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 £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 £6.3m. 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
£813,000pa 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 Assets (£m) |
Comment |
Net assets
as at 30 Sep 2018 |
91.4 |
371.0 |
|
Unrealised
increase in valuation of property portfolio |
0.6 |
2.5 |
Like for
like increase in property portfolio of 0.7% |
CAPEX
& transaction costs in the quarter |
-0.7 |
-2.8 |
Predominantly transaction costs at Hagley Road and capital
expenditure on asset management initiative at Kirkgate, Epsom |
Net income
in the quarter after dividend |
-0.1 |
-0.3 |
Continued
strong income generation with dividend cover of 93% in the
quarter. |
Interest
rate swaps mark to market revaluation |
-0.1 |
-0.7 |
Increase
in swap liabilities 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 Association (“EPRA”)* |
31 Dec 2018 |
30 Sep 2018 |
|
|
EPRA Net Asset
Value |
£370.2m |
£371.2m |
|
|
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 £23.75m, 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 £1.2m 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)
|
£m |
% 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
incentives |
-3.9 |
-1.0 |
Fair value of
Property Portfolio |
495.2 |
134.2 |
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 (bank loans & swap) |
-130.1 |
-35.2 |
Total Net
Assets |
369.4 |
100.0 |
Breakdown in valuation movements over
the period 1 October 2018 to
31 December 2018
|
Portfolio Value as at 31 Dec 2018 (£m) |
Exposure as at 31 Dec 2018 (%) |
Like
for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 30 Sep 2018 |
|
|
|
479.0 |
|
|
|
|
|
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
Offices |
|
2.8 |
3.3 |
0.5 |
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 31 Dec 2018 |
499.1 |
100.0 |
0.7 |
499.1 |
*Purchase of Hagley Rd Birmingham
** Sale of Oldham industrial unit
Top 10 Properties
|
31 Dec 18
(£m) |
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 Rent
£ |
% of passing
rent |
|
|
|
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