Net Asset Value(s)

1 February 2017

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

Unaudited Net Asset Value as at 31 December 2016

Key Highlights

• Net asset value per ordinary share was 81.0p (Sep 2016 – 79.0p), a rise of 2.5%, resulting in a NAV total return, including dividends, of 4.1% for Q4;
• The portfolio valuation increased by 0.9% on a like for like basis, whilst the IPD/MSCI Monthly Index rose by 1.1% over the same period;
• Strong share price performance in the quarter with share price total return of 7.0% resulting in the Company’s shares trading at a premium to NAV of 6.8% as at 31 Dec 2016;
• Successful asset management initiatives up to the date of this announcement included

• Two new lettings completed, securing a total rent of £258,000 per annum (p.a.)
• 4 lease renewals / regears completed securing £534,000 p.a. of rent

• Low void rate of 3.3% as at 31 Dec 2016;
• Dividend yield of 5.5% based on a quarterly dividend of 1.19p as at 31 Dec 2016 compares favourably to the yield on the FTSE All-Share REIT Index (3.7%) and the FTSE All Share Index (3.5%) as at the same date.
• Interplex 16, Bristol and, after the quarter end, Quadrangle, Cheltenham sold for a combined £16.8m.  The sale proceeds were used to reduce the Revolving Credit Facility with the LTV now standing at 24.1%.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 December 2016 was 81.0p. 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 31 December 2016.  

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 October 2016 to 31 December 2016.

		Per  Share (p)	Attributable Assets (£m)		Comment
Net assets as at 1 October 2016		79.0	300.7
Unrealised increase in valuation of property portfolio		1.0	3.9		Like for like increase of 0.9% in property portfolio
Gain on sale at Interplex, Bristol		0.2	0.8
Capital expenditure in quarter		-0.2	-0.6		Predominantly relates to refurbishment of vacant unit at Oldham
Net income in the quarter after dividend		0.3	1.2		Continued strong income generation with annual dividend cover of 117% for 2016.
Interest rate swaps mark to market revaluation		0.8	3.0		Decrease in swap liabilities as longer term interest rates moved higher in the quarter.
Other movement in reserves		-0.1	-0.5		Movement in lease incentives
Net assets as at 31 December 2016		81.0	308.5
	European Public Real Estate Association (“EPRA”)*			31 Dec 2016		30 Sep 2016
	EPRA Net Asset Value			£312.1m		£307.3m
	EPRA Net Asset Value per share			82.0p		80.7p

The Net Asset Value per share is calculated using 380,690,419 shares of 1p each being the number in issue on 31 December 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  

The fourth quarter of 2016 saw a number of asset management initiatives come to fruition. The strategy over the second half of the year was to reduce future risk by selling assets where we could do so at an attractive valuation. As a result, we sold an industrial investment in Bristol that was predominantly vacant and was going to require future capex for £5.75m, (bought in 2015 for £4.6m) and a 58,900 sqft office in Cheltenham that is single let with an expiry in 2018 and required significant capital expenditure for £11.075m (bought in Dec 15 as part of the Pearl portfolio for £10.05m). The office sale completed just after the quarter end.

Reducing voids and extending leases remains a major focus, and we completed two new lettings to reduce the void to 3.3% which compares favourably to the IPD benchmark void rate of 8.2%. One of these was an industrial unit in Birmingham where the old lease expired in December and we had a new tenant ready before expiry. Our major void remains a logistics unit in Oldham, representing about half the total void in the portfolio and where we have just completed a refurbishment to ensure the building presents favourably to potential tenants. We also regeared / renewed four leases, including a retail warehouse unit in Bradford where we secured a 10 year term at the passing rent, and an industrial unit in Horsham where we secured a further 6 year term just above the old rent.

The Company has reduced further the balance outstanding on the Revolving Credit facility and the Company’s overall LTV at 31 December 2016 was 26.0%. Since that date the balance of the RCF has been reduced by a further £10m utilising the sale proceeds of Cheltenham, reducing the LTV to 24.1%.  Having had two quarters of negative movement in the interest rate SWAP valuation the fourth quarter was positive, with the swap liability now valued at £3.6million.

Market Commentary

2017 is expected to be an eventful year in the UK and abroad. The UK’s economic landscape is expected to be dominated by the continued political wrangling over the Article 50 process for exiting the European Union, and the twists and turns of politics are expected to dominate the headlines elsewhere in the world as the year progresses. UK economic growth post the referendum was stronger than anticipated, and December’s Markit PMI’s for manufacturing, construction and the service sector finished 2016 on a high note – although as a note of caution, firms are planning widespread price rises in the year ahead which is likely to translate into inflationary pressures in 2017. Consumers have been resilient to date, with strong retail sales reported, with discounting likely to be a key factor. There are also suggestions that consumers may be using credit to bring forward big-ticket purchases in anticipation of higher inflation in 2017.

Over the twelve months to end December, IPD/MSCI Monthly Index recorded a total return of 2.6% against a 3.2% total return in the twelve months to end September. The main contributor to the fall in returns was the sharp capital decline following the EU Referendum although market conditions and sentiment have stabilised in recent months. Capital values fell by -2.8% p.a. in the year to end December but perhaps of greater concern, rental growth fell to 2.0% p.a. compared to 2.7% p.a. in the twelve months to end September.  This suggests that occupational demand might be weakening.

As for the equity markets, the FTSE All Share and the FTSE 100 total returns were 3.9% and 4.3% respectively over the final quarter. For listed real estate equities, total returns delivered modest growth of 0.6% over the same period.

Retail was no longer the laggard sector in the twelve months to end December as it crept marginally ahead of offices which recorded total returns of 1.0% p.a. The industrial sector has continued to demonstrate most resilience generating a total return of 7.0% p.a. in the same period.  Industrial values remained positive over the last twelve months to end December as opposed to capital declines in both the other two sectors.

Investment Outlook

Despite the uncertainty associated with the political outlook, UK real estate continues to provide an elevated yield compared to other asset classes. Furthermore, lending to the sector is at a lower level than in 2007/2008 and, unlike in the Financial Crisis, liquidity remains reasonable. Additionally, development continues to be relatively constrained by historic standards and existing vacancy rates are below long term average levels in most markets, which should all help to stabilise the market.

In the environment where the economic fundamentals are expected to soften and with uncertainty remaining above “normal” levels, we expect lower returns from property than has been the case over the last few years. Location and asset quality will be crucial determinants of how markets respond to pressures in the year ahead. Furthermore, the steady secure income component generated by the asset class is likely to be the key driver of returns going forward. The market is likely to be sentiment driven in the short term as the politics continues to evolve, which will further affect capital values, while the medium term impact will continue to hinge on economic factors.

From a sector perspective, we continue to favour industrial and logistics and, although they are not likely to be immune to any uncertainty, they are expected to be comparatively resilient. As for the retail sector, inflationary pressures may prove to be a significant headwind and further polarisation within the market is likely to be more pronounced. We continue to expect Central London offices to be the most adversely impacted sector given the linkages to European markets via cross border trading.

Dividends

The Company paid total dividends in respect of the quarter ended 30 September 2016 of 1.19p per Ordinary Share, with a payment date of 30 November 2016.

Net Asset analysis as at 31 December 2016 (unaudited)

	£m	% of net assets
Office	150.5	48.8
Retail	97.7	31.7
Industrial	181.7	58.9
Total Property Portfolio	429.9	139.4
Adjustment for lease incentives	-4.2	-1.4
Fair value of Property Portfolio	425.7	138.0
Cash	13.1	4.2
Other Assets	7.3	2.4
Total Assets	446.1	144.6
Current liabilities	-10.0	-3.2
Non-current liabilities (bank loans & swap)	-127.6	-41.4
Total Net Assets	308.5	100.0

Breakdown in valuation movements over the period 1 Oct 2016 to 31 Dec 2016

	Portfolio Value as at 31 Dec 2016 (£m)	Exposure as at 31 Dec 2016 (%)	Like for Like Capital Value Shift (%)	Capital Value Shift (£m)
External valuation at 30 Sep 2016				431.1
Retail	97.7	22.7	0.5	0.5
South East Retail		6.4	-0.4	-0.1
Rest of UK Retail		1.3	8.0	0.4
Retail Warehouses		15.0	0.3	0.2
Offices	150.5	35.0	-0.4	-0.6
London City Offices		4.4	-6.0	-1.2
London West End Offices		2.6	0.0	0.0
South East Offices		22.4	-0.3	-0.3
Rest of UK Offices		5.6	3.9	0.9
Industrial	181.7	42.3	2.3	4.0
South East Industrial		11.6	4.7	2.2
Rest of UK Industrial		30.7	1.4	1.8
Sale of Interplex, Bristol				-5.1
External valuation at 31 Dec 2016	429.9	100.0	0.9	429.9

Top 10 Properties

	31 Dec 16 (£m)
White Bear Yard, London	15-20
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
Howard Town Retail Park, High Peak	10-15
Hollywood Green, London	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	4.4
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	3.8
6	Bong UK	727,240	2.5
7	Euro Car Parts Ltd	703,430	2.5
8	Royal Bank of Scotland Plc	700,000	2.4
9	Ricoh UK Limited	696,995	2.4
10	Matalan	696,778	2.4
		9,602,010	33.4
	Total Fund Passing Rent	28,666,652

Regional Split

South East	40.4%
East Midlands	15.4%
North West	12.1%
North East	8.8%
West Midlands	6.1%
South West	5.2%
Scotland	5.0%
London City	4.4%
London West End	2.6%

Blocklisting Facility

SLIPIT has recently been granted a blocklisting by the UK Listing Authority for 19,000,000 ordinary shares of 1p each in the Company (the “Shares”) to be admitted to the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange.

The Board is not aware of any other significant events or transactions which have occurred between 31 Dec 2016 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 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
Tel: [phone]