12 May 2020
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
31 March 2020
Net Asset Value and Valuations
- Net asset value (“NAV”) per ordinary share was 83.2p
(Dec 19 – 89.9p), a decline of 7.5%,
resulting in a NAV total return, including dividends, of -6.2% for
Q1 2020;
- The portfolio valuation (before CAPEX) reduced by 4.9% on a
like for like basis, whilst the IPD/MSCI Monthly Index dropped by
2.7% over the same period.
As at the valuation date of March
31 2020 the country was in the early days of the lockdown,
and the investment market had come to a near virtual standstill.
There was a lack of relevant transactional evidence, so the
independent valuers inserted a material uncertainty clause in the
valuation.
Investment and letting activity
- In January 2020 the Company
completed the sale of a single let office building in Staines for a
net price of £10.7 million reflecting an equivalent yield of 5.7%.
The asset was disposed of after completing a successful asset
management initiative which maximised the return on the asset.
- Two lettings were completed in Q1 securing £269,000 per annum
in rent, along with two lease renewals securing £141,713 per
annum.
- The Company completed three rent reviews securing an increase
of £16,250 per annum (on average 19% above the previous rental
level).
- As at close of business on 4 May
2020, the Company had received payments reflecting 71% of
rents due for what can collectively be termed advance billing for
the second quarter of the year; this comprises both old and new
English quarter days (25th March and 1st April) and the Scottish
quarter day (28th February). The comparable figure previously
announced on 23 April 2020 was
66%.
Strong balance sheet with prudent
gearing
- Prudent LTV* of 24.4% at the quarter end.
- As at 31 March 2020 the Company
had £8m drawn from its existing revolving credit facility with £47m
still available for investment to take advantage of suitable
opportunities that may become available in the near future.
- On 4 February 2020 the Company
issued 1 million shares at a premium to prevailing net asset value
resulting in net proceeds of £953,000.
Dividends
- As previously announced the Company intends to pay a full
quarterly dividend of 1.19p per share, in respect of the three
month period to 31 March 2020, which
is payable on 29 May 2020. This
reflects the fact that a significant proportion of rent for this
period was paid in advance, prior to the impact from the Covid-19
pandemic.
- Given the ongoing pandemic and lockdown, the rent collection
for the period to 30 June 2020, and
potentially thereafter, will be materially impacted which is likely
to affect the Company’s future dividends. The Board will continue
to monitor closely the situation in relation to rent collection and
keep its future dividend policy under review accordingly.
*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 2020 was 83.2p. 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
2020 of £458.6 million which contained a material
uncertainty clause as a result of the COVID 19 pandemic.
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 2020 to 31 March
2020.
|
|
|
|
|
|
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets
as at 31 December 2019 |
89.9 |
364.8 |
|
Unrealised
decrease in valuation of property portfolio |
-5.9 |
-23.9 |
Like for like
reduction of 4.9% in property valuations. |
CAPEX in the quarter |
-0.2 |
-0.9 |
Predominantly CAPEX at
Princess Street, Manchester, Foundry Lane, Horsham, and Hagley
Road, Birmingham. |
Net income
in the quarter after dividend |
-0.2 |
-0.7 |
Rolling 12 month
dividend cover of 95% |
Interest
rate swaps mark to market revaluation |
-0.3 |
-1.2 |
Increase in swap
liabilities in the quarter as interest rates fell due to COVID
19 |
Other
movements in reserves |
-0.2 |
-0.5 |
Movement in lease
incentives in the quarter |
NAV
accretive share issues |
0.1 |
1.0 |
Net proceeds of 1
million shares issued in February 2020. |
Net assets
as at 31 March 2020 |
83.2 |
338.6 |
|
|
European Public Real Estate
Association (“EPRA”)* |
31 Mar
2020 |
31 Dec 2019 |
|
|
|
|
|
|
|
EPRA Net Asset Value |
£342.0m |
£367.0m |
|
|
EPRA Net Asset Value per share |
84.1p |
90.4p |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Net Asset Value per share is calculated using 406,865,419
shares of 1p each being the number in issue on 31 March 2020.
* 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 crystallize in normal
circumstances, such as the fair value of financial derivatives, are
therefore excluded.
Investment Manager commentary
2020 started with a feeling of optimism following the result of
the general election in December 2019
allowing the company to conclude three rent reviews, two new
lettings and two lease regears.
However, by the end of March the Covid-19 pandemic had struck
and, consequently the valuation of the Company’s assets declined by
4.9% on a like for like basis over the quarter. Every asset in the
portfolio was written down, reflecting the change in market
dynamics from end December to end March. By the end of March, the
investment market had come to a virtual standstill and relevant
transactional evidence was limited. The quarter end valuations were
subject to a material uncertainty clause, reflecting the lack of
reliable evidence, and valuers need to place a higher reliance on
sentiment in their valuations than they would normally. With
the whole team working from home, our focus was on rental
collection at the quarter end, and liaising with our tenants to
understand how they were trading and what help they needed. Even as
this is written, at the end of 6 weeks in lock down (and 8 weeks of
working from home), it feels as though we are still in the early
days of truly understanding the extent of the impact of the virus
on the UK economy and property market.
What is clear to us now though, is that just about everyone is
impacted as an individual, and just about every company, no matter
what it does, has had to adjust to significant change. We are keen
to help those who need it the most, whilst ensuring that those who
are able to pay rent do so, as we balance the needs of our
shareholders with the viability of our tenants. In many cases we
are having constructive discussions with our tenants to remove
lease breaks or extend leases in return for a rent free period
now.
It is the retail and leisure sectors that will be hardest hit,
and where recovery will be slowest. We have a relatively small
exposure to these sectors, and, where we do, it is at the
affordable end of the market, where we expect a faster recovery.
There is much discussion about how demand for offices will be
impacted over the longer term – will more people work from home, or
will organisations need to have fewer people in more space to
encourage social distancing? We believe our offices will continue
to appeal to occupiers, and in fact have two leases ready to
complete – once the new tenants know when they can actually move
in! The industrial sector, which this Company is most exposed to,
is likely to be the most resilient sector and the one that recovers
the fastest – although there will be pain here as well as the
economy stalls.
The occupancy level in the portfolio decreased slightly over the
quarter from 93.4% to 92.3%, as a result of a lease expiry on an
industrial unit in Dover. January and February saw strong interest
across the vacant properties (and two lettings were completed),
however much of this has been put on hold during lockdown, as
companies reconsider what they need, and when they might be able to
move in to new accommodation. Although the ongoing discussions are
encouraging, one can expect delays before such decisions are made.
We were also delighted to complete a lease renewal in April and a
new letting in May during lockdown.
In January the Company repaid part of the RCF, with only £8m
drawn at the end of the quarter (out of a facility of £55m)
following the sale of Bourne House in Staines. The LTV of 24.4%
provides plenty of head room against banking covenants (values can
fall by 53% and rent by 62% before the covenants are under pressure
based on 31 March covenants). Over the quarter, the Company had an
increase in the level of liability of its interest rate swap from
£2.22 million to £3.38 million. This negative impact on the NAV
will unwind to £0 on maturity in 2023.
Market commentary
UK property market
- The Covid-19 pandemic means the UK is facing an unprecedented
economic shock, both in terms of the magnitude and the speed in
which swathes of the UK economy have essentially been switched off.
The ASI Research Institute (ASIRI) expects a contraction in GDP of
more than 15% in the second quarter of 2020 and a fall of around
14.2% for the year as a whole.
- However, the ASIRI base case assumes a vigorous and relatively
rapid recovery, particularly given the magnitude of monetary and
fiscal support already announced. The UK economy is expected to
grow by more than 11% in 2021.
Investment outlook
- Covid-19 is likely to accelerate and accentuate trends that
existed before the virus, rather than totally change the
fundamentals of the real estate market.
- Holding the most robust and durable income streams may not be a
major point of difference this quarter or next; history suggests
this divergence emerges as the market approaches its nadir. But we
expect significant relative outperformance of such assets to come
through later in the year – and for a protracted period if the
economic downside materialise – as the degree of income risk at the
asset level becomes clearer.
- Urban logistics continues to be an area of the market we favour
on a structural basis – likely amplified by this crisis – and one
where the fundamentals remain supportive of rental tension. There
is strong potential for consumers, previously cautious around
online shopping, to gain confidence and retain a higher proportion
of spending online after the crisis, which will drive increased
demand for ‘last touch’ logistics in particular.
- Online grocery demand has increased substantially with the UK
in lockdown, but we do not believe this will have the same impact
on logistics as discretionary goods. The crisis has exposed the
constraints on capacity for home delivery and the importance of
large superstores in fulfilment.
- The Government is providing previously unimaginable levels of
stimulus, and yet it remains unclear at present what the nature of
recovery is going to look like. We anticipate many tenants having
difficulty in meeting rental obligations over the remainder of this
year, and quite possibly for the first half of 2021, whilst they
try and repair their balance sheets. However rent is contractual
and a fairly rapid pick-up in activity is expected in 2021, which
the industrial sector is most likely to benefit from.
Net Asset analysis as at 31 March
2020 (unaudited)
|
£m |
% of
net assets |
Industrial |
240.1 |
70.9 |
Office |
146.3 |
43.2 |
Retail |
39.0 |
11.6 |
Other Commercial |
33.2 |
9.8 |
Total Property
Portfolio |
458.6 |
135.5 |
Adjustment for lease
incentives |
-4.9 |
-1.5 |
Fair value of
Property Portfolio |
453.7 |
134.0 |
Cash |
5.5 |
1.6 |
Other Assets |
12.9 |
3.8 |
Total
Assets |
472.1 |
139.4 |
Current
liabilities |
-12.7 |
-3.7 |
Non-current
liabilities (bank loans & swap) |
-120.8 |
-35.7 |
Total Net
Assets |
338.6 |
100.0 |
Top 10 Properties
|
31
Mar 20 (£m) |
Hagley Road,
Birmingham |
20-25 |
Symphony,
Rotherham |
15-20 |
The Pinnacle,
Reading |
15-20 |
Hollywood Green,
London |
10-15 |
Marsh Way,
Rainham |
10-15 |
Timbmet,
Shellingford |
10-15 |
New Palace Place,
London |
10-15 |
Basinghall Street,
London |
10-15 |
Badentoy,
Aberdeen |
10-15 |
Atos Data Centre,
Birmingham |
10-15 |
Top 10 tenants
Name |
Passing Rent
£ |
% of passing
rent |
BAE Systems plc |
1,257,640 |
4.5% |
The Symphony Group
PLC |
1,225,000 |
4.4% |
Public sector |
1,158,858 |
4.2% |
Schlumberger Oilfield
UK PLC |
1,138,402 |
4.1% |
Jenkins Shipping
Group |
813,390 |
2.9% |
Timbmet Limited |
799,683 |
2.9% |
ATOS IT Services
Ltd |
772,711 |
2.8% |
CEVA Logistics
Limited |
671,958 |
2.4% |
Timeline Wholesale
Services UK Ltd |
635,554 |
2.3% |
G W Atkins & Sons
Ltd |
625,000 |
2.2% |
Total |
9,098,196 |
32.7% |
Regional Split
South East |
33.9% |
West Midlands |
14.7% |
East Midlands |
12.9% |
North West |
11.6% |
Scotland |
9.6% |
North East |
7.3% |
South West |
4.1% |
London West End |
3.0% |
City of London |
2.9% |
The Board is not aware of any other significant events or
transactions which have occurred between 31
March 2020 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:-
For further information:-
Jason Baggaley – Real Estate Fund
Manager, Aberdeen Standard Investments
Tel: 07801039463 or jason.baggaley@aberdeenstandard.com
Graeme McDonald - Senior Fund
Control Manager, Aberdeen Standard Investments
Tel: 07717543309 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