Standard Life Investments Property Income industrials bet pays off – Standard Life Investments Property Income has reported results for the year ended 31 December 2018. Highlights were:
- Fall in EPRA earnings per share to 4.22p from 4.99p
- Dividend maintained at 4.76p
- NAV increased to 91.0p from 87.6p
- NAV total return of 9.6% in the year, due to strategic overweight position in industrial sector.
- Share price total return of -8.3% compared to the total return on the All-Share REIT Index of -12.4% and the All-Share Index of -9.5%.
- Loan to value of 24.4% at year-end, one of the lowest in the peer group and the wider REIT sector.
- GBP10.2 million of shares issued since 1 January 2018.
- Portfolio valued at GBP499.1 million (2017: GBP 433.2 million).
- Property total return for the period was 8.5%, significantly ahead of the IPD Quarterly version of Monthly Index total return of 6.8%.
- The income return of 5.0% from the portfolio continued to outperform the comparative benchmark figure of 4.6% with a capital return of 3.3% in excess of the benchmark return of 2.1%.
- A number of successful asset management initiatives, contributing to income and capital values, completed during the year including:
- 13 new lettings generating GBP2.65 million per annum of income
- 8 lease renegotiations/rent reviews securing longer term income of GBP 1.58 million per annum
- Occupancy rate of 94.1% (2017: 92.3%) as successful asset management initiatives and strategic sales reduced the number of void units in the portfolio.
- Positive rent collection rates of 98% within 21 days highlighting the continued strength of tenant covenants in an environment where income will be the key component of returns going forward.
Background
Capital growth over 2018 was a respectable 2.1% driven by the outperforming industrial sector which produced strong capital growth of 11.8%. The office sector delivered capital growth of 2.5% as overseas money still sought prime office assets both in the City of London and, increasingly, elsewhere in the UK. These returns were partially offset by a 5.8% fall in capital values in the retail sector which is still coming to terms with the growing presence of online retailers and a number of high profile company voluntary arrangements that resulted in both store closures and reduced rents, a trend that looks likely to continue.
Income returns continued to be the main contributor to the overall positive performance of the real estate sector, with the IPD benchmark producing an income return of 4.6% in 2018 with rental growth of 0.7% being delivered, again mainly driven by industrials.
Falling dividend cover
The chairman addresses the fall in EPS in his statement, saying: “Dividend cover was 89% for the year as void levels increased and the company’s revolving credit facility (“RCF”) remained largely unutilised for the majority of the year. This equates to EPRA earnings per share of 4.22p in 2018. However, the letting of the company’s largest void in December and the sale of the second largest void in September resulted in the void rate falling to 5.9% as at 31 December 2018 (31 December 2017: -7.7%). In addition, the purchase of Hagley Road in November 2018, financed mainly through the use of the RCF, should result in improved dividend cover going forward, all other things remaining equal. The importance to shareholders of the attractive level of dividend paid by the company is recognised by the board and the preservation and potential growth in dividend cover is a key priority in the medium term.”
SLI : Standard Life Investments Property Income industrials bet pays off