Net Asset Value(s)

26 July 2017

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

Unaudited Net Asset Value as at 30 June 2017

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share at 30 June 2017 was 83.9p (31 Mar – 81.4p), a rise of 3.1%, resulting in a NAV total return, including dividends, of 4.6% for Q2;
• The portfolio valuation increased by 2.0% on a like for like basis, whilst the IPD/MSCI Monthly Index rose by 1.1% over the same period.

Positive portfolio activity

• Sale of Matalan, Bradford for £3.8m, removing future letting risk and capital expenditure;
• Four new lettings in the period securing £401,000 of income plus three rent reviews generating additional income of £19,000 per annum;
• Post period end purchases of multi let offices in Reading for £13.24m, reflecting an initial yield of 6.75% and in Manchester for £8.1m reflecting an initial yield of 6.4% with opportunities for asset management.
   

Strong balance sheet with prudent gearing

• LTV of 23.8% (after the purchases of Reading and Manchester) with RCF of £30m still available for investment in future opportunities;

Premium rating

• Share price total return of 3.1% in the quarter comparing favourably to the return on the FTSE All-Share Index of 1.4% and the FTSE All-Share REIT Index of 1.9% over the same period;

• The Company’s shares traded at a premium to NAV of 6.4% as at 30 June 2017.

Attractive dividend yield

• Dividend yield of 5.3% based on a quarterly dividend of 1.19p as at 30 June 2017 compares favourably to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE All Share Index (3.6%) 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 2017 was 83.9p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Knight Frank at 30 June 2017. The next valuation will be undertaken on 30 September 2017.

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 April 2017 to 30 June 2017.

			Per  Share (p)	Attributable Assets (£m)			Comment
Net assets as at 31 March 2017			81.4	316.4
Unrealised increase in valuation of property portfolio			2.1	8.2			Like for like increase of 2% in property portfolio
CAPEX in the quarter			-0.2	-0.5			Predominantly relates to asset management initiatives at Gavin Way, Birmingham and Kings Business Park, Bristol
Net income in the quarter after dividend			0.3	1.2			One off dilapidation receipts of £925k contributed to dividend cover of 127%
Interest rate swaps mark to market revaluation			0.3	1.1			Decrease in swap liabilities in the quarter
Net assets as at 30 June 2017			83.9	326.4
	European Public Real Estate Association (“EPRA”)*							30 Jun  2017		31 Mar 2017
	EPRA Net Asset Value							£329.0m		£320.1m
	EPRA Net Asset Value per share							84.6p		82.3p

The Net Asset Value per share is calculated using 388,815,419 shares of 1p each being the number in issue on 30 June 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  

Although the Company has maintained low voids for several years, the void rate increased in the quarter to 6.7% (31 March – 3.2%) as three units became vacant.  The new voids are dominated by an industrial unit in Rainham, where we already have an interested party, and two office suites in Southampton and Crawley. We have initial interest in Southampton and are about to start a refurbishment in Crawley, where we expect strong demand for the unit. Of the older voids, the most significant is an industrial unit in Oldham where, although there was letting interest, we have instead agreed terms to sell the unit.

Letting has generally gone well with a number of smaller transactions having been completed over the quarter with rent totalling £401,000 pa.

The investment side was quieter over the quarter with the sale of a retail warehouse unit let to Matalan for £3.8m. Since the quarter end, however, we have reinvested our cash into two offices for a total of £21.3m (excl costs). Both offices are multi let, one in Reading close to the train station, and the other in Manchester close to the City centre. They were bought off market at yields of 6.75% and 6.4% respectively.

The Company had a strong quarter in Q2 with capital growth of the assets of 2.0% against the IPD/ MSCI monthly index growth of 1.1%. This, combined with an above market income yield boosted by one-off dilapidation receipts, led to a NAV total return in the quarter of 4.6%.

The Company had repaid all borrowings under the Revolving Credit facility at the end of the quarter and the Company’s overall LTV at 30 June 2017 was 19.9%. Since the quarter end the Company re-drew £5m of the RCF for the most recent purchases resulting in the LTV increasing to 23.8%. The valuation of the interest rate swap against the term loan moved in the Company’s favour during the quarter and now stands at a liability of £2.6million.

Market Commentary

The resilience of the UK economy, which showed post the Brexit referendum vote, has faded into 2017.  A weaker consumer sector, impacted by a squeeze on spending power, caused the economy to grow by only 0.2% in the first quarter of 2017, a pronounced slowdown from the 0.7% growth recorded in Q4 2016. A series of softer output data released recently has also dampened hopes of a strong rebound for Q2. As wages lag further behind inflation, forecasts for household spending continue to be mixed, despite the employment rate in the three-month period to May showing the strongest rise since 1975.

Wage growth is one of the key indicators that the Bank of England is monitoring closely as in recent weeks the Monetary Policy Committee (MPC) has become increasingly divided as to the timing of shifting its policy stance. Ultimately, the MPC’s interest rate decision is dependent on how the economy evolves and currently the Bank’s forecast GDP growth is at a solid 1.9% for the calendar year 2017. Our in-house forecast, however, is for slower growth and implies a small increase in UK spare capacity which should ease the MPC's concerns about a trade-off between growth and inflation and any interest rate increases are therefore expected to be gradual and modest.

Within the real estate sector, All Property (as measured by MSCI/IPD) recorded a total return of 1.1% in the quarter. The industrial and logistic distribution sector has continued to demonstrate its strength generating a total return of 4.6%.   Retail and offices fell behind industrial with similar total returns for the quarter of 1.8% and 1.9% respectively. Office returns are feeling the impact of political uncertainty feeding into the leasing market. Rents remained largely stable over the last three months with retail rental growth of 0.1%, office rental growth of 0.3% and industrial rental growth of 1% over the quarter. 

Looking over the last twelve months, All Property (as measured by MSCI/IPD) recorded a total return of 5.1% p.a. Market conditions and sentiment have stabilised following the capital decline after the Brexit referendum. Capital values fell by 0.5% p.a. in the year to end June with an income return of 5.6% driving performance. In terms of a sector analysis, the industrial sector has continued to demonstrate its strength generating a total return of 12.4% p.a. Retail was no longer the laggard sector in the same period, recording total returns of 3.0% p.a., ahead of offices which recorded total returns of 2.2% p.a. reflecting the political uncertainties associated with the sector.

Investment Outlook

UK real estate continues to provide an elevated yield compared to other assets and the market has stabilised following the post Brexit upheaval last year. Furthermore, 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 existing vacancy rates are below average levels in most markets, which 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.

The market is likely to continue to be sentiment driven in the short term as the politics and economic impact associated with the UK’s withdrawal from the European Union continues to evolve. The retail sector continues to face a series of headwinds that may hold back recovery in weaker locations due to oversupply and structural issues. Given the backdrop of continuing heightened macro uncertainty, investors are becoming more risk averse and better quality assets are once again broadly outperforming those of poorer quality.

Dividends

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

Net Asset analysis as at 30 June 2017 (unaudited)

	£m	% of net assets
Office	123.7	37.9
Retail	93.9	28.7
Industrial	200.5	61.4
Total Property Portfolio	418.1	128.0
Adjustment for lease incentives	-4.0	-1.2
Fair value of Property Portfolio	414.1	126.8
Cash	26.7	8.2
Other Assets	6.8	2.1
Total Assets	447.6	137.1
Current liabilities	-9.5	-2.9
Non-current liabilities (bank loans & swap)	-111.7	-34.2
Total Net Assets	326.4	100.0

Breakdown in valuation movements over the period 1 Apr 2017 to 30 Jun 2017

	Portfolio Value as at 30 June 2017 (£m)	Exposure as at 30 June 2017 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Mar 17				413.7
Retail	93.9	22.4	0.2	-3.6
South East Retail		6.7	1.4	0.4
Rest of UK Retail		1.2	-8.5	-0.4
Retail Warehouses		14.5	0.5	-3.6*
Offices	123.7	29.6	1.9	2.4
London West End Offices		3.2	16.1	1.9
South East Offices		23.2	0.5	0.5
Rest of UK Offices		3.2	0.0	0.0
Industrial	200.5	48.0	2.9	5.6
South East Industrial		12.4	0.8	0.4
Rest of UK Industrial		35.6	3.6	5.2
External valuation at 30 Jun 2017	418.1	100.0	2.0	418.1

*Includes sale of Bradford

Top 10 Properties

	30 Jun 17 (£m)
Denby 242, Denby	15-20
Elstree Tower, Borehamwood	15-20
Symphony, Rotherham	15-20
DSG, Preston	15-20
Chester House, Farnborough	15-20
New Palace Place, London	10-15
Howard Town Retail Park, High Peak	10-15
Charter Court, Slough	10-15
Hollywood Green, London	10-15
Eden Street, Kingston upon Thames	10-15

Top 10 tenants

	Tenant group	Passing rent	As % of total rent
1	Sungard Availability Services (UK) Ltd	1,320,000	4.7
2	BAE Systems plc	1,257,640	4.5
3	Techno Cargo Logistics Ltd	1,242,250	4.4
4	DSG Retail Limited	1,177,677	4.2
5	The Symphony Group Plc	1,080,000	3.8
6	Bong UK	741,784	2.7
7	Euro Car Parts Ltd	736,355	2.7
8	Ricoh UK Limited	696,995	2.5
9	CEVA Logistics Limited	614,937	2.2
10	Thyssenkrupp Materials (UK) Ltd	590,000	2.1
		9,457,638	33.8
	Total Fund Passing Rent	27,978,184

Regional Split

South East	43.4%
East Midlands	15.3%
North West	12.8%
North East	9.6%
West Midlands	6.6%
Scotland	5.0%
South West	4.1%
London West End	3.2%

The Board is not aware of any other significant events or transactions which have occurred between 30 June 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]