Net Asset Value

24 October 2017

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 September 2017

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share as at 30 Sep was 86.0p (30 Jun 2017 – 83.9p), a rise of 2.5% over the period, resulting in a NAV total return, including dividends, of 4.0% for Q3;
• The portfolio valuation increased by 1.5% on a like for like basis, whilst the MSCI/IPD Monthly Index rose by 1.3% over the same period.

Positive portfolio activity

• 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% both of which provide opportunity for asset management;
• Purchase of a 46,800sqft industrial unit in Birmingham for a price of £4.58m, reflecting an initial yield of 5.75% for a 15 year lease in place with no breaks.

Sales

• Sale of a 25,600sqft office on York Science Park for £4.35m, just ahead of the June 2017 valuation figure, to reduce the Company’s out of town office exposure;
• Sale of a small industrial unit in Cheltenham to the tenant for £2.175m, reflecting a yield of 4.8%. The sale price was 8% ahead of the valuation as at 30 June;
• Sale of a stand-alone retail warehouse in Southend on Sea at a price of £5m, 5% ahead of the end June valuation and reducing exposure to the retail sector;  
• Exchanged contracts to sell Elstree Tower in Borehamwood for £20m. The 80,700sqft office was valued at the end of June at £18m. The sale removes risk relating to the break clause in 2020 while the delayed completion until Feb 2018, which is unconditional, provides the Company with additional income, and reduces cash drag while opportunities to reinvest the proceeds are being investigated.

Overall, the portfolio activity is in line with the strategy of disposing of assets at a profit where this also reduces risk to the Company and reinvesting in higher yielding assets in favoured sectors that offer the opportunity for successful asset management.

Strong balance sheet with prudent gearing

• LTV of 21.6% as at 30 Sep with uncommitted cash of £10m and the RCF of £35m still available for investment in future opportunities.

Premium rating

• Continued strong demand for the Company’s shares with the share price sitting at a premium to NAV of 7.0% as at 30 Sep.

Attractive dividend yield

• Dividend yield of 5.3% based on a quarterly dividend of 1.19p and the share price of 92p as at 30 Sep compares favourably to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE All Share Index (3.7%) 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 Sep 2017 was 86.0p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Knight Frank as at 30 Sep 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 Jul 2017 to 30 Sep 2017.

			Per  Share (p)				Attributable Assets (£m)		Comment
Net assets as at 30 June 2017			83.9				326.4
Unrealised increase in valuation of property portfolio			2.2				8.6		Mainly relates to like for like increase of 1.5% in property portfolio
Gain on sales			0.1				0.4		Total gains on sale of York, Cheltenham and Southend on Sea
CAPEX & transaction costs in the quarter including SDLT on purchases			-0.5				-1.8		Predominantly costs of sales and acquisitions incl SDLT plus CAPEX at Gavin Way, Birmingham and Kings Business Park, Bristol
Net income in the quarter after dividend			0.0				-0.2		Dividend cover of 97% in the quarter but uncommitted cash resources of £10m plus £35m RCF still available for investment.
Interest rate swaps mark to market revaluation			0.2				0.7		Decrease in swap liabilities in the quarter due to increased expectations of a rise in interest rates
Share issues			0.1				3.4		NAV accretive issue of 3.8m shares in the quarter raising £3.4m
Net assets as at 30 Sep 2017			86.0				337.5
	European Public Real Estate Association (“EPRA”)*			30 Sep 2017				30 Jun 2017
	EPRA Net Asset Value			£339.4m				£329.0m
	EPRA Net Asset Value per share			86.4p				84.6p

The Net Asset Value per share is calculated using 392,615,419 shares of 1p each being the number in issue on 30 Sep 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  

At a property level performance has generally been in line with the wider market. However, one of the more noticeable features of the last 6 months for the fund has been the increase in voids, up to the current level of 7.9% as at 30 September. This is higher than we would like although it should be highlighted 3.3% of this void is under offer to let or sell and 0.8% relates to a new purchase where we received 18 months rental cover. Out of the 7.9% void by income, 5% has been vacant for less than 6 months.

During Q3 the dividend was only covered 97%, however for the year to date it is covered by 106%. The new voids, and having cash to invest, means we are confident that cover will be maintained in the future.

Sales and purchases over the quarter continued our strategy of reducing future void and capex risk, and investing into multi let assets that have strong potential for future performance. The sale of our largest asset, Elstree Tower, has a delayed completion, enabling the Company to continue to collect rental income until February 2018, and the two office purchases in Reading and Manchester offer plenty of asset management opportunities in good quality well located buildings.

The Company retains its undrawn Revolving Credit Facility (£35m) as well as uncommitted cash (£10m) for reinvestment, and had an LTV as at 30 September, of 21.6%. 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 £1.9m reflected in the NAV. This will revert to nil at maturity in April 2023.

Market Commentary

Although forecasts for economic growth remain stronger than immediately after the Brexit referendum, economists generally expect a modest further slow-down in GDP growth for the UK economy as we move into 2018. Despite the expected moderation in the economy, returns from All Property remain robust at 10.4% p.a. in the twelve months to end September. This compares to 5.1% p.a. in the year to end June. Furthermore, UK property has recovered all of the capital losses incurred immediately post the Brexit referendum. Over the twelve months to end September, capital values rose by 4.5% p.a. Rental growth remains robust and at a market level rents have increased by 1.8% p.a. over the past year.

As for the equity markets, the FTSE All Share and the FTSE 100 total returns rose by 2.1% and 1.8% respectively over the period 30/06/17 to 30/09/17. For listed real estate equities, total returns were static over the quarter.
 

In sector terms, the industrial sector has continued to demonstrate its strength, generating a total return of 18.6% p.a. in the twelve months to end September. Retail was the laggard sector in the same period, recording total returns of 7.6% p.a., although significantly ahead of the total returns delivered in the twelve months to end June. Despite the uncertainty associated with the sector as a result of Brexit, offices recorded a total return of 8.1% p.a. in the year to end September. Industrial values continued to rise strongly over the twelve months to end September also although both the other two sectors have only experienced modest capital growth. Retail capital growth continues to be the weakest with values increasing by 1.4% p.a. over the twelve months to end September, whilst office values grew by 3.1% p.a. over the same time frame. Rents remained largely stable over the last twelve months, but within sectors, retail rental growth, at 0.6% p.a., continued to be considerably weaker than the other sectors - below office rental growth at 1.1% p.a. and industrials at 4.9% p.a. in the twelve months to end September.
 

Investment Outlook

UK real estate continues to provide an elevated yield compared to other assets and the market has fully recovered the capital value losses that were sustained during the Brexit upheaval last year. With continued capital growth comes concern about how long this cycle will last. Several indicators remain supportive; 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 less strong locations due to oversupply and structural changes. 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 prove most resilient in the weaker economic environment we anticipate as we head into 2018.
 

Dividends

On 31 August 2017, the Company paid a dividend of 1.19p per Ordinary Share in respect of the quarter ended 30 June.

Net Asset analysis as at 30 Sep 2017 (unaudited)

	£m	% of net assets
Office	144.2	42.7
Retail	90.2	26.7
Industrial	206.7	61.3
Total Property Portfolio	441.1	130.7
Adjustment for lease incentives	-4.0	-1.2
Fair value of Property Portfolio	437.1	129.5
Cash	14.6	4.3
Other Assets	7.5	2.2
Total Assets	459.2	136.0
Current liabilities	-10.4	-3.1
Non-current liabilities (bank loans & swap)	-111.3	-32.9
Total Net Assets	337.5	100.0

Breakdown in valuation movements over the period 1 Jul 2017 to 30 Sep 2017

	Portfolio Value as at 30 Sep 2017 (£m)	Exposure as at 30 Sep 2017 (%)	Like for Like Capital Value Shift (excl sales & purchases)	Capital Value Shift (incl sales & purchases (£m)
			(%)
External valuation at 30 June 17				418.1
Retail	90.2	20.4	1.2	-3.7
South East Retail		6.5	2.4	0.7
Rest of UK Retail		1.2	2.0	0.1
Retail Warehouses		12.7	0.5	-4.5
Offices	144.2	32.7	1.4	20.6
London City Offices		0.0	0.0	0.0
London West End Offices		3.1	0.0	0.0
South East Offices		25.4	1.5	15.3
Rest of UK Offices		4.2	2.7	5.3
Industrial	206.7	46.9	1.7	6.1
South East Industrial		12.2	3.7	1.9
Rest of UK Industrial		34.7	1.0	4.2
External valuation at 30 Sep 2017	441.1	100.0	1.5	441.1

Top 10 Properties

	30 Sep 17 (£m)
Elstree Tower, Borehamwood	20-25
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
DSG, Preston	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

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 plc	1,257,640	4.6
3	Techno Cargo Logistics Ltd	1,242,250	4.5
4	DSG Retail Limited	1,177,677	4.3
5	The Symphony Group Plc	1,080,000	3.9
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	34.3
	Total Fund Passing Rent	27,442,862

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 Sep 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 Cour
tLes Banques
St Peter Port
GY1 3QL

Tel: [phone]