Net Asset Value(s)

27 April 2017

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

Unaudited Net Asset Value as at 31 March 2017

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share was 81.4p (Dec 2016 – 81.0p), a rise of 0.5%, resulting in a NAV total return, including dividends, of 2.0% for Q1;
• The portfolio valuation increased by 0.7% on a like for like basis, whilst the IPD/MSCI Monthly Index rose by 0.9% over the same period.

Positive investment activity while maintaining low voids

• Sale of Quadrangle, Cheltenham and the Company’s largest asset White Bear Yard, City of London sold for a combined £30.1m, removing future letting risk and capital expenditure and also eliminating the Company’s exposure to City of London offices;
• Proceeds partially reinvested into acquisition of two higher yielding properties in Sunderland and Bristol, both in the Company’s favoured industrial sector;
• Low void rate of 3.2% as at 31 March 2017.

Strong balance sheet with prudent gearing

• Sale proceeds also used to repay revolving credit facility with the LTV now standing at 21.2%;
• Company also has uncommitted cash of £15m still available for investment in future opportunities.

NAV Accretive Share Issuance

• Over 8 million shares issued in the quarter under the Company’s blocklisting authority at prices accretive to existing shareholders while maintaining Company’s rating (see below);
• Share price total return of 2.8% in the quarter resulting in the Company’s shares trading at a premium to NAV of 7.8% as at 31 March 2017.

Attractive dividend yield

• Dividend yield of 5.4% based on a quarterly dividend of 1.19p as at 31 March 2017 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.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 March 2017 was 81.4p. 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 March 2017. The next valuation will be undertaken on 30 June 2017 with Knight Frank valuing the whole portfolio.

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 January 2017 to 31 March 2017.

			Per  Share (p)	Attributable Assets (£m)			Comment
Net assets as at 31 Dec 2016			81.0	308.5
Unrealised increase in valuation of property portfolio			0.8	3.0			Like for like increase of 0.7% in property portfolio
Loss on sales			-0.1	-0.2			Loss on sales after costs at Quadrangle, Cheltenham & White Bear Yard, City of London
CAPEX & transaction costs in the quarter			-0.4	-1.7			Predominantly costs of acquisition at Sunderland and Bristol plus asset management initiative at Foxhole, Hertford
Net income in the quarter after dividend			0.0	0.0			Dividend cover of 100% after net sales of £18.5m in the quarter. Significant uncommitted cash resources of £15m still available for investment.
Interest rate swaps mark to market revaluation			0.0	-0.1			Marginal increase in swap liabilities in the quarter
Share issuance in the period			0.1	6.9			NAV accretive share issuance raising net proceeds of £6.9m
Other movement in reserves			0.0	0.0			Minimal movement in lease incentives in the quarter
Net assets as at 31 March 2017			81.4	316.4
	European Public Real Estate Association (“EPRA”)*							31 Mar 2017		31 Dec 2016
	EPRA Net Asset Value							£320.1m		£312.1m
	EPRA Net Asset Value per share							82.3p		82.0p

The Net Asset Value per share is calculated using 388,815,419 shares of 1p each being the number in issue on 31 March 2017.

* 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 Company had a busy start to 2017 with the completion of the sale of two offices for a total of £30.1m, and the purchase of two industrial assets for £10.7m. The sales were undertaken where we could exit at an attractive price and avoid future risk and capex requirements, whilst the purchases were of industrial assets with greater prospects for rental growth. Following the sale of White Bear Yard we have no Central London office exposure, other than a small office suite as part of a mixed use investment in Westminster. The downside of the repositioning is the impact of transaction costs in the quarter.

Performance was negatively affected by adverse valuation movement on a couple of the retail warehouse assets and on an industrial asset as it gets closer to a lease end. There were positives, however, from asset management with 4 rent reviews settled resulting in increases in rent totalling £97,000, a lease regear securing a rent of £360,000 pa for an additional 6 years (giving 11 years term certain), and three new lettings securing rents of £168,000 pa.

As a result of asset management the void rate stands at 3.2% (under half the rate of the market average). The voids are dominated by one unit, a logistics building in Oldham, North Manchester, where we have seen an increase in interest from potential tenants.

The Company has now repaid all borrowings under the Revolving Credit facility and the Company’s overall LTV at 31 March 2017 was 21.2%. The Company has approximately £15m cash available to reinvest. The valuation of the interest rate swap against the term loan moved slightly against the Company during the quarter, and now stands at a liability of £3.7 million.

Market Commentary

The UK economy has clearly demonstrated its resilience post the referendum vote with GDP growth for Q4 2016 recently being revised up to +0.7%. The data, released thus far for Q1 2017, however, has been mixed regarding the strength of the economy. Although the manufacturing and production indicators remain strong, tentative evidence of the rapid squeeze on consumers’ spending power has appeared lately as a result of rising inflation. Furthermore, the UK household savings ratio fell to a record low at the end of 2016, bringing into question the scope for further drawdowns in savings. With inflation now running at the same rate as wages growth in March, real incomes are likely to fall over the coming months. Although retail sales data have been volatile, the 3-month average growth rate has clearly slowed. Not surprisingly, some retailers are becoming more cautious about the outlook for spending including Next, Tesco and John Lewis.

Over the twelve months to end March, All Property recorded a total return of 3.8% p.a. The sharp capital decline following the EU Referendum in July 2016 continued to have a negative impact on the overall figures, but market conditions and sentiment have stabilised in recent months with a total return for Q1 2017 of 2.3%. Capital values fell by 1.7% p.a. in the year to end March, but again Q1 2017 was positive at 0.9%. Rental growth remained positive however and grew by 1.6% p.a. in the twelve months to end March.

The industrial sector has continued to outperform with a total return of 9.4% p.a. in the twelve months to end March.  Retail was no longer the laggard sector in the same period, recording total returns of 2.3% p.a., noticeably ahead of offices which recorded total returns of 1.4% p.a. reflecting the political uncertainties associated with the Central London market.

As for the equity markets, the FTSE All Share and the FTSE 100 total returns were 4.0% and 3.7% respectively over the quarter. For listed real estate equities, total returns were relatively modest growth at 1.7% over the quarter.

Investment Outlook

UK real estate continues to provide an elevated yield compared to other asset classes with capital values more stable following the post Brexit upheaval last year.  Lending to the sector is at a lower level than in 2007/2008 and liquidity remains reasonable. Additionally, development continues to be relatively constrained by historic standards, and vacancy rates are below long term average levels. These factors should all help to maintain the positive returns the sector is currently recording. In this environment, the steady secure income component generated by the asset class is likely to be the key driver of returns going forward. 

From a sector perspective, we continue to favour industrial and logistics property, although pricing on prime assets is likely to remain competitive as the stable income component and positive fundamentals appeal to investors. As for the retail sector, inflationary pressures may prove to be a significant headwind going forward with static real wage growth despite a tight labour market. Further polarisation within the market is likely to be experienced. During the Brexit negotiations we continue to expect Central London offices to be the most impacted sector given the linkages to European markets via cross border trading. Overall, investor appetite is expected to be sustained in an environment of low numbers and location and asset quality will be crucial determinants of how markets respond to pressures in the year ahead. 

Dividends

The Company paid total dividends in respect of the quarter ended 31 December 2016 of 1.19p per Ordinary Share, with a payment date of 31 March 2017.

Net Asset analysis as at 31 March 2017 (unaudited)

	£m	% of net assets
Office	194.9	61.6
Retail	121.3	38.3
Industrial	97.5	30.8
Total Property Portfolio	413.7	130.7
Adjustment for lease incentives	-3.9	-1.2
Fair value of Property Portfolio	409.8	129.5
Cash	22.3	7.0
Other Assets	6.9	2.2
Total Assets	439.0	138.7
Current liabilities	-9.8	-3.1
Non-current liabilities (bank loans & swap)	-112.8	-35.6
Total Net Assets	316.4	100.0

Breakdown in valuation movements over the period 1 Jan 2017 to 31 Mar 2017

	Portfolio Value as at 31 Mar 2017 (£m)	Exposure as at 31 Mar 2017 (%)	Like for Like Capital Value Shift (excl transactions)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Dec 2016				429.9
Retail	97.5	23.6	-0.2	-0.2
South East Retail		6.7	-0.4	-0.1
Rest of UK Retail		1.3	3.2	0.2
Retail Warehouses		15.6	-0.4	-0.3
Offices	121.3	29.3	0.7	-29.2
London City Offices		0.0	0.0	-18.9*
London West End Offices		2.8	2.4	0.3
South East Offices		23.3	0.1	0.1
Rest of UK Offices		3.2	3.1	-10.7**
Industrial	194.9	47.1	1.3	13.2
South East Industrial		12.4	2.8	1.4
Rest of UK Industrial		34.7	0.8	11.8***
External valuation at 31 Mar 2017	413.7	100.0	0.7	413.7

*    Includes sale of White Bear Yard, City of London
**    Includes sale of Quadrangle Cheltenham
***  Includes purchases of Stephenson’s Industrial Estate, Sunderland and Kings Business Park, Bristol

Top 10 Properties

	31 Mar 17 (£m)
Elstree Tower, Borehamwood	15-20
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
DSG, Preston	15-20
Chester House, Farnborough	15-20
3B - C Michigan Drive, Milton Keynes	10-15
Charter Court, Slough	10-15
Howard Town Retail Park, High Peak	10-15
Hollywood Green, London	10-15
New Palace Place, London	10-15

Top 10 tenants

	Tenant group	Passing rent	As % of total rent
1	Sungard Availability Services (UK) Ltd	1,320,000	4.8
2	BAE Systems	1,257,640	4.5
3	Techno Cargo Logistics Ltd	1,242,250	4.5
4	DSG	1,177,677	4.2
5	The Symphony Group Plc	1,080,000	3.9
6	Bong UK	741,784	2.7
7	Euro Car Parts Ltd	703,430	2.5
8	Ricoh UK Limited	696,995	2.5
9	Matalan	696,778	2.5
10	Grant Thornton UK LLP	680,371	2.5
		9,596,925	34.6
	Total Fund Passing Rent	27,752,278

Regional Split

South East	42.4%
East Midlands	15.9%
North West	12.6%
North East	10.6%
West Midlands	6.5%
Scotland	5.0%
South West	4.2%
London West End	2.8%

The Board is not aware of any other significant events or transactions which have occurred between 31 Mar 17 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]