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
£2.4 million (Q1 2019: £1.9 million). This value will revert to
£nil on maturity of the swap in 2023.
Investment and letting activity
- The Company completed the sale of a small office in
Milton Keynes for £6 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 £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 £20m in the quarter. The Company
currently has £18m 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 Assets (£m) |
Comment |
Net assets
as at 1 April 2019 |
91.1 |
369.6 |
|
Unrealised
increase in valuation of property portfolio |
0.3 |
1.3 |
Like for
like increase of 0.3% in property 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 after dividend |
0.0 |
0.0 |
Dividend
cover of 100% in the quarter with £37m of RCF still available for
investment |
Interest
rate swaps mark to market revaluation |
-0.1 |
-0.5 |
Increase
in swap liabilities in 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 Association (“EPRA”)* |
30 Jun 2019 |
31 Mar 2019 |
|
|
EPRA Net Asset
Value |
£372.2m |
£371.5m |
|
|
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 £2.4 million (an increase of £0.5 million over the
quarter). Although this liability is included in the NAV it will
reduce to £0 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 £7.5 billion of deals were done in Q2, despite
Citigroup’s £1.1 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)
|
£m |
% 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
incentives |
-4.6 |
-1.3 |
Fair value of
Property Portfolio |
492.2 |
133.0 |
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 (bank loans & swap) |
-129.6 |
-35.0 |
Total Net
Assets |
369.8 |
100.0 |
Breakdown in valuation movements over
the period 1 April 2019 to
30 June 2019
|
Portfolio Value as at 30 Jun 19 (£m) |
Exposure as at 30 Jun 2019 (%) |
Like
for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Mar 19 |
|
|
|
500.8 |
|
|
|
|
|
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
Offices |
|
2.9 |
0.0 |
0.0 |
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 30 Jun 2019 |
496.8 |
100.0 |
0.3 |
496.8 |
Top 10 Properties
|
30 Jun 19
(£m) |
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 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% |
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