SLI.L Regulatory News (SLI)

Standard Life Investments Property Income Trust - Unaudited Net Asset Value as at 31 March 2021

PR Newswire

London, May 5

6 May 2021

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

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2021

Net Asset Value and Valuations

· Net asset value (“NAV”) per ordinary share was 85.3p (Dec 2020 – 82.0p), an increase of 4.0%, resulting in a NAV total return, including dividends, of 4.9% for Q1 2021;

· The portfolio valuation (before CAPEX) increased by 2.5% on a like for like basis, whilst the MSCI Monthly Index increased by 0.9% over the same period.

Investment and letting activity

· Further restructuring of the portfolio to have assets fit for purpose in a post COVID-19 world with the completion of three sales – two of them were offices (Derby: £4.65m and Dartford: £3.1m) and one a retail warehouse in Bradford for £2.65m.

· Lease renewal of entire office building in Kidlington, Oxford for 10 years securing rent of £429,000pa.

· Letting of whole office in Bishops Stortford on 10 year lease to previous sub tenant of part at £290,000pa.

Financial Position and Gearing

· Strong balance sheet with significant financial resources available for investment of £55 million in the form of the Company’s low cost, revolving credit facility plus uncommitted cash after dividend and other financial commitments of £9 million.

· As at 31 March 2021, the Company had a Loan to Value (“LTV”) of 21.3%*. The debt currently has an overall blended interest rate of 2.725% per annum. 

*LTV calculated as debt less cash divided by portfolio value

Increased Dividend

· Dividend announced in relation to Q1, 2021 of 0.8925p, an increase of 25% on previous quarterly dividend

Rent collection

It is perhaps not surprising that Q1 2021 has seen a lower level of rental collection than other quarters in the last 15 months. With lockdown starting before Christmas, and coming at the end of a very difficult year for many companies, it has been noticeably harder to collect rent from some tenants. Many tenants continue to engage, and we have agreed deferrals, lease extensions or write offs as appropriate: however it was disappointing that the Government extended the moratorium on enforcing lease arrangements and we still have some tenants that have chosen not to pay or engage in a lease restructure. The Company continues to make prudent assumptions when providing for bad debts in the accounts with a provision of £3.3m as at 31 March 2020 (versus £2.58m at 31st December 2020).

Over the course of 2020 a total of 94.1% of rent due was collected. The table below shows how that was spread out over the course of 2020, and into 2021.

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 Company has continued to pay out a dividend during the pandemic with dividends paid in 2020 equating to 80% of the 2019 level. In addition the Company recently announced a fifth interim dividend relating to 2020 to comply with the REIT rules. 

The 2020 dividend was covered 108% by income and, as the uncertainties caused by the pandemic gradually ease, the Board has now taken the decision to increase the quarterly dividend to 0.8925p. This is 25% higher than the quarterly dividends of 0.714p paid during the pandemic. Given current rent collection rates the Board believes this rate is sustainable even though the 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 as rental collection levels improve further and the reinvestment of the asset sales proceeds takes place. 

Share Buybacks 

In the quarter the Company bought back a further £4.5m shares resulting in total buybacks to date 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 31 March 2021 was 85.3p. 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 31 March 2021 of £438.6 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 December 2020 to 31 March 2021.

The Net Asset Value per share is calculated using 398,547,386 shares of 1p each being the number in issue on 31 March 2021.

Investment Manager Review and Portfolio Activity

Q1 2021 was dominated by another severe lockdown in the UK, with many companies unable to trade, individuals required to work from home where possible, and ability to travel outside a small local area restricted. Such conditions proved difficult for real estate: however we were able to continue with the restructuring of the portfolio with the completion of three sales – two of them offices (Derby: £4.65m and Dartford: £3.1m) and a retail warehouse in Bradford for £2.65m. The sales reflect our view that these assets were not best placed to meet changing work, social and shopping patterns in a post COVID-19 world. 

We were delighted to renew an office lease on a whole building on the outskirts of Oxford for ten years (tenant break in year 5) in return for a capital contribution towards works of improvement the tenant was undertaking to the building. The new rent was slightly above the previous rent. We also completed a new ten year lease to an existing sub tenant on an office in Bishop’s Stortford having taken an early surrender from the head tenant who had not been in occupation. The two lettings demonstrate that well located offices that meet tenants’ needs remain in demand. During the quarter we also completed the lease renewal of a retail unit in London (at previous passing rent) and a ten year lease extension on an industrial asset in Birmingham.

Since quarter end the initial easing of restrictions has seen an immediate pick up in enquiries on vacant accommodation, with encouraging inspection levels. We have a number of lease regear negotiations underway, and are hopeful that the improvement in sentiment will help with conversion rates.

Oli Lord, the Deputy Fund Manager on SLIPIT for the last three years, has been promoted into a new role in the Transaction team at ASI, and Mark Blyth has been appointed in his place. Mark has been with ASI for 10 years, and has 20 years’ experience in real estate, most recently as Deputy Fund Manager of a significant Pooled Pension Fund. Whilst we are sad to see Oli leave the team and we look forward to working with him in his new role, we are excited to bring in some new ideas and experience to the team.

The Company’s LTV of 21.3% remains low compared to the AIC peer group (25.0%) with the Company also having significant headroom in its banking covenants. The Company’s interest rate swap liability fell in the quarter to £2.9 million (Dec 20: £3.7 million). This liability will unwind to £0 on maturity in 2023.

Investment Manager Market review

Economic Outlook

· With a successful vaccine roll-out and the gradual relaxation of restrictions, there is a real sense that the UK economy is gathering momentum. The final composite PMI, which measures activity in the services and manufacturing sectors, increased to 56.4 in March, up from the 49.6 recorded in February. UK construction activity has also expanded at the fastest pace in more than six years in March according to the IHS Markit/CIPS UK construction PMI, which rose to 61.7 in March, from 53.3 in February.

· A survey for the Recruitment & Employment Confederation (REC) and KPMG pointed to a sharp recovery in hiring activity as the quarter drew to an end, with recruiters reporting the strongest rebound in permanent hiring for six years in March. The increase in hiring activity was relatively broad-based, with only retail seeing a decline in activity. Consumer-facing services stand to benefit in particular as momentum builds into Q2.

· Financial markets have revised up their expectations for medium-term inflation since the start of this year. Both headline and core inflation will move higher in many economies over the next two quarters, driven by a combination of energy and food price base effects. The ASI Research Institute (ASIRI) believes that many of the drivers of higher inflation are temporary and will reverse by the end of the year. In this context, monetary policy is likely to remain highly accommodative, although the chance of negative rates has significantly diminished.

Occupier Trends

· The outlook for the office sector continues to generate much debate. A recent survey conducted by CIPD, the professional body for HR and people development, found that 63% of participants in its employer survey are developing a hybrid working model where employees spend only part of the time in the office. The uncertainty surrounding the occupational demand for office space is clearly reflected in elevated availability rates across most major UK office markets at present.

· After a record breaking year in 2020, the logistics market is set for another strong year of activity, with a large number of live requirements currently in the market. Increased online retail activity, demand from parcel delivery companies and a potential boost in demand from the onshoring of supply chains should continue to support take-up numbers.

· Retail fortunes continue to be very mixed. Food led, and budget / DIY retailers continue to trade well, however fashion and hospitality led schemes face continued headwinds. The recent announcement by John Lewis that they will close a further eight stores combined with the demise of Debenhams and many national multiples will leave glaring holes in many locations.

Investment Trends

· MSCI monthly index figures show a relatively resilient Q1 with a total return of 2.2%. Again Logistics led the way, however in March there was a capital gain of 0.5% in retail warehouse valuations – a marked change from recent times. It should be noted that high street retail and shopping centres continued to decline in value, as did offices, but to a lesser extent.

· With a national lockdown in place throughout Q1, it is unsurprising that transaction activity slowed markedly. Early indications of investment volumes for the quarter suggest a total of around £6.6 billion. This follows the £16.7 billion that was transacted in Q4, the highest quarterly total of 2020.

· The positive sentiment towards the industrial and alternative sectors was evident once again in the first quarter. Combined, these sectors accounted for close to 70% of investment volumes and eight of the top ten transactions.

· The student accommodation market recorded a noticeable pick-up in activity as investors look through the current disruption and focus on the longer term growth outlook for the sector. As has been the case for a number of years, the preferred route for investors seeking to gain critical mass in this sector is through portfolio acquisitions.

Outlook

· Despite the UK spending almost all of the first quarter in a strict lockdown, real estate values have risen in both January and February, with modest losses in office and retail more than offset by robust capital appreciation in the industrial sector. Broadly, this is expected to continue through 2021, although we expect declines in office values to accelerate.

· The significant deterioration in fundamentals and the absence of a driver to absorb the elevated vacancy informs our materially below consensus forecasts for central London offices. We anticipate rents falling by more than 10% in 2021, although this is a more modest decline than the historic relationship between vacancy and rents would suggest. As the challenges are largely structural, we don’t envisage the kind of sharp recovery seen in cyclical downturns, meaning we also expect central London offices to underperform over the 3-year forecast horizon.

· Signs of bifurcation in the retail sector have been growing and are explicitly reflected in our forecasts. Discretionary, fashion-led retail in particular is expected to see further significant value loss. In contrast, retail that is skewed towards grocery, value and core bulky goods categories has largely stabilised. We are forecasting a modest rise in values across retail warehousing this year, despite some further falls in rental values, allied to a high income return.

Net Asset analysis as at 31 March 2021 (unaudited)

Breakdown in valuation movements over the period 1 January 2021 to 31 March 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 31 March 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:-

Jason Baggaley – Real Estate Fund Manager, Aberdeen Standard InvestmentsTel: 07801039463 or jason.baggaley@aberdeenstandard.com

Graeme McDonald - Senior Fund Control Manager, Aberdeen Standard InvestmentsTel: 07717543309 or graeme.mcdonald@aberdeenstandard.com

The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LtdTrafalgar CourtLes BanquesSt Peter PortGY1 3QL

Tel: 01481 745001