Net Asset Value(s)

2 August 2016

STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)

Unaudited Net Asset Value as at 30 June 2016

Key Highlights

• Net asset value per ordinary share was 81.8p ( March 2016 - 82.3p), a fall of 0.6%, resulting in a NAV total return, including dividends, of +0.8% for Q2;
• The portfolio valuation increased by 0.9% on a like for like basis which compares favourably to the quarterly capital return on the monthly IPD Monthly Index of -0.1%
• This valuation increase, however, was more than offset by adverse movements in the valuation of the Company’s swap as a result of movements in interest rates following the EU referendum result;
• Sale of four assets in the period from 1 April up to date of this announcement for a combined £15.4million which was 4% above most recent valuations;
• Proceeds from the sales were used to reduce the revolving credit facility (“RCF”) resulting in a LTV at the date of this announcement of 28.4%;
• Successful asset management initiatives up to the date of this announcement included:

• Three rent reviews completed securing £698,000 per annum of income which is above ERV;
• Two new lettings completed generating £79,000 of income;
• Six lease regears/renewals resulting in £667,000 of income being secured;

• Low void rate of 3.8% as at 30 June 2016;
• Dividend yield of 6.1% based on a quarterly dividend of 1.19p and a share price of 78.5p (29 July 2016), comparing favourably to the yield on the FTSE All-Share REIT Index (3.5%) and the FTSE All Share Index (3.5%) as at the same date.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 June 2016 was 81.8p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Jones Lang LaSalle and Knight Frank at 30 June 2016. Both valuers have included the following caveat when issuing its valuations for the quarter ended 30 June 2016. 

“Following the Referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit. We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets. Since the Referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the market place. The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced. We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.”

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV per share calculated under IFRS over the period 1 April 2016 to 30 June 2016.

	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 31 March 2016	82.3	313.3
Unrealised increase in valuation of property portfolio	1.0	3.9	Like for like increase of 0.9% in property portfolio
Net income in the quarter after dividend	0.1	0.2	Continued strong income generation with dividend remaining fully covered.
Interest rate swaps mark to market revaluation	-1.4	-5.2	Increase in swap liabilities as  a result of a decrease in the expectation for future interest rates following the EU referendum result
Other movement in reserves	-0.2	-0.6	Movement in lease incentives and capital expenditure in the quarter
Net assets as at 30 June 2016	81.8	311.6

European Public Real Estate Association (“EPRA”)*	30 Jun 2016	31 Mar 2016
EPRA Net Asset Value	£317.0m	£316.3m
EPRA Net Asset Value per share	83.3p	83.1p

The Net Asset Value per share is calculated using 380,690,419 shares of 1p each being the number in issue on 30 June 2016.

* The EPRA net asset value measure is to highlight the fair value of net assets on an on-going, long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances, such as the fair value of financial derivatives, are therefore excluded.

Investment Manager Commentary  

During Q2 the focus remained on improving resilience in the portfolio as we saw the UK commercial real estate market approaching the end of the capital growth cycle. As well as securing a number of lease regears and renewals to give greater certainty of income flow, we also sold three assets that we believed would not perform in line with our expectations going forward. Even given the decision to leave the EU, we believe the Company is relatively well placed to continue to offer an attractive level of income to investors.

During Q2 the Company put in place a new debt facility with The Royal Bank of Scotland which replaces the short term facility agreed as part of the Pearl portfolio acquisition in December 2015. The new facility provides flexibility by having a term loan for 7 years for £110m, and a RCF for £35m. During the quarter the Company repaid £3.5m with a further £11.5m repaid in July 2016 resulting in the drawn amount on the RCF now being £20.0m.  The new facility was completed in April and the term loan was matched with an interest rate swap entered into at the same time. The all in cost as at 30 June 2016 was 2.5% pa. However, the movement in the interest rate curve following the vote to leave the EU has led to a negative movement in the value of the interest rate swap resulting in a swap liability of £5.5m as at 30 June 2016. The current LTV is 28.4%, compared with the maximum LTV covenant in the debt facility of 60%.

Market Commentary

The implications of the Referendum have caused a complex interaction between politics, economics and markets which makes the situation very difficult to predict. Given the political uncertainty and increased financial stress experienced so far, the UK economy is expected to be affected negatively, although as market volatility rises, safe haven assets will benefit. It would seem that the negative sentiment and heightened uncertainty is likely to impact adversely UK real estate capital values although this is not reflected in the June valuations and has yet to materialize significantly in the index level data. Unclear messages are emerging in respect of post referendum transactions with a mixture of deal withdrawals, price renegotiations but also completions at previously agreed figures.

Against that background, UK listed real estate equities total returns fell by nearly 7% over the period 31/03/16 to 30/06/16. This decline is in contrast to the FTSE All Share and the FTSE 100 total returns where the returns rose by 4.7% and 6.5% respectively as at the quarter end. REIT pricing since the referendum has been volatile, with discounts to NAV moving to over 25% for some of the majors, before recovering to around 10% on average. SLIPIT has also suffered from share price volatility but, more recently, the Company’s share price has recovered to a 4 – 6% discount to NAV.

Investment Outlook

The slowdown in UK real estate that was materializing prior to the referendum has been exacerbated by the vote outcome. The heightened uncertainties following the result and the subsequent retreat in business and consumer confidence are likely to impact negatively on the outlook for the economy. This will have detrimental consequences for UK real estate given the direct linkage to economic activity. We therefore anticipate increased downward pressure on UK commercial real estate capital values. The magnitude of any declines will depend on the impact on the domestic economy and the level of interest rates and yields from alternative investment classes. In the short term, there is likely to be pessimistic sentiment in the market place, which will further affect capital values until there is clarity on the timing and nature of the exit from the EU and real estate’s medium-term prospects. The impact will vary on the different sectors and geographies. From a sector perspective, we expect Central London offices to be the most negatively impacted in the near term given the linkages to European markets via cross border trading. We expect industrial and retail assets to be comparatively resilient, although not immune, given their higher yields. Long income assets should provide most resilience in any downturn.  Despite the negative outlook, UK real estate continues to provide an elevated yield compared to other assets and, unlike in the Financial Crisis, lending to the sector is at a much lower level than in 2007/2008. Furthermore, existing vacancy rates are at below average levels in most markets and development remains relatively constrained which all should help stabilise the market further out. The current “lower for even longer” interest rate environment coupled with an increasing investor global search for yield and the retention of the UK’s safe haven status should all ensure the asset class is better placed longer term. 

Cash position

As at 30 June 2016 the Company had cash of £18.3million.  

Dividends

The Company paid total dividends in respect of the quarter ended 31 March 2016 of 1.19p per Ordinary Share, with a payment date of 31 May 2016.

Net Asset analysis as at 30 June 2016 (unaudited)

	£m	% of net assets
Office	163.1	52.3
Retail	101.5	32.6
Industrial	185.5	59.5
Total Property Portfolio	450.1	144.4
Adjustment for lease incentives	(3.9)	(1.3)
Fair value of Property Portfolio	446.2	143.1
Cash	18.3	5.9
Other Assets	6.5	2.1
Total Assets	471.0	151.1
Non-current liabilities (bank loans & swap)	(145.8)	(46.8)
Current liabilities	(13.6)	(4.3)
Total Net Assets	311.6	100.0

Breakdown in valuation movements over the period 1 Apr 16 to 30 Jun 2016

	Portfolio Value as at 30 Jun 2016 (£m)	Exposure as at 30 Jun 2016 (%)	Like for Like Capital Value Shift	Capital Value change (£m)
			(%)
Valuation as of 31 Mar 2016				452.3
Retail	101.5	22.6	0.6	0.7
South East Retail		7.0	1.6	0.5
Rest of UK Retail		1.1	0.0	0.0
Retail Warehouses		14.5	0.3	0.2
Offices	163.1	36.2	1.3	2.0
London City Offices		4.7	0.0	0.0
London West End Offices		2.5	3.2	0.4
South East Offices		23.6	0.0	0.0
Rest of UK Offices		5.4	7.3	1.6
Industrial	185.5	41.2	0.7	1.2
South East Industrial		10.6	0.5	0.2
Rest of UK Industrial		30.6	0.7	1.0
Sale of Turin Court and Witham				-6.1
External valuation at 30 Jun 2016	450.1	100.0	0.9	450.1

Top 10 Properties

	30 Jun 16 (£m)
White Bear Yard, London	20-25
Elstree Tower, Borehamwood	15-20
Denby 242, Denby	15-20
DSG, Preston	15-20
Symphony, Rotherham	15-20
Chester House, Farnborough	15-20
Charter Court, Slough	10-15
3B - C Michigan Drive, Milton Keynes	10-15
Ocean Trade Centre, Aberdeen	10-15
Bourne House, Staines	10-15

Top 10 tenants:

	Tenant group	Passing rent (£)	As % of total rent
1	Sungard Availability Services (UK) Ltd	1,320,000	4.6 %
2	BAE Systems	1,257,640	4.3 %
3	Techno Cargo Logistics Ltd	1,242,250	4.3 %
4	DSG	1,177,677	4.1 %
5	The Symphony Group Plc	1,080,000	3.7 %
6	Bong UK	727,240	2.5 %
7	Royal Bank of Scotland Plc	700,000	2.4 %
8	Ricoh UK Limited	696,995	2.4 %
9	Matalan	696,778	2.4 %
10	Grant Thornton	680,371	2.3 %
		9,578,951	33.0 %
	Total Fund Passing Rent	29,025,646

Regional Split:

Region	Region Weighting
South East	41.0%
Scotland	4.9%
South West	6.1%
North West	11.6%
London West End	2.5%
East Midlands	14.9%
London City	4.7%
North East	8.5%
West Midlands	5.8%

The Board is not aware of any other significant events or transactions which have occurred between 30 June 2016 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Details of the Company may also be found on the Investment Manager’s website which can be found at: www.standardlifeinvestments.com/its

For further information:-

Jason Baggaley – Real Estate Fund Manager,  Standard Life Investments
Tel [phone] [e-mail]

Graeme McDonald  - Real Estate Finance Manager, Standard Life Investments
Tel [phone] [e-mail]

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd

Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
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