22 September
2020
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST
LEI: 549300HHFBWZRKC7RW84
RESULTS IN RESPECT OF THE HALF YEAR
ENDED 30 JUNE 2020
FINANCIAL REVIEW
· NAV total return:
-9.0%
NAV total return of -9.0% in the six months to 30 June 2020 (H1 2019: 2.7%) as COVID-19 impacted
UK commercial property values and the Company’s swap valuations.
Over the longer term the Company has continued to outperform its
peer group returning 143.9% over ten years compared to the AIC
Property Direct – UK Commercial sector total return of 36.0% and
open ended property funds total return of 53.0%.
· Loan to value:
26.2%
Loan to value of 26.2% (H1 2019: 23.4%) - Prudent gearing levels
with bank covenants comfortably met.
· Share price total return:
-30.9%
Share Price total return of -30.9% (H1 2019: 18.9%) as shares
moved from a premium of 1.2% to a discount of 23.9% as at
30 June 2020. Over the longer term
the Company has outperformed its peer group returning 76.5% over
ten years compared to the AIC Property Direct – UK Commercial
sector total return of 8.3%.
· Dividends paid:
2.38p per
share
(H1 2019: 2.38p per share) Same level of dividends paid in the
first half of the year as in the first half of 2019. Sixty percent
of usual quarterly dividend also paid in August 2020 reflecting recent and expected rental
collection rates.
· £41million
available for investment
Significant financial resources at 30
June 2020 of £41 million available for investment in the
form of the Company’s low cost revolving credit facility (“RCF”).
Since 30 June 2020, £21m was utilised
to acquire an asset let to a strong covenant which will enhance
dividend cover.
· 1 million new
shares issued
One million new shares issued in February
2020 at a premium of over 6% to underlying NAV.
PORTFOLIO REVIEW
· Portfolio total return of
-5.6%
Portfolio total return of -5.6% (H1 2019: 3.3%) compared to MSCI
benchmark of -3.8% (H1 2019: 0.9%) for the six month period as
capital values fell as a result of COVID-19.
· Industrial weighting of 52.7%
(MSCI benchmark: 32.5%) with only 8.2% in retail (MSCI benchmark:
25.3%) at 30 June 2020 as portfolio
is well aligned to sectors which are forecast to outperform in the
current environment.
· Rent collection:
81%
As at 31 August 2020, rent
collection of 75% for quarter 3 and 87%
for quarter 2 which averages out to 81% for the two
quarters.
Relatively strong rent collection statistics for the two billing
periods impacted by COVID-19 as the Investment Manager continues to
work with tenants to reach mutually acceptable agreements on rent
arrears.
· Occupancy rate:
92.2%
Occupancy rate of 92.2% as at 30 June
2020 (H1 2019: 93.7%) demonstrating diversified tenant base
geared towards Industrial sector.
· 2 new lettings securing
£379,000 per annum in rent.
(H1 2019: 6 new lettings securing £970,000 per annum in
rent)
· Restructured 4 leases and
3 rent reviews secured income of £735,000 per annum of
rent.
(H1 2019: Restructured 4 leases to secure longer term income on
£242,000 per annum of rent)
· Operational CO2 saved
229 TONNES
229 tonnes of operational CO2 expected to be saved in the first
year due to the installation of a major Photo Voltaic (PV) scheme
on one property which will generate the power output equivalent to
the yearly electricity usage of 230 homes. It is the largest
undertaken by Aberdeen Standard Investments in the UK and the
Company will receive a yield of circa 7% from the investment.
PERFORMANCE SUMMARY
Earnings & Dividends |
|
|
|
30 June
2020 |
30 June
2019 |
EPRA earnings per share (excluding
capital items & swap movements) (p) |
|
|
|
1.96 |
2.42 |
Dividends declared per ordinary
share (p) |
|
|
|
2.38 |
2.38 |
Dividend cover (%)* |
|
|
|
83.0 |
101.7 |
Dividend yield (%)** |
|
|
|
7.9 |
5.1 |
FTSE All-Share Real Estate
Investment Trusts Index Yield (%) |
|
|
|
4.4 |
4.5 |
FTSE All-Share Index Yield (%) |
|
|
|
4.7 |
4.1 |
Capital Values
& Gearing |
|
30
June 2020 |
31
December 2019 |
Change % |
Total Assets (£million) |
|
464.5 |
505.8 |
(8.2) |
Net asset value per share (p) |
|
79.6 |
89.9 |
(11.5) |
Ordinary Share Price (p) |
|
60.6 |
91.0 |
(33.4) |
Premium/ (Discount) to NAV (%) |
|
(23.9) |
1.2 |
|
Loan to value (%) † |
|
26.2 |
24.6 |
|
Total Return
|
6 months %
return |
1 Year %
return |
3 Year %
return |
5 Year %
return |
NAV ‡ |
(9.0) |
(7.8) |
11.3 |
33.6 |
Share Price ‡ |
(30.9) |
(31.4) |
(19.7) |
(4.5) |
FTSE All-Share Real Estate
Investment Trusts
Index |
(24.6) |
(10.1) |
(6.4) |
(6.3) |
FTSE All-Share Index
|
(17.5) |
(13.0) |
(4.6) |
15.2 |
Property Returns & Statistics
% - 6 months
to |
|
|
30 June
2020 |
30 June
2019 |
Property income return
|
|
|
2.2 |
2.7 |
MSCI benchmark income return
|
|
|
2.3 |
2.3 |
Property total
return |
|
|
(5.6) |
3.3 |
MSCI benchmark total return |
|
|
(3.8) |
0.9 |
Void rate |
|
|
(7.8) |
6.3 |
* Calculated as revenue earnings per share
(excluding capital items) as a percentage of dividends declared per
ordinary share.
** Based on last four quarterly dividends paid to
30 June 2020 of 4.76p and the share
price at 30 June 2020.
† Calculated as bank borrowings less all cash
(including cash held at managing agent) as a percentage of the open
market value of the property portfolio as at 30 June 2020.
‡ Assumes re-investment of dividends excluding
transaction costs.
Sources: Aberdeen Standard Investments, MSCI.
CHAIRMAN’S STATEMENT
My first statement as Chair of your Company is set against a
background of continued efforts to combat the first global pandemic
for over 100 years which has caused enormous human suffering and
economic disruption. Every country is at a different stage in its
response to COVID-19 with the UK government currently treading a
fine line between trying to prevent a second wave of the virus
while opening up the economy which has suffered a seismic shock.
Government support, including by effectively underwriting up to 80%
of wages and guaranteeing loans, along with The Bank of
England cutting interest rates to
an all-time low of 0.1% has helped matters but with the furlough
scheme due to come to an end shortly, the unemployment rate will be
a key focus. Thousands of jobs have already been lost as UK
companies try to rebuild while adjusting to the new norm whilst
awaiting the development of a vaccine for COVID-19 which may, in
due course, allow a return to full economic activity. In addition
to this, Brexit talks with the EU continue with no trade deal yet
in sight.
UK REAL ESTATE MARKET
The UK Real Estate market has been severely impacted by
COVID-19. Capital values have fallen (and valuations have also been
subject to material uncertainty clauses) with the Company’s MSCI
benchmark (UK Monthly Index Funds Quarterly Property Index)
recording a capital fall of 5.9% for the six months. However, the
main area of concern has been rent collection. A number of tenants
across many sectors of the economy have been unable to pay rent
with landlords’ key focus being to engage with tenants to agree
various forms of payment plans against a background of a moratorium
on forfeiture if tenants do not pay rent. This, in turn, has
impacted the ability of many listed REITs to maintain dividends to
shareholders with dividends being cut across the property industry:
the main exception being those that have purely tenants from the
logistics or supermarket sectors, two sectors that have done well
in the current environment.
The divergence in performance across sectors is demonstrated by
the fact that the Industrial sector, which encompasses logistics,
produced a total return of -0.2% in the six month period with the
retail sector, much of which was closed for business for a period
of time, producing a total return of -9.7%. These figures indicate
an acceleration of the trend towards online shopping which was
already prevalent before COVID-19. The office sector returned -1.5%
with the future of offices being the subject of some debate given
that many companies have successfully managed to facilitate staff
working from home during COVID-19. The “other” sector, which
includes leisure assets amongst others, returned -6.4% heavily
impacted by many leisure facilities, such as cinemas, being unable
to open.
PORTFOLIO AND CORPORATE
PERFORMANCE
Your Company produced a portfolio total return of -5.6% in the
six month period with capital falls of 7.7% partially offset by an
income return of 2.2%. By comparison the MSCI benchmark produced a
total return of -3.8%. The Investment Managers report provides a
full analysis of the portfolio performance.
This portfolio performance resulted in a NAV total return of
-9.0% in the six month period with the NAV being impacted by
gearing and the negative movement in the Company’s swap liability
of £1.8 million. The swap liability now stands at £4.05 million
which will reduce to zero as the fixed term loan approaches
maturity in 2023.
The total return to shareholders in the period was -30.9% as the
share price fell along with other listed REITs as a result of
COVID-19, reflecting doubts over rent collection and asset values.
The discount at which the Company’s shares traded to NAV stood at
33.9% on 31 August 2020. This
contrasts sharply with the pre COVID-19 world in February 2020 when the premium rating of the
Company allowed it to issue 1 million new shares at a price of over
6% above NAV.
Whilst in the short term returns have been impacted by COVID-19,
the Company continues to have a strong longer term track record
with a NAV total return of 33.6% over five years to end of
June 2020 compared to the peer group
total return of 28.6%. Open ended property funds returned 13.6%
over the same period, with almost all remaining closed to
redemptions.
RENT COLLECTION & DIVIDENDS
As mentioned above, a key focus in the first six months of the
year was working with our tenants to find mutually suitable
solutions to the challenges of COVID-19 on our respective
businesses. Depending on the situation, the Company is agreeing to
rental deferments with some tenants with repayment periods to suit
the businesses, rent free periods in exchange for amended lease
terms (generally an extension of leases) and, in extremis, rental
write-offs (generally with the smallest tenants who have no means
of paying). At the close of business on 31
August 2020, the Company had received payments reflecting
75% of rents due for what can collectively be termed advance
billing for the third quarter of the year. At the same date,
collection levels stood at a combined 87% for rent due for the
second quarter of the year. Further detail on rent collection and
interaction with tenants is included in the Investment Managers
Report.
The Board recognises the importance of dividends to its
shareholders especially when the COVID-19 crisis has forced many
companies, across multiple sectors of the economy, to cancel or
suspend their dividends. The Board took the decision to pay the
same quarterly dividend as last year of 1.19p per share in
March 2020, reflecting the fact that
over 95% of the rental income received for the first quarter of the
year had been received. Reduced levels of rent collection, however,
has meant a dividend at the reduced rate of 60% of last year’s
level for the second quarter, equating to a dividend of 0.714p per
share. The Board is of the opinion that this reduced rate balances
the need for shareholders to continue receiving income during this
difficult period with maintaining a satisfactorily strong balance
sheet.
The Board will continue to monitor closely the evolution of
COVID-19, together with its impact on rent receipts and recurring
earnings. The Board will keep the Company’s future dividend policy
under review, aiming to strike a balance between rental income and
shareholders’ dividend requirements, noting that rent collections
are forecast to improve on the assumption that more of the economy
begins to open up as lockdown eases.
FINANCIAL RESOURCES & PORTFOLIO
ACTIVITY
Despite COVID-19, the Company continues to be in a strong
financial position. As at 30 June
2020, the Company had a prudent Loan to Value (“LTV”) of
26.2% compared to a peer group average of 31%. The overall blended
interest rate on the debt at this date was 2.59% per annum with the
revolving credit facility portion of the debt benefiting from the
reduction in interest rates. Loan covenants for the quarter ended
30 June 2020 were also comfortably
met with rental income having to fall by 60% and property values by
50% from June levels before covenants are endangered. In addition,
the Company had significant financial resources of £41 million
available for investment as at 30 June being the undrawn element of
the Company’s flexible revolving credit facility. A proportion of
these low cost resources were used after the period end to acquire
a retail unit in Halesowen for £19.5 million let to B&Q at an
initial yield of 7.5%. This acquisition provides secure income to
the portfolio given B&Q’s strong covenant and is at a healthy
margin to the cost of debt, further boosting the revenue
account.
We also continue to invest in our assets to provide energy
efficient solutions and there has been significant progress in this
area. At the end of the June we completed the installation of a
major Photo Voltaic (PV) scheme on one of our assets. It is the
largest undertaken by Aberdeen Standard Investments in the UK, and
the power will be sold to the tenant. The scheme is expected to
produce, and therefore save, the equivalent of 229 tonnes of
operational CO2 in the first year of operation, and the power
output is the equivalent of the yearly electricity usage of 230
homes. The Company will receive a yield of circa 7% from the
investment.
BOARD CHANGES
Robert Peto, my predecessor as
Chair, retired from the Board in August. Robert was initially meant
to step down at the Annual General Meeting in June 2020 but agreed to stay on to provide
continuity of leadership over this difficult period which is
testament to the dedication he has given to the Company in his six
years of service. I would like to take this opportunity to thank
Robert for his valuable contribution first as a Director then as
Chair of the Company and wish him all the very best for the future
in his ongoing real estate and charitable activities. Sarah Slater has taken on my role as Chair of
the Property Valuation Committee.
OUTLOOK
The COVID-19 pandemic has resulted in
the UK suffering an unprecedented economic shock, demonstrated by
the 20.4% fall in GDP for the second quarter of 2020 with our
Investment Manager forecasting a 12.9% fall for the year as a
whole. However, ASI anticipates, in the absence of any further
nationwide lockdowns, that the economy will rebound strongly in
2021.
From a real estate perspective, our
Investment Manager forecasts that valuations will remain weak,
although they are unlikely to experience the declines we have seen
in the first six months of this year. In terms of rent collection,
some tenants, depending on what sector they are in, will continue
to have difficulty in meeting rental obligations over the remainder
of this year, and quite possibly for the first half of 2021.
However, indicative evidence from our own portfolio is that most
tenants are willing to work with their landlords to come to a
mutually acceptable outcome for rents due and hence it is hoped
there will be a fairly rapid pick-up in activity in 2021.
This recovery will not be uniform
across the main real estate sectors with the accelerating move away
from high street retail to online retail. The resultant requirement
for industrial space means the industrial sector is likely to
continue to be the best performing sector. While performance has
been weak in the short-term, your Company’s portfolio is well
positioned to take advantage of this trend given the portfolio had
a 53% weighting to Industrial (and only 8% in retail) as at
30 June 2020.
Your Company also has a strong balance
sheet with relatively low gearing and low cost, flexible financial
resources some of which have been utilised since 30 June 2020 to invest in an asset that will
boost revenue generation from a tenant with a strong covenant.
Overall, there will undoubtedly be
challenges ahead and much depends on the course that COVID-19 takes
over the winter months, any further lockdowns and ultimately the
development of a vaccine. However, your Company has strong
foundations in place to face up to these challenges both in the
short term and beyond.
James
Clifton-Brown
Chairman
21 September
2020
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 overarching risk to the Company's
portfolio is COVID-19, which has caused significant loss of life
and global economic disruption. It arguably affects all areas of
risk on which the Company reports and has increased the risk
profile of the Company, as set out in the Chairman's Statement and
the Investment Manager's Report. The Board and Investment Manager
seek to mitigate 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 2020,
including the overarching risk of COVID-19, were not materially
different from those detailed in the statutory accounts for the
Company for the year ended 31 December
2019, which were published in May
2020.
Having reviewed the principal risks, including the impact of
COVID-19, the Directors believe that the Company has adequate
resources to continue in operational existence for the foreseeable
future and therefore believes it appropriate to adopt the going
concern basis in preparing the financial statements.
INVESTMENT MANAGER’S REPORT
MARKET COMMENTARY
The year started with a note of optimism in the UK economy and
the Real Estate market, however, this quickly faded as the COVID-19
virus spread, such that by March virtually the whole of the world
was in lockdown, with severe economic consequences. In the UK, GDP
fell by 2.2% in Q1 and 20.4% in Q2, meaning the country was
officially in recession. The dramatic fall in GDP was of a scale
and pace unknown in our lifetime, with the Office for National
Statistics saying the fall had wiped out 17 years of economic
growth. Although the recovery in GDP as lockdown measures have been
eased is encouraging, it is clear that the UK is going to feel the
economic impact of COVID-19 for quite some time.
The government’s fiscal response to the pandemic has involved a
number of measures, including a 1.5% of GDP fiscal stimulus package
in 2020/21, a further easing package to support businesses
via direct transfers worth around £20 billion and, perhaps most
importantly, a job retention scheme. This scheme has allowed firms
to furlough staff, with the government covering 80% of salaries up
to £2,500 per month. From a monetary policy perspective, the Bank
of England cut rates to the
effective lower bound of 10bps, announced £200 billion of
Quantitative Easing (QE), introduced credit easing measures, and
eased regulatory policies.
High frequency indicators suggest that spending has recovered
significantly since the low point in activity in April. Despite
some encouraging signs, the Bank of England’s Monetary Policy
Committee (MPC) has forecast only a slow recovery in demand as
health concerns drag on activity.
According to MSCI (formerly IPD), UK real estate performance
turned negative in the first six months of 2020 with a total return
of -3.8%. The consumer- facing areas of the real estate market bore
the brunt of declines, with capital values in the retail sector
declining -11.1% over this period. With hotels and leisure
particularly affected and only beginning gradually to re-open at
limited capacity, it is unsurprising that the “alternatives” sector
recorded a negative total return of -6.4%. Total returns for the
industrial and residential sectors were significantly better at
-0.2% and 1.2% in the six months to June
2020. Offices were in-between, producing a total return of
-1.5%.
Investment volumes for the first six months of the year were
largely in line with the same point last year. However, Q1
accounted for approximately 80% of these transactions, as a flurry
of deals were completed following the general election result at
the end of 2019. It was inevitable that investment levels would be
down markedly in Q2 2020 – the lowest quarterly volume since Q1
2009 – with physical inspections impossible and constraints on
international travel largely excluding overseas investors. Whilst
there is a glimmer of optimism returning, the focus of most
investors has narrowed; investor appetite for industrial and
logistics assets remains robust, whilst long income and selective
alternative sectors also maintain strong levels of investor
interest.
The Royal Institution of Chartered Surveyors (“RICS”) advised
lifting material uncertainty clauses for Central London offices, student housing of
institutional grade and long dated annuity income with a secure
covenant in July. RICS had already removed the material uncertainty
clause for the industrial and logistics sector and build to rent
property of institutional grade in June. Standalone food stores as
well as specialist supported housing were two of the first sectors
to have the material uncertainty clause lifted in May.
Notwithstanding the lifting of this clause, it should be noted that
with very limited transactional levels there remains a lack of
evidence for all lot sizes and risk profiles within each sub-
sector. We believe that valuations will continue to fall over the
year, especially on assets that have riskier characteristics, as
some liquidity returns.
Investor interest in the UK logistics sector is undoubtedly
aided by an occupational market which has proven to be very
resilient during the COVID-19 pandemic. During the first half of
this year, take-up reached 22.4m sq.
ft., the best first half performance ever recorded, according to
Savills. This is 66% higher than the long-term average for the
sector. Unsurprisingly, take-up is being boosted by companies
seeking space for online delivery fulfilment. Whilst there have
been short-term deals relating to inventory management issues as a
result of lockdown, the overwhelming majority of deals were
traditional leases.
The future of offices is a hot topic. As is the case with a
number of real estate sectors, COVID-19 has simply accelerated
trends that were already underway for offices prior to the
pandemic, with a wealth of survey evidence pointing to a structural
rise in remote working. Companies will be required to reassess
their office needs in the light of more flexible work arrangements,
which points to a lower structural demand for office space in the
medium to long term. Whilst vacancy rates are below historical
averages at present, grey space coming back to the market will be a
key driver of vacancy and we therefore expect this to put downward
pressure on rents. Moving forward, the ability to adapt to changing
health and wellbeing requirements will be a key determinant of an
office’s success. Core, well located assets which possess the
ability to adjust to changing tenant requirements will be in a
better position to stand the test of time.
The challenges facing the retail sector are well documented.
Restructuring activity in retail, through the use of company
voluntary arrangements (CVA’s) and pre-pack administrations,
continues largely unabated. The pool of potential investors in this
sector remains very shallow. However, there are areas of retail
which have fared much better during the pandemic, namely food
stores and DIY outlets let to strong covenants at rents that are
affordable. These assets continue to attract healthy levels of
investor interest, especially where strong underlying use values
exist.
INVESTMENT OUTLOOK
Aberdeen Standard Investments Research Institute’s GDP
expectations are for a 12.9% contraction in GDP this year and 7.7%
growth in 2021, although there is low conviction in the base case
and a high degree of uncertainty around the outlook. Aside from
COVID-19, the lack of progress in Brexit negotiations is a concern;
a disruptive ‘no deal’ outcome remains a downside risk to growth in
2021.
Investor interest for logistics and industrials is expected to
continue as the structural shift to online shopping remains
supportive. Larger inventories to create a greater buffer within
existing supply chains are the simplest near-term solution to the
risk of COVID-19 and Brexit-related disruption – and will require
more warehousing. The structural changes benefitting the logistics
sector have been to the detriment of the retail sector, where
outside of standalone food stores and DIY units, the investment
market remains challenging. Whilst the outlook for the office
sector remains uncertain at this stage, overseas capital continues
selectively to acquire office assets in the UK with a particular
focus on larger lot sizes in Central
London. Selectivity is crucial within the office sector and
a greater focus must be placed on asset-specific qualities. Newer
properties with the right level of amenity provision and good
connectivity are likely to outperform older and less competitive
stock.
The investment market has experienced a noticeable slowdown this
year, but there are tentative signs that the market is beginning to
show some signs of recovery. With the economic backdrop remaining
uncertain, long secure income, industrials and logistics as well as
selective alternative sectors will remain highly sought after. With
continued expectations of low interest rates for the foreseeable
future, income producing real assets such as commercial property
are likely to remain in demand.
PERFORMANCE
The Company considers a range of measures when assessing its
performance. The underlying performance of the real estate assets
is the first level of consideration, and is a direct comparison to
the wider market. The NAV total return is a better reflection of
the return experienced by the Company, as it encompasses all
aspects of the Company including debt and expenses. Finally the
share price total return is a useful metric in so much as it
reflects investor experience, but it is the one metric over which
the Investment Manager and the Board have least control.
PORTFOLIO LEVEL PERFORMANCE
The first six months of 2020 have been a challenging time for
the Company, with a greater fall in valuations than the market as a
whole. Over the six months every asset in the Company has declined
in value, including the industrial and logistics assets. This is
out of line with the general market, but reflects the greater
emphasis placed by our valuers on sentiment rather than market
transactions during the reporting period. Although there was ample
evidence of transactions for larger long-let logistics units, and
big multi-let estates, there was less relevant evidence for the
smaller assets the Company holds. Given the exceptional
circumstances and complete change in economic environment from the
beginning of the year to the end of June, having every asset reduce
in value seems prudent. In the medium term, we expect the Company’s
performance to be more in line or to exceed the market given its
high exposure to industrial and logistics assets. Indeed at a
property level, the Company displays outperformance to the wider
market over three, five and ten years
NAV PERFORMANCE
Property valuations are the major component of the Net Asset
Value (NAV) and so with the impact of gearing, the NAV has n %
terms, dropped by more than the property portfolio in the period.
In addition, the Company marks to market the value of its interest
rate swap on the term loan. This had a significant negative impact
on the NAV with the liability of the swap rising from £2.2m as at
the end of December to £4.05m at the end of June as yields fell.
This liability will reduce to zero on maturity in April 2023, but is fully reflected in the NAV.
The NAV element of the performance chart in the Half-Yearly Report
shows the impact of leverage, the interest rate swap, and all the
other costs of running the Company.
NAV Total Returns to 30 June 2020 |
1
year (%) |
3 year (%) |
5 year (%) |
10
years (%) |
Standard Life
Investments Property Income Trust |
-7.8 |
11.3 |
33.6 |
143.9 |
AIC Property Direct –
UK sector (weighted average) |
1.5 |
19.1 |
29.9 |
36.0 |
Investment Association
Open Ended Commercial Property Funds sector |
-3.7 |
5.1 |
13.6 |
53.0 |
|
|
|
|
|
Source: Aberdeen
Standard Investments, Association of Investment Companies
(“AIC”) |
|
|
|
|
|
|
|
|
|
|
|
SHARE PRICE RETURN
Market sentiment towards Real Estate Investment Trusts (REITs)
changed significantly with the onset of COVID-19. Prior to that
time most companies in the sector (except those heavily exposed to
retail) were trading on small discounts to their NAVs, or even
small premiums. However, with lockdown and increased focus on rent
collection issues, discounts increased considerably and currently
average 32%. The Company’s share price was impacted with this
change of sentiment, and now trades at 33.9% (31 August 2020), a larger discount than
immediately after the Brexit vote, and the largest since the global
financial crisis.
Share Price Total
Returns to 30 June 2020 |
|
1
year (%) |
3
year (%) |
5
year (%) |
10
years (%) |
Standard Life
Investments Property Income Trust |
|
-31.4 |
-19.7 |
-4.5 |
76.5 |
FTSE All-Share
Index |
|
-13.0 |
-4.6 |
15.2 |
91.8 |
FTSE All-Share REIT
Index |
|
-10.1 |
-6.4 |
-6.3 |
116.9 |
AIC Property Direct –
UK sector (weighted average) |
|
-11.6 |
-3.8 |
14.2 |
8.3 |
Source: Aberdeen Standard Investments, Association of
Investment Companies (“AIC”)
DIVIDEND
The payment of an attractive dividend is a primary focus of the
Company, with a desire for that dividend to be fully covered. The
annual rate of 4.76 pence per share
was fully covered in 2019, and the Company continued to pay that
rate (1.19p each quarter) for Q1 2020, as most of the rents related
to a period before rent collection was impacted by COVID-19. The
difficult decision was made to reduce the dividend by 40% for Q2
2020, to reflect the new environment and future uncertainties. The
Board believes this is a sustainable level in the current
environment and will seek to increase it when prudent to do so. The
dividend yield at the end of the last financial year end, based on
the share price at that time, was 5.2%. Following the share price
fall this year and the reduced dividend on an annualised basis, the
yield on 31 August was 5.4%.
Rent collection is obviously the key driver of the Company’s
ability to pay a dividend. The table below shows collection data as
at 31 August. The majority of those tenants who are in arrears have
agreed a schedule to repay the rent from Q2 and Q3 in the future
(mostly in 2021), and several have agreed terms to extend their
lease commitments in return for a write-off of some rent.
In most cases where rent arrears exist, we anticipate recovery
by way of an agreed repayment schedule for deferred rent, or a
write-off in return for extended lease terms. It is anticipated
that the total write-off where no such agreement is in place will
represent about 4-5% of the rent due with the Company’s balance
sheet including a provision for bad debts of £1.2 million.
|
Q2 collection |
Q3 collection |
Total |
87% |
72%* |
Industrial |
90% |
77% |
Office |
90% |
71% |
Retail |
59% |
61% |
Other |
65% |
48% |
* with monthly rents this increases to 75%
PORTFOLIO VALUATION
The investment portfolio is valued quarterly by Knight Frank. At
30 June the portfolio comprised 55 assets valued at a total of
£447.3m, with £5m in cash. This compares to 57 assets, £496.8m and
£11.7m cash a year ago. The valuation follows the requirements of
RICS Red Book. However, while RICS had required a material
uncertainty clause in valuation reports of all assets in
March 2020, this was amended in
respect of June valuations where selective asset types/geographies
were removed from the need to refer to material uncertainty. In
total, 53% of the Company's June portfolio valuation was not
subject to a material uncertainty clause. The material
uncertainty clause included in the June valuation is repeated
below:
“The outbreak of the COVID-19,
declared by the World Health Organisation as a “Global Pandemic” on
the 11th March 2020, has impacted
global financial markets. Travel restrictions have been implemented
by many countries. Observable market activity – that provides the
empirical data for us to have an adequate level of certainty in the
valuation – is being impacted in the case of some properties but
excludes Industrials and food stores which equates to 52.7% of the
portfolio. In the case of the properties not excluded, as at the
valuation date, we consider that we can attach less weight to
previous market evidence for comparison purposes, to inform
opinions of value. Indeed, the current response to COVID-19 means
that we are faced with an unprecedented set of circumstances on
which to base a judgement. Our valuations of these properties are
therefore reported as being subject to ‘material valuation
uncertainty’ as set out in VPS 3 and VPGA 10 of the RICS Valuation
– Global Standards. Consequently, less certainty – and a higher
degree of caution – should be attached to our valuation than would
normally be the case. Given the unknown future impact that COVID-19
might have on the real estate market, we recommend that you keep
the valuation of the whole portfolio under frequent review. For the
avoidance of doubt, the inclusion of the ‘material valuation
uncertainty’ declaration above does not mean that the valuation
cannot be relied upon. Rather, the declaration has been included to
ensure transparency of the fact that – in the current extraordinary
circumstances – less certainty can be attached to the valuation
than would otherwise be the case. The material uncertainty clause
is to serve as a precaution and does not invalidate the
valuation”.
PORTFOLIO STRATEGY AND ALLOCATION
The Company has a clear investment objective of seeking to
provide an attractive level of income to investors through
investing in a diversified portfolio of UK commercial property. The
delivery of this objective has been challenging this year with the
impact of COVID-19, however that does not stop us remaining focused
on delivering over the medium term. Our short term focus has
concentrated on working with our tenants, supporting those that
need it with rent write-offs, but mostly through lease re-gears
that give the Company improved cash flow in the future in return
for a rent free period today when the tenant really needs it. Our
asset management team has worked tirelessly (from home) to engage
with and help our tenants. Meanwhile the investment management team
has concentrated on trying to see through the short term
disruption, to ensure the Company is well positioned for the
future.
The Company has benefited from having a high exposure to
industrial / logistics (53% as at 30 June), whilst having a low
exposure to retail (8%), with a 32% exposure to offices and 7% to
“Other” – a Data centre and two leisure investments. We believe
that the industrial / logistics sector will continue to out-perform
and are pleased to continue with a high exposure.
The problems of the retail sector are well known. The Company
has no exposure to shopping centres, and only has one high street
retail investment, in Kingston-Upon-Thames. The majority of its
retail exposure comes from retail warehousing, where it owns a
variety of assets that are let at affordable rents from where
tenants can trade profitably. During the first half of the year we
agreed the extension of two retail warehouse leases to give 15
years unexpired term – a clear indication that the retailers want
to occupy the units as they make money from them. We think that
some value may be found in the retail warehouse sector where prices
have moved down considerably and rents have rebased to affordable
levels. Any acquisition in this area would be driven by asset
specific factors rather than a sector level approach.
WFH, or to give it the full title, Working From Home, has become
a new normal for many people over the last few months. This has
caused a considerable amount of thought and challenge around the
future of the office. Although the WFH experiment has been welcomed
by some, and changed opinions of others, it is unlikely to cause
the death of the office. Agile working was a theme that we had seen
for a while and COVID-19 has accelerated the acceptance of the
ability of and benefits to a workforce to work in an agile manner.
In the short term, economic factors are likely to be the main
influencer of take up and rents in the sector. We are already
seeing companies put new acquisitions of office space on hold, and
over the longer term we will no doubt see reduced demand for the
sector as workforces are encouraged to spend some time at home. The
demand that remains though will be for offices that are inviting,
where people can share, engage, develop and socialize. Rent and
yields for grade A space meeting these needs are likely to remain
more resilient than those on poorer quality assets. The Wellness
agenda is increasingly important. We have positioned our office
portfolio to provide attractive workplaces that will meet future
demand. Great changing facilities, showers and bike racks will be
required, along with shared meeting rooms (and yoga rooms!). We
have also found a pick-up in demand for our fully fitted office
suites and expect that to continue. There might be a short term
increase in demand for car parking and suburban locations, however
over the medium term easy access by public transport will remain
very important, as will proximity of housing. Offices will remain
an important component of balanced portfolios.
Regional allocation is not a particular driver for us, as we aim
to invest in good quality assets in locations that work for
tenants. That location will vary for different uses, but generally
proximity to skilled labour and a vibrant environment are critical
to create assets people want to occupy.
INVESTMENT ACTIVITY
PURCHASES
No purchases were undertaken during the period. Post the period
end the Company acquired a B&Q Retail Warehouse in Halesowen
for £19.5m (excluding costs), financed by its low cost revolving
credit facility. The purchase reflects an initial yield of 7.5% and
is let to B&Q Ltd for a further 11 years to lease expiry. The
purchase of this retail warehouse unit will provide secure income
going forward given the strong tenant covenant and good unexpired
lease term. In addition, the property’s configuration and
attractive location in the West
Midlands also provides flexibility of use in the longer
term.
SALES
The Company sold an office asset in Staines Upon Thames early in
January for £10.7m. The asset had been subject to successful asset
management and the sale realised a profit compared to the September
valuation (valuation at end of December was uplifted to the sale
price) for the Company and reduced exposure to a location we felt
was going to weaken. The sale proceeds were used to reduce the
drawn amount in the revolving credit facility.
ASSET MANAGEMENT
The focus of asset management in the first half of the year has
been to assist tenants and work with them to protect future income
streams. During this period three rent reviews were completed
securing on average a 19% increase in the annual rent, and two
lease renewals were completed with a 21.4% increase in rent. Two
lease re-gears securing £300,200 per annum were completed, along
with two new lettings securing an annual rent of £379,000. Since
the easing of lockdown we have seen an increase in the number of
lease re-gears completing as tenants get back from furlough and
reopen their businesses.
ENVIRONMENTAL SOCIAL &
GOVERNANCE
As mentioned in the Chair’s Statement, during June the Company
was pleased to complete a major Photo Voltaic scheme on an
industrial asset in Sandy, Bedfordshire. It is the largest PV
installation that ASI has undertaken in the UK, and provides enough
electricity to power 230 houses, although in this case the Company
will sell the power to the tenant, providing an expected return of
over 7%. We are continuing the roll out of PV on building rooftops
where we can agree to do so with the tenant.
We actively assess the risks and opportunities in relation to
many environmental, social and governance (ESG) factors as an
integral part of our investment process across all investments.
This includes understanding the risks and opportunities related to
climate change. The Taskforce for Climate Related Financial
Disclosures (TCFD) Framework provides a useful framework for the
types of risks and opportunities to consider, and these are grouped
into the three categories below:
Transition Risks arise due to the transition to a low
carbon economy such as higher carbon prices, emission reducing
regulation and shifts in technology and demand. High carbon
emitting industries and countries are highly affected by these
types of risks.
Physical Risks arise due to the continued increase in
temperatures and extreme weather events. The negative implications
of physical risks include damages to infrastructure, poor harvests,
rising cost of assets and commodities, migration of climate change
refugees and operational risks in the supply chain. These can
affect anyone and depends on the region of operations. In addition,
adaptation costs (e.g. infrastructure required to protect from
physical damages) and the risk of insurance costs rising must be
considered with an increase in physical risks materialising.
Opportunities: There is also a considerable upside as the
transition to a low carbon economy provides attractive capital
allocation opportunities. Whether or not we achieve the
Paris target of warming below 2
degrees depends on whether the world is able to quickly deploy
large amounts of private capital to construct renewable energy
infrastructure, low carbon transport and to improve energy
efficiency. A move away from coal, as well as rapid deployment and
falling costs of clean energy technologies are clearly visible
trends.
Approach in SLIPIT
From a Real Estate perspective, we are working to embed the
requirements of the TCFD. Across the Company we have focussed on
two key areas, namely physical climate risks and carbon
management/transition risks.
From a physical climate risks perspective, the Company, through
its Investment Manager, are working with Vivid Economics to assess
the physical risks associated with each asset under management. The
scores produced:
i. provide a high-level assessment of possible
physical risks at asset locations based on publicly available
global data sources.
ii. highlight concentrations of risk in a portfolio
for further investigation or modelling.
iii. take into account expected intensities of hazards at
given locations, but do not take into account local risk mitigants,
such as flood defences or building-level flood resilience
measures.
Future (2050) scores are based on climatic conditions under a
high-emissions scenario which is expected to result in global
warming of more than 4°C relative to pre-industrial levels. In
time, we hope to be able to model alternative and bespoke
scenarios, in addition to the high emissions ‘worst case’ scenario.
The results of this analysis will be made available in our annual
report. From a carbon management perspective, we already capture
carbon data and report this in line with international standards.
We are developing a decarbonisation pathway to achieve net zero by
2050 if not sooner, and this pathway will be published in due
course.
DEBT
The Company has two facilities with Royal Bank of Scotland. The first is a term loan of £110
million which is fully drawn. The Company has entered into an
interest rate swap on the whole of the term loan, and that is
currently marked to market and showing as a liability of £4.05
million on the balance sheet. The second element of the debt is a
revolving credit facility (RCF) that totals £55 million. At 30 June
£14 million was drawn under the RCF. Both facilities mature in
April 2023. The all-in cost of the
debt at 30 June was 2.6%.
CONCLUSION
The reporting period obviously covers a remarkable period, with
a global shock the like of which none of us have seen before. Not
only will the impact of COVID-19 continue for the foreseeable
future, but we also have the culmination of Brexit at the end of
the year. What does this mean for the outlook? Well, the honest
answer is that we don’t yet know. In the short term the wider
economic challenges are likely to lead to a softening of occupier
demand and further weakening in rents. Yields are likely to move
out on risk assets (but long secure income will remain sought
after). We do not believe in taking rash or hurried decisions in
times of change and uncertainty. Instead, we start by asking
ourselves “is this a property that is affordable and will continue
to meet the needs of our tenants or other occupiers”? We continue
to make every effort to hold assets that enable our tenants to
function and make money. The importance of working with our tenants
to achieve mutually beneficial outcomes is greater than ever, and
so is doing the right thing in an ESG context – now is not the time
to forget about our basic beliefs that have served us well in the
past. We believe that the portfolio remains well positioned to
continue to meet our aspirations, but will continue to monitor this
closely.
Jason
Baggaley
21 September
2020
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 Guidance and
Transparency Rules.
· In accordance with 4.2.9R of the
Financial Conduct Authority’s Disclosure Guidance 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 2020, 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
21 September
2020
James
Clifton-Brown
Chairman
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME FOR THE PERIOD ENDED 30
JUNE 2020
Notes |
1 Jan 2020 to
30 Jun 20 £ |
1 Jan 2019 to 30 Jun 19 £ |
1 Jan 19 to
31 Dec 19 £ |
Rental income |
|
14,475,764 |
15,360,183 |
29,878,646 |
Service charge
income |
|
846,574 |
1,196,706 |
3,313,463 |
Surrender premium |
|
— |
— |
580,000 |
Valuation (loss)/gain
from investment properties |
3 |
(38,278,871) |
958,500 |
(3,613,836) |
(Loss)/ gain on
disposal of investment properties |
|
(97,867) |
867,550 |
427,304 |
Investment management
fees |
2 |
(1,596,433) |
(1,754,640) |
(3,492,880) |
Valuer’s fees |
|
(45,402) |
(50,346) |
(97,668) |
Auditor’s fees |
|
(39,250) |
(40,125) |
(81,850) |
Directors’ fees and
expenses |
|
(125,882) |
(117,006) |
(227,276) |
Service charge
expenditure |
|
(846,574) |
(1,196,706) |
(3,313,463) |
Other direct property
expenses |
|
(2,540,224) |
(1,397,144) |
(2,935,023) |
Other administration
expenses |
|
(346,263) |
(363,770) |
(530,862) |
Operating
(loss)/profit |
|
(28,594,428) |
13,463,202 |
19,906,555 |
Finance income |
|
3,801 |
7,656 |
15,856 |
Finance costs |
|
(1,823,245) |
(1,841,277) |
(3,778,280) |
(Loss)/ profit for
the period before taxation |
|
(30,413,872) |
(11,629,581) |
16,144,131 |
Taxation |
|
|
|
|
Tax charge |
|
— |
— |
— |
(Loss)/profit for
the period, net of tax |
|
(30,413,872) |
(11,629,581) |
16,144,131 |
Other Comprehensive Income
Valuation (loss) on cash flow hedge |
|
(1,831,613) |
(1,593,258) |
(1,416,653) |
Total
other comprehensive loss |
|
(1,831,613) |
(1,593,258) |
(1,416,653) |
Total
comprehensive (loss)/profit for the period, net of
tax |
|
(32,245,485) |
10,036,323 |
14,727,478 |
Earnings per share |
|
(p) |
(p) |
(p) |
Basic and diluted
earnings per share |
5 |
-7.48 |
2.87 |
3.98 |
Adjusted (EPRA)
earnings per share |
|
1.96 |
2.42 |
4.76 |
All items in the above Unaudited Consolidated Statement of
Comprehensive Income derive from continuing operations.
The notes are an integral part of these Unaudited Consolidated
Financial Statements.
CONSOLIDATED BALANCE SHEET AS AT
30 JUNE 2020
|
Notes |
30 Jun 20 £ |
30 Jun 19 £ |
31 Dec 19 £ |
Non-current assets
Investment properties |
3 |
442,987,223 |
493,897,366 |
477,855,299 |
Lease incentives |
3 |
5,211,158 |
3,898,149 |
5,523,822 |
Rental deposits held
on behalf of tenants |
|
1,393,927 |
966,657 |
1,298,364 |
|
|
449,592,308 |
498,762,172 |
484,677,485 |
Current assets
Investment properties held for sale |
4 |
— |
— |
10,700,000 |
Trade and other
receivables |
|
9,898,419 |
3,834,177 |
3,913,519 |
Cash and Cash
equivalents |
|
4,993,983 |
11,699,447 |
6,475,619 |
|
|
14,892,402 |
15,533,624 |
21,089,138 |
Total
Assets |
|
464,484,710 |
514,295,796 |
505,766,623 |
LIABILITIES |
|
|
|
|
Current liabilities
Trade and other payables |
|
10,894,423 |
12,249,103 |
9,232,072 |
Interest rate
swap |
8 |
1,194,281 |
595,528 |
644,465 |
|
|
12,088,704 |
12,844,631 |
9,876,537 |
Non-current liabilities
Bank borrowings |
9 |
123,421,818 |
127,203,418 |
127,316,886 |
Interest rate
swap |
8 |
2,857,948 |
1,801,693 |
1,576,151 |
Obligations under
finance leases |
|
903,831 |
1,716,391 |
904,121 |
Rent deposits due to
tenants |
|
1,393,927 |
966,657 |
1,298,364 |
|
|
128,577,524 |
131,688,159 |
131,095,522 |
Total
liabilities |
|
140,666,228 |
144,532,790 |
140,972,059 |
|
|
|
|
|
Net
assets |
|
323,818,482 |
369,763,006 |
364,794,564 |
EQUITY |
|
|
|
|
Capital and reserves attributable to Company’s equity
holders
Share capital |
|
228,383,857 |
227,431,057 |
227,431,057 |
Retained earnings |
|
4,447,819 |
6,300,815 |
6,168,350 |
Capital reserves |
|
(6,851,566) |
38,192,762 |
33,356,785 |
Other distributable
reserves |
|
97,838,372 |
97,838,372 |
97,838,372 |
Total equity |
|
323,818,482 |
369,763,006 |
364,794,564 |
NAV per
share |
|
79.6 |
91.1 |
91.0 |
EPRA NAV per share |
|
80.6 |
91.7 |
91.2 |
The notes on are an integral part of these Unaudited
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
PERIOD ENDED 30 JUNE 2020
|
Notes |
Share Capital £ |
Retained Earnings £ |
Capital Reserves £ |
Other Distributable Reserves £ |
Total equity £ |
Opening
balance 1 January 2020 |
|
227,431,057 |
6,168,350 |
33,356,785 |
97,838,372 |
364,794,564 |
Loss for the
period |
|
— |
(30,413,872) |
— |
— |
(30,413,872) |
Other comprehensive
income |
|
— |
— |
(1,831,613) |
— |
(1,831,613) |
Total comprehensive
loss for the period |
|
— |
(30,413,872) |
(1,831,613) |
— |
(32,245,485) |
Ordinary shares issued
net of issue costs |
|
952,800 |
— |
— |
— |
952,800 |
Dividends paid |
7 |
— |
(9,683,397) |
— |
— |
(9,683,397) |
Valuation loss from
investment properties |
3 |
— |
38,278,871 |
(38,278,871) |
— |
— |
Loss on disposal of
investment properties |
3 |
— |
97,867 |
(97,867) |
— |
— |
Balance at 30 June
2020 |
|
228,383,857 |
4,447,819 |
(6,851,566) |
97,838,372 |
323,818,482 |
|
Notes |
Share Capital £ |
Retained Earnings £ |
Capital Reserves £ |
Other Distributable Reserves £ |
Total equity £ |
Opening
balance 1 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
profit for the period |
|
— |
11,629,581 |
(1,593,258) |
— |
10,036,323 |
Ordinary shares issued
net of issue costs |
|
— |
— |
— |
— |
— |
Dividends paid |
7 |
— |
(9,659,597) |
— |
— |
(9,659,597) |
Valuation gain from
investment properties |
3 |
— |
(958,500) |
958,500 |
— |
— |
Profit 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 |
|
Notes |
Share Capital £ |
Retained Earnings £ |
Capital Reserves £ |
Other Distributable Reserves £ |
Total equity £ |
Opening
balance 1 January 2019 |
|
227,431,057 |
6,156,881 |
37,959,970 |
97,838,372 |
369,386,280 |
Profit for the
year |
|
— |
16,144,131 |
|
— |
16,144,131 |
Other comprehensive
income |
|
— |
— |
(1,416,653) |
— |
(1,416,653) |
Total comprehensive
profit for the period |
|
— |
16,144,131 |
(1,416,653) |
— |
14,727,478 |
Ordinary shares issued
net of issue costs |
|
— |
— |
— |
— |
— |
Dividends paid |
|
— |
(19,319,194) |
— |
— |
(19,319,194) |
Valuation loss from
investment properties |
|
— |
3,613,836 |
(3,613,836) |
— |
— |
Gain on disposal of
investment properties |
|
— |
(427,304) |
427,304 |
— |
— |
Balance at 31
December 2019 |
|
227,431,057 |
6,168,350 |
33,356,785 |
97,838,372 |
364,794,564 |
The notes on pages are an integral part of these Unaudited
Consolidated Financial Statements.
CONSOLIDATED CASH FLOW STATEMENT FOR
THE PERIOD ENDED 30 JUNE 2020
Cash flows from
operating
activities
Notes |
1 Jan
20 to
30 Jun 20 £ |
1 Jan
19 to
30 Jun 19 £ |
1 Jan
19 to
31 Dec 19 £ |
(Loss)/profit for the
period before taxation |
|
(30,413,872) |
11,629,581 |
16,144,131 |
Movement in lease
incentives |
|
(659,591) |
(784,580) |
(1,881,958) |
Movement in trade and
other receivables |
|
(6,080,465) |
(941,426) |
(400,215) |
Movement in trade and
other payables |
|
1,757,627 |
2,185,152 |
(2,216,558) |
Finance costs |
|
1,823,245 |
1,841,277 |
3,778,280 |
Finance income |
|
(3,801) |
(7,656) |
(15,856) |
Valuation surplus from
investment properties |
3 |
38,278,871 |
(958,500) |
3,613,836 |
Deficit/(surplus) on
disposal of investment properties |
3 |
97,867 |
(867,550) |
(427,304) |
Net cash inflow
from operating activities |
|
4,799,881 |
12,096,299 |
18,594,355 |
Cash flows from
investing activities |
|
|
|
|
Interest received |
|
3,801 |
7,656 |
15,856 |
Purchase of investment
properties |
|
— |
— |
(25,808,526) |
Capital expenditure on
investment properties |
3 |
(2,438,541) |
(1,076,919) |
(4,628,353) |
Net proceeds from
disposal of investment properties |
3 |
10,602,133 |
5,967,550 |
35,067,304 |
Net cash inflow
from investing activities |
|
8,167,393 |
4,898,287 |
4,646,281 |
Cash flows from financing
activities |
|
|
|
|
Net proceeds on issue
of ordinary shares |
|
952,800 |
— |
— |
RCF Bank
borrowing |
|
6,000,000 |
1,000,000 |
1,000,000 |
Repayment of RCF |
|
(10,000,000) |
(3,000,000) |
(3,000,000) |
Bank borrowing
arrangement costs |
|
— |
(150,000) |
(150,000) |
Interest paid on bank
borrowing |
|
(1,545,552) |
(1,452,231) |
(2,986,775) |
Payments on interest
rate swap |
|
(172,761) |
(298,283) |
(574,021) |
Dividends paid to the
Company's shareholders |
7 |
(9,683,397) |
(9,659,597) |
(19,319,194) |
Net cash (outflow)
from financing activities |
|
(14,448,910) |
(13,560,111) |
(25,029,989) |
Net (decrease)/increase in cash and cash equivalents |
|
(1,481,636) |
3,434,475 |
(1,789,354) |
Cash and cash
equivalents at beginning of period |
|
6,475,619 |
8,264,972 |
8,264,972 |
Cash and
cash equivalents at end of period |
|
4,993,983 |
11,699,447 |
6,475,619 |
The notes on pages are an integral part of these Unaudited
Consolidated Financial Statements.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE
2020
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 2019. 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 2019, 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
Aberdeen Standard Fund Managers Limited, as the Manager of the
Group from 10 December 2018,
(previously Standard Life Investments (Corporate Funds) Limited),
received fees for their services as investment managers.
Until 30 June 2019, under the
terms of the IMA the Investment Manager was entitled to 0.75% of
total assets up to £200 million; 0.70% of total assets between £200
million and £300 million; and 0.65% of total assets in excess of
£300 million. From 1 July 2019, under
the terms of the IMA the Investment Manager is entitled to 0.70% of
total assets up to £500 million; and 0.60% of total assets in
excess of £500 million. The total fees charged for the period ended
30 June 2020 amounted to £1,596,433
(period ended 30 June 2019:
£1,754,640). The total amount due and payable at the period end
amounted to £791,146 excluding VAT (period ended 30 June 2019: £875,388 excluding VAT).
3. INVESTMENT PROPERTIES
Country
Class |
UK
Industrial 30 Jun 20 |
UK
Office 30 Jun 20 |
UK
Retail 30 Jun 20 |
UK
Other 30 Jun 20 |
Total 30 Jun 20 |
Market value as at 1
January |
252,800,000 |
163,305,000 |
42,270,000 |
34,800,000 |
493,175,000 |
Purchase of investment
properties |
— |
— |
— |
— |
— |
Capital expenditure on
investment properties |
966,831 |
1,471,710 |
— |
— |
2,438,541 |
Opening market value
of disposed investment properties |
— |
(10,700,000) |
— |
— |
(10,700,000) |
Valuation loss from
investment properties |
(18,640,688) |
(11,393,482) |
(5,513,559) |
(2,730,403) |
(38,278,132) |
Movement in lease
incentives receivable |
373,857 |
186,772 |
118,559 |
(19,597) |
659,591 |
Market value at 30
June |
235,500,000 |
142,870,000 |
36,875,000 |
32,050,000 |
447,295,000 |
Right of use asset
recognised on leasehold properties |
— |
903,381 |
— |
— |
903,381 |
Adjustment for lease
incentives |
(2,373,841) |
(1,831,197) |
(420,005) |
(586,115) |
(5,211,158) |
Carrying value at 30
June |
233,126,159 |
141,942,184 |
36,454,995 |
31,463,885 |
442,987,223 |
The market value provided by Knight Frank LLP at the period
ended 30 June 2020 was £447,295,000
(30 June 2019: £496,830,000) however
an adjustment has been made for lease incentives of £5,211,158
(30 June 2019: £4,649,025) that are
already accounted for as an asset.
In addition there has been a reduction in the value of the right
of use asset on leasehold properties of £739 resulting in the total
valuation loss in the Consolidated Statement of Comprehensive
Income being £38,278,871.
In the unaudited consolidated cash Flow statement, surplus from
disposal of investment properties comprise:
|
1 Jan
20 to 30 Jun 20 |
1 Jan
19 to 30 Jun 19 |
1 Jan
19 to 31 Dec 19 |
Opening market value
of disposed investment properties |
10,700,000 |
5,100,000 |
34,640,000 |
Surplus on disposal of
investment properties |
(97,867) |
867,550 |
427,304 |
Net proceeds from
disposed investment properties |
10,602,133 |
5,967,550 |
35,067,304 |
4. INVESTMENT PROPERTIES HELD FOR
SALE
There were no assets held for sale as at 30 June 2020 (2019: £nil).
5. EARNINGS PER SHARE
The earnings per Ordinary share are based on the net loss for
the period of £30,413,872 (30 June
2019: profit of £11,629,581) and 406,671,111 (30 June 2019: 405,865,419)
ordinary shares, being the weighted average number of shares in
issue during the period.
Earnings for the period to 30 June
2020 should not be taken as a guide to the results for the
year to 31 December 2020.
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 the limited liability incorporated Jersey, Channel Islands.
7. DIVIDENDS AND PROPERTY INCOME
DISTRIBUTION GROSS OF INCOME TAX
|
|
30 Jun 20 |
30 Jun 19 |
31 Dec 19 |
|
|
£ |
£ |
£ |
Non property income
distributions |
|
- |
4,233,176 |
507,333 |
1.043p per ordinary share paid in
March 2019 relating to the quarter ending 31 December 2018 |
|
- |
- |
1,923,802 |
0.474p per ordinary share paid in
November 2019 relating to the quarter ending 30 September 2019 |
|
2,282,515 |
- |
- |
0.561p per ordinary share paid in
March 2020 relating to the quarter ending 31 December 2019 |
|
968,340 |
- |
- |
0.238p per ordinary share paid in
May 2020 relating to the quarter ending 31 March 2020 |
|
|
|
|
|
|
|
|
|
Property income
distributions |
|
|
|
|
0.147p per ordinary share paid in
March 2019 relating to the quarter ending 31 December 2018 |
|
- |
596,623 |
4,322,467 |
1.19p per ordinary share paid in May
2019 relating to the quarter ending 31 March 2019 |
|
- |
4,829,798 |
4,829,798 |
1.19p per ordinary share paid in
August 2019 relating to the quarter ending 30 June 2019 |
|
- |
- |
4,829,798 |
0.716p per ordinary share paid in
November 2019 relating to the quarter ending 30 September 2019 |
|
- |
- |
2,905,996 |
0.629p per ordinary share paid in
March 2020 relating to the quarter ending 31 December 2019 |
|
2,559,183 |
- |
- |
0.952p per ordinary share paid in
May 2020 relating to the quarter ending 31 March 2020 |
|
3,873,359 |
- |
- |
|
|
9,683,397 |
9,659,597 |
19,319,194 |
A property income dividend of 0.714p per share was declared on
3 August 2020 in respect of the
quarter to 30 June 2020 - a total
payment of £2,905,019. This was paid on 28
August 2020.
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
2020 |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
Investment
properties |
— |
— |
448,198,381 |
448,198,381 |
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
2020 |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
Loan facilities |
— |
127,501,843 |
— |
127,501,843 |
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 |
— |
4,052,229 |
— |
4,052,229 |
Of the figure above, £1,194,281 is included within current
liabilities and £2,857,948 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
2020.
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
2019.
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
The Company's debt facilities comprise a term loan of £110
million which has a fixed interest rate of 2.725%, a £35 million
revolving credit facility ("RCF") with interest payable at LIBOR
plus a margin of 1.45%, plus an additional £20 million of RCF with
a margin of 1.60% above LIBOR. All loans are with The Royal Bank of
Scotland International Limited ("RBSI") and mature in April 2023.
At 30 June 2020, £14 million of
RCF was drawn.
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
not exceed 55% after 27 April 2021 to
maturity.
10. EVENTS AFTER THE BALANCE SHEET
DATE
On 28 August the Company paid a property income dividend of
0.714p per share.
On 4 September, the Group acquired a new property at Halesowen,
let to B&Q, for £19.5 million (£20.7 million including costs).
In order to fund this acquisition an additional £21 million of RCF
was drawn.
All enquiries to:
For further information:-
Jason Baggaley – Real Estate Fund
Manager, Aberdeen Standard Investments
Tel: 07801039463 or
jason.baggaley@aberdeenstandard.com
Oli Lord - Real Estate Deputy
Fund Manager, Aberdeen Standard Investments
Tel: 07557938803 or oli.lord@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) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
END