Net Asset Value(s)

30 January 2018

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 December 2017

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share was 87.6p (Sep 2017 – 86.0p), a rise of 1.9%, resulting in a NAV total return, including dividends, of 3.3% for Q4;
• The portfolio valuation increased by 1.7% on a like for like basis, whilst the IPD/MSCI Monthly Index rose by 2.0% over the same period.

Portfolio activity - Selling assets with limited future return prospects and reinvesting into assets in favoured sectors that provide secure income

Sales

• Sale of two retail warehouse units let to DSG in Preston for £16.35m. The sale was 5.4% ahead of the end September valuation.
• Sale of a further retail unit let to Matalan at Kings Lynn, for £4.4m, marginally ahead of the previous valuation.
• Sale of office building at 1 Dorset Street, Southampton for £5.2m, in-line with previous valuation. This sale enables the Company to avoid future capital expenditure and re-letting risk on the building.
• Post the quarter end, sale of Bathgate Retail Park in Scotland for £5.2m, further reducing the Company’s retail exposure.

• Purchase of a multi let office at 1 Station Square, in Bracknell for £12m, reflecting a yield of 6.9% on the topped up rent. The office has had a substantial refurbishment and is located adjacent to Bracknell train station and close to the newly opened town centre retail scheme which should provide scope for rental growth.
• Post the quarter end purchase of a 216,180 sq ft logistics facility in Shellingford, Oxfordshire on the established White Horse Business Park, for £11.5m, reflecting an initial yield of 6.5%. The unit is let for 25 years without a break, and is subject to five yearly upwards only rent reviews fixed at 2.5%pa. 

Overall the above transactions have reduced risk in the portfolio by selling assets, particularly in the retail sector, where future returns are expected to come under pressure. Proceeds have been reinvested into assets in favoured sectors that offer secure income and better future performance characteristics.

Successful asset management activity

• The Company’s largest void at year end was an industrial unit in Rainham, which became vacant in June 2017 on lease expiry. In January, we signed an agreement on the unit for a new 15 year lease with a tenant break in year 10. Post this new lease, the void rate, which stood at 7.5% at the quarter end drops to 5.4%.

Strong balance sheet with prudent gearing

• LTV of 18.0%* with uncommitted cash (post quarter end transactions) of £18.3m and RCF of £35m still available for investment in future opportunities.

Premium rating

• Continued strong demand for the Company’s shares with 2.25m shares issued in the quarter raising proceeds of £2.0m. As at 31 Dec 2017 the share price was 93.25p - a premium to the 31 December NAV of 6.4%.

Attractive dividend yield

• Dividend yield of 5.1% based on a quarterly dividend of 1.19p as at 31 Dec 2017 compares favourably to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE All Share Index (3.4%) as at the same date.

*LTV calculated as Debt less cash (incl cash held by solicitors) divided by portfolio value

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 Dec 2017 was 87.6p. 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 31 Dec 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 Oct 2017 to 31 Dec 2017.

			Per  Share (p)				Attributable Assets (£m)		Comment
Net assets as at 30 Sept 2017			86.0				337.5
Unrealised increase in valuation of property portfolio			1.7				6.9		Mainly relates to like for like increase of 1.7% in property portfolio
Gain on sales			0.3				1.1		Gains on sale of DSG, Matalan, Kings Lynn and Dorset Street, Southampton
CAPEX & purchase costs in the quarter			-0.3				-1.0		Predominantly  acquisition costs incl SDLT plus CAPEX at Explorer 1 & 2 and Unit 6 Broadgate, Oldham
Net income in the quarter after dividend			0.0				0.0		Dividend cover for the quarter of 100% (104% for the full year) with uncommitted cash resources of £18.3m plus £35m RCF still available for investment.
Interest rate swaps mark to market revaluation			-0.1				-0.4		Increase in swap liabilities in the quarter
Share issues			0.0				2.0		NAV accretive issue of 2.25m shares in the quarter raising £2.0m
Other movement in reserves			0.0				-0.1		Movement in lease incentives in the quarter
Net assets as at 31 Dec 2017			87.6				346.0
	European Public Real Estate Association (“EPRA”)*			31 Dec 2017				30 Sep 2017
	EPRA Net Asset Value			£348.2				£339.4m
	EPRA Net Asset Value per share			88.2p				86.4p

The Net Asset Value per share is calculated using 394,865,419 shares of 1p each being the number in issue on 31 Dec 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 focus during 2017 was relatively simple – firstly, to reduce future risk of capex/voids and to reduce exposure to retail warehousing, which we feel is going to continue to face headwinds.  Secondly, we wanted to control the void level and secure future income at risk from lease expiry and void. The year ahead is likely to have a similar theme, although we have more or less completed the portfolio rebalancing, with the main focus being on maintaining and growing the income stream.

Whilst 2017 surprised with the extent of capital growth (5.4%), we remain cautious on the outlook for 2018. Initial indications are that tenant interest in industrial and office property remains relatively strong, however the prospect of mixed news on Brexit, and a slowing economy, means that we want to continue to focus on reducing voids.  We completed several lease renewals in Q4 2017 and an agreement for lease on our largest void in January 2018. We are encouraged by the number of viewings on our largest remaining void – a logistics unit in Oldham - and although we are aware of several future voids over the course of 2018, early interest in them is also encouraging.

The last quarter of 2017 and the first weeks of 2018 saw continued rebalancing of the portfolio, rotating out of retail warehouse units that had future risk (Preston was over-rented and planning had recently been granted for a new park on the opposite side of town) and buying into assets that we believe tenants will want to occupy, such as well-located offices and industrial units.

The Company retains its undrawn Revolving Credit Facility (£35m) as well as unallocated cash (£18.3m) for reinvestment, and had an LTV of 18% as at 31 December, reflecting the relatively cautious outlook we have. The cost of the debt has been hedged, and is fixed at 2.7%, as compared to a running yield on the investment portfolio of 5.6%. The interest rate swap has a liability of £2.2m held in the NAV. This will revert to £0 at maturity.

Market Commentary

As we move into 2018, economists generally expect relatively subdued economic growth for the year ahead and then some further moderation in economic momentum in 2019 as the impact of leaving the European Union becomes more pronounced. Despite the relatively weak economic backdrop, UK real estate returns were stronger than most analysts originally anticipated at the start of 2017. Up to the end of December, UK real estate recorded total returns of 11.2% for the year. Capital growth was relatively strong over the year also with values rising by 5.4%, .an improvement on the 4.5% growth in the twelve months to end September. Rents increased by 1.9% over the year which marginally improved from the increase in the year to end September.

As for the equity markets, the FTSE All Share and the FTSE 100 both produced total returns of 5% respectively over the period 30/09/17 to 31/12/17. Over the same period, listed real estate equities delivered a return of 8.3%.

In sector terms, the industrial sector has continued to demonstrate its strength, generating a total return of 21.1% in the twelve months to end December. Retail was the laggard sector in the same period, recording total returns of 7.7%. Despite the political uncertainty associated with the sector, offices recorded a total return of 8.5% in the year to end December. Retail capital growth continues to be the weakest with values increasing by 1.5% over the twelve months to end December, whilst office values grew by 3.5% over the same time frame. Rental growth remained positive over the last 12 months with office rental growth of 1.4% and industrials at 4.9%. Retail rental growth, at 0.4% continued to be considerably weaker than the other sectors.

Investment Outlook

UK real estate continues to provide an elevated yield compared to other assets and market values are now ahead of the level they attained before the Brexit upheaval in 2016.  Furthermore, lending to the sector remains prudent 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, although there are pockets of oversupply in some markets such as Central London. The positive fundamentals should help to maintain positive returns. In this environment, the steady secure income component generated by the asset class is likely to be the key driver of returns. 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 less strong locations due to oversupply and structural issues. Within this sector, however, the prospects for retail towards the South East and Central London are expected to remain more robust. 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. Prime/good quality assets with stronger tenants on longer leases are likely to provide the best opportunities in the weaker economic environment we anticipate further into 2018. 

Dividends

The Company paid total dividends in respect of the quarter ended 30 September 2017 of 1.19p per Ordinary Share, with a payment date of 30 November 2017.

Net Asset analysis as at 31 Dec 2017 (unaudited)

	£m	% of net assets
Office	150.5	40.2
Retail	69.6	20.1
Industrial	213.1	64.9
Total Property Portfolio	433.2	125.2
Adjustment for lease incentives	-3.7	-1.1
Fair value of Property Portfolio	429.5	124.1
Cash	14.3	4.1
Other Assets	24.2	7.0
Total Assets	468.0	135.2
Current liabilities	-10.5	-3.0
Non-current liabilities (bank loans & swap)	-111.5	-32.2
Total Net Assets	346.0	100.0

Breakdown in valuation movements over the period 1 Oct 2017 to 31 Dec 2017

	Portfolio Value as at 31 Dec 2017 (£m)	Exposure as at 31 Dec 2017 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 30 Sep 17				441.1
Retail	69.6	16.1	0.4	-20.6
South East Retail		5.7	1.2	0.3
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		10.4	-0.1	-20.9
Offices	150.5	34.7	0.1	6.3
London City Offices		0.0	0.0	0.0
London West End Offices		3.1	0.7	0.1
South East Offices		27.2	-0.5	5.6
Rest of UK Offices		4.4	3.2	0.6
Industrial	213.1	49.2	3.1	6.4
South East Industrial		13.1	5.9	3.2
Rest of UK Industrial		36.1	2.2	3.2
External valuation at 31 Dec 2017	433.2	100.0	1.7	433.2

Top 10 Properties

	31 Dec 17 (£m)
Elstree Tower, Borehamwood	20-25
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
Chester House, Farnborough	15-20
The Pinnacle, Reading	10-15
New Palace Place, London	10-15
Howard Town Retail Park, High Peak	10-15
Hollywood Green, London	10-15
Charter Court, Slough	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	5.0
2	BAE Systems plc	1,257,640	4.7
3	Techno Cargo Logistics Ltd	1,242,250	4.6
4	The Symphony Group Plc	1,080,000	4.1
5	Bong UK	741,784	2.8
6	Euro Car Parts Ltd	736,355	2.8
7	Ricoh UK Limited	696,995	2.6
8	CEVA Logistics Limited	633,385	2.4
9	Thyssenkrupp Materials (UK) Ltd	590,000	2.2
10	Public Sector	559,148	2.1
		8,857,557	33.3
	Total Fund Passing Rent	26,654,667

Regional Split

South East	46.0%
East Midlands	15.1%
North West	11.0%
North East	8.4%
West Midlands	7.5%
Scotland	5.0%
South West	3.8%
London West End	3.2%

The Board is not aware of any other significant events or transactions which have occurred between 31 Dec 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.slipit.co.uk

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]