3 May
2019
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
31 March 2019
Key Highlights
Solid Performance
- Net asset value (“NAV”) per ordinary share was 91.1p
(Dec 18 – 91.0p), a rise of
0.1%, resulting in a NAV total return, including dividends,
of 1.4% for Q1 2019;
- The portfolio valuation (before CAPEX) increased by 0.3% on a
like for like basis, whilst the IPD/MSCI Monthly Index dropped by
0.8% over the same period.
- NAV adversely impacted by the movement in the Company’s
interest rate swap, which now has a negative worth of £1.86 million
(Q4 2018: £804,000). This value will revert to £nil on maturity of
the swap in 2023.
Investment and letting activity
- No purchases or sales were made during the quarter
- Three lettings were completed during the quarter securing a
total of £132,000pa
- Lease to Tesco renewed for a term of 15 years with tenant break
at year 10 securing a rent of £107,250pa (same as previous
rent).
- After the quarter end three rent reviews totalling £703,000
were agreed on industrial assets, securing an uplift of £135,000pa,
(23.8%), on the previous rent.
- Also after the quarter end, the Company took a surrender of a
lease over an office in Staines and simultaneously re-let it on a
10 year lease at £715,000pa, which was above the previous rental
level.
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 5.3% based on a quarterly dividend of 1.19p
and the share price of 90.4p as at 31 March
2019 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
31 March 2019 was 91.1p. 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 March
2019.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 1
January 2019 to 31 March
2019.
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets as at 1
January 2019 |
91.0 |
369.4 |
|
Unrealised increase in
valuation of property portfolio |
0.4 |
1.7 |
Like for like increase
of 0.3% in property portfolio |
CAPEX in the
quarter |
-0.1 |
-0.3 |
CAPEX predominantly at
Kings Business Park, Bristol and Basinghall Street, London |
Net income in the
quarter after dividend |
0.1 |
0.2 |
Dividend cover of 104%
in the quarter with £14m of RCF still available for investment |
Interest rate swap -
mark to market revaluation |
-0.2 |
-1.0 |
Increase in swap
liabilities in the quarter as expectations of an upward move in
interest rates continue to be muted. |
Other movements in
reserves |
-0.1 |
-0.4 |
Movement in lease
incentives in the quarter |
Net assets as at 31
March 2019 |
91.1 |
369.6 |
|
European Public Real Estate Association (“EPRA”)* |
31 Mar 2019 |
31 Dec 2018 |
EPRA Net Asset Value |
£371.5m |
£370.2m |
EPRA Net Asset Value per share |
91.5p |
91.2p |
The Net Asset Value per share is calculated using 405,865,419
shares of 1p each being the number in issue on 31 March 2019.
* 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
It is no surprise that the Brexit negotiations dominated Q1 and
investment transaction levels in UK real estate, along with take
up, were well below average.
In this environment we were pleased to complete three new
lettings and a lease renewal. Despite all the market commentary
about the retail sector, one letting was of a retail unit that
previously had been let to Maplin. We also renewed a lease to Tesco
that was due to expire in 2020 to give an extra 10 years income
security.
The familiar theme of industrials being the best performing
sector, and retail the worst, continued into the first quarter of
2019 and looks set to remain the case for some time yet. The
structure of the Company’s investment portfolio remains supportive
for continued outperformance compared to the IPD / MSCI index, and
holding a large exposure to industrial / logistics and small
exposure to retail remains the correct balance.
After the quarter end we also completed on the surrender and
re-letting of an office in Staines. This exemplifies our active
approach to asset management – following one of our regular tenant
meetings we became aware that the tenant wanted to downsize in the
building and would probably exercise their break clause in 2021. We
agreed to jointly market the building with them, so that our
experience in that market could be utilised, and we quickly
identified a new tenant, who wanted the whole building on a new ten
year lease. A three-way deal is never easy, but by working together
we were able create a transaction that worked for all parties.
During the quarter we experienced an increase in voids
notwithstanding the new lettings (7.4% compared to 5.9% at end of
December 2018), as a distribution
warehouse became vacant on lease expiry. We are currently marketing
the unit, which is in Rugby, part of the “Golden Triangle” for
industrials.
Market commentary
- Looking at the UK it is clear that Brexit-related uncertainty
is now weighing very heavily on the economy and is responsible for
much of the recent slow-down. However, assuming a ‘no deal’ Brexit
is avoided and uncertainty around the terms of exit is not
prolonged for too long, the economy is poised for a recovery into
2020.
- Recent patterns in the occupier market have changed little,
setting aside the short-term turbulence caused by Brexit-related
uncertainty, which is making leasing deals more difficult to
complete. Structural trends are the key drivers of industrial
strength and retail weakness, while strong office fundamentals are
being tempered by the uncertain climate as well as the rapid growth
of the flexible office sector.
- Capital values have fallen for five consecutive months,
according to the MSCI Monthly Index in March
2019. Liquidity in the market remains impaired, with
evidence growing that appetite for risk has diminished. A high
proportion of deals for alternative assets, in a quarter of
otherwise muted investment activity, emphasises that lower risk
income focus.
- In our base case we expect a low return environment over the
next three years for the commercial real estate market, with total
returns of just 1.9% per annum over the period 2019-21. We also
expect the current wide spread in sector level returns to endure in
the short term and performance to be dispersed across the risk
spectrum.
- In the current environment, we believe it is prudent to secure
income as a priority over pushing for the highest immediate rent
and to crystallise profits from recent asset management success.
The listed market continues to build in large discounts for retail,
although a rising wider equity market has narrowed discounts to NAV
for generalists and a number of stocks focused on industrial and
alternatives continue to trade at a premium.
- The first quarter is usually a busy time in the real estate
lending market but a combination of factors has brought it almost
to a standstill in 2019. While there are some active debt funds,
appetite is at the low risk end of the spectrum and willingness to
lend against retail is almost non-existent. Difficulty in
refinancing shopping centres could be a trigger for distressed
sales.
Investment themes
- The UK market is being weighed down by Brexit and, at the time
of writing, numerous outcomes remain possible, including a hard ‘no
deal’ scenario. The risk to market pricing and of occupier distress
is greatest in that scenario but, even if it is averted, it does
not mean an end to the uncertainty around the UK’s future trading
relationships.
- Passage of the EU Withdrawal Agreement merely moves the Brexit
process on, but with no clear visibility of the eventual nature of
the long term UK-EU relationship. Meanwhile, an extension of the
Article 50 process offers no resolutions and prolongs the current
uncertainty.
- With the only definitive scenario – a ‘no deal’ Brexit – being
the most disruptive, in ASI’s view, and more prolonged uncertainty
being the alternative, we do not expect risk to be rewarded in the
short term.
Dividends
The Company paid total dividends in respect of the quarter ended
31 December 2018 of 1.19p per
Ordinary Share, with a payment date of 29
March 2019.
Net Asset analysis as at 31 March 2019 (unaudited)
|
£m |
% of
net assets |
Industrial |
260.5 |
71.3 |
Office |
160.5 |
43.9 |
Retail |
45.8 |
12.5 |
Other Commercial |
34.0 |
9.3 |
Total Property
Portfolio |
500.8 |
137.0 |
Adjustment for lease
incentives |
-4.2 |
-1.2 |
Fair value of
Property Portfolio |
496.6 |
135.8 |
Cash |
9.0 |
2.5 |
Other Assets |
8.2 |
1.1 |
Total
Assets |
513.8 |
139.4 |
Current
liabilities |
-12.0 |
-3.3 |
Non-current
liabilities (bank loans & swap) |
-132.2 |
-36.1 |
Total Net
Assets |
369.6 |
100.0 |
Breakdown in valuation movements over
the period 1 January 2019 to
31 March 2019
|
Portfolio Value as at 31 Mar 19 (£m) |
Exposure as at 31 Mar 2019 (%) |
Like
for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Dec 2019 |
|
|
|
499.1 |
|
|
|
|
|
Retail |
45.8 |
9.1 |
-1.6 |
-0.7 |
South East Retail |
|
2.1 |
-2.7 |
-0.3 |
Rest of UK Retail |
|
0.0 |
0.0 |
0.0 |
Retail Warehouses |
|
7.0 |
-1.2 |
-0.4 |
|
|
|
|
|
Offices |
160.5 |
32.1 |
0.6 |
0.9 |
London City
Offices |
|
2.6 |
0.8 |
0.1 |
London West End
Offices |
|
2.9 |
2.8 |
0.4 |
South East
Offices |
|
18.0 |
0.7 |
0.6 |
Rest of UK
Offices |
|
8.6 |
-0.5 |
-0.2 |
|
|
|
|
|
Industrial |
260.5 |
52.0 |
0.5 |
1.3 |
South East
Industrial |
|
14.9 |
0.5 |
0.4 |
Rest of UK
Industrial |
|
37.1 |
0.5 |
0.9 |
|
|
|
|
|
Other
Commercial |
34.0 |
6.8 |
0.7 |
0.2 |
|
|
|
|
|
External valuation
at 31 Mar 2019 |
500.8 |
100.0 |
0.3 |
500.8 |
Top 10 Properties
|
31 Mar 19
(£m) |
Hagley Road, Birmingham |
20-25 |
Denby 242, Denby |
15-20 |
Symphony, Rotherham |
15-20 |
The Pinnacle, Reading |
15-20 |
New Palace Place, London |
10-15 |
Chester House, Farnborough |
10-15 |
Hollywood Green, London |
10-15 |
Marsh Way, Rainham |
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 |
771,752 |
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 |
9,034,565 |
32.0% |
Regional Split
South East |
38.0% |
East Midlands |
17.0% |
West Midlands |
13.6% |
North West |
10.5% |
North East |
7.2% |
Scotland |
4.6% |
South West |
3.6% |
London West End |
2.9% |
City of London |
2.6% |
The Board is not aware of any other significant events or
transactions which have occurred between 31
March 2019 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 at: www.slipit.co.uk
For further information:-
Jason Baggaley – Real Estate Fund
Manager, Aberdeen Standard Investments
Tel +44 (0) 131 245 2833 or jason.baggaley@aberdeenstandard.com
Graeme McDonald - Senior
Fund Control Manager, Aberdeen Standard 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 3Q
Tel: 01481 745001