In what has been a punishing period for Abrdn Property Income Trust, the board has decided to lower the management fee and negotiate a restructuring of its debt in a bid to “materially enhance” its earnings.
On 12 October, the trust announced that it had completed an extension of its debt facilities, taking them beyond the original expiry date of April 2023. The three-year, £85m loan that was due to begin from that date has been renegotiated.
The loan was originally subject to a margin of 150bps over the sterling overnight index average (Sonia) and an interest rate swap.
However, owing to the changes in interest rates since it was agreed, the trust has since broken the swap, at a cost of £3.56m, and replaced it with an interest rate cap at a rate of 3.96%. The trust’s board said the cap will enable the company to benefit from lower interest costs as Sonia falls, whilst providing protection in a rising rate environment.
The board stated that this one-off charge would have no material impact on net asset value (NAV), but that it would impact dividend cover in the fourth quarter.
While the trust’s NAV grew nearly 10% to 111p per share in the first half of 2022, its share price could not keep up, falling by 6.5%. This widened the trust’s discount considerably to 31%.
As of 30 September, NAV per share was 106p, having fallen 4.1% during the trust’s third financial quarter. The share price was down even further, dropping 11% in the three months.
According to data from Hargreaves Lansdown, the estimated NAV of around 105p per share leaves the trust trading at a 46% discount.
In order to cut more costs, the board has also agreed a reduction of 10bps in the investment manager’s fee, down to 60bps per annum of gross asset value below £500m, and to 50bps for assets above £500m.
The change will come into effect on 1 January 2023.
Owing to these cost cutting measures, the trust said that it was confident it can maintain the current dividend of 4p per share for 2023 and 2024.
The trust also secured office lettings in Crawley, Birmingham and Bristol, bringing the total vacancy rate of the portfolio down from 9.3% on 30 September, to below 5%.
Manager Jason Baggaley said: “I am delighted with the progress we have made on reducing vacancy in the portfolio. The last three years have not been easy for office lettings, however, we have been successful due to the quality of our offering, and the dedication of our asset managers.
“In October, we secured certainty over the debt refinance for the company in difficult markets; in only a short amount of time there has been a very significant change in the market outlook for interest rates and with it, swap rates. The board and investment manager have always taken an active approach to managing the company, and so have taken the opportunity, given the change in market sentiment, to break the swap agreement and enter into a new interest rate cap thus enhancing earnings over the next three years. The cap also allows the company to benefit from any future falls in interest rates in the next three years, which was not possible with the swap.”
