SLI.L Regulatory News (SLI)

Standard Life Investments Property Income Trust - Unaudited Net Asset Value as at 30 June 2021

PR Newswire

London, August 3

4 August 2021

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 30 June 2021

Net Asset Value and Valuations

· Net asset value (“NAV”) per ordinary share was 88.3p (Dec 2020 – 85.3p), an increase of 3.5% for Q2 2021, resulting in a NAV total return, including dividends, of 5.1% for the quarter;

· The portfolio valuation (before CAPEX) increased by 3.3% on a like for like basis, whilst the MSCI Monthly Index increased by 2.6% over the same period.

Investment and letting activity

· Further restructuring to ensure the portfolio is fit for purpose in a post COVID-19 world with the completion of two sales – an office in Farnborough for £9.5m and an industrial unit in Kettering for £9.25m

· Two lettings and a lease renewal completed securing £184,575 per annum in rent.

· A rent review completed on the Company’s data centre asset, resulting in a 10.3% increase in rent.

Financial Position and Gearing

· Strong balance sheet with significant financial resources available for investment of £80 million in the form of the Company’s low cost, revolving credit facility of £55 million plus uncommitted cash after dividend and other financial commitments of £25 million.

· As at 30 June 2021, the Company had a Loan to Value (“LTV”) of 17.6%*. The debt currently has an overall blended interest rate of 2.725% per annum. 

*LTV calculated as debt less cash divided by portfolio value

Dividend

· Dividend for Q2, 2021 maintained at 0.8925p, matching the level of the dividend for Q1, 2021 which was increased by 25%.

Rent collection

It appears that Q1 2021 was the low point for rent collection, with an increase through Q2 and into Q3. The Company has served a court notice on the tenant with the greatest level of arrears as it declined offers for a rent free and regear of the lease but the manager believes it is quite capable of paying the rent. Several of the other tenants with arrears have agreed payment plans, and we expect continued progress with collecting arrears given that nearly all tenants can now trade again. The Company continues to make prudent provisions for bad debts (£3,861,898 as at 30 June v £3,268,084 as at 31 March).

The amount of rent collected in respect of 2020 continues to edge up, now standing at 95.2% of rent due. The table below shows how that was spread out over the course of 2020, and into 2021.

The collection rate for Q2 2021 across sectors is shown below:

Dividends

The Board recognises the importance of dividends to the Company’s shareholders especially when the COVID-19 crisis has forced many companies, across multiple sectors of the economy, to cancel or suspend their dividends.

Following the 25% increase to the Q1 2021 dividend, the Board continues to consider this rate to be sustainable given current rent collection rates even though recent asset sales will reduce rental income until reinvestment occurs. The Board will keep the quarterly dividend under review as lockdown measures are eased and rental collection levels improve further and the reinvestment of the asset sales proceeds takes place. 

Share BuybacksThe Company bought back a further £1m shares in the quarter resulting in total buybacks since November 2020 of £6m. These buybacks have been at significant discounts to NAV which has enhanced both NAV and earnings per share. 

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 June 2021 was 88.3p. 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 2021 of £433.8 million. 

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 31 March 2021 to 30 June 2021.

The Net Asset Value per share is calculated using 396,922,386 shares of 1p each being the number in issue on 30 June 2021.

Investment Manager Review and Portfolio Activity

One year ago I hoped not to be writing about the impact of Covid-19 restrictions for Q2 2021, but had no idea what the route to normality would look like. As I write this, restrictions have been eased and the third wave appears to be in decline – suggesting that the vaccine has largely done its job. The delays in getting to this position have had an impact over the quarter, especially in the office market. Although we completed two office lettings, and have another five with terms agreed, we noticed a stalling in inspections over the second part of the quarter as the return to office was delayed yet again.

We continued the portfolio repositioning over the quarter with two sales – an out of town office in Farnborough let to BAE that was over rented with a short lease and an industrial unit in Kettering that did not meet our ESG requirements and where we believed future value would be impacted as a result. As a result of sales undertaken to reposition the portfolio for a post-Covid world, cash is at a higher level than normal. We are looking to invest back into the market, and have three transactions under offer about which we hope to be able to provide more information shortly.

ESG factors are integral to the Company’s decision making and strategy. We are engaging with tenants on installing more PV units on roofs, installing EV charge points, and upgrading units where required to support strong ESG credentials. We recently contacted every tenant to understand their energy consumption, waste policies, etc. It is still disappointing how many refuse to share such data but more have than in previous years and that is helping us build a more accurate understanding of the carbon footprint of the Company, so that we can move to a net zero route path. As part of that, the Company is exploring ways to offset residual carbon from operating its portfolio in such a way that guarantees not only a gold standard of offset, but also gives a fixed price solution. This will mainly comprise reforestation and peatland restoration, and the Company looks forward to sharing more details as soon as it can. It is very clear to us that ESG will be a major driver of performance in the future.

One of the impacts of selling let assets is that the reported void percentage increases, from 10.8% to 12.2%, without any change to the absolute level as no new significant vacancies occurred in the quarter. Reinvesting into let assets will help to address this and we also are encouraged by the level of letting activity underway, across retail, office and industrial assets, but a function of current uncertainty is that lettings seem to take longer to complete. Perhaps a reflection of the re-opening of the economy, we have had two tenants engage in the last month on a lease renewal who had previously not been prepared to discuss it and one where a key driver to agree an early lease extension was to enable investment into the unit to improve its ESG credentials.

Graeme McDonald, who has been the fund controller for SLIPIT for several years is leaving Aberdeen Standard Investments at the end of July, and will be replaced by Gregg Carswell, a very experienced accountant who has worked alongside Graeme for three months to ensure an efficient handover.

The Company’s LTV of 17.5% is below the sector average, and will increase as cash is deployed and debt drawn down. The target level is 20 – 30% by year end. The Company’s interest rate swap liability fell in the quarter to £2.4 million (March 21: £2.9 million). This liability will unwind to £nil on maturity in April 2023.

Investment Manager Market review

Economic Outlook

· The UK economy has bounced back strongly during Q2 and is set to achieve growth of around 7% in 2021 as a whole. However, after a fall of nearly 10% in 2020, the level of economic activity is expected to remain below pre-Covid levels until at least next year. Given the implied output gap, unemployment is expected to rise towards 6% when the furlough scheme ends in September, despite labour shortages in some specific sectors of the economy.

· The recovery has seen inflation start to increase; the pandemic severely affected the supply side, which is being rebuilt alongside surging demand. But base effects are the principal drivers of UK inflation and the ASI Research Institute (ASIRI) believes the surge will prove transitory. Importantly, the Bank of England is expected to ‘look through’ higher short-term inflation in setting interest rates.

· While it has largely been overshadowed by Covid, Brexit continues to cause friction and uncertainty. The EU granting financial services equivalence looks increasingly unlikely and the bitter dispute over the Northern Ireland Protocol has no obvious solution, increasing the risk that tit-for-tat retaliatory measures across the whole spectrum of UK-EU trade will weigh on the UK economy.

Occupier Trends

· The tapering of business rates relief will put further pressure on those sectors that continue to be impacted by Covid restrictions (hotels, leisure, and travel in particular) later in the year, although vulnerable occupiers will benefit from the government’s controversial decision to extend the moratorium on tenant evictions until March 2022. The re-basing of retail and leisure rents is ongoing but the process has much further to run in fashion-oriented shopping locations.

· The removal of the guidance to work from home where possible should spur greater re-occupation of offices into Q3. But remote and hybrid working policies will outlive the pandemic and most occupiers are acting cautiously and in consultation with their workforces in respect of future requirements. Availability rates have risen in all major office markets but most steeply in London with smaller, more secondary buildings hardest hit. Vacancy may be plateauing but at a high level that is consistent with falling rents, especially in secondary stock that is out of favour with tenants.

· Take-up in the industrial sector shows little sign of slowing, driven as by ongoing structural changes to the distribution of goods. The larger logistics size brackets have been especially active. There is, however, a sense that affordability is increasingly an issue for smaller and lower margin businesses.

Investment Trends

· Travel restrictions continue to hamper liquidity to some degree, however, with a particular impact on the office sector. In terms of deal numbers, Q2 saw the second-lowest number of office deals in a quarter since the global financial crisis. The “beds, meds and sheds” sectors are likely to continue to drive investment volumes as we move into Q3.

· One of our core themes at present is the favourable risk-adjusted returns from assets offering long, secure income streams with indexation. Longer income assets are currently outperforming shorter income assets by a very wide margin in absolute terms and ongoing strong demand for those cash flows is expected to drive continued outperformance this year.

· More defensively, the expected divergence in fortunes across the office sector necessitates a forensic examination of office portfolios. Offices that are not flexible, don’t offer the amenity and connectivity tenants demand, aren’t technologically-enabled and fall down on sustainability measures face a hugely challenging future that is not, in our view, reflected in current values.

Investment outlook

· While the economy is now in recovery mode as Covid-related restrictions are relaxed, for much of the UK real estate market it is structural trends that are set to drive performance over the medium term. With the fundamentals supportive of further rental growth, investment demand for industrials is set to push yields lower in the second half of the year; industrials are forecast to remain the best-performing sector over the next three years.

· Meanwhile, office fundamentals point to falling rental values and rising income risk. With little adjustment to values thus far, we are forecasting weak returns for the sector over the course of the next three years. Importantly, though, the market is likely to be bifurcated, with the best quality space favoured by tenants and more resilient for investors and secondary space increasingly distressed.

· Bifurcation is also expected in the retail sector, with retail warehouse values now rising rapidly for modern parks, let off affordable rents, anchored by grocery, discount variety and DIY occupiers. Fashion-oriented parks are more vulnerable, in line with the challenges faced by high streets and shopping centres, where we anticipate a further year of negative total returns.

· Assets offering long, secure income streams with indexation are expected to deliver favourable risk-adjusted returns. Longer income assets are currently outperforming shorter income assets by a very wide margin in absolute terms and ongoing strong demand for those cash flows is expected to drive continued outperformance this year.

Net Asset analysis as at 30 June 2021 (unaudited)

Breakdown in valuation movements over the period 1 April 2021 to 30 June 2021

Top 10 Properties

Top 10 tenants

Regional Split

The Board is not aware of any other significant events or transactions which have occurred between 30 June 2021 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 InvestmentsTel: 07801039463 or jason.baggaley@aberdeenstandard.com

Mark Blyth – Real Estate Deputy Fund Manager, Aberdeen Standard InvestmentsTel: 07703695490 or mark.blyth@aberdeenstandard.com

Gregg Carswell - Senior Fund Control Manager, Aberdeen Standard InvestmentsTel: 07800898212 or gregg.carswell@aberdeenstandard.com

The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LtdTrafalgar CourtLes BanquesSt Peter PortGY1 3QLTel: 01481 745001