Unaudited Net Asset Value as at 30 September 2019

4 November 2019

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 September 2019

Key highlights of the quarter

Solid performance

• Net asset value (“NAV”) per ordinary share was 90.3p (Jun 19 – 91.1p), a decline of 0.9%, resulting in a NAV total return, including dividends, of 0.4% for Q3 2019;

• The portfolio valuation (before CAPEX) was flat 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 £3.3 million (Q2 2019: £2.4 million). This value will revert to £nil on maturity of the swap in 2023.

Investment and letting activity

• The Company completed the sale of two industrial units, one in Milton Keynes for £9.3m, and a small unit in Mansfield for £920,000, as well as completing two purchases – a small industrial unit that adjoined an existing holding in Trafford Park Manchester for £3.5m, and a multi let office in Edinburgh for £8.76m.
• Five lettings were completed during the quarter securing a total rent of £393,700 per annum, along with three lease renewals securing £176,534 per annum.
• The Company completed a rent review on an industrial / logistics unit which was linked to RPI, securing an increase of £145,000pa (13.4% above the previous rental level).

Strong balance sheet with prudent gearing

• Prudent LTV* of 24.6% at the quarter end, one of the lowest in the Company’s peer group and the wider REIT sector.
• The Company currently has £18m drawn from its existing revolving credit facility with £37m still available for investment to take advantage of suitable opportunities that become available in the near future.

Attractive dividend yield

• Dividend yield of 5.4% based on a quarterly dividend of 1.19p and the share price of 88.4p as at 30 September 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 30 September 2019 was 90.3p. 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 September 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 July 2019 to 30 September 2019.

		Per  Share (p)			Attributable Assets (£m)			Comment
Net assets as at 1 July 2019		91.1			369.8
Unrealised decrease in valuation of property portfolio		0.1			0.2			Portfolio like for like movement flat in the  quarter but unrealised gain made in newly acquired asset at Edinburgh
Loss on Sale		-0.1			-0.3			Loss on Sale at Michigan Drive, Mansfield
CAPEX  in the quarter		-0.4			-1.6			Predominantly  transaction costs and also capital expenditure at Swift House, Rugby
Net income in the quarter after dividend		-0.1			-0.3			Dividend cover of 93% in the quarter with £37m of RCF still available for investment
Interest rate swaps mark to market revaluation		-0.2			-0.9			Increase in swap liabilities in the quarter as expectations of an upward move in interest rates continued to be muted.
Other movements in reserves		-0.1			-0.2			Movement in lease incentives in the quarter
Net assets as at 30 September 2019		90.3			366.7
	European Public Real Estate Association (“EPRA”)*		30 Sep 2019			30 Jun 2019
	EPRA Net Asset Value		£370.0m			£372.2m
	EPRA Net Asset Value per share		91.2p			91.7p

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

Despite continued uncertainty surrounding the outcome of Brexit, Q3 was a busy quarter for the Company, with a number of sales and purchases as well as several small occupational transactions.

The major sale completed was of an industrial unit in Milton Keynes where we had concerns over the ongoing viability of the tenant. The sale proceeds of £9.3m were reinvested into a multi let office in Edinburgh where there are good prospects for rental growth. We also acquired a small industrial unit in Trafford Park Manchester for £3.5m, which was surrounded by units already in the Company’s ownership.

It was encouraging to complete five new lettings, securing rent of £393,700p.a. We also put a number of suites under offer and are encouraged by the number of viewings we have on our available accommodation. It is not surprising that lettings are taking longer than we would like given the general level of uncertainty, but we continue to see a lack of supply in most markets and benefit from having good quality buildings that present well and meet occupiers’ needs.

Retail has of course been at the centre of everyone’s attention and the valuations on our small number of retail assets continue to fall. However, we feel they still have a place in the portfolio as they generally provide secure income and they meet retailer’s needs for affordable outlets. We see the greatest stress on retail rental levels in higher rented accommodation. After the reporting period we completed a new lease to B&M on a retail unit that had previously been let to Poundworld – we had three retailers interested in the space and they were all prepared to pay the previous passing rent.  We continue to assess our assets on a bottom up basis as well as reflecting on the macro influences on the portfolio.

Across our office portfolio we have fitted out a number of smaller vacant suites with desks and break out areas. This is to ensure we have good quality amenities for tenants as well as making it easier for new tenants to move in quickly.
 

Market commentary

• In spite of the material uncertainty facing businesses as a result of the continued debate over Brexit, the occupational market is generally stable with the exception of the retail sector. Further company voluntary agreement (CVA) activity is highly likely early next year, and even the stronger retailers are actively looking to reduce occupational costs. It is our view that MSCI data, which shows rents have fallen just 5% on average for retail since the most recent peak in early 2018, has only scratched the surface of the eventual rental decline.
• Retail expectations remain markedly negative, particularly in town centres, with the notable exception of supermarkets. In a low-return environment, long leases secured against strong covenants are expected to outperform. Despite the wider retail malaise, it expected supermarkets will deliver returns consistent with other secure income-driven investments.
• Elsewhere, industrial rents continue to grow strongly in London, the South East and the best urban locations across the UK, but there are signs of softening in regional logistics. Regional office markets are benefiting from corporate and public sector consolidation, but central London is more polarised. The best new buildings are letting well, but second-hand space is more challenging.
• Recent trends in the listed space have continued. Retail stocks are priced at very large discounts to net asset value (NAV) and there is caution about London office developers. At the other end of the spectrum, operational real estate businesses and income-focused stocks are generally trading at a premium to NAV, anticipating above average returns from the asset class over the coming years.
• While the third quarter saw the highest quarterly volume of transactions in 2019, this was largely driven by the second-highest volume on record in the alternatives space, where over £5 billion of property exchanged hands. As of early October, Property Data had only recorded just over £6 billion of deals in the third quarter in the three traditional commercial sectors.

Investment Manager outlook

• We are conscious that the political and economic outlook is highly uncertain and that the distribution of outcomes has a ‘barbell’ shape to it. Our real estate forecasts seek to straddle the divergent outcomes and neither fully reflect the ‘no deal’ scenario on which we place the highest probability, nor a smooth withdrawal from the EU. The announcement of the extension to Article 50 and the general election in December does not change this approach.

• Our forecast view does, however, sit towards the lower end of the market consensus and continues to be driven by sharp falls in retail values and a more bearish view of central London offices than most forecasters.
• For the calendar years 2019-21, the annualised return for all UK commercial property is expected to be negative but we anticipate a marginally positive 1% per annum total return over the three years from September 2019. Within the forecast there is however a very divergent outlook across the sectors, with a strong conviction that industrial will continue to outperform retail. Income will be a key component of total returns.
• SLIPIT is well positioned to continue to benefit from its structural underweight position to retail, and its focus on providing good quality cost effective accommodation to occupiers.

Dividends

The Company paid total dividends in respect of the quarter ended 30 June 2019 of 1.19p per Ordinary Share, with a payment date of 30 August 2019.

Net Asset analysis as at 30 September 2019 (unaudited)

	£m	% of net assets
Industrial	256.7	70.0
Office	163.4	44.5
Retail	43.9	12.0
Other Commercial	34.8	9.5
Total Property Portfolio	498.8	136.0
Adjustment for lease incentives	-4.8	-1.3
Fair value of Property Portfolio	494.0	134.7
Cash	5.1	1.4
Other Assets	11.9	3.2
Total Assets	511.0	139.3
Current liabilities	-13.7	-3.7
Non-current liabilities (bank loans)	-127.3	-34.7
EPRA Net Asset Value	370.0	100.9
Swap liability	-3.3	-0.9
Net Asset Value	366.7	100.0

Breakdown in valuation movements over the period 1 July 2019 to 30 September 2019

	Portfolio Value as at 30 Sep 19 (£m)	Exposure as at 30 Sep 2019 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 30 Jun 19				496.8
Retail	43.9	8.8	-2.1	-1.0
South East Retail		2.1	-1.9	-0.2
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		6.7	-2.2	-0.8
Offices	163.4	32.8	-0.3	8.6
London City Offices		2.7	1.9	0.3
London West End Offices		2.9	-1.7	-0.3
South East Offices		16.8	-1.0	-0.9
Rest of UK Offices		10.4	0.8	9.5
Industrial	256.7	51.4	0.6	-5.6
South East Industrial		13.0	-0.4	-9.9
Rest of UK Industrial		38.4	0.9	4.3
Other Commercial	34.8	7.0	0.0	0.0
External valuation at 30 Sep 2019	498.8	100.0	0.0	498.8

Top 10 Properties

	30 Sep 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
Timbmet, Shellingford	10-15
New Palace Place, London	10-15
Chester House, Farnborough	10-15
Basinghall Street, London	10-15

Top 10 tenants

Name	Passing Rent £	% of passing rent
BAE Systems plc	1,257,640	4.6%
Technocargo Logistics Limited	1,242,250	4.5%
Public sector	1,158,858	4.2%
The Symphony Group PLC	1,080,000	3.9%
Jenkins Shipping Group	813,390	2.9%
Timbmet Limited	799,683	2.9%
ATOS IT Services Ltd	771,581	2.8%
CEVA Logistics Limited	652,387	2.4%
GW Atkins	625,000	2.3%
P&O Ferries	479,090	1.7%
Total	8,879,879	32.2%

Regional Split

South East	35.0%
East Midlands	16.8%
West Midlands	13.9%
North West	11.2%
North East	7.2%
Scotland	6.5%
South West	3.8%
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 September 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]