Unaudited Net Asset Value as at 31 December 2019

4 February 2020

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 December 2019

Key highlights of the quarter

Continued Portfolio outperformance

• Net asset value (“NAV”) per ordinary share was 89.9p (Sep 19 – 90.3p), a decline of 0.4%, resulting in a NAV total return, including dividends, of 0.9% for Q4 2019;

• The portfolio valuation (before CAPEX) was flat on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by 1.0% over the same period.

Investment and letting activity

• In November 2019 the Company disposed of its second largest investment, a logistics unit in Denby, for £19.1m. The property was let until 2025 and the rental income represented 4.4% of the Company’s income. The sale price was at the September valuation and reflected a total return of 12.6% per annum since purchase in 2014.

• In December 2019, the Company reinvested part of the sale proceeds of Denby by completing the purchase of an industrial unit in Badentoy North, Aberdeen for £13.55m. The property is let to Schlumberger Limited, the world’s largest oilfield services company for a further 8 years to break and 10 years to lease expiry, with fixed rent increases in February 2020 and 2025, based on 2.75% per annum compounded. The purchase reflects an initial yield of 6.9%, rising to 7.9% in February 2020.

• Post the quarter end the Company has completed the sale of a single let office building in Staines for a net price of £10.7m reflecting an equivalent yield of 5.7%. The asset was disposed of after completing a successful asset management initiative which maximised the return on the asset.

• Five lettings were completed during the quarter securing a total rent of £939,884 per annum, along with two lease renewals securing £216,500 per annum (an increase of 19.7% on previous rent).

• The Company completed four rent reviews securing an increase of £50,612 per annum (12.7% above the previous rental level)

• .Overall, dividend cover of 100% for the whole of 2019 (2018: 89%)

Strong balance sheet with prudent gearing

• Prudent LTV* of 24.6% at the quarter end.
• As at 31 December 2019 the Company had £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. In early January, following the sale of Staines, a further £10m of the RCF was repaid.

Attractive dividend yield

• Dividend yield of 5.2% based on a quarterly dividend of 1.19p and the share price of 91.0p as at 31 December 2019 compares favourably to the yield on the FTSE All-Share REIT Index (3.9%) 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 31 December 2019 was 89.9p. 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 December 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 October 2019 to 31 December 2019.

		Per  Share (p)			Attributable Assets (£m)			Comment
Net assets as at 1 October 2019		90.3			366.7
Unrealised decrease in valuation of property portfolio		0.0			-0.1			Portfolio like for like movement flat in the  quarter
CAPEX  in the quarter		-0.5			-2.0			Predominantly  transaction costs and also Capex at One Station Square, Bracknell and Fleming Way, Crawley
Net income in the quarter after dividend		0.1			0.2			Dividend cover of 100% in the year ended 31 December 2019 with £37m of RCF still available for investment.
Interest rate swaps mark to market revaluation		0.3			1.1			Decrease in swap liabilities in the quarter as expectations of an upward move in interest rates increased due to UK general election result.
Other movements in reserves		-0.3			-1.1			Movement in lease incentives in the quarter
Net assets as at 31 December 2019		89.9			364.8
	European Public Real Estate Association (“EPRA”)*		31 Dec 2019			30 Sep 2019
	EPRA Net Asset Value		£366.1m			£370.0m
	EPRA Net Asset Value per share		90.2p			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 December 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 crystallize in normal circumstances, such as the fair value of financial derivatives, are therefore excluded.

Investment Manager commentary

The final quarter of 2019 was dominated by the UK General Election, with many investors and occupiers wanting to wait for clarification on the outcome before making any significant investment. Notwithstanding this, the Company had another busy quarter of asset management, purchases and sales.

Five new lettings were completed securing a total annual rent of £939,884. This included completing a lease on the Company’s largest void, a logistics unit in Rugby. Despite this letting activity, voids increased slightly over the quarter to 6.6% as a lease expired at Hagley Road, Birmingham. We have interest on part of this and will undertake a refurbishment first in order to maximise future rental income. Vacancy at Hagley Road now represents 2.7% of fund ERV.

In addition to the new lettings four rent reviews were settled with a total increase in rent of £50,612 per annum (an increase of 12.7% on the previous rent under these leases) and two lease renewals securing £216,500 per annum, an increase of 19.7% on the previous rents.

The Company disposed of one of its largest logistics units (Denby 242) to capitalise on the strong investment market for logistics whilst reducing exposure to the largest tenant in the fund on a single let asset. The sale for £19.1m represented a yield of 5.7%. Some of the sale proceeds were reinvested into an industrial unit in Aberdeen let for 5 years to a strong covenant, the price of £13.5m reflecting a yield of 7.9% after a fixed rental increase in February 2020.

Shortly after the quarter end the Company also completed the sale of an office building in Staines for £10.7m, reflecting a yield of 5.7% after expiry of the rent free period following a new letting. The sale proceeds were used to repay part of the RCF whilst a suitable investment is sought to reinvest in.

Market commentary

Lagging indicators continue to show slowing momentum in the UK economy, despite the initial positive reaction to the election of a Conservative government with a large majority. We expect fiscal stimulus to come through and steadily feed into growth, with a boost to consumer spending. However, as the UK looks set to drift further from EU economic and regulatory alignment, we do not envisage a material pick-up in investment. With Conservatives representing some constituencies for the first time in many years – or, in some cases, ever – the focus of increased fiscal spending and capital could be tilted more towards the regions.

Occupational markets have, so far, largely been unfazed by prevailing uncertainty and a lack of clarity on the UK’s future trading relationships. Take-up in the office sector remains strong, with Central London leasing volumes now marginally above the five-year quarterly average. Regionally, headline rents have been steadily rising and vacancy rates falling across the big six office markets, boosted by large corporate occupier consolidation programs.

Retail, however, continues to suffer structural headwinds. While the indications are that Christmas trading was not disastrous on the whole, occupiers are still under significant margin pressure. We have concerns that 2020 will bring about another wave of company voluntary agreement (CVA) activity and further rental decline.

Industrials continue to report healthy take-up, especially for well-connected areas in the M1 corridor, South East and East Midlands. A pronounced undersupply of logistics/industrial assets exists in the South East which is driving strong rental growth and continued investor appetite for prime assets in well-connected locations. However, investor appetite seems to be more tepid in the rest of the UK, where a supply shortage is less pronounced.

In the listed space, share prices have moved aggressively in response to October’s value rotation and an encouraging December 2019 election result for real estate. And while retail names continue to trade at large discounts to net asset value (NAV), London office developers are reporting better than expected leasing activity and upward movement on rents. Income-focused names continue to trade at premiums to NAV as investors anticipate continued rental growth and/or yield compression in these portfolios and fully price in expectations for further performance.

‘All Property’ capital values declined by -1% in Q4 2019, according to MSCI IPD Monthly Index, with declines in retail offsetting positive growth in industrials and offices. The investment market in UK real estate remained highly polarised last year, with alternative sectors clearly in vogue. Alternative property types accounted for close to 40% of investment activity in Q4 2019. Total UK real estate investment volumes in 2019 reached £48 billion, down on the £63 billion recorded in 2018, as Brexit negotiations and the general election resulted in a more subdued investment market for the UK.

Investment Manager outlook

The political clarity derived from the election result has prompted a noticeable increase in the level of optimism from agents in the market, particularly towards Central London offices. However, as we enter a critical period for Brexit negotiations, we see very little justification to be taking on unnecessary risk at this stage of the UK real estate cycle. The focus remains on asset-level risk and income prospects to identify attractive long term investment opportunities in the UK real estate market.

Dividends

The Company paid total dividends in respect of the quarter ended 30 September 2019 of 1.19p per Ordinary Share, with a payment date of 29 November 2019.

Net Asset analysis as at 31 December 2019 (unaudited)

	£m	% of net assets
Industrial	252.8	69.3
Office	163.3	44.7
Retail	42.3	11.6
Other Commercial	34.8	9.5
Total Property Portfolio	493.2	135.1
Adjustment for lease incentives	-5.5	-1.5
Fair value of Property Portfolio	487.7	133.6
Cash	6.5	1.8
Other Assets	11.6	3.2
Total Assets	505.8	138.6
Current liabilities	-11.4	-3.1
Non-current liabilities (bank loans & swap)	-129.6	-35.5
Total Net Assets	364.8	100.0

Breakdown in valuation movements over the period 1 October 2019 to 31 December 2019

	Portfolio Value as at 31 Dec 19 (£m)	Exposure as at 31 Dec 2019 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 30 Sep 19				498.8
Retail	42.3	8.6	-3.7	-1.6
South East Retail		2.1	-1.9	-0.2
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		6.5	-4.3	-1.4
Offices	163.3	33.1	-0.1	-0.1
London City Offices		2.8	0.4	0.1
London West End Offices		2.9	0.0	0.0
South East Offices		16.8	-0.9	-0.8
Rest of UK Offices		10.6	1.2	0.6
Industrial	252.8	51.2	0.7	-3.9
South East Industrial		13.3	0.9	0.6
Rest of UK Industrial		37.9	0.6	-4.5
Other Commercial	34.8	7.1	0.0	0.0
External valuation at 31 Dec 2019	493.2	100.0	0.0	493.2

Top 10 Properties

	31 Dec 19 (£m)
Hagley Road, Birmingham	20-25
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
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	4.5%
The Symphony Group PLC	1,225,000	4.4%
Public sector	1,158,858	4.2%
Schlumberger Oilfield UK PLC	1,138,402	4.1%
Jenkins Shipping Group	813,390	2.9%
Timbmet Limited	799,683	2.9%
ATOS IT Services Ltd	771,581	2.8%
CEVA Logistics Limited	671,958	2.4%
GW Atkins	625,000	2.2%
P&O Ferries	479,090	1.7%
Total	8,940,602	32.1%

Regional Split

South East	35.3%
West Midlands	14.4%
East Midlands	12.8%
North West	11.3%
Scotland	9.4%
North East	7.2%
South West	4.0%
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 31 December 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] 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]