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1 Jul 2009 09:34
RNS ANNOUNCEMENT
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED
1 July 2009
Revised banking arrangements
The Board is pleased to announce that it is entering into revised banking arrangements with its lender, RBS, that will provide the Company with greater flexibility to invest its existing cash resources. This will allow the Company to take advantage of opportunities to purchase attractively priced commercial properties over the coming months. Once the cash has been invested the Company's dividend cover should be enhanced further from its current strong level. The new arrangements have been agreed in principle and are currently being documented.
The Company has held high levels of cash following the sale of a portfolio in July 2007, and its largest asset in December 2007. For most of 2008 holding the cash was beneficial to returns, however in the current low interest rate environment and the lack of flexibility to invest the cash under the previous banking arrangements the new arrangement will allow returns to be maximised. The Company has current cash holdings of £31m following the recent purchase and lease regears of Capital Court Uxbridge.
RBS has agreed that the loan to value ratio can be increased to 65% from its current maximum level of 55% and that the covenant calculation will be amended to provide for a full cash offset against borrowings. The LTV covenant will be a maximum of 65% calculated as borrowings less cash divided by the value of properties. Property values could fall by 34% from end March 2009 levels before an LTV breach will occur.
The Company has agreed to increase the margin on the debt from 60bps to 150bps, along with a 50bps arrangement fee. As a result of these changes the Company's all in cost of debt will be approximately 6%. The new margin of 150 bps compares very favorably with margins being agreed on other new or rollover facilities which are currently in the range of 250 bps to 300 bps for commercial property loans. All other terms of the facility remain unchanged.
In April 2009 the Company completed on the purchase of Capital Court Uxbridge for £10.98m. The property had a yield on purchase of 9.8%. Since purchase a number of leases have been regeared so that the average lease length has increased to 12.7 years from just under 8 years, the vacant space has been let, and the outstanding rent reviews agreed at £23.75psf. The upward / downward rent review provisions in some of the leases have also been removed, so the building is fully let on normal institutional upward only rent review leases. As a result of these initiatives the value has increased by a net £620,000 (5.6%) from the purchase price, and the future income stream has been further improved.
Jason Baggaley, fund manager of SLIPIT commented "The new arrangement allows us to maximize returns by utilizing some of the cash currently deposited with RBS. The purchase made in April demonstrates the type of opportunity available and we would like to make similar purchases, as that property has appreciated in value since purchase following asset management initiatives and has strengthened the revenue account. We sold property and repaid some debt at the beginning of the cycle, and held high levels of cash since mid 2007 waiting for the recovery. I now look forward to re-investing this money back into the property market at a time where we see some very attractive opportunities".
Enquiries
Gordon Humphries, Standard Life Investments Tel. 0131 245 2735
Nigel Russell, Graeme Caton, Graham Reaves, G&N Collective Funds Services Tel. 0131 226 4411
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