11 May 2023

abrdn PROPERTY INCOME TRUST LIMITED (LSE: API)

LEI: 549300HHFBWZRKC7RW84

Unaudited Net Asset Value as at 31 March 2023

Net Asset Value and Valuations

• Net asset value (“NAV”) per ordinary share was 82.4p (Dec 2022 – 84.8p), a decrease of 2.8% for Q1 2023, resulting in a NAV total return, including dividends, of -1.70% for the quarter;

• The portfolio valuation fell by 0.4% on a like for like basis during the quarter, whilst the MSCI Quarterly Index fell by 1% over the same period.

Investment and letting activity

• Supermarket purchased for £18.29m at a yield of 6.35%
• Three rent reviews settled securing an increase in rent of £178,550pa
• One lease regeared securing £178,820pa.
   

Financial Position

• Robust balance sheet with financial resources available for investment of £34.7 million (of which £30 million is 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 9.8% as at end Q1 2023 however several 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 close to 5%. The Company also has one development project that represents 2.5% of fund ERV.

The weighted average unexpired lease term of the portfolio is 6.5 years (5.7 years Q4 2022).

Debt Facility and Gearing

API currently has two facilities with RBSI, an £85m term loan (fully drawn) and a £80m Revolving Credit Facility (RCF) of which £50m was drawn as at 1st May 2023 (as at 31st March the Company had £110m term loan and £25m RCF drawn). These replaced the two previous facilities which expired in April 2023. 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 31 March 2023, the Company had a Loan to Value (LTV) of 28.7%*.

*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 Q1 2023 is 88.6%.  The Board has provided guidance of its intention to maintain the current dividend level which it believes will be substantially covered in 2023 and 2024.

Reduction of Investment Manager Fee

The Board is focussed on controlling the costs of the Company and, to this end, has agreed a 10bps reduction in the fee payable to the investment manager, effective from 1 January 2023. The fee has been reduced to 60bps of Gross Asset Value (“GAV”) below £500m, and 50bps above £500m.

Net Asset Value (“NAV”)

The unaudited net asset value per ordinary share at 31 March 2023 was 82.4p. 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 31 March 2023 of £437.0 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 December 2022 to 31 March 2023.

The Net Asset Value per share is calculated using 381,218,977 shares of 1p each being the number in issue on 31 March 2023.

Investment Manager Review and Portfolio Activity

After the turmoil of Q4 2022, and with renewed concern about the banking sector and general economic outlook in Q1 2023 it was pleasing to continue to make progress with asset management initiatives during the first three months of 2023. As expected, we completed the development of our prelet industrial unit in St Helens at the end of the quarter with the new 15 year lease to the local authority completing in early April at a rent of £657,040pa. We also completed an agreement for lease on the last remaining floor of our office in Crawley securing a rent of £132,000pa, and then after the quarter end we concluded a long negotiation to sign an agreement for lease on 21,500sqft of office space at Hagley Road Birmingham to secure a rent of £408,000pa. The industrial sector continues to show strong rental performance, as evidenced by a rent review settlement in Birmingham showing a 40% increase in rent, and a regear and rent review in Scotland, providing a 20% uplift in rent. We also benefited from an RPI linked rent review on a hotel showing a 26% increase in rent.

During Q1 we took advantage of market dislocation to purchase a purpose built food store and petrol filling station let to Morrison’s by way of a sale and leaseback for £18.29m at an initial yield of 6.35%. The asset is in Welwyn Garden City and we believe it will perform well for the Company with a 25 year lease and CPI linked rent reviews (yearly for the first 5 years). The purchase was funded from the RCF, and although initially the cost of servicing that debt is high the income from the asset is higher, and that differential is expected to increase as rates decline and the rent continues to grow.

The Company achieved planning consent for the development of a 110,000sqft logistics unit on the site at Knowsley, and commenced construction in April, with an anticipated completion date in December 2023. The development will provide the Company with another high quality logistics asset and the demand / supply balance remains favourable for the Company as we seek a tenant for the unit.

UK Real Estate Market Outlook – Q2 2023
 

• UK inflation fell back to 10.1% in March 2023 following an unexpected jump in February to 10.4%, well above both consensus and the Bank of England’s forecasts. However, powerful base effects and falling energy prices suggest headline inflation should start to decline rapidly over the remainder of the year according to abrdn’s research team.
• The Bank of England’s Monetary Policy committee voted 7-2 to hike rates by 25bps to 4.25% in March.  The format of the Bank’s forward guidance means that the market’s pricing of the near-term policy path will be extremely sensitive to incoming inflation and wage data.  On balance, abrdn thinks 4.5% will represent the peak in interest rates for this cycle, with the Bank implementing a further 25bps hike in May. The debate will increasingly focus on the shape of the eventual cutting cycle.
• There are some very early signs that economic weakness is starting to feed through into the labour market. Job vacancies continue to decline, pointing to a slightly more balanced job vacancy per person looking for a job. However, with the unemployment rate at 3.7%, the labour market remains extremely tight. The participation rate is still well below the pre-pandemic level, and the shortage of labour is driving private sector wage growth to a level that suggests inflation could remain above the target rate of inflation of 2%.
• Despite narrowly avoiding a technical recession in the second half of 2022, the UK economy is set to endure recession-like conditions for much of 2023. Underlying inflation pressure is proving ‘sticky’ and may be harder to tackle than first forecast. That is why we still think an economic slowdown is a necessary condition for sustainably returning inflation to target in the UK.

• Despite a weak start to the year, UK real estate performance was broadly flat in Q1 2023  according to the MSCI monthly index, with all property recording a total return of 0.2%. This was helped by the first month of positive performance in March 2023 since June 2022, with monthly performance increasing from -0.3% in February to 0.7% in March. This demonstrated a continued recovery in UK real estate performance.
• Offices continued to be the worst performing sector over Q1 2023 with a total return of -1.8%, while the residential sector produced the best performance at 2.9%. Other areas of the market which demonstrated robust performance and outperformed the market average were retail warehousing, hotels and south east industrial.
• Capital value declines also showed signs of slowing, with capital values rising 0.2% in March 2023, resulting in capital value declines over Q1 2023 of -1.2%. Whilst remaining negative, this was a significant improvement on a fall of -15.6% recorded in Q4 2022 (the largest quarterly fall in the history of the MSCI monthly index).

• That being said, improved performance is set to be largely derived from the direction of the Bank of England’s monetary policy, and the speed at which any rate cutting cycle is implemented. At present, the BoE is expected to begin a cutting cycle in late 2023 although markets remain turbulent, and uncertainty persists on the timing.

• Any recovery in performance is likely to be asymmetric, with those sectors which benefit from positive underlying fundamentals - and which experienced the largest correction in capital values in late 2022 - likely to see a more pronounced recovery. As a result, our outlook and forecasts for the industrial and logistics, supermarket and retail warehouse sectors have improved.
• We anticipate further capital value declines in those sectors which are yet to experience significant outward yield movements, and which remain under structural pressure, with the office sector likely at greatest risk of further pricing declines. Best in class offices are expected to remain more resilient, particularly in supply constrained locations, whereas the outlook for secondary office assets is poor. Anecdotal evidence suggests that secondary office assets are now beginning to see material discounts to pricing, but a wide gap remains between buyer/seller pricing aspirations.

Net Asset analysis as at 31 March 2023 (unaudited)

Breakdown in valuation movements over the period 01 January 2023 to 31 March 2023

Yields

Top 10 Properties

The top ten assets represent 39% of portfolio value

Top 10 tenants

Regional Split

The Board is not aware of any other significant events or transactions which have occurred between 31 March 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 – 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

Craig Gregor - Fund Controller, abrdn

Tel: 07789676852 or craig.gregor@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