Unaudited Net Asset Value as at 30 September 2020
4 November 2020
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST LIMITED (LSE: SLI)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 September 2020
Net Asset Value and Valuations
· Net asset value (“NAV”) per ordinary share was 78.8p (Jun 2020 – 79.6p), a decline of 1.0%, resulting in a NAV total return, including dividends, of -0.1% for Q3 2020;
· The portfolio valuation (before CAPEX) reduced by 0.4% on a like for like basis, whilst the MSCI Monthly Index dropped by 0.7% over the same period.
Investment and letting activity
· On 4 September, the Company completed the purchase of a B&Q Retail Warehouse in Halesowen for £19.5 million, financed by its low cost revolving credit facility. The purchase reflects an initial yield of 7.5% and is let to B&Q Ltd for a further 11 years to lease expiry, providing secure income given the strong tenant covenant and good unexpired lease term.
· 2 new lettings were completed in the quarter securing £185,000pa, with a further letting securing £82,500 in October.
· 6 lease regears were agreed on leases with a rental value of £1.17m pa.
· 2 rent reviews were completed, on a food store and an industrial unit with increases of 13% and 38% respectively.
Financial Position and Gearing
· Strong balance sheet with significant financial resources available of £20 million (£35 million currently drawn from £55 million low cost, revolving credit facility).
· As at 30 September 2020, the Company had a Loan to Value (“LTV”) of 29.4%*. The debt currently has an overall blended interest rate of 2.43% per annum.
*LTV calculated as debt less cash divided by portfolio value
Rent collection
Rent collection remains challenging, given the varied levels of restrictions which makes it difficult for tenants to accurately understand the trading environment they are operating in. Our Investment Manager is continuing to find that most of our tenants seek to honour their lease contract where they can. Of those who can’t, the majority are open to dialogue to agree a solution, from waiving rent for some of the smallest and most impacted tenants, to deferments, or rent free periods in return for lease extensions. Some tenants, however, can pay but won’t, or are unwilling to engage to find a solution. The Government restrictions on enforcing lease covenants currently restrict us from taking action to recover these arrears, but our Investment Manager will do so as soon as they are permitted.
| Rental Quarter | % collected as at 29 October 2020 |
| Q2 2020 | 90% |
| Q3 2020 | 84% |
| Q4 2020 | 70% (A further 13% is expected from monthly payments and where tenants have said payment is being made) |
It is worth noting that the rental collection figures continue to improve, and with deferral agreements, and payment from tenants who have the ability to pay but have chosen not to, we expect each quarter to end with a collection rate of 90+%.
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 Board has taken the decision to maintain the same level of quarterly dividend as paid last quarter equating to 0.714p per share which represents 60% of last year’s level for the same quarter. The Board continues to believe this rate balances the need for shareholders to continue receiving income during this difficult period while maintaining a prudent approach given current rent collection rates.
The Board will continue to monitor closely the evolution of COVID-19, together with its impact on rent receipts, recurring earnings and the requirement of the REIT rules to distribute at least 90% of its annual property income.
Share Buybacks
The Company intends to begin a share buyback programme to purchase shares in the Company.
The Board believes that investment in SLIPIT’s shares at the prevailing price and discount to net asset value offers an attractive investment opportunity for its shareholders given the financial resources the Company has at its disposal. The Company will also continue to focus on the existing portfolio and the opportunities this presents through both sales, a number of which are in the pipeline and also acquisitions and asset management.
Net Asset Value (“ NAV ”)
The unaudited net asset value per ordinary share of Standard Life Investments Property Income Trust Limited (“SLIPIT”) at 30 September 2020 was 78.8p. 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 2020 of £464.9 million and did not contain a material uncertainty clause.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 1 July 2020 to 30 September 2020.
| Per Share (p) | Attributable Assets (£m) | Comment | |
| Net assets as at 30 June 2020 | 79.6 | 323.8 | |
| Unrealised decrease in valuation of property portfolio | -0.5 | -1.9 | Like for like reduction of 0.4% in property valuations. |
| CAPEX in the quarter | -0.5 | -1.9 | Predominantly CAPEX at Hagley Road, Birmingham and purchase costs in relation to the acquisition of B&Q at Halesowen. |
| Net income in the quarter after dividend | 0.3 | 0.9 | Rolling 12 month dividend cover of 97% |
| Interest rate swaps mark to market revaluation | 0.0 | 0.0 | No change in swap liabilities in the quarter as interest rates remained similar to last quarter. |
| Other movements in reserves | -0.1 | -0.4 | Movement in lease incentives in the quarter |
| Net assets as at 30 September 2020 | 78.8 | 320.5 |
|
European Public Real Estate
Association (“EPRA”)* |
30 Sep
2020 |
30 Jun
2020 |
| EPRA Net Asset Value | £324.6m | £327.9m |
| EPRA Net Asset Value per share | 79.8p | 80.6p |
The Net Asset Value per share is calculated using 406,865,419 shares of 1p each being the number in issue on 30 September 2020.
* The EPRA net asset value measure is to highlight the fair value of net assets on an on-going, long-term basis. Assets and liabilities that are not expected to crystallize in normal circumstances, such as the fair value of financial derivatives, are therefore excluded. The Company notes the new best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures issued by EPRA in October 2019 and will look to report these measures in its 2020 Annual Report.
Investment Manager Review and Portfolio Activity
Q3 continued to be dominated in every aspect by COVID-19. The relaxing of restrictions through July and August started to be tightened again as the optimism about a quicker return to normality has faded. As this is written, severe restrictions on large parts of the UK are in place, probably for the remainder of this year, and quite possibly until next spring/summer. Many leisure venues will remain unavailable and working from home will remain the norm. Travel overseas will be very limited. Sadly, for many people, job security will be a major concern and unemployment will rise. This is a difficult environment for real estate, and in this context we are delighted to have agreed two rent reviews showing uplifts of 13% and 38% on the previous rent as well as completing two new leases (one industrial and one office) with a further office letting just after the quarter end. In addition, we agreed six lease regears with tenants to provide them with a rent free period now, in return for extending their lease commitments. The Company’s occupancy rate as at the end of September remained strong at 92.0%.
We also completed the purchase of a B&Q retail warehouse in Halesowen (Birmingham) for £19.5m, reflecting a yield of 7.5%. The property trades well for B&Q and has a further 11 years on the lease, providing the Company with an attractive income stream.
In a situation of great uncertainty, and changing ways of life, we need to ensure that the assets we were happy to hold at the beginning of the year remain relevant and that we remain confident of their ability to provide an appealing place to work or visit. In this regard we have a particular focus on offices, as a large degree of change is expected even when we return to more normal times.
Overall, the portfolio underperformed the market substantially over the first quarter of 2020 with all assets written down but has out-performed over quarters 2 and 3 compared to the MSCI monthly index, although not sufficiently to overcome the first quarter’s performance. The market decline of 6.9% year to date compares to the Company’s portfolio valuation fall of 8.4% over the first 9 months.
The LTV of 29.4% provides sufficient headroom against banking covenants (values can fall by 43% and rent by 69% before the covenants are under pressure based on 30 September covenants). The Company’s interest rate swap liability remained relatively stable in the quarter at £4.07 million (June 20: £4.05 million). This liability will unwind to £0 on maturity in 2023.
Investment Manager Market review
· The UK economy shrank by an unprecedented 19.8% during the second quarter of 2020, although the nadir for GDP was reached in April and the economy has grown robustly since then. However, the re-escalation of the COVID-19 infection rate, and a tightening of restrictions on social contact are set to depress growth over the coming months.
· The retail and leisure sectors continue to suffer at the hands of COVID-19. The office outlook has also darkened, with an increasing likelihood that workers will be urged to work from home throughout the winter. Availability rates are rising in nearly all major markets and most sharply of all in Central London.
· Online retailing is driving strong logistics demand, although the supply response has been healthy enough to slow rental growth rates. Across multi-let estates, however, there is evidence of more financial distress among smaller occupiers.
· Early indications of investment volumes in Q3 suggest a total of around £6 billion, after only £4.6 billion was transacted in Q2. That second quarter total was the lowest since the depths of the financial crisis in the first quarter of 2009.
· Strong competition for industrials is showing signs of driving inward yield shift in September valuations. The focus for many investors is becoming ever narrower with little interest in discretionary retail and nervousness around the office outlook.
Investment Manger Market outlook
· We expect market capital values to fall by more than 12% this year, leading to a total return of -7.6%, although this is predicated on substantial write-downs to year-end valuations, with total returns set to be in the region of -3.5% across the first three quarters.
· Retail, hotels and leisure assets are expected to drag performance down at the All Property level. Indeed, we continue to forecast record calendar year declines in shopping centre values, with standard shops faring little better.
· Retail warehouses are also expected to deliver sharply negative returns but there are signs that the value and convenience end of that market may be stabilising. While supermarkets are still expected to be the strongest retail performer over the forecast period – and by some distance in the short term – the performance outlook for retail warehouses beyond the next 12 months is healthier.
· With availability rising quickly and a combination of cyclical and structural risks, we expect a substantially negative year for Central London offices in 2021. While the debate about the future of offices rages on, survey evidence from both employers and employees suggest home working is here to stay and at a structurally higher level. The impact on requirements is hard to discern and in the short term the impact of a sharp rise in unemployment and challenges surrounding Brexit are likely to have the greatest impact.
· With all of the uncertainty currently prevailing, we remain firmly in a risk off environment in real estate.
Net Asset analysis as at 30 September 2020 (unaudited)
| £m | % of net assets | |
| Industrial | 236.1 | 73.7 |
| Office | 142.3 | 44.4 |
| Retail | 54.5 | 17.0 |
| Other Commercial | 32.0 | 10.0 |
| Total Property Portfolio | 464.9 | 145.1 |
| Adjustment for lease incentives | -5.6 | -1.7 |
| Fair value of Property Portfolio | 459.3 | 143.4 |
| Cash | 8.2 | 2.5 |
| Other Assets | 16.4 | 5.1 |
| Total Assets | 483.9 | 151.0 |
| Current liabilities | -14.8 | -4.6 |
| Non-current liabilities (bank loans & swap) | -148.6 | -46.4 |
| Total Net Assets | 320.5 | 100.0 |
Breakdown in valuation movements over the period 1 July 2020 to 30 September 2020
| Portfolio Value as at 30 Sep 2020 (£m) | Exposure as at 30 Sep 2020 (%) | Like for Like Capital Value Shift (excl transactions & CAPEX) | Capital Value Shift (incl transactions (£m) | |
| (%) | ||||
| External valuation at 30 Jun 20 | 447.3 | |||
| Retail | 54.5 | 11.7 | -5.2 | 17.6 |
| South East Retail | 1.8 | -2.9 | -0.3 | |
| Retail Warehouses | 9.9 | -5.8 | 17.9 | |
| Offices | 142.3 | 30.6 | -0.4 | -0.6 |
| London City Offices | 2.8 | -1.5 | -0.2 | |
| London West End Offices | 2.9 | 0.0 | 0.0 | |
| South East Offices | 14.2 | -1.8 | -1.2 | |
| Rest of UK Offices | 10.7 | 1.6 | 0.8 | |
| Industrial | 236.1 | 50.8 | 0.2 | 0.5 |
| South East Industrial | 13.2 | -0.1 | -0.1 | |
| Rest of UK Industrial | 37.6 | 0.4 | 0.6 | |
| Other Commercial | 32.0 | 6.9 | 0.2 | 0.1 |
| External valuation at 30 Sep 20 | 464.9 | 100.0 | -0.4 | 464.9 |
Top 10 Properties
| 30 Sep 20 (£m) | |
| Hagley Road, Birmingham | 20-25 |
| B&Q, Halesowen | 15-20 |
| Symphony, Rotherham | 15-20 |
| The Pinnacle, Reading | 10-15 |
| Marsh Way, Rainham | 10-15 |
| Timbmet, Shellingford | 10-15 |
| Hollywood Green, London | 10-15 |
| New Palace Place, London | 10-15 |
| Basinghall Street, London | 10-15 |
| Atos Data Centre, Birmingham | 10-15 |
Top 10 tenants
| Name | Passing Rent £ | % of passing rent |
| B&Q Plc | 1,560,000 | 5.5% |
| BAE Systems plc | 1,257,640 | 4.4% |
| The Symphony Group Plc | 1,225,000 | 4.3% |
| Sec.State for CLG of Tribunal Services | 1,158,858 | 4.1% |
| Schlumberger Oilfield UK plc | 1,138,402 | 4.0% |
| Timbmet Group Limited | 799,683 | 2.8% |
| Atos IT Services UK Ltd | 779,970 | 2.7% |
| CEVA Logistics Limited | 671,958 | 2.3% |
| Timeline Wholesale services (UK) Ltd | 635,554 | 2.2% |
| G W Atkins & Sons Ltd | 625,000 | 2.2% |
| Total | 9,852,065 | 34.5% |
Regional Split
| South East | 32.1% |
| West Midlands | 18.7% |
| East Midlands | 12.2% |
| North West | 11.0% |
| Scotland | 9.2% |
| North East | 7.1% |
| South West | 4.0% |
| 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 2020 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 Investments
Tel: 07801039463 or jason.baggaley@aberdeenstandard.com
Oli Lord - Real Estate Deputy Fund Manager, Aberdeen Standard Investments
Tel: 07557938803 or oli.lord@aberdeenstandard.com
Graeme McDonald - Senior Fund Control Manager, Aberdeen Standard Investments
Tel: 07717543309 or graeme.mcdonald@aberdeenstandard.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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