4 August 2022
abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at
30 June 2022
Net Asset Value and Valuations
- Net asset value (“NAV”) per ordinary share was 110.7p
(Mar 2022 – 106.6p), an increase of
3.8% for Q2 2022, resulting in a NAV total return, including
dividends, of 4.8% for the quarter;
- The portfolio valuation (before CAPEX) increased by 3.2% on a
like for like basis during the quarter, whilst the MSCI Monthly
Index increased by 2.4% over the same period.
Investment and letting activity
- Two new lettings completed in the quarter, securing £168,377pa
in rent.
- Lease renewed on logistics unit with a 40% increase in rent
passing, to £448,454pa.
- Agreement for lease exchanged on 150,000 sq. ft industrial unit
at annual rent of £591,500
- Purchase of £5m car showroom asset during the quarter at a
yield of 6.5%.
Financial Position and Gearing
- Strong balance sheet with significant financial resources
available for investment of which £31 million is in the form of the
Company’s low cost, revolving credit facility net of current cash
after dividend and other financial commitments.
- As at 30 June 2022, the Company
had a Loan to Value (“LTV”) of 21.05%*. The debt currently has an
overall blended interest rate of 2.725% per annum.
*LTV calculated as debt less cash divided by investment
portfolio value
Dividends
Following the dividend being maintained in Q1 2022 at 1p per
share, the dividend cover for Q2 2022 is 94% and the Board
continues to consider the current dividend level to be
sustainable.
The Board fully recognises the importance of dividends to the
Company’s shareholders and will keep the quarterly dividend under
review as the Company deploys available resources to acquire
further investment property.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of abrdn
Property Income Trust Limited (“API”) at 30
June 2022 was 110.7p. The net asset value is calculated
under International Financial Reporting Standards (“IFRS”).
The net asset value incorporates the external portfolio
valuation by Knight Frank LLP at 30 June
2022 of £543.6 million.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV
calculated under IFRS over the period 31
March 2022 to 30 June
2022.
|
Per Share
(p) |
Attributable Assets
(£m) |
Comment |
Net assets as at 31
March 2022 |
106.6 |
423.0 |
|
Unrealised increase in
valuation of property portfolio |
5.6 |
16.4 |
Valuation uplift. Like
for like increase of 3.2% in property valuations. |
CAPEX in the
quarter |
-1.7 |
-1.2 |
|
Net income in the
quarter after dividend |
-0.1 |
-0.3 |
94% dividend
cover. |
Interest rate swaps
mark to market revaluation |
0.1 |
0.5 |
SWAP is now deemed an
asset. |
Other movements in
reserves |
-0.1 |
-0.6 |
Movement relating to
lease incentives in the quarter |
Share buybacks |
0.3 |
-4.5 |
Investment in own
shares at a discount to NAV |
Net assets as at 30
June 2022 |
110.7 |
433.3 |
|
European Public Real Estate
Association (“EPRA”) |
30 Jun 2022 |
31 Mar 2022 |
EPRA Net Tangible
Assets |
£432.3m |
£422.6m |
EPRA Net Tangible
Assets per share |
109.3p |
106.5p |
The Net Asset Value per share is calculated using 391,302,152
shares of 1p each being the number in issue on 30 June 2022.
Investment Manager Review and
Portfolio Activity
The investment portfolio continued to see capital growth in Q2,
however as the quarter closed out we began to see a softening in
transaction pricing as increased swap rates impacted debt
purchasers, and talk of recession dampened demand, mainly for the
lowest yielding assets but also risk assets.
The impact of short working weeks due to bank holidays was
evident during the quarter with viewings and enquiries down on
those weeks. We did however complete two new lettings, both of
fully fitted office suites, continuing the theme of the last two
years of benefitting from providing good quality accommodation that
is ready to move into. We also completed a lease regear on a
logistics unit where a new ten year lease was signed at a rent 40%
above the previous rent. As part of the new letting the Company
made a financial contribution to the cost of the building upgrades
to achieve an EPC A rating.
The Company has two logistics units vacant following lease
expiry (in both cases the tenant moved to larger units). At
each property we had agreed terms with new tenants prior to the
expiry of the leases (at rents substantially ahead of the previous
levels). Given that we may not have control of these
units again for 10-15 years, we are taking the opportunity to
undertake comprehensive refurbishments on both units (to include PV
systems and ESG enhancements) to improve and future proof
them. During Q2, we exchanged on an Agreement for Lease on
the unit in Washington with Evri
(formerly Hermes) at an annual rent of £591,500 and expect to
exchange on the unit in Bolton in
Q3.
Vacancy increased slightly over the quarter to 10.2% despite the
two lettings completing, due to the lease expiry of the logistics
unit in Washington, where an
agreement for lease has now been signed, and we expect the new
lease to start mid 2023 after a refurbishment.
ESG remained a key theme of the quarter as we completed several
small upgrades to air conditioning plant and lighting systems, to
ensure all our offices are at a minimum EPC C by the end of
August 2022 (and therefore complying
with statute out to 2030).
As the discount to NAV widened during the quarter the Company
restarted a share buyback program. The decision whether to buy back
shares or not is made as an investment decision – it is not seen as
a discount control program, but rather a way to improve shareholder
returns. The Company bought back 5.6m
shares in Q2, and a further 4.9m
shares in the first three weeks of July.
The Company completed on one purchase during the quarter
(reported previously) – a car showroom let on a long lease and
providing a yield of 6.5% on the £5m purchase price.
The Company exchanged contracts on an office sale after the
quarter end. The single let office on the outskirts of Oxford, sold
for £8.033m, 14.8% above the end March valuation.
Investment Manager Market review
Executive summary
- The UK economy is now facing multiple headwinds and a US led
recession towards the end of 2023 is now the abrdn Research
Institute’s (“aRI”) base case. With an increased risk of a UK
recession in late 2022 in response to the cost of living crisis and
tightening monetary policy by the Bank of England aRI are forecasting a peak-to-trough
decline in the level of GDP of around 1.4%, although the growth in
GDP in May reversed the declines seen in March and April this
year.
- The UK Consumer Price Index (CPI) rose from 9.1% in May to 9.4%
in June, a level last seen in 1982. Inflation is likely to move
higher from here as rising food and energy prices take hold, before
falling thereafter as challenging base effects and slowing economic
growth weigh on headline inflation. aRI are currently
forecasting UK CPI to end the year at 8.5%, before falling to 5.2%
and 1.7% in 2023 and 2024 respectively.
- aRI expects the Bank of England to continue to hike interest rates
over the next few meetings, with the terminal interest rate
reaching 2.25%, despite the predicted slowdown in activity. The BoE
is then likely to pause its hiking cycle, and reverse the hikes
with a cutting cycle starting in Q4 2023. Rising interest rates
have had a material impact on the cost of debt, with very volatile
swap rates. This is beginning to feed through to the investment
market.
- In the first half of 2022, UK real estate recorded the
strongest H1 investment volume since 2015. According to Real
Capital Analytics, a total of £31.2 billion was transacted over
this period. However, approximately two thirds of the activity
occurred in Q1’22. In Q2’22 investment volumes totalled £10.2
billion, down on the Q2 10 year average of £13.5 billion.
- Whilst the UK commercial real estate market had positive
performance in H1 2022, the abrdn market outlook for the next 12-18
months has been revised downwards. We expect an impact on pricing
and capital values across all UK real estate sectors, driven by a
rate revaluation, the increased cost of capital and a narrowing
margin over other asset classes. The extent and duration of this
price correction is unclear, however API has a portfolio that has
focused on affordable assets that meet the needs of tenants, and we
believe that will help mitigate against the initial yield shift
being seen on the prime low yielding assets currently.
Occupier trends
- The industrial sector continues to benefit from very tight
supply levels. The UK vacancy rate sits at approximately 3% and
this has helped support rising rental values across the sector over
the previous 24 months. Whilst we expect industrial occupational
demand to soften in response to the weakening economic environment,
rental value growth should remain positive in response to tight
supply levels, but with a return to more a normalised growth
rates.
- There have been increased reports of positive letting activity
in the office sector over Q2 2022 however overall office demand is
expected to fall as a poorer economic outlook weighs on job growth
across the market, placing additional pressure on occupational
sentiment. Polarisation within the sector is likely to accelerate,
with demand remaining robust for best in class accommodation, with
strong ESG and wellness credentials, whilst sentiment for secondary
assets will cool. The sale of API’s office asset in Kidlington in
the first week of August shows how demand has remained strong for
good quality assets.
- The retail sector, despite some initial green shoots of
recovery appearing at the start of the year, is under further
pressure as the cost of living crisis impacts heavily on consumer
spending. ONS data suggests that consumers are starting to alter
their spending habits in response to rising costs, a trend that is
likely to persist for some time. API’s retail exposure is focused
on affordable out of town retail and we believe that will be most
resilient.
Investment themes
- UK real estate carried some of its performance momentum from
2021 into the early part of 2022. 2022 will likely be categorised
as a year of two halves with a weaker 2H. With sentiment
towards UK real estate weakening, investment volumes are expected
to slow through the course of 2022.
- With rising inflation in the UK, there remain very few asset
classes which enable investors to capture inflation in their income
streams. Real estate as an asset class should enable investors to
partially capture some inflation, particularly in sectors where
leases include indexation.
Net Asset analysis as at 30 June 2022 (unaudited)
|
£m |
% of
net assets |
Industrial |
304.2 |
70.2 |
Office |
126.0 |
29.1 |
Retail |
62.2 |
14.3 |
Other Commercial |
43.7 |
10.1 |
Land |
7.5 |
1.7 |
Total Property
Portfolio |
543.6 |
125.4 |
Adjustment for lease
incentives |
-9.9 |
-2.3 |
Fair value of
Property Portfolio |
533.7 |
123.1 |
Cash |
8.3 |
1.9 |
Other Assets |
24.1 |
5.6 |
Total
Assets |
566.1 |
130.6 |
Current
liabilities |
-0.0 |
-0.0 |
Non-current
liabilities (bank loans & swap) |
-132.8 |
-30.6 |
Total Net
Assets |
433.3 |
100.0 |
Breakdown in valuation movements over
the period 1 April 2022 to
30 June 2022
|
Portfolio Value as at 30 Jun 2022
(£m) |
Exposure as at 30 Jun 2022 (%) |
Like for Like Capital Value Shift (excl transactions &
CAPEX) |
Capital Value Shift (incl transactions (£m) |
|
(%) |
External valuation
at 31 Mar 22 |
|
|
|
521.8 |
|
|
|
|
|
Retail |
62.2 |
11.5 |
1.9 |
1.2 |
South East Retail |
|
1.6 |
1.2 |
0.1 |
Retail Warehouses |
|
9.9 |
2.0 |
1.1 |
|
|
|
|
|
Offices |
126.0 |
23.1 |
(0.7) |
(1.0) |
London City
Offices |
|
2.3 |
(1.9) |
(0.2) |
London West End
Offices |
|
2.3 |
(8.1) |
(1.1) |
South East
Offices |
|
9.2 |
(0.1) |
(0.1) |
Rest of UK
Offices |
|
9.3 |
0.9 |
0.4 |
|
|
|
|
|
Industrial |
304.2 |
56.0 |
5.3 |
15.3 |
South East
Industrial |
|
13.2 |
3.8 |
2.7 |
Rest of UK
Industrial |
|
42.8 |
5.8 |
12.6 |
|
|
|
|
|
Other
Commercial |
43.7 |
8.0 |
3.3 |
6.3 |
|
|
|
|
|
Land |
7.5 |
1.4 |
0.0 |
0.0 |
|
|
|
|
|
External valuation
at 30 Jun 22 |
543.6 |
100.0 |
3.2 |
543.6 |
Top 10 Properties
|
30
Jun 22 (£m) |
B&Q,
Halesowen |
25-30 |
Symphony,
Rotherham |
25-30 |
Hagley Road,
Birmingham |
25-30 |
Marsh Way,
Rainham |
20-25 |
Timbmet,
Shellingford |
15-20 |
Tetron 141,
Swadlincote |
15-20 |
Atos Data Centre,
Birmingham |
15-20 |
Walton Summit,
Preston |
15-20 |
CEVA Logistics,
Corby |
15-20 |
Hollywood Green,
London |
15-20 |
Top 10 tenants
Tenant
Name |
Passing
Rent |
% of total Passing
Rent |
B&Q Plc |
1,560,000 |
5.8% |
The Symphony Group
Plc |
1,225,000 |
4.5% |
Schlumberger Oilfield
UK plc |
1,138,402 |
4.2% |
CEVA Logistics
Limited |
840,000 |
3.1% |
Jenkins Shipping Co
Ltd |
825,390 |
3.1% |
Timbmet Group
Limited |
799,683 |
3.0% |
Atos IT Services UK
Ltd |
780,727 |
2.9% |
Public Sector |
746,476 |
2.8% |
Time Wholesale
Services (UK) Ltd |
656,056 |
2.4% |
ThyssenKrupp Materials
(UK) Ltd |
643,565 |
2.4% |
|
9,215,299 |
34.2% |
Regional Split
South East |
26.9% |
West Midlands |
18.9% |
East Midlands |
12.9% |
Scotland |
11.1% |
North West |
10.9% |
North East |
10.3% |
South West |
4.4% |
London West End |
2.3% |
City of London |
2.3% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
June 2022 and the date of publication of this statement
which would have a material impact on the financial position of the
Company.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014). Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
Details of the Company may also be found on the Investment
Manager’s website at: www.abrdnpit.co.uk
For further information:-
For further information:-
Jason Baggaley – Real Estate Fund
Manager, abrdn
Tel: 07801039463 or jason.baggaley@abrdn.com
Mark Blyth – Real Estate Deputy
Fund Manager, abrdn
Tel: 07703695490 or mark.blyth@abrdn.com
Michelle McKeown - Senior Fund
Control Manager, abrdn
Tel: 07789676852 or michelle.mckeown@abrdn.com
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001