Net Asset Value

3 May 2019

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2019

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share was 91.1p (Dec 18 – 91.0p), a rise of  0.1%, resulting in a NAV total return, including dividends, of 1.4% for Q1 2019;

• The portfolio valuation (before CAPEX) increased by 0.3% on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by 0.8% over the same period.

• NAV adversely impacted by the movement in the Company’s interest rate swap, which now has a negative worth of £1.86 million (Q4 2018: £804,000). This value will revert to £nil on maturity of the swap in 2023.

Investment and letting activity

• No purchases or sales were made during the quarter
• Three lettings were completed during the quarter securing a total of £132,000pa
• Lease to Tesco renewed for a term of 15 years with tenant break at year 10 securing a rent of £107,250pa (same as previous rent).
• After the quarter end three rent reviews totalling £703,000 were agreed on industrial assets, securing an uplift of £135,000pa, (23.8%), on the previous rent.
• Also after the quarter end, the Company took a surrender of a lease over an office in Staines and simultaneously re-let it on a 10 year lease at £715,000pa, which was above the previous rental level.

Strong balance sheet with prudent gearing

• Prudent LTV* of 24.4% at the quarter end, one of the lowest in the Company’s peer group and the wider REIT sector.

Attractive dividend yield

• Dividend yield of 5.3% based on a quarterly dividend of 1.19p and the share price of 90.4p as at 31 March 2019 compares favourably to the yield on the FTSE All-Share REIT Index (4.3%) and the FTSE All-Share Index (4.2%) as at the same date. 

*LTV calculated as Debt less cash 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 March 2019 was 91.1p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Knight Frank LLP at 31 March 2019.

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 2019 to 31 March 2019.

	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 1 January 2019	91.0	369.4
Unrealised increase in valuation of property portfolio	0.4	1.7	Like for like increase of 0.3% in property portfolio
CAPEX  in the quarter	-0.1	-0.3	CAPEX predominantly at Kings Business Park, Bristol and Basinghall Street, London
Net income in the quarter after dividend	0.1	0.2	Dividend cover of 104% in the quarter with £14m of RCF still available for investment
Interest rate swap - mark to market revaluation	-0.2	-1.0	Increase in swap liabilities in the quarter as expectations of an upward move in interest rates continue to be muted.
Other movements in reserves	-0.1	-0.4	Movement in lease incentives in the quarter
Net assets as at 31 March 2019	91.1	369.6

European Public Real Estate Association (“EPRA”)*	31 Mar 2019	31 Dec 2018
EPRA Net Asset Value	£371.5m	£370.2m
EPRA Net Asset Value per share	91.5p	91.2p

The Net Asset Value per share is calculated using 405,865,419 shares of 1p each being the number in issue on 31 March 2019.

* 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

It is no surprise that the Brexit negotiations dominated Q1 and investment transaction levels in UK real estate, along with take up, were well below average.

In this environment we were pleased to complete three new lettings and a lease renewal. Despite all the market commentary about the retail sector, one letting was of a retail unit that previously had been let to Maplin. We also renewed a lease to Tesco that was due to expire in 2020 to give an extra 10 years income security.

The familiar theme of industrials being the best performing sector, and retail the worst, continued into the first quarter of 2019 and looks set to remain the case for some time yet. The structure of the Company’s investment portfolio remains supportive for continued outperformance compared to the IPD / MSCI index, and holding a large exposure to industrial / logistics and small exposure to retail remains the correct balance.

After the quarter end we also completed on the surrender and re-letting of an office in Staines. This exemplifies our active approach to asset management – following one of our regular tenant meetings we became aware that the tenant wanted to downsize in the building and would probably exercise their break clause in 2021. We agreed to jointly market the building with them, so that our experience in that market could be utilised, and we quickly identified a new tenant, who wanted the whole building on a new ten year lease. A three-way deal is never easy, but by working together we were able create a transaction that worked for all parties.  

During the quarter we experienced an increase in voids notwithstanding the new lettings (7.4% compared to 5.9% at end of December 2018), as a distribution warehouse became vacant on lease expiry. We are currently marketing the unit, which is in Rugby, part of the “Golden Triangle” for industrials.

Market commentary

• Looking at the UK it is clear that Brexit-related uncertainty is now weighing very heavily on the economy and is responsible for much of the recent slow-down. However, assuming a ‘no deal’ Brexit is avoided and uncertainty around the terms of exit is not prolonged for too long, the economy is poised for a recovery into 2020.
• Recent patterns in the occupier market have changed little, setting aside the short-term turbulence caused by Brexit-related uncertainty, which is making leasing deals more difficult to complete. Structural trends are the key drivers of industrial strength and retail weakness, while strong office fundamentals are being tempered by the uncertain climate as well as the rapid growth of the flexible office sector.
• Capital values have fallen for five consecutive months, according to the MSCI Monthly Index in March 2019. Liquidity in the market remains impaired, with evidence growing that appetite for risk has diminished. A high proportion of deals for alternative assets, in a quarter of otherwise muted investment activity, emphasises that lower risk income focus. 
• In our base case we expect a low return environment over the next three years for the commercial real estate market, with total returns of just 1.9% per annum over the period 2019-21. We also expect the current wide spread in sector level returns to endure in the short term and performance to be dispersed across the risk spectrum.
• In the current environment, we believe it is prudent to secure income as a priority over pushing for the highest immediate rent and to crystallise profits from recent asset management success. The listed market continues to build in large discounts for retail, although a rising wider equity market has narrowed discounts to NAV for generalists and a number of stocks focused on industrial and alternatives continue to trade at a premium.
• The first quarter is usually a busy time in the real estate lending market but a combination of factors has brought it almost to a standstill in 2019. While there are some active debt funds, appetite is at the low risk end of the spectrum and willingness to lend against retail is almost non-existent. Difficulty in refinancing shopping centres could be a trigger for distressed sales.

Investment themes

• The UK market is being weighed down by Brexit and, at the time of writing, numerous outcomes remain possible, including a hard ‘no deal’ scenario. The risk to market pricing and of occupier distress is greatest in that scenario but, even if it is averted, it does not mean an end to the uncertainty around the UK’s future trading relationships.
• Passage of the EU Withdrawal Agreement merely moves the Brexit process on, but with no clear visibility of the eventual nature of the long term UK-EU relationship. Meanwhile, an extension of the Article 50 process offers no resolutions and prolongs the current uncertainty.
• With the only definitive scenario – a ‘no deal’ Brexit – being the most disruptive, in ASI’s view, and more prolonged uncertainty being the alternative, we do not expect risk to be rewarded in the short term.  

Dividends

The Company paid total dividends in respect of the quarter ended 31 December 2018 of 1.19p per Ordinary Share, with a payment date of 29 March 2019.

Net Asset analysis as at 31 March 2019 (unaudited)

	£m	% of net assets
Industrial	260.5	71.3
Office	160.5	43.9
Retail	45.8	12.5
Other Commercial	34.0	9.3
Total Property Portfolio	500.8	137.0
Adjustment for lease incentives	-4.2	-1.2
Fair value of Property Portfolio	496.6	135.8
Cash	9.0	2.5
Other Assets	8.2	1.1
Total Assets	513.8	139.4
Current liabilities	-12.0	-3.3
Non-current liabilities (bank loans & swap)	-132.2	-36.1
Total Net Assets	369.6	100.0

Breakdown in valuation movements over the period 1 January 2019 to 31 March 2019

	Portfolio Value as at 31 Mar 19 (£m)	Exposure as at 31 Mar 2019 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Dec 2019				499.1
Retail	45.8	9.1	-1.6	-0.7
South East Retail		2.1	-2.7	-0.3
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		7.0	-1.2	-0.4
Offices	160.5	32.1	0.6	0.9
London City Offices		2.6	0.8	0.1
London West End Offices		2.9	2.8	0.4
South East Offices		18.0	0.7	0.6
Rest of UK Offices		8.6	-0.5	-0.2
Industrial	260.5	52.0	0.5	1.3
South East Industrial		14.9	0.5	0.4
Rest of UK Industrial		37.1	0.5	0.9
Other Commercial	34.0	6.8	0.7	0.2
External valuation at 31 Mar 2019	500.8	100.0	0.3	500.8

Top 10 Properties

	31 Mar 19 (£m)
Hagley Road, Birmingham	20-25
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
The Pinnacle, Reading	15-20
New Palace Place, London	10-15
Chester House, Farnborough	10-15
Hollywood Green, London	10-15
Marsh Way, Rainham	10-15
Timbmet, Shellingford	10-15
Atos,Birmingham	10-15

Top 10 tenants

Name	Passing Rent £	% of passing rent
BAE Systems plc	1,257,640	4.5%
Technocargo Logistics Limited	1,242,250	4.4%
Public sector	1,158,858	4.1%
The Symphony Group PLC	1,080,000	3.8%
Timbmet Limited	799,683	2.8%
Bong UK Limited	771,752	2.7%
ATOS IT Services Ltd	750,000	2.7%
Ricoh UK Limited	696,995	2.5%
CEVA Logistics Limited	652,387	2.3%
GW Atkins	625,000	2.2%
Total	9,034,565	32.0%

Regional Split

South East	38.0%
East Midlands	17.0%
West Midlands	13.6%
North West	10.5%
North East	7.2%
Scotland	4.6%
South West	3.6%
London West End	2.9%
City of London	2.6%

The Board is not aware of any other significant events or transactions which have occurred between 31 March 2019 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 at: www.slipit.co.uk

For further information:-

Jason Baggaley – Real Estate Fund Manager, Aberdeen Standard Investments
Tel [phone] [e-mail]

Graeme McDonald  - Senior Fund Control Manager, Aberdeen Standard Investments
Tel [phone] [e-mail]

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court, Les Banques, St Peter Port, GY1 3Q
Tel: [phone]