TIDMSLI
3 August 2020
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 June 2020
Net Asset Value and Valuations
* Net asset value ("NAV") per ordinary share was 79.6p (Mar 2020 - 83.2p), a
decline of 4.3%, resulting in a NAV total return, including dividends, of
-3.0% for Q2 2020;
* The portfolio valuation (before CAPEX) reduced by 2.5% on a like for like
basis, whilst the IPD/MSCI Monthly Index dropped by 3.6% over the same
period.
Investment and letting activity
* One letting was completed in Q2 securing GBP110,000 per annum in rent to an
existing tenant expanding their business, who also extended their original
lease.
* The Company completed a lease renewal and a lease restructure securing GBP
491,788 per annum, a 19.5% increase on the previous rents.
Financial Position and Gearing
* Strong balance sheet with significant financial resources available of GBP41
million (GBP14 million currently drawn from its GBP55 million low cost,
revolving credit facility.
* As at 30 June 2020, the Company had a Loan to Value ("LTV") of 26.2%* which
remains at the lower end of the Company's peer group and the wider REIT
sector. The debt currently has an overall blended interest rate of 2.59%
per annum. Loan covenants for the quarter ended 30 June 2020, as reported
to the Royal Bank of Scotland ("RBS"), have been comfortably met as set out
below.
*LTV calculated as debt less cash and cash held by managing agents divided by
portfolio value
Actual Interest Cover 437% (Limit 175%)
Requirement
LTV 27.3%** (Limit 55%)
**Loan value less cash held in RBS accounts only divided by pledged portfolio
Rent collection
As at close of business on 22 July 2020, the Company had received payments
reflecting 60% of rents due for what can collectively be termed advance billing
for the third quarter of the year; this comprises both old and new English
quarter days (24th June and 1st July) and the Scottish quarter day (28th May).
The figures below include those tenants with whom it has been agreed, and have
paid, on a monthly in advance basis. Assuming those tenants continue to pay
rent monthly the collection figure should increase to 69%. The statistics,
split between sectors, are shown below.
Q3 % of rent demanded % collected
at 22 July
2020
Industrial 50 68
Office 35 59
Retail 7 40
Leisure 5 20
Other (Data 3 0
Centre)
At the same date (22nd July), rent due for the second quarter (Scottish quarter
day February, 25th March, 1st April, 1st May, 1st June) collection levels stand
at a combined 83%.
It is expected both the Q2 and Q3 figures will continue to improve as we
continue to engage with our tenants; something we have always done, but now
being more important than ever. The aim is to work with our tenants to find
mutually suitable solutions to the challenges of COVID-19 on our respective
businesses. Depending on the situation, the Company is agreeing to rental
deferments with some tenants with repayment periods to suit the businesses,
rent free periods in exchange for amended lease terms (generally an extension
of leases) and, in extremis, rental write offs (generally with the smallest
tenants who have no means of paying). Several tenants have chosen not to pay
and not to engage and they are generally tenants that can afford to pay but are
using the current Government protection designed for tenants that cannot pay to
delay making any payment. We will continue to chase these companies with
vigour.
Dividends
The Board recognises the importance of dividends to its shareholders especially
when the COVID-19 crisis has forced many companies, across multiple sectors of
the economy, to cancel or suspend their dividends. The Board has taken the
decision to maintain a quarterly dividend but at the reduced rate of 60% of
last year's level for this quarter equating to a dividend of 0.714p per share.
The Board is of the opinion that this rate balances the need for shareholders
to continue receiving income during this difficult period while maintaining a
prudent approach given the rent collection rates presently being experienced
for both Quarter 2 and Quarter 3.
The Board will continue to monitor closely the evolution of COVID-19, together
with its impact on rent receipts and recurring earnings. The Board will keep
the Company's future dividend policy under review, aiming to strike a balance
between rental income and shareholders' dividend requirements, noting that rent
collections are forecast to improve on the assumption that more of the economy
begins to open up as lockdown eases.
Net Asset Value ("NAV")
The unaudited net asset value per ordinary share of Standard Life Investments
Property Income Trust Limited ("SLIPIT") at 30 June 2020 was 79.6p. 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 30 June 2020 of GBP447.3 million and contained a material
uncertainty clause as a result of the COVID-19 pandemic over 47.3% of the
portfolio, set out below.
There has been huge disruption and exceptional circumstances in global markets,
including the UK commercial property market as a result of COVID-19. As a
result of this disruption and exceptional circumstances, a significant number
of the valuations provided by Knight Frank, and on which the NAV detailed in
this statement is based, are subject to a 'material valuation uncertainty'
qualification as follows:
"The outbreak of the COVID-19, declared by the World Health Organisation as a
"Global Pandemic" on the 11th March 2020, has impacted global financial
markets. Travel restrictions have been implemented by many countries.
Observable market activity - that provides the empirical data for us to have an
adequate level of certainty in the valuation - is being impacted in the case of
some properties but excludes Industrials and food stores which equates to 52.7%
of the portfolio. In the case of the properties not excluded, as at the
valuation date, we consider that we can attach less weight to previous market
evidence for comparison purposes, to inform opinions of value. Indeed, the
current response to COVID-19 means that we are faced with an unprecedented set
of circumstances on which to base a judgement. Our valuations of these
properties are therefore reported as being subject to 'material valuation
uncertainty' as set out in VPS 3 and VPGA 10 of the RICS Valuation - Global
Standards. Consequently, less certainty - and a higher degree of caution -
should be attached to our valuation than would normally be the case. Given the
unknown future impact that COVID-19 might have on the real estate market, we
recommend that you keep the valuation of the whole portfolio under frequent
review. For the avoidance of doubt, the inclusion of the 'material valuation
uncertainty' declaration above does not mean that the valuation cannot be
relied upon. Rather, the declaration has been included to ensure transparency
of the fact that - in the current extraordinary circumstances - less certainty
can be attached to the valuation than would otherwise be the case. The material
uncertainty clause is to serve as a precaution and does not invalidate the
valuation".
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV calculated
under IFRS over the period 1 April 2020 to 30 June 2020.
Per Share (p) Attributable Comment
Assets (GBPm)
Net assets as at 31 March 2020 83.2 338.6
Unrealised decrease in valuation -2.8 -11.3 Like for like reduction
of property portfolio of 2.5% in property
valuations.
CAPEX in the quarter -0.4 -1.6 Predominantly CAPEX at
Sandy installing
Photovoltaic cells on
the roof and also
Hagley Road,
Birmingham.
Net income in the quarter after -0.3 -1.0 Rolling 12 month
dividend (full dividend paid in dividend cover of 90%
May 2020)
Interest rate swaps mark to -0.1 -0.7 Increase in swap
market revaluation liabilities in the
quarter as interest
rates fell due to
COVID-19
Other movements in reserves 0.0 -0.2 Movement in lease
incentives in the
quarter
Net assets as at 30 June 2020 79.6 323.8
European Public Real 30 Jun 31 Mar
Estate
Association ("EPRA")* 2020 2020
EPRA Net Asset Value GBP327.9m GBP342.0m
EPRA Net Asset Value per 80.6p 84.1p
share
The Net Asset Value per share is calculated using 406,865,419 shares of 1p each
being the number in issue on 30 June 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 Portfolio Activity & Review
The second quarter of 2020, running from end March to end June, was totally
dominated by COVID-19. Everyone involved in the running of the Company was
working from home, and for much of the time the country was in lockdown. These
conditions make communication and process even more important, and the Manager
and Board have remained focused on the delivery of the Company's objectives.
The Investment Manager has concentrated on tenant engagement and rent
collection. Although only one letting and two lease renewals / regears were
completed during the course of the quarter many conversations occurred, not
only with existing tenants, but also with new prospective tenants on a number
of our vacant properties. SLIPIT takes pride in being actively managed, and
several purchases and sales are being considered as we continue with the aim of
meeting the Company's objectives.
We also continue to invest in our assets to provide energy efficient solutions
and there has been significant progress in this area. At the end of the quarter
we completed the installation of a major Photo Voltaic (PV) scheme on one of
our assets. It is the largest undertaken by Aberdeen Standard Investments in
the UK, and the power will be sold to the tenant. The scheme is expected to
produce, and therefore save, the equivalent of 229 tonnes of operational CO2 in
the first year of operation, and the power output is the equivalent of the
yearly electricity usage of 230 homes. The Company will receive a yield of
circa 7% from the investment.
The Social aspect of ESG is harder to define and measure in real estate.
Normally we focus on creating a place people want to be, with community spirit
through events, stalls, and food banks etc. in buildings, as well as providing
excellent changing facilities and amenity space. As most of our tenants have
not been in occupation the current "S" focus is on supporting the tenants who
most need our help. Although we have very little exposure to independent
retailers, we do have some, and where they have not been able to trade we have
wanted to support them - they have enough stress at the current time without
having to worry about rent. Unfortunately, we have also found some tenants
abusing the Government restrictions on Landlords being able to enforce lease
covenants. We have found a number of organisations that could pay but choose
not to, or are restructuring in such a manner that the landlord takes the brunt
of the pain, rather than equity and debt holders. Needless to say, we will
chase those tenants with vigour as and when Government restrictions allow.
There has been a lot of commentary about the future of the office, and whether
working from home will have a similar impact on the sector as internet shopping
had for retail. We certainly expect continued change, but do not foresee the
demise of the office - it remains an important environment for people to
socialize, learn, share, and develop. We are going to see more people work in
an agile way, not spending 5 days a week in the office, or 5 days a week
working from home. An early trend we have seen is increased demand for fully
fitted suites, and during lockdown we completed the lease on one, and agreed
terms on another - we had already rolled out fitted suites across our estate,
and believe our policy of investing in buildings that create an environment
where people want to work remains relevant.
The LTV of 26.2% provides plenty of headroom against banking covenants (values
can fall by 50% and rent by 60% before the covenants are under pressure based
on 30 June covenants). Over the quarter, the Company had an increase in the
level of liability of its interest rate swap from GBP3.38 million to GBP4.05
million. This negative impact on the NAV will unwind to GBP0 on maturity in 2023.
Investment Manager market review and outlook
* The last quarter has seen an unprecedented contraction in economic
activity, with Q2 2020 the worst quarter for the UK economy on record.
* As we move into summer and lockdown restrictions are gradually relaxed,
there is a degree of cautious optimism emerging. Non-essential retailers
have reported strong trade since reopening in mid-June. However,
restructuring activity in retail, through the use of company voluntary
arrangements and pre-pack administrations continues largely unabated. With
the government extending the moratorium on forfeiture and other measures
against tenants not paying rent, income from retail assets remains at an
unprecedentedly low ebb.
* The future of offices is a hot topic and a wealth of survey evidence points
to a structural rise in remote working. Job losses are set to depress
demand and create 'grey' space for sub-letting to reduce costs in the short
term. In contrast, the logistics sector remains very strong, with record
take-up so far this year.
* Early indications of investment volumes in Q2 suggest a total of around GBP3
billion, which is on track to be the weakest quarter since Property Data's
records began in 2000. Activity has collapsed across the board, with
physical inspections impossible for much of the quarter and constraint on
international travel largely excluding overseas investors. The lack of
foreign capital was most keenly felt in the office sector, as well as
alternatives, with a notable absence of the large portfolio deals seen in
recent quarters.
* We expect capital values to fall by more than 14% this year, leading to a
total return for the sector of -9.5%. This would be the second weakest
nominal return in the 40-year history of MSCI data. We continue to expect
retail to drag the market down, with shopping centre returns forecast to be
-30.5% this year. With the segment recording a -9.1% return in the first
quarter and the occupier outlook deteriorating substantially since, there
may still be further downside risk.
* We continue to expect leisure and hotels to have a very difficult year,
despite the recent approval of Travelodge's company voluntary arrangement
at least warding off imminent failure. We also now expect a more negative
year for central London offices. The sector's outlook remains subject to
much debate but we expect a combination of cyclical rises in unemployment
and structural change to the use of offices to lead many occupiers to
fundamentally reappraise their space requirements. "Grey" space available
for sub-let is expected to weigh on rents.
* We continue to anticipate performance to diverge substantially across the
risk spectrum in most segments. Challenges around rent collection will put
even greater emphasis on the stability and durability of income.
* The universe of assets where investors can have confidence in the
robustness of the income and the stability of rental values and yields has
narrowed considerably and price transparency remains low.
Investment outlook
* The structural shift to online shopping remains supportive of logistics,
particularly in urban areas, but the supply-chain disruption experienced
through this crisis and the long-term potential for 'de-globalisation'
flagged by ASI's Research Institute could imply a further driver of demand.
Larger inventories to create a greater buffer within existing supply chains
are the simplest near-term solution - and will require more warehousing for
storage.
* The office sector will be under intense scrutiny. In the short term the
performance drivers are going to be economic (reduced demand due to lower
job creation / higher job loss), however over the medium to long term the
influence of changes to working practices will have a greater impact. There
will be a greater emphasis on asset selection to achieve performance in the
future from the office sector.
* The continued low interest rate environment globally means there is still
significant amounts of global capital looking to invest in Real Estate, and
the UK provides higher yields than many other European and global
locations, however Brexit remains a UK specific risk.
* Although the initial bounce back from the lows of COVID-19 is encouraging,
it is clear that the road to full recovery will be long and bumpy. The risk
of second and third waves remains ever present, and this will impact on the
speed and depth of recovery and a return to what we might consider normal.
* With all of the uncertainty currently prevailing, we remain firmly in a
risk off environment in real estate.
Net Asset analysis as at 30 June 2020 (unaudited)
GBPm % of net
assets
Industrial 235.5 72.7
Office 142.9 44.1
Retail 36.9 11.4
Other Commercial 32.0 9.9
Total Property Portfolio 447.3 138.1
Adjustment for lease incentives -5.2 -1.6
Fair value of Property Portfolio 442.1 136.5
Cash 5.0 1.5
Other Assets 17.4 5.4
Total Assets 464.5 143.4
Current liabilities -13.2 -4.1
Non-current liabilities (bank loans & swap) -127.5 -39.3
Total Net Assets 323.8 100.0
Breakdown in valuation movements over the period 1 April 2020 to 30 June 2020
Portfolio Exposure as Like for Like Capital Value
Value as at at 30 Jun Capital Value Shift (incl
30 Jun 2020 2020 (%) Shift (excl transactions
(GBPm) transactions & (GBPm)
CAPEX)
(%)
External valuation at 458.6
31 Mar 19
Retail 36.9 8.2 -5.5 -2.1
South East Retail 1.9 -7.1 -0.6
Retail Warehouses 6.3 -5.0 -1.5
Offices 142.9 31.9 -2.3 -3.5
London City Offices 3.0 -1.1 -0.2
London West End Offices 3.0 -2.2 -0.3
South East Offices 15.0 -3.1 -2.2
Rest of UK Offices 10.9 -1.7 -0.8
Industrial 235.5 52.7 -1.9 -4.5
South East Industrial 13.7 -1.6 -1.0
Rest of UK Industrial 39.0 -2.0 -3.5
Other Commercial 32.0 7.2 -3.6 -1.2
External valuation at 447.3 100.0 -2.5 447.3
30 Jun 20
Top 10 Properties
30 Jun 20 (GBPm)
Hagley Road, Birmingham 20-25
Symphony, Rotherham 15-20
The Pinnacle, Reading 15-20
Marsh Way, Rainham 10-15
Hollywood Green, London 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 % of passing
Rent GBP rent
BAE Systems plc 1,257,640 4.6%
The Symphony Group Plc 1,225,000 4.5%
Schlumberger Oilfield UK plc 1,138,402 4.1%
Public Sector 1,158,858 4.2%
Timbmet Group Limited 799,683 2.9%
Atos IT Services UK Ltd 783,360 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 2.3%
Multipacking Solutions UK Ltd 431,765 1.6%
Total 8,727,220 31.7%
Regional Split
South East 33.8%
West Midlands 14.9%
East Midlands 12.7%
North West 11.5%
Scotland 9.6%
North East 7.4%
South West 4.1%
London West End 3.0%
City of London 3.0%
The Board is not aware of any other significant events or transactions which
have occurred between 30 June 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: 07801039463 or jason.baggaley@aberdeenstandard.com
Oli Lord - Real Estate Deputy Fund Manager, Aberdeen Standard Investments
Tel: 07557938803 or oli.lord@aberdeenstandard.com
Graeme McDonald - Senior Fund Control Manager, Aberdeen Standard Investments
Tel: 07717543309 or graeme.mcdonald@aberdeenstandard.com
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001
END
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