28 April
2022
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED
LEI: 549300HHFBWZRKC7RW84
RESULTS IN RESPECT OF THE YEAR ENDED
31 DECEMBER 2021
STRATEGIC REPORT
2021 FINANCIAL REVIEW
- Financial resources of £50 million as at 31 December 2021 (2020: £55 million) available
for investment to enhance earnings in the form of the Company’s low
cost revolving credit facility.
- Low Loan-to-value of 19.2% (2020: 23.0%) at the year end with
scope to increase gearing through available revolving credit
facilities.
- Dividends paid of 3.7725p in the year (2020: 3.8080p) with a
further increase announced for Q4 2021 to an annualised rate of
4.0p per share. Dividends paid in 2021 equated to a yield of 4.6%
based on the share price at 31 December
2021, compared to the FTSE Index yield of 3.1% and the FTSE
All-Share REIT Index yield of 2.6%.
- Dividend Yield* 4.6 percent.
- Dividend yield* – FTSE All-Share Index 3.1 percent.
- Dividend yield* – FTSE All-Share REIT Index 2.6 percent.
- NAV total return of 28.6% (2020: –4.6%) as valuations
recovered. NAV has outperformed the AIC peer group over the longer
term delivering a total return of 188.9% compared to AIC peer group
total return of 54.6% over 10 years.
- Share price total return of 43.4% (2020: –29.8%) as sentiment
improved towards the UK commercial real estate sector. The share
price has delivered strong returns over the longer term with a
share price total return over 10 years of 184.8% compared to the
AIC peer group of 40.9%.
- Share buybacks totalling £6m in 2020 and 2021 at significant
discounts to NAV which are accretive to both NAV performance and
earnings.
* Yields based on stats at 31 December
2021 (based on share price at 31
December 2021 of 81.5p).
2021 PORTFOLIO REVIEW
- Portfolio total return of 22.6% (2020: –1.8%) well ahead of the
MSCI benchmark return of 18.6% and the Company has outperformed its
benchmark over all time periods.
- Rent collection for 2021 of 96% of rent due (2020: 93.6%) as
rent collection rates began to normalise towards the end of
2021.
- Occupancy rate of 90.3% (2020: 91.7%) compared to the MSCI rate
of 90.0% (2020: 90.8%).
- A total of 10 lease renewals and restructurings were
undertaken, securing £2,323,217 pa in rent, and a total of 9
lettings securing £1,494,451 pa.
- 5 rent reviews were settled with uplifts in rent, securing an
additional £106,379 (an average increase of 7.4% on previous
rent).
- The Company has 6 operational PV schemes totalling 1.2 MWp and
is actively engaged in 14 additional schemes that would add a
further 4.6 MWp.
- Portfolio is well positioned towards sectors forecast to
outperform by our Investment Manager with a 54.7% (2020: 48.2%)
weighting in Industrials (MSCI benchmark: 40.1%, 2020: 35.1%) and a
11.3% weighting in Retail (2020: 11.7%) (MSCI benchmark: 20.5%,
2020: 22.8%) with 9.6% positioned in Retail Warehousing (MSCI
benchmark: 11.7%), a sector that is expected to outperform the
benchmark.
PERFORMANCE SUMMARY
Earnings, Dividends
& Costs |
|
|
31
December
2021 |
31
December
2020 |
IFRS earnings per
share |
|
|
21.54 |
(3.88) |
EPRA earnings per
share (p) (excluding capital items & swap movements)* |
|
|
3.69 |
4.10 |
Dividends paid per
ordinary share (p) |
|
|
3.7725 |
3.8080 |
Dividend cover
(%) |
|
|
98 |
108 |
Dividend yield
(%)** |
|
|
4.6 |
6.3 |
FTSE All-Share Real
Estate Investment Trusts Index Yield (%) |
|
|
2.6 |
3.1 |
FTSE All-Share Index
Yield (%) |
|
|
3.1 |
3.4 |
Ongoing
Charges*** |
|
|
|
|
As a % of average net
assets including direct property costs |
|
|
2.2 |
2.0 |
As a % of average net
assets excluding direct property costs |
|
|
1.2 |
1.2 |
|
|
|
|
|
Capital Values & Gearing |
|
31
December
2021 |
31
December
2020 |
Change
% |
Total assets
(£million) |
|
526.6 |
459.6 |
14.6 |
Net asset value per
share (p) (note 22) |
|
101.0 |
82.0 |
23.2 |
Ordinary Share Price
(p) |
|
81.5 |
60.0 |
35.8 |
(Discount)/Premium to
NAV (%) |
|
(19.3) |
(26.8) |
|
Loan-to-value
(%)† |
|
19.2 |
23.0 |
|
|
|
|
|
|
Total Return |
1 year % return |
3 year % return |
5 year % return |
10 year % return |
NAV‡ |
28.6 |
27.7 |
60.1 |
188.9 |
AIC Property Direct –
UK Commercial (weighted average) NAV Total Return |
17.0 |
20.3 |
23.4 |
54.6 |
Share Price‡ |
43.4 |
18.8 |
23.9 |
184.8 |
AIC Property Direct –
UK Commercial (weighted average) Share Price Total Return |
26.5 |
20.7 |
9.8 |
40.9 |
FTSE All-Share Real
Estate Investment Trusts Index |
29.4 |
41.8 |
39.3 |
177.1 |
FTSE All-Share
Index |
18.3 |
27.2 |
30.2 |
110.7 |
|
|
|
|
|
Portfolio Returns & Statistics (%) |
|
|
31 December
2021 |
31 December
2020 |
Portfolio income
return |
|
|
4.7 |
4.9 |
MSCI Benchmark income
return |
|
|
4.4 |
4.7 |
Portfolio total
return |
|
|
22.6 |
(1.8) |
MSCI Benchmark total
return |
|
|
18.6 |
(1.6) |
Void rate |
|
|
9.7 |
8.3 |
*
Calculated as profit for the period before tax (excluding capital
items & swaps costs) divided by weighted average number of
shares in issue in the period. EPRA stands for
European Public Real Estate Association.
**
Based on dividend paid of 3.7725p and the share price at
31 December 2021 of 81.5p.
***
Calculated as investment manager fees, auditor’s fees, directors’
fees and other administrative expenses divided by the average NAV
for the year.
†
Calculated as bank borrowings less all cash as a percentage of the
open market value of the property portfolio as at the end of each
year.
‡
Assumes re-investment of dividends excluding transaction costs.
Sources: abrdn, MSCI.
CHAIRMAN’S STATEMENT
BACKGROUND
The COVID-19 pandemic continued to affect all of our lives in 2021.
The summer relaxation of restrictions was relatively short lived as
new variants caused renewed Government intervention. The extent of
the vaccine roll-out, however, meant that the impact on the
economy, and by extension the real estate market, was very
different from 2020. In April 2022 it
appears we are learning how to live with the virus whilst
maintaining more normality in our day-to-day lives. At this time,
we are also seeing the distressing consequences of the war in
Ukraine. The human devastation is
clear and, economically, further increases in global inflation, and
supply chain issues are inevitable.
REAL ESTATE MARKET
The pandemic has had a significant impact on the UK real estate
market, but the Company’s portfolio has been well positioned to
benefit from some of the structural changes. In particular, the
industrial sector has benefited from the surge in online retail,
accelerating a trend that had begun already. With many people
likely to continue to work from home at least partially, this trend
is likely to continue, as the thorny problem of the last mile
delivery is solved by having someone to answer the door. We expect
the outperformance of industrial properties to continue, given
continued occupational demand, and a restricted supply
response.
The boom in online retail has, of course, been at the expense of
physical retail. In particular, high street and shopping centre
investments have suffered, and we do not yet think they will
recover in the short term. Retail warehouse investments, however,
have already seen a pick-up in demand and values, and this should
continue throughout 2022.
Demand for offices remains an area of great debate as many
people became used to working from home. It will take several years
to fully play out, but hybrid working appears to be here to stay,
and many employers are looking to upgrade their offices to attract
and encourage skilled employees to come into the office. The Board
and Investment Manager have reviewed the Company’s office holdings
to focus on assets that will continue to meet occupier needs. Four
office disposals were made during the year to realign the
portfolio.
Environmental, Social and Governance (ESG) issues have continued
to increase in importance and focus. SLIPIT has actively embraced
this, through activities at asset level, investment decisions, and
the purchase of land for reforestation. The Board has created a
Sustainability Committee that sits alongside the Audit and Property
Valuation Committees to give greater focus to the Company’s
activities and responsibilities in this space.
Inflation has started to rear its ugly head again, something we
have not had to contend with for many years now. Real estate can
offer a partial hedge against inflation as a real asset, with some
leases having rents linked to CPI or RPI. Owning good quality
assets with prospects for rental growth is, in my opinion, one of
the best defences against inflation.
PORTFOLIO AND CORPORATE PERFORMANCE
The Company provided shareholders with a share price total return
of 43.4% over the 12 months of 2021, which was ahead of the NAV
total return of 28.6% for the same period as the share price
discount to NAV reduced. The real estate investment portfolio
returned 22.6%, which compared favourably to the MSCI benchmark
return of 18.6%. The Company’s portfolio has outperformed the MSCI
quarterly version of the monthly index benchmark over 1, 3, 5 and
10 years.
Although the discount to NAV reduced during the year, the
Company’s shares traded on a discount for the whole period. The
Board pursued its share buyback programme into early 2021 and
bought a total of 7.4m shares at an
average discount of 25.2%. The Board continues to monitor, as a
priority, the discount of the share price against NAV.
IFRS earnings have increased significantly, to 21.54p per share
from -3.88p for 2020. This reflects the significant recovery in
valuations during the year. EPRA earnings have, however, fallen
from 4.10p to 3.69p per share largely reflecting the impact of
disposals in 2020 on rental income. The Company is seeking to
reinvest in assets with a better outlook in order to grow the
earnings per share again.
RENT COLLECTION
The Board and its Investment Manager have been conscious of their
ESG obligations to act as a responsible landlord throughout the
pandemic. We have worked closely with tenants who have suffered
acute financial pressures and negotiated with them on rental
assistance where appropriate, whilst balancing the Company’s and
shareholder’s interests. Wherever possible, revised terms exchanged
short-term assistance for longer lease commitments, to enhance
returns.
As we closed 2021, rent collection rates were beginning to
normalise, reflecting the constructive relationships developed with
our tenants during this time. This has allowed us to announce a
further increase in our dividend, paid in February 2022.
DIVIDENDS
The Board is aware that many of the Company’s shareholders have
invested in SLIPIT because of the attractive level of income
generated. The Board aims to invest in good quality assets that
have the potential to provide an above market level of total return
as well as an attractive level of income that has scope to grow.
The Board paid out a top-up dividend in respect of the 2020
financial year and, as rent collections recovered in 2021,
increased the dividend twice in 2021. In the first quarter the
dividend was increased by 25%, and by a further 12% in the fourth
quarter to an annualised rate of 4p per share.
The Company previously announced a dividend cover figure of 102%
for 2021, however, following an adjustment for lease incentives,
the figure has been finalised as 98%.
The new dividend level is still below pre-pandemic levels, and
further growth is likely to be dependent on reinvesting capital
from the sales undertaken over the last 18 months. New purchases,
however, are likely to be in lower-yielding assets as the Company
positions itself for the next real estate cycle, where high quality
assets with strong ESG credentials will provide greater income
security prospects for rental and capital growth.
FINANCIAL RESOURCES & PORTFOLIO ACTIVITY
The Company continues to be in a strong financial position with
significant unutilised financial resources of approximately £50m
available for investment in the form of its low cost, revolving
credit facility net of existing cash and financial commitments.
The low Loan-to-value (“LTV”) ratio of 19.2% at the year end,
means the Company is well placed to deploy capital into accretive
assets which fit the portfolio strategy. Discussions have begun to
renew this facility and the term loan, both of which are due to
expire in 2023.
ANNUAL GENERAL MEETING (“AGM”)
In a return to the familiar arrangements prior to the disruption
caused by COVID-19, the Annual General Meeting (“AGM”) will be held
at 10.30am on Wednesday 15 June 2022 in the Manager’s offices at Bow
Bells House, 1 Bread Street, London EC4M 9HH.The Board looks forward to
welcoming shareholders in person where they will have the
opportunity to put questions to the Board and/or the Manager.
Shareholders are also invited to submit questions to
property.income@abrdn.com.
The Board has decided to hold an interactive Online Shareholder
Presentation at 2.00pm on Tuesday
14 June 2022. As part of the
presentation, shareholders will receive updates from the Chairman
and Manager as well as the opportunity to participate in an
interactive question and answer session. Further information on how
to register for the event can be found on
www.workcast.com/register?cpak=4656942387252659
THE BOARD
Huw Evans will be standing down at
the forthcoming AGM, having spent nine years on the Board. Huw has
provided valuable advice and knowledge to the Board and Investment
Manager, as well as to me personally as I stepped up to the role of
Chairman in 2020. I am pleased his role as Senior Independent
Director will be taken on by Jill
May. I am also pleased that Mike
Bane has joined the Board to replace Huw. Mike has had a
distinguished career as both auditor and advisor to financial
services and real estate businesses and brings much knowledge to
the role. I would like to thank all the Board for their
contribution this last year: we have had more meetings than normal
as a result of the challenges of COVID-19, but were able to hold
two of the main Board meetings in person.
INVESTMENT POLICY
The Board is proposing to amend its existing Investment Policy by
extending the main commercial property sectors within which the
Company can hold the majority of its portfolio. The proposed
amendments, to be voted on at the AGM, relate to the ‘other’
sector, including leisure, data centres, student house, hotels,
(and apart-hotels) and healthcare. The amendment would allow the
Company to adapt to some of the key changes in the UK commercial
property industry.
COMPANY NAME
The Investment Manager has changed its name to abrdn, and has sold
the rights to use the name Standard Life. The Board has considered
a number of options and is recommending to shareholders a change of
name to abrdn Property Income Trust Limited. By aligning its name
with the Investment Manager, the Company should be able to benefit
from brand awareness and the marketing spend of the abrdn
Group.
OUTLOOK
Over the last five years all companies have faced a number of
challenges, including political uncertainty, Brexit, a global
pandemic and now inflation. Your Company has weathered these
storms, and I believe is well positioned to face the future. The
Board and Investment Manager will continue to manage the portfolio
actively so that it is structured to benefit from change. We will
continue to put ESG at the forefront of our decision making, as we
believe it to be intrinsically linked to maximising returns in the
future, and therefore providing the best opportunity to grow value,
rents and, in turn, dividends.
27 April 2022
James Clifton-Brown
Chairman
INVESTMENT MANAGER’S REVIEW
MARKET REVIEW
2021 was once again a year characterised by the COVID-19 pandemic,
and the key theme for the year was recovery. As the year progressed
and the vaccine roll out continued apace, positive economic
momentum returned, but was quickly dented by the emergence of the
Delta variant, followed by Omicron towards the end of the year.
However, the economy recovered once more and, by November 2021, UK GDP was above the level seen
pre-pandemic. Overall, the UK economy grew by 7.5% over the course
of the year.
The UK real estate market also recovered in 2021, with a total
return of 16.5% according to the MSCI Quarterly Index, a level of
performance not seen since 2014. Transaction volumes reached £73.9
billion over the course of the year, which was ahead of 2019 (prior
to the outbreak of the pandemic). Indeed, the fourth quarter of
2021 was the strongest quarter since the same period in 2019.
However, this recovery was highly polarised and the spread between
the best and worst performing sectors was the highest on
record.
As measured by the MSCI quarterly index, the industrial and
logistics sector again produced the best performance, achieving a
total return of 36.4%, whereas shopping centres achieved a total
return of -5.2% and was the worst performing sector over the course
of 2021. The office sector again underperformed against the Index
with a total return of 5.3%.
Retail continues to be the sector most negatively affected, as
restrictions and changing consumer habits accelerated the pace of
structural change already present prior to the pandemic. However,
whilst high street and discretionary based retailers have
struggled, retail warehouse assets showed a significant recovery in
the latter half of the year. Polarisation within sectors is evident
elsewhere, including within the office sector. As occupiers and
investors have become more mindful of ESG considerations, their
focus has increasingly narrowed to best-in-class assets and, as a
result, we have seen demand for secondary accommodation weaken.
Following a poor year in 2020, the FTSE UK REIT index returned
to positive territory and recorded a strong total return of 28.9%
in 2021. This outperformed the FTSE UK All-Share Index, which
recorded a total return of 18.3%. Following a significant sell off
in September 2021, UK REITs broadly
recovered and finished the year at, or close to, all-time highs.
The hierarchy of favoured sectors remained broadly the same as in
recent years, with the industrial and logistics sector leading the
way. However, overall sentiment was positive for all sectors
towards the end of the year, with the exception of secondary
offices with which there are broad structural concerns. New capital
raising has been predominantly tilted towards the industrial sector
and, increasingly, the alternatives sector.
OFFICES
The office sector delivered a total return of 5.3% to December 2021 according to the MSCI Quarterly
Index, an improvement on the -1.7% recorded in 2020. However,
office capital values were relatively stagnant over the course of
2021, with growth of just 1.3%. The worst performing sector
geographically was the North East where capital values fell by
-3.6%. Once again, the performance of the office market was
significantly impacted by the COVID-19 pandemic. As restrictions
eased over the course of 2021, occupiers began returning to
workplaces. However, the outbreak of the Omicron variant and the
subsequent reintroduction of working from home guidance further
emphasised the pressure the sector faces. The rise of hybrid
working has led occupiers to re-evaluate their office accommodation
requirements and, whilst vacancy rates began to show signs of
stabilisation, levels of occupation remain far below pre-pandemic
levels.
In Central London by the end of
2021, availability remained 71% higher than the ten-year average.
However, take-up did recover somewhat, and 9.1m sq ft of accommodation was let during the
year. This was 63% above the total for 2020, but down 25% on the
long-term average. Polarisation within the sector, however, is
becoming ever more apparent as occupier focus pulls towards
best-in-class assets with strong ESG and wellbeing credentials.
Second-hand availability in central London has almost doubled from pre-pandemic
levels and in Q4 2021 accounted for 74% of total office supply.
Occupier demand is therefore focused on a relatively small
section of the market. As a result, we expect this trend to drive
an increasing wedge between rental growth for the best and the rest
across the UK’s major office markets. We expect investor appetite
to follow a similar pattern, with those assets not meeting current
occupational demand at risk of significant value erosion.
RETAIL
Following a number of years of poor performance, the retail sector
showed some signs of recovery in 2021, despite continued structural
headwinds. However, we believe this is driven primarily by market
factors and is a product of the market cycle, rather than
sector-specific confidence. As a result, performance was highly
polarised within the sector. As was expected, those assets deemed
as “essential retail” showed strong performance over the year,
whereas retailers selling discretionary items, and those
susceptible to greater online penetration, struggled once more
against the backdrop of the pandemic.
Whilst retail warehouse assets experienced a strong recovery,
particularly in the second half of the year, recording a total
return of 21.9% for retail parks, shopping centres continued to
drag on the sector and provided a total return of -5.2% in 2021.
High Street shops also showed continued poor performance as
retailers struggled with ongoing restrictions and a consumer shift
to e-commerce. Capital values for retail assets within Central London fell by -5.8%, continuing the
trend seen in 2020.
The reintroduction of restrictions towards the end of the year
also put further pressure on high streets, as footfall once again
fell. On the other hand, supermarkets again provided robust
performance due to an increase in consumer spending and their
embracing online deliveries. Supermarkets provided a total return
of 15.7%, predominantly driven by yield compression, as investors
were attracted by secure, index linked, long income.
Consumer habits have changed over the course of the pandemic and
it is clear from footfall data that many now prefer to visit units
which provide ‘drive to convenience’ and perceived safety from
COVID-19. As a result, investor attention also turned to retail
warehouse accommodation, with those assets led by discount or DIY
operators. In response, yields within this sector reduced by
between 150-250bps during 2021.
Schemes with significant exposure to fashion-led retailers have,
however, generated less interest as occupational concerns remain.
From an owner’s perspective, the situation remains fragile, as
government support is withdrawn and the risk of further retailer
defaults remains elevated. The prospect for rental growth across
the sector is remote. Moving forward, the sector is likely to
remain highly polarised but overall retail performance is
anticipated to improve when compared to 2021, as the shopping
centre and high street retail sectors stabilise.
INDUSTRIAL
Once again, the industrial and logistics market retained its
position as the best performing UK commercial real estate sector
delivering a total return of 36.4%. Sentiment remained extremely
positive over the course of the year as investors were attracted by
a wide supply-demand imbalance with consequential rental growth
across the sector. This was most keenly felt in supply constrained
locations such as London, which
remained the best performing market, with total returns for
London industrial achieving 43.1%
over the year.
As investors have sought to buy into the sector, transactional
volumes totalled £17.3bn, the highest level ever recorded, and 80%
higher than the total transacted in 2020. As a result, transactions
involving the sector accounted for 25.6% of total UK real estate
investment activity. From an occupational perspective, demand for
accommodation remains extremely high, with take up in 2021
totalling over 55m sq ft, another new
all-time record. Distribution and online retailers continue to
dominate take-up and, with the UK-wide vacancy rate now below 2.0%,
the market fundamentals remain supportive for continued strong
rental growth.
Moving forward, rental growth is likely to be the predominant
driver of returns as further yield compression, which has been the
key driver over the course of 2021, is unsustainable, and
particularly so in the prime sector of the market. Yields reduced
by between 50-125bps during 2021 across the sector, and prime
London estates are now commanding
yields of 3.10%, and arguably lower for best-in-class assets,
according to Cushman & Wakefield. Sentiment remains very strong
for the industrial and logistics market and the sector is well
placed structurally to see continued robust growth.
ALTERNATIVES
The UK real estate alternative sector, or “Other Property” as it is
categorised by MSCI, represents real estate which falls outside the
traditional ‘Retail’, ‘Office’ or ‘Industrial’ definitions.
Investor interest in the alternatives sector has increased and a
total of £15.7 billion was transacted over the course of 2021, up
25.2% on 2020 and 37.0% above the 10-year average. Total return
within this sector was 9.2% which, whilst below the all property
total return, was a significant improvement on the total return
achieved in 2020 of -5.3%. The reasons for this were largely the
result of ongoing restrictions and a change in consumer habits as a
result of the COVID-19 pandemic.
The leisure and hotel sectors, which form a large component of
the “Other Property” sector, suffered at the beginning of 2020 due
to strict government restrictions, with many operators not
reopening until Q2 2021 or later. Over the remainder of the year,
however, the sector underwent a gradual recovery and regional
hotels in particular experienced record bookings, as international
travel restrictions boosted the demand for domestically driven
‘staycations.’ As a result, total returns in the hotel and leisure
sectors for 2021 were 7.7% and 7.8% respectively. Healthcare also
finished the year in a strong position and recorded a total return
of 9.5%.
Investor appetite for the Build to Rent (BTR) residential sector
also continued its strong trajectory and a record of £4.1 billion
was invested into the sector over the course of 2021, beating the
previous record of £3.5 billion achieved in 2020. The Purpose Built
Student Accommodation (PBSA) sector also performed well in 2021,
despite a muted start to the year. Large platform deals have placed
further downward pressure on yields, with those assets with
index-linked leases now commanding yields of 3.0% according to
CBRE. However, performance is polarised, with those assets serving
the UK’s top universities best placed to outperform. Moving
forward, the ‘alternatives’ sector is likely to become more
‘mainstream’ as it grows in prominence due to its continued
resilient performance.
MARKET OUTLOOK 2022
It is clear that we have entered 2022 with significant uncertainty,
as geopolitical concerns weigh on the global economy. Whilst it
appears we have now passed the worst of the COVID-19 pandemic, the
outbreak of conflict in Ukraine in
February 2022 has sent shockwaves
throughout the world. Whilst the conflict has not materially
altered our outlook for UK real estate in 2022, new considerations
have emerged as a result. The initial impacts of the Russian
invasion of Ukraine, and the
subsequent sanctions placed on the Russian economy, are expected to
be negligible, primarily as a result of Russian capital having
little exposure to UK commercial real estate. This should mean
there is a limited impact on market liquidity and a low risk of
depressed asset values as a result. In fact, due to increased
volatility in other financial markets, UK real estate may benefit
due to being viewed as a ‘safe haven’ investment destination.
However, the Ukraine conflict
is likely to have wider consequences and the position of UK real
estate must be set in the context of the macroeconomic environment.
Prior to the outbreak of conflict, there were already significant
concerns over rising inflation and tightening of monetary policy,
and the conflict has skewed risks even further to the upside.
We now expect inflation to peak around 8.00% in April, before
declining through the second half of this year, largely as a result
of mechanical base effects. We forecast that the UK CPI rate for
2022 will be significantly over 6.0%, illustrating that
inflationary pressures are likely to moderate in the latter half of
the year, but remain significantly above the Bank of England’s
target rate. There are also significant risks that inflation could
remain higher for a more prolonged period of time, particularly as
the war in Ukraine, and sanction
measures on the Russian economy, impact on pricing in the energy
sector and on key raw materials.
The high inflation environment is likely to have an effect on
households across the UK and we expect consumer sentiment and real
wage growth to suffer as a result; however, a build-up in household
savings over the course of the previous two years will help to
cushion this impact. That said, the distribution of these savings
tends to be very heavily skewed towards high income households,
with increased pressure on low income households possibly
translating to weakening overall consumer consumption.
In response to these inflationary factors, the Bank of
England is expected to continue
tightening monetary policy over the course of the year, with the
base rate expected to reach 1.25% by the end of 2022. The base rate
is then expected to peak at 1.75% in 2023, but there is an elevated
risk that this could surprise to the upside and peak above 2.00%.
Although low in a historical context, base rates and the feed
through to the bond market has the potential to act as a natural
cap on any further yield compression, particularly for the lower
yielding areas of the real estate market. Despite this, a healthy
margin between bonds and real estate will be maintained, and
investors should continue to view UK real estate as an attractive
investment destination, becoming more selective when approaching
investment decisions at both the sector and asset level.
Prior to the Russian invasion of Ukraine, GDP growth was forecast to be closer
to 4.4% in 2022 but we now expect economic growth to be relatively
subdued. This leads to the possibility that we face an environment
of weakening economic growth at a time when inflation is running
considerably above target. This is likely to impact more heavily on
the UK real estate sector as a result of depressed job growth and
falling disposable incomes, weighing on the office and retail
sectors in particular.
As such, the bifurcation of the office sector is likely to
become more pronounced. Demand for prime assets should remain
robust but weaker for secondary accommodation. Those office assets
not deemed to be “future fit” are likely to see limited
occupational and investor demand as ESG considerations become more
prominent in investor decision making. The industrial and logistics
market is anticipated to remain robust in 2022 but unlikely to
match the extremely strong performance achieved over the course of
2021. The prospect of further yield compression, particularly on
prime assets, is limited and rental growth is expected to be the
main driver of performance in this sector. Demand continues to
outstrip supply and although there has been a pick-up in supply in
the sector, increasing land values, a shortage of suitable
development sites, and increasing build costs mean there are no
signs of a correction in the short term.
We still expect the recovery in the retail sector to continue,
primarily driven by market factors rather than sector specific
confidence. Investor demand will remain focused on discount and
food led retail warehouse schemes whilst the occupational market
will continue to be heavily impacted by the pandemic induced change
in consumer habits and the continued growth of e-commerce. As
discussed above, the impact of inflation on household disposable
incomes is also likely to weigh heavily on the retail sector, and
particularly on discretionary based retailers, throughout the
course of 2022 and the prospect of rental value growth remains
remote. The alternatives sector will build on strong transactional
volumes achieved in 2021 and will grow more prominent in investor
focus. We expect the hotel sectors to recover over the course of
2022 as travel and other restrictions ease. The Purpose Built
Student Accommodation (PBSA) and build-to-rent (BtR) residential
sectors will continue their positive momentum.
Overall, we expect a positive year for UK real estate but the
spread in performance seen in 2021 is unlikely to be repeated and
sector performance will begin to converge in 2022, predominantly as
a result of where we are in the UK real estate cycle. Geopolitical
events, inflationary and base rate pressures are likely to weigh
and, as a result, more care will be required when assessing any
investment decisions in the year ahead.
PERFORMANCE
There are a number of different measures of performance one can
employ, from individual assets to shareholder return. These are
detailed below:
Portfolio return:
The Company uses a MSCI Benchmark to measure performance of the
underlying assets against the general market. The portfolio is not
constructed with reference to the MSCI index, but it can be useful
to measure the performance of the Investment Manager. Against this
measure, the portfolio demonstrates strong performance relative to
the market over 1, 3, 5 and 10 years.
The outperformance results from a combination of structure
(having a greater exposure to strongly performing sectors and low
exposure to poorly performing sectors), and the active approach to
managing the portfolio. Turnover in the portfolio has been higher
than the market, indicating a willingness to take profits and
reinvest in new productive assets.
NAV return:
The NAV total return is perhaps the best indication of the
Company’s performance, rather than just the property portfolio, as
it takes all costs and manager-controlled factors (such as
borrowing) into account. The table below compares the NAV total
return of SLIPIT against the AIC peer group, and as a further
source of comparison against the IA open ended fund sector
average.
NAV Total Returns
to 31 December 2021 |
1
year (%) |
3
years (%) |
5
years (%) |
10
years (%) |
Standard Life
Investments Property Income Trust |
28.6 |
27.7 |
60.1 |
188.9 |
AIC Property Direct –
UK sector (weighted average) |
17.0 |
20.3 |
23.4 |
54.6 |
Investment Association
Open Ended Commercial Property Funds sector |
9.6 |
7.1 |
18.2 |
56.4 |
Source: AIC, abrdn
Share Price:
For the investor, share price total return is the real measure of
their experience, measuring the share price performance along with
the dividends they received. The Company’s market capitalisation at
31 December 2021 was £323.5m against
£242.6m a year earlier.
|
Share Price Total
Returns to 31 December 2021 |
1
year (%) |
3
years (%) |
5
years (%) |
10
years (%) |
Standard
Life Investments Property Income Trust |
43.4 |
18.8 |
23.9 |
184.8 |
FTSE
All-Share Index |
18.3 |
27.2 |
30.2 |
110.7 |
FTSE
All-Share REIT Index |
29.4 |
41.8 |
39.3 |
177.1 |
AIC
Property Direct – UK sector (weighted average) |
26.5 |
20.7 |
9.8 |
40.9 |
|
|
|
|
|
|
Source: AIC, abrdn
VALUATION
The portfolio is valued quarterly by Knight Frank LLP under the
provisions of the RICS Red Book. As at 31
December 2021 the portfolio, including the Ralia Estate, was
valued at £499.9m (£437.7m at 31 December
2020) and the Company held cash of £13.8m (£9.4m at
31 December 2020). The portfolio
consisted of 48 assets at year end (51 assets at 31 December 2020).
INVESTMENT STRATEGY
The Company has a clearly stated investment strategy: “To provide
investors with an attractive income return, with the prospect of
income and capital growth, through investing in a diversified
portfolio of commercial real estate assets in the UK”. The word
“Income” features in both the Company’s name, and prominently in
the investment strategy.
Our investment activities are centred around providing an
attractive level of income. However, you will read throughout the
report about the importance of ESG in future returns. The
Investment Manager and Board want to provide a level of income that
is attractive to investors today, that is sustainable and has scope
to grow in the future. We also want to provide a reasonable total
return (i.e. not sacrifice capital value to deliver an
unsustainable level of income).
We had already begun the process of repositioning the portfolio
through the sale of assets in 2019 and 2020 with poorer ESG
credentials and this will continue as we invest in better quality
assets with improved prospects of future income and capital
growth.
ESG
ESG is central to our investment philosophy and, to reflect its
importance, the Annual Report now includes a dedicated section on
this and we have also adopted early Taskforce for Climate-related
Financial Disclosures.
PURCHASES
During 2021 the Company made three investments, two into commercial
real estate assets, and one land purchase.
Glass Futures, St
Helens:
The Company is funding the development of a 101,085 sq ft
industrial facility that will be let for 15 years to St Helens
Borough Council at an initial rent of £658,000 pa. The total cost
to SLIPIT will be £15.05m. The property will be occupied by Glass
Futures in early 2023, a not-for-profit organisation seeking to
develop lower carbon solutions for the manufacture of glass.
Griffiths Textiles, Washington:
The Company acquired a 96,6930 sq ft industrial unit with 3.5 acres
of unused land. The unit was recently let for 15 years to a carpet
manufacturer. As part of the purchase process we engaged with the
tenant about ESG enhancements including PV on the roof, which would
take the EPC from its current B to an A. The vacant land had no
value attributed to it in our appraisal, but provides a number of
opportunities. The purchase price of £7.7m reflected an income
yield of 5.75%.
Subsequent to the year end, the Company has made one further
investment into commercial real estate assets:
Motorpoint, Stockton-on-Tees:
In April 2022, the Company completed
the purchase of the Motorpoint car showroom in Stockton-on-Tees for
£5m. The transaction was a sale and leaseback, with Motorpoint
selling the property and simultaneously taking a lease over it for
a period of 25 years, with the option to end the lease after 15 and
20 years. The annual rent will be £350,000 and the lease includes
5-yearly CPI-linked rent reviews. The property itself extends to
just over 46,500 sq ft on a 5.2 acre site.
SALES
The Company sold six assets in 2021 for a total of £31.8m. Four
office assets were sold for £21m. The decision to sell these
properties was based on a comprehensive review of the portfolio in
light of the changes in the office market we expect as a result of
COVID-19. Several of the assets had recently had the leases
extended, providing the optimum exit point to maximise returns.
One industrial unit was sold as it had poor ESG credentials, and
we believed that would impact future performance. In addition, a
small retail warehouse unit was sold for £2.65m as we felt the
rents were relatively unsustainable.
DEBT
The Company has two debt facilities, both with the Royal Bank of
Scotland. The term loan of £110m
is fully drawn and is subject to an interest rate swap to fix the
cost at a rate of 2.725%. The swap value is marked to market each
quarter in the NAV and at 31 December
2021 a liability was recorded of £568,036 (down from
£3,735,254 in the prior year). The Company also has a revolving
credit facility (RCF) of £55m that is currently undrawn. The
facility was undrawn throughout 2021. At year end the gearing level
or LTV was 19.2%. This is below the target range of 25% – 35% that
the Board has set. It is anticipated that the RCF will be utilised
again in 2022 to fund new purchases.
Both loan facilities mature in April
2023 and the Investment Manager and Board are in the process
of finding a new facility. Early conversations have been
encouraging, although with rising interest rates there is a risk
that the cost of debt may increase from the current 2.725%.
ASSET MANAGEMENT
The disruption caused by the pandemic impacted on tenants’ ability
to pay rent, their desire to make decisions on future occupancy,
and in many cases led to changes in the contacts we had at
different properties. In this difficult context, the Company’s
asset managers worked hard to maintain good communication lines
with tenants, and delivered strong returns through lease re-gears.
It was necessary to give further rent concessions to some tenants
where trade was constrained by restrictions imposed by the
Government. However, supporting tenants where required is in the
best interests of the Company compared with the prospect of tenant
failure.
Over the course of 2021 ten leases were renewed or re-geared to
extend the term, with a rental value of £2,323,217 pa. Five rent
reviews were settled, generating an increase in income of £106,379
pa, and nine lettings completed, securing £1,494,451 pa of new
rent. Since the year end a further three lettings have been
completed, securing an additional £353,600 pa.
The portfolio vacancy rate at the end of 2021 was 9.7%. This is
higher than the Investment Manger targets (5%) and is predominantly
within the office portfolio. With a return to the office expected
from spring onwards, and with the affordable, good quality fitted
suites on offer within our portfolio, we expect to see further
progress in reducing vacancy rates over the course of 2022.
Rent collection remained an area of focus. Various
restrictions/lockdowns impacted our tenants and their businesses,
but we continued to have a flexible approach. We aim to work with
tenants based on their individual circumstances. Bad debt
provisions increased by £0.4m during the year, against a £2.4m
increase for 2020, with the fall in the charge to earnings
reflecting the improving rent collection rates. In total, 96% of
the rent due in 2021 has been collected, with several tenants
repaying arrears on agreed plans over the next couple of years.
This compares to 98% for 2020. We anticipate further improvements
in the 2021 recovery rate from repayment plans, and additional
expected receipts.
Rent Collection
|
2020 |
Quarter |
%
Received |
|
1 |
99% |
|
2 |
98% |
|
3 |
98% |
|
4 |
96% |
Total |
2020
FY |
98% |
|
|
|
|
|
2021 |
Quarter |
%
Received |
|
1 |
96% |
|
2 |
95% |
|
3 |
96% |
|
4 |
97% |
Total |
2021
FY |
96% |
|
|
|
|
OUTLOOK AND FUTURE STRATEGY
With the increasing importance of ESG driven by both legislation
and corporate / individual commitments, the Company will continue
to seek to provide buildings that enable tenant businesses to
perform well. The current high exposure to the industrial sector is
likely to remain beneficial and we will seek to maintain it,
although we might rotate out of some assets. We will selectively
seek to buy into the retail warehouse sector, and into alternatives
such as apart-hotels, student housing, and hotels. The office
sector continues to undergo change, and although four assets have
already been sold, we will monitor how our retained assets are
meeting the future needs of occupiers and investors.
Inflation is of course a significant concern at the moment. The
Company has approximately 21% of its leases (by rental value)
subject to fixed or indexed rent reviews, however the Investment
Manager also expects rental growth to continue from the industrial
sector, providing some mitigation against the impacts of inflation.
We will continue to seek to hold assets where we can grow
rents.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
(ESG)
ESG
ESG is central to our investment philosophy, where we seek to
invest in assets that tenants want to occupy and where their
businesses can thrive. ESG might not be new, but it has grown in
scope and importance over the last 12 months. With such a rapid
pace of change, it is important to have a considered approach to
ESG, based on the best information available. The Company is going
through a period of data gathering, and planning of future
initiatives, as well as implementing strategies now. Reflecting the
importance of ESG, the Annual Report now has this dedicated section
on these matters where we set out what we are doing to protect and
enhance future shareholder value.
ESG POLICY
ESG Strategy.
ESG factors have come to the fore during the recent pandemic. The
Board and Investment Manager have, over the last 5 years,
incorporated ESG into their decision making, however it is now a
much more prominent consideration externally as well internally and
so deserves a place in the Company’s Strategic Report.
The Board has created a separate Sustainability Committee to
ensure that sufficient focus is placed on ESG, an area it believes
will be fundamental to future corporate performance. ESG might be
viewed as a cost today, but in the future, it will be viewed as
business as usual, and underinvestment today will adversely impact
value tomorrow. As such, the Company is actively seeking to embrace
ESG and to enhance fund performance through adopting a calculated
programme of upgrades to its assets.
ESG Priorities.
The Company has identified two main areas of focus that have the
most relevance for the activities it undertakes – Planet and
People.
Under Planet, the Company has a primary focus on Energy and
Carbon; Climate resilience; and Biodiversity. The report below
provides details on the approach and measures, with a particular
focus on Energy and Carbon.
People involves our tenants and the users of our properties. It
is a wide-ranging theme, covering wellness, supplier management,
community engagement, social values, and tenant engagement.
Energy efficiency and decarbonisation.
In 2021, COP26 served to reinforce
the need for the rapid decarbonisation of the global economy. The
Board and Investment Manager believe the real estate sector has
made some progress in the past, but the pace must accelerate from
here.
The Company has an active approach to managing carbon emissions
across the portfolio and has been implementing energy efficiency
improvements and renewable energy projects for several years.
In 2021, we undertook work to establish the operational carbon
footprint baseline of the portfolio and model our pathway to net
zero. This involved benchmarking the performance of each asset,
modelling our future footprint including embodied and operational
carbon and identifying the types of measures necessary to fully
decarbonise the portfolio by 2050.
Operational Performance Summary.
The Investment Manager has processes in place to ensure operational
sustainability performance is monitored and actions are implemented
to drive continual improvement. The effect of COVID-19 on occupancy
has had an impact on energy consumption and greenhouse gas
emissions. It is unfortunately not possible to fully disaggregate
this impact from improvement measures undertaken at assets. The
performance figures for 2021 should be viewed in this context.
EPRA Sustainability Best Practice Recommendations
Guidelines.
We have adopted the 2017 EPRA Sustainability Best Practice
Recommendations Guidelines (sBPR) to inform the scope of indicators
we report against. We have reported against all EPRA sBPR
indicators that are material to the Company. We also report
additional data not required by the EPRA sBPR where we believe it
to be relevant (e.g. like-for-like greenhouse gas emissions).
2021 GRESB Assessment
The GRESB Assessment is the leading global sustainability benchmark
for real estate vehicles. The Company has been submitted to GRESB
since 2012. In the 2021 assessment, the Company achieved a three
star rating, an improvement on 2020’s two stars.
Climate Resilience:
As described in the section on TCFD disclosures the Company
considers the risks and impact of climate change on the portfolio.
At a portfolio level we already monitor the flood risk for each
asset and how that might change over time. We have also recently
completed a study to quantify the value at risk resulting from
physical climate impacts and changes to heating and cooling demand
under a high emissions scenario of 4.3°C of warming by 2100. The
results are summarised in the TCFD section.
Biodiversity:
Biodiversity is a relatively new focus for the Company. We have
initiated a programme of best practice with our managing agents to
ensure each asset is assessed with a view to optimising landscaping
regimes to support greater biodiversity.
The Company’s land purchase of Ralia provides an opportunity to
consider biodiversity on a greater scale, as we start with a
baseline survey to be able to measure net biodiversity gain.
Ralia:
The Company has acquired over 1,400 hectares of unproductive open
moorland in the Cairngorm National Park which represents one of the
largest afforestation and peatland restoration projects in the
UK.
- The aim is to regenerate more than 900ha of woodland, planting
over 1.5m trees and to restore at
least 150ha of degraded peatland.
- It is estimated the project will deliver up to 195,000 tonnes
of claimable carbon to 2060 at a cost of £22 per tonne on a
discounted cash flow basis.
- Focusing on native broad-leaved trees and Scots pine, the
woodland creation element of the project will improve amenity,
enhance biodiversity, mitigate flooding and improve air
quality.
- The site was previously used for grouse shooting and some
hunting, but that is no longer viable and the land is not
productive for farming.
- One aspect of the estate that appealed was that it had no one
living on the land, or directly employed on it. The Company will
seek to employ local workers and enhance employment on the site
through the planned projects.
CLIMATE CHANGE
As part of the Company’s investment process we take long term
climate impacts into account. For many years, we have been ensuring
that we have a clear understanding of the flood risk of an asset,
and what flood mitigation there is in place, before we will invest.
If our analysis indicates that there is an unacceptable risk of
damage or harm to life, then we will not proceed.
With changing weather patterns as a result of climate change, we
know we need to not only assess historic incidents of flooding but
also understand potential future risks. We are now assessing not
only flooding from rivers, sea and surface water, but also other
risks including water scarcity, heat stress, extreme wind and fires
– issues that in the past may not have been considered a concern in
a UK context. With increased modelling out to 2080 we are better
able to forecast future changes and adapt our strategies
accordingly.
Rising temperatures will, at some point, require increased
cooling of workplaces, something that will require increased energy
consumption. Our modelling indicates that whilst physical risks
present long term concerns, the increased operational costs
associated with cooling demands may be far more significant in the
future under a high warming scenario. It is for this reason that we
are focusing our efforts on improving the design and operation of
the buildings in the portfolio to ensure that they are low carbon
and fit for the future.
NET ZERO CARBON
During the course of 2021 the Company undertook a study of its
carbon footprint, and what would be required to be net zero by
2050. The key finding was that landlord controlled energy accounts
for only 10% of the Company’s carbon footprint and we, as
landlords, have little direct control over 90% of the output
determined by tenants. Following the study, the Company has set a
target to be net zero for emissions associated with
landlord-procured energy by 2030, and has determined that it will
work with tenants to establish a reasonable and realistic target
for total carbon emissions over the medium term.
The Company has already taken a number of steps towards
achieving its target. All Landlord consumed electricity is
certified green energy; and refurbishment decisions are focused
around energy performance improvements. The route to net zero for
the UK is going to evolve, and so are regulations and solutions/
technology that we can use.
At the moment, the Company’s strategy is to focus on ensuring
compliance with EPC (Energy Performance Certificates) regulations.
At present it is unlawful to lease properties that have an F or G
rating. The Government has proposed legislation that will increase
the threshold to C in 2027, and B in 2030.
The portfolio currently has a range of EPC ratings and we are
working through all assets below C to understand the route to get a
C by 2027, and also how to get to B by 2030. Within the office
portfolio this takes the form of a detailed maintenance and
upgrading programme from now through to 2030 to understand the best
times for intervention, and what work will be required.
In most cases, the route to EPC B requires electrification of
the buildings. The technology enabling this is developing, and we
are identifying the right time for the intervention rather than
trying to do everything today, only to find a better solution
becomes available in the future.
|
%
Estimated Rental Value (ERV) |
EPC Rating |
2021 |
2020 |
A |
2% |
0% |
B |
21% |
16% |
C |
33% |
31% |
D |
35% |
39% |
E |
8% |
9% |
F |
0% |
4% |
G |
1% |
1% |
The Company has six demises (out of circa 150) that have an EPC
rating of G. Four of them are in Scotland (on a twenty five unit multi let
industrial estate), where there is different legislation and the
rating does not prevent a letting, one is a small old unit on the
edge of a retail park, and the other is a large Cinema complex in
North London where we are
exploring options.
RENEWABLE ENERGY
One of the ways we can reduce the carbon footprint of the Company
is through the use of renewable energy. All landlord supplied
energy comes from a green tariff, however on-site generation is
even better. We have been working with an external party to
increase the provision of on-site power in the form of photo
voltaic (PV) cells on building roofs.
We have also looked at wind power on a couple of sites, but the
planning regime is not supportive.
Progress has been slow. At the end of December 2020, we had six operational schemes
totalling 1.2Mwp, but that had not changed by the end of 2021;
however, we are actively engaged in 14 new projects, securing grid
connections, undertaking structural surveys, and agreeing terms
with tenants.
The 14 schemes would add a further 4.6Mwp – enough to power 958
homes for a year, or boil the kettle 32,745,455 times! We have had
to put two further schemes on hold because of a lack of Grid
capacity – something that is going to limit the speed of
electrification possible in the UK.
CARBON OFFSETTING
The Company believes that carbon offsetting is a last resort
measure once all other efforts have been made to reduce the carbon
emissions of the portfolio. The path to net zero will, however,
take time, and some offsetting will be required. During 2021 the
Company acquired 1,471 hectares of open moorland in the Scottish
Highlands. The intention is a mix of reforestation (planting
approximately 1.5m natural broadleaf
trees), peatland restoration and other forms of biodiversity
gain.
This is a large scale project and we are working with a number
of parties to gain approvals for the planting. Where possible, we
utilise local labour and expertise, and we have recently been
collecting seeds on site to promote regeneration of native trees.
The opportunity has the potential to create 373,000 carbon credits
over the lifetime of the project at a known fixed cost today. We
anticipate significant future cost increases in carbon credits
making this asset progressively more valuable economically as well
as environmentally.
ELECTRIC VEHICLE CHARGING
Although installing EV charge points does not reduce the Company’s
energy consumption, it does help with decarbonisation, and provides
further amenity to tenants. We have tendered a package of rapid
chargers for our retail warehouse parks, where a third party will
pay the capital cost of installing the chargers and will operate
them, with a small rent coming back to the Company.
In our office properties we are generally installing the
chargers directly, mainly offering one or two fast chargers as we
see how demand develops. At Hagley Road we have agreed terms for an
operator to provide rapid and fast chargers for the public and
tenants to use – again adding to the amenity offer at the
building.
NET ZERO STRATEGY
Our net zero principles.
Although the goal may seem clear, definitions and standards on
net zero and the policy mix to support it remains immature. In this
context we have established several key principles that underpin
our strategy to ensure it has integrity, is robust and delivers
value:
Practical:
- Asset-level action – focusing on energy efficiency and
renewables is our priority to ensure compliance with energy
performance regulations. Our analysis shows that meeting proposed
future Energy Performance Certificate standards is a sensible
stepping stone towards net zero. This improves the quality of
assets for occupiers and reduces the exposure to regulatory and
market risk. Our investment in nature-based carbon removal is an
addition to asset-level decarbonisation.
- Timing – we aim to align improvements at our properties
with existing plant replacement cycles and planned refurbishment
activities wherever possible. This ensures we are not unnecessarily
replacing functional plant ahead of its useful life unless
necessary, which reduces cost and embodied carbon.
Realistic:
- Target – long-term objectives must be stretching but
deliverable and complimented by near-term targets and actions.
- Policy support – to fully decarbonise before 2050 the
real estate sector requires a supportive policy mix to incentivise
action and level the playing field.
Collaborative:
- Occupiers – we recognise that we can’t achieve net zero
for the portfolio in isolation. We will work closely with occupiers
on this journey, many of whom have their own decarbonisation
strategies covering their leased space. To put this into context,
Scope 3 emissions for the company, i.e. the consumption by our
tenants, accounts for 90% of the Company’s carbon output.
- Suppliers – we will work with our suppliers including
property managers and consultants so that everyone is clear on
their role in achieving net zero.
Measurable:
- Clear key performance indicators at the asset and portfolio
level.
Our baseline.
Our operational carbon footprint for 2019 is shown in the
adjacent table. We have used 2019 as a baseline for our work as it
was unaffected by changes in occupancy due to COVID-19. This shows
a total operational footprint of 20,651 tonnes of carbon dioxide
equivalent (Co2e). Of this, 10% is associated with Scope 1 and 2
emissions that are directly controlled by the Company, with 90%
coming from Scope 3 emissions from tenant procured energy.
For 2019 we gathered energy consumption data for 46% of the
portfolio by floor area with representative industry standard
benchmarks used to estimate the rest. Based on these assumptions
for 2019 the energy intensity at the portfolio level was 237kWh/m2
and the operational emissions intensity was 45 kgCO2e/m2 across
Scopes 1, 2 and 3. These will be key metrics as we progress with
our delivery strategy.
SLIPIT 2019 Carbon Footprint
(tCO2e)
Landlord Gas |
4.5% |
Scope 1 |
Landlord Electricity |
5.5% |
Scope 2 |
Tenant Gas |
35% |
Scope 3 |
Tenant Electricity |
55% |
Scope 3 |
Landlord Waste |
<0.1% |
Scope 3 |
Landlord Water |
<0.1% |
Scope 3 |
Scope 1 and 2 – These are emissions that directly result
from the landlord’s activities where there is operational control,
either through the purchase and consumption of energy or
refrigerant losses.
Scope 3 – These are emissions that occur in our supply
chains and downstream leased assets (i.e. tenant spaces over which
we have a degree of influence but limited control.
Our delivery strategy.
|
Near-term (to 2030) |
Long-term (2030–2050) |
Targets |
Achieve net zero
emissions for Scope 1 and 2 by 2030.
Improve emissions intensity across all scopes by 50% by 2030 from
2019 baseline. |
Net zero across all emissions scopes
before 2050. |
Context |
We see these 2030
targets as a sensible stepping-stone towards long-term
decarbonisation. In the near term our activities are focused on
occupier engagement and compliance with energy performance
regulations which will mean significant investment in energy
efficiency, heat decarbonisation and renewable energy, whilst
acknowledging the Landlord only has direct control over
approximately 10% of the energy consumed, it will work with tenants
and upgrade properties when it can to try and achieve this
challenging target.
We anticipate that actions taken to decarbonise heat before 2030
will mean the company has very low Scope 1 emissions at this
date. |
Buildings in the UK
will have to be fully decarbonised by 2050 through energy
efficiency and the decarbonisation of heat and electricity. We will
aim to reach our long-term target through these measures with as
little use of offsets as possible.
We will keep our long-term target under review and potentially
bring it forward
as policy measures and market drivers become clearer in the coming
years. |
Near-term delivery
actions |
Standing portfolio:
- Improve ability to obtain tenant energy
data through improved engagement, lease agreements and smart
metering
- Build improved understanding of tenant
decarbonisation strategies and extent of tenant renewable energy
procurement
- Implement low-carbon refurbishments to
ensure regulatory compliance focusing on energy efficiency and heat
decarbonisation and start to quantify and reduce embodied
carbon
- Continue to implement solar PV projects
and establish power purchase agreements with occupiers
- Progress with nature-based carbon removal
strategy in parallel with asset decarbonisation |
Acquisitions and
developments:
In line with the Investment Manager’s policies:
- Benchmark assets pre-acquisition,
understand costs and build decarbonisation into asset management
plan from the start of ownership
- Direct development and development
funding to be designed to whole life net zero principles |
Measurement indicators |
- % of tenants data coverage
- Absolute portfolio emissions (tCO2e)
- Energy and emissions intensity
(kwh/m2/year; kg CO2e/m2/year)
- Installed solar capacity (MWp)
- Embodied carbon of development
projects |
|
SOCIAL AND WELLNESS
Two of our main principles are to own buildings that work for our
tenants, and to do the right thing for people who work at those
properties. For example, our supplier agreements for on-site staff
require a living wage to be paid. Our property managing agent is
JLL, who have a very strong commitment to being an ethical
company.
Within the industrial sector we have added new requirements when
we undertake refurbishments, to include biodiversity measures and
wellness considerations for the workers, as well as the normal PV,
LED lighting and general upgrades. Such actions will help our
tenants recruit and retain staff, enhancing the appeal of the
unit.
The office sector is where we can have the greatest impact,
ensuring we create places that attract people to work. This is done
by assessing the offering we provide in terms of Flexibility,
Amenity, Connectivity, Technology, and Sustainability. As well as
providing great on-site amenities such as shower and changing
facilities, break out areas with coffee machines and shared meeting
rooms, we also try to create a sense of community through seasonal
engagement packs, education and support, charity stalls and cake
bakes, and local charity involvement.
SOCIAL, COMMUNITY AND EMPLOYEE RESPONSIBILITIES
The Group has no direct social, community or employee
responsibilities. The Group has no employees and accordingly no
requirement to report separately in this area as the management of
the portfolio has been delegated to the Investment Manager. In
light of the nature of the Group’s business there are no relevant
human rights issues and hence there is no requirement for a human
rights policy. The Board does, however, closely monitor the
policies of its suppliers to ensure that proper provision is in
place.
HEALTH & SAFETY
Alongside environmental principles the Group has a health &
safety policy which demonstrates commitment to providing safe and
secure buildings that promote a healthy working/customer experience
that supports a healthy lifestyle. The Group, through the
Investment Manager, manages and controls health & safety risks
as systematically as any other critical business activity using
technologically advanced systems and environmentally protective
materials and equipment. The aim is to achieve a health &
safety performance the Group can be proud of and allow the Group to
earn the confidence and trust of tenants, customers, employees,
shareholders and society at large. The Board reviews health &
safety on a regular basis in Board meetings.
TASKFORCE FOR CLIMATE-RELATED
FINANCIAL DISCLOSURES
Taskforce for Climate-related Financial Disclosures (TCFD) was
established to provide a standardised way to disclose and assess
climate-related risks and opportunities. Recommendations are
structured around four key topics: Governance, Strategy, Risk
Management and Metrics & Targets. The Company is committed to
implementing the recommendations of the TCFD to provide investors
with information on climate risks and opportunities that are
relevant to SLIPIT.
TCFD covers risks and opportunities associated with two
overarching categories of climate risk: transition and
physical:
- Transition risks are those that relate to an asset, portfolio
or company’s ability to decarbonise. An entity can be exposed to
risks as a result of carbon pricing, regulation, technological
change and shifts in demand related to the transition.
- Physical risks are those that relate to an asset’s
vulnerability to factors such as increasing temperatures and
extreme weather events as a result of climate change. Exposure to
physical risks may result in, for example, direct damage to assets,
rising insurance costs, health and safety or supply chain
disruption.
There is still significant uncertainty and methodological
immaturity in assessing climate risks and opportunities and there
is not yet a widely recognised net zero standard. Nonetheless, as
outlined above we have progressed already with work to model the
implications of decarbonising the portfolio in line with a 1.5°C
scenario and undertaken analysis to understand potential future
physical climate risks. This is the first year that the Company is
reporting against TCFD
recommendations and we expect our disclosures to evolve over
time as methodologies improve and our work develops further.
TCFD Recommendation |
Company Approach |
Further information |
Governance |
|
|
Board oversight of climate-related
risks and opportunities |
The Board has created a
separate Sustainability Committee to monitor and oversee the
Investment Manager’s ESG undertakings. This includes the
consideration of climate-related risks and opportunities. |
Sustainability Committee
Report. |
Management’s role in
assessing and managing climate-related risks and opportunities |
At an operational level, the
Investment Manager is responsible for integrating a consideration
of climate risks and opportunities into the investment and asset
management process. In the first instance this is undertaken by
adopting abrdn real estate’s internal process and policies, and
reporting to the Board. |
The Company’s approach is set out in
the Environmental, Social and Governance section. |
Risk Management |
|
|
The Company’s processes
for identifying and assessing climate-related risks |
Climate-related risks and
opportunities are considered and assessed by the Company’s
Sustainability Committee. |
Sustainability Committee Report and
our approach to environmental risk. |
Metrics and Targets |
|
|
The metrics used by
the
organisation to assess climate-related risks and opportunities in
line with its strategy and risk
management process. |
We disclose our emissions in line
with EPRA Sustainability Best Practices Recommendations. As part of
our decarbonisation strategy we will track progress against our
long term aim using interim energy and emissions intensity targets
at the portfolio and asset levels. |
|
Scope 1, Scope 2 and,
if
appropriate, Scope 3 greenhouse gas (GHG) emissions and the related
risks. |
We disclose our emissions in line
with EPRA Sustainability Best Practices Recommendations. This
covers Scope 1 and 2 emissions associated with landlord-procured
energy as well as Scope 3 emissions from energy sub-metered to
occupiers. |
|
The targets used by
the
organisation to manage climate-related risks and opportunities and
performance against targets |
We have set long term
and short term decarbonisation targets and defined a practical
delivery strategy and KPIs.
The Company aims to achieve net zero emissions for Scope 1 and 2 by
2030 and is also targeting net zero across all scopes before 2050.
Whilst acknowledging the Landlord only has direct control over
approximately 10% of the energy consumed, it will work with tenants
and upgrade properties when it can to target reducing all scopes by
50% by 2030, based upon the 2019 baseline. |
Our delivery strategy
is set out
in our Strategic Report. |
Strategy |
|
|
Climate-related risks
and
opportunities the organisation has identified over the short,
medium, and long term |
As part of our
investment and asset management process we consider climate-related
risks and opportunities over a range of timescales. A summary of
our initial assessment over the short, medium and long term is as
follows.
In the short term (0–5 years) we anticipate regulations affecting
the energy performance and emissions of buildings to tighten to
align more closely with Government targets for economy-wide
decarbonisation. Whilst this will provide clarity of direction to
the sector it is likely to increase development and refurbishment
costs and will start to affect valuations. These trends, however,
will also create opportunities to benefit from moving occupier and
investor demand to low-carbon, future-fit assets.
Over the medium term (5–15 years) these trends will continue, and
we expect regulations and market sentiment to further drive energy
efficiency and decarbonisation. We anticipate significant
technological change in this period particularly in relation to
heat pump solutions which will improve the technical and financial
feasibility of decarbonising heat in buildings.
Over the long term (15+ years) we are likely to see climate-related
extreme weather events increase in frequency and severity which may
impact built environment assets depending on their location and
characteristics. |
|
The impact of
climate-related risks and opportunities on the
organisation’s businesses,
strategy, and financial planning where material |
The Board recognises
that climate change will affect the built environment, both through
decarbonisation and increased physical risks. The trends summarised
above are therefore expected to affect the Company’s strategy and
operations in the coming years.
Alongside our net zero planning, a detailed exercise has been
completed by the Manager to assess the portfolio’s compliance with
anticipated Minimum Energy Efficiency Standards legislation. This
reviews the measures and associated costs of compliance and ensures
that any necessary interventions can be appraised and included with
the individual asset plans.
We have also recently completed an assessment of value at risk as a
result of physical climate risks under the RCP8.5 climate scenario
which implies a 4.3° C temperature rise by 2100. Initial results
are described below.
In assessing new investment opportunities, and making hold / sell
decisions, the Board has adopted the Investment Manager’s policy to
have a stronger recognition of the potential impact of climate
change on the asset’s future performance. A particular focus is on
flood risk and energy performance. |
|
The resilience of
the
organisation’s strategy, taking into consideration different
climate-related scenarios, including a 2°C or lower scenario |
We have set out our
short-term target to be net zero for company-controlled emissions
(Scope 1 and 2) by 2030 and to reduce the emissions intensity of
our assets by 50% over the same period. Our long-term target for
full decarbonisation aligns with the UK-wide date of 2050 although
this will be continually reviewed in the context of the market and
policy drivers. We will track progress against our long term aim
using interim energy and emissions intensity targets at the
portfolio and asset levels.
Our work to establish a net zero pathway for the company is
informed by industry benchmarks including the Carbon Risk Real
Estate Monitor (CRREM) 1.5°C Paris-aligned emissions trajectories.
As part of this work we have identified high level cost estimates
for transitioning assets to net zero. We consider that the
portfolio and Company strategy is well-positioned to decarbonise in
line with this trajectory assuming national energy and climate
policy is also supportive of this goal.
We will continue to engage with industry bodies such as the Better
Building Partnership to standardise net zero definitions across the
industry. We recognise that we cannot act in isolation and that
achieving this level of decarbonisation will require supportive
climate policy and the cooperation of our occupiers and
suppliers.
Our recent work on understanding value at risk as a result of
physical climate risk has highlighted the importance of considering
changes in wind speeds and flood risk over time as well as the
implications of rising temperatures on the demand for cooling
within buildings. Our initial assessment of these results is that
in general under the RCP8.5 high emissions scenario, physical
climate risks generally result in a valuation impact to assets of
below 1% by 2080 and there are no meaningful affects until after
2040. Most of the impact is associated with additional cooling
demand due to rising temperatures. We consider that our existing
portfolio and Company strategy is resilient to physical climate
risks in the short to medium term. We will keep this under regular
review, particularly as methodologies for physical risk assessment
improve. |
Our delivery strategy
is set out
in our Strategic Report. |
STAKEHOLDER ENGAGEMENT
This section, which serves as the Company’s section 172
statement, explains how the Directors have promoted the success of
the Company for the benefit of its members as a whole during the
financial year to 31 December 2021,
taking into account the likely long term consequences of decisions,
the need to foster relationships with all stakeholders and the
impact of the Company’s operations on the environment, in
accordance with the AIC Code on Corporate Governance.
THE ROLE OF THE DIRECTORS
The Company is a REIT and has no Executive Directors or employees
and is governed by a Non-Executive Board of Directors. Its main
stakeholders are Shareholders, the Investment Manager, Tenants,
Service Providers, Debt Providers, the Environment and the
Community.
As set out in the Corporate Governance Report, the Board has
delegated day-to-day management of the assets to the Investment
Manager and either directly or through the Investment Manager, the
Company employs key suppliers to provide services in relation to
property management, health & safety, valuation, legal and tax
requirements, auditing, depositary obligations and share
registration, amongst others. All decisions relating to the
Company’s investment policy, investment objective, dividend policy,
gearing, corporate governance and strategy in general are reserved
for the Board. The Board meets quarterly, with numerous other
ad-hoc meetings, and receives full information on the Company’s
performance, financial position and any other relevant information.
At least once a year, the Board also holds a meeting specifically
to review the Group’s strategy.
The Board regularly reviews the performance of the Investment
Manager, and its other service providers, to ensure they manage the
Company, and its stakeholders, effectively and that their continued
appointment is in the best long term interests of the stakeholders
as a whole.
The Board also reviews its own performance annually to ensure it
is meeting its obligations to stakeholders. Engagement with key
stakeholders is considered formally as part of the annual
evaluation process.
STRATEGIC ACTIVITY DURING THE YEAR
Notable transactions where the interests of stakeholders were
actively considered by the Board during the year, and subsequently,
include:
- All decisions relating to the Company’s dividends – the Board
recognised the importance of dividends to its shareholders and have
increased the dividend from the 0.714p per share paid in respect of
Q4 2020 to 1.0p per share which has been paid in respect of Q4 2021
subsequent to the year end. In addition, a top-up dividend of
0.381p per share was paid in relation to 2020.
- Buyback of shares – the Board bought back 7,394,036 ordinary
shares into treasury. The Board believes that investment by the
Company in its own shares at the levels of discount to net asset
value during the year offered an attractive investment opportunity
for its shareholders against the financial resources the Company
had available.
- Ongoing investment activity – the Company, with oversight from
the Board, disposed of six property assets. The disposals reflected
concerns over asset-specific matters such as rent sustainability,
ESG credentials and also the pandemic-accelerated structural
drivers around office demand. Following these sales, the Company
invested into two industrial assets with good ESG credentials in
addition to the acquisition of open moorland in the Scottish
Highlands as part of our Net Zero strategy.
The Board’s primary focus is to promote the long term success of
the Company for the benefit of its stakeholders as a whole. The
Board oversees the delivery of the investment objective, policy and
strategy, as agreed by the Company’s shareholders. As set out
above, the Board considers the long term consequences of its
decisions on its stakeholders to ensure the sustainability of the
Company.
SHAREHOLDERS
Shareholders are key stakeholders and the Board places great
importance on communication with them. The Board welcomes all
shareholders’ views and aims to act fairly to all shareholders. The
Board believes that the Company’s shareholders seek an attractive
and sustainable level of income, the prospect of growth of income
and capital in the longer term, a well-executed sustainable
investment policy, responsible capital allocation and value for
money.
The Investment Manager and Company’s Broker regularly meet with
shareholders, and prospective shareholders, to discuss Company
initiatives and seek feedback. The views of shareholders are
discussed by the Board at every Board meeting, and action taken to
address any shareholder concerns. The Investment Manager provides
regular updates to shareholders and the market through the Annual
Report, Half-Yearly Report, Quarterly Net Asset Value
announcements, Company Factsheets and its website.
The Chair offers to meet with key shareholders at least
annually, and other Directors are available to meet shareholders as
required. This allows the Board to hear feedback directly from
shareholders on the Company’s ongoing strategy. Despite the
challenges arising from COVID-19, the Chairman and Senior
Independent Director have met virtually with shareholders and the
Investment Manager undertook several meetings with large
shareholders to provide reports on the progress of the Company and
receive feedback, which was then provided to the full Board.
The Company’s AGM provides a forum, both formal and informal,
for shareholders to meet and discuss issues with the Directors and
Investment Manager of the Company.
The Board welcomes correspondence from shareholders, addressed
to the Company’s registered office. All shareholders have the
opportunity to put questions to the Board at the Annual General
Meeting.
This year’s AGM is being held on Wednesday 15th June 2022 at 10.30am at the Investment Manager’s offices at
Bow Bells House, 1 Bread Street, London EC4M 9HH.
The Board hopes that as many shareholders as possible will be
able to attend the meeting. As set out in the Chairman’s Statement,
shareholders are encouraged to submit questions in advance of the
AGM by email to: property.income@abrdn.com
The Board has decided to hold an interactive Online Shareholder
Presentation at 2.00pm on Tuesday
14 June 2022. As part of the
presentation, shareholders will receive updates from the Chairman
and Manager as well as the opportunity to participate in an
interactive question and answer session. Further information on how
to register for the event can be found on
www.workcast.com/register?cpak=4656942387252659
TENANTS
Another key stakeholder group is that of the underlying tenants
that occupy space in the properties that the Company owns. The
Investment Manager works closely with tenants to understand their
needs through regular communication and visits to properties.
The Board believes that tenants benefit from a trusting and long
term working relationship with the Investment Manager, sustainable
buildings and tenancies, value for money and a focus on the
community, health & safety and the environment.
The Investment Manager consults with tenants and, on the Board’s
behalf, invests in our buildings to improve the quality and
experience for our occupiers as well as reduce voids and improve
values, helping to produce stronger returns. The Board receives
reports on tenant engagement and interaction at every Board
meeting. The Board also expects the Investment Manager to undertake
extensive financial due diligence on potential tenants to mitigate
the risk of tenant failure or inability to let properties.
During the COVID-19 pandemic, the Company’s Investment Manager
has worked closely with tenants to understand their needs. The
Board believes that this is a crisis that has impacted on
individuals as much as companies and takes the Social aspects of
ESG very seriously. The Board firmly believes that by helping
tenants during the pandemic and building relationships the Company
will have better occupancy over future months and years, which will
in turn benefit the Company’s cash flow.
DEBT PROVIDER
The Company has a term loan facility and revolving credit facility
with The Royal Bank of Scotland International Limited (“RBSI”).
RBSI seeks responsible portfolio management and ongoing compliance
with the Company’s loan covenants. The Company maintains a positive
working relationship with RBSI and provides regular updates on
business activity and compliance with its loan covenants.
INVESTMENT MANAGER
The Chairman’s Statement and Investment Manager’s Review
detail the key investment decisions taken during the year and
subsequently. The Investment Manager has continued to manage the
Company’s assets in accordance with the mandate provided by
shareholders, with the oversight of the Board. The Board receives
presentations from the Investment Manager at every Board meeting to
help it to exercise effective oversight of the Investment Manager
and the Company’s Strategy. The Board formally reviews the
performance of the Investment Manager, and the fees it receives, at
least annually.
OTHER SERVICE PROVIDERS
The Board via the Management Engagement Committee also ensures that
the views of its service providers are heard and at least annually
reviews these relationships in detail. The aim is to ensure that
contractual arrangements remain in line with best practice,
services being offered meet the requirements and needs of the
Company and performance is in line with the expectations of the
Board, Investment Manager and other relevant stakeholders. Reviews
will include those of the company secretary, broker and share
registrar. The Company’s auditor is reviewed annually by the Audit
Committee.
THE COMMUNITY AND THE ENVIRONMENT
The Board and the Investment Manager are committed to investing in
a responsible manner. There are a number of geopolitical,
technological, social and demographic trends underway globally that
can, and do, influence real estate investments – many of these
changes fall under the umbrella of ESG considerations. As a result,
the Investment Manager fully integrates ESG factors into its
investment decision making and governance process.
To reflect the importance of ESG factors, and how they shape the
decision making of the Company, the Board has created a
Sustainability Committee. This Committee shall give greater focus
to the responsibilities and actions of the Company in this critical
area.
The Board has adopted the Investment Manager’s ESG Policy and
associated operational procedures and is committed to environmental
management in all phases of the investment process.
The Company aims to invest responsibly, to achieve environmental
and social benefits alongside returns. By integrating ESG factors
into the investment process, the Company aims to maximise the
performance of the assets and minimise exposure to risk. Please see
our section on Environmental, Social and Governance, our Taskforce
for Climate-related Financial Disclosures, our Strategic Overview
and the EPRA Financial and Sustainability Reporting, for more
information on the Company’s approach to ESG.
STRATEGIC OVERVIEW
OBJECTIVE
The objective, and purpose, of the Group is to provide shareholders
with an attractive level of income together with the prospect of
income and capital growth.
INVESTMENT POLICY AND BUSINESS MODEL
The Board intends to achieve the investment objective by investing
in a diversified portfolio of UK commercial properties. The
majority of the portfolio will be invested in direct holdings
within the three main commercial property sectors of retail, office
and industrial although the Group may also invest in other
commercial property such as hotels, nursing homes and student
housing.
Investment in property development and investment in
co-investment vehicles, where there is more than one investor, is
permitted up to a maximum of 10% of the property portfolio.
In order to manage risk, without compromising flexibility, the
Board applies the following restrictions to the property portfolio,
in normal market conditions:
- No property will be greater by value than 15% of total
assets.
- No tenant (excluding the Government) will be responsible for
more than 20% of the Group’s rent roll.
- Gearing, calculated as borrowings as a percentage of gross
assets, will not exceed 65%. The Board’s current intention is that
the Group’s Loan-to-value ratio (calculated as borrowings less all
cash as a proportion of property portfolio valuation) will not
exceed 45%.
As part of its strategy, the Board has contractually delegated
the management of the property portfolio, and other services, to
Aberdeen Standard Fund Managers Limited (“the Investment
Manager”).
PROPOSED CHANGE TO INVESTMENT POLICY
Since the formal investment policy was put in place the real estate
market has changed in structure and the Company has matured. As
part of a review the Board is proposing to change the Company’s
investment policy, as follows:
“The Directors intend to achieve the investment objective by
investing in a diversified portfolio of UK real estate assets in
the industrial, office, retail and ‘other’ sectors, where ‘other’
includes leisure, data centres, student housing, hotels (and
apart-hotels) and healthcare.
Investment in property development and investment in
co-investment vehicles where there is more than one investor is
permitted up to a maximum of 10% of the Property Portfolio.
In order to manage risk in the Company, without compromising
flexibility, the Directors apply the following restrictions to the
Property Portfolio:
- No property will be greater by value than 15% of total
assets.
- No tenant (with the exception of the Government) shall be
responsible for more than 20% of the Company’s rent roll.
- Gearing, calculated as borrowings as a percentage of the
Group’s gross assets, may not exceed 65%. The Board’s current
intention is that the Company’s gearing will not exceed 45%.
All investment restrictions apply at the time of investment. The
Company will not be required to dispose of an asset or assets as a
result of a change in valuation.
Any material change to the investment policy of the Company may
only be made with the prior approval of its Shareholders.”
The Board is seeking shareholder approval to the new investment
policy under Resolution 12 at the AGM to be held on 15 June 2022.
STRATEGY
Each year the Board undertakes a strategic review, with the help of
its Investment Manager and other advisers.
The overall intention is to continue to distribute an attractive
income return alongside growth in the NAV and a good overall total
return relative to the peer group.
At the property level, it is intended that the Group remains
primarily invested in the commercial sector, while keeping a
watching brief on other classes such as student accommodation and
care homes as well as other sectors which will enable the Company
to meets its environmental targets.
An ordinary resolution has been proposed to modernise the
Investment Policy, which previously referred to the three main
sectors of office, industrial and retail. As retail has diminished
in importance so the “Other” sector has increased, and the Company
is actively seeking investments in this area, including hotels,
apart-hotels, data centres and student housing – some of which will
be more operational in nature. The Company is also undertaking some
development to ensure its assets meet the highest standards and
will perform well. The development risk is split between pre-let
developments and speculative developments (where there is no lease
in place for the completed unit). Speculative development will not
exceed 10% of the fund.
The Board’s preference is to buy into good, but not necessarily
prime, locations, where it perceives there will be good continuing
tenant demand, and to seek out properties where the asset
management skills of the Investment Manager can be used to
beneficial effect. The Board will continue to have very careful
regard to tenant profiles.
As part of this investment strategy, the Group recognises that
tenants are a key stakeholder and an important objective is
therefore to foster a culture whereby the experience of tenants is
seen as paramount to the future success of the Group.
The Investment Manager works closely with tenants to understand
their needs through regular communication and visits to
properties.
The Board recognises the importance of strong ESG credentials
within the portfolio. The Investment Manager provides the Board
with frequent updates regarding ongoing work to enhance the ESG
attributes of the existing portfolio as well as consideration for
all acquisition opportunities.
Where required, and in consultation with tenants, the Group
refurbishes and manages the owned assets to improve the tenants’
experience, including consideration of health & safety and
environmental factors, with the aim being to generate greater
tenant satisfaction and retention and hence lower voids, higher
rental values and stronger returns.
The Board continues to seek out opportunities for further,
controlled growth in the Group.
The Group continues to maintain a tax efficient structure,
having migrated its tax residence to the UK and becoming a UK REIT
on 1 January 2015.
THE BOARD
As at 31 December 2021, the Board
consisted of a Non-Executive Chairman and four Non-Executive
Directors. Mike Bane has since been
appointed to the Board on 31 January
2022 and brings a wealth of industry experience and skills
which will complement the existing Board. There is also a
commitment to achieve the proper levels of diversity.
KEY PERFORMANCE INDICATORS
The Board meets quarterly and at each meeting reviews performance
against a number of key measures which are considered to be
alternative performance measures (“APMs”). These APMs are in line
with recognised industry performance measures both in the Real
Estate and Investment Trust industry and help to assess the overall
performance of the portfolio and the wider Group:
Property income and total return against the Quarterly
Version of the MSCI Balanced Monthly Funds Index (“the
Index”).
The Index provides a benchmark for the performance of the Group’s
property portfolio and enables the Board to assess how the
portfolio is performing relative to the market. A comparison is
made of the Group’s property returns against the Index over a
variety of time periods (quarter, annual, three years, five years
and ten years).
ESG
The Board and Investment Manager strive to position SLIPIT as a
leader in ESG. The Company has undertaken an initial assessment of
its carbon footprint to inform decision making as the Company
progresses to net zero. A programme is underway to fully understand
the pathway to have all assets EPC B rated within 5 years, and a
clear framework for refurbishment and development standards is in
place. The Company now has a separate Sustainability Committee made
up of the Non-Executive Directors to monitor progress against the
ESG targets set.
Property voids.
Property voids are unlet properties. The Board reviews the level of
property voids within the Group’s portfolio on a quarterly basis
and compares the level to the market average, as measured by MSCI.
The Board seeks to ensure that, when a property becomes void, the
Investment Manager gives proper priority to seeking a new tenant to
maintain income.
Rent collection.
The Board assesses rent collection by reviewing the percentage of
rents collected within 21 days of each quarter end.
Net asset value total return.
The net asset value (“NAV”) total return reflects both the net
asset value growth of the Group and also the dividends paid to
shareholders. The Board regards
this as the best overall measure of value delivered to
shareholders. The Board assesses the NAV total return of the Group
over various time periods (quarter, annual, three years,five years
and ten years) and compares the Group’s returns to those of its
peer group of listed, closed-ended property investment
companies.
Premium or discount of the share price to net asset
value.
The Board closely monitors the premium or discount of the share
price to the NAV and believes that a key driver for the level of
the premium or discount is the Group’s long-term investment
performance. However, there can be short-term volatility in the
premium or discount and the Board takes powers at each Annual
General Meeting (“AGM”) to enable it to issue or buy back shares
with a view to limiting this volatility.
Dividend per share and dividend cover.
A key objective of the Group is to provide an attractive,
sustainable level of income to shareholders and the Board reviews,
at each Board meeting, the level of dividend per share and the
dividend cover, in conjunction with detailed financial forecasts,
to ensure that this objective is being met and is sustainable.
The Board considers the performance measures both over various
time periods and against similar funds.
A record of these measures is disclosed in the Financial and
Portfolio Review, Chairman’s Statement and Investment Manager’s
Review.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board ensures that proper consideration of risk is undertaken
in all aspects of the Group’s business on a regular basis. During
the year, the Board carried
out an assessment of the risk profile of the Group, including
consideration of risk appetite, risk tolerance and risk strategy.
The Board regularly reviews the principal and emerging risks of the
Group, seeking assurance that these risks are appropriately rated
and ensuring that appropriate risk mitigation is in place.
The Group’s assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general, but also the particular
circumstances of the properties in which it is invested, and their
tenants. The Board and Investment Manager seek to mitigate these
risks through a strong initial due diligence process, continual
review of the portfolio and active asset management initiatives.
All of the properties in the portfolio are insured, providing
protection against risks to the properties and also protection in
case of injury to third parties in relation to the properties.
The overarching risk throughout 2021 was COVID-19, which
impacted all areas of society in the UK and abroad. This pandemic
caused significant loss of life and global economic disruption. It
arguably affects all areas of risk on which the Company reports and
maintained the increased risk profile, from the prior year, of the
Company.
Although we have seen the successful vaccination roll-out in the
UK, and a return towards pre-pandemic normality, we remain vigilant
to further strains of the virus as well as the emerging
geopolitical risk that exists at the time of writing this report.
In the section following, particular consideration has been given
to how COVID-19 and geopolitical threats are impacting on the
specific risks that are reviewed at each Board meeting.
The Group and its objectives become unattractive to
investors, leading to widening of the discount.
This risk is mitigated through regular contact with shareholders, a
regular review of share price performance and the level of the
discount or premium at which the shares trade to net asset value
and regular meetings with the Group’s broker to discuss these
points and address any issues that arise. COVID-19 and geopolitical
risk have increased the volatility of the Company’s share price
and, reflecting wider market sentiment, has resulted in the
Company’s shares trading at a discount to prevailing NAV of 11.9%
as at 31 March 2022, in-line with
other diversified peers in the Company’s AIC peer group.
Net revenue falls such that the Group cannot sustain its
level of dividend, for example due to tenant failure or inability
to let properties.
This risk is mitigated through regular review of forecast dividend
cover and of tenant mix, risk and profile. Due diligence work on
potential tenants is undertaken before entering into new lease
arrangements and tenants are kept under constant review through
regular contact and various reports both from the managing agents
and the Investment Manager’s own reporting process.
Contingency plans are put in place at units that have tenants
that are believed to be in financial trouble. The Group subscribes
to the MSCI Iris Report which updates the credit and risk ranking
of the tenants and income stream, and compares it to the rest of
the UK real estate market.
During 2021, the impact of lockdown restrictions continued to
have a severe impact upon retail, particularly traditional, high
street locations.
The Group has partially mitigated the risk by having an
underweight position to the retail sector (11.3%, against the MSCI
benchmark of 20.5%). Reflecting the better performing retail
warehouse sub-sector, the Group has a holding of 9.6% which is
broadly in line with the 11.7% benchmark level.
As lockdown restrictions were lifted and market uncertainty
eased, rent collection rates have improved towards the end of the
year and the Board increased the dividend to reflect this. The full
extent of the heightened geopolitical risk has yet to be seen but
inflationary pressures and vulnerabilities in supply chain could
impact upon our tenants’ ability to trade profitably.
Uncertainty or change in the macroeconomic environment
results in property becoming an undesirable asset class, causing a
decline in property values.
This risk is managed through regular reporting from, and discussion
with, the Investment Manager and other advisers. Macroeconomic
conditions form part of the decision making process for purchases
and sales of properties and for sector allocation decisions.
The impact of COVID-19 on the UK economy had seen the largest
fall in GDP in over 300 years. This impacted both property values
and the ability of tenants to pay rent. The success of the
vaccination programme and easing of restrictions has seen an
improvement in appetite for real estate, reflected in improving
property values.
The full macroeconomic impact of the conflict in Ukraine has not yet materialised but will
disrupt supply chains and contribute to inflationary pressures.
Real estate holdings of good quality and rental growth prospects
can appear more attractive at such times to offer a partial hedge
against inflationary pressures.
Environmental.
Environmental risk is considered as part of each purchase and
monitored on an ongoing basis by the Investment Manager. However,
with extreme weather events both in the UK and globally becoming a
more regular occurrence due to climate change, the impact of the
environment on the property portfolio and on the wider UK economy
is seen as an increasing risk.
Please see the Environmental, Social and Governance Policy
section, our Taskforce for Climate-related Financial Disclosures
and the Investment Manager’s Review for further details on how the
Company addresses environmental risk, including climate change.
Other risks faced by the Group include the following:
- Strategic – incorrect strategy, including sector and
property allocation and use of gearing, could all lead to a poor
return for shareholders.
- Tax efficiency – the structure of the Group or changes
to legislation could result in the Group no longer being a tax
efficient investment vehicle for shareholders.
- Regulatory – breach of regulatory rules could lead to
the suspension of the Group’s Stock Exchange Listing, financial
penalties or a qualified audit report.
- Financial – inadequate controls by the Investment
Manager or third party service providers could lead to
misappropriation of assets. Inappropriate accounting policies or
failure to comply with accounting standards could lead to
misreporting or breaches of regulations.
- Operational – failure of the Investment Manager’s
accounting systems or disruption to the Investment Manager’s
business, or that of third party service providers, could lead to
an inability to provide accurate reporting and monitoring, leading
to loss of shareholder confidence.
- Business continuity – risks to any of the Company’s
service providers or properties, following a catastrophic event
e.g. terrorist attack, cyber-attack, power disruptions or civil
unrest, leading to disruption of service, loss of data etc.
- Refinancing – risk that the Company is unable to renew
its existing facilities, or does so on significantly adverse terms,
which does not support the current business strategy.
The Board seeks to mitigate and manage all risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Group’s property portfolio, levels of
gearing and the overall structure of the Group.
Details of the Group’s internal controls are described in more
detail in the Corporate Governance Report.
VIABILITY STATEMENT
The Board considers viability as part of its ongoing programme of
financial reporting and monitoring risk. The Board continually
reviews the prospects for the Company over the longer term taking
into account the Company’s current financial position, its
operating model, and the diversified constituents of its
portfolio.
In addition the Board considers strong initial due diligence
processes, the continued review of the portfolio and the active
asset management initiatives. Given the above, the Board believes
that the Company has a sound basis upon which to continue to
deliver returns over the long term.
In terms of viability, the Board has considered the nature of
the Group’s assets and liabilities and associated cash flows and
has determined that five years is the maximum timescale over which
the performance of the Group can be forecast with a material degree
of accuracy and so is an appropriate period over which to consider
the Group’s viability.
The Board has also carried out a robust assessment of the
principal and emerging risks faced by the Group. The main risks
which the Board considers will affect the business model are:
future performance, solvency, liquidity, tenant failure leading to
a fall in dividend cover and macroeconomic uncertainty.
These risks have all been considered in light of the financial
and economic impact that arose from COVID-19 and considering the
emerging geopolitical risks.
The Board takes any potential risks to the ongoing success of
the Group, and its ability to perform, very seriously and works
hard to ensure that risks are consistent with the Group’s risk
appetite at all times. In assessing the Group’s viability, the
Board has carried out thorough reviews of the following:
- Detailed NAV, cash resources and income forecasts, prepared by
the Company’s Investment Manager, for a five year period under both
normal and stressed conditions;
- The Group’s ability to pay its operational expenses, bank
interest, tax and dividends over a five year period;
- Future debt repayment dates and debt covenants, in particular
those in relation to LTV and interest cover;
- The ability of the Company to refinance its debt facilities in
April 2023;
- Demand for the Company’s shares and levels of premium or
discount at which the shares trade to NAV;
- Views of shareholders; and
- The valuation and liquidity of the Group’s property portfolio,
the Investment Manager’s portfolio strategy for the future and the
market outlook.
Despite the uncertainty in the UK regarding the future impact of
the COVID-19 pandemic, including the potential for new strains of
the virus, and the emerging geopolitical conflict, the Board has a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the next
five years. This assessment is based on the current financial
position of the Company, its performance track record and feedback
it receives from shareholders.
APPROVAL OF STRATEGIC REPORT
The Strategic Report comprises the Financial and Portfolio Review,
Performance Summary, Chairman’s Statement, Investment Manager’s
Review, Environmental, Social and Governance, Taskforce for
Climate-related Financial Disclosures, Stakeholder Engagement and
Strategic Overview. The Strategic Report was approved by the Board
and signed on its behalf by:
27 April 2022
James Clifton-Brown
Chairman
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and
the Group Consolidated Financial Statements for each year which
give a true and fair view, in accordance with the applicable
Guernsey law and those
International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union.
In preparing those Consolidated Financial Statements, the
Directors are required to:
- Select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
- Make judgement and estimates that are reasonable and
prudent;
- Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- Provide additional disclosures when compliance with the
specific requirements in IFRSs as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group’s financial
position and financial performance;
- State that the Group has complied with IFRSs as adopted by the
European Union, subject to any material departures disclosed and
explained in the Group Consolidated Financial Statements; and
- Prepare the Group Consolidated Financial Statements on a going
concern basis unless it is inappropriate to presume that the Group
will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Consolidated Financial
Statements.
The Directors are responsible for keeping adequate accounting
records, that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that
the Financial Statements comply with The Companies (Guernsey) Law, 2008. They are also responsible
for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud, error
and non-compliance with law and regulations.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors through its Investment Manager; the
work carried out by the auditors does not involve considerations of
these matters and, accordingly, the auditors accept no
responsibility for any change that may have occurred to the
Consolidated Financial Statements since they were initially
presented on the website. Legislation in Guernsey governing the preparation and
dissemination of the consolidated financial statements may differ
from legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the
Consolidated Annual Report under the Disclosure and Transparency
Rules.
The Directors each confirm to the best of their knowledge that:
- The Consolidated Financial Statements, 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
- The management report, which is incorporated into the
Strategic Report, Directors’ Report and Investment Manager’s
Review, 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 that they
face.
Statement under the UK Corporate Governance Code.
The Directors each confirm to the best of their knowledge and
belief that the Annual Report and Consolidated Financial Statements
taken as a whole are fair, balanced and understandable and provide
the information necessary to assess the Group’s position and
performance, business model and strategy.
Approved by the Board on
27 April 2022
James Clifton-Brown
Chairman
FINANCIAL STATEMENTS
Consolidated
Statement of Comprehensive Income for the year ended 31 December
2021 |
Notes |
31-Dec-21
£ |
31-Dec-20
£ |
Rental income |
|
26,485,585 |
29,439,549 |
Service charge
income |
|
4,097,344 |
3,543,976 |
Surrender premium |
|
— |
21,250 |
Valuation gain/(loss)
from investment properties |
7 |
72,188,550 |
(27,640,224) |
Valuation loss from
land |
8 |
(501,550) |
— |
Loss on disposal of
investment properties |
7 |
(634,368) |
(4,806,137) |
Investment management
fees |
4 |
(3,301,074) |
(3,198,519) |
Valuer’s fees |
4 |
(77,457) |
(84,638) |
Auditor’s fees |
4 |
(111,540) |
(118,400) |
Directors’ fees and
subsistence |
23 |
(221,742) |
(236,953) |
Service charge
expenditure |
|
(4,097,344) |
(3,543,976) |
Impairment loss on
trade receivables |
|
(406,475) |
(2,444,966) |
Other direct property
expenses |
|
(3,430,243) |
(2,460,002) |
Other administration
expenses |
|
(751,270) |
(512,849) |
Operating
profit/(loss) |
|
89,238,416 |
(12,041,889) |
Finance income |
5 |
763 |
3,896 |
Finance costs |
5 |
(3,506,359) |
(3,744,074) |
Profit/(loss)
for the year
before
taxation |
|
85,732,820 |
(15,782,067) |
Taxation |
|
|
|
Tax charge |
6 |
— |
— |
Profit/(loss)
for the
year, net of
tax |
|
85,732,820 |
(15,782,067) |
Other Comprehensive Income |
|
|
|
Valuation gain/(loss)
on interest rate swap |
15 |
3,167,218 |
(1,514,638) |
Total other
comprehensive gain/(loss) |
|
3,167,218 |
(1,514,638) |
|
|
|
|
Total comprehensive
gain/(loss) for the year, net of tax |
|
88,900,038 |
(17,296,705) |
Earnings per share |
|
2021 (p) |
2020 (p) |
Basic and diluted
earnings per share |
20 |
21.54 |
(3.88) |
All items in the above Consolidated Statement of Comprehensive
Income derive from continuing operations.
The notes are an integral part of these Consolidated Financial
Statements.
Consolidated
Balance Sheet as at 31 December 2021 |
|
|
|
|
|
31-Dec-21 |
31-Dec-20 |
ASSETS |
Notes |
£ |
£ |
Non-current
assets |
|
|
|
Investment
properties |
7 |
484,514,085 |
428,412,375 |
Lease incentives |
7 |
8,802,294 |
5,885,270 |
Land |
8 |
7,500,000 |
— |
Rental deposits held
on behalf of tenants |
|
904,189 |
855,866 |
|
|
501,720,568 |
435,153,511 |
Current
assets |
|
|
|
Investment properties
held for sale |
9 |
— |
4,300,000 |
Trade and other
receivables |
11 |
11,024,100 |
10,802,197 |
Cash and Cash
equivalents |
12 |
13,818,008 |
9,383,371 |
|
|
24,842,108 |
24,485,568 |
Total
Assets |
|
526,562,676 |
459,639,079 |
LIABILITIES |
|
|
|
Current
liabilities |
|
|
|
Trade and other
payables |
13 |
13,618,457 |
13,096,054 |
Interest rate
swap |
15 |
546,526 |
1,472,387 |
|
|
14,164,983 |
14,568,441 |
Non-current
liabilities |
|
|
|
Bank borrowings |
14 |
109,723,399 |
109,542,823 |
Interest rate
swap |
15 |
21,510 |
2,262,867 |
Obligations under
finance leases |
16 |
901,129 |
902,645 |
Rent deposits due to
tenants |
|
904,189 |
855,866 |
|
|
111,550,227 |
113,564,201 |
Total
liabilities |
|
125,715,210 |
128,132,642 |
|
|
|
|
Net assets |
|
400,847,466 |
331,506,437 |
EQUITY |
|
|
|
Capital and
reserves attributable to Company’s equity holders |
|
|
|
Share capital |
18 |
228,383,857 |
228,383,857 |
Treasury share
reserve |
18 |
(5,991,417) |
(1,450,787) |
Retained earnings |
19 |
8,521,081 |
7,339,209 |
Capital reserves |
19 |
72,095,573 |
(604,214) |
Other distributable
reserves |
19 |
97,838,372 |
97,838,372 |
Total
equity |
|
400,847,466 |
331,506,437 |
Approved and authorised for issue by the Board of Directors on
27 April 2022 and signed on their
behalf by James Clifton-Brown.
The accompanying notes are an integral part of these
Consolidated Financial Statements. Company Number: 41352
(Guernsey)
Consolidated
Statement of Changes in Equity for the year ended 31
December 2021 |
|
|
Share Capital |
Treasury shares £ |
Retained earnings |
Capital reserves |
Other
Distributable Reserves |
Total equity |
|
Notes |
£ |
|
£ |
£ |
£ |
£ |
Opening balance 1 January
2021 |
|
228,383,857 |
(1,450,787) |
7,339,209 |
(604,214) |
97,838,372 |
331,506,437 |
Profit for the year |
|
— |
— |
85,732,820 |
— |
— |
85,732,820 |
Other comprehensive income |
|
— |
— |
— |
3,167,218 |
— |
3,167,218 |
Total comprehensive
income for the period |
|
— |
— |
85,732,820 |
3,167,218 |
— |
88,900,038 |
Ordinary shares issued net of issue
costs |
18 |
— |
(4,540,630) |
— |
— |
— |
(4,540,630) |
Dividends paid |
21 |
— |
— |
(15,018,379) |
— |
— |
(15,018,379) |
Other transfer between reserves |
|
— |
— |
1,520,063 |
(1,520,063) |
— |
— |
Valuation gain from investment
properties |
7 |
— |
— |
(72,188,550) |
72,188,550 |
— |
— |
Valuation loss from land |
8 |
— |
— |
501,550 |
(501,550) |
— |
— |
Loss on disposal of investment
properties |
7 |
— |
— |
634,368 |
(634,368) |
— |
— |
Balance at 31
December 2021 |
|
228,383,857 |
(5,991,417) |
8,521,081 |
72,095,573 |
97,838,372 |
400,847,466 |
Consolidated Statement of Changes in Equity for the year ended
31 December 2020 |
|
Notes |
Share Capital £ |
Treasury shares £ |
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 year |
|
— |
— |
(15,782,067) |
— |
— |
(15,782,067) |
Other comprehensive
income |
|
— |
— |
— |
(1,514,638) |
— |
(1,514,638) |
Total comprehensive
loss for the period |
|
— |
— |
(15,782,067) |
(1,514,638) |
— |
(17,296,705) |
Ordinary shares issued
net of issue costs |
18 |
952,800 |
— |
— |
— |
— |
952,800 |
Ordinary shares placed
into treasury net of issue costs |
18 |
— |
(1,450,787) |
— |
— |
— |
(1,450,787) |
Dividends paid |
21 |
— |
— |
(15,493,435) |
— |
— |
(15,493,435) |
Valuation loss from
investment properties |
7 |
— |
— |
27,640,224 |
(27,640,224) |
— |
— |
Loss on disposal of
investment properties |
7 |
— |
— |
4,806,137 |
(4,806,137) |
— |
— |
Balance at 31
December 2020 |
|
228,383,857 |
(1,450,787) |
7,339,209 |
(604,214) |
97,838,372 |
331,506,437 |
The notes are an integral part of these Consolidated Financial
Statements.
Consolidated Cash Flow Statement for the year ended 31
December 2021 |
|
|
|
Cash flows from
operating activities |
Notes |
12
months to
31-Dec-21 |
12
months to
31-Dec-20 |
|
|
£ |
£ |
Profit/(loss) for the
year before taxation |
|
85,732,820 |
(15,782,067) |
Movement in lease
incentives |
|
(2,966,033) |
(1,694,642) |
Movement in trade and
other receivables |
|
(270,226) |
(6,446,180) |
Movement in trade and
other payables |
|
536,404 |
3,421,484 |
Finance costs |
5 |
3,506,359 |
3,744,074 |
Finance income |
5 |
(763) |
(3,896) |
Other transfer between
reserves |
|
1,520,063 |
— |
Valuation gain/(loss)
from investment properties |
7 |
(72,188,550) |
27,640,224 |
Valuation loss from
land |
8 |
501,550 |
— |
Loss on disposal of
investment properties |
7 |
634,368 |
4,806,137 |
Net cash inflow
from operating activities |
|
17,005,992 |
15,685,134 |
Cash flows from investing activities |
|
|
|
Interest received |
5 |
763 |
3,896 |
Purchase of investment
properties |
7 |
(11,741,501) |
(21,297,754) |
Purchase of land |
8 |
(8,001,550) |
— |
Capital expenditure on
investment properties |
7 |
(1,819,229) |
(4,947,828) |
Net proceeds from
disposal of investment properties |
7 |
31,840,632 |
50,973,863 |
Net cash inflow
from investing activities |
|
10,279,115 |
24,732,177 |
Cash flows from financing activities |
|
|
|
Proceeds on issue of
ordinary shares |
18 |
— |
952,800 |
Shares bought back
during the year |
18 |
(4,540,630) |
(1,450,787) |
Bank borrowing |
14 |
— |
27,000,000 |
Repayment of RCF |
14 |
— |
(45,000,000) |
Interest paid on bank
borrowing |
|
(1,872,545) |
(2,479,388) |
Payments on interest
rate swaps |
|
(1,418,916) |
(1,038,749) |
Dividends paid to the
Company’s shareholders |
21 |
(15,018,379) |
(15,493,435) |
Net cash outflow
from financing activities |
|
(22,850,470) |
(37,509,559) |
Net increase in
cash and cash equivalents |
|
4,434,637 |
2,907,752 |
Cash and cash
equivalents at beginning of year |
12 |
9,383,371 |
6,475,619 |
Cash and cash
equivalents at end of year |
12 |
13,818,008 |
9,383,371 |
The notes are an integral part of these Consolidated Financial
Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31 DECEMBER 2021
1 GENERAL INFORMATION
Standard Life Investment Property Income Trust Limited (“the
Company”) and its subsidiaries (together “the Group”) carries on
the business of property investment through a portfolio of
freehold and leasehold investment properties located in the
United Kingdom. The Company is a
limited liability company incorporated in Guernsey, Channel
Islands. The Company has its listing on the London Stock
Exchange.
The address of the registered office is PO Box 255, Trafalgar
Court, Les Banques, St Peter Port, Guernsey.
These audited Consolidated Financial Statements were approved
for issue by the Board of Directors on 27th
April 2022.
2 ACCOUNTING POLICIES
2.1 Basis of preparation
The audited Consolidated Financial Statements of the Group have
been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union and as issued
by the International Accounting Standards Board, and all applicable
requirements of The Companies (Guernsey) Law, 2008. The audited Consolidated
Financial Statements of the Group have been prepared under the
historical cost convention as modified by the measurement of
investment property, land and derivative financial instruments at
fair value. The Consolidated Financial Statements are presented in
pounds sterling and all values are not rounded except when
otherwise indicated.
The Directors have considered the basis of preparation of the
accounts given the COVID-19 pandemic and believe that it is still
appropriate for the accounts to be prepared on the going concern
basis.
Changes in accounting policy and disclosure
The Group has applied the following amendments for the first time
for their annual reporting period commencing 1 January 2021:
- Amendments to IFRS 9 Financial Instruments, IAS 39 Financial
Instruments: Recognition and Measurement, IFRS 7 Financial
Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16
Leases – Interest Rate Benchmark Reform (Phase 2).
In the prior year, the Group adopted the Phase 1 amendments
Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and
IFRS 7. These amendments modify specific hedge accounting
requirements to allow hedge accounting to continue for affected
hedges during the period of uncertainty before the hedged item or
hedging instruments are amended as a result of the interest rate
benchmark reform.
In the current year, the Group adopted the Phase 2 amendments
Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16. Adopting these amendments enables the Group
to reflect the effects of transitioning from interbank offered
rates (IBOR) to alternative benchmark interest rates (also referred
to as ‘risk free rates’ or RFRs) without giving rise to accounting
impacts that would not provide useful information to users of
financial statements. The Group has not restated the prior period.
Instead, the amendments have been applied retrospectively with any
adjustments recognised in the appropriate components of equity as
at 1 January 2021.
Both the Phase 1 and Phase 2 amendments are relevant to the
Group because it applies hedge accounting to its interest rate
benchmark exposures. The application of the amendments impacts the
Group’s accounting in the following ways.
- The amendments permit continuation of hedge accounting even if
in the future the hedged benchmark interest rate, LIBOR, may no
longer be separately identifiable and there is uncertainty about
the replacement of the floating interest rates included in the
interest rate swaps. However, this relief does not extend to the
requirement that the designated interest rate risk component must
continue to be reliably measurable. If the risk component is no
longer reliably measurable, the hedging relationship will be
discontinued.
- The Group will continue to apply the Phase 1 amendments to IFRS
9/IAS 39 until the uncertainty arising from the interest rate
benchmark reform with respect to the timing and the amount of the
underlying cash flows to which the Group is exposed ends. The Group
expects this uncertainty will continue until the Group’s contracts
that reference IBORs are amended to specify the date on which the
interest rate benchmark will be replaced and the basis for the cash
flow of the alternative benchmark rate are determined including any
fixed spread.
- When the contractual terms of the Group’s bank borrowings are
amended as a direct consequence of the interest rate benchmark
reform and the new basis for determining the contractual cash flows
is economically equivalent to the basis immediately preceding the
change, the Group changes the basis for determining the contractual
cash flows prospectively by revising the effective interest
rate.
Annual improvements to IFRS
The Group has made no adjustments to its financial statements in
relation to IFRS Standards detailed in the annual Improvements to
IFRS 2018–2020 Cycle (effective for annual reporting periods
beginning on or after 1 January
2022). The Group will consider these amendments in due
course to see if they will have any impact on the Group
2.2 Significant accounting judgements, estimates and
assumptions
The preparation of the Group’s Financial Statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainties about these assumptions and
estimates could result in outcomes that could require a material
adjustment to the carrying amount of the asset or liability
affected in the future periods. The most significant estimates and
judgements are set out below. There were no critical accounting
judgements.
Fair value of investment properties
Investment properties are stated at fair value as at the Balance
Sheet date. Gains or losses arising from changes in fair values are
included in the Consolidated Statement of Comprehensive Income in
the year in which they arise. The fair value of investment
properties is determined by external real estate valuation experts
using recognised valuation techniques. The fair values are
determined having regard to any recent real estate transactions
where available, with similar characteristics and locations to
those of the Group’s assets.
In most cases however, the determination of the fair value of
investment properties requires the use of valuation models which
use a number of judgements and assumptions. The only model used was
the income capitalisation method. Under the income capitalisation
method, a property’s fair value is judged based on the normalised
net operating income generated by the property, which is divided by
the capitalisation rate (discounted by the investor’s rate of
return). Under the income capitalisation method, over (above market
rent) and under-rent situations are separately capitalised
(discounted).
The sensitivity analysis in note 7 details the decrease in the
valuation of investment properties if equivalent yield increases by
50 basis points or rental rates (ERV) decreases by 5% which the
Board believes are reasonable sensitivities to apply given
historical movements in valuations.
Lease incentive accounting
As set out under Accounting Policy C(ii), rental income from those
operating leases which include rent free provisions and stepped
rent increases is recognised on a straight line basis over the
lease term. During 2021, it was identified that there were historic
leases dating back to 2016 where the required rent smoothing
adjustments had not been applied. The total of these adjustments up
to the end of the prior year (31 December
2020) amounted to £1,520,063.
Having considered the key financial measures of the Group, and
the accumulated profile of this balance, the Directors are
satisfied that the appropriate correction is a transfer of the
identified adjustment from Capital Reserves to Retained Earnings in
the current year.
This adjustment has no effect on the previously reported NAVs of
the Group.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities
recorded in the Consolidated Balance Sheet cannot be derived from
active markets, they are determined using a variety of valuation
techniques that include the use of mathematical models. The input
to these models are taken from observable markets where possible,
but where this is not feasible, a degree of judgement is required
in establishing fair value. The judgements include considerations
of liquidity and model inputs such as credit risk (both own and
counterparty’s), correlation and volatility.
Changes in assumptions about these factors could affect the
reported fair value of financial instruments. The models are
calibrated regularly and tested for validity using prices from any
observable current market transactions in the same instrument
(without modification or repackaging) or based on any available
observable market data.
The valuation of interest rate swaps used in the Balance Sheet
is provided by The Royal Bank of Scotland. These values are validated by
comparison to internally generated valuations prepared using the
fair value principles outlined above.
The sensitivity analysis in note 3 details the increase and
decrease in the valuation of interest rate swaps if market rate
interest rates had been 100 basis points higher and 100 basis
points lower.
Provision for impairment of receivables
Provision for impairment of receivables are also a key estimation
uncertainty. These are measured with reference to amounts included
as income at the year end but not yet collected. In assessing
whether the credit risk of an asset has significantly increased the
Group takes into account qualitative and quantitative reasonable
and supportable forward-looking information.
Due to the impact of COVID-19 and geopolitical risk on
collection rates, there remains an elevated assessed credit risk.
Each individual rental income debtor is reviewed to assess whether
it is believed there is a probability of default and expected
credit loss given the knowledge of and intelligence about the
individual tenant and an appropriate provision made.
2.3 Summary of significant accounting policies
A Basis of consolidation
The audited Consolidated Financial Statements comprise the
financial statements of Standard Life Investments Property Income
Trust Limited and its material wholly owned subsidiary
undertakings.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with subsidiaries and has the
ability to affect those returns through its power over the
subsidiary. Specifically, the Group controls a subsidiary if, and
only if, it has:
- Power over the subsidiary (i.e. existing rights that give it
the current ability to direct the relevant activities of the
subsidiary)
- Exposure, or rights, to variable returns from its involvement
with the subsidiary
- The ability to use its power over the subsidiary to affect its
returns
The Group assesses whether or not it controls a subsidiary if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary.
Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the
consolidated statement of other comprehensive income from the date
the Group gains control until the date when the Group ceases to
control the subsidiary.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies. All intra-group balances, transactions and
unrealised gains and losses resulting from intra-group transactions
are eliminated in full.
B Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional
currency”). The Consolidated Financial Statements are presented in
pound sterling, which is also the Company’s functional
currency.
C Revenue Recognition
Revenue is recognised as follows:
i) Bank interest
Bank interest income is recognised on an accruals basis.
ii) Rental income
Rental income from operating leases is net of sales taxes and value
added tax (“VAT”) recognised on a straight line basis over the
lease term including lease agreements with stepped rent increases.
The initial direct costs incurred in negotiating and arranging an
operating lease are recognised as an expense over the lease term on
the same basis as the lease income. The cost of any lease
incentives provided are recognised over the lease term, on a
straight line basis as a reduction of rental income. The resulting
asset is reflected as a receivable in the Consolidated Balance
Sheet.
Contingent rents, being those payments that are not fixed at the
inception of the lease, for example increases arising on rent
reviews, are recorded as income in periods when they are earned.
Rent reviews which remain outstanding at the year end are
recognised as income, based on estimates, when it is reasonable to
assume that they will be received.
iii) Other income
The Group is classified as the principal in its contract with the
managing agent. Service charges billed to tenants by the managing
agent are therefore recognised gross.
iv) Property disposals
Where revenue is obtained by the sale of properties, it is
recognised once the sale transaction has been completed, regardless
of when contracts have been exchanged.
D Expenditure
All expenses are accounted for on an accruals basis. The investment
management and administration fees, finance and all other revenue
expenses are charged through the Consolidated Statement of
Comprehensive Income as and when incurred. The Group also incurs
capital expenditure which can result in movements in the capital
value of the investment properties.
E Taxation
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted by the
reporting date. Current income tax relating to items recognised
directly in other comprehensive income or in equity is recognised
in other comprehensive income and in equity respectively, and not
in the income statement. Positions taken in tax returns with
respect to situations in which applicable tax regulations are
subject to interpretation, if any, are reviewed periodically and
provisions are established where appropriate.
The Group recognises liabilities for current taxes based on
estimates of whether additional taxes will be due. When the final
tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income
and deferred tax provisions in the period in which the
determination is made.
Deferred income tax is provided using the liability method on
all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred income tax assets are
recognised only to the extent that it is probable that taxable
profit will be available against which deductible temporary
differences, carried forward tax credits or tax losses can be
utilised. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities. In determining the expected manner of
realisation of an asset the Directors consider that the Group will
recover the value of investment property through sale. Deferred
income tax relating to items recognised directly in equity is
recognised in equity and not in profit or loss.
F Investment property
Investment properties comprise completed property and property
under construction or re-development that is held to earn rentals
or for capital appreciation or both. Property held under a lease is
classified as investment property when the definition of an
investment property is met.
Investment properties are measured initially at cost including
transaction costs. Transaction costs include transfer taxes,
professional fees for legal services and initial leasing
commissions to bring the property to the condition necessary for it
to be capable of operating. The carrying amount also includes the
cost of replacing part of an existing investment property at the
time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment properties are
stated at fair value. Fair value is based upon the market valuation
of the properties as provided by the external valuers as described
in note 2.2. Gains or losses arising from changes in the fair
values are included in the Consolidated Statement of Comprehensive
Income in the year in which they arise. For the purposes of these
financial statements, in order to avoid double counting, the
assessed fair value is:
i) Reduced by the carrying amount of any accrued income
resulting from the spreading of lease incentives and/or minimum
lease payments.
ii) Increased by the carrying amount of any liability to the
superior leaseholder or freeholder (for properties held by the
Group under operating leases) that has been recognised in the
Balance Sheet as a finance lease obligation.
Acquisitions of investment properties are considered to have
taken place on exchange of contracts unless there are significant
conditions attached. For conditional exchanges acquisitions are
recognised when these conditions are satisfied. Investment
properties are derecognised when they have been disposed of and no
future economic benefit is expected from their disposal. Any gains
or losses on the disposal of investment properties are recognised
in the Consolidated Statement of Comprehensive Income in the year
of retirement or disposal.
Gains or losses on the disposal of investment properties are
determined as the difference between net disposal proceeds and the
carrying value of the asset in the previous full period financial
statements.
G Investment properties held for sale
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair value
(except for investment property measured using fair value
model).
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset
(or disposal group) is available for immediate sale in its present
condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
H Land
The Group’s land is capable of woodland creation and peatland
restoration projects which would materially assist the Group’s
transition to Net Zero.
Land is initially measured at cost including transaction costs.
Transaction costs include transfer taxes and professional fees for
legal services. Subsequent expenditure is capitalised only if it is
probable that the future economic benefits associated with the
expenditure will flow to the Group. Land is not depreciated but
instead, subsequent to initial recognition, recognised at fair
value based upon periodic valuations provided by the external
valuers. Gains or losses arising from changes in the fair values
are included in the Consolidated Statement of Comprehensive Income
in the year in which they arise.
I Trade and other receivables
Trade receivables are recognised and carried at the lower of their
original invoiced value and recoverable amount. Where the time
value of money is material, receivables are carried at amortised
cost. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments
(more than 30 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the provision is the
difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is
reduced through use of an allowance account, and the amount of the
expected credit loss is recognised in the Consolidated Statement of
Comprehensive Income. When a trade receivable is uncollectible, it
is written off against the allowance account for trade receivables.
Subsequent recoveries of amounts previously written off are
credited in the Consolidated Statement of Comprehensive Income.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets.
A provision for impairment of trade receivables is established
where the Property Manager has indicated concerns over the
recoverability of arrears based upon their individual assessment of
all outstanding balances which incorporates forward looking
information. Given this detailed approach, a collective assessment
methodology applying a provision matrix to determine expected
credit losses is not used.
The amount of the provision is recognised in the Consolidated
Balance Sheet and any changes in provision recognised in the
Statement of Comprehensive Income.
J Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and other short-term highly liquid investments readily
convertible within three months or less to known amounts of cash
and subject to insignificant risk of changes in value.
K Borrowings and interest expense
All loans and borrowings are initially recognised at the fair value
of the consideration received, less issue costs where applicable.
After initial recognition, all interest-bearing loans and
borrowings are subsequently measured at amortised cost. Amortised
cost is calculated by taking into account any discount or premium
on settlement. Borrowing costs are recognised within finance costs
in the Consolidated Statement of Comprehensive Income as
incurred.
L Accounting for derivative financial instruments and hedging
activities
Interest rate swaps are initially recognised at fair value on the
date a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising the
resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged. The Group documents at the inception of the
transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedging transactions. The Group also documents
its assessment both at hedge inception and on an ongoing basis of
whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows
of hedged items. The effective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges
are recognised in other comprehensive income in the Consolidated
Statement of Comprehensive Income. The gains or losses relating to
the ineffective portion are recognised in operating profit in the
Consolidated Statement of Comprehensive Income.
Amounts taken to equity are transferred to profit or loss when
the hedged transaction affects profit or loss, such as when the
hedged financial income or financial expenses are recognised.
When a derivative is held as an economic hedge for a period
beyond 12 months after the end of the reporting period, the
derivative is classified as non-current consistent with the
classification of the underlying item. A derivative instrument that
is a designated and effective hedging instrument is classified
consistent with the classification of the underlying hedged
item.
M Service charge
IFRS15 requires the Group to determine whether it is a principal or
an agent when goods or services are transferred to a customer. An
entity is a principal if the entity controls the promised good or
service before the entity transfers the goods or services to a
customer. An entity is an agent if the entity’s performance
obligation is to arrange for the provision of goods and services by
another party.
Any leases entered into between the Group and a tenant require
the Group to provide ancillary services to the tenant such as
maintenance works etc, therefore these service charge obligations
belong to the Group. However, to meet this obligation the Group
appoints a managing agent, Jones Lang Lasalle Inc “JLL” and directs
it to fulfil the obligation on its behalf. The contract between the
Group and the managing agent creates both a right to services and
the ability to direct those services. This is a clear indication
that the Group operates as a principal and the managing agent
operates as an agent. Therefore it is necessary to recognise the
gross service charge revenue and expenditure billed to tenants as
opposed to recognising the net amount.
N Other financial liabilities
Trade and other payables are recognised and carried at invoiced
value as they are considered to have payment terms of 30 days or
less and are not interest bearing. The balance of trade and other
payables are considered to meet the definition of an accrual and
have been expensed through the Income Statement or Balance Sheet
depending on classification. VAT payable at the Balance Sheet date
will be settled within 31 days of the Balance Sheet date with Her
Majesty’s Revenue and Customs (“HMRC”) and deferred rental income
is rent that has been billed to tenants but relates to the period
after the Balance Sheet date. Rent deposits recognised in note 13
as current are those that are due within one year as a result of
upcoming tenant expiries.
3 FINANCIAL RISK MANAGEMENT
The Group’s principal financial liabilities are loans and
borrowings. The main purpose of the Group’s loans and borrowings is
to finance the acquisition and development of the Group’s property
portfolio. The Group has rent and other receivables, trade and
other payables and cash and short-term deposits that arise directly
from its operations.
The Group is exposed to market risk (including interest rate
risk and real estate risk), credit risk, liquidity risk and capital
risk. The Group is not exposed to currency risk or price risk. The
Group is engaged in a single segment of business, being property
investment in one geographical area, the United Kingdom. Therefore the Group only
engages in one form of currency being pound sterling.
The Board of Directors reviews and agrees policies for managing
each of these risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices. The
financial instruments held by the Group that are affected by market
risk are principally the interest rate swap.
i) Interest Rate risk
The Group invests cash balances with RBS, Citibank and Barclays.
These balances expose the Group to cash flow interest rate risk as
the Group’s income and operating cash flows will be affected by
movements in the market rate of interest. There is considered to be
no fair value interest rate risk in regard to these balances.
The bank borrowings as described in note 14 also expose the
Group to cash flow interest rate risk. The Group’s policy is to
manage its cash flow interest rate risk using interest rate swaps,
in which the Group has agreed to exchange the difference between
fixed and floating interest amounts based on a notional principal
amount (see note 15). The Group has floating rate borrowings of
£110,000,000. The full £110,000,000 of these borrowings has been
fixed via an interest rate swap.
The fair value of the interest rate swap is exposed to changes
in the market interest rate as their fair value is calculated as
the present value of the estimated future cash flows under the
agreements. The accounting policy for recognising the fair value
movements in the interest rate swaps is described in note 2.3
L.
Trade and other receivables and trade and other payables are
interest free and have settlement dates within one year and
therefore are not considered to present a fair value interest rate
risk.
The tables below set out the carrying amount of the Group’s
financial instruments excluding the amortisation of borrowing costs
as outlined in note 14 Bank borrowings have been fixed due to an
interest rate swap and is detailed further in note 15:
At 31 December 2021 |
Fixed Rate |
Variable Rate
£ |
Interest Rate
£ |
Cash and cash equivalents |
- |
13,818,008 |
0.020% |
Bank borrowings |
110,000,000 |
- |
2.725% |
At 31 December 2020 |
Fixed Rate |
Variable Rate
£ |
Interest Rate
£ |
Cash and cash equivalents |
- |
9,383,371 |
0.020% |
Bank borrowings |
110,000,000 |
- |
2.725% |
At 31 December 2021, if market
rate interest rates had been 100 basis points higher, which is
deemed appropriate given historical movements in interest rates,
with all other variables held constant, the profit for the year
would have been £138,180 higher (2020: £93,834 higher) as a result
of the higher interest income on cash and cash equivalents. Other
Comprehensive Income and the Capital Reserve would have been
£1,657,653 higher (2020: £2,507,886 higher) as a result of an
increase in the fair value of the derivative designated as a cash
flow hedge of floating rate borrowings.
At 31 December 2021, if market
rate interest rates had been 100 basis points lower with all other
variables held constant, the profit for the year would have been
£138,180 lower (2020: £93,834 lower) as a result of the lower
interest income on cash and cash equivalents. Other Comprehensive
Income and the Capital Reserve would have been £1,657,731 lower
(2020: £2,519,221 lower) as a result of a decrease in the fair
value of the derivative designated as a cash flow hedge of floating
rate borrowings.
ii) Real estate risk
The Group has identified the following risk associated with the
real estate portfolio. The risks following, in particular b and c
and also credit risk have remained high given the ongoing COVID-19
pandemic and the resultant effect on tenants’ ability to pay
rent:
a) The cost of any development schemes may increase if there are
delays in the planning process given the inflationary environment.
The Group uses advisers who are experts in the specific planning
requirements in the scheme’s location in order to reduce the risks
that may arise in the planning process.
b) major tenants may become insolvent causing a significant loss
of rental income and a reduction in the value of the associated
property (see also credit risk). To reduce this risk, the Group
reviews the financial status of all prospective tenants and decides
on the appropriate level of security required via rental deposits
or guarantees.
c) The exposure of the fair values of the portfolio to market
and occupier fundamentals. The Group aims to manage such risks by
taking an active approach to asset management (working with tenants
to extend leases and minimise voids), capturing profit (selling
when the property has delivered a return to the Group that the
Group believes has been maximised and the proceeds can be
reinvested into more attractive opportunities) and identifying new
investments (generally at yields that are accretive to the revenue
account and where the Group believes there will be greater
investment demand in the medium term).
Credit risk
Credit risk is the risk that a counterparty will be unable to meet
a commitment that it has entered into with the Group. In the event
of default by an occupational tenant, the Group will suffer a
rental income shortfall and incur additional related costs. The
Investment Manager regularly reviews reports produced by Dun and
Bradstreet and other sources, including the MSCI IRIS report, to be
able to assess the credit worthiness of the Group’s tenants and
aims to ensure that there are no excessive concentrations of credit
risk and that the impact of default by a tenant is minimised. In
addition to this, the terms of the Group’s bank borrowings require
that the largest tenant accounts for less than 20% of the Group’s
total rental income, that the five largest tenants account for less
than 50% of the Group’s total rental income and that the ten
largest tenants account for less than 75% of the Group’s total
rental income. The maximum credit risk from the tenant arrears of
the Group at the financial year end was £5,418,733 (2020:
£6,019,917) as detailed in note 11. The Investment Manager also has
a detailed process to identify the expected credit loss from
tenants who are behind with rental payments.
This involves a review of every tenant who owes money with the
Investment Manager using their own knowledge and communications
with the tenant to assess whether a provision should be made. This
resulted in the provision for bad debts increasing to £2,990,034 at
the year end (2020: £2,583,559).
With respect to credit risk arising from other financial assets
of the Group, which comprise cash and cash equivalents, the Group’s
exposure to credit risk arises from default of the counterparty
bank with a maximum exposure equal to the carrying value of these
instruments. As at 31 December 2021
£1,392,240 (2020: £921,920) was placed on deposit with The Royal
Bank of Scotland plc (“RBS”),
£1,145,830 (2020: £7,749,473) was held with Citibank and
£11,279,938 (2020: £711,978) was held with Barclays. The credit
risk associated with the cash deposits placed with RBS is mitigated
by virtue of the Group having a right to off-set the balance
deposited against the amount borrowed from RBS should RBS be unable
to return the deposits for any reason. Citibank is rated A-2 Stable
by Standard & Poor’s and P-2 Stable by Moody’s. RBS is rated
A-1 Stable by Standard & Poor’s and P-1 Stable by Moody’s.
Barclays is rated A-1 Positive by Standard & Poor’s and P-1
Stable by Moody’s.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The investment properties in which the Group
invests are not traded in an organised public market and may be
illiquid.
As a result, the Group may not be able to liquidate its
investments in these properties quickly at an amount close to their
fair value in order to meet its liquidity requirements.
The following table summarises the maturity profile of the
Group’s financial liabilities based on contractual undiscounted
payments.
The disclosed amounts for interest-bearing loans and interest
rate swaps in the below table are the estimated net undiscounted
cash flows.
The Group’s liquidity position is regularly monitored by
management and is reviewed quarterly by the Board of Directors.
|
On
demand |
12 months |
1 to
5 years |
>5
years |
Total |
Year ended 31
December 2021 |
£ |
£ |
£ |
£ |
£ |
Interest-bearing
loans |
— |
1,744,875 |
110,436,219 |
— |
112,181,094 |
Interest rate
swaps |
— |
1,252,625 |
313,156 |
— |
1,565,781 |
Trade and other
payables |
8,187,362 |
26,068 |
104,271 |
2,606,785 |
10,924,486 |
Rental deposits due to
tenants |
— |
65,720 |
550,084 |
354,105 |
969,909 |
|
8,187,362 |
3,089,288 |
111,403,730 |
2,960,890 |
125,641,270 |
|
|
|
|
|
|
|
|
On
demand |
12 months |
1 to
5 years |
>5
years |
Total |
Year ended 31
December 2020 |
£ |
£ |
£ |
£ |
£ |
Interest-bearing
loans |
— |
1,565,575 |
112,168,436 |
— |
113,734,011 |
Interest rate
swaps |
— |
1,431,925 |
1,789,906 |
— |
3,221,831 |
Trade and other
payables |
4,986,275 |
26,068 |
104,271 |
2,632,853 |
7,749,467 |
Rental deposits due to
tenants |
— |
736,793 |
521,194 |
334,673 |
1,592,660 |
|
4,986,275 |
3,760,361 |
114,583,807 |
2,967,526 |
126,297,969 |
|
|
|
|
|
|
|
Capital risk
The Group’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares, increase or decrease
borrowings or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio.
This ratio is calculated as total borrowings divided by gross
assets and has a limit of 65% set by the Articles of Association of
the Company. Gross assets are calculated as non-current and current
assets, as shown in the Consolidated Balance Sheet.
The gearing ratios at 31 December
2021 and at 31 December 2020
were as follows:
|
2021 |
2020 |
|
£ |
£ |
Total borrowings
(excluding unamortised arrangement fees) |
110,000,000 |
110,000,000 |
Gross assets |
526,562,676 |
459,639,079 |
Gearing ratio (must not exceed 65%) |
20.89% |
23.93% |
The Group also monitors the Loan-to-value ratio which is
calculated as gross borrowings less cash divided by portfolio
valuation. As at 31 December 2021
this was 19.2% (2020: 23.0%).
Fair values
Set out below is a comparison by class of the carrying amounts and
fair value of the Group’s financial instruments that are carried in
the financial statements at amortised cost.
|
Carrying Amount |
Fair Value |
|
2021 |
2020 |
2021 |
2020 |
Financial
Assets |
£ |
£ |
£ |
£ |
Cash and cash
equivalents |
13,818,008 |
9,383,371 |
13,818,008 |
9,383,371 |
Trade and other
receivables |
11,024,100 |
10,802,197 |
11,024,100 |
10,802,197 |
Financial Liabilities
Bank borrowings |
109,723,399 |
109,542,823 |
110,119,830 |
113,000,998 |
Interest rate
swaps |
568,036 |
3,735,254 |
568,036 |
3,735,254 |
Trade and other
payables |
8,359,405 |
5,797,386 |
8,359,405 |
5,797,386 |
The fair value of trade receivables and payables are materially
equivalent to their amortised cost.
The fair value of the financial assets and liabilities are
included at an estimate of the price that would be received to sell
a financial asset or paid to transfer a financial liability in an
orderly transaction between market participants at the measurement
date. The following methods and assumptions were used to estimate
the fair value:
- Cash and cash equivalents, trade and other receivables and
trade and other payables are the same as fair value due to the
short-term maturities of these instruments.
- The fair value of bank borrowings is estimated by discounting
future cash flows using rates currently available for debt on
similar terms and remaining maturities. The fair value approximates
their carrying values gross of unamortised transaction costs. This
is considered as being valued at level 2 of the fair value
hierarchy and has not changed level since 31
December 2020.
- The fair value of the interest rate swap contract is estimated
by discounting expected future cash flows using current market
interest rates and yield curve over the remaining term of the
instrument. This is considered as being valued at level 2 of the
fair value hierarchy and has not changed level since 31 December 2020. The definition of the valuation
techniques are explained in the significant accounting judgements,
estimates and assumptions.
The below table shows an analysis of the fair values of
financial assets and liabilities recognised in the Balance Sheet by
the level 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.
Please see note 7 for details on the valuation of Investment
properties.
Year ended 31
December 2021 |
Level
1 |
Level
2 |
Level
3 |
Total
fair value |
Financial
assets |
|
|
|
|
Trade and other
receivables |
— |
11,024,100 |
— |
11,024,100 |
Cash and cash
equivalents |
13,818,008 |
— |
— |
13,818,008 |
Rental deposits held
on behalf of tenants |
904,189 |
— |
— |
904,189 |
Right of use
asset |
— |
901,129 |
— |
901,129 |
|
14,722,197 |
11,925,229 |
— |
26,647,426 |
Financial
liabilities |
|
|
|
|
Trade and other
payables |
— |
6,554,087 |
— |
6,554,087 |
Interest rate
swap |
— |
568,036 |
— |
568,036 |
Bank borrowings |
— |
110,119,830 |
— |
110,119,830 |
Obligations under
finance leases |
— |
901,129 |
— |
901,129 |
Rental deposits held
on behalf of tenants |
904,189 |
— |
— |
904,189 |
|
904,189 |
118,143,082 |
— |
119,047,271 |
Year ended 31
December 2020 |
Level
1 |
Level
2 |
Level
3 |
Total
fair value |
Financial
assets |
|
|
|
|
Trade and other
receivables |
— |
10,802,197 |
— |
10,802,197 |
Cash and cash
equivalents |
9,383,371 |
— |
— |
9,383,371 |
Rental deposits held
on behalf of tenants |
855,866 |
— |
— |
855,866 |
Right of use
asset |
— |
902,645 |
— |
902,645 |
|
10,239,237 |
11,704,842 |
|
21,944,079 |
Financial
liabilities |
|
|
|
|
Trade and other
payables |
— |
4,038,874 |
— |
4,038,874 |
Interest rate
swap |
— |
3,735,254 |
— |
3,735,254 |
Bank borrowings |
— |
113,000,998 |
— |
113,000,998 |
Obligations under
finance leases |
— |
902,645 |
— |
902,645 |
Rental deposits held
on behalf of tenants |
855,866 |
— |
— |
855,866 |
|
855,866 |
121,677,771 |
— |
122,533,637 |
4 FEES
Investment management fees
On 19 December 2003 Standard Life
Investments (Corporate Funds) Limited (“the Investment Manager”)
was appointed as Investment Manager to manage the property assets
of the Group. A new Investment Management Agreement (“IMA”) was
entered into on 7 July 2014,
appointing the Investment Manager as the AIFM (“Alternative
Investment Fund Manager”). On 10 December
2018, the Investment Manager’s contract was novated on the
same commercial terms to Aberdeen Standard Fund Managers
Limited.
From 1 July 2019, under the terms
of the IMA the Investment Manager is entitled to investment
management fees 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 year amounted to £3,301,074 (2020: £3,198,519). The amount
due and payable at the year end amounted to £893,048 excluding VAT
(2020: £779,737 excluding VAT). In addition the Company paid the
Investment Manager a sum of £160,250 excluding VAT (2020: £131,000
excluding VAT) to participate in the Manager’s marketing programme
and Investment Trust share plan.
Administration, secretarial fees
On 19 December 2003 Northern Trust
International Fund Administration Services (Guernsey) Limited (“Northern Trust”) was
appointed administrator and secretary to the Group. Northern Trust
is entitled to an annual fee, payable quarterly in arrears, of
£65,000. Northern Trust is also entitled to reimbursement of
reasonable out of pocket expenses. Total fees and expenses charged
for the year amounted to £65,000 (2020: £65,000). The amount due
and payable at the year end amounted to £16,250 (2020:
£16,250).
Valuer’s fee
Knight Frank LLP (“the Valuers”), external international real
estate consultants, was appointed as valuers in respect of the
assets comprising the property portfolio. The total valuation fees
charged for the year amounted to £77,457 (2020: £84,638). The total
valuation fee comprises a base fee for the ongoing quarterly
valuation, and a one off fee on acquisition of an asset. The amount
due and payable at the year end amounted to £21,246 excluding VAT
(2020: £18,602 excluding VAT).
The annual fee is equal to 0.017 percent of the aggregate value
of property portfolio paid quarterly.
Auditor’s fee
At the year end date Deloitte LLP continued as independent auditor
of the Group. The audit fees for the year amounted to £111,540
(2020: £118,400) and relate to audit services provided for the 2021
financial year. Deloitte LLP did not provide any non-audit services
in the year (2020: nil).
5 FINANCE INCOME AND COSTS
|
2021
£ |
2020
£ |
Interest income on
cash and cash equivalents |
763 |
3,896 |
Finance income |
763 |
3,896 |
Interest expense on
bank borrowings |
1,613,050 |
2,202,152 |
Non-utilisation
charges on facilities |
329,186 |
277,236 |
Payments on interest
rate swap |
1,383,547 |
1,038,749 |
Amortisation of
arrangement costs (see note 14) |
180,576 |
225,937 |
Finance costs |
3,506,359 |
3,744,074 |
Of the finance costs above, £409,487 of the interest expense on
bank borrowings and £247,093 of payments on interest rate swaps
were accruals at 31 December 2021 and
included in Trade and other payables.
6 TAXATION
UK REIT Status
The Group migrated tax residence to the UK and elected to be
treated as a UK REIT with effect from 1
January 2015. As a UK REIT, the income profits of the
Group’s UK property rental business are exempt from corporation tax
as are any gains it makes from the disposal of its properties,
provided they are not held for trading or sold within three years
of completion of development. The Group is otherwise subject to UK
corporation tax at the prevailing rate.
As the principal company of the REIT, the Company is required to
distribute at least 90% of the income profits of the Group’s UK
property rental business. There are a number of other conditions
that also require to be met by the Company and the Group to
maintain REIT tax status. These conditions were met in the period
and the Board intends to conduct the Group’s affairs such that
these conditions continue to be met for the foreseeable future.
Accordingly, deferred tax is not recognised on temporary
differences relating to the property rental business.
The Company and its Guernsey
subsidiary have obtained exempt company status in Guernsey so that they are exempt from
Guernsey taxation on income
arising outside Guernsey and bank
interest receivable in Guernsey.
A reconciliation between the tax charge and the product of
accounting profit multiplied by the applicable tax rate for the
year ended 31 December 2021 and 2020
is as follows:
|
2021
£ |
2020
£ |
Profit/(loss) before tax |
85,732,820 |
(15,782,067) |
Tax calculated at UK statutory
corporate tax rate of 19% (2020: 19%) |
16,289,236 |
(2,998,593) |
UK REIT exemption on net income |
(2,789,236) |
(3,166,216) |
Valuation (gain)/loss in respect of
investment properties not subject to tax |
(13,500,000) |
6,164,809 |
Current income tax charge |
— |
— |
7 INVESTMENT PROPERTIES
|
UK
Industrial
2021
£ |
UK
Office
2021
£ |
UK
Retail
2021
£ |
UK
Other
2021
£ |
Total 2021
£ |
Market value at 1
January |
211,200,000 |
142,695,000 |
51,150,000 |
32,650,000 |
437,695,000 |
Purchase of investment
properties |
11,690,631 |
— |
50,870 |
— |
11,741,501 |
Capital expenditure on
investment properties |
125,634 |
1,712,322 |
(35,227) |
16,500 |
1,819,229 |
Opening market value
of disposed investment properties |
(9,400,000) |
(20,425,000) |
(2,650,000) |
— |
(32,475,000) |
Valuation gain from
investment properties |
58,043,007 |
1,580,786 |
7,762,099 |
3,282,595 |
70,668,487 |
Movement in lease
incentives receivable |
1,905,978 |
711,892 |
247,258 |
100,905 |
2,966,033 |
Market value at 31
December |
273,565,250 |
126,275,000 |
56,525,000 |
36,050,000 |
492,415,250 |
Investment property
recognised as held for sale |
— |
— |
— |
— |
— |
Market value net of
held for sale at 31 December |
273,565,250 |
126,275,000 |
56,525,000 |
36,050,000 |
492,415,250 |
Right of use asset
recognised on leasehold properties |
— |
901,129 |
— |
— |
901,129 |
Adjustment for lease
incentives |
(4,405,288) |
(2,921,649) |
(808,188) |
(667,169) |
(8,802,294) |
Carrying value at 31
December |
269,159,962 |
124,254,480 |
55,716,812 |
35,382,831 |
484,514,085 |
The valuation gain on investment properties in the Statement of
Comprehensive Income & Statement of Changes in Equity is
adjusted by the lease incentive
adjustment disclosed under Accounting Policies 2.2. in arriving
at the £70,668,487 presented in the table within this note.
|
UK
Industrial
2020
£ |
UK
Office
2020
£ |
UK
Retail
2020
£ |
UK
Other
2020
£ |
Total 2020
£ |
Market value at 1
January |
252,800,000 |
163,305,000 |
42,270,000 |
34,800,000 |
493,175,000 |
Purchase of investment
properties |
5,099 |
623,074 |
20,669,581 |
— |
21,297,754 |
Capital expenditure on
investment properties |
727,680 |
4,051,295 |
168,853 |
— |
4,947,828 |
Opening market value
of disposed investment properties |
(41,100,000) |
(10,700,000) |
(3,980,000) |
— |
(55,780,000) |
Valuation loss from
investment properties |
(2,093,045) |
(15,149,700) |
(8,286,927) |
(2,110,552) |
(27,640,224) |
Movement in lease
incentives receivable |
860,266 |
565,331 |
308,493 |
(39,448) |
1,694,642 |
Market value at 31
December |
211,200,000 |
142,695,000 |
51,150,000 |
32,650,000 |
437,695,000 |
Investment property
recognised as held for sale |
— |
(4,300,000) |
— |
— |
(4,300,000) |
Market value net of
held for sale at 31 December |
211,200,000 |
138,395,000 |
51,150,000 |
32,650,000 |
433,395,000 |
Right of use asset
recognised on leasehold properties |
— |
902,645 |
— |
— |
902,645 |
Adjustment for lease
incentives |
(2,499,310) |
(2,209,756) |
(609,940) |
(566,264) |
(5,885,270) |
Carrying value at 31
December |
208,700,690 |
137,087,889 |
50,540,060 |
32,083,736 |
428,412,375 |
The valuations of investment properties were performed by Knight
Frank LLP, accredited external valuers with recognised and relevant
professional qualifications and recent experience of the location
and category of the investment properties being valued. The
valuation models used by Knight Frank are in accordance with Royal
Institute of Chartered Surveyors (‘RICS’) requirements on
disclosure for Regulated Purpose Valuations (RICS Valuation –
Professional Standards January 2014
published by the Royal Institution of Chartered Surveyors) and are
consistent with the principles in IFRS 13. The market value
provided by Knight Frank at the year end was £492,415,250 (2020:
£437,695,000) however an adjustment has been made for lease
incentives of £8,802,294 (2020: £5,885,270) that are already
accounted for as an asset. In addition, as required under IFRS 16,
a right of use asset of £901,129 (2020: £902,645) has been
recognised in respect of the present value of future ground rents
and an amount of £901,129 (2020: £902,645) has also been recognised
as an obligation under finance leases in the balance sheet, as
explained in note 16.
In the Consolidated Cash Flow Statement, proceeds from disposal
of investment properties comprise:
|
2021
£ |
2020
£ |
Opening market value
of disposed investment properties |
32,475,000 |
55,780,000 |
Loss on disposal of
investment properties |
(634,368) |
(4,806,137) |
Net proceeds from
disposal of investment properties |
31,840,632 |
50,973,863 |
Valuation methodology
The fair values of completed investment properties are determined
using the income capitalisation method.
The income capitalisation method is based on capitalising the
net income stream at an appropriate yield. In establishing the net
income stream the valuers have reflected the current rent (the
gross rent) payable to lease expiry, at which point the valuer has
assumed that each unit will be re-let at their opinion of ERV. The
valuers have made allowances for voids where appropriate, as well
as deducting non recoverable costs where applicable. The
appropriate yield is selected on the basis of the location of the
building, its quality, tenant credit quality and lease terms
amongst other factors.
No properties have changed valuation technique during the year.
At the Balance Sheet date the income capitalisation method is
appropriate for valuing all investment properties.
The Investment Manager meets with the valuers on a quarterly
basis to ensure the valuers are aware of all relevant information
for the valuation and any change in the investment over the
quarter. The Investment Manager then reviews and discusses the
draft valuations with the valuers to ensure correct factual
assumptions are made.
The management group that determines the Company’s valuation
policies and procedures for property valuations is the Property
Valuation Committee as. The Committee reviews the quarterly
property valuation reports produced by the valuers before they are
submitted to the Board, focusing in particular on:
- Significant adjustments from the previous property valuation
report;
- Reviewing the individual valuations of each property;
- Compliance with applicable standards and guidelines including
those issued by RICS and the UKLA Listing Rules;
- Reviewing the findings and any recommendations or statements
made by the valuer;
- Considering any further matters relating to the valuation of
the properties.
The Chair of the Committee makes a brief report of the findings
and recommendations of the Committee to the Board after each
Committee meeting. The minutes of the Committee meetings are
circulated to the Board. The Chair submits an annual report to the
Board summarising the Committee’s activities during the year and
the related significant results and findings.
The table below outlines the valuation techniques and inputs
used to derive Level 3 fair values for each class of investment
properties. The table includes:
- The fair value measurements at the end of the reporting
period.
- The level of the fair value hierarchy (e.g. Level 3) within
which the fair value measurements are categorised in their
entirety.
- A description of the valuation techniques applied.
- Fair value measurements, quantitative information about the
significant unobservable inputs used in the fair value
measurement.
- The inputs used in the fair value measurement, including the
ranges of rent charged to different units within the same
building.
Sector
2021 |
Fair
Value 2021 £ |
Key Unobservable
Input 2021 |
Range |
(Weighted
average) |
Industrial |
273,565,250 |
- Initial Yield |
0.00% to 7.49% |
(4.48%) |
|
|
- Reversionary
Yield |
0.0% to 7.72% |
(5.11%) |
|
|
- Equivalent
Yield |
0.0% to 7.00% |
(5.07%) |
|
|
- Estimated rental
value per sq ft |
£4.00 to £9.50 |
(£6.19) |
Office |
126,275,000 |
- Initial Yield |
2.71% to 6.28% |
(4.77%) |
|
|
- Reversionary
Yield |
5.25% to 9.23% |
(7.28%) |
|
|
- Equivalent
Yield |
5.16% to 8.17% |
(6.84%) |
|
|
- Estimated rental
value per sq ft |
£17.00 to £46.09 |
(£26.19) |
Retail |
56,525,000 |
- Initial Yield |
4.56% to 8.43% |
(6.18%) |
|
|
- Reversionary
Yield |
5.25% to 7.48% |
(5.83%) |
|
|
- Equivalent
Yield |
5.52% to 8.12% |
(6.40%) |
|
|
- Estimated rental
value per sq ft |
£8.74 to £29.32 |
(£15.31) |
Other |
36,050,000 |
- Initial Yield |
4.57% to 8.10% |
(5.40%) |
|
|
- Reversionary
Yield |
4.39% to 7.90% |
(5.22%) |
|
|
- Equivalent
Yield |
4.62% to 7.90% |
(5.35%) |
|
|
- Estimated rental
value per sq ft |
£9.24 to £18.68 |
(£15.09) |
|
492,415,250 |
|
|
|
Descriptions and definitions
The table above includes the following descriptions and definitions
relating to valuation techniques and key observable inputs made in
determining the fair values.
Estimated rental value (ERV)
The rent at which space could be let in the market conditions
prevailing at the date of valuation.
Equivalent yield
The equivalent yield is defined as the internal rate of return of
the cash flow from the property, assuming a rise or fall to ERV at
the next review or lease termination, but with no further rental
change.
Initial yield
Initial yield is the annualised rents of a property expressed as a
percentage of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial
yield will rise (or fall) once the rent reaches the ERV.
Sector
2020 |
Fair
Value 2020 £ |
Key Unobservable
Input 2020 |
Range |
(Weighted
average) |
Industrial |
211,200,000 |
- Initial Yield |
0.00% to 8.08% |
(5.54%) |
|
|
- Reversionary
Yield |
4.29% to 10.29% |
(6.26%) |
|
|
- Equivalent
Yield |
4.26% to 8.55% |
(6.21%) |
|
|
- Estimated rental
value per sq ft |
£2.75 to £8.50 |
(£5.70) |
Office |
142,695,000 |
- Initial Yield |
0.00% to 13.36% |
(5.24%) |
|
|
- Reversionary
Yield |
5.32% to 10.01% |
(7.66%) |
|
|
- Equivalent
Yield |
5.23% to 8.55% |
(7.11%) |
|
|
- Estimated rental
value per sq ft |
£10.25 to £111.00 |
(£25.54) |
Retail |
51,150,000 |
- Initial Yield |
4.79% to 8.49% |
(7.99%) |
|
|
- Reversionary
Yield |
5.12% to 7.84% |
(6.83%) |
|
|
- Equivalent
Yield |
5.63% to 8.05% |
(7.43%) |
|
|
- Estimated rental
value per sq ft |
£8.35 to £90.00 |
(£15.53) |
Other |
32,650,000 |
- Initial Yield |
4.91% to 6.89% |
(5.90%) |
|
|
- Reversionary
Yield |
5.03% to 6.90% |
(5.80%) |
|
|
- Equivalent
Yield |
5.01% to 6.91% |
(5.87%) |
|
|
- Estimated rental
value per sq ft |
£7.50 to £30.00 |
(£19.75) |
|
437,695,000 |
|
|
|
The table below shows the ERV per annum, area per square foot,
average ERV per square foot, initial yield and reversionary yield
as at the Balance Sheet date. |
|
2021 |
2020 |
ERV p.a. |
£31,542,350 |
£32,180,024 |
Area sq ft |
3,517,993 |
3,825,017 |
Average ERV per sq
ft |
£8.97 |
£8.41 |
Initial Yield |
4.8% |
5.8% |
Reversionary
Yield |
4.8% |
6.9% |
The table below presents the sensitivity of the valuation to
changes in the most significant assumptions underlying the
valuation of completed investment property. The Board believe these
are reasonable sensitivities given historic movements in
valuations. |
|
2021
£ |
2020
£ |
Increase in equivalent
yield of 50 bps |
(41,659,430) |
(34,483,590) |
Decrease of 5% in
ERV |
(19,561,811) |
(17,437,618) |
|
|
|
|
Below is a list of how the interrelationships in the sensitivity
analysis above can be explained. In both cases outlined in the
sensitivity table the estimated fair value would increase
(decrease) if:
- The ERV is higher (lower)
- Void periods were shorter (longer)
- The occupancy rate was higher (lower)
- Rent free periods were shorter (longer)
- The capitalisation rates were lower (higher)
8 LAND
During the year, the Group acquired 1,471 hectares of the Ralia
Estate. The land is capable of woodland creation and peatland
restoration, projects which would materially assist the Group’s
transition to Net Zero. The acquisition of this site is unlike the
existing portfolio in that it is not being held to create income or
primarily for capital return.
Valuation methodology
The Land is held at fair value.
The Group appoints suitable valuers (such appointment is
reviewed on a periodic basis) to undertake a valuation of the land
on a quarterly basis. The valuation is undertaken in accordance
with the current RICS guidelines by Knight Frank LLP whose
credentials are set out in note 7.
Reconciliation of
carrying amount |
2021 |
2020 |
Cost |
|
|
Balance at the
beginning of the year |
— |
— |
Additions |
8,001,550 |
— |
Balance at the end of
the year |
8,001,550 |
— |
Unrealised fair
value gains/(losses) |
|
|
Balance at the
beginning of the year |
— |
— |
Valuation loss from
land |
(501,550) |
— |
Balance at the end of
the year |
(501,550) |
— |
Carrying amount as
at 31 December |
7,500,000 |
— |
9 INVESTMENT PROPERTIES HELD FOR SALE
As at 31 December 2021, the Group was
not actively seeking a buyer for any of the Investment
Properties.
As at 31 December 2020, the Group
was actively seeking a buyer for Interfleet House, Derby. The Group
both exchanged contracts and completed this sale on 8 January 2021 for a price of £4,346,000.
10 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
The Company owns 100 per cent of the issued ordinary share capital
of Standard Life Investments Property Holdings Limited, a company
with limited liability incorporated and domiciled in Guernsey, Channel
Islands, whose principal business is property
investment.
The Group undertakings consist of the following 100% owned
subsidiaries at the Balance Sheet date:
- Standard Life Investments Property Holdings Limited, a company
with limited liability incorporated in Guernsey, Channel
Islands.
- Standard Life Investments (SLIPIT) Limited Partnership, a
limited partnership established in England.
- Standard Life Investments SLIPIT (General Partner) Limited, a
company with limited liability incorporated in England.
- Standard Life Investments SLIPIT (Nominee) Limited, a company
with limited liability incorporated and domiciled in England.
- Hagley Road Limited, a company with limited liability
incorporated in Jersey, Channel
Islands.
11 TRADE AND OTHER RECEIVABLES
|
2021
£ |
2020
£ |
Trade receivables |
8,408,767 |
8,603,476 |
Less: provision for
impairment of trade receivables |
(2,990,034) |
(2,583,559) |
Trade receivables
(net) |
5,418,733 |
6,019,917 |
Rental deposits held
on behalf of tenants |
65,720 |
736,793 |
Other receivables |
5,539,647 |
4,045,487 |
Total trade and other
receivables |
11,024,100 |
10,802,197 |
Reconciliation for changes in the provision for impairment of
trade receivables:
|
2021
£ |
2020
£ |
Opening balance |
(2,583,559) |
(138,593) |
Charge for the
year |
(406,475) |
(2,444,966) |
Closing balance |
(2,990,034) |
(2,583,559) |
The estimated fair values of receivables are the discounted
amount of the estimated future cash flows expected to be received
and approximate their carrying amounts.
The trade receivables above relate to rental income receivable
from tenants of the investment properties. When a new lease is
agreed with a tenant the Investment Manager performs various money
laundering checks and makes a financial assessment to determine the
tenant’s ability to fulfil its obligations under the lease
agreement for the foreseeable future. The majority of tenants are
invoiced for rental income quarterly in advance and are issued with
invoices at least 21 days before the relevant quarter starts.
Invoices become due on the first day of the quarter and are
considered past due if payment is not received by this date. Other
receivables are considered past due when the given terms of credit
expire.
Amounts are considered impaired when it becomes unlikely that
the full value of a receivable will be recovered. Movement in the
balance considered to be impaired has been included in other direct
property costs in the Consolidated Statement of Comprehensive
Income. As at 31 December 2021, trade
receivables of £2,990,034 (2020: £2,583,559) were considered
impaired and provided for.
If the provision for impairment of trade receivables increased
by £1 million then the Company’s earnings and net asset value would
decrease by £1 million. If it decreased by £1 million then the
Company’s earnings and net asset value would increase by £1
million.
The ageing of these
receivables is as follows: |
|
|
2021
£ |
2020
£ |
0 to 3 months |
(162,132) |
(252,550) |
3 to 6 months |
(451,417) |
(705,740) |
Over 6 months |
(2,376,485) |
(1,625,269) |
Closing balance |
(2,990,034) |
(2,583,559) |
|
As of 31 December 2021, trade
receivables of £5,418,733 (2020: £6,019,917) were less than 3
months past due but considered not impaired.
12 CASH AND CASH EQUIVALENTS
|
2021 |
2020 |
|
£ |
£ |
Cash held at bank |
12,425,768 |
8,461,451 |
Cash held on deposit
with RBS |
1,392,240 |
921,920 |
|
13,818,008 |
9,383,371 |
|
Cash held at banks earns interest at floating rates based on
daily bank deposit rates. Deposits are made for varying periods of
between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the applicable
short-term deposit rates.
13 TRADE AND OTHER PAYABLES
|
2021 |
2020 |
|
£ |
£ |
Trade and other
payables |
6,488,367 |
3,302,081 |
VAT payable |
1,698,995 |
1,684,195 |
Deferred rental
income |
5,365,375 |
7,372,985 |
Rental deposits due to
tenants |
65,720 |
736,793 |
|
13,618,457 |
13,096,054 |
Trade payables are non-interest bearing and are normally settled on
30-day terms. |
14 BANK BORROWINGS
|
2021 |
2020 |
|
£ |
£ |
Loan facility and
drawn down outstanding balance |
110,000,000 |
110,000,000 |
Opening carrying
value |
109,542,823 |
127,316,886 |
Borrowings during the
year |
— |
27,000,000 |
Repayment of RCF |
— |
(45,000,000) |
Amortisation of
arrangement costs |
180,576 |
225,937 |
Closing carrying
value |
109,723,399 |
109,542,823 |
On 28 April 2016 the Group entered
into an agreement to extend £145 million of its existing £155
million debt facility with Royal Bank of Scotland (“RBS”), now Royal Bank of Scotland
International (“RBSI”). The debt facility consisted of a £110
million seven year term loan facility and a £35 million five year
Revolving Credit Facility (“RCF”) which was extended by two years
in May 2018 with the margin on the
RCF reset to LIBOR plus 1.45%. Interest was payable on the Term
Loan at 3 month LIBOR plus 1.375% which equates to a fixed rate of
2.725% on the Term Loan.
In June 2019, the Group also
entered into a new arrangement with RBSI to extend its RCF by £20
million. This facility had a margin of 1.60% above LIBOR. As at
31 December 2021 none of the RCF was
drawn (2020: £nil).
The London Interbank Offer Rate (LIBOR) was one of the main
interest rate benchmarks used in financial markets to determine
interest rates for financial contracts globally. The low volume of
underlying transactions since the global financial crisis in
2008/2009 made LIBOR unsustainable and as a result, and in line
with announcements from the Financial Conduct Authority (FCA), 24
of the 35 LIBOR settings ceased from 1
January 2022. Various risk free rates are available as an
alternative to LIBOR including the Sterling Overnight Index Average
(SONIA) benchmark.
The Group has taken steps, before the date of transition, to
ensure that any exposure to LIBOR was identified with actions taken
to rebase and re-document any financial contracts where LIBOR was
previously used. This led to minor amendments to operational
processes to cater for this change but there is not expected to be
a material impact on the assets and liabilities of the Group as a
result of the phase out of LIBOR. The switch to SONIA took effect
from the first interest payment date following cessation of LIBOR
(20th January 2022).
Under the terms of the loan facility there are certain events
which would entitle RBSI 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 RBSI 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
|
2021
£ |
2020
£ |
Loan amount |
110,000,000 |
110,000,000 |
Cash |
(13,818,008) |
(9,383,371) |
|
96,181,992 |
100,616,629 |
Portfolio
valuation |
499,915,250 |
437,695,000 |
LTV percentage |
19.2% |
23.0% |
Other loan covenants that the Group is obliged to meet include
the following:
- that the net rental income is not less than 150% of the finance
costs for any three month period;
- that the largest single asset accounts for less than 15% of the
Gross Secured Asset Value;
- that the largest ten assets accounts for less than 75% of the
Gross Secured Asset Value;
- that sector weightings are restricted to 55%, 45% and 55% for
the Office, Retail and Industrial sectors respectively;
- that the largest tenant accounts for less than 20% of the
Group’s annual net rental income;
- that the five largest tenants account for less than 50% of the
Group’s annual net rental income;
- that the ten largest tenants account for less than 75% of the
Group’s annual net rental income.
During the year, the Group complied with its obligations and
loan covenants under its loan agreement.
The loan facility is secured by fixed and floating charges over
the assets of the Company and its wholly owned subsidiaries,
Standard Life Investments Property Holdings Limited and Standard
Life Investments (SLIPIT) Limited Partnership.
15 INTEREST RATE
SWAP
As part of the refinancing of loans (see note 14), on
28 April 2016 the Group completed an
interest rate swap of a notional amount of £110,000,000 with RBS,
now RBSI. The interest rate swap effective date is 28 April 2016 and it has a maturity date of
27 April 2023. Under the swap the
Company has agreed to receive a floating interest rate linked to 3
month LIBOR and pay a fixed interest rate of 1.35%.
The interest rate swap is the Group’s only hedging instrument
and the “interest rate benchmark reform” amendments have been
applied to it. The switch to SONIA took effect from the first
interest payment date following cessation of LIBOR (20th January 2022).
|
2021
£ |
2020
£ |
Opening fair value of
interest rate swaps at 1 January |
(3,735,254) |
(2,220,616) |
Valuation (loss)/gain
on interest rate swaps |
3,167,218 |
(1,514,638) |
Closing fair value of
interest rate swaps at 31 December |
(568,036) |
(3,735,254) |
The split of the swap liability is listed below.
|
2021
£ |
2020
£ |
Current
liabilities |
(546,526) |
(1,472,387) |
Non-current
liabilities |
(21,510) |
(2,262,867) |
Total fair value |
(568,036) |
(3,735,254) |
16 OBLIGATIONS UNDER
FINANCE LEASES
|
Minimum lease |
|
Present value of minimum lease |
|
payments |
Interest |
payments |
2021 |
2021 |
2021 |
£ |
£ |
£ |
Less than one
year |
26,068 |
(24,511) |
1,557 |
Between two and five
years |
104,271 |
(97,607) |
6,664 |
More than five
years |
2,606,785 |
(1,713,877) |
892,908 |
Total |
2,737,124 |
(1,835,995) |
901,129 |
|
Minimum lease |
|
Present value of minimum lease |
|
payments |
Interest |
payments |
2020 |
2020 |
2020 |
£ |
£ |
£ |
Less than one
year |
26,068 |
(24,552) |
1,516 |
Between two and five
years |
104,271 |
(97,784) |
6,487 |
More than five
years |
2,632,853 |
(1,738,211) |
894,642 |
Total |
2,763,192 |
(1,860,547) |
902,645 |
The above table shows the present value of future lease payments
in relation to the ground lease payable at Hagley Road,
Birmingham as required under IFRS
16. A corresponding asset has been recognised and is part of
Investment properties as shown in note 7.
17 LEASE
ANALYSIS
The Group has granted leases on its property portfolio. This
property portfolio as at 31 December
2021 had an average lease expiry of six years and one month.
Leases include clauses to enable periodic upward revision of the
rental charge according to prevailing market conditions. Some
leases contain options to break before the end of the lease
term.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 December are as follows:
|
2021
£ |
2020
£ |
Within one year |
24,857,300 |
26,667,702 |
Between one and two
years |
22,613,540 |
24,233,138 |
Between two and three
years |
19,869,754 |
21,755,932 |
Between three and four
years |
14,371,388 |
17,825,125 |
Between four and five
years |
10,352,802 |
12,404,878 |
More than five
years |
44,233,215 |
60,572,038 |
Total |
136,297,999 |
163,458,813 |
The largest single tenant at the year end accounts for 6.1%
(2020: 5.6%) of the current annual passing rent.
18 SHARE
CAPITAL
Under the Company’s Articles of Incorporation, the Company may
issue an unlimited number of ordinary shares of 1 pence each, subject to issuance limits set at
the AGM each year. As at 31 December
2021 there were 396,922,386 ordinary shares of 1p each in
issue (2020: 404,316,422). All ordinary shares rank equally for
dividends and distributions and carry one vote each. There are no
restrictions concerning the transfer of ordinary shares in the
Company, no special rights with regard to control attached to the
ordinary shares, no agreements between holders of ordinary shares
regarding their transfer known to the Company and no agreement
which the Company is party to that affects its control following a
takeover bid.
Allotted, called up and fully paid:
|
2021
£ |
2020
£ |
Opening balance |
228,383,857 |
227,431,057 |
Shares issued |
— |
960,000 |
Issue costs associated
with new ordinary shares |
— |
(7,200) |
Closing balance |
228,383,857 |
228,383,857 |
Treasury Shares
From November 2020, the Company
undertook a share buyback programme at various levels of discount
to the prevailing NAV. In the period to 31
December 2021 7,394,036 shares had been bought back (2020:
2,548,997) for £4,540,630 after costs (2020: £1,450,787) and are
included in the Treasury share reserve.
|
2021
£ |
2020
£ |
Opening balance |
1,450,787 |
— |
Bought back during the
year |
4,540,630 |
1,450,787 |
Closing balance |
5,991,417 |
1,450,787 |
The number of shares in issue as at 31 December 2021/2020 are as
follows:
|
2021
Number of shares |
2020
Number of shares |
Opening balance |
404,316,422 |
405,865,419 |
Issued during the
year |
— |
1,000,000 |
Bought back during the
year and put into Treasury |
(7,394,036) |
(2,548,997) |
Closing balance |
396,922,386 |
404,316,422 |
19 RESERVES
The detailed movement of the below reserves for the years to
31 December 2021 and 31 December 2020 can be found in the Consolidated
Statement of Changes in Equity.
Retained earnings
This is a distributable reserve and represents the cumulative
revenue earnings of the Group less dividends paid to the Company’s
shareholders.
Capital reserves
This reserve represents realised gains and losses on disposed
investment properties and unrealised valuation gains and losses on
investment properties and cash flow hedges since the Company’s
launch.
Other distributable reserves
This reserve represents the share premium raised on launch of the
Company which was subsequently converted to a distributable reserve
by special resolution dated 4 December
2003.
20 EARNINGS PER
SHARE
Basic earnings per share amounts are calculated by dividing
profit for the year net of tax attributable to ordinary equity
holders by the weighted average number of ordinary shares
outstanding during the year. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are
identical.
The earnings per share for the year is set out in the table
below. In addition one of the key metrics the Board considers is
dividend cover.
This is calculated by dividing the net revenue earnings in the
year (profit for the year net of tax excluding all capital items
and the swaps breakage costs) divided by the dividends payable in
relation to the financial year. For 2021 this equated to a figure
of 98% (2020: 108%). The following reflects the income and share
data used in the basic earnings per share computations:
|
2021
£ |
2020
£ |
Profit for the year
net of tax |
85,732,820 |
(15,782,067) |
|
2021
£ |
2020
£ |
Weighted average
number of ordinary shares outstanding during the year |
398,041,380 |
406,650,268 |
Earnings per ordinary
share (p) |
21.54 |
(3.88) |
Profit for the year
excluding capital items |
14,680,188 |
16,664,294 |
EPRA earnings per
share (p) |
3.69 |
4.10 |
21 DIVIDENDS AND
PROPERTY INCOME DISTRIBUTION GROSS OF INCOME TAX
|
2021 |
2020 |
Dividends |
PID pence |
Non-PID
pence |
Total pence |
PID £ |
Non-PID £ |
PID pence |
Non-PID
pence |
Total pence |
PID £ |
Non-PID £ |
Quarter to 31 December of prior year
(paid in February) |
0.7140 |
— |
0.7140 |
2,878,508 |
— |
0.6290 |
0.5610 |
1.1900 |
2,557,687 |
2,284,011 |
Top-up for 2020 (paid in May) |
0.3810 |
— |
0.3810 |
1,512,274 |
— |
— |
— |
— |
— |
— |
Quarter to 31 March (paid in
May) |
0.8925 |
— |
0.8925 |
3,542,532 |
— |
0.9520 |
0.2380 |
1.1900 |
3,873,359 |
968,340 |
Quarter to 30 June (paid in
August) |
0.8925 |
— |
0.8925 |
3,542,532 |
— |
0.7140 |
— |
0.7140 |
2,905,019 |
— |
Quarter to 30
September
(paid in November) |
0.2519 |
0.6406 |
0.8925 |
999,848 |
2,542,685 |
0.7140 |
— |
0.7140 |
2,905,019 |
— |
Total dividends paid |
3.1319 |
0.6406 |
3.7725 |
12,475,694 |
2,542,685 |
3.0090 |
0.7990 |
3.8080 |
12,241,084 |
3,252,351 |
Quarter to 31 December
of current
year (paid after year end) |
0.7910 |
0.2090 |
1.0000 |
3,138,371 |
— |
0.7140 |
— |
0.7140 |
2,878,508 |
— |
Prior year dividends (per
above) |
(0.7140) |
— |
(0.7140) |
(2,878,508) |
— |
(0.6290) |
(0.5610) |
(1.1900) |
(2,557,687) |
(2,284,011) |
Total dividend for year |
3.2089 |
0.8496 |
4.0585 |
12,735,557 |
2,542,685 |
3.0940 |
0.2380 |
3.3320 |
12,561,905 |
968,340 |
On 25 February 2022 a dividend in
respect of the quarter to 31 December
2021 of 1.0 pence per share
was paid split as 0.791p Property Income Distribution, and 0.209p
Non Property Income Distribution.
22 RECONCILIATION OF
CONSOLIDATED NAV TO PUBLISHED NAV
The NAV attributable to ordinary shares is published quarterly
and is based on the most recent valuation of the investment
properties.
|
2021 |
2020 |
Number of ordinary
shares at the reporting date |
396,922,386 |
404,316,422 |
|
2021
£ |
2020
£ |
Total equity per
audited consolidated financial statements |
400,847,466 |
331,506,437 |
NAV per share (p) |
101.0 |
82.0 |
23 RELATED PARTY
DISCLOSURES
Directors’ remuneration
The Directors of the Company are deemed as key management personnel
and received fees for their services. Further details are provided
in the Directors’ Remuneration Report (unaudited). Total fees for
the year were £221,742 (2020: £236,953) none of which remained
payable at the year end (2020: nil).
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. Further
details are provided in note 4.
|
2021 |
2020 |
Robert Peto* |
— |
30,077 |
Huw Evans |
36,000 |
36,000 |
Mike Balfour |
40,000 |
40,000 |
James
Clifton-Brown** |
47,000 |
39,638 |
Jill May |
36,000 |
36,000 |
S arah
Slater
Employers national insurance contributions |
36,000
17,338 |
36,000
18,737 |
|
212,338 |
236,452 |
Directors
expenses |
9,404 |
501 |
|
221,742 |
236,953 |
* Retired from the Board on 25 August
2020.
** Appointed as Chairman from 25 August
2020.
24 SEGMENTAL
INFORMATION
The Board has considered the requirements of IFRS 8 ‘operating
segments’. The Board is of the view that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, the United
Kingdom.
25 CAPITAL
COMMITMENTS
The Group had contracted capital commitments as at 31 December 2021 of £11.9 million (31 December 2020: £nil). The commitment is to
forward fund a new industrial development in St Helens.
26 EVENTS AFTER
THE BALANCE SHEET DATE
On 25 February 2022 a dividend in
respect of the quarter to 31 December
2021 of 1.0 pence per share
was paid split as 0.791p Property Income Distribution, and 0.209p
Non Property Income Distribution.
On 14 April 2022, the Company
completed the purchase of the Motorpoint car showroom in
Stockton-on-Tees for £5m.
Events in Russia/Ukraine
Post the Balance Sheet date, on 24th
February 2022, Russia
launched a military offensive against Ukraine resulting in widespread sanctions on
Russia and heightened security and
cyber threats.
As at the date of the report the Company did not hold any assets
in Ukraine or Russia. The Company’s key suppliers also do
not have operations pertaining to the Company in Ukraine or Russia.
The situation in the region is rapidly evolving and the Board
and Investment Manager continue to monitor the situation carefully
and will take whatever steps are necessary and in the best
interests of the Company’s Stakeholders. This includes but is not
limited to ensuring that the requirements of all international
sanctions are adhered to, managing the assets of the Company
proactively to best mitigate risk and ensuring that the Investment
Manager and other key suppliers continue to operate all
protections, protocols and monitoring of heightened cyber
threats
This Annual Financial Report
announcement is not the Company's statutory accounts for the year
ended 31 December 2021. The statutory
accounts for the year ended 31 December
2021 received an audit report which was unqualified.
The Annual Report will be posted to shareholders in
May 2022 and will be available by
download from the Company's webpage
(www.slipit.co.uk).
Please note that past performance is not necessarily a guide
to the future and that the value of investments and the income from
them may fall as well as rise. Investors may not get back the
amount they originally invested.
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
For further information:-
Jason Baggaley – Real
Estate Fund Manager, abrdn
Tel: 07801 039463 or jason.baggaley@abrdn.com
Mark Blyth – Real Estate
Deputy Fund Manager, abrdn
Tel: 07703695490or mark.blyth@abrdn.com
Gregg Carswell - Senior
Fund Control Manager, abrdn
Tel: 07800898212 or gregg.carswell@abrdn.com
END