abrdn Property Income Trust Limited - NAV Announcement
PR Newswire
London, November 2
3 November 2022
abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)
LEI: 549300HHFBWZRKC7RW84
Unaudited Net Asset Value as at 30 September 2022
Net Asset Value and Valuations
· Net asset value ("NAV") per ordinary share was 106.1p (Jun 2022 - 110.7p), a decrease of 4.1% for Q3 2022, resulting in a NAV total return, including dividends, of -3.3% for the quarter;
· The portfolio valuation (before CAPEX) decreased by 4.2% on a like for like basis during the quarter, whilst the MSCI Monthly Index decreased by 5.1% over the same period.
Investment and letting activity
· Disposal of office building Endeavour House in Kidlington for £8.03m, reflecting 5.0% net initial yield. Valuation at 30 June 2022 was £7.0 million
· Exchanged on the sale of Marsh Way, Rainham for £21.65m, reflecting 2.84% net initial yield - completed 04/10/2022. Valuation at 30 June 2022 was £22.25m, and at 30 September 2022 was £21.65 million.
· After quarter end (end October) sale completed of an office building in Epsom for £7.73m reflecting a 7.25% net initial yield. The sale price reflected a 11.7% reduction to the June 2022 valuation.
· New letting on 35,500 sq.ft distribution unit securing £318,710 p.a., 63% ahead of previous rent.
· Voids have fallen to 9.3% in September 2022 from 11.8% in September 2021, with a further 1.8% reduction contracted subject to completion of a refurbishment.
Financial Position
· Robust balance sheet with financial resources available for investment of £59 million (of which £55 million is in the form of the Company's revolving credit facility) net of current cash after dividend and other financial commitments, plus the post-period receipts from the sale of Marsh Way, Rainham and Kirkgate, Epsom.
Debt Facility and Gearing
API currently has two facilities with RBSI, a £110m term loan and a £55m Revolving Credit Facility (RCF). Both facilities are due to expire in March 2023. As at 30 September 2022, the Company had a Loan to Value (LTV) of 21.7%*.
An extension has been agreed for a three year tenor with a term loan of £85m and an RCF of £80m. The new facility will start in March 2023 with a margin of 150bps over Sonia for both the term loan and the RCF. It is intended that the term loan will be fully drawn on commencement. The RCF will be used to provide liquidity for the Company and the Board intends to manage the level of debt to retain an LTV in the range of 20 - 30%. The existing cost of debt at 2.77% will remain until April 2023.
The Company has entered into a forward interest rate Swap on the full amount of the new term loan. The cost of the Swap is 5.47% (giving an all-in rate of 6.97% on the £85m borrowed under the term loan). The RCF will have a floating rate based on the prevailing Sonia rate.
The extended facility provides certainty for the Company, and by renewing with the current lender costs are minimised. The margin of 150bps is competitive, however the cost of the SWAP does create a significant increase to the overall cost of debt for the company. The reduction in term loan (with larger RCF) enables the Company to reduce the impact of the fixed rate, and the three year tenor might give an opportunity to reset at a lower point in the interest rate cycle.
*LTV calculated as debt less all cash divided by investment portfolio value
Dividends
Following the dividend being maintained at an annualized rate of 4p per share since December 2021, the dividend cover for Q3 2022 is 90%, and is forecast to be 94% for the year
Net Asset Value ("NAV")
The unaudited net asset value per ordinary share of abrdn Property Income Trust Limited ("API") at 30 September 2022 was 106.1p. 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 September 2022 of £518.5 million.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited NAV calculated under IFRS over the period 30 June 2022 to 30 September 2022.
| Per Share (p) | Attributable Assets (£m) | Comment | |
| Net assets as at 30 June 2022 | 110.7 | 433.3 | |
| Unrealised movement in valuation of property portfolio | -4.7 | -18.1 | Like for like decrease of 4.2% in property valuations. |
| Gain on sale | 0.2 | 0.9 | Gain on sale of Endeavour House, Kidlington. |
| CAPEX in the quarter | -1.2 | -4.5 | Predominantly development spend at Glass Futures, St Helens. |
| Net income in the quarter after dividend | -0.1 | -0.5 | 90% dividend cover. |
| Interest rate swaps mark to market revaluation | 0.2 | 0.9 | SWAP is now deemed an asset. |
| Other movements in reserves | 0.0 | 0.1 | Movement relating to lease incentives in the quarter |
| Share buybacks | 1.0 | -7.9 | Investment in own shares at a discount to NAV |
| Net assets as at 30 September 2022 | 106.1 | 404.3 |
| European Public Real Estate Association ("EPRA") | 30 Sept 2022 | 30 Jun 2022 |
| EPRA Net Tangible Assets | £402.5m | £432.3m |
| EPRA Net Tangible Assets per share | 104.6p | 109.3p |
The Net Asset Value per share is calculated using 381,218,977 shares of 1p each being the number in issue on 30 September 2022 (This figure excludes those held in treasury as a result of share buy backs).
Investment Manager Review and Portfolio Activity
The new debt facility, signed just after the quarter end is the most significant event for the Company recently. The all-in rate for the term loan is higher than the expiring loan, but signing when we did gives the company certainty, and a platform on which to work.
There were some significant high points during the quarter. The Company exchanged on the sale of its lowest yielding industrial asset for £21.65m at the end of September, completing the sale in early October. The sale price represented a yield of 2.84%, and the sale proceeds are being used to reduce debt. Before that, the Company completed the sale of a single let office in Kidlington (on the outskirts of Oxford) for £8.033m, 14.8% above the end June valuation. After the quarter end the Company completed the sale of The Kirkgate in Epsom for £7.725m reflecting 7.25% net initial yield. The office building was fully-let to 6 tenants with an unexpired term to break of 2.5 years, with the price reflecting an 11.7% discount to the June 2022 valuation. The Company had undertaken a comprehensive refurbishment of the property and fully relet it over the last three years, successfully completing the asset business plan and took the opportunity to further reduce the Company's exposure to offices.
Following the successful letting of a logistics unit in Q2 where the Company is about to refurbish the unit (to create a negative operational carbon asset), in Q3 we completed another logistics letting on attractive terms where we had completed the refurbishment - again providing a net negative operational carbon building. The majority of the Company's voids are on office assets, and although no new leases were signed in Q3 terms have been agreed for vacant suites on three assets, and if they complete a significant reduction in the void rate can be expected to circa 5%. The Company's void rate as at 30 September was 9.3% (down from 10.2% at end June) with 1.8% of this let subject to completion of a landlord refurbishment.
Having seen capital values increase over the first half of the year, Q3 saw a reversal, with a decline in like for like valuations of 4.2%. This was most evident in the Industrial / Logistics sector, but the trend is being seen across the whole portfolio. Perhaps in anticipation of these falls the Company continued to trade on a significant discount. As a result, the Company undertook share buy-backs again over the quarter, acquiring a total of 10,083,175 shares, at an average discount of 26.9%, resulting in a positive NAV per share contribution of 1.0p.
UK Real Estate Market Outlook - Q4 2022
· UK real estate had a strong start to the year and performance was positive, with all property reporting a total return of 7.8% over the first six months of the year according to the MSCI Quarterly Index. However, there has been a rapid repricing in Q3 and capital values are expected to fall for the remainder of this year, and in 2023. This trend is already apparent as all property capital values fell by 5.1% in Q3 2022 as measured by the MSCI monthly index, resulting in the 3 month total return numbers turning negative for the first time since the outbreak of the Covid-19 pandemic in 2020.
· Whilst the sector impacts of a real estate repricing will be asymmetric, capital value declines are expected across all sectors, initially focused on lower yielding prime assets. The pricing impact is however expected to be greater and more prolonged on secondary assets which do not meet occupier and investor demand.
· Transaction volumes fell in Q3 2022 to £10bn according to Real Capital Analytics as weaker sentiment spread throughout the UK real estate market. Q3 volumes, when compared to the same period in 2021, were down approximately 50% and, when compared to the Q3 ten year average, volumes were also down by 30%. We expect transaction volumes to see further falls into Q4 and early 2023 as investor concerns persist.
· The drivers of the rapid change in market sentiment have been rising debt costs, with swap rates moving out considerably since the start of the year, along with rising government bond yields, and expectations of further interest rates increases to tame more persistent inflation than originally forecast.
· The Bank of England is likely to have to tighten monetary policy aggressively over the coming months, starting in November, in order to quell inflation. UK inflation, as measured by the consumer price index (CPI), increased to 10.1% in September. It is very unclear when or at what level interest rates will peak at, or when they will start to fall again, and to what level, but that is likely to be a key determinant of longer term asset pricing.
· It is often said that no two recessions are the same. Construction cost inflation has been rising throughout 2022 and has resulted in the number of development projects falling across most sectors, as investors struggle with the financial viability of new developments. This will serve to further reduce the supply of UK real estate, which already remains more muted than at this stage in previous cycles.
· From an occupational perspective, demand has remained robust in the industrial sector and take up over the first half of the year was above the 10 year H1 average. However, rising costs and signs of weaker demand can initially be seen by the rising UK industrial vacancy rate which, while remaining near historic lows, has risen to 3.4% according to CoStar. Tight supply and limited new development should allow for rental value growth in the prime end of the sector, albeit at more normalised levels.
· Within the office sector, occupational demand has historically been closely correlated with GDP growth and, given the poor economic outlook, office take up levels are expected to fall. This will be more evident in the secondary end of the market, while demand for best in class assets should prove more resilient. Tight supply of best in class accommodation should insulate Grade A rental values, but a decline in secondary office rents is to be expected.
· The cost of living crisis and subsequent squeeze on household disposable incomes will be most acutely felt in the retail sector, and particularly within discretionary led retail schemes. Occupational demand from discretionary retailers is likely to fall whilst those retailers deemed to be essential (such as budget supermarkets) will perform better in this environment. DIY and housing related retailers are also likely to face tougher trading conditions in the period ahead as the UK housing market comes under pressure. The prospect for rental growth in the retail sector is limited.
· It is clear that the UK investment market has cooled considerably over the course of Q3 2022 as investors took a more risk off approach towards UK real estate in response to a volatile macroeconomic environment. A fall in capital values, particularly in the prime end of the market, has become evident and most areas of the market have seen outward yield shifts according to CBRE. Investors are expected to continue to take a risk off approach and market liquidity for secondary assets is now weaker than earlier in the year.
· Best in class assets are likely to prove more resilient in a weaker macroeconomic environment and a focus on ESG considerations is becoming ever more important to both occupiers and investors. As a result, and given the current energy crisis and drive towards net zero, integrating ESG strategies into investment decision making is paramount to ensuring assets are future fit and ready for a recovery in real estate performance.
· The outlook obviously remains uncertain, and continued elevated volatility is to be expected. In that environment we believe it is important to look through the current turmoil, and structure portfolios to hold good quality assets that will continue to meet occupier requirements in order to maximise the long term income potential. Industrial / logistics remains a favoured sector over the medium term, as do sectors of "Other", in particular some of the living sectors. Offices and retail are likely to remain challenged, and stock selection will be paramount in these sectors.
Net Asset analysis as at 30 September 2022 (unaudited)
| £m | % of net assets | |
| Industrial | 289.8 | 71.7 |
| Office | 116.0 | 28.7 |
| Retail | 61.6 | 15.2 |
| Other Commercial | 43.6 | 10.8 |
| Land | 7.5 | 1.9 |
| Total Property Portfolio | 518.5 | 128.2 |
| Adjustment for lease incentives | -9.4 | -2.3 |
| Fair value of Property Portfolio | 509.1 | 125.9 |
| Cash | 14.5 | 3.6 |
| Other Assets | 24.2 | 6.0 |
| Total Assets | 547.8 | 135.5 |
| Current liabilities | -15.5 | -3.8 |
| Non-current liabilities (bank loans & swap) | -127.9 | -31.6 |
| Total Net Assets | 404.3 | 100.0 |
Breakdown in valuation movements over the period 1 July 2022 to 30 September 2022
| Portfolio Value as at 30 Sept 2022 (£m) | Exposure as at 30 Sept 2022 (%) | Like for Like Capital Value Shift (excl transactions & CAPEX) | Capital Value Shift (incl transactions (£m) | |
| (%) | ||||
| External valuation at 30 Jun 22 | 543.6 | |||
| Retail | 61.6 | 11.9 | (0.9) | (0.6) |
| South East Retail | 1.6 | 0.0 | 0.0 | |
| Retail Warehouses | 10.3 | (1.0) | (0.6) | |
| Offices | 116.0 | 22.4 | (3.5) | (10.0) |
| London City Offices | 2.4 | (1.6) | (0.2) | |
| London West End Offices | 2.3 | (4.0) | (0.5) | |
| South East Offices | 8.0 | (5.4) | (8.7) | |
| Rest of UK Offices | 9.7 | (2.3) | (0.7) | |
| Industrial | 289.8 | 55.9 | (5.8) | (14.4) |
| South East Industrial | 13.1 | (5.8) | (4.2) | |
| Rest of UK Industrial | 42.8 | (5.8) | (10.2) | |
| Other Commercial | 43.6 | 8.4 | (0.2) | (0.1) |
| Land | 7.5 | 1.4 | 0.0 | 0.0 |
| External valuation at 30 Sept 22 | 518.5 | 100.0 | (4.2) | 518.5 |
Top 10 Properties
| 30 Sept 22 (£m) | |
| Mucklow Hill, Halesowen | 25-30 |
| 54 Hagley Road, Birmingham | 25-30 |
| Symphony, Rotherham | 25-30 |
| Marsh Way, Rainham* | 20-25 |
| Timbmet, Shellingford | 15-20 |
| Atos Data Centre, Birmingham | 15-20 |
| Tetron 141, Swadlincote | 15-20 |
| Walton Summit Industrial Estate, Preston | 15-20 |
| Hollywood Green, London | 15-20 |
| CEVA Logistics, Corby | 15-20 |
*asset sold in October 2022
Top 10 tenants
| Tenant Name | Passing Rent | % of total Passing Rent |
| B&Q Plc | 1,560,000 | 5.8% |
| Public Sector | 1,343,936 | 5.0% |
| The Symphony Group Plc | 1,225,000 | 4.6% |
| Schlumberger Oilfield UK plc | 1,138,402 | 4.3% |
| CEVA Logistics Limited | 840,000 | 3.1% |
| Atos IT Services UK Limited | 838,910 | 3.1% |
| Jenkins Shipping Co Ltd | 819,390 | 3.1% |
| Timbmet Limited | 799,683 | 3.0% |
| Time Wholesale Services (UK) Ltd* | 656,056 | 2.5% |
| ThyssenKrupp Materials (UK) Ltd | 643,565 | 2.4% |
| 9,864,942 | 36.9% |
*only exposure was at Rainham (asset sold in October 2022)
Regional Split
| South East | 25.7% |
| West Midlands | 19.5% |
| East Midlands | 12.7% |
| North West | 11.8% |
| Scotland | 11.1% |
| North East | 10.1% |
| South West | 4.4% |
| City of London | 2.4% |
| London West End | 2.3% |
The Board is not aware of any other significant events or transactions which have occurred between 30 September 2022 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 - Real Estate Fund Manager, abrdn
Tel: 07801039463 or jason.baggaley@abrdn.com
Mark Blyth - Real Estate Deputy Fund Manager, abrdn
Tel: 07703695490 or mark.blyth@abrdn.com
Michelle McKeown - Senior Fund Control Manager, abrdn
Tel: 07789676852 or michelle.mckeown@abrdn.com
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Ltd
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: 01481 745001
