TIDMSLI
18 September 2019
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
RESULTS IN RESPECT OF THE HALF YEARED 30 JUNE 2019
Financial Highlights
* NAV total return of 2.7% for the period ended 30 June 2019, generated by
like for like portfolio growth combined with profits on sales of assets and
strong income generation.
* Share price total return of 18.9% in period compared to FTSE All Share REIT
Index total return of 9.7% and FTSE All-Share Index total return of 13.0%.
* Prudent LTV of 23.4% at period end remains one of the lowest in the peer
group and wider REIT sector.
* Dividend cover of 101% over the period which equates to EPRA earnings per
share of 2.42p, an increase of 22% compared to first six months of 2018.
* The Company has unutilised Revolving Credit Facility of GBP37 million
available for investment in opportunities that may arise.
* Dividend yield of 5.1% based on a period end share price of 94.2p compares
favourably to FTSE All-Share REIT Index yield of 4.5% and FTSE All-Share
Index yield of 4.1%
Property Highlights
* Property total return for the period was 3.3%, significantly ahead of the
MSCI IPD benchmark total return of 0.9% as strategic overweight position to
industrial sector
and successful asset management initiatives continued to drive strong
portfolio outperformance.
* Portfolio had a 52.8% weighting to the outperforming industrial sector at
the period end with only 9% of the portfolio being in retail assets.
* Occupancy rate of 93.7%, as successful asset management initiatives and
strategic sales continued to maintain high occupancy levels compared to
benchmark occupancy of 92.8%.
* Six new lettings securing GBP970,000 per annum in rent and restructured four
leases to secure longer tem income on GBP242,000 per annum of rent
* Positive rent collection rates of 99% within 21 days (excluding tenants in
administration and on repayment plans) for first six months of 2019.
PERFORMANCE SUMMARY
30 June 30 June
Earnings & Dividends 2019 2018
EPRA earnings per share (excluding capital items & swap movements) 2.42 1.98
(p)
Dividends declared per ordinary share (p) 2.38 2.38
Dividend cover (%)* 101.5 82.8
Dividend yield (%)** 5.1 5.1
FTSE All-Share Real Estate Investment Trusts Index Yield (%) 4.5 3.9
FTSE All-Share Index Yield (%) 4.1 3.6
Capital Values & Gearing 31 December
30 June 2018 Change %
2019
Total Assets (GBPmillion) 514.3 512.2 0.4
Net asset value per share (p) 91.1 91.0 0.1
Ordinary Share Price (p) 94.2 81.1 16.2
Premium/ (Discount) to NAV (%) 3.4 (10.9)
Loan to value (%)*** 23.4 24.4
Total Return 6 months % 1 Year % 3 Year % 5 Year %
return return return return
NAV**** 2.7 6.5 31.4 71.6
Share Price**** 18.9 6.5 39.4 61.6
FTSE All-Share Real Estate Investment Trusts Index 9.7 (5.2) 13.6 24.5
FTSE All-Share Index 13.0 0.6 29.5 35.8
Property Returns & Statistics % 30 June 30 June
2019 2018
Property income return 2.7 2.4
MSCI IPD benchmark income return 2.3 2.3
Property total return 3.3 4.7
MSCI IPD benchmark total return 0.9 4.2
Void rate 6.3 7.2
* Calculated as revenue earnings per share (excluding capital items & swaps
breakage costs) as a percentage of dividends declared per ordinary share.
** Based on an annual dividend of 4.76p and the share price at 30 June 2019.
*** Calculated as bank borrowings less all cash (including cash held at
solicitors) as a percentage of the open market value of the property portfolio
as at the end of each year.
**** Assumes re-investment of dividends excluding transaction costs.
Sources: Aberdeen Standard Investments, MSCI Investment Property Databank
("IPD")
CHAIRMAN'S STATEMENT
Background
In what has been the theme for over three years, the UK continues to be gripped
by political uncertainty. The Conservative Party election of a new leader, and
therefore Prime Minister, and his promise to leave the European Union by 31
October 2019 may at least clarify matters one way or another. However, there
remains uncertainty as at to how this situation will evolve.
Despite all of the uncertainty, the economy has proved remarkably resilient
through this period but the holding back of planned investment until the
political situation becomes clearer, combined with headwinds caused by the US/
China trade dispute, has resulted in an economy that is now stagnating and on
the verge of technical recession.
Against this background, UK commercial real estate, even with a continuing fall
in investment volumes, has held up well producing positive returns over the
first half of 2019. The Company's benchmark (Quarterly version of MSCI IPD
Monthly Index Funds) produced a total return of 0.9% over this six month period
as declining capital values of 1.3% were more than offset by the attractive
income returns of 2.3% that the UK commercial real estate market continues to
generate. The polarisation of the industrial and retail sectors continued apace
with industrials producing a total return of 3.3% compared to the retail total
return of -2.5%, a trend that suits your Company given its overweight position
to industrials and low weighting to retail. Offices also produced a positive
total return of 1.9% underpinned by take up from flexible office providers.
Continued Portfolio and Corporate Outperformance
The Company continued to produce positive performance during the six months to
30 June 2019 at both a portfolio and corporate level. The portfolio delivered a
total return of 3.3%, significantly above that of the benchmark. The portfolio
also delivered positive capital performance of 0.6%, as the 52.8% exposure to
the industrial sector (benchmark - 29.5%) and 9.0% exposure to the poorly
performing retail sector (benchmark - 30.2%) provided a structural tailwind to
performance with the Company's office portfolio broadly static. On the income
side, the portfolio delivered an income return of 2.7%, again in excess of the
benchmark, underpinned by a strong tenant base that has paid 99% of rent due
within 21 days.
These returns, combined with the prudent use of the Company's flexible gearing
in the period helped deliver a NAV total return of 2.7% (the EPRA NAV total
return excluding the movement in the swap liability was higher at 3.2%).
The Company's share price also improved over the six month period as the shares
traded at a premium to NAV of 3.4% as at 30 June 2019 compared to a 10.9%
discount as at 31 December 2018. This resulted in a share price total return of
18.9% over the period compared to 13.0% from the FTSE All- Share Index and 9.7%
from the FTSE All-Share REIT Index.
Over the longer term the Company has also delivered outperformance with a NAV
total return over five years of 71.6%, in excess of the AIC Direct Property
sector weighted average return of 52.6%. The share price total return of 61.6%
compares to the FTSE All- Share Index return of 35.8% and the FTSE All-Share
REIT Index of 24.5%.
Earnings and Dividends
As mentioned in the Annual Report to 31 December 2018, a key focus of the Board
is income generation in order to support dividend cover. It is therefore
pleasing to report that EPRA earnings per share for the six month period were
2.42p compared to 1.98p at this point in 2018. This equates to dividend cover
for the six months of 101% as a number of successful asset management
initiatives were completed with the occupancy rate of the portfolio now
standing at 93.7%. While there will undoubtedly be fluctuations in earnings as
assets are bought and sold and leases expire, the Board is encouraged that
earnings and hence dividend cover has improved in the period.
Dividends totalling 2.38p per share were paid to shareholders in the period.
Based on an annualised dividend of 4.76p and the share price at 30 June 2019 of
94.2p, the Company's shares yielded 5.1%. This yield compares favourably to the
yield on the FTSE All-Share and FTSE All-Share REIT Indices (4.1% and 4.5%
respectively).
Financial Resources
As at 30 June 2019, the Company's LTV was a prudent 23.4% which is towards the
lower end of the Company's peer group and also the wider REIT sector. The
Company's debt profile is now made up of a GBP110 million term loan and revolving
credit facilities ("RCF") of up to GBP55 million following the decision to
increase the RCF with The Royal Bank of Scotland International Limited by GBP
20million, as announced in June 2019. As at 30 June 2019, the Company had drawn
GBP18 million of its RCF, resulting in a blended rate of interest of 2.65%. Given
the portfolio net initial yield is 5.2%, the use of debt is highly income
accretive and supportive of dividend cover. In addition, it provides flexible
resources to take advantage of opportunities which will inevitably arise in the
current uncertain environment. With cash of GBP11.7 million as at 30 June, the
Company continues to be in a strong financial position with significant
firepower to invest at the opportune time.
Board Changes
In line with the strategy of refreshing the Board composition on a regular
basis and having been on the Board since 2014 and Chair since 2016, it is my
intention to retire from the Board of the Company at the Annual General Meeting
in June 2020. I will be succeeded as Chairman by James Clifton-Brown who was
appointed to the Board in August 2017 and has considerable real estate
experience. I am confident that James will provide wise leadership of the Board
during these uncertain times.
The Board has commenced a search to recruit an additional non-executive
director and I hope to be in a position to provide an update on the search in
due course. It is expected that the new Director will succeed James as Chair of
the Property Valuation Committee.
Investment Management Fee
The Board, through its Management Engagement Committee, conducts an annual
exercise to benchmark its management fees against various comparators. As a
result of this exercise the Board has agreed a change in its management fee
with Aberdeen Standard Investments. From 1 July 2019 the annual management fee
will be calculated on a tiered basis as follows:
* 0.70% per annum on total assets up to GBP500 million
* 0.60% per annum on total assets over GBP500 million
This compares to the current management fee of 0.75% on total assets up to GBP200
million, 0.70% on total assets between GBP200 million and GBP300 million and 0.65%
on total assets in excess of GBP300 million. This revised arrangement simplifies
the fee structure and will result in a lower fee should the Company continue to
grow.
Investment Outlook
The UK economy continues to be affected by political and macroeconomic
uncertainty centred around Brexit, which looks likely to persist in the near
term, holding back investment and therefore growth. The Company's Investment
manager is forecasting GDP growth of 1.4% in both 2019 and 2020 in its base
case, although it should be highlighted that downside risks exist and leading
indicators have weakened in recent months.
Overall, the UK commercial property market is holding up well with positive
total returns still forecast. The investment market has been, and will continue
to be, muted in 2019 until progress is made on the Brexit conundrum. However,
occupier markets are generally faring well, apart from the retail sector which
is under severe pressure as the growth in e-commerce continues which,
inversely, is boosting the industrial sector. The property market also
continues to be underpinned by strong fundamentals- relatively high yields in
an environment where there is a suggestion of interest rate cuts, limited
development and high occupancy rates.
Given this background, the Board believes that your Company is strategically
set to continue producing relative outperformance. The Company is well
diversified in both geographic and sector terms but, importantly, has a
strategic overweight position to the industrial sector, which is forecast to be
the strongest driver of returns over the next three years. Combined with the
low retail weighting, the portfolio is appropriately structured to continue
delivering positive relative returns albeit secondary assets can be more
volatile in nature. With income likely to be the main driver of performance in
the medium term, the Company's above benchmark income return will continue to
be crucial to future returns, underpinned as it is by a strong tenant base.
Linked to this is the proven track record of the Company's Investment Manager
in implementing successful asset management initiatives to ensure the Company's
occupancy rate remains high. Finally, the Company is in a healthy financial
position with a strong balance sheet, prudent, low cost flexible gearing and
financial resources to allow it to take advantage of opportunities as and when
they arise. Overall, I believe your Company is well positioned to continue
delivering value for shareholders.
Robert Peto
Chairman
17 September 2019
STRATEGIC REPORT
Principal Risks and Uncertainties
The Company's assets consist of direct investments in UK commercial property.
Its principal risks are therefore related to the commercial property market in
general, but also the particular circumstances of the properties in which it is
invested, and their tenants. The Board and Investment Manager seek to mitigate
these risks through a strong initial due diligence process, continual review of
the portfolio and active asset management initiatives. All of the properties in
the portfolio are insured, providing protection against risks to the properties
and also protection in case of injury to third parties in relation to the
properties.
The Board have carried out an assessment of the risk profile of the Company
which concluded that the risks as at 30 June 2019 were not materially different
from those detailed in the statutory accounts for the Group for the year ended
31 December 2018.
INVESTMENT MANAGER'S REPORT
Economic Background
Although UK GDP recorded steady growth in Q1, inventory building was key to
this, as companies stockpiled resources ahead of the anticipated disruption to
supply chains caused by a potential "cliff edge" withdrawal from the EU at
the end of March. The eventual six-month extension to Article 50 averted this
and Q2 GDP fell as some of that inventory building unwound. With the potential
October 31 Brexit deadline looming one can expect further volatility in short
term numbers given business investment will remain subdued until there is more
clarity.
In spite of a relatively tight labour market, accommodative monetary policy and
high corporate profit margins, inflation remains remarkably low. Although the
Bank of England has given hawkish signals, it is expected interest rates will
remain lower for longer if they are to support the backdrop of decelerating
growth, particularly until greater clarity on the UK's future relationship
with the EU emerges. Indeed, we no longer have modest tightening cycles in our
UK and Eurozone forecasts, with the US Federal Reserve expected to cut interest
rates once more this year and monetary policy easing also expected in other
major economies. Low inflation globally, slowing growth and trade war
uncertainty, on top of the more UK-specific risks, are pointing towards a
longer period of ultra-low interest rates.
UK Real Estate Market
According to MSCI, UK real estate capital values are now falling but managed to
deliver a positive total return of 0.9% for the first six months of 2019. While
retail returns have been negative as expected, and have borne the brunt of the
capital decline, growth in the industrial sector has moderated after a period
of record capital value gains, but remain positive, resulting in a 3.5% total
return within MSCI's index over the six month period.
The second quarter saw a fall in transaction activity to levels last seen in
2012. Overseas investors have been net sellers of the UK office market with
Chinese capital controls now appearing to have a significant effect on global
real estate markets. Although New York has perhaps borne the brunt of Chinese
disinvestment, London is not immune, and there are indications that other
global investors are displaying more caution towards London too, which see
London office pricing could could soften in the second half of the year. The
retail sector has a very shallow pool of buyers tending to be opportunistic in
nature with a large amount of stock being quietly marketed. The lack of demand
in the occupier market and uncertainty about where rental values will settle
mean investors are, in many retail sub-sectors, demanding discounts to
valuation. The share price discount to net asset value for listed stocks with a
high retail weighting also provides an indication of sentiment towards this
sector.
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 broadly flat since
early 2016. The now roughly 20% of take-up accounted for by flexible office
providers does not actually absorb supply, as it must all be re-let into the
market.
Regionally, office headline rents are steadily rising in the big six office
markets, boosted by the trend towards consolidation among some of the largest
corporate occupiers, as well as the public sector's shift towards large
regional hubs. Vacancy rates have been steadily falling in these markets since
2017, with high net absorption pushing rents up and virtually no new
construction in the last two years. While supply has tightened, the economic
backdrop is expected to affect demand going forward and, therefore, rents. A
similar dynamic has been playing out in the South East office markets. While
vacancy has not fallen as dramatically, demand has gravitated towards those
markets with critical mass, limited new stock and good infrastructure, such as
Reading.
A wave of company voluntary arrangements (CVAs) in retail has put downward
pressure on rental values in the sector, and on risk premia requirements, and
so also on certain valuations. Industrial demand, however, remains especially
high in London and the South East, while logistics has had another strong start
to the year with a number of significant lettings of speculatively developed
space in core markets.
Performance
The Company considers performance at several levels - that of the investment
portfolio against the MSCI IPD quarterly index (i.e. like for like property
performance), and the NAV Total Return against the MSCI IPD quarterly index, so
that the impact of gearing and the costs of running the Company can be seen.
The NAV is also compared to the peer group, as is the share price total return,
and dividend yield.
Portfolio Level Performance
The underlying portfolio has continued to perform well against the MSCI IPD
index, with outperformance over the half year (3.3% v 0.9%), which continues
the trend over one, three, and five years, as shown across. The portfolio
weightings, with very low (9%) exposure to retail and a high (52%) exposure to
industrials have contributed to the outperformance. Over the 12 months to end
June, the wider retail market fell in value by 9.6% according to MSCI, whilst
industrial values grew by 5.8% (offices 1.3%),
demonstrating the importance of portfolio structure as well as asset selection.
The top five contributors to the Company's performance were all industrial and
three of the five had been subject to asset management, with the other two
being longer term secure income assets benefitting from indexation linked
reviews. Retail assets dominated the poorer performers, along with an office
subject to refurbishment and reletting.
NAV Performance
Over most time periods gearing has been accretive to performance, with the NAV
total return being greater than the asset level total return. This has reversed
in the first half of 2019, mainly due to the increased liability of the
interest rate swap as interest rate yields fell. This movement will reverse by
maturity of the debt in April 2023.
NAV total return for the Company continues to compare favourably to the peer
group as well as the open ended funds sector, as seen in the NAV Total Returns
table.
NAV Total Returns to 30 June 2019
6 months (%) 1 year (%) 3 year (%) 5 year
(%)
Standard Life Investments Property Income Trust 2.7 6.5 31.4 71.6
AIC UK Commercial Property sector (weighted average) 1.2 4.0 22.2 52.6
Investment Association Open Ended Commercial Property 0.8 1.9 15.9 29.6
Funds sector
Company's ranking in AIC UK Commercial Property sector 6 6 4 2
Source: Aberdeen Standard Investments, Association of
Investment Companies ("AIC")
Share Price Return
In many ways share price return is something the Company can influence the
least as it is impacted by changes in demand for the Company's shares; however
it is an important measure as it best represents the performance to the
investor. The table below shows the Company performance against some
comparators.
Share Price Total Returns to 30 June 2019 6 months (%) 1 year (%) 3 year (%) 5 year
(%)
Standard Life Investments Property Income Trust 18.9 6.5 39.4 61.6
FTSE All-Share Index 13.0 0.6 29.5 35.8
FTSE All-Share REIT Index 9.7 -5.2 13.6 24.5
AIC UK Commercial Property sector (weighted 8.4 -0.3 27.2 32.3
average)
Source: Aberdeen Standard Investments, Association of Investment Companies
Dividend Yield
The Company's clear objective, and therefore the Investment manager's main
focus, is to provide investors with an attractive level of income. The dividend
is paid quarterly and, based on a June 30 share price of 94.2p, the dividend
yield was 5.1%. The Board and Investment Manager seek to maintain a covered
dividend and, for the first half, achieved this with cover of 101%.
Portfolio Valuation
The investment portfolio is valued quarterly by Knight Frank. As at 30 June
2019 the portfolio comprised 57 assets valued at a total of GBP496.8 million,
with a cash balance of GBP11.7m. This compares to 56 properties valued at GBP458
million and cash of GBP23.2 million as at 30 June 2018.
Portfolio Strategy
The Company remains focused on delivering an attractive income to shareholders
through investing in a diversified portfolio of UK commercial real estate
assets. We target assets that are well located and in good condition, which we
believe will appeal to occupiers. We actively manage the assets with the aim of
renewing and extending leases to give the Company a sustainable and predictable
income stream.
Given the continued uncertainty in capital markets we have taken a reducing
risk approach, with the focus being on asset management of existing assets. We
will look to take further risk off the table through working with our tenants
to ensure we maximise occupancy, however we will consider sales of selective
assets if we believe they provide too great a risk of voids in income.
Subsequent reinvestment will be in assets that will provide the opportunity to
grow or secure longer term income.
Portfolio Allocation
The Company is invested in a portfolio of UK commercial real estate assets that
provide it with diversity of type, location, and income source. We take a top
down approach to consider the macro overlay for the fund which takes into
account sector exposures i.e. the strategic decision taken some years ago to be
underweight retail and overweight industrial / logistics given the structural
change in those sectors. In addition there is a conscious effort to diversify
the tenant base with our top ten tenants' only accounting for 32.6% of the
total rent roll. Finally, once we have taken macro considerations into account,
we take a bottom up approach to selecting individual assets that we believe
will meet the Company's needs.
As at 30 June 2019, the Company had a 53% exposure to industrial (which
includes logistics), a 31% exposure to offices, a 9% exposure to retail, and a
7% exposure to "other" (leisure and a data centre). The geographical weighting
is not something we concentrate on per se, however the South East provides
stronger land values and concentration of people and so often has better
prospects for rental growth and tenant demand. 37% of the fund is invested in
the South East, with a further 5.6% invested in Central London.
Investment Activity - Purchases
No new purchases were undertaken during the reporting period. The Company was
in effect fully invested, and the investment manager did not see stock that it
felt was sufficiently attractive to utilise debt from the RCF to invest in.
After the period end the Company did however complete on two purchases:
Trafford Park, Manchester
The Company acquired a small industrial unit for GBP3.5m with a 5.7% yield. The
unit is adjacent to an existing holding, and provides opportunity in the future
for a reconfiguration of the site. Although the yield is lower than we
normally buy at we believe the asset to be reversionary, so a greater yield
will be available in the future.
Causewayside, Edinburgh
The Company acquired a mixed use office and retail unit on the South side of
Edinburgh. The ground floor is let to Tesco and a pharmacy, whilst the upper
parts provide four floors of multi let offices. The purchase price of GBP8.7m
reflects a yield of 3.5%, however once rent frees have expired and the vacant
suite (4,700 sq ft out of the 33,000 sq ft total) is let the yield is expected
to be 7.7%.
Sales
The Company only completed one sale during the first half of 2019, that of a
single let office in Milton Keynes for GBP6 million. The property was subject to
a lease expiry in 2021 and the tenant was expected to vacate with the property
requiring capex to upgrade it. The sale enabled the Company to take profit
whilst reducing risk in 2021. After the period end the Company completed on the
sale of an industrial asset in Milton Keynes for GBP9.3 million. The asset was
let to a company engaged in manufacturing envelopes, and the sale was
undertaken to reduce exposure to a covenant that we felt to be deteriorating,
and we did not want to hold the unit vacant if the tenant failed.
Asset Management
Actively engaging with our tenants, and investing in our assets to ensure they
appeal to occupiers is a central part of how we create value and a sustainable
income. We aim to meet with our tenants regularly to understand their needs,
and make sure our assets appeal to them. In the office space this generally
means providing good quality shower / changing / bike storage facilities, but
also trying to create an environment where people want to work. In the
industrial / logistics sector we have been discussing the potential for
installing PV cells on the roof to provide energy for the tenant - we can
generally sell it for the duration of their lease at a lower cost than the
grid, and still receive a sufficient return on our investment. This is one of
our ESG initiatives, and has enabled some good conversations with tenants.
Given the very uncertain outlook many occupiers have with the ongoing Brexit
saga, let alone the wider global trade tensions, it is not surprising that
companies are delaying making decisions about the property they occupy if they
can. We are finding deals with tenants taking longer and longer, although the
level of enquiries and viewings on vacant accommodation remains encouraging.
During the reporting period we completed six new lettings for a total rent of GBP
970,750pa, three rent reviews were settled increasing the rent by GBP135,000pa
(an increase of 24% on the previous rent), and extended a lease with Tesco on
small unit for a further 10 years, securing a rent of GBP107,250pa.
The Company had a vacancy rate of 6.3% as at 30 June 2019 (7.2% June 2018). The
largest vacancy is an industrial unit in Rugby that became void during the
first half of 2019 and is currently being refurbished. The other two largest
voids are offices with vacancy at Kirkgate, Epsom and Basinghall Street,
London. These three buildings account for over half of the current voids.
Debt
The Company has two debt facilities with RBS. It has a term loan of GBP110m,
which is due to expire in April 2023 and is fully hedged by way of an interest
rate swap. The interest rate swap is held as a liability on the balance sheet
(GBP2.4m liability as at 30 June 2019). This liability will revert to GBP0 on
maturity of the swap. The Company also has a Revolving Credit Facility (RCF).
This was originally for GBP35m, with GBP18m drawn at the end of June (none of the
RCF was drawn down 30 June 2018). During the reporting period the Company
extended the RCF by GBP20m and it is co-terminous with the term loan. As at 30
June 2019 the LTV was 23.4% (19.0% June 2018). The all in cost of the debt is
2.7%, which compares favourably to the portfolio income yield of 5.2%.
Investment Outlook
The UK economy continues to be affected by political and macroeconomic
uncertainty which looks likely to persist in the near term, holding back
growth. Aberdeen Standard Investments has revised its GDP growth expectations
downwards from 1.9% to 1.4% in both 2019 and 2020 in its base case, although
downside risks exist and leading indicators have weakened in recent months.
Occupier markets are holding up relatively well with office demand being
supported by the rapid expansion of flexible office providers and, in the
regions, by corporate and public sector consolidation. The polarisation of
retail is an ongoing trend and weaker locations are under increasing pressure,
however, the twin engines of urbanisation and the rise of e-commerce continue
to propel the industrial sector.
Whilst the investment market has slowed this year, and with political
uncertainty causing many to adopt a cautious approach to investment, there
remains considerable capital with potential for deployment attracted to UK real
estate's income yield and, retail sector aside, good occupational fundamentals.
This capital is likely to remain on the side-lines however until greater
clarity over Brexit is reached.
Jason Baggaley
Fund Manager
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Interim Management Report in
accordance with applicable law and regulations. The Directors confirm that to
the best of their knowledge:
* The condensed Unaudited Consolidated Financial Statements have been
prepared in accordance with IAS 34; and
* The Interim Management Report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's
Disclosure and Transparency Rules.
* In accordance with 4.2.9R of the Financial Conduct Authority's Disclosure
and Transparency Rules, it is confirmed that this publication has not been
audited or reviewed by the Company's auditors.
The Interim Report, for the six months ended 30 June 2019, comprises an Interim
Management Report in the form of the Chairman's Statement, the Investment
Manager's Report, the Directors' Responsibility Statement and a condensed set
of Unaudited Consolidated Financial Statements. The Directors each confirm to
the best of their knowledge that:
a. the Unaudited Consolidated Financial Statements are prepared in accordance
with IFRSs as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Group; and
b. the Interim Report includes a fair review of the development and performance
of the business and the position of the Group, together with a description of
the principal risks and uncertainties faced.
For and on behalf of the Directors of Standard Life Investments Property Income
Trust Limited
Approved by the Board on
17 September 2019
Robert Peto
Chairman
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the period ended 30 June 2019 Notes 1 Jan 19 1 Jan 18 to 1 Jan 18 to
to 30 Jun 18 GBP 31 Dec 18 GBP
30 Jun 19
GBP
Rental income 15,360,183 13,402,210 27,773,205
Service charge income 1,196,706 906,711 1,665,737
Valuation surplus from investment properties 3 958,500 8,628,067 12,057,044
Surplus on disposal of investment properties 867,550 995,922 1,861,161
Investment management fees 2 (1,754,640) (1,661,767) (3,381,779)
Valuers fees (50,346) (38,184) (91,396)
Auditor's fees (40,125) (37,250) (78,500)
Directors fees and expenses (117,006) (100,999) (202,298)
Service charge expenditure (1,196,706) (906,711) (1,665,737)
Other direct property expenses (1,397,144) (1,788,188) (3,154,578)
Other administration expenses (363,770) (211,758) (426,768)
Operating profit 13,463,202 19,188,053 34,356,091
Finance income 7,656 51,302 58,411
Finance costs (1,841,277) (1,670,862) (3,468,125)
Surplus for the period before taxation 11,629,581 17,568,493 30,946,377
Taxation
Tax charge - - -
Surplus for the period, net of tax 11,629,581 17,568,493 30,946,377
Other Comprehensive Income
Valuation (deficit)/gain on cash flow hedge (1,593,258) 1,373,850 1,440,836
Total other comprehensive surplus (1,593,258) 1,373,850 1,440,836
Total comprehensive surplus for the period, net of tax 10,036,323 18,942,343 32,387,213
Earnings per share (p) (p) (p)
Basic and diluted earnings per share 5 2.87 4.38 7.68
Adjusted (EPRA) earnings per share 2.42 1.98 4.22
All items in the above Unaudited Consolidated Statement of Comprehensive Income
derive from continuing operations.
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Balance Sheet
as at 30 June 2019
Notes 30 Jun 19 30 Jun 18 31 Dec 18
GBP GBP GBP
ASSETS
Non-current assets
Investment properties 3 493,897,366 443,256,957 495,245,556
Lease incentives 3 3,898,149 3,478,043 2,896,409
Rent deposits held on behalf of tenants 966,657 961,978 840,633
498,762,172 447,696,978 498,982,598
Current assets
Investment properties held for sale 4 - 11,250,000 -
Trade and other receivables 3,834,177 1,401,392 4,939,071
Cash and cash equivalents 11,699,447 23,203,967 8,264,972
15,533,624 35,855,359 13,204,043
Total assets 514,295,796 483,552,337 512,186,641
LIABILITIES
Current liabilities
Trade and other payables 12,249,103 8,416,847 11,906,363
Interest rate swap 8 595,528 252,383 451,714
12,844,631 8,669,230 12,358,077
Non-current liabilities
Bank borrowings 9 127,203,418 109,148,606 129,249,402
Interest rate swap 8 1,801,693 618,566 352,249
Rent deposits due to tenants 966,657 961,978 840,633
Obligations under finance leases 1,716,391 - -
131,688,159 110,729,150 130,442,284
Total liabilities 144,532,790 119,398,380 142,800,361
Net assets 369,763,006 364,153,957 369,386,280
EQUITY
Capital and reserves attributable to Company's equity holders
Share capital 227,431,057 226,001,857 227,431,057
Retained earnings 6,300,815 6,714,960 6,156,881
Capital reserves 38,192,762 33,598,768 37,959,970
Other distributable reserves 97,838,372 97,838,372 97,838,372
Total equity 369,763,006 364,153,957 369,386,280
NAV per share 91.1 90.1 91.0
EPRA NAV per share 91.7 90.3 91.2
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
for the period ended 30 June 2019
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2019 227,431,057 6,156,881 37,959,970 97,838,372 369,386,280
Surplus for the period - 11,629,581 - - 11,629,581
Other comprehensive income - - (1,593,258) -
(1,593,258)
Total comprehensive surplus for the period - 11,629,581 -
(1,593,258) 10,036,323
Dividends paid 7 - (9,659,597) - -
(9,659,597)
Valuation surplus from investment properties 3 - (958,500) 958,500 - -
Surplus on disposal of investment properties 3 - (867,550) 867,550 - -
Balance at 30 June 2019 227,431,057 6,300,815 38,192,762 97,838,372 369,763,006
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total
equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2018 217,194,412 8,364,603 22,600,929 97,838,372 345,998,316
Surplus for the period - 17,568,493 - - 17,568,493
Other comprehensive income - - 1,373,850 - 1,373,850
Total comprehensive surplus for the period - 17,568,493 1,373,850 - 18,942,343
Ordinary shares issued net of issue costs 8,807,445 - - - 8,807,445
Dividends paid 7 - (9,594,147) - -
(9,594,147)
Valuation surplus from investment properties - (8,628,067) 8,628,067 - -
Surplus on disposal of investment properties 3 - (995,922) 995,922 - -
Balance at 30 June 2018 226,001,857 6,714,960 33,598,768 97,838,372 364,153,957
Other
Share Retained Capital distributable
Capital earnings reserves reserves Total equity
Notes GBP GBP GBP GBP GBP
Opening balance at 01 January 2018 217,194,412 8,364,603 22,600,929 97,838,372 345,998,316
Surplus for the year - 30,946,377 - - 30,946,377
Other comprehensive income - - 1,440,836 - 1,440,836
Total comprehensive surplus for the year - 30,946,377 - 32,387,213
1,440,836
Ordinary shares issued net of issue costs 10,236,645 - - - 10,236,645
Dividends paid 7 - (19,235,894) - -
(19,235,894)
Valuation surplus from investment properties - (12,057,044) 12,057,044 - -
Surplus on disposal of investment properties 3 - (1,861,161) 1,861,161 - -
Balance at 31 December 2018 227,431,057 6,156,881 37,959,970 97,838,372 369,386,280
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Cash Flow Statement
for the period ended 30 June 2018
Notes 1 Jan 19 to 1 Jan 18 to 1 Jan 18 to
30 Jun 19 GBP 30 Jun 18 GBP 31 Dec 18 GBP
Cash flows from operating activities
Surplus for the period before taxation 11,629,581 17,568,493 30,946,377
Movement in non-current lease incentives (784,580) (396,485) (735,921)
Movement in trade and other receivables (941,426) 18,889,516 16,441,217
Movement in trade and other payables 2,185,153 1,243,386
(2,068,406)
Finance costs 1,841,277 1,670,862 3,524,503
Finance income (7,656) (51,302) (58,411)
Valuation surplus from investment properties 3 (958,500) (8,628,067) (12,057,044)
Surplus on disposal of investment properties 3 (867,550) (995,922) (1,861,161)
Net cash inflow from operating activities 12,096,299 25,988,689 37,442,946
Cash flows from investing activities
Interest received
7,656 51,302 58,411
Purchase of investment properties - (50,212,474) (64,023,051)
Additions through business acquisition - - (23,913,188)
Capital expenditure on investment properties 3 (1,076,919) (2,936,163) (8,170,795)
Net proceeds from disposal of investment properties 3 5,967,550 38,395,922 44,861,161
Net cash inflow/ (outflow) from investing activities 4,898,287 (14,701,413) (51,187,462)
Cash flows from financing activities
Proceeds on issue of ordinary shares - 8,874,000 10,314,000
Transaction costs of issue of shares - (66,555) (77,355)
Bank borrowing - - 20,000,000
Repayment of RCF (2,000,000) - -
Bank borrowing arrangement costs (150,000) (52,500) (52,490)
Interest paid on bank borrowing
(1,452,231) (1,167,133) (2,546,435)
Payments on interest rate swap (298,283) (411,478) (726,842)
Dividends paid to the Company's shareholders (9,659,597) (9,594,147) (19,235,894)
Net cash (outflow)/inflow from financing activities (13,560,111) (2,417,813) 7,674,984
Net increase in cash and cash equivalents 3,434,475 8,869,463 (6,069,532)
Cash and cash equivalents at beginning of period 8,264,972
14,334,504 14,334,504
Cash and cash equivalents at end of period 11,699,447 23,203,967 8,264,972
The notes are an integral part of these consolidated financial statements
Notes to the Unaudited Consolidated Financial Statements
for the period ended 30 June 2019
1 Accounting Policies
The Unaudited Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standard ("IFRS") IAS 34
'Interim Financial Reporting' and, except as described below, the accounting
policies set out in the statutory accounts of the Group for the year ended 31
December 2018. The condensed Unaudited Consolidated Financial Statements do not
include all of the information required for a complete set of IFRS financial
statements and should be read in conjunction with the Consolidated Financial
Statements of the Group for the year ended 31 December 2018, which were
prepared under full IFRS requirements.
2 Related Party Disclosures
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions.
Investment manager
Following the merger of Standard Life plc with Aberdeen Asset Management PLC in
August 2017, the Company appointed Aberdeen Standard Fund Managers Limited as
its AIFM with effect from 10 December 2018. The appointment is on identical
terms to the arrangements previously in place with Standard Life Investments
(Corporate Funds) Limited and the terms of the previous management agreement
have been novated across to Aberdeen Standard Fund Managers Limited.
Under the terms of the current IMA, the Investment Manager is entitled to
receive fees of 0.75% of total assets up to GBP200million; 0.70% of total assets
between GBP200million and GBP300million; and 0.65% of total assets in excess of GBP
300million. The total fees charged for the period ended 30 June 2019 amounted
to GBP1,754,640 (period ended 30 June
2018: GBP1,661,767). The total amount due and payable at the period end amounted
to GBP875,388 excluding VAT (period ended 30 June 2018: GBP834,388 excluding VAT).
3 Investment Properties
Country UK UK UK UK
Class Industrial Office Retail Other
Total
30 Jun 19 30 Jun 19 30 Jun 19 30 Jun 19 30 Jun 19
Market value at 1 January 259,150,000 159,630,000 46,530,000 33,800,000 499,110,000
Purchase of investment properties - - - - -
Capital expenditure on investment properties 587,649 489,270 - - 1,076,919
Opening market value of disposed investment - (5,100,000) - - (5,100,000)
properties
Valuation surplus from investment properties 2,406,969 (822,506) (1,629,850) 1,003,887 958,500
Movement in lease incentives receivables 185,382 633,236 (30,150) (3,887) 784,581
Market value at 30 June 262,330,000 154,830,000 44,870,000 34,800,000 496,830,000
Right of use asset recognised on leasehold - 1,716,391 - - 1,716,391
properties
Adjustment for lease incentives (1,973,247) (1,786,574) (274,758) (614,446) (4,649,025)
Carrying value at 30 June 260,356,753 154,759,817 44,595,242 34,185,554 493,897,366
The market value provided by Knight Frank LLP at 30 June 2019 was GBP496,830,000
(30 June 2018: GBP457,985,000) however an adjustment has been made for lease
incentives of GBP4,649,025 (30 June 2018: GBP3,478,043) that are already accounted
for as an asset. In addition, as required under IFRS 16 which became effective
from 1 January 2019, a right of use asset of GBP1,716,391 has been recognised in
respect of the present value of future ground rents. As required under IFRS 16
an amount of GBP1,716,391 has also been recognised as an obligation under finance
leases in the balance sheet.
In the unaudited consolidated cash Flow statement, surplus from disposal of
investment properties comprise:
1 Jan 19 1 Jan 18 1 Jan 18
to 30 Jun to 30 Jun to 31 Dec
19 18 18
Opening market value of disposed investment properties 5,100,000 37,400,000 43,000,000
Surplus on disposal of investment properties 867,550 995,922 1,861,161
Net proceeds from disposed investment properties 5,967,550 38,395,922 44,861,161
4 Investment Properties Held For Sale
There were no assets held for sale at 30 June 2019 (2018: GBP11,250,000).
5 Earnings Per Share
The earnings per Ordinary share are based on the net profit for the period of GBP
11,629,581 (30 June 2018: GBP17,568,493) and 405,865,419 (30 June 2018:
401,011,552) ordinary shares, being the weighted average number of shares in
issue during the period.
Earnings for the period to 30 June 2019 should not be taken as a guide to the
results for the year to 31 December 2019.
6 Investment in Subsidiary Undertakings
The Group undertakings consist of the following 100% owned subsidiaries at the
Balance Sheet date:
* Standard Life Investments Property Holdings Limited, a property investment
company with limited liability incorporated in Guernsey, Channel Islands.
* Standard Life Investments (SLIPIT) Limited Partnership, a property
investment limited partnership established in England.
* Standard Life Investments SLIPIT (General Partner) Limited, a company with
limited liability incorporated in England. This Company is the GP for the
Limited Partnership.
* Standard Life Investments SLIPIT (Nominee) Limited, a company with limited
liability incorporated and domiciled in England.
* Hagley Road Limited, a property investment company with limited liability
incorporated in Jersey, Channel Islands.
7 Dividends and Property Income Distribution Gross of Income Tax
30 Jun 19 30 Jun 18 31 Dec 18
GBP GBP GBP
Non property income distributions
0.668p per ordinary share paid in March 2018 relating to the quarter ending - 2,692,811 2,692,811
31 December 2017
0.421p per ordinary share paid in November 2018 relating to the quarter - - 1,708,693
ending 30 September 2018
Property Income Distributions
0.552p per ordinary share paid in March 2018 relating to the quarter ending - 2,104,263 2,104,262
31 December 2017
1.19p per ordinary share paid in May 2018 relating to the quarter ending 31 - 4,797,073 4,797,073
March 2018
1.19p per ordinary share paid in August 2018 relating to the quarter ending - - 4,811,949
30 June 2018
0.769p per ordinary share paid in November 2018 relating to the quarter - - 3,121,106
ending 30 September 2018
1.19p per ordinary share paid in March 2019 relating to the quarter ending 31 4,829,799 4,797,073 -
December 2018
1.19p per ordinary share paid in May 2019 relating to the quarter ending 31 4,829,798 4,797,074 -
March 2019
9,659,597 9,594,147 19,235,894
A property income dividend of 1.19p per share was declared on 8 August 2019 in
respect of the quarter to 30 June 2019 - a total payment of GBP4,829,798. This
was paid on 30 August 2019.
8 Financial Instruments and Investment Properties
Fair values
The fair value of financial assets and liabilities is not materially different
from the carrying value in the financial statements.
Fair value hierarchy
The following table shows an analysis of the fair values of investment
properties recognised in the balance sheet by the level of the fair value
hierarchy:
30 June 2019 Level 1 Level 2 Level 3 Total fair
value
Investment properties - - 496,830,000 496,830,000
The lowest level of input is the underlying yields on each property which is an
input not based on observable market data.
The following table shows an analysis of the fair values of financial
instruments recognised in the balance sheet by the level of the fair value
hierarchy:
30 June 2019 Level 1 Level 2 Level 3 Total fair
value
Loan facilities - 129,895,646 - 129,895,646
The lowest level of input is the interest rate payable on each borrowing which
is a directly observable input.
30 June 2019 Level 1 Level 2 Level 3 Total fair
value
Interest rate swap - 2,397,221 - 2,397,221
Of the figure above, GBP595,528 is included within current liabilities and GBP
1,801,693 is included within non-current liabilities. The lowest level of input
is the three month LIBOR yield curve which is a directly observable input.
There were no transfers between levels of fair value hierarchy during the six
months ended 30 June 2019.
Explanation of the fair value hierarchy:
Level 1 Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2 Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable.
Level 3 Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
The fair value of investment properties is calculated using unobservable inputs
as described in the annual report and accounts for the year ended 31 December
2018.
Sensitivity of measurement to variance of significant unobservable inputs:
* A decrease in the estimated annual rent will decrease the fair value.
* An increase in the discount rates and the capitalisation rates will
decrease the fair value.
* There are interrelationships between these rates as they are partially
determined by the market rate conditions.
* The fair value of the derivative interest rate swap contract is estimated
by discounting expected future cash flows using current market interest
rates and yield curves over the remaining term of the instrument.
The fair value of the loan facilities are estimated by discounting expected
future cash flows using the current interest rates applicable to each loan.
9 Bank Borrowings
On 28 April 2016 the Company entered into an agreement to extend GBP145million of
its existing GBP155 million debt facility with RBS. The debt facility consists
of a GBP110million seven year term loan facility and a GBP35million five year RCF
which was extended by two years in May 2018 with the margin on the RCF now at
LIBOR plus 1.45%. Interest is payable on the Term Loan at 3 month LIBOR plus
1.375% which equates to a fixed rate of 2.725% on the Term Loan.
In June 2019, 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. 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.
Under the terms of the loan facility there are certain events which would
entitle RBS to terminate the loan facility and demand repayment of all sums
due. Included in these events of default is the financial undertaking relating
to the LTV percentage. The loan agreement notes that the LTV percentage is
calculated as the loan amount less the amount of any sterling cash deposited
within the security of RBS divided by the gross secured property value, and
that this percentage should not exceed 60% for the period to and including 27
April 2021 and should period to and including 27 April 2021 and should not
exceed 55% after 27 April 2021 to maturity.
10 Events After the Balance Sheet Date
On 30 August 2019, the Company completed the sale of Crown Farm, Mansfield for
GBP900,000.
On 5 September 2019, the Company completed the sale of Michigan Drive, Milton
Keynes for GBP9.3 million.
On 9 September 2019, the Company completed the acquisition of Unit 4 at
Broadoak Business Park, Trafford for GBP3.5 million
On 13 September 2019, the Company completed the acquisition of Causeway House,
Edinburgh for GBP9.1 million.
The Interim Report and Unaudited Consolidated Condensed Financial Statements
for the period from 1 January 2019 to 30 June 2019 will shortly be available
for download from the Company's website hosted by the Investment Manager
(www.slipit.co.uk).
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Jason Baggaley
Aberdeen Standard Investments Limited
Tel: 0131 245 2833
Graeme McDonald
Aberdeen Standard Investments Limited
Tel: 0131 245 3151
END
END
(END) Dow Jones Newswires
September 18, 2019 02:00 ET (06:00 GMT)
Abrdn Property Income (LSE:API)
Historical Stock Chart
From Jun 2024 to Jul 2024
Abrdn Property Income (LSE:API)
Historical Stock Chart
From Jul 2023 to Jul 2024
