Unaudited Net Asset Value as at 30 June 2019

6 August 2019

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 June 2019

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share was 91.1p (Mar 19 – 91.1p), resulting in a NAV total return, including dividends, of 1.3% for Q2 2019;

• The portfolio valuation (before CAPEX) increased by 0.3% on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by 0.7% over the same period.

• NAV continues to be adversely impacted by the movement in the Company’s interest rate swap, which now has a negative worth of £2.4 million (Q1 2019: £1.9 million). This value will revert to £nil on maturity of the swap in 2023.

Investment and letting activity

• The Company completed the sale of a small office in Milton Keynes for £6 million. The sale realised a profit on the asset whilst reducing future capex and void risk, as it was expected the tenant would vacate on lease expiry in 2021.
• Three lettings were completed during the quarter securing a total rent of £838,750 per annum
• Three rent reviews were settled during Q2 on industrial / logistics assets with an uplift of 19.2% on the previous rent.

Strong balance sheet with prudent gearing

• Prudent LTV* of 23.4% at the quarter end, one of the lowest in the Company’s peer group and the wider REIT sector.
• The Company also entered into a new arrangement with the Royal Bank of Scotland International Limited (RBSI) to extend its Revolving Credit Facility (RCF) by £20m in the quarter. The Company currently has £18m undrawn from its existing facility, and has not drawn the new facility, which has an expiry coterminous with the existing debt provided by RBSI, in April 2023. The new facility has a margin of 160bps above Libor. The debt is available to enable the Company to take advantage of opportunities that might become available in the near future.

Attractive dividend yield

• Dividend yield of 5.1% based on a quarterly dividend of 1.19p and the share price of 94.2p as at 30 June 2019 compares favourably to the yield on the FTSE All-Share REIT Index (4.5%) and the FTSE All-Share Index (4.1%) 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 30 June 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 30 June 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 April 2019 to 30 June 2019.

			Per  Share (p)				Attributable Assets (£m)			Comment
Net assets as at 1 April 2019			91.1				369.6
Unrealised increase in valuation of property portfolio			0.3				1.3			Like for like increase of 0.3% in property portfolio
Gain on Sale			0.2				0.7			Gain on Sale at Silbury House, Milton Keynes
CAPEX  in the quarter			-0.2				-0.7			Predominantly  CAPEX at Basinghall Street, London
Net income in the quarter after dividend			0.0				0.0			Dividend cover of 100% in the quarter with £37m of RCF still available for investment
Interest rate swaps mark to market revaluation			-0.1				-0.5			Increase in swap liabilities in the quarter as expectations of any upward move in interest rates reduce.
Other movements in reserves			-0.2				-0.6			Movement in lease incentives in the quarter
Net assets as at 30 June 2019			91.1				369.8
	European Public Real Estate Association (“EPRA”)*			30 Jun 2019				31 Mar 2019
	EPRA Net Asset Value			£372.2m				£371.5m
	EPRA Net Asset Value per share			91.7p				91.5p

The Net Asset Value per share is calculated using 405,865,419 shares of 1p each being the number in issue on 30 June 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

Q2 continued the theme of 2019 with low investment transactional activity and great uncertainty over the outlook. The debate over the leadership of the UK has not helped, with overseas buyers taking a step back until they see greater clarity associated with Brexit.

During the quarter we continued to see decent occupational interest and although deals are taking longer to conclude we managed to complete the surrender of the lease at Staines with a simultaneous grant of a new 10 year lease on our 26,000sqft office. This is an example of taking a pro-active approach to managing our assets, as we worked with the old tenant to find a new occupier after we heard they wanted to downsize. The new rent is just ahead of the previous level and the Company now has a 10 year lease commitment rather than two years. We also completed a lease on the ground floor office suite in Epsom, and on an industrial unit in Bristol, leading to a slight reduction in voids to 6.3%.

We have continued to see a decline in the capital value of the Company’s retail assets, but with a low exposure to this asset class and a high exposure to the industrial / logistics sector, the portfolio has continued to outperform the wider market. We continue to see industrial outperformance, demonstrated by the three rent reviews we settled over the quarter with a 19.2% uplift over the previous rent.

The Company’s property assets increased in value over the quarter by 0.3%, which compares favourably to the MSCI/ IPD monthly index decline of 0.7%. The Company’s investment portfolio has now outperformed the index over the quarter, year to date, one, three, five and ten years.

The move in gilt yields has continued to have a negative impact on the value of the interest rate swap - the swap now has a liability of £2.4 million (an increase of £0.5 million over the quarter). Although this liability is included in the NAV it will reduce to £0 at the time of maturity in 2023 (but not on a straight line basis). Although the swap has had a negative impact on the NAV, the all in cost of the debt at 2.7% means it remains accretive to the revenue account. The current Loan to Value level of 23.4% is towards the bottom of our desired range.

Market commentary

• The UK economy continues to be weighed down by macroeconomic uncertainty, although quarterly GDP readings have been slightly erratic, with inventory building ahead of anticipated disruption to supply chains that would have been caused by a cliff-edge EU withdrawal on 29th March 2019. Despite this short-term boost, and the extension of the Article 50 process to October, macroeconomic uncertainty looks likely to persist in the near term, holding back growth. The ASI Research Institute has revised its expectations for GDP growth downwards to 1.4% in both 2019 and 2020.
• In spite of a relatively tight labour market, accommodative monetary policy and high corporate profit margins, inflation remains stubbornly low. Although the Bank of England has given hawkish signals, we expect interest rates to remain lower for longer if they are to support the deteriorating growth backdrop, particularly until greater clarity on the UK’s future relationship with the European Union (EU) emerges.
• The UK is not alone in facing slowing growth. It is widely expected that the US and Europe will reduce interest rates, and might even restart quantative easing; a significant reversal in policy for both. In such an environment real estate continues to provide an attractive level of income. In the UK, the devaluation of the Pound will make UK Real Estate seem more attractively priced for overseas buyers, although it seems many want to see some clarity over Brexit before coming back into the market.
• Overall, occupier markets are holding up relatively well given the ongoing uncertainty facing UK businesses. Take-up in the office sector remains robust and central London take-up has recovered following a muted period around the EU referendum and is now back close to the high watermark set in 2015, however this is largely driven by flexible office providers; traditional take-up has been flat-lining since early 2016. It’s important to note that the now 20% of take-up by those providers does not actually absorb supply, as it must all be re-let into the market and, importantly, at higher densities of occupation.
• Industrial and retail continue to head in opposite directions, with industrial especially strong in London and the South East, while logistics  has had a strong start to the year with a number of significant lettings of speculatively developed space in core markets. Retail, however, is under considerable stress as a wave of company voluntary agreements (CVA) puts downward pressure on rental values and upward pressure on risk premia and, therefore, yields.

• Investment appetite from UK institutional investors remains heavily skewed towards the industrial and alternative sectors. A more subdued UK real estate investment market in the first half of 2019 has made acquiring assets in these sectors more challenging, particularly as investors are reluctant to dispose of assets in these more favoured sectors.

• The second quarter has seen a steep fall in investment transaction activity to levels not seen since the Eurozone crisis of 2012. Fewer than £7.5 billion of deals were done in Q2, despite Citigroup’s £1.1 billion purchase of its Canary Wharf headquarters. Indeed, there were fewer office deals than in any quarter since the global financial crisis and overseas investors were net sellers in the UK market for the first time in over 10 years. Chinese capital controls appear to now be having a significant effect on global real estate markets and, although New York has perhaps borne the brunt of Chinese disinvestment, London is not immune. With concerns emerging that Korean asset managers may be struggling to re-sell equity in big overseas deals, it is not clear that current pricing can be supported.

• The investment market for the retail sector is characterised by a shallow pool of buyers tending to be more opportunistic in nature. The raft of CVAs and uncertainty about where rental values will settle mean investors are demanding large discounts to valuation. The listed market and secondary pricing of unlisted funds gives a clear indication of the required discounts to prevailing valuations to price in the risk.

Investment outlook

• Durable income will remain the key focus for investors in the current risk-off environment. It is highly unlikely that there will be any material change to the investment themes playing out in UK real estate market until more clarity is provided on the macroeconomic outlook.      
• Significant weight of capital targeting long secure income is supporting pricing at levels which are out of reach for most balanced funds, but remains supportive for liability-driven investors where inflation linked income in other assets classes does not match the required income yield.
• The wide dispersion in returns at the sector level is expected to continue in the short term. This is driven by the structural shift into logistics and multi-let industrials to the detriment of retail.

Dividends

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

Net Asset analysis as at 30 June 2019 (unaudited)

	£m	% of net assets
Industrial	262.3	70.9
Office	154.8	41.9
Retail	44.9	12.1
Other Commercial	34.8	9.4
Total Property Portfolio	496.8	134.3
Adjustment for lease incentives	-4.6	-1.3
Fair value of Property Portfolio	492.2	133.0
Cash	11.7	3.2
Other Assets	10.4	2.8
Total Assets	514.3	139.0
Current liabilities	-14.9	-4.0
Non-current liabilities (bank loans & swap)	-129.6	-35.0
Total Net Assets	369.8	100.0

Breakdown in valuation movements over the period 1 April 2019 to 30 June 2019

	Portfolio Value as at 30 Jun 19 (£m)	Exposure as at 30 Jun 2019 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Mar 19				500.8
Retail	44.9	9.0	-2.0	-0.9
South East Retail		2.1	-2.8	-0.3
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		6.9	-1.8	-0.6
Offices	154.8	31.2	-0.3	-5.7
London City Offices		2.7	3.5	0.4
London West End Offices		2.9	0.0	0.0
South East Offices		17.1	-0.3	-5.5
Rest of UK Offices		8.5	-1.5	-0.6
Industrial	262.3	52.8	0.7	1.9
South East Industrial		15.1	0.3	0.3
Rest of UK Industrial		37.7	0.9	1.6
Other Commercial	34.8	7.0	2.2	0.7
External valuation at 30 Jun 2019	496.8	100.0	0.3	496.8

Top 10 Properties

	30 Jun 19 (£m)
Hagley Road, Birmingham	20-25
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
The Pinnacle, Reading	15-20
Hollywood Green, London	15-20
Marsh Way, Rainham	10-15
New Palace Place, London	10-15
Chester House, Farnborough	10-15
Timbmet, Shellingford	10-15
Basinghall Street, London	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%
Jenkins Shipping Group	813,390	2.9%
Timbmet Limited	799,683	2.8%
Bong UK Limited	771,752	2.7%
ATOS IT Services Ltd	750,000	2.7%
CEVA Logistics Limited	652,387	2.3%
GW Atkins	625,000	2.2%
Total	9,150,960	32.4%

Regional Split

South East	37.3%
East Midlands	17.2%
West Midlands	13.8%
North West	10.5%
North East	7.2%
Scotland	4.7%
South West	3.7%
London West End	2.9%
City of London	2.7%

The Board is not aware of any other significant events or transactions which have occurred between 30 June 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 3QL

Tel: [phone]