Unaudited Net Asset Value

3 November 2016

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

Unaudited Net Asset Value as at 30 September 2016

Key Highlights

• Net asset value per ordinary share was 79.0p ( June 2016 – 81.8p), a fall of 3.4%, resulting in a NAV total return, including dividends, of -2.1% for Q3;
• The portfolio valuation decreased by 2.2% on a like for like basis, whilst the IPD/MSCI Monthly Index fell by 3.6% over the same period;
• Positive share price performance in the quarter with share price total return of 5.0% resulting in the Company’s shares trading at a premium to NAV of 3.5% as at 30 Sep 2016;
• Successful asset management initiatives up to the date of this announcement included

                Â·      3 new lettings of industrial units in Aberdeen and one lease renewal
                Â·      Refurbishment completed on largest void in the portfolio – Broadgate Oldham
                Â·      Terms agreed for letting of one of three vacant units at Trafford Park Manchester   

• Low void rate of 4.4% as at 30 Sep 2016 (which will decrease by 1% on completion of sale of a property in Bristol);
• Dividend yield of 5.8% based on a quarterly dividend of 1.19p as at 30 Sep 2016 compares favourably to the yield on the FTSE All-Share REIT Index (3.6%) and the FTSE All Share Index (3.5%) as at the same date; it is anticipated the dividend will be covered for the financial year.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 September 2016 was 79.0p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

The net asset value incorporates the external portfolio valuation by Jones Lang LaSalle and Knight Frank at 30 September 2016. The caveat that was in place for the Company’s valuations as at 30 June 2016, following the result of the EU referendum, has been removed.

The information in this announcement was inside information.
 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV per share calculated under IFRS over the period 1 July 2016 to 30 September 2016.

		Per  Share (p)	Attributable Assets (£m)		Comment
Net assets as at 30 June 2016		81.8	311.6
Unrealised decrease in valuation of property portfolio		-2.6	-9.9		Like for like decrease of 2.2% in property portfolio.
Net income in the quarter after dividend		0.2	0.6		Continued strong income generation with dividend cover of 126% in the quarter.
Interest rate swaps mark to market revaluation		-0.3	-1.1		Increase in swap liabilities as a result of a continuing expectation that interest rates will be lower for longer as a result of the EU referendum.
Other movement in reserves		-0.1	-0.5		Movement in lease incentives and capital expenditure in the quarter.
Net assets as at 30 September 2016		79.0	300.7
	European Public Real Estate Association (“EPRA”)*			30 Sep 2016		30 Jun 2016
	EPRA Net Asset Value			£307.3m		£317.0m
	EPRA Net Asset Value per share			80.7p		83.3p

The Net Asset Value per share is calculated using 380,690,419 shares of 1p each being the number in issue on 30 September 2016.

* 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  

The third quarter of 2016 was, of course, dominated by the outcome of the EU Referendum. Perhaps attributable to this, the summer months were quieter than usual, with many people away and little desire for decisions to be made. We noticed this for lettings, with transactions being slow to progress. We are pleased to report, however, that more recently we have since seen signs of “business as usual” from many of our tenants, especially in the industrial and logistics sector.

Although the market appears to be stabilising, and several economic indicators are better than expected, we retain our cautious outlook and will seek to take risk off the table, especially where this can be done above present valuations. Our void level has increased slightly over the quarter, but is still very low at 4.4% compared to the IPD benchmark of 7.1%. Across the portfolio we have about 225 tenants, and have 18 units available to let, ranging in size from 215sq.ft (a kiosk worth £11,000 per annum) to a 101,000sq.ft logistics unit worth £520,000 per annum. Income remains key to us, and our focus is on letting these vacant units, and interest is encouraging in a number of them. It is pleasing however that the dividend cover remains robust at 126%.

Since the quarter end we have exchanged contracts to sell an asset in Bristol that included our second largest void (an industrial unit of 51,000sq.ft worth £308,000 pa). Encouragingly, the sale price is above the June valuation and the sale proceeds will be used, at least initially, to repay part of the revolving credit facility (“RCF”). This transaction is due to complete in early November and will reduce the void rate in the Company to 3.4%.

Last quarter we highlighted the new debt facility the Company had entered into in April this year and the disadvantageous movement in the mark to market value of the interest rate swap.  As at the end of September, the Company had a term loan of £110m and £21m outstanding under the RCF. This provided a Loan to Value Ratio of 27.3%. The all in cost of the debt is 2.56%, however the NAV recognises another £1.1m adverse movement in the value of the interest rate swap – taking the liability recognised to £6.5m. This will revert to £0 at maturity of the swap in April 2023, or sooner if longer term interest rates were to rise.

Market Commentary

The economic data following the referendum has not been as negative as feared although the heightened uncertainty has had some impact on overall activity and this is likely to continue. Significant monetary support and the rapid formation of a workable government have helped support the wider economy also. Although the recent economic data makes an immediate recession after the vote less likely, potential longer term constraints on economic growth in the UK remain as uncertainty dampens business investment. The weaker pound should help to boost net export growth and the depreciated currency also makes UK real estate more attractive to overseas investors.

Over the twelve months to end September, the All Property Monthly Index recorded a total return of 3.2% against 9.2% in the twelve months to end June this year. The sharp capital decline following the unexpected result of the EU Referendum was the main contributor to the fall in returns, with capital values in the Monthly Index falling by 3.6% over the quarter to September 2016, although market conditions and sentiment have stabilised in recent weeks. Encouragingly, rental growth remained stable at 2.7% in the twelve months to end September.

As for the equity markets, the FTSE All Share and the FTSE 100 total returns were 7.8% and 7.1% respectively in the third quarter. For listed real estate equities, total returns have regained the declines they experienced immediately after the vote to leave the EU, closing the quarter end with a rise of nearly 5%.

Investment Outlook

The measures taken by real estate funds after the unexpected referendum vote to protect existing fund investors and stem the initial liquidity driven outflows are gradually being unwound and stability and a level of normality is returning to the UK property market. In the environment where the economic fundamentals are expected to soften further and with uncertainty remaining above “normal” levels, we expect lower returns from property than has been the case over the last few years. Given this background, the steady secure income component generated by the asset class is likely to be the key driver of returns going forward. 

In the short term, the market is likely to be sentiment driven, which will further affect capital values until there is clarity on the timeline and nature of the EU exit, while the medium term impact will hinge on the economic effects. From a sector perspective, we continue to expect Central London offices to be the most impacted sector in the near term given the linkages to European markets via cross border trading. Industrial and retail assets are expected to be comparatively resilient, although not immune, given their close connection to consumers. Despite the uncertain outlook, UK real estate continues to provide an elevated yield compared to other assets and, unlike in the financial crisis, lending to the sector is at a much lower level than in 2007/2008. Furthermore, existing vacancy rates are below average levels in most markets and development remains relatively constrained, which should all help stabilise the market further out. The “global hunger for yield” can only strengthen the demand for real estate in the current ultra-low interest rate environment. The retention of the UK’s safe haven status should also ensure the asset class is better placed longer term. 

Cash and Borrowing position

As at 30 September 2016 the Company had cash of £13.3million. The LTV as at this date (Borrowings less cash divided by portfolio value) was 27.3%.    

Dividends

The Company paid total dividends in respect of the quarter ended 30 June 2016 of 1.19p per Ordinary Share, with a payment date of 31 August 2016.

Net Asset analysis as at 30 September 2016 (unaudited)

	£m	% of net assets
Office	182.8	60.8
Retail	97.2	32.3
Industrial	151.1	50.2
Total Property Portfolio	431.1	143.3
Adjustment for lease incentives	(3.7)	(1.2)
Fair value of Property Portfolio	427.4	142.1
Cash	13.3	4.4
Other Assets	7.2	2.4
Total Assets	447.9	148.9
Non-current liabilities (bank loans & swap)	(136.5)	(45.4)
Current liabilities	(10.7)	(3.5)
Total Net Assets	300.7	100.0

Breakdown in valuation movements over the period 1 Jul 2016 to 30 Sep 2016

	Portfolio Value as at 30 Sep 2016 (£m)	Exposure as at 30 Sep	Like for Like Capital Value Shift	Capital Value Shift
		2016 (%)	(%)
Valuation as of 30 Jun 2016				450.1
Retail	97.2	22.5	-1.4	-1.3
South East Retail		6.4	-0.8	-0.2
Rest of UK Retail		1.2	-2.0	-0.1
Retail Warehouses		14.9	-1.6	-1.0
Offices	151.1	35.1	-3.6	-5.7
London City Offices		4.7	-5.4	-1.2
London West End Offices		2.6	0.0	0.0
South East Offices		22.4	-3.5	-3.5
Rest of UK Offices		5.4	-4.2	-1.0
Industrial	182.8	42.4	-1.5	-2.8
South East Industrial		11.1	-0.2	-0.1
Rest of UK Industrial		31.3	-1.9	-2.7
Sale of Teddington and Kingston-upon-Thames				-9.2
External valuation at 30 Sep 2016	431.1	100.0	-2.2	431.1

Top 10 Properties

	30 Sep 16 (£m)
White Bear Yard, London	20-25
Elstree Tower, Borehamwood	15-20
Denby 242, Denby	15-20
DSG, Preston	15-20
Symphony, Rotherham	15-20
Chester House, Farnborough	15-20
Charter Court, Slough	10-15
3B - C Michigan Drive, Milton Keynes	10-15
Ocean Trade Centre, Aberdeen	10-15
Hollywood Green, London	10-15

Top 10 tenants:

	Tenant group	Passing rent	As % of total rent
1	Sungard Availability Services (UK) Ltd	1,320,000	4.6 %
2	BAE Systems	1,257,640	4.4 %
3	Techno Cargo Logistics Ltd	1,242,250	4.3 %
4	DSG	1,177,677	4.1 %
5	The Symphony Group Plc	1,080,000	3.8 %
6	Bong UK	727,240	2.5 %
7	Euro Car Parts Ltd	703,430	2.5 %
8	Royal Bank of Scotland Plc	700,000	2.4 %
9	Ricoh UK Limited	696,995	2.4 %
10	Matalan	696,778	2.4 %
		9,602,010	33.5 %
	Total Fund Passing Rent	28,666,652

Regional Split:

South East	39.9%
East Midlands	15.1%
North West	12.0%
North East	8.6%
South West	6.1%
West Midlands	5.9%
Scotland	5.1%
London City	4.7%
London West End	2.6%

The Board is not aware of any other significant events or transactions which have occurred between 30 Sep 2016 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Details of the Company may also be found on the Investment Manager’s website which can be found at: www.standardlifeinvestments.com/its

For further information:-

Jason Baggaley – Real Estate Fund Manager,  Standard Life Investments
Tel [phone] [e-mail]

Graeme McDonald  - Real Estate Finance Manager, Standard Life 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]