Net Asset Value(s)

1 May 2018

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2018

Key Highlights

Solid Performance

• Net asset value (“NAV”) per ordinary share was 89.4p (Dec 2017 – 87.6p), a rise of 2.1%, resulting in a NAV total return, including dividends, of 3.4% for Q1 2018;

• The portfolio valuation increased by 1.9% on a like for like basis, whilst the IPD/MSCI Monthly Index rose by 1.0% over the same period.

Portfolio activity

• Purchase of a 216,180 sq ft logistics facility in Shellingford, Oxfordshire on the established White Horse Business Park, for £11.5m, reflecting an initial yield of 6.5%. The unit is let for 25 years without a break, and is subject to five yearly upwards only rent reviews fixed at 2.5% pa.

• Purchase of the Grand National Retail Park in Aintree for a price of £6.125m, reflecting an initial yield of 6.85%.  The park is adjacent to the race course, and consists of 4 units let as a leisure park to Premier Inn, Pure Gym, Mitchells and Butler, and KFC. The investment benefits from strong trade associated with the race course and provides opportunity for asset management to extend leases from the current 8.1 years.

• Purchase of an industrial complex in Sandy, Bedfordshire for £6.02m, reflecting a yield of 6.25%. The property is located immediately adjacent to a junction of the A1, approximately 40 miles north of central London, and is let for an unexpired term of 19 years at a rent of £3.17psf, subject to indexed increases in rent every five years.

Sales

• Completion of the sale of Elstree Tower in Borehamwood for £20m previously announced in September 2017.

• Post the period end completed the sale of Charter Court, a multi let office in Slough for £13.25m, 9.6% ahead of the end December valuation.

The transactions above have continued the process of selling assets where future returns are expected to come under pressure and reinvesting into assets in favoured sectors that offer secure income and better future performance characteristics.

Successful asset management activity

• Completed the letting of 1 Marsh Way, Rainham, the Company’s largest void. The property has been let on a 15 year lease (with tenant break option in the tenth year) at a starting rent of £636,200pa.

• Voids rate as at 31 March 2018 was 5.8% (Dec 2017 – 7.7%). 

Strong balance sheet with prudent gearing

• LTV* of 14.3% and uncommitted cash of £44.1m post the quarter end transactions with RCF of £35m also still available for investment in future opportunities.

• Two year extension of existing £35million Revolving Credit facility (“RCF”) secured with Royal Bank of Scotland. While the margin over LIBOR on the RCF will increase from 1.2% to 1.45% this extension will mean the RCF will now expire at same time as the term loan in April 2023 providing the Company with increased certainty of both availability and cost of financing to this date. The interest rate on the Company’s £110 million term loan remains fixed at 2.725%.  

Premium rating

• Continued strong demand for the Company’s shares with 8.25m shares issued in the quarter raising proceeds of £7.6m. As at 24 Apr 2018 the share price was 94.2p - a premium to the 31 March NAV of 5.4%.

Attractive dividend yield

• Dividend yield of 5.1% based on a quarterly dividend of 1.19p as at 24 Apr 2018 compares favourably to the yield on the FTSE All-Share REIT Index (3.8%) and the FTSE All Share Index (3.7%) as at the same date.

*LTV calculated as Debt less cash (after sale of Charter Court) divided by portfolio value (excl Charter Court)

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 31 Mar 2018 was 89.4p. 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 Mar 2018.

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 Jan 2018 to 31 Mar 2018.

			Per  Share (p)				Attributable Assets (£m)		Comment
Net assets as at 31 Dec 2017			87.6				346.0
Unrealised increase in valuation of property portfolio			1.9				7.6		Mainly relates to like for like increase of 1.9% in property portfolio
Loss on sales			0.0				-0.2		Loss on sale of Bathgate
CAPEX & purchase costs in the quarter			-0.4				-1.7		Predominantly  acquisition costs plus CAPEX
Net income in the quarter after dividend			-0.2				-0.7		Dividend cover for the quarter of 86% with uncommitted cash resources of £44m plus £35m RCF still available for investment which when utilised will allow the Company to move back towards a covered dividend.
Interest rate swaps mark to market revaluation			0.4				1.8		Decrease in swap liabilities in the quarter
Share issues			0.2				7.6		NAV accretive issue of 8.25m shares in the quarter raising £7.6m
Other movement in reserves			-0.1				-0.2		Movement in lease incentives in the quarter
Net assets as at 31 Mar 2018			89.4				360.2
	European Public Real Estate Association (“EPRA”)*			31 Mar 2018				31 Dec 2017
	EPRA Net Asset Value			£360.7m				£348.2m
	EPRA Net Asset Value per share			89.5p				88.2p

The Net Asset Value per share is calculated using 403,115,419 shares of 1p each being the number in issue on 31 Mar 2018.

* 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 first quarter is generally fairly quiet as investors and occupiers take stock and plan for the year ahead. This year, however, activity seemed to continue on from the end of 2017 with little change. The Company was no exception, with several transactions rolling over from last year and some new activity. It was pleasing to complete a new lease on the Company’s largest vacant building in January, and over the quarter we found inspection levels on all the vacant units was higher than in Q4 last year. Although lettings are taking longer to secure, the level of interest is encouraging and generally new leases have been agreed on better terms than assumed in the Company’s valuations. The void level reduced over the quarter to 5.8%, and is likely to be in a range between 5%-10% throughout the year as various leases expire and new lettings are completed.

Three purchases were completed in Q1, with a total investment of just over £23m. The two industrial / logistics units are let on long leases with indexation, and although the units are older, they provide cost efficient occupation for the tenants, with future potential for redevelopment. The leisure scheme in Aintree is adjacent to the race course, and we are already actively engaged in extending leases to give long term secure income. As a result of two sales of offices with potentially large capex requirements the Company has a larger than normal cash holding (c10%) at quarter end. This larger than normal cash holding obviously has a short term impact on the level of dividend cover given the low yield on cash holdings. We are, however, considering several investment opportunities and will seek to invest the cash over the next 6 months into assets with lower capex requirements and stronger growth potential. Investing the cash in suitable investments will enable the Company to move back towards a covered dividend.

Market Commentary

UK economic growth was 0.4% in the fourth quarter of 2017 and was revised down to 1.7% for the year as a whole. Early data for the first quarter of 2018 has been underwhelming, particularly for the services sector. Retail sales figures have been particularly weak over the first quarter, however there are signs that the economy will benefit from a recovery in household spending power later this year as the tight labour market starts to feed through into stronger wage growth. Regular pay growth reached 2.8% in February, while consumer price inflation (CPI) fell to 2.5% in March. The Bank of England has signalled that further rate rises are coming although the recent GDP announcement has cast some doubt over the timing of these.  

The UK property market produced a total return of 2.3% in Q1, according to the MSCI Monthly Index. Over the 12 month period to 31 March the total return was 11.3% after a year of consistent capital growth resulting in 5.6% capital growth over the 12 month period. The majority of this growth came from inward yield shift, with rental value growth of only 2% over the 12 months.

Volatility in the financial markets in Q1 have been reflected in the negative total returns of the FTSE All Share (-6.9%) and the FTSE 100 (-7.2%).  The FTSE All-Share REIT Index was also negative over the first quarter of 2018 at -3.5%.

Industrials remained the clear outperformer at a sector level, with a total return of 4.3% over the quarter, led by strong returns in the South East and rental growth of 1.0%. Office and retail total returns over the quarter were more muted at 1.9% and 1.2% respectively, with a modest 0.4% growth in rents in the former but flat rents in the latter. In the office sector, central London underperformed the South East and the regions over the quarter with South East offices now also the top performing office segment over the last five years. Retail returns were weighed down by shopping centres, which returned just 0.4% over the quarter but retail warehouse performance was healthier at 1.5%.

Investment Outlook

We envisage positive but low total returns over the next five years, with the forecast annual total return being slightly below the market income return. Aside from industrial valuations catching up with extremely strong pricing and delivering appreciably stronger returns in the short term, we do not see yield shift contributing positively to capital growth over the forecast period. Relative differences in projected segment performance beyond that initial yield shift for industrials are expected to be reasonably small, with no clear outperforming segment beyond industrial in 2018. Whilst the downside risk is greater as prices remain high in a long-term context, we do not see a specific trigger for a correction. Fundamentals are positive in the industrial sector, although retail is more polarised. Most office markets are well-balanced with limited new supply, albeit we see more risk in London. Debt is accretive to income returns and lending remains selective and prudent, with total debt much lower than before the global financial crisis. There remains significant capital targeting the asset class, both from overseas and domestic investors’ allocations, with the comparatively high income yield one of the attractions. We would caution that property’s required risk premium has likely increased over time as leases have shortened and income has become riskier, while rental growth prospects have diminished. With income expected to be the main driver of returns over the forecast period, the degree of income risk – whether potential tenant default or the durability of income at lease events – will be key to asset performance. It remains our view that lower risk, higher quality assets are likely to perform best over the medium term.

Dividends

The Company paid total dividends in respect of the quarter ended 31 December 2017 of 1.19p per Ordinary Share, with a payment date of 29 March 2018.

Net Asset analysis as at 31 Mar 2018 (unaudited)

	£m	% of net assets
Office	133.5	37.1
Retail	64.9	18.0
Industrial	235.9	65.5
Other	6.2	1.7
Total Property Portfolio	440.5	122.3
Adjustment for lease incentives	-3.4	-0.9
Fair value of Property Portfolio	437.1	121.4
Interest rate swap	0.1	0.0
Cash	36.0	10.0
Other Assets	6.9	1.9
Total Assets	480.1	133.3
Current liabilities	-10.1	-2.8
Non-current liabilities (bank loans & swap)	-109.8	-30.5
Total Net Assets	360.2	100.0

Breakdown in valuation movements over the period 1 Jan 2018 to 31 Mar 2018

	Portfolio Value as at 31 Mar 2018 (£m)	Exposure as at 31 Mar 2018 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX) (%)	Capital Value Shift (incl transactions (£m)
External valuation at 31 Dec 17				433.2
Retail	64.9	14.7	0.8	-4.7
South East Retail		5.7	2.8	0.7
Rest of UK Retail		0.0	0.0	0.0
Retail Warehouses		9.0	-0.4	-5.4
Offices	133.5	30.3	2.3	-17.0
London West End Offices		3.1	0.0	0.0
South East Offices		22.7	2.7	-17.4
Rest of UK Offices		4.5	2.1	0.4
Industrial	235.9	53.6	1.9	22.8
South East Industrial		16.2	3.2	14.3
Rest of UK Industrial		37.4	1.4	8.5
Other Commercial	6.2	1.4	0.0	6.2
External valuation at 31 Mar 2018	440.5	100.0	1.9	440.5

Top 10 Properties

	31 Mar 18 (£m)
Denby 242, Denby	15-20
Symphony, Rotherham	15-20
Chester House, Farnborough	15-20
The Pinnacle, Reading	10-15
New Palace Place, London	10-15
Hollywood Green, London	10-15
Charter Court, Slough	10-15
Howard Town Retail Park, High Peak	10-15
Timbmet, Shellingford	10-15
March Way, Rainham	10-15

Top 10 tenants

Name	Passing Rent	% of passing rent
BAE Systems plc	1,257,640	4.8%
Technocargo Logistics Limited	1,242,250	4.8%
The Symphony Group PLC	1,080,000	4.1%
Hadleigh PVT Limited	799,683	3.1%
Bong UK Limited	756,620	2.9%
Euro Car Parts Limited	736,355	2.8%
Ricoh UK Limited	696,995	2.7%
CEVA Logistics Limited	633,385	2.4%
Thyssenkrupp Materials (UK)Ltd	590,000	2.3%
Public Sector	559,148	2.1%
Total	8,352,076	32.0%
Total Passing Rent	26,024,462

Regional Split

South East	44.7%
East Midlands	16.4%
North West	12.5%
North East	8.2%
West Midlands	7.5%
Scotland	3.8%
South West	3.8%
London West End	3.1%

The Board is not aware of any other significant events or transactions which have occurred between 31 Mar 2018 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 which can be found at: www.slipit.co.uk

For further information:-

Jason Baggaley – Real Estate Fund Manager,  Standard Life Investments

Tel [phone] or [e-mail]

Graeme McDonald  - Real Estate Finance Manager, Standard Life 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]