Standard LifeInvProp Net Asset Value(s)
October 31 2018 - 3:00AM
UK Regulatory
TIDMSLI
31 October 2018
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 September 2018
Key Highlights
Solid Performance
* Net asset value ("NAV") per ordinary share was 91.4p (Jun 18 - 90.1p), a
rise of 1.4%, resulting in a NAV total return, including dividends, of 2.8%
for Q3 2018;
* The portfolio valuation increased by 1.7% on a like for like basis, whilst
the IPD/MSCI Monthly Index rose by 0.4% over the same period.
Investment activity
* 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 GBP8.1m reflects an initial yield of
7.15%.
* Purchase of an industrial unit at Cambuslang, near Glasgow for GBP5.03m
reflecting a net initial yield of 7% and is fully let to Speedy Hire until
June 2023.
* Post period end, sale of a vacant industrial unit in Oldham for GBP6.3m, 12%
above the 30 June valuation.
Strong balance sheet with prudent gearing
* Prudent LTV* of 21.4% at the quarter end, one of the lowest in the
Company's peer group and the wider REIT sector.
Share Issues
* Strong demand for the Company's shares in the quarter with 1.5m shares
issued in the quarter raising proceeds of GBP1.4m at prices accretive to NAV.
Attractive dividend yield
* Dividend yield of 5.3% based on a quarterly dividend of 1.19p and the share
price of 89.5p as at 26 October 2018 compares favourably to the yield on
the FTSE All-Share REIT Index (4.3%) and the FTSE All Share Index (4.2%) 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 September 2018 was 91.4p. 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 30 September 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 July 2018 to 30 September 2018.
Per Share (p) Attributable Comment
Assets (GBPm)
Net assets as at 1 July 2018 90.1 364.2
Unrealised increase in 1.9 7.6 Like for like increase of
valuation of property 1.7% in property portfolio
portfolio
Transaction costs, including -0.2 -0.9 Acquisition costs at
SDLT on purchases Kettering and Cambuslang
CAPEX in the quarter -0.5 -1.8 Predominantly CAPEX at
Kirkgate, Epsom
Net income in the quarter -0.1 -0.2 Dividend cover of 95% in the
after dividend quarter
Interest rate swaps mark to 0.2 0.7 Decrease in swap liabilities
market revaluation in the quarter.
Share issues 0.0 1.4 NAV accretive issue of 1.5m
shares in the quarter raising
GBP1.4m
Net assets as at 30 September 91.4 371.0
2018
European Public Real Estate 30 Sep 2018 30 Jun 2018
Association ("EPRA")*
EPRA Net Asset Value GBP371.2m GBP365.0m
EPRA Net Asset Value per share 91.5p 90.3p
The Net Asset Value per share is calculated using 405,865,419 shares of 1p each
being the number in issue on 30 September 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 Company has 54% of the portfolio in the industrial / logistics sector, 28%
in the office sector, 7% in Other (leisure and data centres), and 11% in
retail, with strong diversification of asset and tenant base across all the
sectors. We believe this allocation will continue to support ongoing
outperformance against the benchmark. Notably, despite the continued problems
facing the retail sector, the Company has benefited from its low exposure to
the sector. SLIPIT has seen two retail tenant failures in the last year, but
both units are now under offer - indeed one of them has three parties in
competition and a rental level the same as under the old lease.
Three investment transactions were contracted during the quarter; the purchase
of an industrial facility close to Kettering let for 20 years with five yearly
indexed reviews for GBP8.1m, reflecting a yield of 7.15%, and the purchase of a
61,000 sq. industrial unit close to Glasgow for GBP5.03m, reflecting a yield of
7% on the settlement of an outstanding rent review. After the quarter end the
company completed the sale of a vacant industrial unit in Oldham, which had
been the largest void for the last 18months. The sale price of GBP6.3m was nearly
13% above the 30 June valuation.
Q3 2018 should have been a quiet quarter for asset management - after all,
there is so much noise about political turmoil, Brexit, trade wars and the
outlook for the UK economy. The managers have, however, remained busy in
ensuring tenants continue to have good quality accommodation that works for
their businesses. The managers completed six lease renewals / extensions with
a rental value of GBP1.15million p.a. along with three smaller lettings totalling
just under GBP200,000 p.a. SLIPIT also took a surrender of a short lease on some
office accommodation in a multi-use asset in Westminster, (with a three month
rent penalty), and simultaneously agreed to re-let the space on a new 10 year
lease.
The reported vacancy rate actually increased over the quarter to 10.8% as the
company had a lease expiry on a large logistics unit where the tenant vacated
(representing 2.5% of the void); however the managers have already agreed terms
to re-let the unit. In addition, since the quarter end, the void rate has
reduced to 7.9% due mainly to the sale of Oldham referred to above.
Economic outlook
* The UK economy bounced back in the second quarter after a weak start to the
year. However, at 0.4%, the recovery amounted to little more than a return
to trend growth than making up for any 'lost ground'.
* The recovery in real income growth has temporarily stalled as higher oil
prices have pushed inflation higher. However, wage growth data surprised on
the upside and improving household finances should help support spending,
offset by the rebuilding of savings from very low levels.
* As expected, the Bank of England (BoE) increased interest rates by 25 basis
points (bp) to 0.75% at the August meeting of the monetary policy
committee. The BoE has highlighted rising unit labour costs (ULC) as a
reason for more monetary tightening; it effectively thinks the 'speed
limit' of the economy is much lower than in the past.
* Aberdeen Standard Investments (ASI) is of the view that the relationship
between ULC and inflation is not always robust and are forecasting just one
further 25 bp hike in rates in 2019.
* The manager's Brexit base case is that a 'no deal' scenario will be averted
but there are a number of very different ways in which this could happen.
Nevertheless, the risk of 'no deal' has risen and is uncomfortably high
with less than six months until the UK leaves the EU.
Occupier trends
* The Industrial sector remains comfortably the strongest part of the market
in terms of occupier sentiment and fundamentals. While monthly MSCI data
suggests a slowing in the rate of rental growth in August, the managers see
no visible change in rental tension, with vacancy rates remaining
exceptionally low.
* London office markets remain broadly static with uncertainty around Brexit
regularly cited as a factor for occupiers.
* The trend is slightly more positive in the 'big six' regional office
markets, with the modest but steady upward trajectory of rents continuing
and the vacancy rate being gradually eroded.
* The retail sector continues to face significant long-term structural
challenges that the modest rates of rental decline in the MSCI indices do
not yet reflect. There are very few expansionary retailers away from the
value end of the market.
Investment trends
* Early data on investment volumes by value for the third quarter suggest the
lowest quarterly total in two years and substantially less than during the
same quarter in 2017.
* Total returns on the MSCI Monthly Index have continued to slow, with
equivalent yields rising modestly in August. Market sentiment is muted but,
with relatively low levels of leverage in the market and robust income
streams, there is little pressure to sell.
* In a similar vein to last quarter, investor preference in the listed sector
continues to be tilted towards the income-orientated sectors. Industrial
and alternatives are trading at varying levels of net asset value (NAV)
premiums, while retail real estate investment trusts (REITs) remain at
large discounts to NAVs. The London office names are still trading at a
discount to NAV, reflecting the current level of uncertainty in the market.
Performance outlook
* From a top-down perspective, the managers expect existing industrial
investments to deliver considerably stronger returns than retail and
offices over the next three years, but accessing the yield component of
those returns through new purchases is unrealistic given competitive
bidding. They expect retail returns to be negative over the next three
years, with rents declining and yields rising, but that dynamic is not
uniform across the sector.
* Although there are clear differences in the outlook for the various sectors
of Industrial, Office and Retail, the managers believe it is important to
maintain a disciplined approach at asset level to invest in good quality
assets that meet occupier needs.
Dividends
The Company paid total dividends in respect of the quarter ended 30 June 2018
of 1.19p per Ordinary Share, with a payment date of 31 August 2018.
Net Asset analysis as at 30 September 2018 (unaudited)
GBPm % of net assets
Office 135.2 36.4
Retail 50.0 13.5
Industrial 260.4 70.2
Other 33.4 9.0
Total Property Portfolio 479.0 129.1
Adjustment for lease -3.5 -1.0
incentives
Fair value of Property 475.5 128.1
Portfolio
Cash 7.3 2.0
Other Assets 8.2 2.2
Total Assets 491.0 132.3
Current liabilities -10.5 -2.8
Non-current liabilities -109.5 -29.5
(bank loans & swap)
Total Net Assets 371.0 100.0
Breakdown in valuation movements over the period 1 Jul 18 to 30 Sep 18
Portfolio Exposure as at Like for Like Capital Value
Value as at 30 Sep 2018 Capital Value Shift (incl
30 Sep 2018 (%) Shift (excl transactions
(GBPm) transactions (GBPm)
& CAPEX)
(%)
External valuation at 458.0
30 Jun 2018
Retail 50.0 10.5 -1.5 -0.8
South East Retail 2.5 -1.5 -0.2
Rest of UK Retail 0.0 0.0 0.0
Retail Warehouses 8.0 -1.5 -0.6
Offices 135.2 28.2 1.6 2.2
London City Offices 2.7 4.4 0.6
London West End Offices 2.9 1.1 0.2
South East Offices 18.5 1.6 1.4
Rest of UK Offices 4.1 0.0 0.0
Industrial 260.4 54.4 2.3 19.0
South East Industrial 15.3 1.4 1.0
Rest of UK Industrial 39.1 2.7 18.0
Other Commercial 33.4 6.9 1.8 0.6
External valuation at 479.0 100.0 1.7 479.0
30 Sep 2018
Top 10 Properties
30 Sep 18 (GBPm)
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
Marsh Way, Rainham 10-15
15 Basinghall Street, London 10-15
Atos,Birmingham 10-15
Top 10 tenants
Name Passing % of passing rent
Rent
BAE Systems plc 1,257,640 4.8%
Technocargo Logistics Limited 1,242,250 4.7%
The Symphony Group PLC 1,080,000 4.1%
Timbmet Limited 799,683 3.0%
Bong UK Limited 756,620 2.9%
ATOS IT Services Ltd 750,000 2.8%
Ricoh UK Limited 696,995 2.6%
CEVA Logistics Limited 633,385 2.4%
GW Atkins 625,000 2.4%
Thyssenkrupp Materials (UK)Ltd 590,000 2.2%
Total 8,431,573 31.9%
Regional Split
South East 39.3%
East Midlands 17.1%
North West 12.4%
West Midlands 9.8%
North East 7.5%
Scotland 4.6%
South West 3.7%
London West End 2.9%
City of London 2.7%
The Board is not aware of any other significant events or transactions which
have occurred between 30 September 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
END
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