Unaudited Net Asset Value as at 30 June 2022

4 August 2022

abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 June 2022

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 110.7p (Mar 2022 – 106.6p), an increase of 3.8% for Q2 2022, resulting in a NAV total return, including dividends, of 4.8% for the quarter;

• The portfolio valuation (before CAPEX) increased by 3.2% on a like for like basis during the quarter, whilst the MSCI Monthly Index increased by 2.4% over the same period.

Investment and letting activity

• Two new lettings completed in the quarter, securing £168,377pa in rent.
• Lease renewed on logistics unit with a 40% increase in rent passing, to £448,454pa.
• Agreement for lease exchanged on 150,000 sq. ft industrial unit at annual rent of £591,500
• Purchase of £5m car showroom asset during the quarter at a yield of 6.5%.

Financial Position and Gearing

• Strong balance sheet with significant financial resources available for investment of which £31 million is in the form of the Company’s low cost, revolving credit facility net of current cash after dividend and other financial commitments.
• As at 30 June 2022, the Company had a Loan to Value (“LTV”) of 21.05%*. The debt currently has an overall blended interest rate of 2.725% per annum. 

*LTV calculated as debt less cash divided by investment portfolio value

Dividends

Following the dividend being maintained in Q1 2022 at 1p per share, the dividend cover for Q2 2022 is 94% and the Board continues to consider the current dividend level to be sustainable.

The Board fully recognises the importance of dividends to the Company’s shareholders and will keep the quarterly dividend under review as the Company deploys available resources to acquire further investment property.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of abrdn Property Income Trust Limited (“API”) at 30 June 2022 was 110.7p. 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 2022 of £543.6 million. 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 31 March 2022 to 30 June 2022.

	Per Share (p)	Attributable Assets (£m)	Comment
Net assets as at 31 March 2022	106.6	423.0
Unrealised increase in valuation of property portfolio	5.6	16.4	Valuation uplift. Like for like increase of 3.2% in property valuations.
CAPEX in the quarter	-1.7	-1.2
Net income in the quarter after dividend	-0.1	-0.3	94% dividend cover.
Interest rate swaps mark to market revaluation	0.1	0.5	SWAP is now deemed an asset.
Other movements in reserves	-0.1	-0.6	Movement relating to lease incentives in the quarter
Share buybacks	0.3	-4.5	Investment in own shares at a discount to NAV
Net assets as at 30 June 2022	110.7	433.3

European Public Real Estate Association (“EPRA”)	30 Jun 2022	31 Mar 2022
EPRA Net Tangible Assets	£432.3m	£422.6m
EPRA Net Tangible Assets per share	109.3p	106.5p

The Net Asset Value per share is calculated using 391,302,152 shares of 1p each being the number in issue on 30 June 2022.

Investment Manager Review and Portfolio Activity

The investment portfolio continued to see capital growth in Q2, however as the quarter closed out we began to see a softening in transaction pricing as increased swap rates impacted debt purchasers, and talk of recession dampened demand, mainly for the lowest yielding assets but also risk assets.

The impact of short working weeks due to bank holidays was evident during the quarter with viewings and enquiries down on those weeks. We did however complete two new lettings, both of fully fitted office suites, continuing the theme of the last two years of benefitting from providing good quality accommodation that is ready to move into.  We also completed a lease regear on a logistics unit where a new ten year lease was signed at a rent 40% above the previous rent. As part of the new letting the Company made a financial contribution to the cost of the building upgrades to achieve an EPC A rating.

The Company has two logistics units vacant following lease expiry (in both cases the tenant moved to larger units).  At each property we had agreed terms with new tenants prior to the expiry of the leases (at rents substantially ahead of the previous levels).  Given that we may not have control of these units again for 10-15 years, we are taking the opportunity to undertake comprehensive refurbishments on both units (to include PV systems and ESG enhancements) to improve and future proof them.  During Q2, we exchanged on an Agreement for Lease on the unit in Washington with Evri (formerly Hermes) at an annual rent of £591,500 and expect to exchange on the unit in Bolton in Q3.

Vacancy increased slightly over the quarter to 10.2% despite the two lettings completing, due to the lease expiry of the logistics unit in Washington, where an agreement for lease has now been signed, and we expect the new lease to start mid 2023 after a refurbishment.

ESG remained a key theme of the quarter as we completed several small upgrades to air conditioning plant and lighting systems, to ensure all our offices are at a minimum EPC C by the end of August 2022 (and therefore complying with statute out to 2030).

As the discount to NAV widened during the quarter the Company restarted a share buyback program. The decision whether to buy back shares or not is made as an investment decision – it is not seen as a discount control program, but rather a way to improve shareholder returns. The Company bought back 5.6m shares in Q2, and a further 4.9m shares in the first three weeks of July.

The Company completed on one purchase during the quarter (reported previously) – a car showroom let on a long lease and providing a yield of 6.5% on the £5m purchase price.

The Company exchanged contracts on an office sale after the quarter end. The single let office on the outskirts of Oxford, sold for £8.033m, 14.8% above the end March valuation.

Investment Manager Market review

Executive summary

• The UK economy is now facing multiple headwinds and a US led recession towards the end of 2023 is now the abrdn Research Institute’s (“aRI”) base case. With an increased risk of a UK recession in late 2022 in response to the cost of living crisis and tightening monetary policy by the Bank of England aRI are forecasting a peak-to-trough decline in the level of GDP of around 1.4%, although the growth in GDP in May reversed the declines seen in March and April this year.
• The UK Consumer Price Index (CPI) rose from 9.1% in May to 9.4% in June, a level last seen in 1982. Inflation is likely to move higher from here as rising food and energy prices take hold, before falling thereafter as challenging base effects and slowing economic growth weigh on headline inflation.  aRI are currently forecasting UK CPI to end the year at 8.5%, before falling to 5.2% and 1.7% in 2023 and 2024 respectively. 
• aRI expects the Bank of England to continue to hike interest rates over the next few meetings, with the terminal interest rate reaching 2.25%, despite the predicted slowdown in activity. The BoE is then likely to pause its hiking cycle, and reverse the hikes with a cutting cycle starting in Q4 2023. Rising interest rates have had a material impact on the cost of debt, with very volatile swap rates. This is beginning to feed through to the investment market.
• In the first half of 2022, UK real estate recorded the strongest H1 investment volume since 2015. According to Real Capital Analytics, a total of £31.2 billion was transacted over this period. However, approximately two thirds of the activity occurred in Q1’22. In Q2’22 investment volumes totalled £10.2 billion, down on the Q2 10 year average of £13.5 billion.
• Whilst the UK commercial real estate market had positive performance in H1 2022, the abrdn market outlook for the next 12-18 months has been revised downwards. We expect an impact on pricing and capital values across all UK real estate sectors, driven by a rate revaluation, the increased cost of capital and a narrowing margin over other asset classes. The extent and duration of this price correction is unclear, however API has a portfolio that has focused on affordable assets that meet the needs of tenants, and we believe that will help mitigate against the initial yield shift being seen on the prime low yielding assets currently.

Occupier trends

• The industrial sector continues to benefit from very tight supply levels. The UK vacancy rate sits at approximately 3% and this has helped support rising rental values across the sector over the previous 24 months. Whilst we expect industrial occupational demand to soften in response to the weakening economic environment, rental value growth should remain positive in response to tight supply levels, but with a return to more a normalised growth rates.
• There have been increased reports of positive letting activity in the office sector over Q2 2022 however overall office demand is expected to fall as a poorer economic outlook weighs on job growth across the market, placing additional pressure on occupational sentiment. Polarisation within the sector is likely to accelerate, with demand remaining robust for best in class accommodation, with strong ESG and wellness credentials, whilst sentiment for secondary assets will cool. The sale of API’s office asset in Kidlington in the first week of August shows how demand has remained strong for good quality assets.
• The retail sector, despite some initial green shoots of recovery appearing at the start of the year, is under further pressure as the cost of living crisis impacts heavily on consumer spending. ONS data suggests that consumers are starting to alter their spending habits in response to rising costs, a trend that is likely to persist for some time. API’s retail exposure is focused on affordable out of town retail and we believe that will be most resilient.

Investment themes

• UK real estate carried some of its performance momentum from 2021 into the early part of 2022. 2022 will likely be categorised as a year of two halves with a weaker 2H.  With sentiment towards UK real estate weakening, investment volumes are expected to slow through the course of 2022.
• With rising inflation in the UK, there remain very few asset classes which enable investors to capture inflation in their income streams. Real estate as an asset class should enable investors to partially capture some inflation, particularly in sectors where leases include indexation.

Net Asset analysis as at 30 June 2022 (unaudited)

	£m	% of net assets
Industrial	304.2	70.2
Office	126.0	29.1
Retail	62.2	14.3
Other Commercial	43.7	10.1
Land	7.5	1.7
Total Property Portfolio	543.6	125.4
Adjustment for lease incentives	-9.9	-2.3
Fair value of Property Portfolio	533.7	123.1
Cash	8.3	1.9
Other Assets	24.1	5.6
Total Assets	566.1	130.6
Current liabilities	-0.0	-0.0
Non-current liabilities (bank loans & swap)	-132.8	-30.6
Total Net Assets	433.3	100.0

Breakdown in valuation movements over the period 1 April 2022 to 30 June 2022

	Portfolio Value as at 30 Jun 2022 (£m)	Exposure as at 30 Jun 2022 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Mar 22				521.8
Retail	62.2	11.5	1.9	1.2
South East Retail		1.6	1.2	0.1
Retail Warehouses		9.9	2.0	1.1
Offices	126.0	23.1	(0.7)	(1.0)
London City Offices		2.3	(1.9)	(0.2)
London West End Offices		2.3	(8.1)	(1.1)
South East Offices		9.2	(0.1)	(0.1)
Rest of UK Offices		9.3	0.9	0.4
Industrial	304.2	56.0	5.3	15.3
South East Industrial		13.2	3.8	2.7
Rest of UK Industrial		42.8	5.8	12.6
Other Commercial	43.7	8.0	3.3	6.3
Land	7.5	1.4	0.0	0.0
External valuation at 30 Jun 22	543.6	100.0	3.2	543.6

Top 10 Properties

	30 Jun 22 (£m)
B&Q, Halesowen	25-30
Symphony, Rotherham	25-30
Hagley Road, Birmingham	25-30
Marsh Way, Rainham	20-25
Timbmet, Shellingford	15-20
Tetron 141, Swadlincote	15-20
Atos Data Centre, Birmingham	15-20
Walton Summit, Preston	15-20
CEVA Logistics, Corby	15-20
Hollywood Green, London	15-20

Top 10 tenants

Tenant Name	Passing Rent	% of total Passing Rent
B&Q Plc	1,560,000	5.8%
The Symphony Group Plc	1,225,000	4.5%
Schlumberger Oilfield UK plc	1,138,402	4.2%
CEVA Logistics Limited	840,000	3.1%
Jenkins Shipping Co Ltd	825,390	3.1%
Timbmet Group Limited	799,683	3.0%
Atos IT Services UK Ltd	780,727	2.9%
Public Sector	746,476	2.8%
Time Wholesale Services (UK) Ltd	656,056	2.4%
ThyssenKrupp Materials (UK) Ltd	643,565	2.4%
	9,215,299	34.2%

Regional Split

South East	26.9%
West Midlands	18.9%
East Midlands	12.9%
Scotland	11.1%
North West	10.9%
North East	10.3%
South West	4.4%
London West End	2.3%
City of London	2.3%

The Board is not aware of any other significant events or transactions which have occurred between 30 June 2022 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.abrdnpit.co.uk

For further information:-

For further information:-

Jason Baggaley – Real Estate Fund Manager, abrdn

Tel:  [phone] or [e-mail]

Mark Blyth – Real Estate Deputy Fund Manager, abrdn

Tel: [phone] or [e-mail]

Michelle McKeown - Senior Fund Control Manager, abrdn

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]