2 August
2016
STANDARD LIFE INVESTMENTS PROPERTY
INCOME TRUST LIMITED (LSE: SLI)
Unaudited Net Asset Value as at
30 June 2016
Key Highlights
- Net asset value per ordinary share was 81.8p ( March 2016 - 82.3p), a fall of 0.6%, resulting in
a NAV total return, including dividends, of +0.8% for Q2;
- The portfolio valuation increased by 0.9% on a like for like
basis which compares favourably to the quarterly capital return on
the monthly IPD Monthly Index of -0.1%
- This valuation increase, however, was more than offset by
adverse movements in the valuation of the Company’s swap as a
result of movements in interest rates following the EU referendum
result;
- Sale of four assets in the period from 1 April up to date of
this announcement for a combined £15.4million which was 4% above
most recent valuations;
- Proceeds from the sales were used to reduce the revolving
credit facility (“RCF”) resulting in a LTV at the date of this
announcement of 28.4%;
- Successful asset management initiatives up to the date of this
announcement included:
- Three rent reviews completed securing £698,000 per annum of
income which is above ERV;
- Two new lettings completed generating £79,000 of income;
- Six lease regears/renewals resulting in £667,000 of income
being secured;
- Low void rate of 3.8% as at 30 June
2016;
- Dividend yield of 6.1% based on a quarterly dividend of 1.19p
and a share price of 78.5p (29 July
2016), comparing favourably to the yield on the FTSE
All-Share REIT Index (3.5%) and the FTSE All Share Index (3.5%) as
at the same date.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard
Life Investments Property Income Trust Limited (“SLIPIT”) at
30 June 2016 was 81.8p. 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 June 2016. Both
valuers have included the following caveat when issuing its
valuations for the quarter ended 30 June 2016.
“Following the Referendum held on 23 June
2016 concerning the UK’s membership of the EU, a decision
was taken to exit. We are now in a period of uncertainty in
relation to many factors that impact the property investment and
letting markets. Since the Referendum date it has not been possible
to gauge the effect of this decision by reference to transactions
in the market place. The probability of our opinion of value
exactly coinciding with the price achieved, were there to be a
sale, has reduced. We would, therefore, recommend that the
valuation is kept under regular review and that specific market
advice is obtained should you wish to effect a disposal.”
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 April 2016 to 30 June
2016.
|
Per Share (p) |
Attributable Assets (£m) |
Comment |
Net assets as at 31
March 2016 |
82.3 |
313.3 |
|
Unrealised increase in
valuation of property portfolio |
1.0 |
3.9 |
Like for like increase
of 0.9% in property portfolio |
Net income in the
quarter after dividend |
0.1 |
0.2 |
Continued strong
income generation with dividend remaining fully covered. |
Interest rate swaps
mark to market revaluation |
-1.4 |
-5.2 |
Increase in swap
liabilities as a result of a decrease in the expectation for
future interest rates following the EU referendum result |
Other movement in
reserves |
-0.2 |
-0.6 |
Movement in lease
incentives and capital expenditure in the quarter |
Net assets as at 30
June 2016 |
81.8 |
311.6 |
|
European Public Real Estate Association (“EPRA”)* |
30 Jun 2016 |
31 Mar 2016 |
EPRA Net Asset Value |
£317.0m |
£316.3m |
EPRA Net Asset Value per share |
83.3p |
83.1p |
|
|
|
|
|
|
The Net Asset Value per share is calculated using 380,690,419
shares of 1p each being the number in issue on 30 June 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
During Q2 the focus remained on improving resilience in the
portfolio as we saw the UK commercial real estate market
approaching the end of the capital growth cycle. As well as
securing a number of lease regears and renewals to give greater
certainty of income flow, we also sold three assets that we
believed would not perform in line with our expectations going
forward. Even given the decision to leave the EU, we believe the
Company is relatively well placed to continue to offer an
attractive level of income to investors.
During Q2 the Company put in place a new debt facility with The
Royal Bank of Scotland which
replaces the short term facility agreed as part of the Pearl
portfolio acquisition in December
2015. The new facility provides flexibility by having a term
loan for 7 years for £110m, and a RCF for £35m. During the quarter
the Company repaid £3.5m with a further £11.5m repaid in
July 2016 resulting in the drawn
amount on the RCF now being £20.0m. The new facility was
completed in April and the term loan was matched with an interest
rate swap entered into at the same time. The all in cost as at
30 June 2016 was 2.5% pa. However,
the movement in the interest rate curve following the vote to leave
the EU has led to a negative movement in the value of the interest
rate swap resulting in a swap liability of £5.5m as at 30 June 2016. The current LTV is 28.4%, compared
with the maximum LTV covenant in the debt facility of 60%.
Market Commentary
The implications of the Referendum have caused a complex
interaction between politics, economics and markets which makes the
situation very difficult to predict. Given the political
uncertainty and increased financial stress experienced so far, the
UK economy is expected to be affected negatively, although as
market volatility rises, safe haven assets will benefit. It would
seem that the negative sentiment and heightened uncertainty is
likely to impact adversely UK real estate capital values although
this is not reflected in the June valuations and has yet to
materialize significantly in the index level data. Unclear messages
are emerging in respect of post referendum transactions with a
mixture of deal withdrawals, price renegotiations but also
completions at previously agreed figures.
Against that background, UK listed real estate equities total
returns fell by nearly 7% over the period 31/03/16 to 30/06/16. This decline is in contrast
to the FTSE All Share and the FTSE 100 total returns where the
returns rose by 4.7% and 6.5% respectively as at the quarter end.
REIT pricing since the referendum has been volatile, with discounts
to NAV moving to over 25% for some of the majors, before recovering
to around 10% on average. SLIPIT has also suffered from share price
volatility but, more recently, the Company’s share price has
recovered to a 4 – 6% discount to NAV.
Investment Outlook
The slowdown in UK real estate that was materializing prior to
the referendum has been exacerbated by the vote outcome. The
heightened uncertainties following the result and the subsequent
retreat in business and consumer confidence are likely to impact
negatively on the outlook for the economy. This will have
detrimental consequences for UK real estate given the direct
linkage to economic activity. We therefore anticipate increased
downward pressure on UK commercial real estate capital values. The
magnitude of any declines will depend on the impact on the domestic
economy and the level of interest rates and yields from alternative
investment classes. In the short term, there is likely to be
pessimistic sentiment in the market place, which will further
affect capital values until there is clarity on the timing and
nature of the exit from the EU and real estate’s medium-term
prospects. The impact will vary on the different sectors and
geographies. From a sector perspective, we expect Central London offices to be the most
negatively impacted in the near term given the linkages to European
markets via cross border trading. We expect industrial and retail
assets to be comparatively resilient, although not immune, given
their higher yields. Long income assets should provide most
resilience in any downturn. Despite the negative 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 at below average levels in most markets
and development remains relatively constrained which all should
help stabilise the market further out. The current “lower for even
longer” interest rate environment coupled with an increasing
investor global search for yield and the retention of the UK’s safe
haven status should all ensure the asset class is better placed
longer term.
Cash position
As at 30 June 2016 the Company had
cash of £18.3million.
Dividends
The Company paid total dividends in respect of the quarter ended
31 March 2016 of 1.19p per Ordinary
Share, with a payment date of 31 May
2016.
Net Asset analysis as at 30 June 2016 (unaudited)
|
£m |
% of net
assets |
Office |
163.1 |
52.3 |
Retail |
101.5 |
32.6 |
Industrial |
185.5 |
59.5 |
Total Property Portfolio |
450.1 |
144.4 |
Adjustment for lease incentives |
(3.9) |
(1.3) |
Fair value of Property
Portfolio |
446.2 |
143.1 |
Cash |
18.3 |
5.9 |
Other Assets |
6.5 |
2.1 |
Total Assets |
471.0 |
151.1 |
Non-current liabilities (bank loans
& swap) |
(145.8) |
(46.8) |
Current liabilities |
(13.6) |
(4.3) |
Total Net Assets |
311.6 |
100.0 |
Breakdown in valuation movements over
the period 1 Apr 16 to 30 Jun 2016
|
Portfolio Value as at 30 Jun 2016 (£m) |
Exposure as at 30 Jun
2016 (%) |
Like
for Like Capital Value Shift |
Capital Value change (£m) |
(%) |
Valuation as of 31
Mar 2016 |
|
|
|
452.3 |
|
|
|
|
|
Retail |
101.5 |
22.6 |
0.6 |
0.7 |
South East Retail |
|
7.0 |
1.6 |
0.5 |
Rest of UK Retail |
|
1.1 |
0.0 |
0.0 |
Retail Warehouses |
|
14.5 |
0.3 |
0.2 |
|
|
|
|
|
Offices |
163.1 |
36.2 |
1.3 |
2.0 |
London City
Offices |
|
4.7 |
0.0 |
0.0 |
London West End
Offices |
|
2.5 |
3.2 |
0.4 |
South East
Offices |
|
23.6 |
0.0 |
0.0 |
Rest of UK
Offices |
|
5.4 |
7.3 |
1.6 |
|
|
|
|
|
Industrial |
185.5 |
41.2 |
0.7 |
1.2 |
South East
Industrial |
|
10.6 |
0.5 |
0.2 |
Rest of UK
Industrial |
|
30.6 |
0.7 |
1.0 |
|
|
|
|
|
Sale of Turin Court
and Witham |
|
|
|
-6.1 |
|
|
|
|
|
External valuation
at 30 Jun 2016 |
450.1 |
100.0 |
0.9 |
450.1 |
Top 10 Properties
|
30 Jun 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 |
Bourne House, Staines |
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 |
4.3 % |
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 |
3.7 % |
6 |
Bong UK |
727,240 |
2.5 % |
7 |
Royal Bank of Scotland
Plc |
700,000 |
2.4 % |
8 |
Ricoh UK Limited |
696,995 |
2.4 % |
9 |
Matalan |
696,778 |
2.4 % |
10 |
Grant Thornton |
680,371 |
2.3 % |
|
|
9,578,951 |
33.0 % |
|
Total Fund Passing
Rent |
29,025,646 |
|
Regional Split:
Region |
Region
Weighting |
South East |
41.0% |
Scotland |
4.9% |
South West |
6.1% |
North West |
11.6% |
London West End |
2.5% |
East Midlands |
14.9% |
London City |
4.7% |
North East |
8.5% |
West Midlands |
5.8% |
The Board is not aware of any other significant events or
transactions which have occurred between 30
June 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 +44 (0) 131 245 2833 or jason_baggaley@standardlife.com
Graeme McDonald - Real
Estate Finance Manager, Standard Life Investments
Tel +44 (0) 131 245 3151 or graeme_mcdonald@standardlife.com
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001