TIDMAPI
Guernsey: 29 September 2023
LEI: 549300HHFBWZRKC7RW84
abrdn Property Income Trust Limited
("API" or the "Company")
INTERIM RESULTS FOR THE PERIODED 30 JUNE 2023
FINANCIAL REVIEW AS AT 30 JUNE 2023
· NAV TOTAL RETURN of 1.2% (H1 2022: 11.7%) for the half year.
· SHARE PRICE TOTAL RETURN of -20.8% (H1 2022: -4.2%%) for the half year.
· FINANCIAL RESOURCES of £28.1m as at 30 June 2023 (2022: £39.0m) available
for investment in the form of the Company's revolving credit facility, net of
cash and capital commitments.
· LOAN-TO-VALUE Moderate Loan-to-value of 28.1% (30 June 2022: 19.8%) at the
period end.
· DIVIDS PAID of 2.0p per share in the first half of the year to 30 June
2023 (H1 2022: 2.0p).
· DIVID YIELD of 8.4% compared to the Dividend yield of the FTSE All-Share
Index (3.7%) and FTSE All-Share REIT Index (5.1%).
PORTFOLIO REVIEW AS AT 30 JUNE 2023
· PORTFOLIO TOTAL RETURN of 1.7% (H1 2022: 9.5%) which compares favourably to
the MSCI benchmark return of 0.3%.
· RENT COLLECTION for first half of 2023 of 95.9% of rent due (H1 2022:
97.0%).
· OCCUPANCY RATE of 91.8% (2022: 89.8%), with committed lettings signed but
not completed adding a further 4% to occupancy rate, compared to the MSCI rate
of 91.8% (2022: 90.4%).
· POSITIVE ASSET MANAGEMENT: A total of 3 lease renewals and restructurings
were undertaken, securing £873,820 p.a. in rent, and a total of 8 lettings
including agreements for lease securing £1,822,101 p.a.
· POSITIVE ASSET MANAGEMENT: 3 rent reviews were settled with uplifts in rent,
securing an additional £178,549 p.a. (an average increase of 30% on previous
rent)
· PORTFOLIO WELL POSITIONED - with a 54.1% weighting in Industrial, 19.1%
weighting in Office, 16.5% weighting in Retail and 10.3% weighting in Other.
· PV SCHEMES - The company has 11 operational PV schemes totalling 2.3 MWp and
is actively engaged in 20 additional schemes that would add a further 15.1 MWp.
The portfolio sector exposure reflects thematic trends. The Company has retained
a high weighting to industrial / logistics assets with a focus on mid box units
that are affordable and meet tenant needs. We have continued to reduce the
exposure to offices through disposals of assets, with a period end weighting of
19.1%.
The Company's Interim Report and Accounts for the period ended 30 June 2023 will
shortly be available to view on the Company's corporate website at
https://www.abrdnpit.co.uk/en-gb/literature. Hard copies will be posted to
shareholders shortly.
PERFORMANCE SUMMARY
Earnings, Dividends & 30 June 30 June
Costs
2023 2022
IFRS Earnings per share 0.8 10.9
(p)
EPRA earnings per share 1.60 2.00
(p) (excl capital items &
derivative movements) *
Dividends paid per 2.00 2.00
ordinary share (p)
Dividend Cover (%) 80.6 98.4
Dividend Yield (%) ** 8.4 5.0
FTSE All-Share Real 5.1 3.6
Estate Investment Trusts
Index Yield (%)
FTSE All-Share Index 3.7 3.5
Yield (%)
Ongoing Charges ***
As a % of average net 2.6 2.2
assets including direct
property costs
As a % of average net 1.2 1.1
assets excluding direct
property costs
Capital Values & Gearing 30 June 31 December Change
2023 2022 %
Total assets (£million) 467.5 444.9 5.1
Net asset value per share 83.8 84.8 (1.2)
(p)
Ordinary Share Price (p) 47.7 62.4 (23.6)
(Discount)/Premium to NAV (43.1) (26.4)
(%)
Loan-to-value (%) ^ 28.1 22.6
Total Return 6 months 1 year 3 year 5 year
% return % return % return % return
NAV # 1.2 (21.0) 19.0 16.8
Share Price # (20.8) (33.1) (6.6) (31.7)
FTSE All-Share Real (7.6) (22.1) (9.1) (22.5)
Estate Investment Trusts
Index
FTSE All-Share Index 2.6 7.9 33.2 16.5
Property Returns & 30 June 30 June
Statistics (%)
2023 2022
Portfolio income return 2.5 2.1
MSCI Benchmark income 2.3 2.0
return
Portfolio total return 1.7 9.5
MSCI Benchmark total 0.3 9.1
return
Void rate 8.6 10.6
* 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 annual dividend paid of 4.0p and the share price at 30 June 2023 of
47.7p.
*** A measure, expressed as a percentage of NAV, of the regular, recurring costs
of running an investment company, calculated in line with AIC ongoing charge
methodology.
^ Calculated as bank borrowings less all cash as a percentage of the open market
value of the property portfolio as at 30 June 2023.
# Assumes re-investment of dividends excluding transaction costs.
Sources: abrdn, MSCI
CHAIR'S STATEMENT
Background
Whilst during the first half of 2023 we did not see any major global events such
as those experienced in recent years, we have still had plenty to contend with.
Stubbornly high inflation along with Global Central Banks efforts to curb it
through interest rate rises, has been by far the greatest challenge. With the
Bank of England base rate currently at 5.25%, and inflation easing in June, July
and August, the general belief is that the peak of base rates is perhaps 25 or
50 bps away.
Although this could be a positive for the real estate market, reducing the
pressure on the margin between property yields and gilts, the longer-term impact
on the economy is yet to be seen. The sharp increase in domestic mortgage rates
is likely to have a material impact on already squeezed household income.
Whether this will result in recession is unclear, with UK GDP demonstrating a
surprisingly positive 0.5% growth in June, compared with the consensus
expectation of 0.2%, whereas July saw a fall of 0.5%.
Real Estate Market
Following the rapid repricing of Real Estate assets during the fourth quarter of
2022, the first half of 2023 saw a return to positive total returns according to
the MSCI UK Quarterly Index. The 0.1% and 0.4% total returns for the first and
second quarters respectively still reflected negative capital growth, albeit the
trajectory has been of slowing declines.
The best performing sector in the first half of the year has been Industrial,
where there has been a return to capital growth led by the continuing robust
occupational market fuelling investment appetite. Whilst Retail values on the
whole have continued to fall, Retail Warehousing has been resilient and has
demonstrated the highest total returns of any sub-sector. In contrast to Retail
and Industrial, the Office sector has seen an acceleration in capital declines.
Similar to the Industrial sector, this has been led by the occupational market,
albeit in a polar opposite manner. The uncertainty around occupational demand
due to changes in working practices is having a negative impact on investor
confidence. With limited investor interest, we are seeing values fall as buyers
are able to take advantage of the lack of competition.
Portfolio and Corporate Performance
The Company's property portfolio produced a total return of 1.7% over the six
months to 30 June 2023, which was ahead of the MSCI benchmark return of 0.3%.
The Company's property portfolio has also outperformed the MSCI benchmark over
3, 5 and 10 years.
Whilst the NAV total return over the six-month period was 1.2%, the total return
to shareholders was -20.8% due to a further widening of the discount of the
share price to NAV per share. On 30 June 2023, the Company's share price was at
a 43.1% discount to the NAV. The Company's peer group are all currently trading
at varying levels of wide discount, reflecting the negative sentiment towards
the UK real estate market. The level of discount is of great concern to the
Board and we continue to explore ways that will reduce it in the longer term.
Dividends
The Company's dividend has been maintained at an annualised rate of 4p per share
since December 2021. Dividend cover for the first half of 2023 was 80.6% which
is lower than in the past due largely to the increase in finance costs; the
Company is looking at ways to mitigate this increase. In the meantime, the Board
is cognisant that many of the Company's shareholders retain their holdings due
to the attractive income it generates and intend to maintain the current
dividend level for 2023 and 2024.
Financial Resources & Portfolio Activity
The Company has maintained a favourable financial position throughout the first
half of 2023, with unutilised financial resources of approximately £28.1m
available for investment, in the form of the company's revolving credit facility
(RCF), net of existing cash and capital commitments.
The Company had a loan-to-value (LTV) ratio of 28.1% at 30 June 2023 and all
banking covenants are comfortably met on a quarterly basis.
During the six months to 30 June 2023, the Company completed the purchase of a
supermarket let on a long lease with CPI-linked rent reviews. The purchase price
was £18.3m, reflecting a yield of 6.35%. In addition, the Company completed the
purchase of a piece of land at Knowsley for £3.8m with the aim of developing an
industrial site throughout 2023.
The manager is exploring targeted sales of assets in order to pay down the RCF.
Outlook
With a marginally positive total return during the six-months to 30 June 2023 we
have seen the beginnings of a stabilisation in the UK property market. This
remains a relatively fragile position, with inflation still running well ahead
of UK Government targets, and therefore the threat of further interest rate
increases continues to linger.
Whilst we have seen a recovery in some sectors of the UK Real Estate market
during the first half of 2023, there has been a significant divergence in
returns between the sectors. The Manager's market outlook expects this to widen
and continue for at least the next 12 months, with the Office sector in
particular faring the worst.
Overall office demand is anticipated to continue to decrease, leading to a
further weakening of investor sentiment towards the sector. The impact is likely
to be most acutely felt on secondary assets as occupiers and investors alike
favour "best in class" buildings. Ensuring that assets offer good levels of
amenity that appeal to occupiers will be key, and the Company's strong letting
activity in 2023 to date is a positive indicator that its portfolio is well
positioned.
The Industrial sector is forecast to continue its recovery after the turbulence
of 2022. Whilst supply levels have started to increase, with Savills reporting a
June 2023 vacancy rate only marginally below the pre-Covid average, they remain
at manageable levels given robust demand levels. The expectation is that this
dynamic will result in more muted rental growth than has been seen over recent
years.
With expectations that the squeeze on household incomes will continue, this will
result in further pressure on the retail sector. Discretionary spending is
anticipated to be most impacted, with food and discount retailers proving more
resilient. These are the two areas where the Company has focused its retail
assets, which should be a positive going forward.
Environmental, Social and Governance (ESG) factors continue to increase in
importance during occupiers and investors decision-making process. The Manager's
long-standing focus on this area will be important for future performance and
should provide resilience within the portfolio.
28 September 2023
James Clifton-Brown
INVESTMENT MANAGER'S REPORT
Share prices in real asset companies have remained under pressure throughout the
first half of 2023. Discounts remain wide in several sectors, including real
estate, as investors benefit from returns not achievable in recent years from
fixed income. Pricing of the underlying real estate assets has stabilised in the
first half of 2023, with gains in valuation in the Industrial and Retail
Warehouse sectors accompanied by continued declines in the Office sector, which
is under structural pressure. The wide discounts to NAV are expected to narrow
once there is sufficient confidence that interest rates have peaked, and the
cost of debt is falling.
Commercial Property
The UK real estate market recorded a period of relative stability in the first
half of 2023 following the significant repricing the sector experienced in late
2022. This repricing was principally driven by increased debt costs and rising
gilt yields, which served to dent investor conviction on asset pricing. Whilst
economic volatility during the first six months of 2023 declined, headwinds
continue to weigh on the sector and investor sentiment has remained weak as a
result.
Over the first half of the year, UK real estate performance was muted. All
property recorded a total return of 0.5% according to the MSCI Quarterly Index,
with the industrial and residential sectors leading the way at 2.9% and 2.2%
respectively. All sectors, with the exception of offices which saw total return
remain negative at -4.3%, recorded positive total return during the first half
of the year, recovering from the poor performance seen in the last quarter of
2022. Capital value growth, while remaining negative for all property, has also
stabilised somewhat in those sectors which saw the largest value decline towards
the end of 2022, and which benefit from structural growth drivers. The
industrial sector recorded capital growth of 0.7% in the first six months of the
year, compared to a further decline for offices of -6.4%.
Transaction volumes have also remained constrained during the first half of 2023
as investors have taken a risk off approach towards the sector amid elevated
financing costs. As a result, approximately £18.3bn transacted across the UK to
June 2023 according to RCA data. To put this into perspective, transaction
volumes to the end of June 2023 were lower than that recorded in the same period
in 2020 (during the onset of the Covid-19 pandemic), and 37% below the 10-year
first half average. Transactions involving UK offices accounted for 26% of
activity in the first half of 2023, followed by the industrial and retail
sectors at 22% and 20% respectively. Investor demand for residential assets
continues to rise, with the sector accounting for 19% of transaction volumes.
Transaction volumes are anticipated to remain subdued over the remainder of the
year in response to the weak macroeconomic and higher interest rate environment,
with holders of good quality real estate likely to remain unwilling sellers.
Improved investment activity is likely to be prompted by greater confidence
around the path of the Bank of England's monetary policy, with an end to the
current policy tightening cycle likely to improve investor sentiment.
More positivity returned to the industrial and logistics sector during the first
six months of the year, as pricing and performance demonstrated signs of
improvement. Occupier and investor demand remains focused on the best-quality
assets, with investors targeting those assets with strong rental growth
potential. This is anticipated to result in polarisation in performance between
good-quality and secondary accommodation, with best-in-class assets
outperforming the wider market. Looking forward, we expect continued positive
performance, principally driven by robust rental growth, albeit at more
normalised levels. While vacancy rates have increased since the start of the
year, they remain near historic lows and any new supply is unlikely to satisfy
current occupational demand, helping to sustain positive rental growth.
The office sector remains under structural pressure as evolving working habits
and economic uncertainty weigh on the sector. Rising supply levels and weakening
demand are forcing vacancy rates higher, with the Central London vacancy rate
now in excess of 9% according to CoStar data. This scenario is expected to
dampen rental growth prospects and expedite the bifurcation in sector
performance. In response, investor demand for UK offices remains weak amid a
poor outlook for the sector. Headline investment volumes hide a lack of real
liquidity in the office market and anecdotal evidence suggests that secondary
office assets are coming to market at material discounts to previous valuations.
Further capital value declines, particularly for secondary assets, are expected
across the sector, while best-in-class accommodation, in locations that benefit
from a robust supply/demand dynamic, will likely prove more resilient, but won't
be immune to the pressures the sector is facing.
UK retail has proven more resilient than first envisioned over the start of 2023
in spite of a cost-of-living crisis and weaker economic environment. However, it
is clear that consumers are now cutting back on non-essential spending and,
according to ONS data, retail volumes are now 0.8% lower than pre-covid levels.
In this environment, discount led retailers have proven more resilient - as
demonstrated by the rising market share enjoyed by discounters such as Aldi and
Lidl during 2023. As a result, investors remain focused on convenience and
discount led retail assets which have seen more stable performance during the
first half of the year. Sentiment towards high street retail and shopping
centres continues to be weak.
Investment Outlook
While more positivity returned to the market in the first half of 2023, the
outlook for UK real estate is clouded by a weaker macroeconomic climate. Upside
surprises in UK inflation data during the first seven months of the year led to
a more aggressive monetary policy stance from the Bank of England, spooking
financial markets as a result. That said, a reduction in inflation rates during
June, July and August prompted the Bank of England to hold interest rates during
their meeting in September.
Gilt yields have continued to rise in the third quarter of 2023 reducing the
margin between UK real estate and gilt yields. That said, the previous repricing
of UK real estate has softened the impact of higher gilt yields. Rising interest
rates will also maintain pressure on real estate pricing as debt costs become
increasingly dilutive to performance. More positively, debt financing remains
available and lender appetite remains for good-quality accommodation.
In the face of these headwinds, investors are likely to remain cautious and
focus on good-quality accommodation. These assets should prove more resilient in
the face of weaker economic conditions and benefit from more robust
supply/demand dynamics. Polarisation within sectors is expected to intensify,
with secondary rental and capital values under further pressure, especially in
the office sector. While prime pricing may not be immune, the performance gap
between prime and secondary assets is expected to widen. Occupational
performance is expected to be the predominant driver of real estate returns in
the near term. As a result, occupier covenant strength and the resilience of
income will be paramount.
Any substantive improvement in real estate performance is now expected in early
2024, when the path of UK monetary policy is forecast to become more
accommodative. The risks to the timing of this recovery remain high, however,
given the strength of underlying inflation and the associated risk of interest
rates having to remain higher for longer.
Performance
The Company uses a variety of measures of performance, comparing the portfolio
level returns to direct real estate indices, NAV level performance to its peer
group, and also share price returns to its peer group.
Portfolio Level Performance:
The Company uses the MSCI Quarterly index to measure the relative performance of
its portfolio. Performance over the first half of the year was good relative to
the benchmark (with slight under performance in the first quarter from the
impact of purchases, but strong out performance in the second quarter driven by
asset management and sector allocation). The Company has slightly under
performed over 12 months, but has seen strong out performance over 3, 5 and 10
years as shown in the chart below. As noted in the market commentary, the first
half of the year saw a general stabilisation in valuations after the significant
falls in the second half of last year, but overall capital values continued to
decline in the first half of 2023 (portfolio capital decline -0.79% against
market -1.98%). The overall positive total return was driven by the income yield
from the assets (portfolio 2.54% against market 2.28%).
Source Portfolio total return Benchmark total return NAV total return
abrdn,
MSCI
6 months 1.7% 0.3% 1.2%
1 Year (15.3%) (15.0%) (21.0%)
3 Year 18.4% 7.8% 19.0%
5 Year 21.3% 8.4% 16.8%
10 Year 120.2% 84.2% 144.9%
NAV Performance:
The NAV total return takes into account the impact of debt and other costs of
the Company not included in the property level returns. As the MSCI quarterly
index does not provide a like for like comparison we use the AIC peer group
instead. The Company's NAV performance compared to peers has been mixed over
recent times, with short term under performance but out performance over 3 and
10 years. Over the last year the costs associated with the new debt facilities
have been the main negative impact on the NAV relative to peers.
NAV Total Returns to 30 June 2023
Source AIC, abrdn 1 year 3 years 5 years 10 years
% % % %
abrdn Property Income Trust (21.0) 19.0 16.8 144.9
Limited
AIC Property UK Commercial (15.3) 12.5 21.7 34.3
(weighted average)
Investment Association Open Ended (11.9) 1.5 (0.7) 35.7
Commercial Property Funds sector
Share Price Performance:
This is the element that the manager has least influence over, however it is the
one most linked to investor experience. The Company has seen a continued de
-rating of shares over the first half of 2023, which has negatively impacted the
share price return. Despite the significant rebasing of the NAV, stabilisation
of real estate valuations, and attractive yield the discount remains wide.
Share Price Total Returns to 30 June 2023
Source AIC, abrdn 1 year 3 years 5 years 10 years
% % % %
abrdn Property Income (33.1) (6.6) (31.7) 39.7
Trust Limited
FTSE All-Share Index 7.9 33.2 16.5 78.0
FTSE All-Share REIT Index (22.1) (9.1) (22.5) 26.0
AIC Property Direct - UK (29.2) 1.8 (11.9) 6.1
Sector (weighted Average)
Dividends:
The Company has a clearly stated objective to provide shareholders with an
attractive level of income. Given the period of transition we are in as we adapt
to the challenges of climate change the focus of the Company has been to invest
in assets that will provide a sustainable income that has the prospect of
growth. The portfolio is based around affordable property that tenants want to
occupy. This has led to the disposal of higher yielding assets that do not meet
the criteria, but we believe that the future income will be more reliable from
the quality of assets the company owns. The current annual dividend level of 4p
per share is paid quarterly, and although cover in the first half of 2023 was
80.6% the board believes the current dividend level to be maintainable.
Portfolio Valuation:
The investment portfolio is valued on a quarterly basis by Knight Frank LLP. As
at 30 June 2023 the Company had 47 assets valued at £445.0m and held cash of
£10.0m. This compares to 45 assets valued at £416.2m with £15.9m cash as at 31
December 2022.
Portfolio Strategy and Allocation:
In constructing the portfolio to meet the Company's objectives the Investment
Manager takes a medium-term view and pays particular attention to structural
changes in markets and ESG, as these are the main drivers of return over the
longer term. We invest in assets that tenants want to occupy and that are
affordable.
Most investors will be aware that the retail sector has had a very difficult 10
years due to structural changes in the way we shop. Having had only a small
exposure to retail for a long time we have slowly increased our holdings to
16.5% of the portfolio with exposure focused on affordable retail warehousing
and most recently a food store. These assets provide resilient income however we
remain cautious of the High Street and Shopping Centres.
On the other side of the structural change facing retailers has been logistics.
The Company has long held a large exposure to this sector - despite the sale of
several multi let estates a couple of years ago to realise profit and reduce
exposure to smaller tenants. A continued belief in the sector, especially after
the repricing in 2022, has led us to refurbish and develop logistics units to
ensure we have high quality assets. During the first half of this year we
completed the development of a unit in St Helens, which on practical completion
was let to St Helen's County Council for a 15-year term. The unit is sublet to a
not-for-profit organisation to be used for research and development into
improved ways of producing glass. The unit has very strong ESG credentials. The
Company has also commenced the development of a 110,000 sq ft logistics unit in
Knowsley (scheduled to complete at the end of 2023), and we are already in
discussions with two interested parties to lease the unit. Again, the unit will
meet very high ESG standards. We are also on site with a major refurbishment at
Rainhill Road, Washington, repurposing an old manufacturing unit into a high
-quality parcel distribution unit. That refurbishment is due to complete in
October, and should provide another operational net zero building.
The Office sector is of course going through its own period of structural
change. Return to the office is not a consistent feature, and it is still not
clear where office demand will end up, but it is clear that overall demand will
be lower than experienced pre pandemic. Furthermore, demand will be focused on
assets that meet tenants needs and where people want to come in to work -
location (ease of access), amenity, and environmental performance are all key
factors. During the first half of 2023 we have let office accommodation at 4 of
the 5 office buildings where we had availability.
We aim to provide a diversified portfolio investing not just across sectors, but
also throughout the UK. We do not target a specific geographical weighing, but
aim to own the right asset for a location, understanding the demand and drivers
of each market we invest in.
Portfolio Allocation by region
Region Weighting
South East 23.9%
West Midlands 19.5%
North West 13.7%
East Midlands 12.8%
Scotland 11.6%
North East 10.8%
South West 3.1%
London City 2.5%
London West End 2.1%
Environmental, Social and Governance (ESG):
ESG is covered in great detail in our annual report and accounts. We have fully
integrated ESG into our investment and decision-making processes because we
believe it impacts value. Although that impact has been relatively muted to
date, we expect it to become a greater factor going forward. Environmental
performance of assets is of course important - it impacts the cost of running a
building as well as the carbon footprint. When reviewing our current portfolio,
we assess the requirements for each asset and work out the best time for
intervention to upgrade the asset. The aim of which is to ensure that we do not
waste money or materials in replacing functional plant before it is right to do
so. One measure of the upgrading of assets is the improvement in EPC ratings
over time, as shown in the table on the right.
% Estimated Rental Value (ERV)
EPC Rating Jun 23 Dec 22 Dec 21
A 10% 4% 2%
B 33% 27% 21%
C 41% 42% 33%
D 9% 19% 35%
E 9% 19% 35%
F 0% 0% 0%
G 1% 1% 1%
One area of focus for us has been to install on-site renewable energy where we
can in the form of Photo Voltaic (PV) cells. During the first half of 2023 we
completed 5 new systems so that on 30 June we had 11 operational systems with an
estimated annual output of c3.6m kWh of power. We hope to complete another 5
schemes during the remainder of 2023.
Case Study - Rainhill Road, Washington
Engaging innovative solutions
· Pre-let refurbishment project, due to complete in October 2023.
· Landlord works will make significant ESG improvements to the building
including an EPC improvement from C to A and a PV installation which should
offset 100% of the operational carbon from the tenant.
· Due to building structural constraints, we have employed an innovative PV
system which combines a roof covering and solar panel to reduce weight.
· The completed installation not only maximises what was achievable on the
building,
API Existing System System Panels No. of Kettles Households
Electric Street CO2 Trees
Portfolio
Size Output Tennis Boiled Powered Cars
Lights Emissions Planted
Courts
(kWp) (Annual)
Charged Powered Reduced
Flamingo 918 1,952,299 2,295 22.5 8,345.5 519.2
862.3 13,605 451 21,486
Flowers
Ltd, Great
North
Road, Sandy
(22
Jun 20)
Unit 4 Easter New 310 239,788 775 7.6 2,818.2 63.8
105.9 1,671 55 2,639
Park, Bolton Q1
(System 23
1: 18 May 12)
&
(System 2: 01
23)
Mount Farm, New 258 193,500 645 6.3 2,345.5 51.5 85.5
1,348 45 2,130
Milton Keynes Q1
23
Swift House, New 240 205,000 600 5.9 2,182 55 91
1,429 47 2,256
Rugby Q1
23
Unit 1-4 Opus New 232 185,600 580 5.7 2,109 49.4 82
1,293 43 2,043
9, Q1
Warrington 23
Causewayside 90 108,874 225 2.2 818.2 29 48.1
759 25 1,198
House, 160
Causewayside,
Edinburgh (27
Nov
20)
Interlink New 60 51,000 150 1.5 545.5 13.6 22.5
355 12 561
Park, Q1
Bardon 23
Unit 14 50 181,518 125 1.2 454.5 48.3 80.2
1,265 42 1,998
Interlink
Park, Bardon
(29
Mar 19)
Tetron 141 , 50 182,020 125 1.2 454.5 48.4 80.4
1,268 42 2,003
William Nadin
Way,
Swadlincote
(11
Dec 18)
Unit 2, 50 146.674 125 1.2 454.5 39 64.8
1,022 34 1,614
Brunel
Way,
Segensworth
East, Fareham
(20
Mar 19)
Pinnacle, 20 42 150,938 105 1 381.8 40.1 66.7
1,052 35 1,661
Tudor Road,
Reading
(27 Mar 17)
Total 2,300 3,597,211 5,750 56 20,909 957
1,589 25,068 831 39,590
In addition to PV we are also installing EV chargers across the portfolio where
it is viable to do so. We are varying the type of charger and whether we fund
the installation or lease out the opportunity depending on the asset type and
expected demand. To date we have installed or committed to install EV at every
office we own with parking and are progressing with an install across a package
of 4 of our retail warehouse parks.
Case Study - 85 Fullarton Drive, Cambuslang
85 Fullarton Drive in Cambuslang (Glasgow) is a logistics unit of 61,000 sq ft
which has been let to Speedy Hire since 2013. The unit acts as the tenant's
Scottish hub, providing both plant and machinery hire services, and serving as
the company's main service and repair centre for the region.
From early discussions with the tenant we were aware that they wanted to remain
in the unit on a long term basis and had wider company level ESG targets they
wanted to achieve. Agreement was reached on a new 10 year lease from June 2023
at a rent 30% higher than the passing rent, and 19% higher than ERV, due to the
prominence and desirability of the location. Terms to improve the unit's ESG
credentials were agreed as part of the transaction which aligned the tenant's
aspirations with API's focus on improving EPCs and rolling out PV across the
estate.
The 10 year term means that Speedy is going to invest in the building, with the
tenant planning a programme of ESG related works such as LED lighting
replacement. As part of the renewal, terms were agreed for API to install a PV
system on the roof, following roof repairs to be carried out at the tenant's
cost. These roof works will start shortly, with the PV installation due to be
completed by the end of 2023. The rate per kWh for the electricity generated
onsite, plus all repairing obligations, were documented up front to avoid any
delays with further negotiation post completion of the new lease.
Land at Far Ralia:
The Company acquired land at Far Ralia (Scottish Highlands) to undertake
reforestation and peatland restoration in the belief it offered a high-quality
and cost effective way to offset future carbon emissions. We have been
progressing with planning and subsequent approvals and will commence planting in
September. This is one of the largest reforestation projects in Scotland
currently underway and we believe will deliver valuation benefits to the Company
over the next year.
Asset management:
Whilst the investment market and general economic environment has been
challenging this year so far, there have been some significant successes with
asset management across the portfolio. The headline vacancy rate as at 30 June
2023 is 8.2% (31 Dec 2022: 9.8%), although at the time the effective vacancy
rate (which takes account of the contractual agreements for lease) was only
4.5%. The scale of lettings, especially in the challenged office sector, is
testament to the appeal of the assets held by the Company. Key highlights are:
· 8 lettings securing £1.8m pa in rent have been completed (including
agreements for lease), as well as an agreement for lease completed after the
reporting period securing a further £132,250 pa rent.
· 3 lease renewals / regears completed, securing £873,820 pa.
· 3 rent reviews agreed with an increase in rent of £178,549 pa (and a further
rent review agreed post reporting period with a £33,556 pa uplift).
Sales:
While no sales were undertaken during the reporting period, targeted sales are
being explored.
Purchases:
The Company acquired a food store in Welwyn Garden City let to Morrisons for
£18.3m, which reflected a yield of 6.35%. The store is a strong trader for
Morrisons and was acquired off market by way of a sale and leaseback with a new
25 year lease subject to CPI linked rental increases (annually for the first
five years). The unit and location would hold great appeal to other operators
should it become available. In addition, the Company completed the purchase of a
piece of land at Knowsley for £3.8m with the aim of developing an industrial
site throughout 2023.
Debt:
During the reporting period the Company's debt facility expired and was replaced
with a new facility which commenced in April 2023 as agreed with the lender
(RBSI) in October last year; RBSI have continued to provide debt to the Company
since its launch. The new facility is comprised of two components, a term loan
for £85m (which is fully drawn) and a Revolving Credit Facility (RCF) of £80m;
as at 30 June 2023, £50m was drawn on the RCF. The margin on both components is
an attractive 150bps (over Sonia). In addition the Company has entered into an
interest rate cap of 3.96% on the Sonia rate applied to the term loan component.
All facilities are due to expire in April 2026. The debt cost is a considerable
increase on the previous low levels of the expired facility and will impact the
Company's performance until Sonia rates decline. The LTV as at 30 June was
28.1%.
Outlook:
In what is undoubtedly a difficult time for real estate we will continue to
focus on asset management and affecting income and dividend cover through
actively managing the assets in the portfolio. Although the economic outlook is
for slow growth, with a potential recession, the portfolio is based around the
principles of affordable assets that appeal to tenants, and we believe that will
help maintain high levels of occupancy. As and when interest rates are thought
to have peaked we expect to see the start of a re-rating in real asset share
prices based on previous cycles.
PROPERTY INVETMENTS
Top Ten Properties
Property Value (range) Sector % of total portfolio
B&Q, Halesowen £24m - £26m Retail 5.4%
54 Hagley Road, £22m - £24m Office 5.0%
Birmingham
Ickles Way, £20m - £22m Industrial 4.8%
Rotherham
Morrisons, Welwyn £18m - £20m Retail 4.1%
Garden City
White Horse £14m - £16m Industrial 3.5%
Business Park,
Shellingford
Building 3000, £14m - £16m Other 3.4%
Birmingham
Hollywood Green, £12m - £14m Other 3.1%
London
Tetron 141, £12m - £14m Industrial 3.1%
Swadlincote
3 Earstrees Road, £12m - £14m Industrial 3.0%
Corby
Walton Summit, £12m - £14m Industrial 2.8%
Preston
Top Ten Tenants
Tenant Passing Rent % of total contracted rent
B&Q Plc £1,560,000 5.8%
Public Sector £1,364,226 5.1%
WM Morrisons Supermarkets Ltd £1,252,162 4.7%
The Symphony Group Plc £1,225,000 4.6%
Schlumberger Oilfield UK Plc £1,138,402 4.2%
Timbmet Limited £904,768 3.4%
Atos IT Services Limited £872,466 3.3%
CEVA Logistics Limited £840,000 3.1%
Jenkins Shipping Co Ltd £816,390 3.0%
Thyssenkrupp Materials (UK) Ltd £643,565 2.4%
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's assets consist of direct investments in UK commercial property.
Its principal risks are therefore related to the commercial property market in
general, but also the particular circumstances of the properties in which it is
invested, and their tenants. The main risk to the Company
currently is the likelihood of a UK recession, as a result of persistent
inflation which is continuing to have a negative impact on the economy. The
Russia/Ukraine war, along with other geopolitical tensions are also affecting
the current climate and the effects of the pandemic that resulted in a weakened
supply chain and changes in working patterns are also still being seen. The
Board and Investment Manager seek to mitigate risks through a strong initial due
diligence process, continual review of the portfolio and active asset management
initiatives. All of the properties in the portfolio are insured, providing
protection against risks to the properties and also protection in case of injury
to third parties in relation to the properties.
The Board have carried out an assessment of the risk profile of the Company
which concluded that the risks as at 30 June 2023, were not materially different
from those detailed in the statutory accounts for the Company for the year ended
31 December 2022. Additional risks which have been considered by the Board are
the impact of our debt renewal on dividend cover as a result of the recent rise
in borrowing rates and the impact of the likelihood of the UK recession on void
rates within our property portfolio.
Having reviewed the principal risks, the Directors believe that the Company has
adequate resources to continue in operational existence for the foreseeable
future, and therefore believes it appropriate to adopt the going concern basis
in preparing the financial statements.
The Company has not identified any new principal risks or emerging risks that
will impact the remaining six months of the year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES CONDENSED
The Directors are responsible for preparing the Interim Report in accordance
with applicable law and regulations. The Directors confirm that to the best of
their knowledge:
· The Unaudited Condensed Consolidated Financial Statements have been prepared
in accordance with IAS 34; and
· The Interim Report includes a fair review of the information required by
4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules; and
· In accordance with 4.2.9R of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules, it is confirmed that this publication has not
been audited or reviewed by the Company's auditors.
The Interim Report, for the six months ended 30 June 2023, comprises an Interim
Report in the form of the Chair's Statement, the Investment Manager's Report,
the Directors' Responsibility Statement and Unaudited Consolidated Condensed
Financial Statements. The Directors each confirm to the best of their knowledge
that:
· the Unaudited Condensed Consolidated Financial Statements are prepared in
accordance with IFRSs as adopted by the European Union, and give a true and fair
view of the assets, liabilities, financial position and profit or loss of the
Group; and
· the Interim Report includes a fair review of the development and performance
of the business and the position of the Group, together with a description of
the principal risks and uncertainties faced.
For and on behalf of the Directors of abrdn Property Income Trust Limited.
Approved by the Board on
28 September 2023
James Clifton-Brown
Chair
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 June 2023
Notes 01 Jan 23 01 Jan 22 01 Jan 22
to 30 Jun to 30 Jun to 31 Dec
23 22 2022
£ £ £
Rental income 13,158,202 13,566,429 26,697,931
Service charge 3 2,634,895 2,334,220 4,411,821
income
Service charge 3 (3,548,933) (2,971,262) (5,576,812)
expenditure
Net Rental Income 12,244,164 12,929,387 25,532,940
Administrative
and other
expenses
Investment 3 (1,319,824) (1,817,616) (3,480,963)
management fees
Other direct 3 (1,366,537) (1,501,925) (3,089,960)
property expenses
Impairment 3 (52,273) 526,890 852,062
(loss)/gain on
trade
receivables
Other 3 (544,932) (549,333) (1,134,919)
administration
expenses
Total (3,283,566) (3,341,984) (6,853,780)
Administrative
and other
expenses
Operating profit 8,960,598 9,587,403 18,679,160
before changes in
fair value of
investment
properties
Valuation 4 (2,796,932) 35,560,346 (62,257,782)
(loss)/gain from
investment
properties
Valuation loss 6 (475,619) (60,322) (60,322)
from land
Loss on disposal 4 (5,465) - (207,153)
of investment
properties
Operating 5,682,582 45,087,427 (43,846,097)
profit/(loss)
Finance income 51,405 3,650 27,543
Finance costs (2,870,136) (1,778,691) (3,672,685)
Loss on - - (3,562,248)
termination of
interest
rate swaps
Profit for the 2,863,851 43,312,386 (51,053,487)
period before
taxation
Taxation
Tax charge - - -
Profit for the 2,863,851 43,312,386 (51,053,487)
period, net of
tax
Other
comprehensive
income
Movement in fair (902,534) 1,515,008 1,470,570
value of existing
swap
Movement in fair 1,837,334 - 43,292
value of interest
rate cap
Total other 934,800 1,515,008 1,513,862
comprehensive
gain
Total 3,798,651 44,827,394 (49,539,625)
comprehensive
gain/(loss) for
the period, net
of tax
Earnings per Pence Pence Pence
share
Basic and diluted 7 0.8 10.9 (13.1)
earnings per
share
All items in the above Unaudited Consolidated Statement of Comprehensive Income
derive from continuing operations.
The notes below are an integral part of these Unaudited Consolidated Financial
Statements.
UNAUDITED CONSOLIDATED BALANCE SHEET
For the period ended 30 June 2023
Assets Notes 30 Jun 23 30 Jun 22 31 Dec 22
£ £ £
Non-current assets
Investment properties 4 431,171,992 497,822,284 401,217,536
Lease incentives 4 8,162,006 9,903,316 8,357,036
Land 6 7,500,000 7,500,000 7,500,000
Interest rate cap 11 2,900,969 - 2,211,007
Rental deposits held on behalf 703,209 984,381 751,782
of tenants
450,438,176 516,209,981 420,037,361
Current assets
Investment properties held for 4, 5 - 29,250,000 -
sale
Trade and other receivables 5,737,177 12,211,707 7,457,083
Cash and cash equivalents 9,958,675 8,281,368 15,871,053
Interest rate swap 11 - 946,972 1,238,197
Interest rate cap 11 1,406,290 - 339,462
17,102,142 50,690,047 24,905,795
Total assets 467,540,318 566,900,028 444,943,156
Liabilities
Current liabilities
Trade and other payables 11,320,946 15,952,009 10,880,310
11,320,946 15,952,009 10,880,310
Non-current liabilities
Bank borrowings 12 134,242,626 115,816,328 109,123,937
Obligations under finance 1,811,711 900,350 899,572
leases
Rent deposits due to tenants 703,209 984,381 751,782
136,757,546 117,701,059 110,775,291
Total liabilities 148,078,492 133,653,068 121,655,601
Net assets 319,461,826 433,246,960 323,287,555
Equity
Capital and reserves
attributable to Company's
equity holders
Share capital 9 228,383,857 228,383,857 228,383,857
Treasury share reserve 9 (18,400,876) (10,480,869) (18,400,876)
Retained earnings 2,899,511 8,394,995 4,382,024
Capital reserves 8,740,962 109,110,605 11,084,178
Other distributable reserves 97,838,372 97,838,372 97,838,372
Total equity 319,461,826 433,246,960 323,287,555
Pence Pence Pence
NAV per share 83.8 110.7 84.8
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2023
Notes Share Treasury Retained Capital Other
Total
Capital £ Shares £ Earnings £ Reserves £
Distributable Equity £
Reserv
es £
Opening 228,383,857 (18,400,876) 4,382,024 11,084,178
97,838,372 323,287,555
balance 01
Jan 2023
Profit for - - 2,863,851 - -
2,863,851
the
period
Other - - - 934,800 -
934,800
comprehensive
income
Total - - 2,863,851 934,800 -
3,798,651
comprehensive
gain for the
period
Dividends 10 - - (7,624,380) - -
(7,624,380)
paid
Valuation 4 - - 2,796,932 (2,796,932) -
-
loss from
investment
properties
Valuation 6 - - 475,619 (475,619) -
-
loss from
land
Loss on 4 - - 5,465 (5,465) -
-
disposal of
investment
properties
Balance at 30 228,383,857 (18,400,876) 2,899,511 8,740,962
97,838,372 319,461,826
Jun
2023
Opening 228,383,857 (5,991,417) 8,521,081 72,095,573
97,838,372 400,847,466
balance 01
Jan 2022
Profit for - - 43,312,386 - -
43,312,386
the period
Other - - - 1,515,008 -
1,515,008
comprehensive
income
Total - - 43,312,386 1,515,008 -
44,827,394
comprehensive
gain
for the
period
Ordinary (4,489,452) - - -
(4,489,452)
shares paced
into
treasury net
of issue
costs
Dividends 10 - - (7,938,448) - -
(7,938,448)
paid
Valuation 4 - - (35,560,346) 35,560,346 -
-
gain from
investment
properties
Valuation 6 - - 60,322 (60,322) -
-
loss from
land
Balance at 30 228,383,857 (10,480,869) 8,394,995 109,110,605
97,838,372 433,246,960
Jun 2022
Opening 228,383,857 (5,991,417) 8,521,081 72,095,573
97,838,372 400,847,466
balance 01
Jan 2022
Loss for the - - (51,053,487) - -
(51,053,487)
year
Other - - - 1,513,862 -
1,513,862
comprehensive
income
Total - - (51,053,487) 1,513,862 -
(49,539,625)
comprehensive
loss
for the
period
Ordinary - (12,409,459) - - -
(12,409,459)
shares paced
into
treasury net
of issue
costs
Dividends 10 - - (15,610,827) - -
(15,610,827)
paid
Valuation 4 - - 62,257,782 (62,257,782) -
-
loss from
investment
properties
Valuation 6 - - 60,322 (60,322) -
-
loss from
land
Loss on 4 - - 207,153 (207,153) -
-
disposal of
investment
properties
Balance at 31 228,383,857 (18,400,876) 4,382,024 11,084,178
97,838,372 323,287,555
Dec 2022
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the period ended 30 June 2023
01 Jan 23 01 Jan 22 01 Jan 22
Cash flows from operating Notes to 30 Jun 23 to 30 Jun 22 to 31 Dec 22
activities
£ £ £
Profit for the period 2,863,851 43,312,386 (51,053,487)
before taxation
Movement in lease 195,030 (1,101,023) (841,398)
incentives
Movement in trade and 1,768,479 (1,267,799) 3,719,424
other receivables
Movement in trade and (50,187) 2,413,157 (3,237,151)
other payables
Loss on termination of - - 3,562,248
interest rate swap
Finance costs 2,870,136 1,778,691 3,672,685
Finance income (51,405) (3,650) (27,543)
Valuation gain from 4 2,796,932 (35,560,346) 62,257,782
investment properties
Valuation loss from land 6 475,619 60,322 60,322
Loss on disposal of 4 5,465 - 207,153
investment properties
Net cash inflow from 10,873,920 9,631,738 18,320,035
operating activities
Cash flows from investing
activities
Interest received 51,405 3,650 27,543
Purchase of investment 4 (23,984,360) (5,408,910) (5,501,321)
properties
Purchase of land 6 (475,619) (60,322) (60,322)
Capital expenditure on 4 (7,854,889) (1,589,721) (13,524,813)
investment properties
Net proceeds from disposal 4 (5,456) - 41,142,847
of investment properties
Net cash (outflow)/inflow (32,268,928) (7,055,303) 22,083,934
from investing activities
Cash flows from financing
activities
Shares bought back during - (4,489,452) (12,409,459)
the period
Borrowing on RCF 12 50,000,000 6,000,000 17,000,000
Repayment of RCF 12 - - (17,000,000)
Repayment on expired 12 (110,000,000) - -
facility
New term facility 12 85,000,000 - -
Bank borrowing arrangement - - (804,297)
costs
Interest paid on bank (3,098,005) (1,148,416) (2,959,023)
borrowings
Payments on interest rate 1,254,217 (524,525) (473,425)
swaps
Swap breakage costs - - (3,562,248)
Cap arrangement fees - - (2,507,177)
Finance lease interest (49,202) (12,234) (24,468)
Dividends paid to the 10 (7,624,380) (7,938,448) (15,610,827)
Company's shareholders
Net cash inflow/(outflow) 15,482,630 (8,113,075) (38,350,924)
from financing activities
Net (decrease)/increase in (5,912,378) (5,536,640) 2,053,045
cash and cash equivalents
Cash and cash equivalents 15,871,053 13,818,008 13,818,008
at beginning of period
Cash and cash equivalents 9,958,675 8,281,368 15,871,053
at end of period
Notes TO the UNAUDITED CONDENSED consolidated financial statements
1. Accounting Policies
The Unaudited Consolidated Financial Statements have been prepared in accordance
with International Financial Reporting Standard ("IFRS") IAS 34 `Interim
Financial Reporting' and, except as described below, the accounting policies set
out in the statutory accounts of the Group for the year ended 31 December 2022.
The condensed Unaudited Consolidated Financial Statements do not include all of
the information required for a complete set of IFRS financial statements and
should be read in conjunction with the Consolidated Financial Statements of the
Group for the year ended 31 December 2022, which were prepared under full IFRS
requirements.
Going Concern
The directors assess the Group's ability to continue as a going concern by
reviewing forecasts of cashflows and profitability in the context of the Group's
borrowing facilities up to and beyond the going concern horizon of 12 months
from the approval of these financial statements. The review includes assessing
severe but plausible downside scenarios.
2. Related Party Disclosures
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making
financial or operational decisions.
Directors' remuneration
The Directors of the Company are deemed as key management personnel and received
fees for their services. Total fees for the period ended 30 June 2023 were
£114,057 (period ended 30 June 2022: £126,489) none of which remained payable at
the end of June.
Investment manager
abrdn Fund Managers Limited (formerly known as Aberdeen Standard Fund Managers
Limited), as the Manager of the Group from 10 December 2018, received fees for
their services as investment managers. Further details are provided in note 3.
3. Administrative and Other Expenses
Investment management fees
From 1 July 2019, under the terms of the IMA the Investment Manager was entitled
to 0.70% of total assets up to £500 million; and 0.60% of total assets in excess
of £500 million. The Group has agreed a 10bps reduction in the fee payable to
the Investment Manager, effective from 1 January 2023. The fee has reduced to
0.60% of total assets up to £500m, and 0.50% of total assets in excess of £500
million. The total fees charged for the period ended 30 June 2023 amounted to
£1,319,824 (period ended 30 June 2022: £1,817,616). The total amount due and
payable at the period end amounted to £1,319,824 (period ended 30 June 2021:
£1,817,616).
6 months to 6 months to Year to
30 Jun 23 30 Jun 22 31 Dec 22
£ £ £
Investment management 1,319,824 1,817,616 3,480,963
fees
Other direct property
expenses
Vacant Costs 693,261 310,583 600,561
(excluding void
service charge)
Repairs and 255,958 841,792 1,740,937
maintenance
Letting fees 200,102 220,770 431,534
Amounts written off in 10,052 - 79,115
the period
Other costs 207,164 128,780 237,813
Total other direct 1,366,537 1,501,925 3,089,960
property expenses
Impairment loss/(gain) 52,273 (526,890) (852,062)
on trade receivables
Other administration
expenses
Directors' fees and 114,057 126,489 247,603
subsistence
Valuers fees 37,615 54,405 94,256
Auditor's fees 65,640 55,770 131,280
Marketing 112,402 112,403 226,782
Other administration 215,218 200,266 434,998
costs
Total Other 544,932 549,333 1,134,919
administration
expenses
Total Administrative 3,283,566 3,341,984 6,853,780
and other expenses
Total service charge billed 2,593,408 2,177,750 4,492,780
to tenants
Service charge due (to)/from 41,487 156,470 (80,959)
tenants
Service charge income 2,634,895 2,334,220 4,411,821
Total service charge 2,634,895 2,334,220 4,411,821
expenditure incurred
Service charge billed to the 914,038 637,042 1,164,991
Group in respect of void
units
Service charge expenditure 3,548,933 2,971,262 5,576,812
4. Investment Properties
UK UK Office UK Retail UK Other Total
Industrial
30 Jun 23 30 Jun 23 30 Jun 23 30 Jun 23
30 Jun 23
Market value 227,525,000 88,450,000 53,550,000 39,150,000 408,675,0000
as at 01
January 2023
Purchase of 4,367,140 - 19,617,220 - 23,984,360
investment
property
Capital 5,028,808 2,395,086 430,995 - 7,854,889
expenditure
on
investment
properties
Opening - - - - -
market value
of
disposed
investment
properties
Valuation 3,848,480 (5,595,930) (182,833) (866,649) (2,796,932)
gain/(loss)
from
investment
properties
Movement in 12,859 (174,156) (382) (33,351) (195,030)
lease
incentives
receivable
Market value 240,782,287 85,075,000 73,415,000 38,250,000 437,522,287
at 30 June
2023
Investment - - - - -
property
recognised as
held for sale
Market value 240,782,287 85,075,000 73,415,000 38,250,000 437,522,287
net of held
for sale at
30 June 2023
Right of use - 1,811,711 - - 1,811,711
asset
recognised on
leasehold
properties
Adjustment (4,884,078) (1,812,422) (884,399) (577,107) (8,162,006)
for lease
incentives
Carrying 235,898,209 85,074,289 72,526,601 37,672,893 431,171,992
value at 30
June
2023
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 the Royal Institution 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 LLP at the period ended 30 June 2023
was £437,522,288 (30 June 2022: £536,075,250) however an adjustment has been
made for lease incentives of £8,162,007 (30 June 2022: £9,903,316) that are
already accounted for as an asset. In addition, as required under IFRS 16, a
right of use asset of £1,811,711 (30 June 2022: £900,350) has been recognised in
respect of the present value of future ground rents and an amount of £1,811,711
(30 June 2022: £900,350) has also been recognised as an obligation under finance
leases in the balance sheet.
In the unaudited consolidated cash flow statement, proceeds from disposal of
investment properties comprise:
30 Jun 23 30 Jun 22 31 Dec 22
Opening market value of - - 41,350,000
disposed investment
properties
Loss on disposal of (5,465) - (207,153)
investment properties
Net proceeds from disposal (5,465) - 41,142,847
of investment properties
The loss recognised above was representative of sales costs for a property sold
in 2022 - the costs were ultimately found to be marginally higher than initially
accrued.
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
detailed in the annual accounts. 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.
As noted above, all investment properties listed in the table below are
categorised Level 3 and are all valued using the Income Capitalisation method.
Country & Class 30 Jun UK UK Office UK Retail UK Other Level 3
23 Industrial Level 3 Level 3
Level 3
Fair Value £ 240,782,287 85,075,000 73,415,001 38,250,000
Key Unobservable Input
(Range)
Initial Yield 0.00% to 2.67% to 6.03% to 4.32% to 9.29%
8.78% 7.90% 9.50%
Reversionary Yield 4.90% to 6.49% to 5.41% to 5.02% to 9.40%
8.65% (*) 10.70% 7.99%
Equivalent Yield 4.96% to 6.22% to 5.66% to 5.01% to 9.07%
8.20% 9.37% 9.74%
Estimated rental £4.60 to £17.29 to £8.74 to £6.50 to £20.00
£9.50 £45.94 £30.61
value per sq ft
Key Unobservable Input
(Weighted average) (*)
Initial Yield 4.90% 6.59% 6.75% 5.73%
Reversionary Yield 6.33% 9.14% 6.13% 6.12%
Equivalent Yield 6.23% 8.22% 6.91% 6.23%
Estimated rental £6.56 £27.12 £16.55 £14.83
value per sq ft
* Excluding properties under development.
Country & Class 31 UK UK Office UK Retail UK Other Level 3
Dec 22 Industrial Level 3 Level 3
Level 3
Fair Value £ 240,782,287 85,075,000 73,415,001 38,250,000
Key Unobservable
Input (Range)
Initial Yield 0.00% to 2.67% to 6.03% to 4.32% to 9.29%
8.78% 7.90% 9.50%
Reversionary Yield 4.90% to 6.49% to 5.41% to 5.02% to 9.40%
8.65% 10.70% 7.99%
Equivalent Yield 4.96% to 6.22% to 5.66% to 5.01% to 9.07%
8.20% 9.37% 9.74%
Estimated rental £4.60 to £17.29 to £8.74 to £6.50 to £20.00
£9.50 £45.94 £30.61
value per sq ft
Key Unobservable
Input (Weighted
average)
Initial Yield 4.90% 6.59% 6.75% 5.73%
Reversionary Yield 6.33% 9.14% 6.13% 6.12%
Equivalent Yield 6.23% 8.22% 6.91% 6.23%
Estimated rental £6.56 £27.12 £16.55 £14.83
value per sq ft
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.
The table below shows the overall ERV per annum, area per square foot, average
ERV per square foot, initial yield and reversionary yield as at the Balance
Sheet date.
30 Jun 23 31 Dec 22
ERV p.a. £33,858,142 £31,048,945
Area sq ft 3,585,128 3,416,291
Average ERV per sq ft £9.44 £9.09
Initial Yield 5.7% 5.7%
Reversionary Yield 7.2% 7.1%
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 believes these are reasonable sensitivities given historic
movements in valuations.
30 Jun 23 31 Dec 22
£ £
Increase in equivalent yield of 50 bps (33,598,162) (31,086,535)
Decrease of 5% in ERV (16,650,621) (15,879,151)
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)
5. Investment Properties Held for Sale
As at 30 June 2023, the Group was not actively seeking a buyer for any of the
Investment Properties. As at 30 June 2022, the Group was actively seeking a
buyer for Marsh Way, Rainham and Endeavour House, Kiddlington. The Group
exchanged contracts on the sale of Endeavour House, Kiddlington on 26 July 2022
for a price of £8,033,000. On 27 September 2022 the Group exchanged contracts on
the sale of Marsh Way, Rainham for a price of £21,650,000.
6. Land 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 then current RICS guidelines by Knight
Frank LLP whose credentials are set out in note 3.
Reconciliation of 6 months 6 months Year
carrying amount
to 30 Jun 23 to 30 Jun 22 to 31 Dec 22
Cost
Balance at the 8,061,872 8,001,550 8,001,550
beginning of the
period
Additions 475,619 60,322 60,322
Balance at the end 8,537,491 8,061,872 8,061,872
of the period
Accumulated
depreciation and
amortisation
Balance at the (561,872) (501,550) (501,550)
beginning of the
period
Valuation loss from (475,619) (60,322) (60,322)
land
Balance at the end (1,037,491) (561,872) (561,872)
of the period
Carrying amount at 7,500,000 7,500,000 7,500,000
end of period
The Group has successfully applied for grant income in relation to the
reforestation and peatland restoration.
7. Earnings per Share
Basic earnings per share amounts are calculated by dividing profit for the
period net of tax attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period. 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.
Earnings for the period to 30 June 2023 should not be taken as a guide to the
results for the year to 31 December 2023.
6 months to 6 months to Year to
30 Jun 23 30 Jun 22 31 Dec 22
£ £ £
Profit for the period net of tax 2,863,851 43,312,386 (51,053,487)
Weighted average number of ordinary 381,218,977 396,268,050 389,565,276
shares outstanding during the year
Earnings per ordinary share (pence) 0.8 10.9 (13.1)
Profit for the period excluding 6,141,867 7,812,362 11,471,770
capital items
EPRA earnings per share (p) 1.6 2.0 2.9
8. Investments in Subsidiary Undertakings
The Company owns 100 per cent of the issued ordinary share capital of abrdn
Property Holdings Limited (formerly known as 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:
· abrdn Property Holdings Limited (formerly known as Standard Life Investments
Property Holdings Limited), a property investment company with limited liability
incorporated in Guernsey, Channel Islands.
· abrdn (APIT) Limited Partnership (formerly known as Standard Life
Investments (SLIPIT) Limited Partnership), a property investment limited
partnership established in England.
· abrdn APIT (General Partner) Limited (formerly known as Standard Life
Investments SLIPIT (General Partner) Limited), a company with limited liability
incorporated in England. This Company is the GP for the Limited Partnership.
· abrdn (APIT Nominee) Limited (formerly known as Standard Life Investments
SLIPIT (Nominee) Limited), a company with limited liability incorporated and
domiciled in England.
9. 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 30 June 2023 there were 381,218,977 ordinary
shares of 1p each in issue (31 December 2022: 381,218,977). 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.
30 Jun 23 31 Dec 22 30 Jun 22
£ £ £
Allotted, called up and fully paid 228,383,857 228,383,857 228,383,857
Treasury Shares.
From May 2022, the Company undertook a share buyback programme at various levels
of discount to the prevailing NAV. In the period to 30 June 2023 no shares had
been bought back (30 June 2022: 5,620,234) for £nil after costs (30 June 2022:
£4,489,452) and are included in the treasury share reserve.
30 Jun 23 31 Dec 22 30 Jun 22
£ £ £
Opening balance as at 1 January 18,400,876 5,991,417 5,991,417
Bought back during the period - 12,409,459 4,489,452
Closing balance 18,400,876 18,400,876 10,480,869
The number of shares in issue on 30 June 2023 and 2022 are as follows:
30 Jun 23 31 Dec 22 30 Jun 22
Number of Number of shares Number of shares
shares
Opening balance as at 1 381,218,977 396,922,386 396,922,386
January
Issued during the period - - -
Bought back during the - (15,703,409) (5,620,234)
period and put into
Treasury
Closing balance 381,218,977 381,218,977 391,302,152
10. Dividends and Property Income Distributions Gross of Income Tax
6 month 12
months
s to to Dec
30 Jun 22
23
Dividends PID Non-PID Total PID Non-PID PID
Non-PID Total PID Non-PID
pence pence Pence £ £ pence
pence Pence £ £
Quarter to 31 - 1.0000 1.0000 - 3,812,190 0.7910
0.2090 1.0000 3,139,656 829,568
December of
prior year
(paid in
February)
Quarter to 31 1.0000 - 1.0000 3,969,224 - 1.0000 -
1.0000 3,969,224 -
March (paid in
May)
Total dividends 1.0000 1.0000 2.0000 3,812,190 3,812,190 1.7910
0.2090 2.0000 7,108,880 829,568
paid
Quarter to 30 - - - - - 1.0000 -
1.0000 3,860,190 -
June (paid in
August)
Quarter to 30 - - - - - 0.1806
0.8194 1.0000 688,481 3,123,708
September (paid
in November)
Total dividends 1.0000 1.0000 2.0000 3,812,190 3,812,190 2.9716
1.0284 4.0000 11,657,551 3,953,276
paid
Quarter to 30 1.0000 - 1.0000 3,812,190 - - -
- - -
June of current
period (paid
after period
end)
Quarter to 31 - - - - - -
1.0000 1.0000 - 3,812,190
December of
current year
(paid after
year
end)
Prior year - (1.0000) (1.0000) - (3,812,190) (0.7910)
(0.2090) (1.0000) (3,130,656) (829,568)
dividends (per
above)
Total dividends 2.0000 - 2.0000 7,624,380 - 2.1806
1.8194 4.0000 8,517,895 6,935,898
paid for the
year
A property income dividend of 1.00p per share was declared on 9 August 2023 in
respect of the quarter to 30 June 2023 - a total payment of £3,812,190. This was
paid on 31 August 2023.
11. Financial Instruments
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 an amortised cost.
Carrying Amount Fair Value
Financial Assets 30 Jun 23 31 Dec 22 30 Jun 23 31 Dec 22
£ £ £ £
Cash and cash equivalents 9,958,675 15,871,053 9,958,675 15,871,053
Trade and other receivables 5,737,177 7,457,083 5,737,177 7,457,083
Financial Liabilities
Bank borrowings 134,242,626 109,123,937 134,823,660 109,580,566
Trade and other payables 5,024,549 6,564,852 5,024,549 8,359,405
Interest rate cap. These have not been included in the disclosure above as these
are already held at fair value.
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.
The table below 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:
Period ended 30 June Level 1 Level 2 Level 3 Total fair value
23
Financial assets
Trade and other - 5,737,177 - 5,737,177
receivables
Cash and cash 9,958,675 - - 9,958,675
equivalents
Interest rate cap - 4,307,258 - 4,307,258
Rental deposits held 703,209 - - 703,209
on behalf of tenants
Right of use asset - 1,811,711 - 1,811,711
10,661,884 11,856,147 - 22,518,031
Financial
liabilities
Trade and other - 5,024,549 - 5,024,549
payables
Bank borrowings - 134,823,660 - 134,823,660
Obligations under - 1,811,711 - 1,811,711
finance leases
Rental deposits due 703,209 - - 703,209
to tenants
703,209 141,659,922 - 142,363,131
Year ended 31 Level 1 Level 2 Level 3 Total fair value
December 2022
Financial assets
Trade and other - 7,457,083 - 7,457,083
receivables
Cash and cash 15,871,053 - - 15,871,053
equivalents
Interest rate swap - 1,238,197 - 1,238,197
Interest rate cap - 2,550,469 - 2,550,469
Rental deposits held 751,782 - - 751,782
on behalf of tenants
Right of use asset - 899,572 - 899,572
16,622,835 12,145,321 - 28,768,156
Financial
liabilities
Trade and other - 6,564,852 - 6,564,852
payables
Bank borrowings - 109,580,566 - 109,580,566
Obligations under - 899,572 - 899,572
finance leases
Rental deposits due 751,782 - - 751,782
to tenants
751,782 117,044,990 - 117,796,772
Explanation of the fair value hierarchy
Level 1 Quoted (unadjusted) market prices in active markets for identical assets
or liabilities.
Level 2 Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable.
Level 3 Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
12. Bank Borrowings
On 12 October 2022 the Group entered into an agreement to extend its existing
£165 million debt facility with Royal Bank of Scotland International ("RBSI").
The facility (which was due to expire on 27 April 2023) consisted of a £110
million term loan payable at 1.375% plus SONIA and two Revolving Credit
Facilities ("RCF") of £35 million payable at 1.45% plus SONIA and £20 million
payable at 1.60% plus SONIA. As at 30 June 2022, £6m was drawn on this expired
facility.
30 Jun 23 31 Dec 22 30 Jun 22
£ £ £
Loan facility and drawn down 135,000,000 110,000,000 116,000,000
outstanding balance
Opening carrying value of 109,928,234 109,723,399 109,723,399
expired facility as at 1
January
Borrowings during the period 25,000,000 17,000,000 6,000,000
on expired RCF
Repayment of expired RCF (25,000,000 (17,000,000 -
Repayment of expired facility (110,000,000) - -
Amortisation arrangement 71,766 204,835 92,929
costs
Closing carrying value of - 109,928,234 115,816,328
expired facility
The amended and restated agreement was for a three year term loan of £85 million
and a single RCF of £80 million; both payable at 1.5% plus SONIA. The new
facility commenced on 27 April 2023. As at 30 June 2023 £50m of the RCF was
drawn; £25m was drawn down on commencement of the new facilities.
Opening carrying value of (804,297) - -
new facility as at 1
January
Borrowings during the 50,000,000 - -
period on new RCF
New term loan facility 85,000,000 - -
Arrangement costs of - (804,297) -
additional facility
Amortisation arrangement 46,923 - -
costs
Closing carrying value 134,242,626 (804,297) -
Opening carrying value of 109,123,937 109,723,399 109,723,399
facilities combined as at 1
January
Closing carrying value of 134,242,626 109,123,937 115,816,328
facilities combined
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 55% to maturity.
13. Events After the Balance Sheet Date
Dividend
On 31 August 2023 a dividend in respect of the quarter to 30 June 2023 of 1.0
pence per share was paid comprising a Property Income Distribution
ALTERNATIVE PERFORMANCE MEASURES
The Company uses the following Alternative Performance Measures (APMs). APM do
not have a standard meaning prescribed by GAAP and therefore may not be
comparable to similar measures presented by other entities.
Dividend Cover 30 Jun 23 30 Jun 22
Earnings per IFRS Income Statement 3,798,651 44,827,394
Add back:
Unrealised losses/(gains) on investment properties 2,796,932 (35,560,346)
Realised losses on investment properties 5,465 -
Unrealised loss on land 475,619 60,322
Gains on cash flow hedge (934,800) (1,515,008)
Profit for dividend cover 6,141,867 7,812,362
Dividends paid in the period 7,624,380 7,938,448
Dividend cover 80.6% 98.4%
NAT Total Return 30 Jun 23 30 Jun 22
Opening NAV 84.8 101.0
Closing NAV 83.8 110.7
Movement in NAV (1.0) 9.7
% Movement in NAV (1.2%) 9.6%
Impact on reinvested dividends 2.4% 2.1%
NAV total return 1.2% 11.7%
Share Price Total Return 30 Jun 23 30 Jun 22
Opening share price 62.4 81.5
Closing share price 47.7 76.2
Movement in share price (14.7) (5.3)
% Movement in share price (23.6%) (6.5%)
Impact on reinvested dividends 2.8% 2.3%
Share price total return (20.8%) (4.2%)
Gearing 30 Jun 23 31 Dec 22
Loan amount 135,000,000 110,000,000
Total Assets 467,540,318 444,943,156
Less Derivative Swap - (1,238,197)
Less Derivative Cap (4,307,259) (2,550,469)
463,233,059 441,154,490
Gearing Ratio 29.1% 24.9%
Loan to Value 30 Jun 23 31 Dec 22
Loan amount 135,000,000 110,000,000
Cash (9,958,675) (15,871,053)
125,051,325 94,128,947
Portfolio Valuation 445,022,288 416,175,000
LTV percentage 28.1% 22.6%
Ongoing Charges 30 Jun 23 30 Jun 22
Average NAV over the first 6 months 318,912,693 419,038,543
Investment management fees 1,319,824 1,817,616
Other administration expenses 544,932 549,333
Other direct property expenses 1,366,537 1,501,925
Less: Amounts written off in the period (10,052) -
Service charge billed to the Group 914,038 637,042
Finance lease interest 49,202 12,234
Total ongoing charges 4,184,482 4,518,150
As a % of NAV (annualised) 2.6% 2.2%
Total ongoing charges (as above) 4,184,482 4,518,150
Less: Other direct property expenses (1,366,537) (1,501,925)
Add: Amounts written off in the period 10,052 -
Less: Finance lease interest (49,202) (12,234)
Less: Service charge billed to the Group (914,039) (637,042)
Total ongoing charges less direct property expenses 1,864,756 2,366,949
As a % of NAV (annualised) 1.2% 1.1%
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.
The Board is not aware of any other significant events or transactions which
have occurred between 30 June 2023 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.
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
Fax: 01481 745051
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
Craig Gregor - Fund Controller, abrdn
Tel: 07789676852 or craig.gregor@abrdn.com (michelle.mckeown@abrdn.com)
This information was brought to you by Cision http://news.cision.com
END
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