Standard Life Investments Property Income Trust posts NAV return of 14.5 per cent

Standard Life Investments Property Income Trust (SLIPIT) has reported “robust performance” for last year, with a total NAV return of 14.5 per cent driven largely by a high exposure to industrial property and logistics.

There was also strong share price total return over the year of 13.7 per cent - by comparison over the same period, the FTSE All Share REIT Index returned 12.2 per cent and the FTSE All-Share Index returned 13.1 per cent.

Financial highlights:

• SLIPIT shares trading at a premium to NAV of 6.4 per cent as at 31 December 2017. The yield on the Company’s share price as at 31 December 2017 stood at 5.1 per cent which compares favourably to the FTSE All-Share REIT Index (3.6 per cent) and FTSE All-Share Index (3.4 per cent) at the same date.

• Dividends totalling 4.76p paid to shareholders in 2017.

• Over the longer term, the Company has also delivered good performance with a total return NAV at 112.9 per cent and share price 115.8 per cent over five years. In comparison over the same period, the FTSE All Share REIT Index returned 70.8 per cent and the FTSE All-Share Index returned 63.0 per cent.

• The Company has continued to reduce borrowing with loan to value of 18.0 per cent at year end (31 Dec 2016: 26.0%) at an attractive interest rate of 2.7 per cent. This reflects a cautious approach to reduce risk late in the cycle.

• £18.3 million is currently held as uncommitted cash as a result of sales, but some of this will be reinvested through more purchases in 2018.

• Since 1 January 2017 to date a total of 22.425 million shares were issued under the Company’s blocklisting facility generating net proceeds of £20 million for investment into the portfolio.

• Property total return for the period was 12.1 per cent, significantly ahead of the IPD Quarterly version of Monthly Index total return of 10.5 per cent. The income return of 6.3 per cent from the portfolio continued to outperform the comparative benchmark figure of 4.8 per cent with a capital return of 5.5 per cent in line with that of the benchmark. Eight new lettings and rent reviews plus 14 lease negotiations secured a total of £1.25 million.

• Void rate was 7.7 per cent but partly as a result of new purchases, and expected to reduce with lettings in the pipeline.

• The portfolio is now valued at £433.2 million, with 54 properties, almost half of which are industrial.

SLIPIT owns a diversified portfolio of income generating UK commercial property, advised by Aberdeen Standard Investments. The fund manager, Jason Baggaley spent 2017 repositioning the portfolio away from core London offices and retail towards industrial property, taking advantage of the strong rental growth due partly to low supply and high demand within the logistics sector.

In 2017 the Company sold 10 properties for a total of £72.7 million including exchanging contracts on its biggest asset, Elstree House in Borehamwood for £20 million, which completed in March 2018. Six assets worth £48.9 million were bought over the year, with a further three purchases completed after the year end for £23.6 million.

hairman Robert Pato said: “The strong returns from SLIPIT in 2017 have been underpinned by a property portfolio that has been significantly respositioned during the year and is well diversified by geography, sector and tenants.

“Performance of real estate markets was better than expected, considering the squeeze on disposable incomes, a slowdown in UK economic growth and the fall in the pound. Looking forward the shadow of increasing political uncertainty is hanging over the UK - due to Brexit, potential trade wars and tensions with Russia.

“Despite this environment SLIPIT is structured prudently for the coming years, with a strong balance sheet, low debt and cash resources. The repositioning has increased exposure to the industrial sector and well-located offices, whilst selling properties with limited future return prospects.

“The Board is targeting high standards of sustainability throughout the portfolio and property management process – focusing on improving energy efficiency, reducing greenhouse gas emissions and enhancements in environmental performance. The trust was awarded a Green Star rating in the GRESB Real Estate Assessment, which is the industry measure of green performance, improving its score by 8% from the previous year.”

Jason Baggaley, fund manager said: “Whilst the real estate market performed ahead of expectations in 2017, we know that the sector is moving into a late phase of the cycle and capital values are under pressure. Looking ahead, steady, secure rental income is likely to be the main driver of returns over the next few years so we have positioned the portfolio to receive a reliable income stream, having sold a number of properties where we did not think adequate returns would be achieved.

“We look for good but not always prime locations where there is strong tenant demand and the opportunity to make improvements using our asset management skills. For example, The Pinnacle building in Reading – a good quality multi-let office close to the station, which we plan to enhance. Businesses are looking for much more from their offices than rows of desks. They want a sense of community, a great experience for staff, and a service-orientated culture. We are focused on buying collaborative workspace with the right mix of services and flexibility to attract quality occupiers and rents – and this doesn’t have to be in London.”