Unaudited Net Asset Value as at 31 March 2020

12 May 2020

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2020

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 83.2p (Dec 19 – 89.9p), a decline of 7.5%, resulting in a NAV total return, including dividends, of -6.2% for Q1 2020;

• The portfolio valuation (before CAPEX) reduced by 4.9% on a like for like basis, whilst the IPD/MSCI Monthly Index dropped by 2.7% over the same period.

As at the valuation date of March 31 2020 the country was in the early days of the lockdown, and the investment market had come to a near virtual standstill. There was a lack of relevant transactional evidence, so the independent valuers inserted a material uncertainty clause in the valuation.

Investment and letting activity

• In January 2020 the Company completed the sale of a single let office building in Staines for a net price of £10.7 million 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.

• Two lettings were completed in Q1 securing £269,000 per annum in rent, along with two lease renewals securing £141,713 per annum.

• The Company completed three rent reviews securing an increase of £16,250 per annum (on average 19% above the previous rental level).

• As at close of business on 4 May 2020, the Company had received payments reflecting 71% of rents due for what can collectively be termed advance billing for the second quarter of the year; this comprises both old and new English quarter days (25th March and 1st April) and the Scottish quarter day (28th February). The comparable figure previously announced on 23 April 2020 was 66%.

Strong balance sheet with prudent gearing

• Prudent LTV* of 24.4% at the quarter end.

• As at 31 March 2020 the Company had £8m drawn from its existing revolving credit facility with £47m still available for investment to take advantage of suitable opportunities that may become available in the near future.

• On 4 February 2020 the Company issued 1 million shares at a premium to prevailing net asset value resulting in net proceeds of £953,000.

Dividends

• As previously announced the Company intends to pay a full quarterly dividend of 1.19p per share, in respect of the three month period to 31 March 2020, which is payable on 29 May 2020. This reflects the fact that a significant proportion of rent for this period was paid in advance, prior to the impact from the Covid-19 pandemic.

• Given the ongoing pandemic and lockdown, the rent collection for the period to 30 June 2020, and potentially thereafter, will be materially impacted which is likely to affect the Company’s future dividends. The Board will continue to monitor closely the situation in relation to rent collection and keep its future dividend policy under review accordingly.

*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 March 2020 was 83.2p. 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 March 2020 of £458.6 million which contained a material uncertainty clause as a result of the COVID 19 pandemic.

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 January 2020 to 31 March 2020.

				Per  Share (p)			Attributable Assets (£m)				Comment
Net assets as at 31 December 2019				89.9			364.8
Unrealised decrease in valuation of property portfolio				-5.9			-23.9				Like for like reduction of 4.9% in property valuations.
CAPEX  in the quarter				-0.2			-0.9				Predominantly CAPEX at Princess Street, Manchester, Foundry Lane, Horsham, and Hagley Road, Birmingham.
Net income in the quarter after dividend				-0.2			-0.7				Rolling 12 month dividend cover of 95%
Interest rate swaps mark to market revaluation				-0.3			-1.2				Increase in swap liabilities in the quarter as interest rates fell due to COVID 19
Other movements in reserves				-0.2			-0.5				Movement in lease incentives in the quarter
NAV accretive share issues				0.1			1.0				Net proceeds of 1 million shares issued in February 2020.
Net assets as at 31 March 2020				83.2			338.6
	European Public Real Estate Association (“EPRA”)*	31 Mar 2020			31 Dec 2019
	EPRA Net Asset Value	£342.0m			£367.0m
	EPRA Net Asset Value per share	84.1p			90.4p

The Net Asset Value per share is calculated using 406,865,419 shares of 1p each being the number in issue on 31 March 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 commentary

2020 started with a feeling of optimism following the result of the general election in December 2019 allowing the company to conclude three rent reviews, two new lettings and two lease regears.

However, by the end of March the Covid-19 pandemic had struck and, consequently the valuation of the Company’s assets declined by 4.9% on a like for like basis over the quarter. Every asset in the portfolio was written down, reflecting the change in market dynamics from end December to end March. By the end of March, the investment market had come to a virtual standstill and relevant transactional evidence was limited. The quarter end valuations were subject to a material uncertainty clause, reflecting the lack of reliable evidence, and valuers need to place a higher reliance on sentiment in their valuations than they would normally.  With the whole team working from home, our focus was on rental collection at the quarter end, and liaising with our tenants to understand how they were trading and what help they needed. Even as this is written, at the end of 6 weeks in lock down (and 8 weeks of working from home), it feels as though we are still in the early days of truly understanding the extent of the impact of the virus on the UK economy and property market.

What is clear to us now though, is that just about everyone is impacted as an individual, and just about every company, no matter what it does, has had to adjust to significant change. We are keen to help those who need it the most, whilst ensuring that those who are able to pay rent do so, as we balance the needs of our shareholders with the viability of our tenants. In many cases we are having constructive discussions with our tenants to remove lease breaks or extend leases in return for a rent free period now.

It is the retail and leisure sectors that will be hardest hit, and where recovery will be slowest. We have a relatively small exposure to these sectors, and, where we do, it is at the affordable end of the market, where we expect a faster recovery. There is much discussion about how demand for offices will be impacted over the longer term – will more people work from home, or will organisations need to have fewer people in more space to encourage social distancing? We believe our offices will continue to appeal to occupiers, and in fact have two leases ready to complete – once the new tenants know when they can actually move in! The industrial sector, which this Company is most exposed to, is likely to be the most resilient sector and the one that recovers the fastest – although there will be pain here as well as the economy stalls.

The occupancy level in the portfolio decreased slightly over the quarter from 93.4% to 92.3%, as a result of a lease expiry on an industrial unit in Dover. January and February saw strong interest across the vacant properties (and two lettings were completed), however much of this has been put on hold during lockdown, as companies reconsider what they need, and when they might be able to move in to new accommodation. Although the ongoing discussions are encouraging, one can expect delays before such decisions are made. We were also delighted to complete a lease renewal in April and a new letting in May during lockdown.

In January the Company repaid part of the RCF, with only £8m drawn at the end of the quarter (out of a facility of £55m) following the sale of Bourne House in Staines. The LTV of 24.4% provides plenty of head room against banking covenants (values can fall by 53% and rent by 62% before the covenants are under pressure based on 31 March covenants). Over the quarter, the Company had an increase in the level of liability of its interest rate swap from £2.22 million to £3.38 million. This negative impact on the NAV will unwind to £0 on maturity in 2023.

Market commentary

UK property market

• The Covid-19 pandemic means the UK is facing an unprecedented economic shock, both in terms of the magnitude and the speed in which swathes of the UK economy have essentially been switched off. The ASI Research Institute (ASIRI) expects a contraction in GDP of more than 15% in the second quarter of 2020 and a fall of around 14.2% for the year as a whole.

• However, the ASIRI base case assumes a vigorous and relatively rapid recovery, particularly given the magnitude of monetary and fiscal support already announced. The UK economy is expected to grow by more than 11% in 2021.

Investment outlook

• Covid-19 is likely to accelerate and accentuate trends that existed before the virus, rather than totally change the fundamentals of the real estate market.

• Holding the most robust and durable income streams may not be a major point of difference this quarter or next; history suggests this divergence emerges as the market approaches its nadir. But we expect significant relative outperformance of such assets to come through later in the year – and for a protracted period if the economic downside materialise – as the degree of income risk at the asset level becomes clearer.

• Urban logistics continues to be an area of the market we favour on a structural basis – likely amplified by this crisis – and one where the fundamentals remain supportive of rental tension. There is strong potential for consumers, previously cautious around online shopping, to gain confidence and retain a higher proportion of spending online after the crisis, which will drive increased demand for ‘last touch’ logistics in particular.
• Online grocery demand has increased substantially with the UK in lockdown, but we do not believe this will have the same impact on logistics as discretionary goods. The crisis has exposed the constraints on capacity for home delivery and the importance of large superstores in fulfilment.

• The Government is providing previously unimaginable levels of stimulus, and yet it remains unclear at present what the nature of recovery is going to look like. We anticipate many tenants having difficulty in meeting rental obligations over the remainder of this year, and quite possibly for the first half of 2021, whilst they try and repair their balance sheets. However rent is contractual and a fairly rapid pick-up in activity is expected in 2021, which the industrial sector is most likely to benefit from.

Net Asset analysis as at 31 March 2020 (unaudited)

	£m	% of net assets
Industrial	240.1	70.9
Office	146.3	43.2
Retail	39.0	11.6
Other Commercial	33.2	9.8
Total Property Portfolio	458.6	135.5
Adjustment for lease incentives	-4.9	-1.5
Fair value of Property Portfolio	453.7	134.0
Cash	5.5	1.6
Other Assets	12.9	3.8
Total Assets	472.1	139.4
Current liabilities	-12.7	-3.7
Non-current liabilities (bank loans & swap)	-120.8	-35.7
Total Net Assets	338.6	100.0

Top 10 Properties

	31 Mar 20 (£m)
Hagley Road, Birmingham	20-25
Symphony, Rotherham	15-20
The Pinnacle, Reading	15-20
Hollywood Green, London	10-15
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	772,711	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	2.2%
Total	9,098,196	32.7%

Regional Split

South East	33.9%
West Midlands	14.7%
East Midlands	12.9%
North West	11.6%
Scotland	9.6%
North East	7.3%
South West	4.1%
London West End	3.0%
City of London	2.9%

The Board is not aware of any other significant events or transactions which have occurred between 31 March 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]

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



The Company Secretary
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