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abrdn Property Income Trust refinances debt on better terms

abrdn Property Income Trust has refinanced its debt again, taking a £3.56m hit to lower the interest rate cap.

The company announced on 12 October 2022 (at the height of bond market volatility following the min-budget) that the trust had completed an extension of its debt facilities that were due to expire in April 2023 on a newly agreed term loan of £85m for three years, subject to a margin of 150bps over SONIA and an interest rate swap that gave an all-in cost of 6.97%.

The company has now taken the decision to break the swap at a cost of £3.56m and replace it with an interest rate cap at a rate of 3.96%, retaining the margin of 150bps previously agreed. At the current SONIA rate of 2.92%, the company will pay interest of 4.42% on the term loan. The cost of the interest rate cap is £2.51m which will be amortised over the three-year tenor of the loan.

The interest rate cap enables the company to benefit from lower interest costs as SONIA falls, whilst providing protection in a rising rate environment such that, should SONIA increase, the maximum all-in financing rate of the term loan is capped at 5.46%.

The cost of breaking the swap is a one-off charge to the income account impacting dividend cover in Q4 2022. This charge is consistent with the fair value mark-to-market loss through other comprehensive income that the company would have suffered if the swap had been left in place, and there is therefore no material effect on the company’s net asset value from breaking the swap.

New lettings and sale

The company also anounced two new office lettings are under offer at Explorer 1 & 2, in Crawley, potentially securing an annual rent of £299,000 per annum.

At 54 Hagley Road, Birmingham, terms have also been agreed on a new lease, securing a further £408,000 per annum. This, combined with other contracted lettings, is expected to bring the vacancy rate of the portfolio down on a like-for-like basis from 9.3% as at end September 2022 to under 5%.

The trust has also exchanged on the sale of a small multi-let office in Bristol for £4.3m. The asset produces a rent of £322,500 per annum, subject to a lease expiry and a break in less than two years, at which point substantial capex would be required. The sale yield of 6.95% is attractive in the current market.

Reduction in management fee

The company has also announced a 10bps reduction in the fee payable to the investment manager, effective from 1 January 2023. The fee will reduce to 60bps of Gross Asset Value below £500m, and 50bps above £500m. The fee reduction would have had the effect of increasing dividend cover by 3.4% on the basis of the last published GAV.

Dividend

The board has provided dividend guidance of 4.0p per share per annum for 2023 and 2024 following the recent changes (which would maintaining the current dividend for two years). It added that it expects the dividends in 2023 and 2024 will be substantially covered by net income.

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