Standard Life Property Income outperforms in 2016, sells White Bear Yard

Standard Life Investments Property Income Trust posted a 4.4% return on net assets for 2016 (4.4% on an IFRS basis, on an EPRA basis the return was 4.9% – based on IFRS NAV of 81p, down from 82.2p, and EPRA NAV of 82p, down from 82.7p). The share price total return over the year was 7.0%. Dividends totalled 4.76p (up from 4.644p) and these were covered 1.17x by adjusted (EPRA) earnings per share of 5.56p.

As at 31 December 2016, the portfolio was valued at GBP429.9million. The portfolio total return for the year was 5.8%, significantly ahead of tits benchmark total return of 2.2%. The capital return of -0.7% and the income return of 6.5% from the portfolio both outperformed the comparative benchmark figures (-2.5% and 4.8% respectively).

Sales totalling GBP20.2million in the year were undertaken to realise profit, remove future underperformance risk and reduce gearing in a time of market volatility. Post the year end this trend continued with GBP30million being sold, including the Company’s largest asset at White Bear Yard (see below).

Asset management initiatives, contributing to income and capital values, completed during the year include:

• 8 new lettings securing GBP907,000 of new rent pa; and
• 11 lease renegotiations agreed with existing tenants securing income of GBP 1.38million pa.
• A void rate of 3.3% at 31 December 2016, significantly below the benchmark figure of 7.1%.
• Positive rent collection rates of 99% within 21 days highlighting the continued strength of tenant covenants in an environment where they believe that income is likely to be the key component of returns going forward.

The investment portfolio has an initial yield of 6.3%, and given the nature of the investments and the leases in the portfolio this yield is
expected to trend upwards (based on the current valuation) to 7.2% over the next five years.

Sale of White Bear Yard

Standard Life Investments Property Income Trust has also just completed the sale of its largest asset, White Bear Yard, an office located in Farringdon, London. The sale price of GBP19m reflects an initial yield of 4.96%, and is just above the last valuation figure.

The asset was acquired by the Company in 2004 for GBP6.75m, and since then has benefitted from a minor refurbishment and reletting / lease regears. The proceeds of the sale will be used to repay the outstanding drawn amount under the RCF (GBP7.5m), and the remaining funds will be used to invest into new investment opportunities that better meet the Company’s current investment requirements.

Manager, Jason Baggaley, said “White Bear Yard has been a wonderful investment for the Company, but it was time to sell as it had increased downside risk given its location and lease profile. As a result of the sale the Company has no exposure to City of London offices, and will be reinvesting into assets that offer a stronger income return with less volatile capital expectations”.

SLI : Standard Life Property Income outperforms in 2016, sells White Bear Yard