TIDMSLI
17 September 2018
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
RESULTS IN RESPECT OF THE HALF YEARED 30 JUNE 2018
Financial Highlights
- NAV total return of 5.6% for the period ended 30 June 2018, driven by
outperforming property portfolio.
- Share price total return over the period of 2.4% compared to the total return
on the FTSE All-Share REIT Index of 1.3% and the FTSE All-Share Index of 1.7%
with the Company's shares trading at a premium to NAV of 3.3% as at 30 June
2018.
- Conservative LTV of 19.0% at period end at an attractive interest rate of
2.7%.
- Dividend cover of 83% over the period but utilisation of financial resources
and delivery of successful asset management initiatives should boost earnings
and increase dividend cover in the medium term.
- The yield on the Company's share price as at 30 June 2018 stood at 5.1% which
compares favourably to the FTSE All-Share REIT Index (3.9%) and FTSE All-Share
Index (3.6%) at the same date.
- 9.5 million shares were issued under the Company's blocklisting facility
generating net proceeds of GBP8.8 million for investment into the portfolio as
well as being accretive to NAV.
- Overall, the Company, with a market capitalisation of GBP376.5 million as at 30
June 2018, has a secure and growing balance sheet, significant financial
resources for investment and an outperforming portfolio of assets.
Property Highlights
- As at 30 June 2018, the portfolio was valued at GBP458 million (Dec 2017: GBP433
million)
- Property total return for the period was 4.7%, ahead of the IPD Quarterly
version of Monthly Index total return of 4.2%. The income return of 2.4% from
the portfolio continued to outperform the comparative benchmark figure of 2.3%
with a capital return of 2.2% also outperforming the benchmark return of 1.8%.
- Portfolio had a 53% weighting to the outperforming industrial sector at the
period end with only 14% of the portfolio being in retail assets.
- Void rate of 7.2% at period end with over a third of these being in the
Company's favoured industrial sector.
- Positive rent collection rates of 99% within 28 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 2018 2017
EPRA earnings per share (excluding capital items & swap movements) 1.98 2.64
(pence per share)
Dividends declared per ordinary share (p) 2.38 2.38
Dividend cover (%)* 82.8 110.5
Dividend yield (%)** 5.1 5.3
FTSE Real Estate Investment Trusts Index Yield (%) 3.9 3.6
FTSE All-Share Index Yield (%) 3.6 3.6
Capital Values & Gearing 31 December
30 June 2017 Change %
2018
Total Assets (GBPmillion) 483.6 468.8 3.2
Net asset value per share (p) 90.1 87.6 2.9
Ordinary Share Price (p) 93.10 93.25 (0.2)
Share Price Premium to NAV (%) 3.3 6.4
Loan to value (%)*** 19.0 18.0
Total Return 6 months % 1 Year 3 Year 5 Year
Return % Return % Return % Return
NAV**** 5.6 13.4 36.1 109.7
Share Price**** 2.4 9.8 30.7 104.6
FTSE All-Share REIT Index 1.3 9.8 9.9 62.7
FTSE All-Share Index 1.7 9.0 31.6 52.8
Property Returns & Statistics % Period Period
ended 30 ended 30
June 2018 June 2017
Property income return 2.4 3.3
IPD benchmark income return 2.3 2.4
Property total return 4.7 5.6
IPD benchmark total return 4.2 4.5
Void rate 7.2 6.7
* Calculated as revenue earnings per share (excluding capital items & swaps
breakage costs) as a percentage of dividends declared per ordinary share.
** Based on an annual dividend of 4.76p and the share price at 30 June.
*** Calculated as bank borrowings less all cash (including cash held at
solicitors) as a percentage of the open market value of the property portfolio
as at the end of each year.
**** Assumes re-investment of dividends excluding transaction costs.
Sources: Aberdeen Standard Investments, Investment Property Databank ("IPD")
CHAIRMAN'S STATEMENT
I am pleased to report that your Company has continued the positive momentum
that has been delivered over the last few years. Over the last six months, the
property portfolio has generated above benchmark returns, driven by overweight
exposure in the strongly performing industrial sector. This has underpinned a
robust NAV total return. In addition, the Company's shares continue to trade at
a healthy premium to both NAV and the wider peer group.
Background
There can be no doubt that the shadow of Brexit and the continued uncertainty
surrounding the outcome of these negotiations has now impacted the real
economy. Business investment, one of the predominant drivers for GDP growth,
has been muted as businesses hold back until the UK's future trading
relationship with the EU is determined. Combined with subdued consumer
spending, the growth in the UK economy was among the slowest of the developed
nations in the first half of 2018.
Against such a background the performance of the UK real estate market has been
positive. At the start of 2018 IPF Consensus expectations for the whole year
were for a total return of 4.0%. However, the Company's benchmark (IPD
quarterly version of IPD Monthly Index Funds) has already produced a total
return of 4.2% in the first six months of 2018, underlining the resilience of
property as an asset class. Capital growth has continued to hold up well with
values rising by 1.8% in the period. A strong performance from the industrial
sector more than offset weakness in the retail sector which has been affected
by a number of administrations and company voluntary arrangements. On the
income side, rental growth of 0.6% was recorded, again predominantly driven by
the industrial sector, with an overall income return of 2.3% over the last six
months.
Positive Performance
The Company has continued its trend of outperformance. The portfolio total
return over the first 6 months of 2018 was 4.7% representing a good margin over
the benchmark return. The portfolio produced a capital return of 2.2% which was
driven by the structure of the portfolio with a deliberately overweight
exposure to industrials. This sector now accounts for 53% of the portfolio
compared to the benchmark weighting of 26%. The income return of 2.4% also
continued to exceed that of the benchmark, underpinned by a tenant base which
ranks better than the benchmark for tenant strength. The portfolio performance
helped drive a NAV total return of 5.6%, above that of the AIC Direct UK
Property Sector return of 3.8%. Gearing helped achieve this return but the
level of gearing remained lower than many of our competitors.
The total return to shareholders was 2.4% as the premium that the Company's
shares trade to the NAV narrowed to 3.3% at the period end. However, the
continued positive rating of the Company's shares in the six months, as the
demand from investors for attractive, secure income returns continues, allowed
the Company to issue 9.5 million shares over the period raising net proceeds of
GBP8.8 million, all at prices accretive to the underlying NAV. As at 31 August
the premium over NAV stood at 5.1%.
The Company has also consistently outperformed over the longer term with an NAV
total return over five years of 109.7% comparing favourably to the NAV return
of the AIC Property Direct Peer Group of 85.4%. Likewise, the share price total
return, incorporating dividends, has also outperformed, returning 104.6% over
five years compared to the total returns on the AIC Property Direct Peer Group
(67.8%), the FTSE All Share REIT Index (62.7%) and the FTSE All-Share Index
(52.8%).
Dividends
Dividends totalling 2.38p were paid to shareholders in the period. Based on an
annualised dividend of 4.76p and the share price at 30 June 2018, the Company's
shares yielded 5.1%. This yield compares favourably to the yield on the FTSE
All-Share REIT and FTSE All-Share Indices (3.9% and 3.6% respectively).
Dividend cover was 83% for the first six months of the year as the Investment
Manager continued to sell assets that had limited future return prospects and
subsequently reinvest in assets that will generate secure income with lower
risk. The Board is fully aware of the importance to shareholders of paying out
an attractive income. While there will be fluctuations in the level of cover as
the portfolio is strengthened, the utilisation of the Company's financial
resources and the proven track record of the manager in delivering successful
asset management initiatives, should lead to improved dividend cover over the
medium term. This is a key priority for the Board.
Financial Resources
As at 30 June 2018 the Company had a prudent LTV of 19% at a fixed interest
rate of 2.73%, highlighting the income accretive nature of the debt when
compared to the portfolio initial yield of 5.2%. The Company also had
considerable financial resources still available for investment with all of its
GBP35 million revolving credit facility to utilise and uncommitted cash of GBP10
million at the period end. Overall, the Company has a strong financial base
with a solid balance sheet, relatively low gearing and with resources still
available for investment.
Outlook
While there are undoubtedly other considerations, the largest element affecting
the outlook for the UK economy is the Brexit "end state" and what deal, if any,
the UK secures upon leaving the EU. The uncertainty surrounding the outcome has
not surprisingly led to muted economic growth forecasts with our Investment
Managers forecasting UK GDP growth of 1.4% for 2018 and 1.5% for 2019,
significantly below the forecast for the G7 average.
While real estate is not immune to the travails of the real economy, the asset
class has continued to grow, albeit slower than in recent years. Underpinning
this growth is the fact that the fundamentals of the real estate market are in
good shape compared with previous cycles of slowing economic growth. Gearing
and vacancy levels remain low by historical standards as does large scale
development. The demand for the attractive, secure income streams that real
estate continues to provide, means real estate as an asset class is still a
good investment proposition. Whilst noting the recent small increase in the
base rate, the yield on property is still significantly above bond yields.
Given the above, your Company is in a strong position. While the portfolio is
secondary in nature, it is purposely geared towards the favoured Industrial
sector, with limited retail exposure. This should stand the portfolio in good
stead as the structural shift towards online retailing continues. In addition,
36% of the Company's total void of 7.2% is in the industrial sector, presenting
opportunities to implement successful asset management initiatives to reduce
voids and generate income. The Company also remains in a strong financial
position with cash resources and low-cost flexible gearing that allows the
Company to increase or decrease gearing depending on the opportunities that
arise. Finally, the Company pays out an attractive and secure dividend to
investors underpinned by a portfolio that has been strengthened over the last
18 months. Overall, I believe your Company is well positioned to continue to
build on the strong relative performance delivered in recent years.
Robert Peto
Chairman
14 September 2018
STRATEGIC OVERVIEW
Principal Risks and Uncertainties
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 carried out an assessment of the risk profile of the Company
which concluded that the risks as at 30 June 2018 were not materially different
from those detailed in the statutory accounts of the Group for the year ended
31 December 2017.
INVESTMENT MANAGER'S REPORT
UK Real Estate Market
The first half of 2018 has seen a continuation of market forces experienced the
previous year, where real estate returns have remained fairly resilient,
despite an environment of domestic and global political uncertainty. In the UK,
the potential impact of Brexit appears to be having a greater influence, with
UK GDP growth lagging, however on a global scale Brexit is still a relatively
small event, and overseas money has continued to invest in the UK. Below, we
have listed some of the key themes we think are important for the UK real
estate market at present.
- The UK economy expanded by 0.4% in the second quarter of the year according
to the ONS' first estimate. It bounced back after a difficult start to 2018
which appeared to have been a largely weather related phenomenon. This is still
very low growth.
- In the UK, investors face ongoing indecision from the UK government regarding
the Brexit "end state". Our base case is for a free-trade agreement (FTA) with
all- UK customs union and some regulatory devolution to Northern Ireland. The
uncertainty around the Brexit outcome has had limited impact on the investment
market it appears, but definitely makes occupational transactions slower as
companies are less inclined to invest in new premises/expansion.
- Real income growth should start to boost GDP growth, however wage growth
remains stubbornly low, and given the uncertainty of the economic outlook
perhaps the savings ratio will improve before retail spending.
- 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.
- The Bank of England increased Bank Rate by 25bps in August, as the bounce in
data reassured the Bank the first quarter 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 now 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.
- At the opposite end of the spectrum, industrial demand remains buoyant and in
the supply-starved South East which has pushed rents 2.9% higher over the first
half of 2018. Demand is broad-based, with the continued expansion of trade
counters and urban logistics uses a feature. Regional rents rose by a more
modest 1.0% over the period with more balanced supply and demand.
- London office rents were broadly static and take-up have been propped up by
flexible office providers who do not drive net absorption as they seek to find
short term occupiers themselves. 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.
- Across most sectors and locations supply of good quality office and
industrial accommodation remains muted. This is due to low levels of new
development over the last 10 years compared to previous cycles, combined with a
significant change of use from poorer industrial and office accommodation to
alternative uses, mainly residential.
- Investment volumes in the first half of 2018 suggest a marginally lower total
than the same period in 2017 although there was a noticeable fall in the number
of industrial deals compared to the level of transactions in the second half of
2017. This reflects the dearth of stock as investors hold what they have and
continue to compete very strongly for assets that do come to market.
- UK institutions were the major net investor in the quarter to 30 June,
selling less real estate than any quarter since 2006. Overseas investors were
only marginal net investors.
- The result of the competitive demand has been continued strong capital growth
in the industrial sector - 7% for the first half of the year, 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.
- 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. This is not expected to change over the near
term.
- 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.
- Investors are broadening their investment requirements in the alternative
space. Rather than purely seeking defensive long income, investors are more
comfortable with operational alternative sectors and their associated
diversification benefits. Residential and student accommodation are already
firmly established in this regard.
- Our five-year total return forecast for all property is below market
consensus. We do not see yield compression 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 the Private Rented Sector, expected to
be the strongest performing areas of the market.
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 against a property benchmark, the NAV total return against the peer
group; the share price total return against the market / real estate companies;
and finally, given the income focus of the Company, the dividend yield.
Portfolio Level Performance
The underlying property portfolio has continued to perform strongly, driven in
part by its sector allocation (heavily over weight to industrial and
underweight to retail), but also because of its above average income return and
active management. The property level return over the first half of 2018 was
4.7%, compared to the IPD / MSCI quarterly version of the monthly index figure
of 4.2%. The portfolio has outperformed the market over every timescale, and is
measured by MSCI as having outperformed the benchmark over 12 months and being
in the top quartile for performance over three, five and ten years.
NAV Performance
In addition to strong performance from the underlying portfolio the NAV total
return is above the asset level return over all time periods. This is in part
from the benefit of gearing whilst capital values have risen. The chart below
shows how the Company's NAV total return compares favourably to the peer group.
NAV Total Returns to 30 June 2018 6 months (%) 1 year (%) 3 year (%) 5 year
(%)
Standard Life Investments Property Income Trust 5.6 13.4 36.1 109.7
AIC Property Direct - UK sector (weighted average) 3.8 9.1 28.8 85.4
Investment Association Open Ended Commercial Property 2.6 6.6 13.0 39.1
Funds sector
Company's ranking in AIC Property Direct sector (out of 3 3 2 2
13)
Source: Winterflood Securities, Aberdeen Standard
Investments
Share Price Total Return to 30 June 2018
Of all the measures reported here the share price total return is the one the
investment manager has the least control over in the shorter term. Your Company
has consistently traded on a wider premium than the sector average over the
reporting period, perhaps reflecting the higher dividend yield. This has
resulted in strong share price performance over the six month period as well as
over the longer term.
Share Price Total Returns 6 months 1 year 3 year 5 year
(%) (%) (%) (%)
Standard Life Investments Property Income Trust 2.4 9.8 30.7 104.6
FTSE All-Share Index 1.7 9.0 31.6 52.8
FTSE All-Share REIT Index 1.3 9.8 9.9 62.7
AIC Property Direct - UK sector (weighted average) 5.1 4.6 20.5 67.8
Source: Winterflood Securities, Aberdeen Standard Investments
Dividend Yield
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 in the medium term, it is important that the Company maintains a high
income level from its portfolio.
The Board and Investment Manager seek to maintain a covered dividend, however
this has not been possible during the first half of 2018, mainly due to holding
larger than normal levels of cash following sales, and it taking longer than
expected to reinvest into income producing assets. The void level is also
slightly higher than last year with several properties becoming vacant on lease
expiry.
Portfolio Valuation
The investment portfolio is valued quarterly by Knight Frank. As at 30 June
2018 the portfolio comprised 56 properties valued at a total of GBP458.0m with a
cash balance of GBP23.2m. This compares to 56 properties valued at a total of GBP
418.1m with a cash balance of GBP26.7m as at 30 June 2017.
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 and predictable
income.
With continued uncertainty in capital markets, and an expectation tenant demand
could dampen over the next 12 months as people adopt a wait and see attitude,
we are focussed 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, asset type, and income source.
The focus on income has led for several years to an overweight position in the
industrial sector, and we have increased this further over the last 12 months.
As at the end of June 2018 the Company had 52.7% of its portfolio invested in
the industrial sector (industrial is a wide ranging term and includes logistics
as well as light manufacturing), with 29.1% invested in offices and only 14.2%
invested in the retail sector. Also, 4% of the fund is invested in what is
classified as "other", in our case being leisure and a data centre. Our office
portfolio is focussed on the south east, however at the end of the reporting
period we did purchase a multi let office in the City of London as we believed
the asset will perform well in the future and had an attractive entry price.
The regional allocation has a bias towards the South East, especially in the
office sector, with a greater focus on the East and West Midlands for
industrial/ logistics. We have no exposure to Wales currently, and only a small
exposure to Scotland.
Investment Activity
Purchases
During the reporting period the Company completed five purchases:
- Timbmet, Shellingford - The Company acquired a 200,000 sq ft distribution
facility as a sale and leaseback to provide a 25 year lease with indexation at
an initial yield of 6.5%. The property is located between Oxford and Swindon
and provides the tenant with cost
effective accommodation with good access to
the national motorway network.
- Grand National Retail Park, Aintree - The name is a bit misleading on this
purchase as it is in fact a leisure scheme with a Pure Gym, Premier Inn hotel,
KFC, and Toby Carvery. The property is located adjacent to the race course, and
offers scope for asset management. The purchase price of GBP6.125m reflected a
yield of 6.8%.
- Flamingo Flowers, Sandy - The Company acquired a 125,000 sq ft industrial
facility used for the preparation and distribution of cut flowers for GBP6m and
at a yield of 6.25%. The property is let for a further 19 years, with
indexation, and is let off a low rent of GBP3.17per sq ft. The location is
adjacent to a junction of the A1, just 35 miles north of the M25.
- 15 Basinghall St, London - The Company acquired a City office building where
20% of the income is derived from two retail units, and two of the five office
floors are vacant. The property is located close to Bank tube station, and
offers asset management opportunities. The purchase price reflected an initial
yield of 7% with a rental guarantee on the vacant space.
- Building 3300 Birmingham Business Park - The Company increased its exposure
to the "other" sector with the purchase of a data centre on the outskirts of
Birmingham. The property was acquired by way of a sale and leaseback with a 20
year lease (tenant break in year 14 and two rights to renew for a further 10
years) and benefits from annual indexed rental increases and a very large power
supply. The purchase price reflected an initial yield of 5.75%.
After the reporting period the Company also acquired:
- Shield Engineering, Burton Latimer - An industrial unit used for high end
aluminium moulding located close to Kettering. The property was acquired by way
of a sale and leaseback on a 20 year lease with indexation at an initial yield
of 7.15%.
- Speedyhire, Cambuslang - After the reporting period the Company exchanged on
the purchase of a single let logistics unit of 61,200 sq ft. The property is
let for a further 5 years and is located in a prominent position close to
junction 2A of the M74, and has a low site cover of 26%. The purchase price of
GBP5.03 million reflects an initial yield of 5.9% however on settlement of an
outstanding rent review the yield is expected to move to 6.75%.
Sales
The Company completed the sale of three assets in the reporting period.
- Elstree Tower, Borehamwood - The Company sold the single let office for GBP20m
(valuation GBP18m). The property was let to the single largest tenant in the
portfolio, with a tenant break in 2020 and the potential need for significant
capex. The sale enabled the Company to reduce future void and capex risk whilst
realising a profit.
- Bathgate Retail Pak, Bathgate - A small edge of town centre retail park let
to three good tenants but with short leases, and concern over future occupancy.
The property was sold for GBP5.2m.
- Charter Court, Slough - Multi let office with some vacancy and need for
significant capex on lease expiry. The sale price of GBP13.25m was ahead of
valuation.
Asset Management
Asset management is an essential tool for delivering returns. We aim to build
relationships with our tenants in advance of any lease event to understand
their requirements and secure their future occupation. During the reporting
period a total of seven new lettings were completed securing GBP1.13m pa of rent,
and a further six leases were renegotiated to extend the term, securing a
further GBP705,000pa of rent.
The use of CVAs by retailers to get out of lease commitments or cut their rent
has been widely reported in the media this year. In the year to date the
Company has not experienced any tenant entering into a CVA, although two retail
tenants have gone into administration - Maplin and Poundworld. Both represented
relatively small amounts of total rent. In the case of the Maplin unit we have
agreed terms with another party after getting proposals from two retailers, and
the Poundworld unit has interest from three retailers. These are good examples
of having the type of property that tenants want to occupy.
Vacant property in the portfolio is a double-edged sword, as it does not
provide any income, (in fact with costs such as rates the income is negative),
however it often gives an opportunity to relet the property at a higher rent
than if the existing tenant remained. It is important to get this balance right
and to own property that will relet well. Some of the more recent purchases
have included part vacancy, with approximately one third of the current voids
having been purchased in the last 12 months. The void rate at the end of the
reporting period was 7.2%, as detailed below, and is spread across only 12
units.
Property Name Sector Area (sq.m) ERV ERV% Comment
Let 360,617 GBP29,360,441 92.81%
Vacant 16,747 GBP2,275,259 7.19%
Unit 6, Broadgate, Industrial 9,625 GBP544,000 1.72% Terms agreed for sale
Oldham
Explorer 1 & 2, Office 1,339 GBP377,132 1.19% 1 of 3 floors under offer
Crawley (completed after quarter end)
Pinnacle, Reading Office 1,070 GBP317,750 1.00% Interest in part
15 Basinghall Street, Office 605 GBP310,910 0.98% New purchase
London
The Kirkgate, Epsom Office 1,147 GBP308,500 0.98% Refurbishment underway, terms
out to two parties
Foxholes Business Industrial 1,113 GBP177,400 0.56% 1 of 4 units under offer
Park, Hertford
One Station Square, Office 512 GBP126,750 0.40% Limited interest to date
Bracknell
Kings Business Park, Industrial 541 GBP45,000 0.14% Recently refurbished, interest
Bristol from adjacent tenant
Broadoak Business Industrial 382 GBP30,817 0.10% Under offer
Park, Manchester
Budbrooke Industrial Industrial 131 GBP15,000 0.05% Under offer
Estate, Warwick
Howard Town Retail Retail 261 GBP14,000 0.04%
Park, Glossop
New Palace Place, Office 21 GBP8,000 0.03%
London
Total 377,364 GBP31,635,700 100.00%
Debt
The Company has two debt facilities from RBS. The first is a GBP110m term loan,
which is due to expire in April 2023, along with a revolving credit facility
(RCF) of GBP35m, which expires on the same date.
At the reporting date the RCF was undrawn.
At 30 June 2018 the LTV for the Company was 19.0% (with a bank covenant of
60%). The all in cost at that date was 2.73%.
Jason Baggaley
Fund Manager
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 2018, 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 are 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
Approved by the Board on
14 September 2018
Robert Peto
Chairman
FINANCIAL STATEMENTS
Unaudited Consolidated Statement of Comprehensive Income
for the period ended 30 June 2018
Notes 1 Jan 18 to 1 Jan 17 to 1 Jan 17 to
30 Jun 18 30 Jun 17 31 Dec 17
GBP GBP GBP
Rental income 13,402,210 14,794,656 28,541,413
Valuation surplus from investment properties 3 8,628,067 9,501,318 23,174,903
Surplus/(deficit) on disposal of investment properties 995,922 (470,987) (138,237)
Investment management fees 2 (1,661,767) (1,536,615) (3,136,218)
Valuers fees (38,184) (34,686) (71,844)
Auditor's fees (37,250) (34,622) (74,500)
Directors fees and expenses (100,999) (97,315) (194,011)
Other direct property expenses (1,788,188) (976,737) (1,848,130)
Other administration expenses (211,758) (232,431) (434,466)
Operating surplus 19,188,053 20,912,581 45,818,910
Finance income 51,302 746 2,752
Finance costs (1,670,862) (1,670,820) (3,356,428)
Surplus for the period before taxation 17,568,493 19,242,507 42,465,234
Taxation
Tax charge - - -
Surplus for the period, net of tax 17,568,493 19,242,507 42,465,234
Other Comprehensive Income
Valuation surplus on cash flow hedge 1,373,850 969,520 1,317,743
Total other comprehensive surplus 1,373,850 969,520 1,317,743
Total comprehensive surplus for the period, net of tax 18,942,343 20,212,027 43,782,977
Earnings per share pence pence pence
Basic and diluted earnings per share 5 4.38 4.98 10.91
Adjusted (EPRA) earnings per share 1.98 2.64 4.99
All items in the above Unaudited Consolidated Statement of Comprehensive Income
derive from continuing operations.
Unaudited Consolidated Balance Sheet
as at 30 June 2018
Notes 30 Jun 18 30 Jun 17 31 Dec 17
GBP GBP GBP
ASSETS
Non-current assets
Investment properties 3 443,256,957 385,014,067 404,252,083
Lease incentives 3 3,478,043 3,965,933 3,657,917
Rent deposits held on behalf of tenants 961,978 1,162,161 995,942
447,696,978 390,142,161 408,905,942
Current assets
Investment properties held for sale 4 11,250,000 29,080,000 25,300,000
Trade and other receivables 1,401,392 1,696,084 20,256,944
Cash and cash equivalents 23,203,967 26,685,541 14,334,504
35,855,359 57,461,625 59,891,448
Total assets 483,552,337 447,603,786 468,797,390
LIABILITIES
Current liabilities
Trade and other payables 8,416,847 8,425,360 10,451,289
Interest rate swap 8 252,383 1,040,745 887,699
8,669,230 9,466,105 11,338,988
Non-current liabilities
Bank borrowings 9 109,148,606 109,075,233 109,107,044
Interest rate swap 8 618,566 1,552,277 1,357,100
Rent deposits due to tenants 961,978 1,162,161 995,942
110,729,150 111,789,671 111,460,086
Total liabilities 119,398,380 121,255,776 122,799,074
Net assets 364,153,957 326,348,010 345,998,316
EQUITY
Capital and reserves attributable to Company's equity holders
Share capital 226,001,857 211,762,335 217,194,412
Retained earnings 6,714,960 8,500,932 8,364,603
Capital reserves 33,598,768 8,246,371 22,600,929
Other distributable reserves 97,838,372 97,838,372
97,838,372
Total equity 364,153,957 326,348,010 345,998,316
NAV per share 90.1 83.9 87.6
EPRA NAV per share 90.3 84.6 88.2
Unaudited Consolidated Statement of Changes in Equity
for the period ended 30 June 2018
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2018 217,194,412 8,364,603 22,600,929 97,838,372 345,998,316
Surplus for the period - 17,568,493 - - 17,568,493
Other comprehensive surplus - - 1,373,850 - 1,373,850
Total comprehensive surplus for the period - 17,568,493 1,373,850 - 18,942,343
Ordinary shares issued net of issue costs 8,807,445 - - - 8,807,445
Dividends paid 7 - (9,594,147) - - (9,594,147)
Valuation surplus from investment properties 3 - (8,628,067) 8,628,067 - -
Surplus on disposal of investment properties 3 - (995,922) 995,922 - -
Balance at 30 June 2018 226,001,857 6,714,960 33,598,768 97,838,372 364,153,957
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2017 204,820,219 7,532,448 (1,753,480) 97,838,372 308,437,559
Surplus for the period - 19,242,507 - - 19,242,507
Other comprehensive surplus - - 969,520 - 969,520
Total comprehensive surplus for the period - 19,242,507 969,520 - 20,212,027
Shares issued net of issue costs 6,942,116 - - - 6,942,116
Dividends paid 7 - (9,243,692) - - (9,243,692)
Valuation surplus from investment properties - (9,501,318) 9,501,318 - -
Deficit on disposal of investment properties 3 - 470,987 (470,987) - -
Balance at 30 June 2017 211,762,335 8,500,932 8,246,371 97,838,372 326,348,010
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2017 204,820,219 7,532,448 (1,753,480) 97,838,372 308,437,559
Surplus for the year - 42,465,234 - - 42,465,234
Other comprehensive surplus - - 1,317,743 - 1,317,743
Total comprehensive surplus for the year - 42,465,234 1,317,743 - 43,782,977
Shares issued net of issue costs 12,374,193 - - - 12,374,193
Dividends paid 7 - (18,596,413) - - (18,596,413)
Valuation surplus from investment properties - (23,174,903) 23,174,903 - -
Deficit on disposal of investment properties 3 - 138,237 (138,237) - -
Balance at 31 December 2017 217,194,412 8,364,603 22,600,929 97,838,372 345,998,316
Unaudited Consolidated Cash Flow Statement
for the period ended 30 June 2018
Notes 1 Jan 18 to 1 Jan 17 to 1 Jan 17 to
30 Jun 18 30 Jun 17 31 Dec 17
GBP GBP GBP
Cash flows from operating activities
Surplus for the period before taxation 17,568,493 19,242,507 42,465,234
Movement in non-current lease incentives (396,485) 41,416 (114,820)
Movement in trade and other receivables 18,889,516 (134,488) (18,529,129)
Movement in trade and other payables (2,068,406) (133,364) 1,726,346
Finance costs 1,670,862 1,670,820 3,356,428
Finance income (51,302) (746) (2,752)
Valuation surplus from investment properties 3 (8,628,067) (9,501,318) (23,174,903)
(Surplus)/deficit on disposal of investment properties 3 (995,922) 470,987 138,237
Net cash inflow from operating activities 25,988,689 11,655,814 5,864,641
Cash flows from investing activities
Interest received 51,302 746 2,752
Purchase of investment properties (50,212,474) (11,285,362) (50,012,676)
Capital expenditure on investment properties 3 (2,936,163) (1,394,736) (2,187,601)
Net proceeds from disposal of investment properties 3 38,395,922 33,554,013 72,086,763
Net cash (outflow)/inflow from investing activities (14,701,413) 20,874,661 19,889,238
Cash flows from financing activities
Proceeds on issue of ordinary shares 8,874,000 6,994,575 12,467,700
Transaction costs of issue of shares (66,555) (52,459) (93,507)
Repayment of RCF - (15,000,000) (15,000,000)
Bank borrowing arrangement costs (52,500) - (55,000)
Interest paid on bank borrowing (1,167,133) (1,052,219) (2,089,843)
Payments on interest rate swap (411,478) (545,196) (1,106,369)
Dividends paid to the Company's shareholders (9,594,147) (9,243,692) (18,596,413)
Net cash outflow from financing activities (2,417,813) (18,898,991) (24,473,432)
Net increase in cash and cash equivalents 8,869,463 13,631,484 1,280,447
Cash and cash equivalents at beginning of period 14,334,504 13,054,057 13,054,057
Cash and cash equivalents at end of period 23,203,967 26,685,541 14,334,504
Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2018
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 2017. 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 2017, 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
On 19 December 2003 Standard Life Investments (Corporate Funds) Limited ("the
Investment Manager") was appointed as Investment Manager to manage the property
assets of the Group. A new Investment Management Agreement ("IMA") was entered
into on 7 July 2014, appointing the Investment Manager as the AIFM
("Alternative Investment Fund Manager").
Under the terms of the current IMA, the Investment Manager is entitled to
receive fees of 0.75% of total assets up to GBP200 million; 0.70% of total assets
between GBP200 million and GBP300 million; and 0.65% of total assets in excess of GBP
300 million. The total fees charged for the period ended 30 June 2018 amounted
to GBP1,661,767 (period ended 30 June 2017: GBP1,536,615). The total amount due and
payable at the period end amounted to GBP834,388 excluding VAT (period ended 30
June 2017: GBP775,590 excluding VAT).
3 Investment Properties
Country UK UK UK UK
Class Industrial office Retail Other Total
30 Jun 18 30 Jun 18 30 Jun 18 30 Jun 18 30 Jun 18
Market value at 1 January 213,135,000 150,450,000 69,625,000 - 433,210,000
Purchase of investment properties 18,226,370 12,740,385 - 19,245,719 50,212,474
Capital expenditure on investment properties 1,033,283 1,795,707 2,987 104,186 2,936,163
Opening market value of disposed investment properties - (32,100,000) (5,300,000) - (37,400,000)
Valuation surplus/(deficit) from investment properties 8,578,170 178,398 705,235 (833,736) 8,628,067
Movement in lease incentives receivables 347,177 25,510 (33,222) 58,831 398,296
Market value at 30 June 241,320,000 133,090,000 65,000,000 18,575,000 457,985,000
Investment property recognised as held for sale (11,250,000) - - - (11,250,000)
Market value net of held for sale at 30 June 230,070,000 133,090,000 65,000,000 18,575,000 446,735,000
Adjustment for lease incentives (1,440,296) (1,159,288) (819,628) (58,831) (3,478,043)
Carrying value at 30 June 228,629,704 131,930,712 64,180,372 18,516,169 443,256,957
The market value provided by Knight Frank LLP at the period ended 30 June 2018
was GBP457,985,000 (30 June 2017: GBP418,060,000) however an adjustment has been
made for lease incentives of GBP3,478,043 (30 June 2017: GBP3,965,933) that are
already accounted for as an asset.
In the unaudited consolidated Cash Flow Statement, surplus/(deficit) from
disposal of investment properties comprise:
1 Jan 18 1 Jan 17 1 Jan 17
to 30 Jun to 30 Jun to 31 Dec
18 17 17
Opening market value of disposed investment properties 37,400,000 34,025,000 72,225,000
Surplus/(deficit) on disposal of investment properties 995,922 (138,237)
(470,987)
Net proceeds from disposed investment properties 38,395,922 33,554,013 72,086,763
4 Investment Properties Held For Sale
As at the 30 June 2018 the Group was actively seeking a buyer for the following
property:
- 3B-C Michigan Drive, Milton Keynes
5 Earnings Per Share
The earnings per Ordinary share are based on the net profit for the period of GBP
17,568,493 (30 June 2017: GBP19,242,507) and 401,011,552 (30 June 2017:
386,333,375) ordinary shares, being the weighted average number of shares in
issue during the period.
Earnings for the period to 30 June 2018 should not be taken as a guide to the
results for the year to 31 December 2018.
6 Investment in Subsidiary Undertakings
During the year ended 31 December 2017 the Group liquidated the following
entities:
- Huris (Farnborough) Limited, a company incorporated in the Cayman Islands.
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, whose principal business
is property investment.
- 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 and domiciled in England.
7 Dividends and Property Income Distribution Gross of Income Tax
30 Jun 18 30 Jun 17 31 Dec 17
GBP GBP GBP
Non Property Income Distributions
0.84p per ordinary share paid in March 2017 relating to the quarter ending 31 - 3,258,910 3,258,910
December 2016
Property Income Distributions
0.35p per ordinary share paid in March 2017 relating to the quarter ending 31 - 1,357,879 1,357,879
December 2016
1.19p per ordinary share paid in May 2017 relating to the quarter ending 31 - 4,626,903 4,626,903
March 2017
1.19p per ordinary share paid in August 2017 relating to the quarter ending - - 4,665,723
30 June 2017
1.19p per ordinary share paid in November 2017 relating to the quarter ending - - 4,686,998
30 September 2017
1.19p per ordinary share paid in March 2018 relating to the quarter ending 31 4,797,073 - -
December 2017
1.19p per ordinary share paid in May 2018 relating to the quarter ending 31 4,797,074 - -
March 2018
9,594,147 9,243,692 18,596,413
A property income dividend of 1.19p per share was declared on 7 August 2018 in
respect of the quarter to 30 June 2018 - a total payment of GBP4,811,949. This
was paid on 31 August 2018.
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 2018 Level 1 Level 2 Level 3 Total fair
value
Investment properties - - 457,985,000 457,985,000
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 2018 Level 1 Level 2 Level 3 Total fair
value
Loan facilities - 110,428,272 - 110,428,272
The lowest level of input is the interest rate payable on each borrowing which
is a directly observable input.
30 June 2018 Level 1 Level 2 Level 3 Total fair
value
Interest rate swap - 870,949 - 870,949
Of the figure above, GBP252,383 is included within current liabilities and GBP
618,566 is included within non-current liabilities. 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 fair value hierarchy during the six
months ended 30 June 2018.
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
2017.
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 Group entered into an 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. As at 30
June 2018, none of the RCF was drawn down.
On 20 May 2018, the Group extended the RCF by two years to expire in line with
the term loan with the margin on the RCF now at LIBOR plus 1.45%. Interest is
payable on the Term Loan at 3 month LIBOR plus 1.375% which equates to a fixed
rate of 2.725% on the Term Loan.
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 4 July 2018, the Group completed the purchase of an industrial unit, close
to Kettering for GBP8.1 million excluding costs.
On 10 September 2018 the Group exchanged on the purchase of Speedyhire, a
logistics unit in Cambuslang.
Dividends
On 7 August 2018, the Company declared a property income dividend in respect of
the quarter to 30 June 2018 of 1.19pence per share which was paid on 31 August
2018.
Share Issues
During the period from 1 July 2018 to 14 September 2018 the Group has raised GBP
1.4 million through the issue of 1.5 million new ordinary shares.
The Interim Report and Unaudited Consolidated Condensed Financial Statements
for the period from 1 January 2018 to 30 June 2018 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
Aberdeen Standard Investments Limited
Tel: 0131 245 2833
Graeme McDonald
Aberdeen Standard Investments Limited
Tel: 0131 245 3151
END
END
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