Standard LifeInvProp Unaudited Net Asset Value as at 30 June 2019
August 06 2019 - 2:00AM
UK Regulatory
TIDMSLI
6 August 2019
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 June 2019
Key Highlights
Solid Performance
* Net asset value ("NAV") per ordinary share was 91.1p (Mar 19 - 91.1p),
resulting in a NAV total return, including dividends, of 1.3% for Q2 2019;
* The portfolio valuation (before CAPEX) increased by 0.3% on a like for like
basis, whilst the IPD/MSCI Monthly Index dropped by 0.7% over the same
period.
* NAV continues to be adversely impacted by the movement in the Company's
interest rate swap, which now has a negative worth of GBP2.4 million (Q1
2019: GBP1.9 million). This value will revert to GBPnil on maturity of the swap
in 2023.
Investment and letting activity
* The Company completed the sale of a small office in Milton Keynes for GBP6
million. The sale realised a profit on the asset whilst reducing future
capex and void risk, as it was expected the tenant would vacate on lease
expiry in 2021.
* Three lettings were completed during the quarter securing a total rent of GBP
838,750 per annum
* Three rent reviews were settled during Q2 on industrial / logistics assets
with an uplift of 19.2% on the previous rent.
Strong balance sheet with prudent gearing
* Prudent LTV* of 23.4% at the quarter end, one of the lowest in the
Company's peer group and the wider REIT sector.
* The Company also entered into a new arrangement with the Royal Bank of
Scotland International Limited (RBSI) to extend its Revolving Credit
Facility (RCF) by GBP20m in the quarter. The Company currently has GBP18m
undrawn from its existing facility, and has not drawn the new facility,
which has an expiry coterminous with the existing debt provided by RBSI, in
April 2023. The new facility has a margin of 160bps above Libor. The debt
is available to enable the Company to take advantage of opportunities that
might become available in the near future.
Attractive dividend yield
* Dividend yield of 5.1% based on a quarterly dividend of 1.19p and the share
price of 94.2p as at 30 June 2019 compares favourably to the yield on the
FTSE All-Share REIT Index (4.5%) and the FTSE All-Share Index (4.1%) 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 June 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 30 June 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 April 2019 to 30 June 2019.
Per Share (p) Attributable Comment
Assets (GBPm)
Net assets as at 1 April 2019 91.1 369.6
Unrealised increase in 0.3 1.3 Like for like increase of 0.3%
valuation of property in property portfolio
portfolio
Gain on Sale 0.2 0.7 Gain on Sale at Silbury House,
Milton Keynes
CAPEX in the quarter -0.2 -0.7 Predominantly CAPEX at
Basinghall Street, London
Net income in the quarter 0.0 0.0 Dividend cover of 100% in the
after dividend quarter with GBP37m of RCF still
available for investment
Interest rate swaps mark to -0.1 -0.5 Increase in swap liabilities in
market revaluation the quarter as expectations of
any upward move in interest
rates reduce.
Other movements in reserves -0.2 -0.6 Movement in lease incentives in
the quarter
Net assets as at 30 June 2019 91.1 369.8
European Public Real Estate 30 Jun 2019 31 Mar 2019
Association ("EPRA")*
EPRA Net Asset Value GBP372.2m GBP371.5m
EPRA Net Asset Value per share 91.7p 91.5p
The Net Asset Value per share is calculated using 405,865,419 shares of 1p each
being the number in issue on 30 June 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
Q2 continued the theme of 2019 with low investment transactional activity and
great uncertainty over the outlook. The debate over the leadership of the UK
has not helped, with overseas buyers taking a step back until they see greater
clarity associated with Brexit.
During the quarter we continued to see decent occupational interest and
although deals are taking longer to conclude we managed to complete the
surrender of the lease at Staines with a simultaneous grant of a new 10 year
lease on our 26,000sqft office. This is an example of taking a pro-active
approach to managing our assets, as we worked with the old tenant to find a new
occupier after we heard they wanted to downsize. The new rent is just ahead of
the previous level and the Company now has a 10 year lease commitment rather
than two years. We also completed a lease on the ground floor office suite in
Epsom, and on an industrial unit in Bristol, leading to a slight reduction in
voids to 6.3%.
We have continued to see a decline in the capital value of the Company's retail
assets, but with a low exposure to this asset class and a high exposure to the
industrial / logistics sector, the portfolio has continued to outperform the
wider market. We continue to see industrial outperformance, demonstrated by the
three rent reviews we settled over the quarter with a 19.2% uplift over the
previous rent.
The Company's property assets increased in value over the quarter by 0.3%,
which compares favourably to the MSCI/ IPD monthly index decline of 0.7%. The
Company's investment portfolio has now outperformed the index over the quarter,
year to date, one, three, five and ten years.
The move in gilt yields has continued to have a negative impact on the value of
the interest rate swap - the swap now has a liability of GBP2.4 million (an
increase of GBP0.5 million over the quarter). Although this liability is included
in the NAV it will reduce to GBP0 at the time of maturity in 2023 (but not on a
straight line basis). Although the swap has had a negative impact on the NAV,
the all in cost of the debt at 2.7% means it remains accretive to the revenue
account. The current Loan to Value level of 23.4% is towards the bottom of our
desired range.
Market commentary
* The UK economy continues to be weighed down by macroeconomic uncertainty,
although quarterly GDP readings have been slightly erratic, with inventory
building ahead of anticipated disruption to supply chains that would have
been caused by a cliff-edge EU withdrawal on 29th March 2019. Despite this
short-term boost, and the extension of the Article 50 process to October,
macroeconomic uncertainty looks likely to persist in the near term, holding
back growth. The ASI Research Institute has revised its expectations for
GDP growth downwards to 1.4% in both 2019 and 2020.
* In spite of a relatively tight labour market, accommodative monetary policy
and high corporate profit margins, inflation remains stubbornly low.
Although the Bank of England has given hawkish signals, we expect interest
rates to remain lower for longer if they are to support the deteriorating
growth backdrop, particularly until greater clarity on the UK's future
relationship with the European Union (EU) emerges.
* The UK is not alone in facing slowing growth. It is widely expected that
the US and Europe will reduce interest rates, and might even restart
quantative easing; a significant reversal in policy for both. In such an
environment real estate continues to provide an attractive level of income.
In the UK, the devaluation of the Pound will make UK Real Estate seem more
attractively priced for overseas buyers, although it seems many want to see
some clarity over Brexit before coming back into the market.
* Overall, occupier markets are holding up relatively well given the ongoing
uncertainty facing UK businesses. Take-up in the office sector remains
robust and central London take-up has recovered following a muted period
around the EU referendum and is now back close to the high watermark set in
2015, however this is largely driven by flexible office providers;
traditional take-up has been flat-lining since early 2016. It's important
to note that the now 20% of take-up by those providers does not actually
absorb supply, as it must all be re-let into the market and, importantly,
at higher densities of occupation.
* Industrial and retail continue to head in opposite directions, with
industrial especially strong in London and the South East, while logistics
has had a strong start to the year with a number of significant lettings of
speculatively developed space in core markets. Retail, however, is under
considerable stress as a wave of company voluntary agreements (CVA) puts
downward pressure on rental values and upward pressure on risk premia and,
therefore, yields.
* Investment appetite from UK institutional investors remains heavily skewed
towards the industrial and alternative sectors. A more subdued UK real
estate investment market in the first half of 2019 has made acquiring
assets in these sectors more challenging, particularly as investors are
reluctant to dispose of assets in these more favoured sectors.
* The second quarter has seen a steep fall in investment transaction activity
to levels not seen since the Eurozone crisis of 2012. Fewer than GBP7.5
billion of deals were done in Q2, despite Citigroup's GBP1.1 billion purchase
of its Canary Wharf headquarters. Indeed, there were fewer office deals
than in any quarter since the global financial crisis and overseas
investors were net sellers in the UK market for the first time in over 10
years. Chinese capital controls appear to now be having a significant
effect on global real estate markets and, although New York has perhaps
borne the brunt of Chinese disinvestment, London is not immune. With
concerns emerging that Korean asset managers may be struggling to re-sell
equity in big overseas deals, it is not clear that current pricing can be
supported.
* The investment market for the retail sector is characterised by a shallow
pool of buyers tending to be more opportunistic in nature. The raft of CVAs
and uncertainty about where rental values will settle mean investors are
demanding large discounts to valuation. The listed market and secondary
pricing of unlisted funds gives a clear indication of the required
discounts to prevailing valuations to price in the risk.
Investment outlook
* Durable income will remain the key focus for investors in the current
risk-off environment. It is highly unlikely that there will be any material
change to the investment themes playing out in UK real estate market until
more clarity is provided on the macroeconomic outlook.
* Significant weight of capital targeting long secure income is supporting
pricing at levels which are out of reach for most balanced funds, but
remains supportive for liability-driven investors where inflation linked
income in other assets classes does not match the required income yield.
* The wide dispersion in returns at the sector level is expected to continue
in the short term. This is driven by the structural shift into logistics
and multi-let industrials to the detriment of retail.
Dividends
The Company paid total dividends in respect of the quarter ended 31 March 2019
of 1.19p per Ordinary Share, with a payment date of 31 May 2019.
Net Asset analysis as at 30 June 2019 (unaudited)
GBPm % of net assets
Industrial 262.3 70.9
Office 154.8 41.9
Retail 44.9 12.1
Other Commercial 34.8 9.4
Total Property Portfolio 496.8 134.3
Adjustment for lease -4.6 -1.3
incentives
Fair value of Property 492.2 133.0
Portfolio
Cash 11.7 3.2
Other Assets 10.4 2.8
Total Assets 514.3 139.0
Current liabilities -14.9 -4.0
Non-current liabilities -129.6 -35.0
(bank loans & swap)
Total Net Assets 369.8 100.0
Breakdown in valuation movements over the period 1 April 2019 to 30 June 2019
Portfolio Exposure as Like for Capital
Value as at at 30 Jun Like Capital Value Shift
30 Jun 19 2019 (%) Value Shift (incl
(GBPm) (excl transactions
transactions (GBPm)
& CAPEX)
(%)
External valuation at 500.8
31 Mar 19
Retail 44.9 9.0 -2.0 -0.9
South East Retail 2.1 -2.8 -0.3
Rest of UK Retail 0.0 0.0 0.0
Retail Warehouses 6.9 -1.8 -0.6
Offices 154.8 31.2 -0.3 -5.7
London City Offices 2.7 3.5 0.4
London West End 2.9 0.0 0.0
Offices
South East Offices 17.1 -0.3 -5.5
Rest of UK Offices 8.5 -1.5 -0.6
Industrial 262.3 52.8 0.7 1.9
South East Industrial 15.1 0.3 0.3
Rest of UK Industrial 37.7 0.9 1.6
Other Commercial 34.8 7.0 2.2 0.7
External valuation at 496.8 100.0 0.3 496.8
30 Jun 2019
Top 10 Properties
30 Jun 19 (GBPm)
Hagley Road, Birmingham 20-25
Denby 242, Denby 15-20
Symphony, Rotherham 15-20
The Pinnacle, Reading 15-20
Hollywood Green, London 15-20
Marsh Way, Rainham 10-15
New Palace Place, London 10-15
Chester House, Farnborough 10-15
Timbmet, Shellingford 10-15
Basinghall Street, London 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%
Jenkins Shipping Group 813,390 2.9%
Timbmet Limited 799,683 2.8%
Bong UK Limited 771,752 2.7%
ATOS IT Services Ltd 750,000 2.7%
CEVA Logistics Limited 652,387 2.3%
GW Atkins 625,000 2.2%
Total 9,150,960 32.4%
Regional Split
South East 37.3%
East Midlands 17.2%
West Midlands 13.8%
North West 10.5%
North East 7.2%
Scotland 4.7%
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 June 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 3QL
Tel: 01481 745001
END
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