4 August 2021
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE:
SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
30 June 2021
Net Asset Value and Valuations
· Net asset value (“NAV”) per ordinary share
was 88.3p (Dec 2020 – 85.3p), an
increase of 3.5% for Q2 2021, resulting in a NAV total return,
including dividends, of 5.1% for the quarter;
· The portfolio valuation (before CAPEX)
increased by 3.3% on a like for like basis, whilst the MSCI Monthly
Index increased by 2.6% over the same period.
Investment and letting activity
· Further restructuring to ensure the
portfolio is fit for purpose in a post COVID-19 world with the
completion of two sales – an office in Farnborough for £9.5m and an
industrial unit in Kettering for
£9.25m
· Two lettings and a lease renewal completed
securing £184,575 per annum in rent.
· A rent review completed on the Company’s
data centre asset, resulting in a 10.3% increase in rent.
Financial Position and Gearing
· Strong balance sheet with significant
financial resources available for investment of £80 million in the
form of the Company’s low cost, revolving credit facility of £55
million plus uncommitted cash after dividend and other financial
commitments of £25 million.
· As at 30 June
2021, the Company had a Loan to Value (“LTV”) of 17.6%*. The
debt currently has an overall blended interest rate of 2.725% per
annum.
*LTV calculated as debt less cash divided by portfolio value
Dividend
· Dividend for Q2, 2021 maintained at 0.8925p,
matching the level of the dividend for Q1, 2021 which was increased
by 25%.
Rent collection
It appears that Q1 2021 was the low point for rent collection,
with an increase through Q2 and into Q3. The Company has served a
court notice on the tenant with the greatest level of arrears as it
declined offers for a rent free and regear of the lease but the
manager believes it is quite capable of paying the rent. Several of
the other tenants with arrears have agreed payment plans, and we
expect continued progress with collecting arrears given that nearly
all tenants can now trade again. The Company continues to make
prudent provisions for bad debts (£3,861,898 as at 30 June v
£3,268,084 as at 31 March).
The amount of rent collected in respect of 2020 continues to
edge up, now standing at 95.2% of rent due. The table below shows
how that was spread out over the course of 2020, and into 2021.
Year |
Quarter |
%
Received |
2020 |
1 |
99% |
|
2 |
93% |
|
3 |
94% |
|
4 |
94% |
2020 FY |
|
95% |
2021 |
1 |
90% |
|
2 |
92% |
|
3 |
94% |
The collection rate for Q2 2021 across sectors is shown
below:
|
|
|
|
|
|
% Received |
|
Retail |
86% |
|
Industrial |
99% |
|
Office |
88% |
|
Other |
73% |
|
|
92% |
|
|
|
|
|
|
|
Dividends
The Board recognises the importance of dividends to the
Company’s shareholders especially when the COVID-19 crisis has
forced many companies, across multiple sectors of the economy, to
cancel or suspend their dividends.
Following the 25% increase to the Q1 2021 dividend, the Board
continues to consider this rate to be sustainable given current
rent collection rates even though recent asset sales will reduce
rental income until reinvestment occurs. The Board will keep the
quarterly dividend under review as lockdown measures are eased and
rental collection levels improve further and the reinvestment of
the asset sales proceeds takes place.
Share Buybacks
The Company bought back a further £1m shares in the quarter
resulting in total buybacks since November
2020 of £6m. These buybacks have been at significant
discounts to NAV which has enhanced both NAV and earnings per
share.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
30 June 2021 was 88.3p. The net asset
value is calculated under International Financial Reporting
Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Knight Frank LLP at 30 June
2021 of £433.8 million.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 31
March 2021 to 30 June
2021.
|
Per Share
(p) |
Attributable Assets
(£m) |
Comment |
Net assets as at 31
March 2021 |
85.3 |
339.9 |
|
Unrealised increase in
valuation of property portfolio |
3.4 |
13.9 |
Like for like increase
of 3.3% in property valuations. |
Loss on sales |
-0.1 |
-0.6 |
Combined loss on sale
relating to Chester House, Farnborough & Shield,
Kettering. |
CAPEX in the
quarter |
0.1 |
-0.4 |
Limited CAPEX in
quarter |
Net income in the
quarter after dividend |
-0.1 |
-0.2 |
92.5% dividend cover,
excluding the impact of the top-up dividend. Rolling 12 month
dividend cover of 119% based on all dividends paid in last 12
months |
Fifth interim top-up
dividend pertaining to 2020 |
-0.4 |
-1.5 |
|
Interest rate swaps
mark to market revaluation |
0.1 |
0.4 |
Decrease in swap
liabilities in the quarter as interest rate expectations rose. |
Other movements in
reserves |
-0.1 |
-0.2 |
Movement in lease
incentives in the quarter |
Share buybacks |
0.1 |
-1.0 |
Investment in own
shares at discounts to NAV |
Net assets as at 30
June 2021 |
88.3 |
350.3 |
|
European Public Real Estate
Association (“EPRA”) |
30 Jun 2021 |
31 Mar 2021 |
EPRA Net Tangible
Assets |
£352.7m |
£342.8m |
EPRA Net Tangible
Assets per share |
88.9p |
86.0p |
The Net Asset Value per share is calculated using 396,922,386
shares of 1p each being the number in issue on 30 June 2021.
Investment Manager Review and
Portfolio Activity
One year ago I hoped not to be writing about the impact of
Covid-19 restrictions for Q2 2021, but had no idea what the route
to normality would look like. As I write this, restrictions have
been eased and the third wave appears to be in decline – suggesting
that the vaccine has largely done its job. The delays in getting to
this position have had an impact over the quarter, especially in
the office market. Although we completed two office lettings, and
have another five with terms agreed, we noticed a stalling in
inspections over the second part of the quarter as the return to
office was delayed yet again.
We continued the portfolio repositioning over the quarter with
two sales – an out of town office in Farnborough let to BAE that
was over rented with a short lease and an industrial unit in
Kettering that did not meet our
ESG requirements and where we believed future value would be
impacted as a result. As a result of sales undertaken to reposition
the portfolio for a post-Covid world, cash is at a higher level
than normal. We are looking to invest back into the market, and
have three transactions under offer about which we hope to be able
to provide more information shortly.
ESG factors are integral to the Company’s decision making and
strategy. We are engaging with tenants on installing more PV units
on roofs, installing EV charge points, and upgrading units where
required to support strong ESG credentials. We recently contacted
every tenant to understand their energy consumption, waste
policies, etc. It is still disappointing how many refuse to share
such data but more have than in previous years and that is helping
us build a more accurate understanding of the carbon footprint of
the Company, so that we can move to a net zero route path. As part
of that, the Company is exploring ways to offset residual carbon
from operating its portfolio in such a way that guarantees not only
a gold standard of offset, but also gives a fixed price solution.
This will mainly comprise reforestation and peatland restoration,
and the Company looks forward to sharing more details as soon as it
can. It is very clear to us that ESG will be a major driver of
performance in the future.
One of the impacts of selling let assets is that the reported
void percentage increases, from 10.8% to 12.2%, without any change
to the absolute level as no new significant vacancies occurred in
the quarter. Reinvesting into let assets will help to address this
and we also are encouraged by the level of letting activity
underway, across retail, office and industrial assets, but a
function of current uncertainty is that lettings seem to take
longer to complete. Perhaps a reflection of the re-opening of the
economy, we have had two tenants engage in the last month on a
lease renewal who had previously not been prepared to discuss it
and one where a key driver to agree an early lease extension was to
enable investment into the unit to improve its ESG credentials.
Graeme McDonald, who has been the
fund controller for SLIPIT for several years is leaving Aberdeen
Standard Investments at the end of July, and will be replaced by
Gregg Carswell, a very experienced
accountant who has worked alongside Graeme for three months
to ensure an efficient handover.
The Company’s LTV of 17.5% is below the sector average, and will
increase as cash is deployed and debt drawn down. The target level
is 20 – 30% by year end. The Company’s interest rate swap liability
fell in the quarter to £2.4 million (March 21: £2.9 million).
This liability will unwind to £nil on maturity in April 2023.
Investment Manager Market review
Economic Outlook
· The UK economy has bounced back strongly
during Q2 and is set to achieve growth of around 7% in 2021 as a
whole. However, after a fall of nearly 10% in 2020, the level of
economic activity is expected to remain below pre-Covid levels
until at least next year. Given the implied output gap,
unemployment is expected to rise towards 6% when the furlough
scheme ends in September, despite labour shortages in some specific
sectors of the economy.
· The recovery has seen inflation start to
increase; the pandemic severely affected the supply side, which is
being rebuilt alongside surging demand. But base effects are the
principal drivers of UK inflation and the ASI Research Institute
(ASIRI) believes the surge will prove transitory. Importantly, the
Bank of England is expected to
‘look through’ higher short-term inflation in setting interest
rates.
· While it has largely been overshadowed by
Covid, Brexit continues to cause friction and uncertainty. The EU
granting financial services equivalence looks increasingly unlikely
and the bitter dispute over the Northern Ireland Protocol has no
obvious solution, increasing the risk that tit-for-tat retaliatory
measures across the whole spectrum of UK-EU trade will weigh on the
UK economy.
Occupier Trends
· The tapering of business rates relief will
put further pressure on those sectors that continue to be impacted
by Covid restrictions (hotels, leisure, and travel in particular)
later in the year, although vulnerable occupiers will benefit from
the government’s controversial decision to extend the moratorium on
tenant evictions until March 2022.
The re-basing of retail and leisure rents is ongoing but the
process has much further to run in fashion-oriented shopping
locations.
· The removal of the guidance to work from
home where possible should spur greater re-occupation of offices
into Q3. But remote and hybrid working policies will outlive the
pandemic and most occupiers are acting cautiously and in
consultation with their workforces in respect of future
requirements. Availability rates have risen in all major office
markets but most steeply in London
with smaller, more secondary buildings hardest hit. Vacancy may be
plateauing but at a high level that is consistent with falling
rents, especially in secondary stock that is out of favour with
tenants.
· Take-up in the industrial sector shows
little sign of slowing, driven as by ongoing structural changes to
the distribution of goods. The larger logistics size brackets have
been especially active. There is, however, a sense that
affordability is increasingly an issue for smaller and lower margin
businesses.
Investment Trends
· Travel restrictions continue to hamper
liquidity to some degree, however, with a particular impact on the
office sector. In terms of deal numbers, Q2 saw the second-lowest
number of office deals in a quarter since the global financial
crisis. The “beds, meds and sheds” sectors are likely to continue
to drive investment volumes as we move into Q3.
· One of our core themes at present is the
favourable risk-adjusted returns from assets offering long, secure
income streams with indexation. Longer income assets are currently
outperforming shorter income assets by a very wide margin in
absolute terms and ongoing strong demand for those cash flows is
expected to drive continued outperformance this year.
· More defensively, the expected divergence in
fortunes across the office sector necessitates a forensic
examination of office portfolios. Offices that are not flexible,
don’t offer the amenity and connectivity tenants demand, aren’t
technologically-enabled and fall down on sustainability measures
face a hugely challenging future that is not, in our view,
reflected in current values.
Investment outlook
· While the economy is now in recovery mode as
Covid-related restrictions are relaxed, for much of the UK real
estate market it is structural trends that are set to drive
performance over the medium term. With the fundamentals supportive
of further rental growth, investment demand for industrials is set
to push yields lower in the second half of the year; industrials
are forecast to remain the best-performing sector over the next
three years.
· Meanwhile, office fundamentals point
to falling rental values and rising income risk. With little
adjustment to values thus far, we are forecasting weak returns for
the sector over the course of the next three years. Importantly,
though, the market is likely to be bifurcated, with the best
quality space favoured by tenants and more resilient for investors
and secondary space increasingly distressed.
· Bifurcation is also expected in the retail
sector, with retail warehouse values now rising rapidly for modern
parks, let off affordable rents, anchored by grocery, discount
variety and DIY occupiers. Fashion-oriented parks are more
vulnerable, in line with the challenges faced by high streets and
shopping centres, where we anticipate a further year of negative
total returns.
· Assets offering long, secure income
streams with indexation are expected to deliver favourable
risk-adjusted returns. Longer income assets are currently
outperforming shorter income assets by a very wide margin in
absolute terms and ongoing strong demand for those cash flows is
expected to drive continued outperformance this year.
Net Asset analysis as at 30 June 2021 (unaudited)
|
£m |
% of
net assets |
Industrial |
221.9 |
63.3 |
Office |
127.7 |
36.4 |
Retail |
50.5 |
14.4 |
Other Commercial |
33.7 |
9.7 |
Total Property
Portfolio |
433.8 |
123.8 |
Adjustment for lease
incentives |
-7.3 |
-2.1 |
Fair value of
Property Portfolio |
426.5 |
121.7 |
Cash |
33.8 |
9.6 |
Other Assets |
15.3 |
4.4 |
Total
Assets |
475.6 |
135.7 |
Current
liabilities |
-13.2 |
-3.7 |
Non-current
liabilities (bank loans & swap) |
-112.1 |
-32.0 |
Total Net
Assets |
350.3 |
100.0 |
Breakdown in valuation movements over
the period 1 April 2021 to
30 June 2021
|
Portfolio Value as at 30 Jun 2021 (£m) |
Exposure as at 30 Jun 2021 (%) |
Like for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Mar 21 |
|
|
|
438.6 |
|
|
|
|
|
Retail |
50.5 |
11.7 |
2.4 |
1.2 |
South East Retail |
|
1.9 |
0.0 |
0.0 |
Retail Warehouses |
|
9.8 |
2.9 |
1.2 |
|
|
|
|
|
Offices |
127.7 |
29.4 |
0.9 |
-8.4 |
London City
Offices |
|
3.0 |
-0.8 |
-0.1 |
London West End
Offices |
|
3.1 |
0.0 |
0.0 |
South East
Offices |
|
12.0 |
1.0 |
-9.0 |
Rest of UK
Offices |
|
11.3 |
1.4 |
0.7 |
|
|
|
|
|
Industrial |
221.9 |
51.1 |
5.2 |
1.8 |
South East
Industrial |
|
12.0 |
5.1 |
2.6 |
Rest of UK
Industrial |
|
39.1 |
5.3 |
-0.8 |
|
|
|
|
|
Other
Commercial |
33.7 |
7.8 |
1.8 |
0.6 |
|
|
|
|
|
External valuation
at 30 Jun 21 |
433.8 |
100.0 |
3.3 |
433.8 |
Top 10 Properties
|
30
Jun 21 (£m) |
Hagley Road,
Birmingham |
25-30 |
B&Q,
Halesowen |
20-25 |
Symphony,
Rotherham |
20-25 |
Marsh Way,
Rainham |
15-20 |
Timbmet,
Shellingford |
15-20 |
The Pinnacle,
Reading |
10-15 |
Hollywood Green,
London |
10-15 |
Atos Data Centre,
Birmingham |
10-15 |
Badentoy,
Aberdeen |
10-15 |
New Palace Place,
London |
10-15 |
Top 10 tenants
Tenant
Name |
Passing
Rent |
% of total Passing
Rent |
B&Q Plc |
1,560,000 |
6.3% |
The Symphony Group
Plc |
1,225,000 |
5.0% |
Schlumberger Oilfield
UK plc |
1,138,402 |
4.6% |
Jenkins Shipping Co
Ltd |
843,390 |
3.4% |
Timbmet Group
Limited |
799,683 |
3.2% |
Atos IT Services UK
Ltd |
780,727 |
3.2% |
Public sector |
732,210 |
3.0% |
CEVA Logistics
Limited |
692,117 |
2.8% |
Time Wholesale
Services (UK) Ltd |
656,056 |
2.7% |
ThyssenKrupp Materials
(UK) Ltd |
643,565 |
2.6% |
|
9,071,150 |
36.8% |
Regional Split
South East |
29.2% |
West Midlands |
19.9% |
East Midlands |
12.2% |
Scotland |
10.7% |
North West |
10.3% |
North East |
7.0% |
South West |
4.6% |
London West End |
3.1% |
City of London |
3.0% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
June 2021 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
Mark Blyth – Real Estate Deputy
Fund Manager, Aberdeen Standard Investments
Tel: 07703695490 or mark.blyth@aberdeenstandard.com
Gregg Carswell - Senior Fund
Control Manager, Aberdeen Standard Investments
Tel: 07800898212 or gregg.carswell@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