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 £8.1m reflects an
initial yield of 7.15%.
- Purchase of an industrial unit at Cambuslang, near Glasgow for £5.03m 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 £6.3m, 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 £1.4m 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 Assets (£m) |
Comment |
Net assets
as at 1 July 2018 |
90.1 |
364.2 |
|
Unrealised
increase in valuation of property portfolio |
1.9 |
7.6 |
Like for
like increase of 1.7% in property portfolio |
Transaction costs, including SDLT on purchases |
-0.2 |
-0.9 |
Acquisition costs at Kettering and Cambuslang |
CAPEX in
the quarter |
-0.5 |
-1.8 |
Predominantly CAPEX at Kirkgate, Epsom |
Net income
in the quarter after dividend |
-0.1 |
-0.2 |
Dividend
cover of 95% in the quarter |
Interest
rate swaps mark to market revaluation |
0.2 |
0.7 |
Decrease
in swap liabilities in the quarter. |
Share
issues |
0.0 |
1.4 |
NAV
accretive issue of 1.5m shares in the quarter raising £1.4m |
Net assets
as at 30 September 2018 |
91.4 |
371.0 |
|
|
|
|
|
|
|
|
European Public Real Estate Association (“EPRA”)* |
30 Sep 2018 |
30 Jun 2018 |
|
|
EPRA Net Asset
Value |
£371.2m |
£365.0m |
|
|
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 £8.1m, reflecting a yield of 7.15%,
and the purchase of a 61,000 sq. industrial unit close to
Glasgow for £5.03m, 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
£6.3m 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 £1.15million p.a. along with three smaller lettings
totalling just under £200,000 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)
|
£m |
% 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
incentives |
-3.5 |
-1.0 |
Fair value of
Property Portfolio |
475.5 |
128.1 |
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 (bank loans & swap) |
-109.5 |
-29.5 |
Total Net
Assets |
371.0 |
100.0 |
Breakdown in valuation movements over
the period 1 Jul 18 to 30 Sep 18
|
Portfolio Value as at 30 Sep 2018 (£m) |
Exposure as at 30 Sep 2018 (%) |
Like for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 30 Jun 2018 |
|
|
|
458.0 |
|
|
|
|
|
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 30 Sep 2018 |
479.0 |
100.0 |
1.7 |
479.0 |
Top 10 Properties
|
30 Sep 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 |
Marsh Way, Rainham |
10-15 |
15 Basinghall Street, London |
10-15 |
Atos,Birmingham |
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 |
4.7% |
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