31 July
2018
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
30 June 2018
Key Highlights
Solid Performance
- Net asset value (“NAV”) per ordinary share was 90.1p
(Mar 18 – 89.4p), a rise of 0.8%,
resulting in a NAV total return, including dividends, of 2.1% for
Q2 2018;
- The portfolio valuation increased by 1.5% on a like for like
basis, whilst the IPD/MSCI Monthly Index rose by 0.9% over the same
period.
Investment activity
- Purchase of a Data Centre in Birmingham, let to a major operator for a term
of 20 years, subject to a tenant only lease break in year 14 with
capped RPI linked rental increases at an initial yield of
5.75%.
- Purchase of a multi let office and retail unit in the
City of London, close to Bank and
Moorgate stations. The purchase price of £12.15m represents an
initial yield of 7% with a rental guarantee top up, and 4.7%
without the top up.
- Post the period end purchase of an industrial unit close to
Kettering. The property is let to
an engineering company which has taken a new 20 year lease with
five yearly indexed reviews. The purchase price of £8.1m reflects
an initial yield of 7.15%.
Strong balance sheet with prudent
gearing
- LTV* of 19.0% and uncommitted cash of £10.3m at the quarter end
with RCF of £35m also still available for investment in future
opportunities.
Premium rating
- Continued strong demand for the Company’s shares with
1.25m shares issued in the quarter
raising proceeds of £1.191m. As at 27 July
2018 the share price was 94.2p - a premium to the 30 June
NAV of 4.6%.
Attractive dividend yield
- Dividend yield of 5.1% based on a quarterly dividend of 1.19p
as at 27 July 2018 compares
favourably to the yield on the FTSE All-Share REIT Index (3.9%) and
the FTSE All Share Index (3.6%) as at the same date.
*LTV calculated as Debt less cash 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
30 June 2018 was 90.1p. 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 30 June
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 Apr
2018 to 30 June 2018.
|
|
|
|
|
|
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets
as at 31 Mar 2018 |
89.4 |
360.2 |
|
Unrealised
increase in valuation of property portfolio |
1.6 |
6.3 |
Mainly
relates to like for like increase of 1.5% in property
portfolio |
CAPEX
& purchase costs in the quarter |
-0.6 |
-2.1 |
Predominantly acquisition costs plus CAPEX on ongoing asset
management initiatives |
Net income
in the quarter after dividend |
-0.2 |
-1.0 |
Dividend
cover for the quarter of 79%. Recent acquisitions and utilisation
of uncommitted cash resources of £10m plus £35m RCF will allow the
Company to move back towards a covered dividend. |
Interest
rate swaps mark to market revaluation |
-0.1 |
-0.4 |
Increase
in swap liabilities in the quarter |
Share
issues |
0.0 |
1.2 |
NAV
accretive issue of 1.25m shares in the quarter raising £1.19m |
Net assets
as at 30 Jun 2018 |
90.1 |
364.2 |
|
|
|
|
|
|
|
|
European Public Real Estate Association (“EPRA”)* |
30 Jun 2018 |
31 Mar 2018 |
|
|
EPRA Net Asset
Value |
£365.0m |
£360.7m |
|
|
EPRA Net Asset Value per
share |
90.3p |
89.5p |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Net Asset Value per share is calculated using 404,365,419
shares of 1p each being the number in issue on 30 Jun 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
During the first half of 2018 we have seen continued tenant
demand across the portfolio, but also an increasingly long period
from initial interest to completed lease – hardly surprising given
the political and economic uncertainty we face at the moment, but
frustrating none the less.
The focus over the period has been to invest the higher than
normal cash balance and to improve dividend cover. We remain
disciplined in acquiring new investments; however, by just after
the quarter end, we had deployed the majority of the available cash
which will benefit the revenue account over the second half of the
year.
While voids have increased to 7.2% we have good interest in a
number of our existing vacancies. One of our largest voids is at an
office in Epsom which became vacant at lease expiry for us to
refurbish after which the previous tenant will take a new lease on
part of the building (anticipated November this year). We also have
two proposals out to other parties on the remainder of the space.
Our new purchase in the City also has void accommodation, where we
received a rental guarantee as a lump sum deducted from the
purchase price.
There has been much attention given to the retail sector in the
market and although the Company has managed to avoid any tenants
going into a company voluntary arrangement (“CVA”) we have seen two
smaller units suffer from tenants going into administration –
although in both cases we have interest from good quality retailers
in the space. We remain comfortable with our low exposure to
the retail sector and were delighted to increase our exposure at
the end of the quarter to the “other” or alternative sector with
the purchase of a data centre in Birmingham. The property is let for 20 years
(with a tenant right to break in 14 years) and the lease is subject
to annual rental increases in line with RPI, collared and capped at
1 and 3%.
We also completed the purchase of an office in the heart of the
City of London. This might seem
contrary to our general outlook for that sub-sector, however the
property receives 20% of its rent from two retail units and is
located in a prime position close to Bank underground station, with
asset management opportunities from two vacant floors where the
Company received a rental guarantee. The entry price reflected a 7%
yield on the topped up rent. The final purchase which completed
just after the quarter end was a sale and leaseback on an
industrial facility close to Kettering. The 20 year lease has index linked
increases in rent every 5 years, with the purchase reflecting an
attractive initial yield of 7.15%.
Market commentary
- The weakness of the UK economy in Q1 appears to have been a
largely weather-related phenomenon, rather than a more fundamental
slowing, with the construction and retail sectors showing signs of
recovery in Q2.
- Real income growth should start to provide a modest tailwind to
GDP growth. Business investment continues to be held back by
elevated uncertainty over the UK’s future trading relationship with
the EU.
- The rise in oil prices will push the energy component of CPI
inflation higher. However, base effects mean that inflation is
still expected to fall over the course of the year.
- There is an expectation that the Bank of England will increase the Bank rate by 25bps
in August, as the bounce in data reassures the Bank the Q1 slowdown
was largely temporary.
- Difficulties in the retail sector have dominated the headlines
over the last few months. This is now being reflected in retail
rents which are falling across the board according to MSCI’s
Monthly index. News that half-year profits at John Lewis would be
“close to zero” was further evidence of the mounting challenges in
the industry.
- Industrial demand remains buoyant and, in the supply,-starved
South East this has pushed rents 7% higher over the year to June,
according to MSCI. Demand is broad-based, with the continued
expansion of trade counters and urban logistics uses being a
particular feature. Regional rents rose by a more modest 2.3% over
the period with some pockets of more balanced supply and
demand.
- London office rents are
broadly static and take-up has been propped up by flexible office
providers who do not drive net absorption. Take-up in the regional
office markets has slowed somewhat over the first half of 2018,
although grade ‘A’ stock levels are low in many markets,
maintaining some rental tension.
- The industrial sector has seen continued strong capital growth
– 20.3% for the year to June, according to MSCI – which we expect
to continue through the rest of 2018 given prices achieved are far
outstripping valuations.
- Demand for retail assets across the spectrum remained weak,
with very little interest for larger lot sizes, which continues to
weigh on the transaction volumes of larger retail parks and
shopping centres. But it is the latter seeing the most distress,
with yields moving out in 23 of the last 24 months to May.
- Activity in the listed sector broadly mirrors the trends we are
seeing in the direct market. Industrial stocks are trading at a
premium to NAV which is indicative of optimism for sustained
capital growth. London office
names are still trading at a discount to NAV, but a narrower one,
as the expectation has shifted from a market correction to one of
stagnation. Negative sentiment around growth prospects means Retail
REITs remain at large discounts to NAV.
Investment outlook
- Investor sentiment and activity continues to illustrate that
the hierarchy of sector preference remains largely unchanged. The
industrial sector remains the favoured sector call as investors
seek to take advantage of the structural shift towards online
retailing.
- The alternative sectors remain another sector call favoured by
many investors. Typically targeting these sectors for their long,
stable inflation-linked leases, alternative sectors remain highly
sought-after as we move into an environment of predominantly
income-led returns. However, the sub-sectors are diverse and the
risks associated with these sectors equally so.
- Our five-year total return forecast for all property is below
market consensus. We do not see inward yield shift contributing
positively to total returns going forward. Rather, returns will be
driven by income and, as such, a key focus will be appropriate
management of income risk at the asset and portfolio level. The
focus on income is reflected in our projected sub sector returns
which have become more divergent in the short term, with
industrials and income-focussed sectors, including PRS, expected to
be the strongest performing areas of the market.
Dividends
The Company paid total dividends in respect of the quarter ended
31 March 2018 of 1.19p per Ordinary
Share, with a payment date of 31 May
2018.
Net Asset analysis as at 30 Jun 2018 (unaudited)
|
£m |
% of
net assets |
Office |
133.1 |
36.6 |
Retail |
65.0 |
17.8 |
Industrial |
241.3 |
66.3 |
Other |
18.6 |
5.1 |
Total Property
Portfolio |
458.0 |
125.8 |
Adjustment for lease
incentives |
-3.5 |
-1.0 |
Fair value of
Property Portfolio |
454.5 |
124.8 |
Cash |
23.2 |
6.4 |
Other Assets |
5.9 |
1.6 |
Total
Assets |
483.6 |
132.8 |
Current
liabilities |
-8.7 |
-2.4 |
Non-current
liabilities (bank loans & swap) |
-110.7 |
-30.4 |
Total Net
Assets |
364.2 |
100.0 |
Breakdown in valuation movements over
the period 1 Apr 18 to 30 Jun 18
|
Portfolio Value as at 30 Jun 2018 (£m) |
Exposure as at 30 Jun 2018 (%) |
Like for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Mar 18 |
|
|
|
440.5 |
|
|
|
|
|
Retail |
65.0 |
14.2 |
0.2 |
0.2 |
South East Retail |
|
5.7 |
3.3 |
0.9 |
Rest of UK Retail |
|
0.0 |
0.0 |
0.0 |
Retail Warehouses |
|
8.5 |
-1.8 |
-0.7 |
|
|
|
|
|
Offices |
133.1 |
29.1 |
0.5 |
-0.4 |
London City
Offices |
|
2.7 |
0.0 |
12.2 |
London West End
Offices |
|
3.0 |
0.0 |
0.0 |
South East
Offices |
|
19.1 |
0.6 |
-12.8 |
Rest of UK
Offices |
|
4.3 |
0.8 |
0.2 |
|
|
|
|
|
Industrial |
241.3 |
52.7 |
2.3 |
5.4 |
South East
Industrial |
|
15.8 |
1.6 |
1.1 |
Rest of UK
Industrial |
|
36.9 |
2.6 |
4.3 |
|
|
|
|
|
Other
Commercial |
18.6 |
4.0 |
1.6 |
12.3 |
|
|
|
|
|
External valuation
at 30 Jun 2018 |
458.0 |
100.0 |
1.5 |
458.0 |
Top 10 Properties
|
30 Jun 18 (£m) |
|
|
Denby 242, Denby |
15-20 |
Symphony, Rotherham |
15-20 |
Chester House, Farnborough |
15-20 |
The Pinnacle, Reading |
10-15 |
Hollywood Green, London |
10-15 |
New Palace Place, London |
10-15 |
Timbmet, Shellingford |
10-15 |
Howard Town Retail Park, High
Peak |
10-15 |
Marsh Way, Rainham |
10-15 |
Atos,Birmingham |
10-15 |
Top 10 tenants
Name |
Passing
Rent |
% of passing
rent |
BAE Systems plc |
1,257,640 |
4.9% |
Technocargo Logistics
Limited |
1,242,250 |
4.9% |
The Symphony Group
PLC |
1,080,000 |
4.2% |
Timbmet Limited |
799,683 |
3.1% |
Bong UK Limited |
756,620 |
3.0% |
Euro Car Parts
Limited |
736,355 |
2.9% |
Ricoh UK Limited |
696,995 |
2.7% |
CEVA Logistics
Limited |
633,385 |
2.5% |
Thyssenkrupp Materials
(UK)Ltd |
590,000 |
2.3% |
Public Sector |
559,148 |
2.2% |
Total |
8,352,076 |
32.7% |
Total Passing
Rent |
25,605,667 |
|
Regional Split
South East |
40.6% |
East Midlands |
16.0% |
North West |
12.5% |
West Midlands |
10.0% |
North East |
7.8% |
South West |
3.7% |
Scotland |
3.7% |
London West End |
3.0% |
City of London |
2.7% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
Jun 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