4 November 2020
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE:
SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
30 September 2020
Net Asset Value and Valuations
· Net asset value (“NAV”) per ordinary share
was 78.8p (Jun 2020 – 79.6p), a
decline of 1.0%, resulting in a NAV total return, including
dividends, of -0.1% for Q3 2020;
· The portfolio valuation (before CAPEX)
reduced by 0.4% on a like for like basis, whilst the MSCI Monthly
Index dropped by 0.7% over the same period.
Investment and letting activity
· On 4 September, the Company completed the
purchase of a B&Q Retail Warehouse in Halesowen for £19.5
million, 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, providing secure income
given the strong tenant covenant and good unexpired lease term.
· 2 new lettings were completed in the quarter
securing £185,000pa, with a further letting securing £82,500 in
October.
· 6 lease regears were agreed on leases with a
rental value of £1.17m pa.
· 2 rent reviews were completed, on a food
store and an industrial unit with increases of 13% and 38%
respectively.
Financial Position and Gearing
· Strong balance sheet with significant
financial resources available of £20 million (£35 million currently
drawn from £55 million low cost, revolving credit facility).
· As at 30
September 2020, the Company had a Loan to Value (“LTV”) of
29.4%*. The debt currently has an overall blended interest rate of
2.43% per annum.
*LTV calculated as debt less cash divided by portfolio value
Rent collection
Rent collection remains challenging, given the varied levels of
restrictions which makes it difficult for tenants to accurately
understand the trading environment they are operating in. Our
Investment Manager is continuing to find that most of our tenants
seek to honour their lease contract where they can. Of those who
can’t, the majority are open to dialogue to agree a solution, from
waiving rent for some of the smallest and most impacted tenants, to
deferments, or rent free periods in return for lease extensions.
Some tenants, however, can pay but won’t, or are unwilling to
engage to find a solution. The Government restrictions on enforcing
lease covenants currently restrict us from taking action to recover
these arrears, but our Investment Manager will do so as soon as
they are permitted.
Rental Quarter |
% collected as at 29 October
2020 |
Q2 2020 |
90% |
Q3 2020 |
84% |
Q4 2020 |
70% (A further 13% is expected from
monthly payments and where tenants have said payment is being
made) |
It is worth noting that the rental collection figures continue
to improve, and with deferral agreements, and payment from tenants
who have the ability to pay but have chosen not to, we expect each
quarter to end with a collection rate of 90+%.
Dividends
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 has taken the decision to
maintain the same level of quarterly dividend as paid last quarter
equating to 0.714p per share which represents 60% of last year’s
level for the same quarter. The Board continues to believe this
rate balances the need for shareholders to continue receiving
income during this difficult period while maintaining a prudent
approach given current rent collection rates.
The Board will continue to monitor closely the evolution of
COVID-19, together with its impact on rent receipts, recurring
earnings and the requirement of the REIT rules to distribute at
least 90% of its annual property income.
Share Buybacks
The Company intends to begin a share buyback programme to
purchase shares in the Company.
The Board believes that investment in SLIPIT’s shares at the
prevailing price and discount to net asset value offers an
attractive investment opportunity for its shareholders given the
financial resources the Company has at its disposal. The Company
will also continue to focus on the existing portfolio and the
opportunities this presents through both sales, a number of which
are in the pipeline and also acquisitions and asset management.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
30 September 2020 was 78.8p. The net
asset value is calculated under International Financial Reporting
Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Knight Frank LLP at 30
September 2020 of £464.9 million and did not contain a
material uncertainty clause.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 1 July
2020 to 30 September 2020.
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets as at 30
June 2020 |
79.6 |
323.8 |
|
Unrealised decrease in
valuation of property portfolio |
-0.5 |
-1.9 |
Like for like
reduction of 0.4% in property valuations. |
CAPEX in the
quarter |
-0.5 |
-1.9 |
Predominantly CAPEX at
Hagley Road, Birmingham and purchase costs in relation to the
acquisition of B&Q at Halesowen. |
Net income in the
quarter after dividend |
0.3 |
0.9 |
Rolling 12 month
dividend cover of 97% |
Interest rate swaps
mark to market revaluation |
0.0 |
0.0 |
No change in swap
liabilities in the quarter as interest rates remained similar to
last quarter. |
Other movements in
reserves |
-0.1 |
-0.4 |
Movement in lease
incentives in the quarter |
Net assets as at 30
September 2020 |
78.8 |
320.5 |
|
European Public Real Estate
Association (“EPRA”)* |
30
Sep
2020 |
30
Jun
2020 |
EPRA Net Asset
Value |
£324.6m |
£327.9m |
EPRA Net Asset Value
per share |
79.8p |
80.6p |
The Net Asset Value per share is calculated using 406,865,419
shares of 1p each being the number in issue on 30 September 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. The Company notes the new best practice
recommendations (BPR) for financial guidelines on its definitions
of NAV measures issued by EPRA in October
2019 and will look to report these measures in its 2020
Annual Report.
Investment Manager Review and
Portfolio Activity
Q3 continued to be dominated in every aspect by COVID-19. The
relaxing of restrictions through July and August started to be
tightened again as the optimism about a quicker return to normality
has faded. As this is written, severe restrictions on large parts
of the UK are in place, probably for the remainder of this year,
and quite possibly until next spring/summer. Many leisure venues
will remain unavailable and working from home will remain the norm.
Travel overseas will be very limited. Sadly, for many people, job
security will be a major concern and unemployment will rise. This
is a difficult environment for real estate, and in this context we
are delighted to have agreed two rent reviews showing uplifts of
13% and 38% on the previous rent as well as completing two new
leases (one industrial and one office) with a further office
letting just after the quarter end. In addition, we agreed six
lease regears with tenants to provide them with a rent free period
now, in return for extending their lease commitments. The Company’s
occupancy rate as at the end of September remained strong at
92.0%.
We also completed the purchase of a B&Q retail warehouse in
Halesowen (Birmingham) for £19.5m,
reflecting a yield of 7.5%. The property trades well for B&Q
and has a further 11 years on the lease, providing the Company with
an attractive income stream.
In a situation of great uncertainty, and changing ways of life,
we need to ensure that the assets we were happy to hold at the
beginning of the year remain relevant and that we remain confident
of their ability to provide an appealing place to work or visit. In
this regard we have a particular focus on offices, as a large
degree of change is expected even when we return to more normal
times.
Overall, the portfolio underperformed the market substantially
over the first quarter of 2020 with all assets written down but has
out-performed over quarters 2 and 3 compared to the MSCI monthly
index, although not sufficiently to overcome the first quarter’s
performance. The market decline of 6.9% year to date compares to
the Company’s portfolio valuation fall of 8.4% over the first 9
months.
The LTV of 29.4% provides sufficient headroom against banking
covenants (values can fall by 43% and rent by 69% before the
covenants are under pressure based on 30 September covenants). The
Company’s interest rate swap liability remained relatively stable
in the quarter at £4.07 million (June
20: £4.05 million). This liability will unwind to £0 on
maturity in 2023.
Investment Manager Market review
· The UK economy shrank by an unprecedented
19.8% during the second quarter of 2020, although the nadir for GDP
was reached in April and the economy has grown robustly since then.
However, the re-escalation of the COVID-19 infection rate, and a
tightening of restrictions on social contact are set to depress
growth over the coming months.
· The retail and leisure sectors continue to
suffer at the hands of COVID-19. The office outlook has also
darkened, with an increasing likelihood that workers will be urged
to work from home throughout the winter. Availability rates are
rising in nearly all major markets and most sharply of all in
Central London.
· Online retailing is driving strong logistics
demand, although the supply response has been healthy enough to
slow rental growth rates. Across multi-let estates, however, there
is evidence of more financial distress among smaller occupiers.
· Early indications of investment volumes in
Q3 suggest a total of around £6 billion, after only £4.6 billion
was transacted in Q2. That second quarter total was the lowest
since the depths of the financial crisis in the first quarter of
2009.
· Strong competition for industrials is
showing signs of driving inward yield shift in September
valuations. The focus for many investors is becoming ever narrower
with little interest in discretionary retail and nervousness around
the office outlook.
Investment Manger Market outlook
· We expect market capital values to fall by
more than 12% this year, leading to a total return of -7.6%,
although this is predicated on substantial write-downs to year-end
valuations, with total returns set to be in the region of -3.5%
across the first three quarters.
· Retail, hotels and leisure assets are
expected to drag performance down at the All Property level.
Indeed, we continue to forecast record calendar year declines in
shopping centre values, with standard shops faring little
better.
· Retail warehouses are also expected to
deliver sharply negative returns but there are signs that the value
and convenience end of that market may be stabilising. While
supermarkets are still expected to be the strongest retail
performer over the forecast period – and by some distance in the
short term – the performance outlook for retail warehouses beyond
the next 12 months is healthier.
· With availability rising quickly and a
combination of cyclical and structural risks, we expect a
substantially negative year for Central
London offices in 2021. While the debate about the future of
offices rages on, survey evidence from both employers and employees
suggest home working is here to stay and at a structurally higher
level. The impact on requirements is hard to discern and in the
short term the impact of a sharp rise in unemployment and
challenges surrounding Brexit are likely to have the greatest
impact.
· With all of the uncertainty currently
prevailing, we remain firmly in a risk off environment in real
estate.
Net Asset analysis as at 30 September
2020 (unaudited)
|
£m |
% of
net assets |
Industrial |
236.1 |
73.7 |
Office |
142.3 |
44.4 |
Retail |
54.5 |
17.0 |
Other Commercial |
32.0 |
10.0 |
Total Property
Portfolio |
464.9 |
145.1 |
Adjustment for lease
incentives |
-5.6 |
-1.7 |
Fair value of
Property Portfolio |
459.3 |
143.4 |
Cash |
8.2 |
2.5 |
Other Assets |
16.4 |
5.1 |
Total
Assets |
483.9 |
151.0 |
Current
liabilities |
-14.8 |
-4.6 |
Non-current
liabilities (bank loans & swap) |
-148.6 |
-46.4 |
Total Net
Assets |
320.5 |
100.0 |
Breakdown in valuation movements over the period 1 July 2020 to 30
September 2020
|
Portfolio Value as at 30 Sep 2020 (£m) |
Exposure as at 30 Sep 2020 (%) |
Like
for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 30 Jun 20 |
|
|
|
447.3 |
|
|
|
|
|
Retail |
54.5 |
11.7 |
-5.2 |
17.6 |
South East Retail |
|
1.8 |
-2.9 |
-0.3 |
Retail Warehouses |
|
9.9 |
-5.8 |
17.9 |
|
|
|
|
|
Offices |
142.3 |
30.6 |
-0.4 |
-0.6 |
London City
Offices |
|
2.8 |
-1.5 |
-0.2 |
London West End
Offices |
|
2.9 |
0.0 |
0.0 |
South East
Offices |
|
14.2 |
-1.8 |
-1.2 |
Rest of UK
Offices |
|
10.7 |
1.6 |
0.8 |
|
|
|
|
|
Industrial |
236.1 |
50.8 |
0.2 |
0.5 |
South East
Industrial |
|
13.2 |
-0.1 |
-0.1 |
Rest of UK
Industrial |
|
37.6 |
0.4 |
0.6 |
Other
Commercial |
32.0 |
6.9 |
0.2 |
0.1 |
External valuation
at 30 Sep 20 |
464.9 |
100.0 |
-0.4 |
464.9 |
Top 10 Properties
|
30
Sep 20 (£m) |
Hagley Road,
Birmingham |
20-25 |
B&Q,
Halesowen |
15-20 |
Symphony,
Rotherham |
15-20 |
The Pinnacle,
Reading |
10-15 |
Marsh Way,
Rainham |
10-15 |
Timbmet,
Shellingford |
10-15 |
Hollywood Green,
London |
10-15 |
New Palace Place,
London |
10-15 |
Basinghall Street,
London |
10-15 |
Atos Data Centre,
Birmingham |
10-15 |
Top 10 tenants
Name |
Passing Rent £ |
% of
passing rent |
B&Q Plc |
1,560,000 |
5.5% |
BAE Systems plc |
1,257,640 |
4.4% |
The Symphony Group
Plc |
1,225,000 |
4.3% |
Sec.State for CLG of
Tribunal Services |
1,158,858 |
4.1% |
Schlumberger Oilfield
UK plc |
1,138,402 |
4.0% |
Timbmet Group
Limited |
799,683 |
2.8% |
Atos IT Services UK
Ltd |
779,970 |
2.7% |
CEVA Logistics
Limited |
671,958 |
2.3% |
Timeline Wholesale
services (UK) Ltd |
635,554 |
2.2% |
G W Atkins & Sons
Ltd |
625,000 |
2.2% |
Total |
9,852,065 |
34.5% |
Regional Split
South East |
32.1% |
West Midlands |
18.7% |
East Midlands |
12.2% |
North West |
11.0% |
Scotland |
9.2% |
North East |
7.1% |
South West |
4.0% |
London West End |
2.9% |
City of London |
2.8% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
September 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:-
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) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001