformed the South
East and the regions over the quarter with South East offices now
also the top performing office segment over the last five years.
Retail returns were weighed down by shopping centres, which
returned just 0.4% over the quarter but retail warehouse
performance was healthier at 1.5%.
Investment Outlook
We envisage positive but low total returns over the next five
years, with the forecast annual total return being slightly below
the market income return. Aside from industrial valuations catching
up with extremely strong pricing and delivering appreciably
stronger returns in the short term, we do not see yield shift
contributing positively to capital growth over the forecast period.
Relative differences in projected segment performance beyond that
initial yield shift for industrials are expected to be reasonably
small, with no clear outperforming segment beyond industrial in
2018. Whilst the downside risk is greater as prices remain high in
a long-term context, we do not see a specific trigger for a
correction. Fundamentals are positive in the industrial sector,
although retail is more polarised. Most office markets are
well-balanced with limited new supply, albeit we see more risk in
London. Debt is accretive to
income returns and lending remains selective and prudent, with
total debt much lower than before the global financial crisis.
There remains significant capital targeting the asset class, both
from overseas and domestic investors’ allocations, with the
comparatively high income yield one of the attractions. We would
caution that property’s required risk premium has likely increased
over time as leases have shortened and income has become riskier,
while rental growth prospects have diminished. With income expected
to be the main driver of returns over the forecast period, the
degree of income risk – whether potential tenant default or the
durability of income at lease events – will be key to asset
performance. It remains our view that lower risk, higher quality
assets are likely to perform best over the medium term.
Dividends
The Company paid total dividends in respect of the quarter ended
31 December 2017 of 1.19p per
Ordinary Share, with a payment date of 29
March 2018.
Net Asset analysis as at 31 Mar 2018 (unaudited)
|
£m |
% of
net assets |
Office |
133.5 |
37.1 |
Retail |
64.9 |
18.0 |
Industrial |
235.9 |
65.5 |
Other |
6.2 |
1.7 |
Total Property
Portfolio |
440.5 |
122.3 |
Adjustment for lease
incentives |
-3.4 |
-0.9 |
Fair value of
Property Portfolio |
437.1 |
121.4 |
Interest rate
swap |
0.1 |
0.0 |
Cash |
36.0 |
10.0 |
Other Assets |
6.9 |
1.9 |
Total
Assets |
480.1 |
133.3 |
Current
liabilities |
-10.1 |
-2.8 |
Non-current
liabilities (bank loans & swap) |
-109.8 |
-30.5 |
Total Net
Assets |
360.2 |
100.0 |
Breakdown in valuation movements over
the period 1 Jan 2018 to 31 Mar 2018
|
Portfolio Value as at 31 Mar 2018 (£m) |
Exposure as at 31 Mar 2018 (%) |
Like
for Like Capital Value Shift (excl transactions & CAPEX)
(%) |
Capital Value Shift (incl transactions (£m) |
|
|
External valuation
at 31 Dec 17 |
|
|
|
433.2 |
|
|
|
|
|
Retail |
64.9 |
14.7 |
0.8 |
-4.7 |
South East Retail |
|
5.7 |
2.8 |
0.7 |
Rest of UK Retail |
|
0.0 |
0.0 |
0.0 |
Retail Warehouses |
|
9.0 |
-0.4 |
-5.4 |
|
|
|
|
|
Offices |
133.5 |
30.3 |
2.3 |
-17.0 |
London West End
Offices |
|
3.1 |
0.0 |
0.0 |
South East
Offices |
|
22.7 |
2.7 |
-17.4 |
Rest of UK
Offices |
|
4.5 |
2.1 |
0.4 |
|
|
|
|
|
Industrial |
235.9 |
53.6 |
1.9 |
22.8 |
South East
Industrial |
|
16.2 |
3.2 |
14.3 |
Rest of UK
Industrial |
|
37.4 |
1.4 |
8.5 |
|
|
|
|
|
Other
Commercial |
6.2 |
1.4 |
0.0 |
6.2 |
|
|
|
|
|
External valuation
at 31 Mar 2018 |
440.5 |
100.0 |
1.9 |
440.5 |
Top 10 Properties
|
31 Mar 18 (£m) |
|
|
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 |
Hollywood Green, London |
10-15 |
Charter Court, Slough |
10-15 |
Howard Town Retail Park, High
Peak |
10-15 |
Timbmet, Shellingford |
10-15 |
March Way, Rainham |
10-15 |
Top 10 tenants
Name |
Passing
Rent |
% of passing
rent |
BAE Systems plc |
1,257,640 |
4.8% |
Technocargo Logistics
Limited |
1,242,250 |
4.8% |
The Symphony Group
PLC |
1,080,000 |
4.1% |
Hadleigh PVT
Limited |
799,683 |
3.1% |
Bong UK Limited |
756,620 |
2.9% |
Euro Car Parts
Limited |
736,355 |
2.8% |
Ricoh UK Limited |
696,995 |
2.7% |
CEVA Logistics
Limited |
633,385 |
2.4% |
Thyssenkrupp Materials
(UK)Ltd |
590,000 |
2.3% |
Public Sector |
559,148 |
2.1% |
Total |
8,352,076 |
32.0% |
Total Passing
Rent |
26,024,462 |
|
Regional Split
South East |
44.7% |
East Midlands |
16.4% |
North West |
12.5% |
North East |
8.2% |
West Midlands |
7.5% |
Scotland |
3.8% |
South West |
3.8% |
London West End |
3.1% |
The Board is not aware of any other significant events or
transactions which have occurred between 31
Mar 2018 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
(Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001