Standard Life Investments Property Income Trust (SLI) has reported a 7.5% fall in net asset value (NAV) in the quarter to the end of March as the impact of covid-19 bites.
The company, which owns a diverse portfolio of commercial properties in the UK, said NAV per share was 83.2p compared to 89.9p on 31 December 2019.
The fall was predominantly due to a 4.9% drop in the value of its property portfolio in the period, with its independent valuer inserting a material uncertainty clause to the valuation due to the uncertainty cause by the covid-19 pandemic.
The company intends to pay a full quarterly dividend of 1.19p per share, in respect of the three month period to 31 March 2020, which is payable on 29 May 2020. This, it said, reflects the fact that a significant proportion of rent for this period was paid in advance, prior to the impact from the covid-19 pandemic.
The group said that its future dividend policy was under review given that rent collection for the period to 30 June 2020, and potentially thereafter, will be materially impacted due to the ongoing pandemic and lockdown.
SLI’s had received payments reflecting 71% of rents due as at 4 May 2020 for the quarter to the end of June 2020, up from 66% as previously announced on 23 April 2020.
At the end of the quarter SLI’s loan to value ratio (LTV) was 24.4%. It had £8m drawn from its existing revolving credit facility with £47m still available for investment to take advantage of investment opportunities.
Investment and letting activity
During the quarter SLI completed the sale of a single let office building in Staines for £10.7m, reflecting an equivalent yield of 5.7%. It also completed two lettings that secured £269,000 per annum in rent, along with two lease renewals securing £141,713 per annum.
Three rent reviews were also completed securing an increase of £16,250 per annum (on average 19% above the previous rental level).
Investment manager commentary
Jason Baggaley, investment manager, said: “2020 started with a feeling of optimism following the result of the general election in December 2019 allowing the company to conclude three rent reviews, two new lettings and two lease regears.
However, by the end of March the covid-19 pandemic had struck and, consequently the valuation of the company’s assets declined by 4.9% on a like for like basis over the quarter. Every asset in the portfolio was written down, reflecting the change in market dynamics from end December to end March. By the end of March, the investment market had come to a virtual standstill and relevant transactional evidence was limited. The quarter end valuations were subject to a material uncertainty clause, reflecting the lack of reliable evidence, and valuers need to place a higher reliance on sentiment in their valuations than they would normally. With the whole team working from home, our focus was on rental collection at the quarter end, and liaising with our tenants to understand how they were trading and what help they needed. Even as this is written, at the end of 6 weeks in lock down (and 8 weeks of working from home), it feels as though we are still in the early days of truly understanding the extent of the impact of the virus on the UK economy and property market.
“What is clear to us now though, is that just about everyone is impacted as an individual, and just about every company, no matter what it does, has had to adjust to significant change. We are keen to help those who need it the most, whilst ensuring that those who are able to pay rent do so, as we balance the needs of our shareholders with the viability of our tenants. In many cases we are having constructive discussions with our tenants to remove lease breaks or extend leases in return for a rent free period now.
“It is the retail and leisure sectors that will be hardest hit, and where recovery will be slowest. We have a relatively small exposure to these sectors, and, where we do, it is at the affordable end of the market, where we expect a faster recovery. There is much discussion about how demand for offices will be impacted over the longer term – will more people work from home, or will organisations need to have fewer people in more space to encourage social distancing? We believe our offices will continue to appeal to occupiers, and in fact have two leases ready to complete – once the new tenants know when they can actually move in. The industrial sector, which this company is most exposed to, is likely to be the most resilient sector and the one that recovers the fastest – although there will be pain here as well as the economy stalls.
“The occupancy level in the portfolio decreased slightly over the quarter from 93.4% to 92.3%, as a result of a lease expiry on an industrial unit in Dover. January and February saw strong interest across the vacant properties (and two lettings were completed), however much of this has been put on hold during lockdown, as companies reconsider what they need, and when they might be able to move in to new accommodation. Although the ongoing discussions are encouraging, one can expect delays before such decisions are made. We were also delighted to complete a lease renewal in April and a new letting in May during lockdown.
“In January the company repaid part of the RCF, with only £8m drawn at the end of the quarter (out of a facility of £55m) following the sale of Bourne House in Staines. The LTV of 24.4% provides plenty of head room against banking covenants (values can fall by 53% and rent by 62% before the covenants are under pressure based on 31 March covenants). Over the quarter, the company had an increase in the level of liability of its interest rate swap from £2.22m to £3.38m. This negative impact on the NAV will unwind to £0 on maturity in 2023.”
SLI : Standard Life Investments Property Income reports 7.5% fall in NAV