Unaudited Net Asset Value as at 31 December 2021

2 February 2022

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 December 2021

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 101.0p (Sep 2021 – 93.1p), an increase of 8.5% for Q4 2021, resulting in a NAV total return, including dividends, of 9.5% for the quarter;
• The portfolio valuation (before CAPEX) increased by 6.9% on a like for like basis, whilst the MSCI Monthly Index increased by 6.6% over the same period.

Investment and letting activity

• Two purchases completed in Q4, both in the Industrial sector. £7.8m was invested into a completed let unit in Washington, Tyne and Wear, and £2.8m on a site purchase in St Helen’s as part of a pre-let development that has a total cost of £15m.
• Three new leases completed (£715,730pa of rent), three lease extensions / renewals securing £1,158,859pa, and three rent reviews completed with an uplift in rent of £94,430pa.

Financial Position and Gearing

• Strong balance sheet with significant financial resources available for investment of £50 million in the form of the Company’s low cost, revolving credit facility of £55 million net of current cash after dividend and other financial commitments.
• As at 31 December 2021, the Company had a Loan to Value (“LTV”) of 19.2%*. The debt currently has an overall blended interest rate of 2.725% per annum. 

*LTV calculated as debt less cash divided by portfolio value

Dividend

• Dividend for Q4, 2021 increased by 12% to 1p per share.
• Dividend cover for the year was 102%

Rent collection

During Q4 2021 we received payment of all arrears from the Company’s tenant with the largest arrears where legal action was being taken. Collection rates for Q4 are currently 97.1% with a further 2% expected shortly from tenants that have confirmed payment will be made, or have always paid, though often late.  That theme has continued into Q1 2022 with collections currently only at 84.9% but anticipated to be similar to Q4 2021 shortly.

2021	Q1	96.0%
	Q2	92.5%
	Q3	95.3%
	Q4	97.1%
2022	Q1	84.9%

Dividends

The Board fully recognises the importance of dividends to the Company’s shareholders and is pleased to announce a further increase in the dividend to 1p per share for the quarter. The new dividend level reflects continued improvements in the Company’s revenue account, with dividend cover 102% for the financial year to December 2021.

The dividend cover for Q4 was 133% however this is impacted by two one offs. These were a write-back of bad debt provisions following the payment of historic arrears and a lease surrender premium received in the quarter. Excluding the impact of these one offs would have given a Q4 dividend cover of 102%, and, on that basis, the Board considers the new dividend level of 1p per share to be at a sustainable level.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 December 2021 was 101.0p. 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 2021 of £499.9 million. 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 30 September 2021 to 31 December 2021.

	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 June 2021	93.1	369.6
Unrealised increase in valuation of property portfolio	7.9	31.4	Like for like increase of 6.9% in property valuations.
CAPEX in the quarter	-0.4	-1.8	Principally works at 101 Princess Street and Hagley Road, together with acquisition costs of St Helens and Washington.
Net income in the quarter after dividend	0.3	1.2	133% dividend cover. Rolling 12 month dividend cover of 102% based on all dividends paid in last 12 months
Interest rate swaps mark to market revaluation	0.3	1.1	Decrease in swap liabilities in the quarter following interest rate increase.
Other movements in reserves	-0.2	-0.7	Movement relating to lease incentives in the quarter
Net assets as at 31 December 2021	101.0	400.8

European Public Real Estate Association (“EPRA”)	31 Dec 2021	30 Sep 2021
EPRA Net Tangible Assets	£401.4m	£371.2m
EPRA Net Tangible Assets per share	101.1p	93.5p

The Net Asset Value per share is calculated using 396,922,386 shares of 1p each being the number in issue on 31 December 2021.

Investment Manager Review and Portfolio Activity

The Company completed two purchases during the quarter. The first was a development funding in St Helen’s where the land was purchased for £2.8m, and over the course of the next 18 months further payments will be made to fund the developer totaling £15.1m until the building completes and the new lease to St Helen’s Council starts. The lease will be for a term of 15 years, and the Council has sublet to Glass Futures, a not for profit organization, which carries out research seeking to improve the environmental characteristics of glass production.  The second purchase was of an industrial unit in Washington, Tyne and Wear, that is let for a further 14 years, which benefits from adjacent vacant land for future development. The purchase price of £7.8m reflected an income yield of 5.75%.

It is the Investment Manager and Board’s desire to increase the LTV of the Company from the current 19% to a longer term range of 25% – 35%, and further investments are under active consideration. Future purchases will be financed through remaining cash on the balance sheet and from drawing down from the revolving credit facility.

Over the course of Q4 three lettings were concluded, including that of the Company’s only industrial vacancy, securing £611,000pa of rent. This unit in Dover was let to DEFRA and forms an important part of the Government’s food standard control. The two office lettings that completed were at 54 Hagley Rd Birmingham, continuing the strong run at that asset, with £104,000 pa secured. Since the quarter end two further lettings have completed (one office and a retail unit let to a gym) securing £130,000pa. Two leases were extended securing £319,000pa of rent, along with three rent reviews, one on a Bristol office securing an uplift of £37,500pa (19%) and one industrial unit securing an uplift of £47,000pa (10%) – in both cases well ahead of valuation assumptions. The third review was of a leisure unit in London showing a 7% uplift in rent. One lease renewal was completed, securing a rent of £840,000pa, 8.5% ahead of the September ERV.

Although the Company’s vacancy rate fell to 9.7% over the quarter as the lettings completed, it is still above our long-term average, and we want to reduce it further. The closure of offices at the end of 2021 has slowed demand, however early indications of a pick-up in office demand across the portfolio is encouraging.

The Company’s interest rate swap liability fell in the quarter to £568,000 as the market anticipates rising interest rates. This liability will unwind to nil on maturity in April 2023.

Investment Manager Market review

Economic Outlook

• Despite the emergence of Omicron and the subsequent economic and social restrictions, the Bank of England (BoE) increased interest rates from 0.1% to 0.25% in December. This was in response to strong inflation and labour market data. Policymakers took note of the tight labour market, with rising pressures on wages. Unemployment fell to 4.2% in the three months to October 2021, while inflation surged to 5.1% year-on-year (y/y) in November. This exceeded expectations, with rising energy prices, supply chain disruption and a low base effect from 2020 contributing to inflation.
• With cases looking to have peaked and the government now rolling back restrictions, the abrdn Research Institute (aRI) expects activity to rebound relatively quickly through the rest of the quarter.  Full-year 2021 growth is still expected to be relatively robust at 6.8%, with any slowdown in late-2021 and early-2022 likely to be compensated for by slightly stronger growth in late-2022.
• aRI expects interest rates to reach 1% by the end of 2022. This is low in a historical context, but the risks remain skewed towards a faster tightening cycle. aRI now expects inflation to peak slightly above 6% in April 2022, given rising energy prices and ongoing supply bottlenecks. Inflation is then expected to fall during the rest of the year, as challenging base effects drag inflation lower. Real income growth will be squeezed by inflation, but the build-up in household savings over the last two years should cushion this impact.

Occupier Trends

• The long-term impact on office occupation remains difficult to assess, but we expect occupiers to focus more on best-in-class accommodation, with strong ESG and wellbeing credentials. Poorer-quality accommodation will struggle to attract interest. This is seen in the most recent take-up statistics, which show that over 90% of tenants are taking space in Grade A office accommodation. We expect this trend to drive an increasing wedge between rental value growth for the best and the rest in the office sector.
• Occupier demand for industrial and logistics space continues unabated and we expect this to endure over the course of 2022. Supply remains tight and the level of new development is unlikely to satisfy demand. According to CBRE data, the UK-wide vacancy rate has fallen to below 2% and, as a result, we anticipate robust rental value growth to continue within this sector.
• Rising inflation and National Insurance contributions are also likely to affect consumer spending over the course of the first half of 2022. As such, we anticipate weaker occupier sentiment and downward pressure on rental values across the retail sector over the first quarter of 2022. Demand will be concentrated on well-located and well-specified retail warehouse accommodation where footfall has remained more resilient.

Investment Trends

• In 2021, UK real estate performance reached levels not seen since 2015, with the industrial sector outperforming the all property average by a significant margin. Indeed, the spread between the best and worst performing sectors reached the highest level on record in 2021. However, we anticipate that the spread in performance between sectors will begin to converge, predominantly as a result of where we are in the UK real estate cycle.
• The office sector was the worst performing sector in 2020. We think that the structural headwinds facing the sector will result in offices underperforming the wider market in 2022. But there will be a clear polarization in performance between Grade A and secondary office buildings. A divergence in performance by quality is beginning to emerge, particularly in markets where vacancy rates are not significantly above historical averages. Premiums are being paid for Grade A office stock that is truly ‘future-fit’ and possesses the necessary credentials: flexibility, amenity, connectivity, technology and sustainability. Assets that score strongly on these metrics will be best placed to capture and retain tenants during a period of significant structural change for the sector. 
• ESG considerations are crucial for all UK real estate sectors. This has become increasingly pertinent following the implementation of the government’s Minimum Level of Energy Efficiency standard (MEES). By 2025, MEES will make it unlawful for commercial landlords to lease space with an EPC rating below E. By 2030, all commercial properties must have a rating of EPC B or higher. This requires landlords to place a greater emphasis on the ESG credentials of their commercial properties.

Net Asset analysis as at 31 December 2021 (unaudited)

	£m	% of net assets
Industrial	273.6	68.2
Office	126.2	31.5
Retail	56.5	14.1
Other Commercial	36.1	9.0
Land	7.5	1.9
Total Property Portfolio	499.9	124.7
Adjustment for lease incentives	-8.8	-2.2
Fair value of Property Portfolio	491.1	122.5
Cash	13.8	3.4
Other Assets	21.7	5.5
Total Assets	526.6	131.4
Current liabilities	-15.5	-3.9
Non-current liabilities (bank loans & swap)	-110.3	-27.5
Total Net Assets	400.8	100.0

Breakdown in valuation movements over the period 1 October 2021 to 31 December 2021

	Portfolio Value as at 30 Sep 2021 (£m)	Exposure as at 30 Sep 2021 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 30 Sept 21				457.7
Retail	56.5	11.3	4.7	2.6
South East Retail		1.7	1.2	0.1
Retail Warehouses		9.6	5.4	2.5
Offices	126.2	25.3	1.1	1.4
London City Offices		2.6	0.0	0.0
London West End Offices		2.7	0.6	0.1
South East Offices		9.9	1.1	0.6
Rest of UK Offices		10.1	1.6	0.7
Industrial	273.6	54.7	11.1	37.1
South East Industrial		13.0	14.1	8.1
Rest of UK Industrial		41.7	10.1	29.0
Other Commercial*	36.1	7.2	3.4	1.1
Land*	7.5	1.5	0.0	0.0
External valuation at 31 Dec 21	499.9	100.0	6.9	499.9

*: The land on the Ralia estate is presented as ‘Land’, having previously been presented as ‘Other Commercial’, now that MSCI has confirmed the classification.

Top 10 Properties

	31 Dec 21 (£m)
Hagley Road, Birmingham	25-30
B&Q, Halesowen	20-25
Symphony, Rotherham	20-25
Marsh Way, Rainham	20-25
Timbmet, Shellingford	15-20
Atos Data Centre, Birmingham	15-20
Tetron 141, Swadlincote	15-20
Walton Summit, Preston	15-20
Hollywood Green, London	10-15
The Pinnacle, Reading	10-15

Top 10 tenants

Tenant Name	Passing Rent	% of total Passing Rent
B&Q Plc	1,560,000	6.1%
The Symphony Group Plc	1,225,000	4.8%
Schlumberger Oilfield UK plc	1,138,402	4.4%
CEVA Logistics Limited	840,000	3.3%
Jenkins Shipping Co Ltd	843,390	3.3%
Timbmet Group Limited	799,683	3.1%
Atos IT Services UK Ltd	780,727	3.0%
Public Sector	732,210	2.9%
Time Wholesale Services (UK) Ltd	656,056	2.6%
ThyssenKrupp Materials (UK) Ltd	643,565	2.5%
	9,219,033	35.9%

Regional Split

South East	27.5%
West Midlands	19.1%
East Midlands	12.7%
Scotland	11.6%
North West	10.6%
North East	8.7%
South West	4.5%
London West End	2.7%
City of London	2.6%

The Board is not aware of any other significant events or transactions which have occurred between 31 December 2021 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, abrdn
Tel:  [phone] or [e-mail]

Mark Blyth – Real Estate Deputy Fund Manager, abrdn
Tel: [phone] or [e-mail]

Gregg Carswell - 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]