Abrdn Property Income Trust Limited - Unaudited Net Asset Value as at 30 June 2023

abrdn Property Income Trust Limited

(an authorised closed-ended investment company incorporated in Guernsey with registration number 41352)

 

LEI Number: 549300HHFBWZRKC7RW84

(The “Company”)

 

9 August 2023

 

Unaudited Net Asset Value as at 30 June 2023

 

 

 

Net Asset Value and Valuations

 

• Net asset value (“NAV”) per ordinary share was 83.8p (Mar 2023 – 82.4p), an increase of 1.7% for Q2 2023, resulting in a NAV total return, including dividends, of 2.96% for the quarter;

 

• The portfolio valuation increased by 0.4% on a like for like basis during the quarter, whilst the MSCI Quarterly Index fell by 0.8% over the same period.

 

Investment and letting activity

 

• Three previously reported agreements to lease completed (development funding and agreements for lease) totaling £954,811pa, along with two new leases completed for £199,200 and three new agreements for lease completed for £668,090. One lease regeared securing £160,00pa (6.7% above previous rent and ERV) and one lease renewal of £535,00pa, showing an increase of 30.2% over the previous rent and 19% above December ERV.
• Rent received in Q2 increased by £400,000 compared to Q1 (6.3%)
   

Financial Position

• Robust balance sheet with financial resources available for investment of £28.1 million (of which £30 million is currently in the form of the Company’s revolving credit facility) net of current cash after dividend and other financial commitments.

 

Occupancy / Void / WAULT

The Company had a vacancy rate of 8.2% as at end Q2 2023 (Q1 9.8%).  Several substantial vacant units are subject to a binding agreement for lease, and when those leases complete the vacancy rate based on current fund position will be under 5%. The Company also has one speculative development project due to complete at the end of the year that represents 2.5% of fund ERV.

The weighted average unexpired lease term of the portfolio is 6.3 years (6.5 years Q1 2023).

 

Debt Facility and Gearing

API currently has two facilities with RBSI, an £85m term loan (fully drawn) and an £80m Revolving Credit Facility (RCF) of which £50m was drawn as at 30th June. Both facilities are at a margin of 150bps over SONIA and an interest rate cap on SONIA has been put in place at 4% over the term loan.  As at 30 June 2023, the Company had a Loan to Value (LTV) of 28.1%*.

 

*LTV calculated as debt less all cash divided by investment portfolio value

 

Dividends

Following the dividend being maintained at an annualised rate of 4p per share since December 2021, the dividend cover for Q2 2023 is 72.7%.  The Board has provided guidance of its intention to maintain the current dividend level.

 

Net Asset Value (“NAV”)

 

The unaudited net asset value per ordinary share at 30 June 2023 was 83.8p. The net asset value is calculated under International Financial Reporting Standards (“IFRS”).

 

The net asset value incorporates the external portfolio valuation by Knight Frank LLP at 30 June 2023 of £445.0 million. 

 

Breakdown of NAV movement

 

Set out below is a breakdown of the change in the unaudited NAV calculated under IFRS over the period 31 March 2023 to 30 June 2023.

 

	Per Share (p)	Attributable Assets (£m)	Comment
Net assets as at 31 March 2023	82.4	314.0
Unrealised movement in valuation of property portfolio	2.1	8.0	Like for like increase of 0.4%.
CAPEX in the quarter	-1.0	-3.9	Predominantly development spend at Washington Rainhill Road and Knowsley.
Net income in the quarter after dividend	-0.3	-1.0	Rolling 12 month dividend cover 87.4% excl. one off SWAP break cost in 2022.
Interest rate hedge mark to market revaluation	0.6	2.4	SWAP and CAP valuation movement
Net assets as at 30 June 2023	83.8	319.5

 

 

European Public Real Estate Association (“EPRA”)	30 June 2023	31 Mar 2023
EPRA Net Tangible Assets	£315.2m	£311.5m
EPRA Net Tangible Assets per share	82.7p	81.7p

 

The Net Asset Value per share is calculated using 381,218,977 shares of 1p each being the number in issue on 30 June 2023.

 

Investment Manager Review and Portfolio Activity

 

The inflation print in May certainly caused some turmoil in the investment market with a noticeable change in sentiment as interest rate expectations changed. The Company was not involved in any investment transactions during the quarter but continued to have a busy time of asset management, with encouraging progress on lettings and securing future income.

 

 The lease renewal of a logistics unit in Glasgow completed in early June with a 10-year lease at a rent of £535,000pa, an uplift of 30.2% from the previous rent. As part of the renewal terms, a Photo Voltaic (PV) installation on the roof was agreed which we are progressing and will help further improve the ESG credentials of the unit.

 

An early renewal was completed on a leisure unit in London. The lease was due to expire next year but has been extended by five years to enable us to work towards a block date for all the leases and a potential redevelopment of the site in the future. The increase in rent of 6.7% above the passing rent (and above valuation assumptions) is a reflection of the strong trading at the location where we expect to complete several other lease regears shortly.

 

Several new leases were signed over the quarter. The largest was with St Helens Borough Council on our newly developed industrial facility – a 15-year lease with indexation at a starting rent of £657,040pa. Leases were also competed on two office floors in Crawley where we had previously signed an agreement for lease. Completion followed landlord works and secured £297,770pa. The Company’s largest office asset is 54 Hagley Rd in Birmingham. It has seen significant leasing activity in the quarter with two agreements for lease completing with a future rent of £538,000pa once landlord works complete (expected in Q3 2023). Another suite at 54 Hagley Rd was let at £56,386pa as well as the last remaining office space at Basinghall St London for £142,800pa. It is clear that the right office space continues to attract occupiers. As a result of this activity the Company’s vacancy rate taking account of the agreements for lease, has fallen to under 5% from 10% at the beginning of the year.

 

ESG is an important part of how we approach managing the Company as we believe it is an increasing driver of value. PV cells on building roofs is one of the areas we have focused on as we can provide onsite renewable energy that benefits the occupier and provides an economic return for the landlord. Installing it is complex, with grid capacity and structural constraints often impacting on schemes, however we are having some great successes. In July we will start on two more projects with a total of 855kWp. We are currently on site with a scheme of 1,160kWp due to complete in October, and have just completed two schemes totaling 263kWp. In June we have completed two other schemes totalling 492kWp – to date, these have helped to reduce CO2 emissions by 31.1 tonnes (as at 12 July).  We have also made progress with our carbon project at Far Ralia, now having all approvals in place and a contract agreed with Scottish Forestry to enable planting to commence in September. This will be a major milestone for the project, more details of which can be seen in a video on our website www.abrdnpit.co.uk . Obviously, we also need to continue to ensure our assets meet high standards, and we continue to improve the EPC ratings, with 43% of our properties rated A or B as at 30 June (25% June 2022).

 

 

UK Real Estate Market Outlook – Q2 2023
 

• In welcome news, the June UK inflation report surprised to the downside as the headline rate came in at 7.9%, while core inflation also declined, from 7.1% in May to 6.9% in June 2023.
• The Bank of England increased the Bank Rate by 50 basis points (bps) to 5% in June 2023 and subsequently by a further 25bps to 5.25% in July and in August.
• Total return performance improved during the second quarter of 2023, with all property posting a total return of 0.4% in the three months to June 2023 according to the MSCI Quarterly Index. Real estate pricing began to stabilise in the second quarter of 2023, particularly in those areas of the market that saw the greatest capital declines. Modest capital value growth was also recorded in sectors that benefit from structural tailwinds however any substantive improvement in real estate performance is now not anticipated until early 2024, as the path of UK monetary policy is likely to become more accommodative. The risks to the timing of this recovery remain elevated given the strength of underlying inflation and the consequent risk of higher interest rates.
• Transaction activity remained muted in the second quarter of 2023 as investors took a more cautious approach to UK real estate. Transaction volumes were £5.6 billion over the quarter, down 64% on the same period a year earlier, and 63% below the 10-year quarterly average.
• The office sector remains under structural pressure as evolving working habits and economic uncertainty weigh on the sector. Although office occupation has been improving with more workers returning at least three days a week, most requirements show a need for less space than currently occupied, with a focus on getting location and amenity right to attract workers.  Investor demand for UK offices remains weak amid a poor outlook for the sector. Headline investment volumes hide a lack of real liquidity in the office market, especially for secondary assets. Headline deals on core Central London assets are not reflective of the wider market.
• Improved sentiment returned to the industrial and logistics sector during the second quarter of 2023, as pricing and performance demonstrated tentative signs of stabilisation. While the longer-term outlook remains positive, short-term caution is required as a slowing economy will impact occupier demand. Major occupiers of logistics accommodation are certainly focussed on ESG, and there is a noticeable change in tenant requirements for the larger assets when looking for new space.
• The retail sector has proven to be more resilient than many had expected over the first half of 2023. According to the Office for National Statistics (ONS), retail sales in the UK unexpectedly expanded in May, boosted by spending on summer clothing and outdoor goods. However, it is important to highlight the difference between the quantity of goods purchased (volume) and the amount spent (value). Retail volumes are now 0.8% lower than pre-Covid 19 levels, while retail values are 17% higher. It is a clear illustration that consumers are cutting back on the number of items being purchased, while higher inflation means it is costing more to purchase these items.  
• API has always focussed on affordable out of town retail, catering for the discount retailers, and this has been an area on ongoing growth in demand – driven by retailers such as B&M showing sales growth of 9.2% in its UK business over the first quarter of 2023.
• There has been an increase in breadth of retailers taking new space, with several brand names moving into their own stores to “own” the relationship with clients, and although online retail continues to impact on retailer models, it is clear that bricks and mortar stores remain an important part of most retailers’ strategies.  

 

Net Asset analysis as at 31 March 2023 (unaudited)

 

	£m	% of net assets
Industrial	240.8	75.4
Office	85.1	26.6
Retail	73.4	23.0
Other Commercial	38.2	12.0
Land	7.5	2.3
Total Property Portfolio	445.1	139.3
Adjustment for lease incentives	-8.2	-2.5
Fair value of Property Portfolio	436.9	136.8
Cash	10.0	3.1
Other Assets	19.5	6.1
Total Assets	466.4	146.0
Current liabilities	-12.7	-4.0
Non-current liabilities (bank loans & swap)	-134.2	-42.0
Total Net Assets	319.5	100.0

 

 

Breakdown in valuation movements over the period 01 April 2023 to 30 June 2023

 

	Portfolio Value as at 30 Jun 2023 (£m)	Exposure as at 30 Jun 2023 (%)	Like for Like Capital Value Shift (excl transactions & CAPEX)	Capital Value Shift (incl transactions (£m)
			(%)
External valuation at 31 Mar 23				437.0
Retail	73.4	16.5	1.0	1.1
South East Retail		1.8	0.0	0.0
Retail Warehouses		14.7	1.1	1.1
Offices	85.1	19.1	(3.0)	(0.4)
London City Offices		2.5	0.0	0.0
London West End Offices		2.1	(2.6)	(0.3)
South East Offices		6.3	(4.8)	0.9
Rest of UK Offices		8.2	(2.7)	(1.0)
Industrial	240.8	54.1	1.6	7.3
South East Industrial		8.7	1.7	0.6
Rest of UK Industrial		45.4	1.6	6.7
Other Commercial	38.2	8.6	0.0	0.0
Land	7.5	1.7	0.0	0.0
External valuation at 30 Jun 23	445.0	100.0	0.4	445.0

 

 

Yields

 

	Initial Yield (%)	Equivalent Yield (%)	EPRA NIY (%)
Portfolio	5.4	7.0	4.8%

 

 

Top 10 Properties

 

	30 Jun 23 (£m)
Halesowen, B&Q	20-25
Birmingham, 54 Hagley Road	20-25
Rotherham, Symphony	20-25
Welwyn Garden City, Morrison’s	15-20
Shellingford, Timbmet	15-20
Birmingham, Atos Data Centre	15-20
London, Hollywood Green	10-15
Swadlincote, Tetron 141	10-15
Corby, CEVA Logistics	10-15
Preston, Walton Summit	10-15

The top ten assets represent 38% of portfolio value

 

Top 10 tenants

 

Tenant Name	Passing Rent	% of total Passing Rent
B&Q Plc	1,560,000	5.8%
Public Sector	1,364,226	5.1%
WM Morrisons Supermarkets Ltd	1,252,162	4.7%
The Symphony Group Plc	1,225,000	4.6%
Schlumberger Oilfield UK plc	1,138,402	4.2%
Timbmet Limited	904,768	3.4%
Atos IT Services UK Limited	872,466	3.3%
CEVA Logistics Limited	840,000	3.1%
Jenkins Shipping Co Ltd	816,390	3.0%
ThyssenKrupp Materials (UK) Ltd	643,565	2.4%
	10,616,979	39.6%

 

 

Regional Split

 

South East	23.9%
West Midlands	19.5%
North West	13.7%
East Midlands	12.8%
Scotland	11.6%
North East	10.8%
South West	3.1%
City of London	2.5%
London West End	2.1%

 

 

Except as described above, the Board is not aware of any significant events or transactions which have occurred between 30 June 2023 and the date of publication of this statement which would have a material impact on the financial position of the Company.

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

 

Details of the Company may also be found on the Investment Manager’s website at: www.abrdnpit.co.uk

 

 

For further information:-

 

For further information:-

Jason Baggaley – API Fund Manager, abrdn

Tel:  [phone] or [e-mail]

 

Mark Blyth – API Fund Manager, abrdn

Tel: [phone] or [e-mail]

 

Craig Gregor - Fund Controller, abrdn

Tel: [phone] or [e-mail]

 

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Ltd

Trafalgar Court

Les Banques

St Peter Port

GY1 3QL

Tel: [phone]

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