7th
November 2023
abrdn
PROPERTY INCOME TRUST LIMITED (LSE: API)
LEI:
549300HHFBWZRKC7RW84
Unaudited
Net Asset Value as at 30 September
2023
Net
Asset Value and Valuations
-
Net asset
value (“NAV”) per ordinary share was 82.2p (Jun 2023 – 83.8p), a decrease of 1.9% for Q3
2023, resulting in a NAV total return, including dividends, of
-0.7% for the quarter;
-
The
Company saw an increase in the value of its industrial assets
(which make up 55% of the portfolio) of £8.9m, whilst its office
assets (18% of the portfolio) fell by £5m. Retail and “Other”
assets saw no change in value and the Land holding increased by
£750,000.
-
The
portfolio again outperformed the MSCI monthly index with a capital
value decline of 0.8% on a like for like basis during the quarter,
compared to the MSCI Monthly Index decline of 1.6% over the same
period.
-
The
portfolio ERV of £34.1m is £7.4m (27.7%) above the current
contracted rent, demonstrating the significant reversionary
potential.
-
Rent
Collection remained robust with 99% collected so far for Q3 and 96%
for Q4, with rent still coming in for both quarters. Since the
beginning of 2021 quarterly rent collection has been consistently
at or above 99%.
Investment
and letting activity
-
Three
lettings completed (all of office suites) totalling £309,420 p.a.,
and after the quarter end two further lettings were completed on
office space that was subject to an agreement for lease, totalling
£540,644 p.a.
-
At our
logistics unit in Hebburn, Newcastle we completed a lease renewal for a
20-year lease 19.4% above the previous rent.
-
Operating
profit excluding Fair Value movements, finance costs and movements
in provisions for trade receivables increased by £365,000 from
£4.7m (7.7%) compared to Q2 (£466k increase in Q2 over Q1 after an
increase in rent of £400k) leading to a dividend cover of 80% for
Q3.
Financial
Position
-
Robust
balance sheet with financial resources available for investment of
£22.8 million (from the Company’s revolving credit facility) net of
current cash after dividend and other financial
commitments.
Occupancy
/ Void / WAULT
The
Company had a vacancy rate of 8.0% as at end Q3 2023 (Q2
8.2%).
Since the
quarter end two leases completed that were subject to previously
signed agreements to lease. When combined with the agreement for
lease at Rainhill Road (where the landlord works are due to
complete early November) the effective void rate was only
4.4%.
The
weighted average unexpired lease term of the portfolio is 6.1 years
(6.3 years Q2 2023).
Debt
Facility and Gearing
API
currently has two facilities with RBSI, an £85m term loan (fully
drawn) and an £80m Revolving Credit Facility (RCF) of which £55m
was drawn as at 30th
September.
Both facilities are at a margin of 150bps over SONIA and an
interest rate cap on SONIA has been put in place at 4% over the
term loan (all-in rate of 5.5%).
As at
30 September 2023, the Company had a
Loan to Value (LTV) of 29.9%*.
*LTV
calculated as debt less all cash divided by investment portfolio
value
Dividends
A dividend
of 1p will be paid for the quarter which will be a 100% non PID
distribution. The dividend is therefore being maintained at an
annualised rate of 4p per share. The dividend cover for Q3 2023 is
79.9%.
The Board
has provided guidance of its intention to maintain the current
dividend level.
Net
Asset Value (“NAV”)
The
unaudited net asset value per ordinary share at 30 September 2023 was 82.2p. The net asset value
is calculated under International Financial Reporting Standards
(“IFRS”).
The net
asset value incorporates the external portfolio valuation by Knight
Frank LLP at 30 September 2023 of
£449.6 million.
Breakdown
of NAV movement
Set out
below is a breakdown of the change in the unaudited NAV calculated
under IFRS over the period 30 June
2023 to 30 September
2023.
|
Per
Share (p)
|
Attributable
Assets (£m)
|
Comment
|
Net assets
as at 30 June 2023
|
83.8
|
319.5
|
|
Unrealised
movement in valuation of property portfolio
|
1.2
|
4.6
|
Like for
like decrease of 0.8%.
|
CAPEX in
the quarter
|
-2.1
|
-8.1
|
Predominantly
development spend at Washington and Knowsley.
|
Net income
in the quarter after dividend
|
-0.2
|
-0.8
|
Rolling 12
month dividend cover 84.9% excl. one off SWAP break cost in
2022.
|
Interest
rate hedge mark to market revaluation
|
-0.4
|
-1.4
|
CAP
valuation movement
|
Other
movements in reserves
|
-0.1
|
-0.2
|
Movements
in lease incentives.
|
Net assets
as at 30 September 2023
|
82.2
|
313.6
|
|
European
Public Real Estate
Association
(“EPRA”)
|
30
September 2023
|
30
Jun 2023
|
EPRA Net
Tangible Assets
|
£310.8m
|
£315.2m
|
EPRA Net
Tangible Assets per share
|
81.5p
|
82.7p
|
The Net
Asset Value per share is calculated using 381,218,977 shares of 1p
each being the number in issue on 30
September 2023.
Investment
Manager Review and Portfolio Activity
Following
the positive letting transactions completed during the first half
of the year, abrdn Property Income Trust (API) is pleased to be
able to announce some further asset management activity that has
secured over £1.3m p.a. in rent through new lettings and lease
renewals.
In the
office sector, the lease over the fourth floor at One Station
Square in Bracknell has now completed, securing a rent of £132,144
p.a.
At The
Pinnacle in Reading, the existing tenant Egnyte Limited has upsized
on the fifth floor, taking 4,174 sq.ft at an annual rent of
£130,000.
This rent
is 11% ahead of the March 2023
valuation.
The lease
over the first floor at 160 Causewayside, Edinburgh has been regeared with the removal
of the tenant break option.
This has
secured £157,000 p.a. of rent for a further 5 years.
At 54
Hagley Road in Birmingham, the
previously reported lettings to the Chamber of Commerce and UK Cab
have now completed following the conclusion of the landlords
works.
Combined,
these reflect a total of 27,770 sq.ft and £538,090 p.a. in
rent.
The
positive momentum at this building has continued with a letting of
part of the 4th
floor to
Property Investor Network, securing a rent of £49,830
p.a.
Terms have
also been agreed on two further lease renewals of 9,365 sq.ft where
the tenants are remaining in their existing suites and the rents
are increasing by an average of just over 30% from previous
levels.
Refurbishment
works, as defined in the agreement for lease at the logistics unit
on Rainhill Road in Washington are
progressing well (including the completion of a new 1,150kWp PV
scheme on the roof) and are due to complete in early November, when
the new lease will commence.
This
letting, along with the others completed since quarter end, will
reduce the void rate as at 30 September from 8% to 4.4%.
This
activity demonstrates that API’s investment strategy of investing
in assets that tenants want to occupy remains
relevant.
The API
office assets, which account for just under 18% of the overall
portfolio, continue to be attractive to occupiers with good levels
of amenity at attractive rental levels even in a market with
significantly reduced demand and take-up.
In the
industrial sector, API completed a lease regear at Monkton Business
Park in Hebburn.
Hitachi
Construction Machinery (UK) Limited have taken a new 20-year lease
at a passing rent of £310,500 p.a., which is an increase of 19.4%
over the previous passing rent.
As part of
the transaction, Hitachi are obliged to carry out a package of
works that are anticipated to improve the EPC rating to an
“A”.
The EPC on
the Company’s Bolton industrial
unit let to DPD has recently been reassessed following completion
of the letting and the landlord’s refurbishment
works.
API took
the opportunity, at the expiry of the previous lease, to carry out
an extensive package of upgrades to the unit including the
extension of the roof-mounted solar panel installation, an increase
in on-site biodiversity and the inclusion of staff welfare
facilities.
Following
the reassessment, the EPC has been lodged as an “A“ with a score of
-54.
This
negative score reflects the fact that the unit is operationally
carbon negative.
API’s
speculative 107,000 sq.ft industrial development at Knowsley is
progressing well, with practical completion scheduled for the turn
of the year.
The unit
will be a best in class building with enhanced ESG credentials, and
this has been reflected in the occupational interest received to
date.
Whilst
early days, we have received proposals from two parties and are
hopeful of agreeing a letting of the unit ahead of
completion.
Three new
PV schemes are due to complete in Q4 with a total of 2,005kWp,
continuing our deployment of on-site renewable energy where it is
appropriate to do so.
We are
also making good progress with the planting of native broadleaf
trees at Far Ralia now that the grant funding has been
confirmed.
The
valuation on this asset increased by 10% this quarter to reflect
some of the progress made.
The
Company again outperformed the MSCI Monthly Index over the quarter
with a capital decline of 0.8% compared to the index 1.8%.
Industrials (and the land holding) saw capital growth mainly due to
asset management, whilst Retail and Other remained static and
Offices continued to fall in value. The Investment portfolio
targets assets that will provide an attractive level of income that
is sustainable and is secured against high quality assets that will
deliver an above market level of total return.
Investment
Manager’s UK Real Estate Market Outlook – Q3
2023
-
Sizeable
revisions to gross domestic product (GDP) data suggest the economy
recovered more quickly from the pandemic shock than was originally
thought. The economy suffered a slightly smaller supply-side shock
and productivity growth was better. However, the risk of the
economy entering a formal recession even earlier than we had
expected is increasing.
-
The annual
rate of inflation fell to 6.7% in August but then remained at that
level in September. CPI is expected to fall further this year due
to energy price caps, however the recent rise in fuel prices might
limit the downside, and wage growth is still running above the
target-consistent rate. The conflict in the Middle East has the scope to further disrupt
supply lines and push up fuel prices.
-
The
Investment Manager believes the BoE’s decision to keep interest
rates on hold at 5.25% means that the bank rate has peaked. If wage
growth and services inflation were to surprise on the upside, then
a hike in future is still possible, however we think these
conditions are unlikely to be met. The BoE wants to guide market
expectations towards a ‘Table Mountain’ profile for interest rates,
which sees rates staying elevated for an extended period. This view
is designed to keep a grip on current financial conditions and we
expect rate cuts to start around the middle of next
year.
-
UK real
estate pricing has been stabilising during 2023, following the
significant correction in the sector in late-2022. However,
performance has been asymmetric across sectors, with those
benefiting from structural and thematic tailwinds proving more
resilient in the face of a weaker macroeconomic
environment.
-
Industrial:
The industrial and logistics sector has been buoyed by resilient
occupier demand and continued positive rental growth during 2023.
While the vacancy rate in the sector has trended upwards during the
year – now around 4% according to CoStar – it remains low in a
historical context. In addition, the supply of good-quality space,
which occupiers have been targeting, remains low. With the
development pipeline being constrained by rising build and debt
costs, the availability of accommodation is expected to remain
tight.
-
Industrial
pricing and performance have stabilised so far this year. But
polarisation between best-in-class and secondary accommodation is
growing, as both occupiers and investors focus on good-quality
accommodation in strong locations. Robust rental growth continues
to be recorded on such assets and investors are attracted by the
opportunity to unlock further rental growth potential. However, the
weaker economic environment is placing pressure on occupiers which
requires an increased focus on tenant covenant strength and
security of income in this environment.
-
The
longer-term outlook for the sector is positive, supported by
structural and thematic growth drivers. Investor sentiment remains
strong, as a result. While the investor pool remains smaller than
before, due largely to elevated debt costs, there have been
tentative signs of yield compression in some areas of the market.
However, any improvement in pricing is fragile, given current
economic headwinds.
-
Offices:
As expected, office performance weakened during the third quarter
of 2023, as the sector remained under pressure from new working
habits and a weak economic climate. Investor appetite towards the
sector remains poor and transaction volumes have fallen, as a
result. Demand, from both an occupational and investment
perspective, remains focused on best-in-class accommodation in
strong locations, and on assets that meet current environmental
requirements. The availability of such space is low, which is
allowing for instances of positive rental value growth.
-
Office
capital values have seen further falls and the outlook for capital
growth remains negative. Falling capital values are placing
pressure on debt-financing covenants. With the cost of debt
remaining highly elevated, some stress is expected to appear in the
office sector during the remainder of 2023 and into 2024, as
borrowers struggle to refinance on accretive terms. Secondary
assets are most at risk of default and, given limited investor
demand, this is likely to spur greater capital declines.
Good-quality assets will be more resilient, but not immune in this
scenario.
-
Retail:
During 2023, consumer spending has proven more resilient than first
forecast in the face of a cost-of-living crisis. Indeed, consumer
sentiment has also been improving as inflationary pressures have
started to ease. Recent data from the British Retail Consortium has
shown the first monthly drop in food prices for over two years,
indicating that the pressure on consumers’ pockets may be beginning
to ease.
-
Retail
investment demand is focussed on the retail warehouse sector where
vacancy rates are relatively low and occupier demand is evident,
even if patchy. Foodstores also remain popular, especially those
let to budget retailers.
Outlook
for risk and performance
While the
outlook for UK real estate remains fragile, an improving economic
picture as we move into 2024 is likely to help spur an improvement
in UK real estate performance. While some headwinds remain, such as
weak national and global economic activity, falling inflation and
an end to the BoE’s monetary hiking cycle is likely to help revive
investor sentiment towards the sector.
That said,
any negative surprise in economic activity or inflation data will
spook investment markets and may result in further instability in
real estate performance and pricing. As a result, investors are
expected to remain risk-off towards UK real estate, with investor
appetite remaining focused on those sectors that benefit from
longer-term thematic growth drivers. These sectors are forecast to
provide more robust performance, even in the face of a weaker
macroeconomic environment. Additionally, investors will be narrowly
focused on good-quality accommodation within these sectors, which
provide the opportunity to capture rental growth.
In
response, polarisation in performance is anticipated to accelerate
from both a sector and asset-quality perspective. Sectors that face
structural pressure (such as offices), and secondary assets that
don’t meet current occupational demand, are expected to record
further capital value declines and weaker performance. Occupational
performance is forecast to be the main driver of returns in the
near term. Given the nature of current occupational demand,
good-quality accommodation is expected to prove more
resilient.
Although
the outlook for monetary policy appears more positive from this
point, a meaningful improvement in UK real estate performance is
not expected until the second half of 2024. In the face of a weaker
economic environment and with the risk of the bank rate staying
higher for longer, investors will retain an overall risk-off
approach towards the sector. A rate-cutting cycle should then
encourage investors to return to the market.
Net
Asset analysis as at 30 September
2023 (unaudited)
|
£m
|
%
of net assets
|
Industrial
|
249.7
|
79.6
|
Office
|
80.0
|
25.5
|
Retail
|
73.4
|
23.4
|
Other
Commercial
|
38.3
|
12.2
|
Land
|
8.2
|
2.7
|
Total
Property Portfolio
|
449.6
|
143.4
|
Adjustment
for lease incentives
|
-8.4
|
-2.7
|
Fair
value of Property Portfolio
|
441.2
|
140.7
|
Cash
|
5.7
|
1.8
|
Other
Assets
|
20.0
|
6.4
|
Total
Assets
|
466.9
|
148.9
|
Current
liabilities
|
-14.1
|
-4.5
|
Non-current
liabilities (bank loans)
|
-139.3
|
-44.4
|
Total
Net Assets
|
313.5
|
100.0
|
Breakdown
in valuation movements over the period 01
July 2023 to 30 September
2023
|
Portfolio
Value as at 30 Sep 2023 (£m)
|
Exposure
as at 30 Sep 2023 (%)
|
Like
for Like Capital Value Shift (excl transactions &
CAPEX)
|
Capital
Value Shift (incl transactions (£m)
|
|
(%)
|
External
valuation at 30 Jun 23
|
|
|
|
445.0
|
|
|
|
|
|
Retail
|
73.4
|
16.3
|
0.0
|
0.0
|
South East
Retail
|
|
1.7
|
0.0
|
0.0
|
Retail
Warehouses
|
|
14.6
|
0.0
|
0.0
|
|
|
|
|
|
Offices
|
80.0
|
17.8
|
(6.9)
|
(5.0)
|
London
City Offices
|
|
2.3
|
(5.8)
|
(0.7)
|
London
West End Offices
|
|
1.9
|
(7.1)
|
(0.6)
|
South East
Offices
|
|
5.8
|
(7.3)
|
(1.8)
|
Rest of UK
Offices
|
|
7.8
|
(6.8)
|
(1.9)
|
|
|
|
|
|
Industrial
|
249.7
|
55.5
|
0.7
|
8.9
|
South East
Industrial
|
|
8.6
|
0.3
|
0.3
|
Rest of UK
Industrial
|
|
46.9
|
0.7
|
8.6
|
|
|
|
|
|
Other
Commercial
|
38.3
|
8.5
|
0.0
|
0.0
|
|
|
|
|
|
Land
|
8.2
|
1.9
|
10.0
|
0.7
|
|
|
|
|
|
External
valuation at 30 Sep 23
|
449.6
|
100.0
|
(0.8)
|
449.6
|
Yields
|
Initial
Yield (%)
|
Equivalent
Yield
(%)
|
EPRA
NIY
(%)
|
Portfolio
|
5.5
|
6.9
|
4.8%
|
Top
10 Properties
|
30
Sep 23 (£m)
|
Halesowen,
B&Q
|
20-25
|
Birmingham,
54 Hagley Road
|
20-25
|
Rotherham,
Ickles Way
|
20-25
|
Welwyn
Garden City, Morrison’s
|
15-20
|
Shellingford,
White Horse Business Park
|
15-20
|
Birmingham,
Building 3000
|
15-20
|
London,
Hollywood Green
|
10-15
|
Corby, 3
Earlstrees Road
|
10-15
|
Swadlincote,
Tetron 141
|
10-15
|
Washington,
Rainhill Road
|
10-15
|
The
top ten assets represent 37.6% of portfolio
value
Top
10 tenants
Tenant
Name
|
Passing
Rent
|
%
of total Passing Rent
|
B&Q
Plc
|
1,560,000
|
5.9%
|
Public
Sector
|
1,365,203
|
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
|
4.3%
|
Timbmet
Limited
|
904,768
|
3.4%
|
Atos IT
Services UK Limited
|
872,466
|
3.3%
|
CEVA
Logistics Limited
|
840,000
|
3.2%
|
Jenkins
Shipping Co Ltd
|
816,480
|
3.1%
|
ThyssenKrupp
Materials (UK) Ltd
|
643,565
|
2.4%
|
Top ten
tenants
|
10,618,046
|
39.9%
|
Regional
Split
South
East
|
23.3%
|
West
Midlands
|
19.1%
|
North
West
|
14.5%
|
East
Midlands
|
12.6%
|
Scotland
|
11.5%
|
North
East
|
11.4%
|
South
West
|
3.3%
|
City of
London
|
2.4%
|
London
West End
|
1.9%
|
Except as
described above, the Board is not aware of any significant events
or transactions which have occurred between 30 September 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.
Details of
the Company may also be found on the Investment Manager’s website
at: www.abrdnpit.co.uk
For
further information:-
Jason Baggaley – API Fund Manager, abrdn
Tel:
07801039463
or
jason.baggaley@abrdn.com
Mark Blyth – API Deputy Fund Manager, abrdn
Tel:
07703695490 or
mark.blyth@abrdn.com
Craig Gregor - Fund Controller, abrdn
Tel:
07789676852 or
craig.gregor@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