Unaudited Net Asset Value as at 30 June 2020

3 August 2020

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 June 2020

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 79.6p (Mar 2020 – 83.2p), a decline of 4.3%, resulting in a NAV total return, including dividends, of -3.0% for Q2 2020;

• The portfolio valuation (before CAPEX) reduced by 2.5% on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by 3.6% over the same period.

Investment and letting activity

• One letting was completed in Q2 securing £110,000 per annum in rent to an existing tenant expanding their business, who also extended their original lease.

• The Company completed a lease renewal and a lease restructure securing £491,788 per annum, a 19.5% increase on the previous rents.

Financial Position and Gearing

• Strong balance sheet with significant financial resources available of £41 million (£14 million currently drawn from its £55 million low cost, revolving credit facility.

• As at 30 June 2020, the Company had a Loan to Value (“LTV”) of 26.2%* which remains at the lower end of the Company’s peer group and the wider REIT sector. The debt currently has an overall blended interest rate of 2.59% per annum.  Loan covenants for the quarter ended 30 June 2020, as reported to the Royal Bank of Scotland (“RBS”), have been comfortably met as set out below.

*LTV calculated as debt less cash and cash held by managing agents divided by portfolio value

Actual Interest Cover Requirement	437% (Limit 175%)
LTV	27.3%** (Limit 55%)

**Loan value less cash held in RBS accounts only divided by pledged portfolio

Rent collection

As at close of business on 22 July 2020, the Company had received payments reflecting 60% of rents due for what can collectively be termed advance billing for the third quarter of the year; this comprises both old and new English quarter days (24th June and 1st July) and the Scottish quarter day (28th May). The figures below include those tenants with whom it has been agreed, and have paid, on a monthly in advance basis. Assuming those tenants continue to pay rent monthly the collection figure should increase to 69%. The statistics, split between sectors, are shown below.

Q3	% of rent demanded	%  collected at 22 July 2020
Industrial	50	68
Office	35	59
Retail	7	40
Leisure	5	20
Other (Data Centre)	3	0

At the same date (22^nd July), rent due for the second quarter (Scottish quarter day February, 25th March, 1^st April, 1^st May, 1^st June) collection levels stand at a combined 83%.

It is expected both the Q2 and Q3 figures will continue to improve as we continue to engage with our tenants; something we have always done, but now being more important than ever. The aim is to work with our tenants to find mutually suitable solutions to the challenges of COVID-19 on our respective businesses. Depending on the situation, the Company is agreeing to rental deferments with some tenants with repayment periods to suit the businesses, rent free periods in exchange for amended lease terms (generally an extension of leases) and, in extremis, rental write offs (generally with the smallest tenants who have no means of paying). Several tenants have chosen not to pay and not to engage and they are generally tenants that can afford to pay but are using the current Government protection designed for tenants that cannot pay to delay making any payment. We will continue to chase these companies with vigour.

Dividends

The Board recognises the importance of dividends to its shareholders especially when the COVID-19 crisis has forced many companies, across multiple sectors of the economy, to cancel or suspend their dividends. The Board has taken the decision to maintain a quarterly dividend but at the reduced rate of 60% of last year’s level for this quarter equating to a dividend of 0.714p per share. The Board is of the opinion that this rate balances the need for shareholders to continue receiving income during this difficult period while maintaining a prudent approach given the rent collection rates presently being experienced for both Quarter 2 and Quarter 3.

The Board will continue to monitor closely the evolution of COVID-19, together with its impact on rent receipts and recurring earnings. The Board will keep the Company’s future dividend policy under review, aiming to strike a balance between rental income and shareholders’ dividend requirements, noting that rent collections are forecast to improve on the assumption that more of the economy begins to open up as lockdown eases.

Net Asset Value (“ NAV ”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 June 2020 was 79.6p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Knight Frank LLP at 30 June 2020 of £447.3 million and contained a material uncertainty clause as a result of the COVID-19 pandemic over 47.3% of the portfolio, set out below.

There has been huge disruption and exceptional circumstances in global markets, including the UK commercial property market as a result of COVID-19.  As a result of this disruption and exceptional circumstances, a significant number of the valuations provided by Knight Frank, and on which the NAV detailed in this statement is based, are subject to a ‘material valuation uncertainty’ qualification as follows:

“The outbreak of the COVID-19, declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. Observable market activity – that provides the empirical data for us to have an adequate level of certainty in the valuation – is being impacted in the case of some properties but excludes Industrials and food stores which equates to 52.7% of the portfolio. In the case of the properties not excluded, as at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Our valuations of these properties are therefore reported as being subject to ‘material valuation uncertainty’ as set out in VPS 3 and VPGA 10 of the RICS Valuation – Global Standards. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of the whole portfolio under frequent review. For the avoidance of doubt, the inclusion of the ‘material valuation uncertainty’ declaration above does not mean that the valuation cannot be relied upon. Rather, the declaration has been included to ensure transparency of the fact that – in the current extraordinary circumstances – less certainty can be attached to the valuation than would otherwise be the case. The material uncertainty clause is to serve as a precaution and does not invalidate the valuation”.

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 2020 to 30 June 2020.

			Per  Share (p)		Attributable Assets (£m)		Comment
Net assets as at 31 March 2020			83.2		338.6
Unrealised decrease in valuation of property portfolio			-2.8		-11.3		Like for like reduction of 2.5% in property valuations.
CAPEX  in the quarter			-0.4		-1.6		Predominantly CAPEX at Sandy installing Photovoltaic cells on the roof and also Hagley Road, Birmingham.
Net income in the quarter after dividend (full dividend paid in May 2020)			-0.3		-1.0		Rolling 12 month dividend cover of 90%
Interest rate swaps mark to market revaluation			-0.1		-0.7		Increase in swap liabilities in the quarter as interest rates fell due to COVID-19
Other movements in reserves			0.0		-0.2		Movement in lease incentives in the quarter
Net assets as at 30 June 2020			79.6		323.8
	European Public Real Estate Association (“EPRA”)*	30 Jun     2020		31 Mar   2020
	EPRA Net Asset Value	£327.9m		£342.0m
	EPRA Net Asset Value per share	80.6p		84.1p

The Net Asset Value per share is calculated using 406,865,419 shares of 1p each being the number in issue on 30 June 2020.

* 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 crystallize in normal circumstances, such as the fair value of financial derivatives, are therefore excluded.

Investment Manager Portfolio Activity & Review

The second quarter of 2020, running from end March to end June, was totally dominated by COVID-19. Everyone involved in the running of the Company was working from home, and for much of the time the country was in lockdown. These conditions make communication and process even more important, and the Manager and Board have remained focused on the delivery of the Company’s objectives.

The Investment Manager has concentrated on tenant engagement and rent collection. Although only one letting and two lease renewals / regears were completed during the course of the quarter many conversations occurred, not only with existing tenants, but also with new prospective tenants on a number of our vacant properties. SLIPIT takes pride in being actively managed, and several purchases and sales are being considered as we continue with the aim of meeting the Company’s objectives.

We also continue to invest in our assets to provide energy efficient solutions and there has been significant progress in this area. At the end of the quarter we completed the installation of a major Photo Voltaic (PV) scheme on one of our assets. It is the largest undertaken by Aberdeen Standard Investments in the UK, and the power will be sold to the tenant. The scheme is expected to produce, and therefore save, the equivalent of 229 tonnes of operational CO2 in the first year of operation, and the power output is the equivalent of the yearly electricity usage of 230 homes. The Company will receive a yield of circa 7% from the investment.

The Social aspect of ESG is harder to define and measure in real estate. Normally we focus on creating a place people want to be, with community spirit through events, stalls, and food banks etc. in buildings, as well as providing excellent changing facilities and amenity space. As most of our tenants have not been in occupation the current “S” focus is on supporting the tenants who most need our help. Although we have very little exposure to independent retailers, we do have some, and where they have not been able to trade we have wanted to support them – they have enough stress at the current time without having to worry about rent. Unfortunately, we have also found some tenants abusing the Government restrictions on Landlords being able to enforce lease covenants. We have found a number of organisations that could pay but choose not to, or are restructuring in such a manner that the landlord takes the brunt of the pain, rather than equity and debt holders. Needless to say, we will chase those tenants with vigour as and when Government restrictions allow.

There has been a lot of commentary about the future of the office, and whether working from home will have a similar impact on the sector as internet shopping had for retail. We certainly expect continued change, but do not foresee the demise of the office – it remains an important environment for people to socialize, learn, share, and develop. We are going to see more people work in an agile way, not spending 5 days a week in the office, or 5 days a week working from home. An early trend we have seen is increased demand for fully fitted suites, and during lockdown we completed the lease on one, and agreed terms on another – we had already rolled out fitted suites across our estate, and believe our policy of investing in buildings that create an environment where people want to work remains relevant.

The LTV of 26.2% provides plenty of headroom against banking covenants (values can fall by 50% and rent by 60% before the covenants are under pressure based on 30 June covenants). Over the quarter, the Company had an increase in the level of liability of its interest rate swap from £3.38 million to £4.05 million. This negative impact on the NAV will unwind to £0 on maturity in 2023.

Investment Manager market review and outlook

• The last quarter has seen an unprecedented contraction in economic activity, with Q2 2020 the worst quarter for the UK economy on record.
• As we move into summer and lockdown restrictions are gradually relaxed, there is a degree of cautious optimism emerging. Non-essential retailers have reported strong trade since reopening in mid-June. However, restructuring activity in retail, through the use of company voluntary arrangements and pre-pack administrations continues largely unabated. With the government extending the moratorium on forfeiture and other measures against tenants not paying rent, income from retail assets remains at an unprecedentedly low ebb.
• The future of offices is a hot topic and a wealth of survey evidence points to a structural rise in remote working. Job losses are set to depress demand and create ‘grey’ space for sub-letting to reduce costs in the short term. In contrast, the logistics sector remains very strong, with record take-up so far this year.
• Early indications of investment volumes in Q2 suggest a total of around £3 billion, which is on track to be the weakest quarter since Property Data’s records began in 2000. Activity has collapsed across the board, with physical inspections impossible for much of the quarter and constraint on international travel largely excluding overseas investors. The lack of foreign capital was most keenly felt in the office sector, as well as alternatives, with a notable absence of the large portfolio deals seen in recent quarters.
• We expect capital values to fall by more than 14% this year, leading to a total return for the sector of -9.5%. This would be the second weakest nominal return in the 40-year history of MSCI data. We continue to expect retail to drag the market down, with shopping centre returns forecast to be -30.5% this year. With the segment recording a -9.1% return in the first quarter and the occupier outlook deteriorating substantially since, there may still be further downside risk.
• We continue to expect leisure and hotels to have a very difficult year, despite the recent approval of Travelodge’s company voluntary arrangement at least warding off imminent failure.  We also now expect a more negative year for central London offices. The sector’s outlook remains subject to much debate but we expect a combination of cyclical rises in unemployment and structural change to the use of offices to lead many occupiers to fundamentally reappraise their space requirements. “Grey” space available for sub-let is expected to weigh on rents.
• We continue to anticipate performance to diverge substantially across the risk spectrum in most segments. Challenges around rent collection will put even greater emphasis on the stability and durability of income.
• The universe of assets where investors can have confidence in the robustness of the income and the stability of rental values and yields has narrowed considerably and price transparency remains low.

Investment outlook

• The structural shift to online shopping remains supportive of logistics, particularly in urban areas, but the supply-chain disruption experienced through this crisis and the long-term potential for ‘de-globalisation’ flagged by ASI’s Research Institute could imply a further driver of demand. Larger inventories to create a greater buffer within existing supply chains are the simplest near-term solution – and will require more warehousing for storage.
• The office sector will be under intense scrutiny. In the short term the performance drivers are going to be economic (reduced demand due to lower job creation / higher job loss), however over the medium to long term the influence of changes to working practices will have a greater impact. There will be a greater emphasis on asset selection to achieve performance in the future from the office sector.
• The continued low interest rate environment globally means there is still significant amounts of global capital looking to invest in Real Estate, and the UK provides higher yields than many other European and global locations, however Brexit remains a UK specific risk.
• Although the initial bounce back from the lows of COVID-19 is encouraging, it is clear that the road to full recovery will be long and bumpy. The risk of second and third waves remains ever present, and this will impact on the speed and depth of recovery and a return to what we might consider normal.
• With all of the uncertainty currently prevailing, we remain firmly in a risk off environment in real estate.

Net Asset analysis as at 30 June 2020 (unaudited)

	£m	% of net assets
Industrial	235.5	72.7
Office	142.9	44.1
Retail	36.9	11.4
Other Commercial	32.0	9.9
Total Property Portfolio	447.3	138.1
Adjustment for lease incentives	-5.2	-1.6
Fair value of Property Portfolio	442.1	136.5
Cash	5.0	1.5
Other Assets	17.4	5.4
Total Assets	464.5	143.4
Current liabilities	-13.2	-4.1
Non-current liabilities (bank loans & swap)	-127.5	-39.3
Total Net Assets	323.8	100.0

Breakdown in valuation movements over the period 1 April 2020 to 30 June 2020

	Portfolio Value as at 30 Jun 2020 (£m)	Exposure as at 30 Jun 2020 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Mar 19				458.6
Retail	36.9	8.2	-5.5	-2.1
South East Retail		1.9	-7.1	-0.6
Retail Warehouses		6.3	-5.0	-1.5
Offices	142.9	31.9	-2.3	-3.5
London City Offices		3.0	-1.1	-0.2
London West End Offices		3.0	-2.2	-0.3
South East Offices		15.0	-3.1	-2.2
Rest of UK Offices		10.9	-1.7	-0.8
Industrial	235.5	52.7	-1.9	-4.5
South East Industrial		13.7	-1.6	-1.0
Rest of UK Industrial		39.0	-2.0	-3.5
Other Commercial	32.0	7.2	-3.6	-1.2
External valuation at 30 Jun 20	447.3	100.0	-2.5	447.3

Top 10 Properties

	30 Jun 20 (£m)
Hagley Road, Birmingham	20-25
Symphony, Rotherham	15-20
The Pinnacle, Reading	15-20
Marsh Way, Rainham	10-15
Hollywood Green, London	10-15
Timbmet, Shellingford	10-15
New Palace Place, London	10-15
Basinghall Street, London	10-15
Badentoy, Aberdeen	10-15
Atos Data Centre, Birmingham	10-15

Top 10 tenants

Name	Passing Rent £	% of passing rent
BAE Systems plc	1,257,640	4.6%
The Symphony Group Plc	1,225,000	4.5%
Schlumberger Oilfield UK plc	1,138,402	4.1%
Public Sector	1,158,858	4.2%
Timbmet Group Limited	799,683	2.9%
Atos IT Services UK Ltd	783,360	2.8%
CEVA Logistics Limited	671,958	2.4%
Timeline Wholesale services (UK) Ltd	635,554	2.3%
G W Atkins & Sons Ltd	625,000	2.3%
Multipacking Solutions UK Ltd	431,765	1.6%
Total	8,727,220	31.7%

Regional Split

South East	33.8%
West Midlands	14.9%
East Midlands	12.7%
North West	11.5%
Scotland	9.6%
North East	7.4%
South West	4.1%
London West End	3.0%
City of London	3.0%

The Board is not aware of any other significant events or transactions which have occurred between 30 June 2020 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:-

For further information:-

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

Oli Lord - Real Estate Deputy Fund Manager, Aberdeen Standard Investments
Tel:  [phone] or [e-mail]

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

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