Standard LifeInvProp Net Asset Value(s)
January 31 2019 - 2:00AM
UK Regulatory
TIDMSLI
31 January 2019
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 31 December 2018
Key Highlights
Solid Performance
* Net asset value ("NAV") per ordinary share was 91.0p (Sep 18 - 91.4p), a
fall of 0.4%, resulting in a NAV total return, including dividends, of
0.9% for Q4 2018;
* The portfolio valuation (before CAPEX and transaction costs) increased by
0.7% on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by
0.2% over the same period.
Investment and letting activity
* Purchase of a multi let office on the Hagley Road in Birmingham for GBP
23.75m, reflecting an initial yield of 7.6%. The building has an average
lease length to earliest of break or expiry of 4.3 years with 30% of the
income from the Government.
* Sale of the Company's largest void unit, an industrial property in Oldham
for GBP6.3m. The sale price was just under 13% above the valuation as at 30
June 2018.
* Letting of the Company's largest vacancy, a logistics unit in Swadlincote.
The 141,000sqft unit, which became vacant in July 2018, has been let at a
rent of GBP813,000pa on a new five year lease subject to a lease break after
the third year to a 3rd party logistics company. This represents a 21%
increase on the previous passing rent.
Strong balance sheet with prudent gearing
* Prudent LTV* of 24.4% at the quarter end, one of the lowest in the
Company's peer group and the wider REIT sector.
Attractive dividend yield
* Dividend yield of 5.9% based on a quarterly dividend of 1.19p and the share
price of 81.1p as at 31 December 2018 compares favourably to the yield on
the FTSE All-Share REIT Index (4.7%) and the FTSE All-Share Index (4.5%) 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 31 December 2018 was 91.0p. The net
asset value is calculated under International Financial Reporting Standards
("IFRS").
The net asset value incorporates the external portfolio valuation by Knight
Frank LLP at 31 December 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 October 2018 to 31 December 2018.
Per Share (p) Attributable Comment
Assets (GBPm)
Net assets as at 30 Sep 2018 91.4 371.0
Unrealised increase in 0.6 2.5 Like for like increase in
valuation of property property portfolio of 0.7%
portfolio
CAPEX & transaction costs in -0.7 -2.8 Predominantly transaction
the quarter costs at Hagley Road and
capital expenditure on asset
management initiative at
Kirkgate, Epsom
Net income in the quarter -0.1 -0.3 Continued strong income
after dividend generation with dividend
cover of 93% in the quarter.
Interest rate swaps mark to -0.1 -0.7 Increase in swap liabilities
market revaluation as a result of reduced
expectations of a rise in
interest rates.
Other movement in reserves -0.1 -0.3 Movement in lease incentives
in the quarter
Net assets as at 31 Dec 2018 91.0 369.4
European Public Real Estate 31 Dec 2018 30 Sep 2018
Association ("EPRA")*
EPRA Net Asset Value GBP370.2m GBP371.2m
EPRA Net Asset Value per share 91.2p 91.5p
The Net Asset Value per share is calculated using 405,865,419 shares of 1p each
being the number in issue on 31 December 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 final quarter of 2018 was significant for SLIPIT as we completed the
purchase of the largest asset in the fund. 54 Hagley Road Birmingham is an edge
of prime multi-let office that we believe has scope for strong rental growth
over the next few years. This is due to a combination of local infrastructure
improvements (a new tram stop is going to be built directly outside the
building improving connectivity to the city centre), along with a large mixed
use development further enhancing the immediate surroundings. The area has also
seen a loss of office space due to residential conversion - thus reducing
supply of competing space and making 54 Hagley Rd one of the best value for
money offices in the area. The asset was acquired for GBP23.75m, reflecting a
yield of 7.6%.
There was an increased level of negative press around the retail sector in
December, although it appears that many valuations have been slow to react.
Although the Company has limited exposure to the retail sector, those assets it
does own all saw value declines greater than the IPD monthly index, but we feel
it remains very important to reflect sentiment as well as direct transactional
activity, and to mark to market. We are delighted that the two vacant retail
units we have as a result of tenant failure are both under offer to new
tenants.
The Company saw an increase in value of the portfolio of held assets as a
result of the high exposure to industrial assets and of asset management
lettings activity. The negative movement in the interest rate swap, costs of
acquiring the new office in Birmingham, and capital expenditure on the
refurbishment of several assets did however result in a small decline in the
NAV.
Q4 also saw a significant reduction in void levels to 5.9% (Q3 2018 - 10.8%)
with several large lettings, and the sale of a vacant industrial unit in
Oldham. The two largest lettings (an industrial unit in Swadlincote and an
office in Monck Street, London) secured rent of GBP1.2m pa. The Company now has
249 tenants, providing a diversified source of income, and an average unexpired
term to earliest break of 6 years.
Market commentary
* UK economic growth has been fairly uneven this year. After a weak,
weather-affected start to the year, third quarter growth was well above
trend at 0.6%. However, this appears to be a temporary spike rather than a
decisive strengthening of the economy, with indicators in the fourth
quarter turning down sharply.
* The ongoing uncertainty surrounding Brexit negotiations appears to be
restraining business investment and household spending. With trend growth
estimated to be lower, the output gap largely closed, and a relatively weak
global backdrop, it is hard to see a substantial acceleration in economic
growth.
* Occupational markets continue to behave quite differently across sectors,
with structural forces being the key drivers. The familiar pattern of
falling retail rents, modest upticks in office rents and robust growth in
industrials is little changed. The risk of more serious declines in the
retail sector is palpable and clearly affecting investor sentiment.
* The industrial sector continues to be the stand-out performer in the UK
real estate market. Although IPD/MSCI data suggests that rental growth is
beginning to moderate, with vacancy rates remaining exceptionally low and
interest in available space healthy, the necessary drivers are still in
place to support further rental growth for the sector.
* The long-term structural challenges facing the retail sector are now
beginning to be reflected in IPD/MSCI data. The outlook for retail tenants
has become more challenging as time has gone on and this is now weighing on
performance, with all forms of retail experiencing declining rental values.
With few retailers, aside from the value operators, expanding and further
distress in the sector widely anticipated, it is expected that this trend
will continue through 2019.
* Capital values declined in Q4 2018, according to the IPD/MSCI Monthly
Index, with sharp declines in retail and slowing growth in the industrial
sector. It is our observation that liquidity became increasingly impaired
towards the end of the fourth quarter and that the number of buyers has
thinned out across the market.
* The listed sector has seen discounts to NAVs widen over the quarter, which
in part reflects the wider equity market sell-off experienced over the
fourth quarter, but it is also a function of slowing NAV growth rates in
the second half of this year. The hierarchy of preferred sectors remains
largely unchanged with industrials and income-focussed real estate stocks
remaining the top picks, and ever wider discounts for retail specialists.
Intu and Hammerson shares were down 55% and 40% respectively in 2018.
Investment outlook
* Brexit-related uncertainty is reducing liquidity and visibility of pricing
in most areas of the market. It is even now affecting the industrial sector
after a very strong run of performance. The principal exception to this is
assets with long, secure income streams, which remain highly sought after
and in short supply.
* We are conscious that many of the buyers of such properties are not focused
on performance relative to the wider real estate market and have different
targets, sometimes radically so. This is making assets let to annuity-grade
covenants more challenging to access for investors with targets linked to
real estate market returns.
* If the change in momentum during the fourth quarter is sustained and we
observe more distress and weaker liquidity in the market during the first
quarter of 2019, it is likely that this will create some opportunities.
Those with capital to invest may be able to access good-quality real estate
at prices that are attractive in the long term. As ever, it is vitally
important to assess asset-level risk and income prospects to identify such
opportunities.
Dividends
The Company paid total dividends in respect of the quarter ended 30 September
2018 of 1.19p per Ordinary Share, with a payment date of 30 November 2018.
Net Asset analysis as at 31 December 2018 (unaudited)
GBPm % of net assets
Industrial 259.2 70.2
Office 159.6 43.2
Retail 46.5 12.6
Other Commercial 33.8 9.2
Total Property Portfolio 499.1 135.2
Adjustment for lease -3.9 -1.0
incentives
Fair value of Property 495.2 134.2
Portfolio
Cash 8.3 2.2
Other Assets 8.7 2.3
Total Assets 512.2 138.7
Current liabilities -12.7 -3.5
Non-current liabilities -130.1 -35.2
(bank loans & swap)
Total Net Assets 369.4 100.0
Breakdown in valuation movements over the period 1 October 2018 to 31 December
2018
Portfolio Exposure as Like for Capital
Value as at at 31 Dec Like Capital Value Shift
31 Dec 2018 2018 (%) Value Shift (incl
(GBPm) (excl transactions
transactions (GBPm)
& CAPEX)
(%)
External valuation at 479.0
30 Sep 2018
Retail 46.5 9.3 -7.0 -3.5
South East Retail 2.2 -6.5 -0.8
Rest of UK Retail 0.0 0.0 0.0
Retail Warehouses 7.1 -7.1 -2.7
Offices 159.6 32.0 0.9 24.5
London City Offices 2.6 0.0 0.0
London West End 2.8 3.3 0.5
Offices
South East Offices 18.0 0.8 0.7
Rest of UK Offices 8.6 0.0 23.3*
Industrial 259.2 51.9 2.0 -1.3
South East Industrial 14.9 1.4 1.0
Rest of UK Industrial 37.0 2.2 -2.3**
Other Commercial 33.8 6.8 1.3 0.4
External valuation at 499.1 100.0 0.7 499.1
31 Dec 2018
*Purchase of Hagley Rd Birmingham
** Sale of Oldham industrial unit
Top 10 Properties
31 Dec 18 (GBPm)
Hagley Road, Birmingham 20-25
Denby 242, Denby 15-20
Symphony, Rotherham 15-20
Chester House, Farnborough 10-15
The Pinnacle, Reading 10-15
Hollywood Green, London 10-15
Marsh Way, Rainham 10-15
New Palace Place, London 10-15
Timbmet, Shellingford 10-15
Atos,Birmingham 10-15
Top 10 tenants
Name Passing % of passing rent
Rent GBP
BAE Systems plc 1,257,640 4.5%
Technocargo Logistics Limited 1,242,250 4.4%
Public sector 1,158,858 4.1%
The Symphony Group PLC 1,080,000 3.8%
Timbmet Limited 799,683 2.8%
Bong UK Limited 756,620 2.7%
ATOS IT Services Ltd 750,000 2.7%
Ricoh UK Limited 696,995 2.5%
CEVA Logistics Limited 652,387 2.3%
GW Atkins 625,000 2.2%
Total 9,019,433 32.0%
Regional Split
South East 38.0%
East Midlands 16.9%
West Midlands 13.9%
North West 10.5%
North East 7.1%
Scotland 4.6%
South West 3.6%
London West End 2.8%
City of London 2.6%
The Board is not aware of any other significant events or transactions which
have occurred between 31 December 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 - Senior Fund Control 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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