Unaudited NAV as at 30 September 2021
4 November 2021
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 September 2021
Net Asset Value and Valuations
- Net asset value (“NAV”) per ordinary share was 93.1p (Jun 2021 – 88.3p), an increase of 5.4% for Q3 2021, resulting in a NAV total return, including dividends, of 6.5% for the quarter;
- The portfolio valuation (before CAPEX) increased by 4.7% on a like for like basis, whilst the MSCI Monthly Index increased by 3.3% over the same period.
Investment and letting activity
- During the quarter, the Company disposed of a small office in Bishops Stortford for £3.75m as part of our future-fit portfolio strategy and acquired 1,440 hectares of open moorland in the Scottish highlands as part of the Company’s net zero carbon strategy.
- Two lease renewals completed securing £286,500pa, and a new letting securing £137,400pa.
Financial Position and Gearing
- Strong balance sheet with significant financial resources available for investment of £73 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 £18 million.
- As at 30 September 2021, the Company had a Loan to Value (“LTV”) of 18.1%*. 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 Q3, 2021 maintained at 0.8925p.
Rent collection
Rent collection remains a challenge with some tenants paying rent monthly, despite it being billed quarterly as per the lease terms. There are very few new “non-payers” with the majority of arrears coming from tenants who have previously not paid. Although there is one particular tenant (with the most significant arrears) that is open, trading, and has paid rent to some landlords, where we have taken legal action, most of the Company’s tenants are at least paying part of their rent, and those with repayment plans are keeping to them.
Collection rate for Q3 2021 currently stands at 91%, but this is expected to increase still further. The Company has made prudent provisions against arrears, and in Q3 these reduced slightly due to recovery of rent previously provided for.
Dividends
The Board recognises the importance of dividends to the Company’s shareholders especially when the COVID-19 crisis 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. The Board will keep the quarterly dividend under review as rental collection levels improve further and the reinvestment of proceeds from asset sales takes place.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 September 2021 was 93.1p. 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 September 2021 of £457.7 million.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 30 June 2021 to 30 September 2021.
| Per Share (p) | Attributable Assets (£m) | Comment | |
| Net assets as at 30 June 2021 | 88.3 | 350.3 | |
| Unrealised increase in valuation of property portfolio | 4.8 | 19.1 | Like for like increase of 4.7% in property valuations. |
| CAPEX in the quarter | -0.1 | -0.2 | Limited CAPEX in quarter |
| Net income in the quarter after dividend | -0.1 | -0.6 | 83.3% dividend cover. Rolling 12 month dividend cover of 107% based on all dividends paid in last 12 months |
| Interest rate swaps mark to market revaluation | 0.2 | 0.8 | Decrease in swap liabilities in the quarter as interest rate expectations rose. |
| Other movements in reserves | 0.0 | 0.2 | Movement in lease incentives in the quarter |
| Net assets as at 30 September 2021 | 93.1 | 369.6 |
|
European Public Real Estate
Association (“EPRA”) |
30 Sep 2021 |
30 Jun 2021 |
| EPRA Net Tangible Assets | £371.2m | £352.7m |
| EPRA Net Tangible Assets per share | 93.5p | 88.9p |
The Net Asset Value per share is calculated using 396,922,386 shares of 1p each being the number in issue on 30 September 2021.
Investment Manager Review and Portfolio Activity
Q3 marked a period of improved sentiment in the UK real estate market with a relaxation of Covid restrictions, and better weather. With that though, we noticed a slowdown in activity over the summer holiday period as many people had a good break from work – perhaps the change in work life balance will last beyond Covid?
The summer break certainly slowed down letting deals, however the quality of enquiries improved with lots of viewings. We completed a lease renewal on a logistics unit securing a rent of £255,000pa (a 30% increase on the previous rent), as well as on an office suite at Hagley Road, Birmingham where the previous rent was maintained. Viewings at Hagley Road (our largest asset, with our largest vacancy) have been encouraging, with several more suites under offer, with particularly strong interest in our fitted suites. Encouragingly, just after the reporting period we completed a letting of a third of a vacant office building in Crawley, within three months of the lease expiry, without needing to refurbish the asset. We also completed the lease of a vacant office floor in our City office, demonstrating again the appeal of our fitted suites. We had one significant lease expiry in the quarter where the tenant vacated (three floors of offices in Bracknell – and one of the floors is now under offer.
Although the reduction in voids over the quarter was limited (with the void level at 11.8%) we anticipate this reducing back under 10% with completion of lettings under offer.
Progress of deploying capital has been slow – we have several investments under offer, and the vendor of a warehouse let to B&Q where we had agreed terms decided not to proceed at the last minute, which was very disappointing.
COP 26 is underway, and ESG forms part of just about every conversation we have. The Company completed the purchase of 1,440 hectares of open moorland on the Ralia estate in the Scottish highlands for reforestation and peatland restoration. Although the land will not provide the Company with an income there is scope for capital appreciation, and it plays an important part in the Company’s net zero carbon strategy. The main focus however is in reducing the environmental impact of our assets.
The Company’s LTV of 18.1% is below the sector average but will increase as cash is deployed and debt drawn down. The target level is 25% – 35% by mid-2022. The Company’s interest rate swap liability fell in the quarter to £1.7 million (June 2021: £2.4 million) as the market anticipated rising interest rates. This liability will unwind to nil on maturity in April 2023.
Investment Manager Market review
Economic Outlook
- UK GDP grew by more than previously thought in the April-to-June period, increasing by 5.5% in the second quarter. This means that the UK economy is now 3.3% below its level in the fourth quarter of 2019, before the pandemic struck. The underlying pace of recovery is expected to slow from here but remain positive.
- Despite the upward revision to second-quarter GDP, more timely monthly figures showed that the recovery had largely stalled in July. Hesitation caused by the spread of the Delta variant of Covid-19 and the ‘pingdemic’ kept many workers at home self-isolating. Despite a slowdown in recovery in July, the abrdn Research Institute (aRI) forecasts GDP growth of 6.8% for the calendar year 2021.
- Pricing pressures are building in the UK, with headline and core CPI inflation increasing to 3.1% and 2.9%, respectively, in September. Some of the increase reflected the withdrawal of coronavirus schemes that were introduced the previous summer to help support the economy. These included ‘eat out to help out’, which lowered prices temporarily. Cost pressures on businesses, supply chain issues and a tight labour market are expected to keep inflation at higher levels for the remainder of 2021. We expect UK inflation to reach a peak of around 5% heading into 2022, before gradually returning to more normalised levels.
- The Bank of England has given clear signals that interest rates may have to be increased gradually in 2022 to bring inflation back closer to the 2% target rate. One hike in 2022 is looking increasingly likely, but rates will remain very low in a historical context.
Occupier Trends
- There is little indication that demand for industrial space is waning, with the sector continuing to record impressive take-up numbers. As a result, the vacancy rate for the sector is now below 3%, according to CoStar data. The industrial sector has experienced a supply response. But with increased build-cost inflation, and supply chain difficulties presenting a major headwind, it is widely anticipated that some of this supply pipeline will face delays in completion. This will benefit up-and-built assets.
- Workers in the UK have been gradually returning to offices throughout the third quarter after coronavirus restrictions were lifted. Levels of occupation remain significantly below pre-pandemic levels and it is clear that there is no one-size-fits-all approach applied by employers. The long-term impact on the way that offices are utilised, and how much space businesses will require in the future, remains highly uncertain at present. Although vacancy rates are higher, they have shown tentative signs of stabilisation – particularly for Grade A offices in central London.
- Retail footfall data is recovering as restrictions have been lifted across the UK, but it remains below pre-Covid-19 levels. High street footfall is being supported by a move back to the office, demonstrated by a greater increase in central London and large city centres outside the capital. However, with inflation increasing and National Insurance contributions set to increase by 1.25% in April 2022, there is a risk that consumer spending will be detrimentally affected heading into next year. This presents a headwind for the retail sector.
Investment Trends
- Investment volumes picked up considerably during the second quarter of 2021, reaching £15.8 billion. Despite a modest slowdown during the summer, the trend has continued into the third quarter; investment volumes were over £10 billion, according to property data. Sentiment towards UK real estate has improved markedly, which is now feeding through into the investment market.
- The demand for prime office assets was evident once again this quarter, with offices accounting for six of the top-ten deals recorded. Overseas investors continue to play a very important role in terms of demand in this area of the market.
- As is the case with the retail sector, the polarisation in performance will become more evident in the office sector, in our view. The best-quality space will continue to experience more robust demand, providing greater support for rents and pricing. However, for secondary office assets that fail to comply with increasingly stringent ESG requirements and don’t possess the necessary amenity or flexibility credentials, the outlook is far more challenging. This is yet to be shown in performance, but we expect this to be more evident as we move into 2022.
- Polarisation within the retail sector is expected to continue, given recent performance within the retail warehouse sector. The sector rebounded strongly in the second half of 2021, with prime yields moving in by 75-100 basis points (bps). But this is narrowly focused on assets that are let on affordable rents, and anchored by grocery, discount and DIY occupiers. The outlook for fashion-oriented parks, high-street shops and shopping centres remains more challenging, given their vulnerability to online retail sales.
- Despite a recent increase in gilt yields on the back of increased inflation expectations, the pricing of secure, indexed real estate relative to index-linked bonds offers a very large yield premium. While the margin for conventional real estate over conventional gilts has also narrowed, the margin remains healthy in a historical context.
Net Asset analysis as at 30 September 2021 (unaudited)
| £m | % of net assets | |
| Industrial | 236.5 | 64.0 |
| Office | 124.8 | 33.7 |
| Retail | 54.0 | 14.6 |
| Other Commercial | 42.4 | 11.5 |
| Total Property Portfolio | 457.7 | 123.8 |
| Adjustment for lease incentives | -7.1 | -1.9 |
| Fair value of Property Portfolio | 450.6 | 121.9 |
| Cash | 27.2 | 7.4 |
| Other Assets | 16.2 | 4.3 |
| Total Assets | 494.0 | 133.6 |
| Current liabilities | -13.0 | -3.5 |
| Non-current liabilities (bank loans & swap) | -111.4 | -30.1 |
| Total Net Assets | 369.6 | 100.0 |
Breakdown in valuation movements over the period 1 July 2021 to 30 September 2021
| Portfolio Value as at 30 Sep 2021 (£m) | Exposure as at 30 Sep 2021 (%) | Like for Like Capital Value Shift (excl transactions & CAPEX) | Capital Value Shift (incl transactions (£m) | |
| (%) | ||||
| External valuation at 30 Jun 21 | 433.8 | |||
| Retail | 54.0 | 11.8 | 6.8 | 3.4 |
| South East Retail | 1.8 | 0.0 | 0.0 | |
| Retail Warehouses | 10.0 | 8.1 | 3.4 | |
| Offices | 124.8 | 27.2 | 0.7 | -2.8 |
| London City Offices | 2.8 | 0.0 | 0.0 | |
| London West End Offices | 2.9 | 0.0 | 0.0 | |
| South East Offices | 10.7 | 0.9 | -3.3 | |
| Rest of UK Offices | 10.8 | 0.9 | 0.5 | |
| Industrial | 236.5 | 51.7 | 6.6 | 14.7 |
| South East Industrial | 12.4 | 9.2 | 4.8 | |
| Rest of UK Industrial | 39.3 | 5.8 | 9.9 | |
| Other Commercial* | 42.4 | 9.3 | 3.3 | 8.6 |
| External valuation at 30 Sep 21 | 457.7 | 100.0 | 4.7 | 457.7 |
*: The land acquisition on the Ralia estate is currently shown under ‘Other Commercial’ as we confirm classification with MSCI.
Top 10 Properties
| 30 Sep 21 (£m) | |
| Hagley Road, Birmingham | 25-30 |
| B&Q, Halesowen | 20-25 |
| Symphony, Rotherham | 20-25 |
| Marsh Way, Rainham | 15-20 |
| Timbmet, Shellingford | 15-20 |
| Atos Data Centre, Birmingham | 15-20 |
| The Pinnacle, Reading | 10-15 |
| Hollywood Green, London | 10-15 |
| Walton Summit, Preston | 10-15 |
| Badentoy, Aberdeen | 10-15 |
Top 10 tenants
| Tenant Name | Passing Rent | % of total Passing Rent |
| B&Q Plc | 1,560,000 | 6.2% |
| The Symphony Group Plc | 1,225,000 | 4.9% |
| Schlumberger Oilfield UK plc | 1,138,402 | 4.5% |
| Public Sector | 962,106 | 3.8% |
| Jenkins Shipping Co Ltd | 839,078 | 3.3% |
| Timbmet Group Limited | 799,683 | 3.2% |
| Atos IT Services UK Ltd | 780,727 | 3.1% |
| CEVA Logistics Limited | 732,210 | 2.9% |
| Time Wholesale Services (UK) Ltd | 656,056 | 2.6% |
| ThyssenKrupp Materials (UK) Ltd | 643,565 | 2.6% |
| 9,336,827 | 37.1% |
Regional Split
| South East | 28.1% |
| West Midlands | 19.9% |
| East Midlands | 12.4% |
| Scotland | 12.1% |
| North West | 10.2% |
| North East | 7.0% |
| South West | 4.6% |
| London West End | 2.9% |
| City of London | 2.8% |
The Board is not aware of any other significant events or transactions which have occurred between 30 September 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, abrdn
Tel: 07801039463 or jason.baggaley@abrdn.com
Mark Blyth – Real Estate Deputy Fund Manager, abrdn
Tel: 07703695490 or mark.blyth@abrdn.com
Gregg Carswell - Senior Fund Control Manager, abrdn
Tel: 07800898212 or gregg.carswell@abrdn.com
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001
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