Unaudited Net Asset Value as at 30 September 2023
7th November 2023
abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 September 2023
Net Asset Value and Valuations
- Net asset value (“NAV”) per ordinary share was 82.2p (Jun 2023 – 83.8p), a decrease of 1.9% for Q3 2023, resulting in a NAV total return, including dividends, of -0.7% for the quarter;
- The Company saw an increase in the value of its industrial assets (which make up 55% of the portfolio) of £8.9m, whilst its office assets (18% of the portfolio) fell by £5m. Retail and “Other” assets saw no change in value and the Land holding increased by £750,000.
- The portfolio again outperformed the MSCI monthly index with a capital value decline of 0.8% on a like for like basis during the quarter, compared to the MSCI Monthly Index decline of 1.6% over the same period.
- The portfolio ERV of £34.1m is £7.4m (27.7%) above the current contracted rent, demonstrating the significant reversionary potential.
- Rent Collection remained robust with 99% collected so far for Q3 and 96% for Q4, with rent still coming in for both quarters. Since the beginning of 2021 quarterly rent collection has been consistently at or above 99%.
Investment and letting activity
- Three lettings completed (all of office suites) totalling £309,420 p.a., and after the quarter end two further lettings were completed on office space that was subject to an agreement for lease, totalling £540,644 p.a.
- At our logistics unit in Hebburn, Newcastle we completed a lease renewal for a 20-year lease 19.4% above the previous rent.
- Operating profit excluding Fair Value movements, finance costs and movements in provisions for trade receivables increased by £365,000 from £4.7m (7.7%) compared to Q2 (£466k increase in Q2 over Q1 after an increase in rent of £400k) leading to a dividend cover of 80% for Q3.
Financial Position
- Robust balance sheet with financial resources available for investment of £22.8 million (from the Company’s revolving credit facility) net of current cash after dividend and other financial commitments.
Occupancy / Void / WAULT
The Company had a vacancy rate of 8.0% as at end Q3 2023 (Q2 8.2%). Since the quarter end two leases completed that were subject to previously signed agreements to lease. When combined with the agreement for lease at Rainhill Road (where the landlord works are due to complete early November) the effective void rate was only 4.4%.
The weighted average unexpired lease term of the portfolio is 6.1 years (6.3 years Q2 2023).
Debt Facility and Gearing
API currently has two facilities with RBSI, an £85m term loan (fully drawn) and an £80m Revolving Credit Facility (RCF) of which £55m was drawn as at 30th September. Both facilities are at a margin of 150bps over SONIA and an interest rate cap on SONIA has been put in place at 4% over the term loan (all-in rate of 5.5%). As at 30 September 2023, the Company had a Loan to Value (LTV) of 29.9%*.
*LTV calculated as debt less all cash divided by investment portfolio value
Dividends
A dividend of 1p will be paid for the quarter which will be a 100% non PID distribution. The dividend is therefore being maintained at an annualised rate of 4p per share. The dividend cover for Q3 2023 is 79.9%. The Board has provided guidance of its intention to maintain the current dividend level.
Net Asset Value (“NAV”)
The unaudited net asset value per ordinary share at 30 September 2023 was 82.2p. 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 2023 of £449.6 million.
Breakdown of NAV movement
Set out below is a breakdown of the change in the unaudited NAV calculated under IFRS over the period 30 June 2023 to 30 September 2023.
|
| Per Share (p) | Attributable Assets (£m) | Comment |
| Net assets as at 30 June 2023 | 83.8 | 319.5 |
|
| Unrealised movement in valuation of property portfolio | 1.2 | 4.6 | Like for like decrease of 0.8%. |
| CAPEX in the quarter | -2.1 | -8.1 | Predominantly development spend at Washington and Knowsley. |
| Net income in the quarter after dividend | -0.2 | -0.8 | Rolling 12 month dividend cover 84.9% excl. one off SWAP break cost in 2022. |
| Interest rate hedge mark to market revaluation | -0.4 | -1.4 | CAP valuation movement |
| Other movements in reserves | -0.1 | -0.2 | Movements in lease incentives. |
| Net assets as at 30 September 2023 | 82.2 | 313.6 |
|
| European Public Real Estate Association (“EPRA”) |
30 September 2023 |
30 Jun 2023 |
| EPRA Net Tangible Assets | £310.8m | £315.2m |
| EPRA Net Tangible Assets per share | 81.5p | 82.7p |
The Net Asset Value per share is calculated using 381,218,977 shares of 1p each being the number in issue on 30 September 2023.
Investment Manager Review and Portfolio Activity
Following the positive letting transactions completed during the first half of the year, abrdn Property Income Trust (API) is pleased to be able to announce some further asset management activity that has secured over £1.3m p.a. in rent through new lettings and lease renewals.
In the office sector, the lease over the fourth floor at One Station Square in Bracknell has now completed, securing a rent of £132,144 p.a. At The Pinnacle in Reading, the existing tenant Egnyte Limited has upsized on the fifth floor, taking 4,174 sq.ft at an annual rent of £130,000. This rent is 11% ahead of the March 2023 valuation. The lease over the first floor at 160 Causewayside, Edinburgh has been regeared with the removal of the tenant break option. This has secured £157,000 p.a. of rent for a further 5 years.
At 54 Hagley Road in Birmingham, the previously reported lettings to the Chamber of Commerce and UK Cab have now completed following the conclusion of the landlords works. Combined, these reflect a total of 27,770 sq.ft and £538,090 p.a. in rent. The positive momentum at this building has continued with a letting of part of the 4th floor to Property Investor Network, securing a rent of £49,830 p.a. Terms have also been agreed on two further lease renewals of 9,365 sq.ft where the tenants are remaining in their existing suites and the rents are increasing by an average of just over 30% from previous levels.
Refurbishment works, as defined in the agreement for lease at the logistics unit on Rainhill Road in Washington are progressing well (including the completion of a new 1,150kWp PV scheme on the roof) and are due to complete in early November, when the new lease will commence. This letting, along with the others completed since quarter end, will reduce the void rate as at 30 September from 8% to 4.4%.
This activity demonstrates that API’s investment strategy of investing in assets that tenants want to occupy remains relevant. The API office assets, which account for just under 18% of the overall portfolio, continue to be attractive to occupiers with good levels of amenity at attractive rental levels even in a market with significantly reduced demand and take-up.
In the industrial sector, API completed a lease regear at Monkton Business Park in Hebburn. Hitachi Construction Machinery (UK) Limited have taken a new 20-year lease at a passing rent of £310,500 p.a., which is an increase of 19.4% over the previous passing rent. As part of the transaction, Hitachi are obliged to carry out a package of works that are anticipated to improve the EPC rating to an “A”.
The EPC on the Company’s Bolton industrial unit let to DPD has recently been reassessed following completion of the letting and the landlord’s refurbishment works. API took the opportunity, at the expiry of the previous lease, to carry out an extensive package of upgrades to the unit including the extension of the roof-mounted solar panel installation, an increase in on-site biodiversity and the inclusion of staff welfare facilities. Following the reassessment, the EPC has been lodged as an “A“ with a score of -54. This negative score reflects the fact that the unit is operationally carbon negative.
API’s speculative 107,000 sq.ft industrial development at Knowsley is progressing well, with practical completion scheduled for the turn of the year. The unit will be a best in class building with enhanced ESG credentials, and this has been reflected in the occupational interest received to date. Whilst early days, we have received proposals from two parties and are hopeful of agreeing a letting of the unit ahead of completion.
Three new PV schemes are due to complete in Q4 with a total of 2,005kWp, continuing our deployment of on-site renewable energy where it is appropriate to do so. We are also making good progress with the planting of native broadleaf trees at Far Ralia now that the grant funding has been confirmed. The valuation on this asset increased by 10% this quarter to reflect some of the progress made.
The Company again outperformed the MSCI Monthly Index over the quarter with a capital decline of 0.8% compared to the index 1.8%. Industrials (and the land holding) saw capital growth mainly due to asset management, whilst Retail and Other remained static and Offices continued to fall in value. The Investment portfolio targets assets that will provide an attractive level of income that is sustainable and is secured against high quality assets that will deliver an above market level of total return.
Investment Manager’s UK Real Estate Market Outlook – Q3 2023
- Sizeable revisions to gross domestic product (GDP) data suggest the economy recovered more quickly from the pandemic shock than was originally thought. The economy suffered a slightly smaller supply-side shock and productivity growth was better. However, the risk of the economy entering a formal recession even earlier than we had expected is increasing.
- The annual rate of inflation fell to 6.7% in August but then remained at that level in September. CPI is expected to fall further this year due to energy price caps, however the recent rise in fuel prices might limit the downside, and wage growth is still running above the target-consistent rate. The conflict in the Middle East has the scope to further disrupt supply lines and push up fuel prices.
- The Investment Manager believes the BoE’s decision to keep interest rates on hold at 5.25% means that the bank rate has peaked. If wage growth and services inflation were to surprise on the upside, then a hike in future is still possible, however we think these conditions are unlikely to be met. The BoE wants to guide market expectations towards a ‘Table Mountain’ profile for interest rates, which sees rates staying elevated for an extended period. This view is designed to keep a grip on current financial conditions and we expect rate cuts to start around the middle of next year.
- UK real estate pricing has been stabilising during 2023, following the significant correction in the sector in late-2022. However, performance has been asymmetric across sectors, with those benefiting from structural and thematic tailwinds proving more resilient in the face of a weaker macroeconomic environment.
- Industrial: The industrial and logistics sector has been buoyed by resilient occupier demand and continued positive rental growth during 2023. While the vacancy rate in the sector has trended upwards during the year – now around 4% according to CoStar – it remains low in a historical context. In addition, the supply of good-quality space, which occupiers have been targeting, remains low. With the development pipeline being constrained by rising build and debt costs, the availability of accommodation is expected to remain tight.
- Industrial pricing and performance have stabilised so far this year. But polarisation between best-in-class and secondary accommodation is growing, as both occupiers and investors focus on good-quality accommodation in strong locations. Robust rental growth continues to be recorded on such assets and investors are attracted by the opportunity to unlock further rental growth potential. However, the weaker economic environment is placing pressure on occupiers which requires an increased focus on tenant covenant strength and security of income in this environment.
- The longer-term outlook for the sector is positive, supported by structural and thematic growth drivers. Investor sentiment remains strong, as a result. While the investor pool remains smaller than before, due largely to elevated debt costs, there have been tentative signs of yield compression in some areas of the market. However, any improvement in pricing is fragile, given current economic headwinds.
- Offices: As expected, office performance weakened during the third quarter of 2023, as the sector remained under pressure from new working habits and a weak economic climate. Investor appetite towards the sector remains poor and transaction volumes have fallen, as a result. Demand, from both an occupational and investment perspective, remains focused on best-in-class accommodation in strong locations, and on assets that meet current environmental requirements. The availability of such space is low, which is allowing for instances of positive rental value growth.
- Office capital values have seen further falls and the outlook for capital growth remains negative. Falling capital values are placing pressure on debt-financing covenants. With the cost of debt remaining highly elevated, some stress is expected to appear in the office sector during the remainder of 2023 and into 2024, as borrowers struggle to refinance on accretive terms. Secondary assets are most at risk of default and, given limited investor demand, this is likely to spur greater capital declines. Good-quality assets will be more resilient, but not immune in this scenario.
- Retail: During 2023, consumer spending has proven more resilient than first forecast in the face of a cost-of-living crisis. Indeed, consumer sentiment has also been improving as inflationary pressures have started to ease. Recent data from the British Retail Consortium has shown the first monthly drop in food prices for over two years, indicating that the pressure on consumers’ pockets may be beginning to ease.
- Retail investment demand is focussed on the retail warehouse sector where vacancy rates are relatively low and occupier demand is evident, even if patchy. Foodstores also remain popular, especially those let to budget retailers.
Outlook for risk and performance
While the outlook for UK real estate remains fragile, an improving economic picture as we move into 2024 is likely to help spur an improvement in UK real estate performance. While some headwinds remain, such as weak national and global economic activity, falling inflation and an end to the BoE’s monetary hiking cycle is likely to help revive investor sentiment towards the sector.
That said, any negative surprise in economic activity or inflation data will spook investment markets and may result in further instability in real estate performance and pricing. As a result, investors are expected to remain risk-off towards UK real estate, with investor appetite remaining focused on those sectors that benefit from longer-term thematic growth drivers. These sectors are forecast to provide more robust performance, even in the face of a weaker macroeconomic environment. Additionally, investors will be narrowly focused on good-quality accommodation within these sectors, which provide the opportunity to capture rental growth.
In response, polarisation in performance is anticipated to accelerate from both a sector and asset-quality perspective. Sectors that face structural pressure (such as offices), and secondary assets that don’t meet current occupational demand, are expected to record further capital value declines and weaker performance. Occupational performance is forecast to be the main driver of returns in the near term. Given the nature of current occupational demand, good-quality accommodation is expected to prove more resilient.
Although the outlook for monetary policy appears more positive from this point, a meaningful improvement in UK real estate performance is not expected until the second half of 2024. In the face of a weaker economic environment and with the risk of the bank rate staying higher for longer, investors will retain an overall risk-off approach towards the sector. A rate-cutting cycle should then encourage investors to return to the market.
Net Asset analysis as at 30 September 2023 (unaudited)
|
| £m | % of net assets |
| Industrial | 249.7 | 79.6 |
| Office | 80.0 | 25.5 |
| Retail | 73.4 | 23.4 |
| Other Commercial | 38.3 | 12.2 |
| Land | 8.2 | 2.7 |
| Total Property Portfolio | 449.6 | 143.4 |
| Adjustment for lease incentives | -8.4 | -2.7 |
| Fair value of Property Portfolio | 441.2 | 140.7 |
| Cash | 5.7 | 1.8 |
| Other Assets | 20.0 | 6.4 |
| Total Assets | 466.9 | 148.9 |
| Current liabilities | -14.1 | -4.5 |
| Non-current liabilities (bank loans) | -139.3 | -44.4 |
| Total Net Assets | 313.5 | 100.0 |
Breakdown in valuation movements over the period 01 July 2023 to 30 September 2023
|
| Portfolio Value as at 30 Sep 2023 (£m) | Exposure as at 30 Sep 2023 (%) | Like for Like Capital Value Shift (excl transactions & CAPEX) | Capital Value Shift (incl transactions (£m) |
|
| (%) | |||
| External valuation at 30 Jun 23 |
|
|
| 445.0 |
|
|
|
|
|
|
| Retail | 73.4 | 16.3 | 0.0 | 0.0 |
| South East Retail |
| 1.7 | 0.0 | 0.0 |
| Retail Warehouses |
| 14.6 | 0.0 | 0.0 |
|
|
|
|
|
|
| Offices | 80.0 | 17.8 | (6.9) | (5.0) |
| London City Offices |
| 2.3 | (5.8) | (0.7) |
| London West End Offices |
| 1.9 | (7.1) | (0.6) |
| South East Offices |
| 5.8 | (7.3) | (1.8) |
| Rest of UK Offices |
| 7.8 | (6.8) | (1.9) |
|
|
|
|
|
|
| Industrial | 249.7 | 55.5 | 0.7 | 8.9 |
| South East Industrial |
| 8.6 | 0.3 | 0.3 |
| Rest of UK Industrial |
| 46.9 | 0.7 | 8.6 |
|
|
|
|
|
|
| Other Commercial | 38.3 | 8.5 | 0.0 | 0.0 |
|
|
|
|
|
|
| Land | 8.2 | 1.9 | 10.0 | 0.7 |
|
|
|
|
|
|
| External valuation at 30 Sep 23 | 449.6 | 100.0 | (0.8) | 449.6 |
Yields
|
| Initial Yield (%) | Equivalent Yield (%) | EPRA NIY (%) |
| Portfolio | 5.5 | 6.9 | 4.8% |
Top 10 Properties
|
| 30 Sep 23 (£m) |
| Halesowen, B&Q | 20-25 |
| Birmingham, 54 Hagley Road | 20-25 |
| Rotherham, Ickles Way | 20-25 |
| Welwyn Garden City, Morrison’s | 15-20 |
| Shellingford, White Horse Business Park | 15-20 |
| Birmingham, Building 3000 | 15-20 |
| London, Hollywood Green | 10-15 |
| Corby, 3 Earlstrees Road | 10-15 |
| Swadlincote, Tetron 141 | 10-15 |
| Washington, Rainhill Road | 10-15 |
The top ten assets represent 37.6% of portfolio value
Top 10 tenants
| Tenant Name | Passing Rent | % of total Passing Rent |
| B&Q Plc | 1,560,000 | 5.9% |
| Public Sector | 1,365,203 | 5.1% |
| WM Morrisons Supermarkets Ltd | 1,252,162 | 4.7% |
| The Symphony Group Plc | 1,225,000 | 4.6% |
| Schlumberger Oilfield UK plc | 1,138,402 | 4.3% |
| Timbmet Limited | 904,768 | 3.4% |
| Atos IT Services UK Limited | 872,466 | 3.3% |
| CEVA Logistics Limited | 840,000 | 3.2% |
| Jenkins Shipping Co Ltd | 816,480 | 3.1% |
| ThyssenKrupp Materials (UK) Ltd | 643,565 | 2.4% |
| Top ten tenants | 10,618,046 | 39.9% |
Regional Split
| South East | 23.3% |
| West Midlands | 19.1% |
| North West | 14.5% |
| East Midlands | 12.6% |
| Scotland | 11.5% |
| North East | 11.4% |
| South West | 3.3% |
| City of London | 2.4% |
| London West End | 1.9% |
Except as described above, the Board is not aware of any significant events or transactions which have occurred between 30 September 2023 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.abrdnpit.co.uk
For further information:-
Jason Baggaley – API Fund Manager, abrdn
Tel: 07801039463 or jason.baggaley@abrdn.com
Mark Blyth – API Deputy Fund Manager, abrdn
Tel: 07703695490 or mark.blyth@abrdn.com
Craig Gregor - Fund Controller, abrdn
Tel: 07789676852 or craig.gregor@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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