Standard Life Investments Property Income Trust (SLI) has provided a covid-19 update in which it has reaffirmed its first quarter dividend.
The company, which owns a diverse portfolio of UK property heavily weighted towards the industrial sector, confirmed that it intends to pay a quarterly dividend of 1.19p per share, in respect of the three month period to 31 March 2020, which is expected to be declared and payable in May 2020.
SLI has collected 66% of advanced rent for the second quarter of the year, and will deploy a “small part” of financial resources it has available to cover the shortfall in income it has received for the second quarter to pay the dividend.
Due to the ongoing covid-19 pandemic, SLI said rent collection for the period to 30 June 2020, and potentially thereafter, will be materially impacted. This, it said, is likely to affect the company’s future dividends.The board has put its dividend policy under review.
Rent collection
As at close of business on 20 April 2020, the company had received payments reflecting 66% of rents due for the second quarter of the year, including tenants that have switched to monthly payments. Assuming all monthly payments that have yet to be paid in the quarter are received, the collection figure should increase to 74%.
The company said the payment rate is continuing to rise and the manager is in close communication with tenants to understand their difficulties and assess where genuine challenges exist which can be alleviated by alternative rent solutions from deferral of repayment to rent rebates in return, for example, for extensions of leases.
The rent collection rate for each property sector is broken down as follows:
Industrial – 65%; Retail – 60%; Offices – 72%; Other – 100%; Leisure 39%.
Portfolio Valuation
SLI’s portfolio valuation as at 31 March 2020 was £458.6m, which represents a 4.9% like for like decline in valuation from 31 December 2019.
The portfolio has a 52.3% weighting to the industrial sector and only 8.5% in the retail sector and 7.3% in the other commercial sector which includes leisure.
SLI’s industrial portfolio was valued at £240.1m at the end of March, down 5% in the quarter. Its offices portfolio was down 4.1% to £146.3m, while its retail portfolio was down 7.7% to £39m. Other commercial was down 4.5% to £33.2m.
Financial position
The company has financial resources available of £47m through a low cost, flexible revolving credit facility with The Royal Bank of Scotland. As at 20 April, SLI also had £5.9m of cash.
The group’s Loan to Value (LTV) is 24.4%, based on the 31 March 2020 valuation and the cash balance. The debt comprises a term loan of £110m and a revolving credit facility of £55m of which £8m has been utilised, both with RBS. The facilities expire in April 2023 and currently have an overall blended interest rate of 2.65% per annum.
The company had significant headroom on loan covenants, stating net rental income would need to fall by 74% and property values by 50% for covenants to be breached based on 31 December 2019 numbers. In addition there are four properties still available to be pledged which were valued at £53m at end of December.
[QuotedData spoke to manager Jason Baggaley on an analyst call this morning and he gave further insight into the impact of covid-19 on SLI’s portfolio and the wider property market. On values he said different valuers were taking different approaches to valuing property, with some not marking down properties due to a lack of transactional evidence. Others, including SLI’s, were using more judgement based on sentiment. He said he encouraged the latter as it reflected the uncertainty in the market. On rent collection, he said the next quarter rent collection rate will be worse across the property sector, with some tenants indicating they wouldn’t be able to pay. SLI has been working with its tenants on a case-by-case basis to work out deferral methods, but he said he doesn’t expect these to be settled within the next year. In return for rent deferrals, he said SLI was negotiating longer leases or the removal of break clauses on the lease.
The next quarter rent collection day, which falls at the end of June for most companies, is very likely to be a bloodbath for the property sector, while values are set to fall further across all sub-sectors. Companies with a strong balance sheet, low borrowings and have a portfolio weighted towards sectors that will bounce back quicker as we come out of the covid-19 pandemic, ie industrial and offices, are in a strong position. In our view, SLI falls into this category.
QuotedData published an annual overview note on SLI in February. To read it click here.]
SLI : Standard Life Investments Property Income to pay dividend