NAV Announcement

2 February 2023

abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 December 2022

Net Asset Value and Valuations

· Net asset value (“NAV”) per ordinary share was 84.8p (Sep 2022 – 106.1p), a decrease of 20.1% for Q4 2022, resulting in a NAV total return, including dividends, of -19.33% for the quarter;

· The portfolio valuation decreased by 13.9% on a like for like basis during the quarter (15.4% excluding CAPEX), whilst the MSCI Monthly Index decreased by 15.6% over the same period.

Investment and letting activity

· Three sales completed (two offices and one logistics unit) for a total of £33.725m

· Two new leases agreed securing £286,000 pa with terms agreed on two more.

· Four new EV charging hub leases agreed serving retail assets

Financial Position

· Robust balance sheet with financial resources available for investment of £57.8 million (of which £55 million is in the form of the Company’s revolving credit facility) net of current cash after dividend and other financial commitments.

Debt Facility and Gearing

API currently has two facilities with RBSI, a £110m term loan (fully drawn) and a £55m Revolving Credit Facility (RCF) which is undrawn. Both facilities are due to expire in April 2023 at which time a new facility with RBSI commences with a term loan of £85m and an RCF of £80m. The new facility is at a margin of 150bps over SONIA and an interest rate cap on SONIA has been put in place at 4%.  As at 31 December 2022, the Company had a Loan to Value (LTV) of 22.6%*.

*LTV calculated as debt less all cash divided by investment portfolio value

Dividends

Following the dividend being maintained at an annualised rate of 4p per share since December 2021, the dividend cover for Q4 2022 is 5.1%. This reflects the one off Swap break costs incurred in Q4. The dividend cover on a recurring basis was 98.5% for Q4 2022, reflecting the improved rental collection rate of 99.2% in Q4 and 98.4% for the year. The Board has provided guidance of its intention to maintain the current dividend level which it believes will be substantially covered in 2023 and 2024.

Reduction of Investment Manager Fee

The Board is focussed on controlling the costs of the Company and, to this end, has agreed a 10bps reduction in the fee payable to the investment manager, effective from 1 January 2023. The fee will reduce to 60bps of Gross Asset Value (“GAV”) below £500m, and 50bps above £500m. The fee reduction would have had the effect of increasing dividend cover by 3.3% on the basis of the last published GAV.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of abrdn Property Income Trust Limited (“API”) at 31 December 2022 was 84.8p. 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 31 December 2022 of £416.2 million. 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 30 September 2022 to 31 December 2022.

	Per Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 September 2022	106.1	404.3
Unrealised movement in valuation of property portfolio	-17.6	-67.1	Like for like decrease of 13.9% in property valuations.
Loss on sale	-0.5	-1.9	Loss on sales of Marsh Way -  Rainham, Kirkgate – Epsom, and Queen Square, Bristol
CAPEX in the quarter	-2.0	-7.6	Predominantly development spend at Glass Futures, St Helens.
Net income in the quarter after dividend	-0.0	-0.1	Rolling 12 month dividend cover 96.3% excl. one off SWAP break cost
One-off finance costs	-0.9	-3.6	SWAP break costs
Interest rate hedge mark to market revaluation	-0.2	-0.9	SWAP and CAP valuation movement
Other movements in reserves	0.0	0.1	Movement relating to lease incentives in the quarter
Net assets as at 31 December 2022	84.8	323.2

European Public Real Estate Association (“EPRA”)	31 Dec 2022	30 Sept 2022
EPRA Net Tangible Assets	£319.8m	£402.5m
EPRA Net Tangible Assets per share	83.9p	104.6p

The Net Asset Value per share is calculated using 381,218,977 shares of 1p each being the number in issue on 31 December 2022.

Investment Manager Review and Portfolio Activity

Despite the distractions of the mini budget and changes of Prime Ministers we managed to undertake several transactions in Q4, including completing on the sale of three assets (one logistics and two offices) as previously reported. Even more encouraging was the momentum on increasing income. Rent collection has continued to improve at 99.2% for Q4 and 98.4% for 2022. In addition to that a further £45,400pa was secured from rent review settlements at the office at 54 Hagley Rd, and £286,050 pa secured through two new lettings. We have terms agreed on two more office lettings, demonstrating continued demand for our office stock. Four new leases were signed on EV charging hubs where we have agreed terms across several retail sites for an operator to install and manage chargers with the Company receiving a modest base rent and share of operating profit. As a result of the focus on growing income, dividend cover for the quarter was 98% on a recurring basis (and 96.3% for the year) although with the one off cost of breaking the swap (details below) that fell to 5% and 73% respectively.

As previously reported in December 2022, as a result of the change in the interest rate environment since completion, the Company took the decision to break the swap at a cost of £3.56m and replace it with an interest rate cap at a rate of 3.96%, retaining the attractive margin of 150bps previously agreed. The interest rate cap enables the Company to benefit from lower interest costs as SONIA falls, whilst providing protection in a rising rate environment such that, should SONIA increase, the maximum all-in financing rate of the term loan is capped at 5.5%. At the current, SONIA rate of 3.43% the Company will pay interest of 4.75% on the term loan. The cost of the interest rate cap was £2.51m which will be amortised over the three-year tenor of the loan.

The cost of breaking the swap is a one-off charge to the income account impacting dividend cover in Q4 2022. This charge is the same as the fair value mark-to-market loss through other comprehensive income that the Company would have suffered if the swap had been left in place, and there was therefore no material effect on the Company’s net asset value from breaking the swap.

UK Real Estate Market Outlook – Q1 2023
 

· UK real estate generated a positive total return of 9.6% in the first six months of 2022, however after June there was a 5.1% fall in capital values through Q3 and an accelerated 15.6% fall in Q4, meaning the total return for the year as measured by the MSCI Monthly index was -10.1%.  Capital value falls in October and November were the biggest and second biggest monthly falls in the history of the index although the rate of change slowed in December (-6.8%, -5.9% and -3.7% respectively). 

· The reason for this rapid repricing of real assets was the considerable repricing of Gilts (the risk free rate) along with higher interest rates. Yields on real estate had fallen over several years whilst gilts and interest rates yielded close to zero, and the repricing of assets was unusual in so much as Yields moved out across all real estate sectors, with lower yielding areas of the market, such as the industrial sector and long income, experiencing greater outward yield movements than the wider market.

· While prime and secondary prices moved out in tandem during 2022, prime pricing is expected to stabilise in 2023 whilst secondary pricing is expected to see further capital value declines. While this trend has occurred in previous market cycles, we expect the divergence in pricing for some sectors to be more pronounced this time as occupier and investor demand narrows.

· The UK consumer price index (CPI) moderated slightly in December, falling from 10.7% to 10.5%, in line with expectations. Headline inflation has now very likely peaked in the UK, as powerful base effects combined with global goods disinflation act to pull inflation down in 2023. However, underlying inflation pressures remain high. Core inflation was unchanged at 6.3%, while services inflation, which is a good proxy for domestically generated inflation, rose from 6.3% in November to 6.8% in December. aRI expects headline inflation to moderate throughout 2023, reaching 5.9% by the end of the year, before falling to 2.4% in 2024.

· The pace of repricing for UK real estate will mean opportunities will arise over the course of 2023, particularly as the path of monetary policy turns more accommodative. Those sectors that benefit from longer- term growth drivers, such as the industrial and living sectors, will see greater demand return and at more attractive pricing levels. The repricing of long-income real estate investments will also provide an attractive opportunity for investors, particularly when yields for gilts and inflation-linked bonds move lower in line with the expected policy rate cuts from the BoE.  However, as the UK enters a weaker economic environment, it is important that risk is reduced in portfolios wherever possible with a focus on occupational strength and resilience of income at an asset level to best protect returns during 2023.

· Tight supply levels in many areas of the market – helped in part by rising development costs during 2022, leading to delays or even the cancellation of development projects – will continue to support prospects for rental value growth. However, any rental growth is likely to be restricted to the logistics sector, residential including student accommodation, and the prime end of the office market, where fundamentals for best-in-class space remain more supportive. Income is expected to be the predominant driver of real estate returns in the near term.

Net Asset analysis as at 31 December 2022 (unaudited)

	£m	% of net assets
Industrial	227.5	70.4
Office	88.5	27.4
Retail	53.6	16.6
Other Commercial	39.2	12.1
Land	7.5	2.3
Total Property Portfolio	416.2	128.8
Adjustment for lease incentives	-8.4	-2.6
Fair value of Property Portfolio	407.8	126.2
Cash	15.9	4.9
Other Assets	20.9	6.5
Total Assets	444.5	137.5
Current liabilities	-12.2	-3.8
Non-current liabilities (bank loans & swap)	-109.1	-33.8
Total Net Assets	323.2	100.0

Breakdown in valuation movements over the period 01 October 2022 to 31 December 2022

	Portfolio Value as at 31 Dec 2022 (£m)	Exposure as at 31 Dec 2022 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 30 Sept 22				518.5
Retail	53.6	12.9	(13.1)	(8.1)
South East Retail		1.9	(7.7)	(0.7)
Retail Warehouses		11.0	(13.9)	(7.4)
Offices	88.5	21.3	(14.5)	(27.6)
London City Offices		2.7	(13.8)	(1.2)
London West End Offices		2.3	(18.5)	(2.2)
South East Offices		6.8	(14.8)	(13.1)
Rest of UK Offices		9.4	(13.4)	(11.1)
Industrial	227.5	54.7	(17.5)	(62.3)
South East Industrial		9.1	(17.8)	(29.7)
Rest of UK Industrial		45.5	(17.5)	(32.6)
Other Commercial	39.2	9.4	(10.2)	(4.5)
Land	7.5	1.8	0.0	0.0
External valuation at 31 Dec 22	416.2	100.0	(15.4)	416.2

Top 10 Properties

	31 Dec 22 (£m)
Mucklow Hill, Halesowen	20-25
54 Hagley Road, Birmingham	20-25
Symphony, Rotherham	20-25
Atos Data Centre, Birmingham	15-20
Timbmet, Shellingford	15-20
Hollywood Green, London	10-15
Tetron 141, Swadlincote	10-15
CEVA Logistics, Corby	10-15
Walton Summit Industrial Estate, Preston	10-15
Badentoy, Aberdeen	10-15

Top 10 tenants

Tenant Name	Passing Rent	% of total Passing Rent
B&Q Plc	1,560,000	6.2%
Public Sector	1,343,936	5.3%
The Symphony Group Plc	1,225,000	4.8%
Schlumberger Oilfield UK plc	1,138,402	4.5%
CEVA Logistics Limited	840,000	3.3%
Atos IT Services UK Limited	838,910	3.3%
Jenkins Shipping Co Ltd	816,390	3.2%
Timbmet Limited	799,683	3.2%
ThyssenKrupp Materials (UK) Ltd	643,565	2.5%
Adexa Direct Limited	560,997	2.2%
	9,766,883	38.6%

Regional Split

South East	21.2%
West Midlands	20.9%
North West	13.5%
East Midlands	13.4%
Scotland	12.0%
North East	10.5%
South West	3.4%
City of London	2.7%
London West End	2.3%

The Board is not aware of any other significant events or transactions which have occurred between 31 December 2022 and the date of publication of this statement which would have a material impact on the financial position of the Company.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Details of the Company may also be found on the Investment Manager’s website at: www.abrdnpit.co.uk

For further information:-

Jason Baggaley – Real Estate Fund Manager, abrdn
Tel:  [phone] or [e-mail]

Mark Blyth – Real Estate Deputy Fund Manager, abrdn
Tel: [phone] or [e-mail]

Craig Gregor - Fund Controller, abrdn
Tel: [phone] or [e-mail]

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: [phone]