Unaudited Net Asset Value as at 31 March 2022

3 May 2022

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2022

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 106.6p (Dec 2021 – 101.0p), an increase of 5.5% for Q1 2022, resulting in a NAV total return, including dividends, of 6.6% for the quarter;

• The portfolio valuation (before CAPEX) increased by 4.4% on a like for like basis, whilst the MSCI Monthly Index increased by 4.4% over the same period.

Investment and letting activity

• Six new lettings completed in the quarter, four in the office sector, one industrial and one retail warehouse unit relet as a gym. A total of £608,100pa of new rent was secured.
• Refurbishment / PV schemes progressing on three industrial / logistics assets to provide operational net zero units.
• Purchase of £5m car showroom asset completed after quarter end at a yield of 6.5%.

Financial Position and Gearing

• Strong balance sheet with significant financial resources available for investment of £45 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 March 2022, the Company had a Loan to Value (“LTV”) of 18.6%*. 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 increase announced for the prior quarter, to 1p per share, dividend cover for Q1 2022 is 103%. and the Board continues to consider this rate to be sustainable.

The Board fully recognises the importance of dividends to the Company’s shareholders and will keep the quarterly dividend of 1p per share under review as rental collection levels improve further and the Company deploys available resources to acquire further investment property.

Rent collection

Rent collection is beginning to normalise, although disappointingly a number of tenants continue to pay late and require a lot of chasing, or pay monthly despite the lease terms being quarterly. The table below shows the rent collection as at 17 April, and we fully expect both Q1 and Q2 2022 to increase in line with prior quarters.

Year	Quarter	TOTAL % Received
2020	1	99%
	2	98%
	3	98%
	4	96%
	2020 FY	98%
2021	1	96%
	2	94%
	3	96%
	4	97%
	2021 FY	96%
2022	1	90%
	2	79%

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 March 2022 was 106.6p. 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 2022 of £521.8 million. 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated in accordance with IFRS over the period 31 December 2021 to 31 March 2022.

	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 31 December 2021	101.0	400.8
Unrealised increase in valuation of property portfolio	5.5	21.9	Like for like increase of 4.4% in property valuations.
CAPEX in the quarter	-0.1	-0.4	Principally works at New Palace Place and 101 Princess Street.
EPRA net income in the quarter after dividend	0.0	0.1	103% dividend cover.
Interest rate swaps mark to market revaluation	0.3	1.0	Interest rate swap has now become an asset of £0.5m reflecting market movements, following interest rate increases.
Other movements in reserves	-0.1	-0.4	Movement relating to lease incentives in the quarter
Net assets as at 31 March 2022	106.6	423.0

European Public Real Estate Association (“EPRA”)	31 Mar 2022	31 Dec 2021
EPRA Net Tangible Assets	£422.6m	£401.4m
EPRA Net Tangible Assets per share	106.5p	101.1p

The Net Asset Value per share is calculated using 396,922,386 shares of 1p each being the number in issue on 31 March 2022.

Investment Manager Review and Portfolio Activity

No new purchases completed during the quarter, although since quarter end the Company completed the purchase of a small car showroom for £5m at a yield of 6.25%. The asset is let on a 25 year lease with rent reviews every five years linked to CPI.

Six new leases were completed during the quarter securing £608,100pa, with the vacancy rate falling to 8.6%. During Q1 a logistics unit in Bolton became vacant and we are preparing a refurbishment that will make it operational net zero carbon.  Terms have already been agreed to relet the unit. Two small industrial units in Aberdeen were also let in the quarter – following a period of little tenant activity in that market. Four of the new leases were on office suites in three different multi let properties.

During the quarter we embarked on several small building upgrades with the intention of moving the EPC ratings to a C, and also made progress with several of our rooftop PV schemes and electric charge point projects.

The Company’s Loan to Value fell to 18.6% as the value of the portfolio increased. This is lower than our target level and we continue to progress several investment opportunities to utilise unallocated resources.

Investment Manager Market review

Economic Outlook

• GDP grew by 0.1% in February 2022, down from 0.8% in January, according to the latest data published by ONS. Growth in GDP for February was predominantly driven by strong recovery in travel agencies, tour operators and hotels as consumers become more confident booking holidays in the UK and abroad. Tour operation and accommodation output grew by 33% and 23%, respectively. This was partially offset by a reduction in Covid-19 Test and Trace vaccination programmes. This was a major contributor to UK GDP growth at the start of the year but contributed to a 5.1% contraction across the health sector in February.
• UK GDP growth is expected to weaken from here as the recovery in consumer spending fades, largely as inflationary pressures squeeze household incomes. Growth is likely to slow sharply through this year, albeit remaining above the long-term trend: aRI forecasts UK GDP growth of 3.8% in 2022, before moderating to 1.1% in 2023.
• UK inflation rose to 7.0% in the year to March 2022, up from 6.2% in February. The most recent reading exceeded the 6.7% forecast by economists polled by Reuters and marks the highest level of consumer price index inflation since March 1992 as higher fuel, energy and food prices. aRI expects inflation to reach a peak of 8.5% in April 2022, before falling back to 6.2% by the end of the year. Inflation is expected to remain high for a prolonged period, largely as a result of rising prices in the wholesale energy markets.
• The UK labour market continued to tighten in the three months to February. While employment growth has slowed; the unemployment rate fell and now sits at 3.8%. The tighter labour market is being reflected in nominal pay growth data which increased by 5.4% in the 12 months to February 2022, according to the ONS. However, real wages are falling as pay growth is currently below inflation, with households likely to face falling income through much of this year.
• At its meeting on 16 March 2022, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase the Bank Rate by 0.25% to 0.75%. aRI now expects the Bank of England to hike rates to 1.25% by the end of this year, and to start to run down its balance sheet by selling the bonds it has built up in its Quantitative Easing (QE) processes by mid-year. Two further hikes are then expected in 2023, taking rates to 1.75%. As such, UK monetary policy will be actively slowing the economy by the end of the forecast period.

Occupier Trends

• Office demand has been relatively robust in difficult market conditions, but very focused on the best quality accommodation as employers seek to encourage workers to return to the office. Looking forward, we expect occupational demand to continue to narrow on best-in-class office accommodation, as wellness and ESG factors become increasingly important factors in occupier decision making. The weaker economic environment is also likely to lead to poorer business sentiment and reduced job growth, leading to a fall in overall office demand. These factors will serve to expedite the polarisation of the office sector and secondary office accommodation is likely to suffer as a result.
• The industrial and logistics sector continues to benefit from a positive supply/demand dynamic and, according to CoStar data, UK leasing activity topped 110m square feet in 2021, 20% higher than the previous year. With the UK-wide vacancy rate understood to be around 3% and development availability remaining constrained, we expect robust rental growth to continue within this sector.
• The retail sector surprised to the upside in January 2022 as total retail sales rose by 1.9%, despite the impact of the Omicron variant. The proportion of non-food online retail sales continued to trend downwards falling to 21.4% in February 2022, down from the February 2021 peak of 43%. However, rising inflation and the cost-of-living increases are likely to impact consumer spending and this will be most patently felt in the discretionary end of the market. In contrast, budget and discount retailers are in line to benefit. We expect occupier sentiment to weaken as a result and the prospect for rental value growth remains remote.

Investment Trends

• Over Q1 2022, UK investment volumes reached approximately £16.1 billion, according to RCA, which was 9% ahead of the 10-year quarterly average and represented the highest Q1 volume since 2015. Overseas capital continued to dominate, accounting for 59.1% of capital deployed in the quarter.
• Investor focus is showing signs of narrowing, particularly within the office sector, where investors are primarily targeting prime central London assets. Of the £5.35 billion invested in the office sector in Q1 2022, 49.9% was invested in just three central London assets, the largest of which was NPS’s purchase of 5 Broadgate for £1.21 billion. Therefore, while the overall office investment numbers look positive, they do not tell the full story.
• In the industrial sector, Q1 transaction volumes totalled £4.7 billion. While this was slightly down on the same period in 2021, it is 103% higher than the 10-year quarterly average, once again demonstrating the sector’s popularity. Yields have continued to tighten over the previous 12 months, with prime industrial yields in Greater London now at 2.85%, according to CBRE.
• The retail market continues to be driven by the retail warehouse sector, where yields have come in between 150-275 basis points (bps) since March 2021. Investors have been primarily focused on discount and budget-led schemes with little exposure to fashion retailers. However, as yields have compressed markedly over the last 12 months and the income yield differential between retail parks and other sought-after sectors has narrowed, there is an indication that some investors are moving up the risk curve in search of yield.

Net Asset analysis as at 31 March 2022 (unaudited)

	£m	% of net assets
Industrial	288.9	68.3
Office	127.0	30.0
Retail	61.0	14.4
Other Commercial	37.4	8.8
Land	7.5	1.8
Total Property Portfolio	521.8	123.3
Adjustment for lease incentives	-9.2	-2.2
Fair value of Property Portfolio	512.6	121.1
Cash	14.6	3.5
Other Assets	21.6	5.1
Total Assets	548.8	129.7
Current liabilities	-16.5	-3.9
Non-current liabilities (bank loans & swap)	-109.3	-25.8
Total Net Assets	423.0	100.0

Breakdown in valuation movements over the period 1 January 2022 to 31 March 2022

	Portfolio Value as at 31 Mar 2022 (£m)	Exposure as at 31 Mar 2022 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Dec 21				499.9
Retail	61.0	11.7	7.9	4.5
South East Retail		1.6	0.0	0.0
Retail Warehouses		10.1	9.3	4.5
Offices	127.0	24.3	0.5	0.7
London City Offices		2.5	0.8	0.1
London West End Offices		2.6	0.6	0.1
South East Offices		9.6	0.7	0.4
Rest of UK Offices		9.6	0.3	0.1
Industrial	288.9	55.4	5.6	15.3
South East Industrial		13.3	6.6	4.3
Rest of UK Industrial		42.1	5.3	11.0
Other Commercial	37.4	7.2	3.7	1.4
Land	7.5	1.4	0.0	0.0
External valuation at 31 Mar 22	521.8	100.0	4.4	521.8

Top 10 Properties

	31 Mar 22 (£m)
B&Q, Halesowen	25-30
Hagley Road, Birmingham	25-30
Symphony, Rotherham	25-30
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	15-20
CEVA Logistics, Corby	15-20

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	819,390	3.2%
Timbmet Group Limited	799,683	3.1%
Atos IT Services UK Ltd	780,727	3.1%
Public Sector	732,210	2.9%
Time Wholesale Services (UK) Ltd	656,056	2.6%
ThyssenKrupp Materials (UK) Ltd	643,565	2.5%
	9,195,033	36.0%

Regional Split

South East	27.4%
West Midlands	19.1%
East Midlands	12.9%
Scotland	11.4%
North West	10.7%
North East	8.9%
South West	4.5%
London West End	2.6%
City of London	2.5%

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

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]