Defensively positioned with embedded potential

Picton Property Income 10 July 2020 Update
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Picton Property Income

Defensively positioned with embedded potential

FY20 results

Real estate

10 July 2020

Price

68p

Market cap

£371m

Net debt (£m) at 31 March 2020

143.9

Net LTV at 31 March 2020

21.7%

Shares in issue

545.5m

Free float

100%

Code

PCTN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.2)

(17.1)

(29.0)

Rel (local)

(5.0)

(20.1)

(13.0)

52-week high/low

103.0p

52.0p

Business description

Picton Property Income is an internally managed UK REIT that invests in a diversified portfolio of commercial property across the UK. It is total-return driven with an income focus and aims to generate attractive returns through proactive management of the portfolio.

Next events

Q121 DPS payment

August 2020

H121 results announcement

November 2020

Analyst

Martyn King

+44 (0)20 3077 5745

Picton Property Income is a research client of Edison Investment Research Limited

Good results to 31 March 2020 (FY20), with continuing positive returns at the property and group level, have inevitably been overshadowed by COVID-19. Picton entered this challenging environment with a diversified portfolio focused on the industrial and office sectors where fundamentals continue to look strongest, with income and value potential embedded in the portfolio and a strong balance sheet. Current quarterly DPS annualises at 2.5p, a yield of 3.7%, but we believe this has been set prudently.

Year end

Net property income (£m)

EPRA earnings* (£m)

EPRA
EPS* (p)

DPS paid
(p)

EPRA NAV/
share (p)

P/NAV
(x)

Yield
(%)

03/18

38.4

22.6

4.2

3.40

90

0.75

5.0

03/19

38.3

22.9

4.3

3.50

93

0.73

5.1

03/20

33.6

19.9

3.7

3.50

93

0.73

5.1

Note: *EPRA earnings excludes revaluation gains/losses and other exceptional items. No Edison forecasts currently provided.

Good FY20 performance

With a diversified portfolio, focused on the office and industrial sectors (more than 80% by value) and significantly underweight in retail and leisure (and no shopping centre exposure) the FY20 total property return of 5.3% again outpaced the MSCI UK Quarterly Property Index (-0.5%) as it has done over one, three, five and 10 years. This supported a positive 4.4% NAV total return (DPS not reinvested). Net rental income and EPRA earnings were lower as a result of disposals (locking in asset management gains in value) and refurbishment projects but the former contributed to a further decline in gearing (LTV below 22% with significant funding headroom) and the latter to significant reversionary potential within the portfolio as the improved properties are re-let (74% of all vacant space).

We see scope for DPS catch up

At the time of reporting FY20 results Picton had collected 82% of quarterly rents billed in March 2020, agreed to defer 6%, 2% to monthly payment, and 9% outstanding. In common with industry trends, we would expect a more challenging Q220 collection performance (for rents billed in June 2020), reflecting the greater impact of the lockdown. We estimate that cash cover of the reduced dividend (an annualised 2.5p per share) requires 85% of start-year rents to be collected, leaving scope for quarterly DPS to be lifted later in the year if collections improve as the lockdown eases and if the company makes progress with capturing the significant reversionary potential embedded in the portfolio. A strong balance sheet with low levels of gearing is a defence against near-term uncertainties and provides scope for opportunistic acquisitions when the outlook become clearer.

Valuation: Yield pick-up with upside potential

The prospective yield of 3.7%, based on the reduced DPS, compares favourably with risk-free alternatives (below 0.2% for 10-year UK government debt) with scope to materially increase as collections normalise. The 0.73x P/NAV (five-year average of 0.97x) is anticipating potential capital value weakness.

Investment summary

Actively managed for total return with an income focus

Picton’s diversified portfolio of commercial property across the UK is actively managed for total returns but with a strong income focus. Through its occupier-focused, opportunity-led approach, the company aims to be one of the consistently best-performing diversified UK REITs. A strong weighting to industrial and regional office assets, together more than 80% of the portfolio by value, and significant underweighting of retail and leisure assets (no shopping centre exposure) continues to support property returns relative to the market. With an ungeared property total return of 5.3% compared with the MSCI UK Quarterly Property Index return of -0.5% in the year to March 2020, Picton maintained its long-term track record of outperformance over one, three, five and 10 years to 31 March 2020. The COVID-19 pandemic punctuated a strong performance through much of FY20, creating highly uncertain economic and market conditions. Although a cyclical sector, income returns have historically been much more stable than capital values, delivering c 70% of long-term total returns. At the time of reporting FY20 results (23 June 2020) Picton had collected 82% of quarterly rents billed in March 2020, had agreed to defer 6% and had moved 2% to monthly payment. 1% of rent was the subject of rent free agreements accompanied by lease extensions and 9% remained outstanding. In common with industry trends we would expect a more challenging Q220 collection performance (for rents billed in June 2020), reflecting the greater impact of the lockdown. We estimate that cash cover of the reduced dividend (an annualised 2.5p per share) requires 85% of start-year rents to be collected leaving scope for quarterly DPS to be lifted later in the year if collections improve as the lockdown eases and if the company makes progress with capturing the significant reversionary potential embedded in the portfolio. Meanwhile, a strong balance sheet with low levels of gearing is a defence against near-term uncertainties and provides scope for opportunistic acquisitions when the outlook become clearer. Before reviewing the FY20 results we first provide an update on the impacts of COVID-19, Picton’s preparedness and the near-term outlook for income and dividends.

Diversified portfolio with a focus on industrial and office sectors

Portfolio diversification provides a mitigation to risk in uncertain times such as these. Picton’s portfolio consists of 47 assets across the main industrial, office and retail and leisure sectors, generating income from around 350 occupiers across a wide range of businesses. The top 10 occupiers account for just 27% of total contracted income and the largest tenant for less than 5%.

At c £665m the overall portfolio reduced during FY20, including two property disposals (no acquisitions) at an average 15% premium to the c £30m aggregate March 2019 book value. Disposals also affected rent roll, which at £36.2m was reflected in an end-FY20 net initial yield of 4.9%. At 89% occupancy is below the trend of recent years (c 95%) and reflects a material amount of refurbishment activity, much of which is now complete or close to completion.

Exhibit 2: Portfolio summary

FY20

FY19

Portfolio valuation

£665m

£685m

Number of properties

47

49

Average lot size

£14.1m

£14.0m

Net initial yield

4.9%

5.0%

Net reversionary yield

6.4%

6.3%

Annualised rental income

£36.2m

£37.7m

Annualised reversionary income (ERV)

£45.2m

£46.8m

Occupancy as % estimated rental value (ERV)

89%

90%

Weighted average unexpired lease term

5.5 years

5.1 years

Source: Picton

Although diversified, the portfolio’s active sector and regional positioning underline the company’s unconstrained approach to asset selection. This flexibility allows Picton to adjust the portfolio towards the sectors that are expected to offer the best returns while maintaining the balance to avoid the volatility that can from time to time arise in more focused, specialist portfolios. Compared with the MSCI Quarterly Property Index, the portfolio has around double the weighting to the industrial sector (with a high South-East share positive for performance) and around half the weighting in retail/leisure sectors (no exposure to shopping centres). Office exposure is tilted towards the regions and broader London market rather than central London. During FY20 the like-for-like property revaluation movement was 1.4%, comprising a 6% gain in industrial, a 3% gain in offices and a 12% decline in retail and leisure. This compares with a 4.8% decline for the MSCI UK Quarterly Property Index.

Exhibit 3: Portfolio by sector: Overweight industrial and office

Exhibit 4: Portfolio by geography: Diversified regional bias

Source: Picton 31 March 2020

Source: Picton 31 March 2020.

Exhibit 3: Portfolio by sector: Overweight industrial and office

Source: Picton 31 March 2020

Exhibit 4: Portfolio by geography: Diversified regional bias

Source: Picton 31 March 2020.

The end-FY20 estimated market rental value (ERV) at full occupancy was £45.2m compared with the annualised passing rent of £36.2m. Closing this gap, particularly in respect of refurbishment projects (74% of all vacant space) has the potential to significantly support income and capital values through these more challenging times. That would remain the case even if void space were to be let below current ERV. Five key properties alone represent 65% of the vacant ERV or more than £3m of annual rent.

Exhibit 5: Rent reversion bridge

Source: Picton

COVID-19 impacts

Rental collection

Picton is working closely with its occupiers to optimise rent collection and provide support where this is appropriate to assist them through the current uncertainties, while minimising the impact on the company’s cash flows and capital values. Exhibit 1 summarises the March quarterly rent collection status at 23 June 2020. Unsurprisingly the retail and leisure sector was the weakest area both for collections and outstanding rents where no agreement on contractually due unpaid rent had been reached.

Exhibit 1: March rent collection status

Total

Industrial

Office

Retail and leisure

Received

82%

84%

89%

67%

Deferred

6%

6%

5%

8%

Active management

1%

0%

0%

4%

Rent concession

0%

0%

1%

0%

Moved from quarterly to monthly payment

2%

1%

1%

8%

Outstanding

9%

9%

4%

13%

Total

100%

100%

100%

100%

Source: Picton

Picton is yet to update on the June collections but we expect the collection rate to be weaker than for March; the lockdown was in place for longer and the suspension until the end of September of the right of landlords to serve notice to quit weakened the incentive for tenants to pay rent even when they are able to do so.

We expect the easing of the lockdown to lead to a gradual improvement in quarterly collection rates. Rents that have been deferred by agreement are expected to be collected in instalments (we estimate starting in H221 and mostly completed by end-FY22). Over the same period, the position with respect to tenants with outstanding rents, for which no deferral agreement has yet been reached, should also become clearer. In some cases, particularly in the challenged retail and leisure sector, it may be necessary to agree lower rents although we would expect Picton to seek improvements to other lease terms, including extensions or the removal of break options, to mitigate the valuation impact.

During the quarter ending 31 March 2020 (Q420) the pandemic was largely responsible for valuation write-downs of 2.9% in retail and leisure, 0.3% in industrial and 0.2% in office.

Market update

MSCI UK Property Index monthly return data show that across the UK commercial property sector as a whole, positive total returns were recorded until March 2020, with a positive performance from the industrial and office sectors offsetting weakness in retail and leisure, which continues to undergo structural change due to evolving shopping habits, resulting in excess supply and falling rents. From March through May, due to the pandemic and lockdown, all main sectors experienced weakening capital values and negative total returns, while the weakness of retail and leisure accelerated; there is a broad consensus this will continue. Data for June from CBRE suggests that industrial and office values may be in the process of stabilising (-0.1% and -0.2% respectively) while the decline in retail values continued (-1.4%).

The industrial sector should continue to find support from a general tightness of supply relative to demand and has continued to see rental growth through May. Office rental value growth was broadly stable through May but capital values weakened and there is much debate as to whether the pandemic and remote working will have a negative long-term impact on the demand for office space. Home working has probably received an enduring boost but the case for full-time office working is less clear. When in the office, it is likely each worker will require an increased amount of space. Well-appointed offices, with good transport links, good IT infrastructure and environmental credentials are likely to retain a premium.

The investment market saw reduced volumes, especially after March 2020 when transactions effectively dried up, causing the Royal Institute of Chartered Surveyors to introduce a material uncertainty clause in respect of external valuations across most sub-sectors. The clause was not intended to signify that valuations were unreliable but rather that there was limited transactional evidence against which they could be benchmarked. As investment volumes begin to increase once again, the material uncertainty clause has been lifted from an increasing number of subsectors, including most recently industrial and logistics properties.

Strong balance sheet with low gearing

Using the proceeds of disposals, Picton had repaid all drawings under its flexible revolving credit facilities (RCF) by end-FY20. The remaining drawn debt of £167.5m comprised the two long-term (first maturity 2027) fixed-rate loan notes with Aviva and Canada Life. In June 2020, a new £50m RCF replaced the existing facilities, extending duration and reducing cost. For now, it too remains undrawn. If the RCF is fully utilised, the combined debt maturity would be 8.3 years and the weighted average interest rate would reduce from 4.2% to 3.7% pa. Allowing for £23.6m of end-FY20 cash the LTV was 21.7%.

The borrowing covenants provide a good level of headroom and Picton estimates that, on average, rental income or asset values would need to fall by more than 40% for there to be any impact. In any case it is in constant dialogue with its lenders, who remain fully supportive of the company. With none of the RCF drawn, Picton has access to £50.0m of undrawn borrowing facilities in addition to the positive cash balance.

Most current capital projects were suspended or slowed during the lockdown. At end-FY20 there were outstanding contracts for the refurbishment of 11 properties with an aggregate commitment of c £4.5m. The most significant of these is the Stanford Building in Covent Garden where the refurbishment is nearing completion (ERV £1.6m).

Exhibit 6: Summary of debt portfolio (at 23 June 2020)

Canada Life

Aviva

RCF

Amount drawn

£80.0m

£87.5m

nil

Undrawn

Fully drawn

Fully drawn

£50.0m

Maturity

Jul-27

Jul-32

01/05/2023**

Interest rate

4.08%

4.38%

LIBOR +1.5%

Commitment fee

N/A

N/A

0.60%

LTV covenant

65%

65%

55%

Interest cover covenant

1.75x

N/A

2.5x

Debt service cover ratio covenant

N/A

1.4x

N/A

Value of collateral pool*

£307.5m

£189.0m

£131.8m

Source: Picton. Note: *31 March 2020 property values. ** Two one-year extension options subject to lender approval.

Financials and DPS outlook

Strong FY20 performance punctuated by COVID-19

FY20 showed a solid financial performance with positive property and accounting returns and a further strengthening in the balance sheet. COVID-19 had a limited impact in the year but resulted in a prudential c £0.5m non-cash provision against March quarter rent collections and a negative impact on year-end valuations and NAV. Excluding the rent provision, the FY20 EPRA earnings were in line with our expectations and so too diluted EPRA NAV where we had anticipated some year-end weakness in valuations. On a like-for-like basis, rental income increased 1.2%, driven by rent reviews, lease renewals, re-gears and new lettings ahead of ERV. ERV also increased by 1.3% like for like.

During the year, disposals and the refurbishment programme acted as a drag on net rental income and EPRA earnings, although this was partly offset by lower interest expense (less debt at a lower average cost following the FY19 refinancing). Underlying administrative costs were well contained (and non-recurring REIT conversion costs dropped away).

Aggregate quarterly dividends paid during the year of 3.5p were 1.05x covered by EPRA EPS of 3.7p. The Q420 DPS paid in May 2020 was reduced to 0.625p (an annualised 2.5p) to reflect the impact of COVID-19 on near-term rent collections and maintain financial flexibility.

The increase in net assets to £509.3m from £499.4m at end-FY19 included £7m in new equity, invested back into the portfolio via refurbishment projects. Capex spending, primarily on refurbishment, was £9.0m, with little or no benefit to valuation in the period. However, we would anticipate a positive impact as all projects complete and are let. The like-for-like property revaluation movement was 1.4%. EPRA NAV per share was flat at 93p and including dividend paid in the year the EPRA NAV total return was 4.4%.

Total debt reduced by 14% to £167.5m and the net loan to value ratio fell below 22%.

Exhibit 7: Summary of FY20 financials

£m unless stated otherwise

FY20

FY19

FY20/FY19

Revenue from properties

45.7

47.7

-4.3%

Property expenses

(12.0)

(9.4)

27.5%

Net property income

33.6

38.3

-12.2%

Total operating expenses

(5.6)

(5.8)

-4.8%

Underlying operating profit

28.1

32.5

-13.5%

Net finance expense

(8.3)

(9.1)

-8.8%

Tax

0.1

(0.5)

EPRA earnings

19.9

22.9

-13.1%

Debt prepayment fees

0.0

(3.2)

Profit on disposal of investment property

3.5

0.4

Investment property valuation movements

(0.9)

10.9

IFRS net profit

22.5

31.0

-27.3%

EPRA EPS (p)

3.7

4.3

-14.0%

IFRS EPS (p)

4.1

5.7

DPS paid (p)

3.50

3.50

0.0%

Dividend cover

1.05

1.21

Net assets, IFRS & EPRA (£m)

509.3

499.4

NAV per share, IFRS & EPRA (p)

93

93

0.9%

NAV total return

4.4%

6.4%

Investment property assets (IFRS)

654.5

676.1

-3.2%

Net LTV

21.7%

24.7%

Source: Picton data, Edison Investment Research

Dividend outlook

In April 2020, Picton’s board decided to reduce the level of quarterly dividends until the longer-term impact of the pandemic on cash rental income can be better assessed and market conditions become clearer. We believe the 30% reduction allows for the likelihood that Q221 rent collections (June 2020 collections) will be below the level reported in Q121 (March 2020 collections) followed by a recovery in collection rates as the lockdown eases. We estimate that 85% cash collection during the year of the annualised rent roll in place at the beginning of FY21 is sufficient to fully cover annualised DPS of 2.5p with cash earnings. This does not include rents where a payment plan has been agreed but collection carries over into FY22.

Exhibit 8: We estimate 85% rent collection required to cover revised DPS

£m unless stated otherwise

DPS (p)

2.5

Number of shares (m)

545.5

Total dividends paid

13.6

Edison estimated administrative expenses

(5.0)

Edison estimated net finance expense

(7.9)

Edison estimated other income

1.0

Edison estimated property operating costs

(2.3)

Edison estimated property void costs

(3.0)

Required gross cash rental income

30.8

Opening contracted rent roll

36.2

Required "rental income" as % opening contracted rent roll

85%

£m unless stated otherwise

DPS (p)

Number of shares (m)

Total dividends paid

Edison estimated administrative expenses

Edison estimated net finance expense

Edison estimated other income

Edison estimated property operating costs

Edison estimated property void costs

Required gross cash rental income

Opening contracted rent roll

Required "rental income" as % opening contracted rent roll

2.5

545.5

13.6

(5.0)

(7.9)

1.0

(2.3)

(3.0)

30.8

36.2

85%

Source: Edison Investment Research

There are a number of factors likely to impact the full-year level of cash rents and the potential for a recovery in the quarterly level of DPS, as well as the likely divergence between cash-collected rents and the level of IFRS rental income (including much of any deferred rents during the year) in the income statement. These include:

Ongoing collection rates. We would expect these to improve from the September rent quarter onwards.

The speed with which deferred rents and outstanding rents are settled. Picton expects collection of currently agreed rent deferrals to continue through FY21 and FY22.

The rate of impairment on deferred and outstanding rents. We would expect some of the deferred rents to eventually become impaired and a potentially larger share of the outstanding rents.

Impairment of deferred/outstanding rents should be accompanied by increasing voids, but other changes to the void rate should be expected including, positively, the potential for reversionary capture.

Acquisitions. We do not expect any immediate activity but as market conditions become clearer this is possible and we estimate that an increase in LTV to 25% would provide room for c £27m in acquisitions, adding perhaps £1.5m to annualised rent roll.

We have not made a specific forecast at this stage but believe the reduced DPS level has been set prudently with upside potential from an improving collection environment and capturing of some of the reversionary potential in the portfolio. Including all of the variables above, if the total cash rent collected in FY21 were equal to 90% of the start year annualised rent roll then dividend-paying capacity increases to 2.82p and at 95% it is 3.15p. Continuing collection of FY21 rent deferrals through FY22 would indicate a further improvement in cash flow in FY22, all other things being equal.

For the current year, the IFRS rental income reported in the income statement is likely to exceed the level of cash rents collected, as much of the rent deferred will still be recorded as income. For now, we expect the company to base dividend decisions on the cash figure. In FY22 it may be the case that cash rents exceed IFRS rental income as deferrals fall away and collection of FY21 rent continues.

If accounting income exceeds cash rental income in the current year and dividends are based on the latter, the retained earnings should support NAV.

NAV

We have similarly not made an estimate of capital value movements but note that based on the end-FY20 balance sheet to close the current P/NAV discount, allowing for the impact of gearing, would require a decline in portfolio value of slightly more than 20%.

Each 1% increase/decrease in the value of the end-FY20 portfolio value increases/reduces EPRA NAV by 1.2p.

We would expect a positive impact on property valuations from any progress with letting refurbished space, offset by some general downward pressure on market-wide property valuations, although less so in the industrial and office sectors, as well as from weaker rent collection.

Valuation

In the five-year period ending 31 March 2020 (end-FY20) Picton generated a cumulative NAV total return (change in NAV plus dividends paid) of 60.2% (without assuming reinvestment of dividends) or a compound annual average return of 9.9%. Dividends are an important source of the return (just over 40%) but so too is reinvestment in the portfolio to improve assets and enhance longer-term total return.

Exhibit 9: Five-year EPRA NAV total return history

Year ending 31 March

FY16

FY17

FY18

FY19

FY20

Cumulative end-FY15 to end-FY20

Opening EPRA NAV per share (p)

69

77

82

90

93

69

Closing EPRA NAV per share (p)

77

82

90

93

93

93

DPS paid (p)

3.30

3.30

3.40

3.50

3.50

17

EPRA NAV total return

17.6%

10.2%

14.7%

6.4%

4.4%

60.2%

Compound annual total return

9.9%

Source: Picton data, Edison Investment Research

At the currently reduced annualised rate of quarterly dividends of 2.5p, the prospective yield is c 3.7% and the P/NAV ratio is 0.73x. This compares with an average of 0.97x over the past five years.

Exhibit 10: Five-year P/NAV history

Source: Refinitiv data at 3 July 2020

In Exhibit 11 we show a summary performance and valuation comparison of Picton and what we consider to be its closest diversified income-oriented peers. Picton shares have declined over 12 months but by less than the peer average. However, the peer group performance is below that of the broad UK property sector where some of the long-income focused specialist REITs and industrial-focused REITs have been outperformers. In terms of valuation we show the trailing yield based on aggregate declared DPS over the past 12 months as well as the forward-looking yield based on the most recently declared DPS annualised. Neither is entirely satisfactory as the sector remains in a state of flux, with some companies having indicated a reduced DPS pay-out for the time being and some postponing DPS payments altogether until later in the year. It will take some time before the full-year prospective DPS outlook becomes clearer and a true comparison can be made. We believe the outperformance of Picton shares versus the peer group and its slightly higher P/NAV reflects the company’s strong track record of property level performance, the future income and valuation growth potential embedded in its portfolio, and its strong balance sheet with relatively modest gearing.

Exhibit 11: Peer group valuation and performance comparison

Price (p)

Market cap (£m)

P/NAV (x)*

Trailing yield (%)**

Annualised yield (%)***

Share price performance

1 month

3 months

12 months

From 12M high

Ediston Property

53

112

0.49

10.8

7.5

8%

8%

-45%

-46%

BMO Real Estate Investments

59

143

0.60

7.4

4.2

-4%

19%

-27%

-34%

BMO Commercial Property Trust

59

474

0.48

7.6

0.0

-24%

-26%

-49%

-52%

Custodian

87

367

0.86

7.6

3.4

-5%

-10%

-26%

-27%

Regional REIT

73

315

0.65

11.3

10.4

-7%

-15%

-32%

-40%

Schroder REIT

33

172

0.55

6.3

0.0

-13%

-5%

-42%

-43%

Standard Life Investment Property

58

236

0.64

8.2

0.0

-18%

-24%

-39%

-41%

Average

0.61

8.4

3.7

-9%

-8%

-37%

-40%

Picton

68

373

0.73

4.8

3.7

-9%

-17%

-29%

-37%

Index level

Prospective yield (%)

UK property index

1,458

3.1

-5%

-4%

-14%

-26%

FTSE All-Share Index

3,352

3.6

-4%

4%

-18%

-21%

Source: Company data. Refinitiv prices at 9 July 2020. Note: *Based on last reported EPRA NAV; **based on DPS declared in past 12 months; ***based on last declared DPS annualised.

Exhibit 12: Financial summary

Year end 31 March

£'000s

2016

2017

2018

2019

2020

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Rents receivable, adjusted for lease incentives

39,663

40,555

41,412

40,942

37,780

Other income

1,107

7,356

1,443

1,073

1,155

Service charge income

5,153

6,487

5,927

5,718

6,729

Revenue from properties

 

 

45,923

54,398

48,782

47,733

45,664

Property operating costs

(3,308)

(3,501)

(2,578)

(2,342)

(2,293)

Property void costs

(1,540)

(2,023)

(1,830)

(1,373)

(3,005)

Recoverable service charge costs

(5,153)

(6,487)

(5,927)

(5,718)

(6,729)

Property expenses

(10,001)

(12,011)

(10,335)

(9,433)

(12,027)

Net property income

 

 

35,922

42,387

38,447

38,300

33,637

Administrative expenses

(4,411)

(5,249)

(5,566)

(5,842)

(5,563)

Operating Profit before revaluations

 

 

31,511

37,138

32,881

32,458

28,074

Revaluation of investment properties

44,171

15,087

38,920

10,909

(-882)

Profit on disposals

799

1,847

2,623

379

3,479

Operating Profit

76,481

54,072

74,424

43,746

30,671

Net finance expense

(11,417)

(10,823)

(9,747)

(9,088)

(8,286)

Debt repayment fee

(3,245)

Profit Before Tax

 

 

65,064

43,249

64,677

31,413

22,385

Taxation

(216)

(499)

(509)

(458)

124

Profit After Tax (IFRS)

64,848

42,750

64,168

30,955

22,509

Adjust for:

Investment property valuation movement

(44,171)

(15,087)

(38,920)

(10,909)

882

Profit on disposal of investment properties

(799)

(1,847)

(2,623)

(379)

(3,479)

Exceptional income /expenses

0

(5,250)

0

3,245

0

Profit After Tax (EPRA)

19,878

20,566

22,625

22,912

19,912

Fully diluted average Number of Shares Outstanding (m)

540.1

540.1

539.7

541.0

546.2

EPS (p)

 

 

12.01

7.92

11.89

5.75

4.14

EPRA EPS (p)

 

 

3.68

3.81

4.19

4.25

3.66

Dividends paid per share (p)

3.300

3.300

3.400

3.500

3.500

Dividend cover (x)

112%

115%

122%

121%

105%

EPRA cost ratio including direct vacancy costs)

22.8%

26.1%

23.7%

22.9%

28.3%

BALANCE SHEET

Fixed Assets

 

 

649,406

615,187

670,679

676,127

654,506

Investment properties

646,018

615,170

670,674

676,102

654,486

Other non-current assets

3,388

17

5

25

20

Current Assets

 

 

37,408

49,424

50,633

39,477

41,168

Debtors

14,649

15,541

19,123

14,309

17,601

Cash

22,759

33,883

31,510

25,168

23,567

Current Liabilities

 

 

(47,521)

(20,635)

(22,292)

(23,342)

(20,434)

Creditors/Deferred income

(18,430)

(20,067)

(21,580)

(22,509)

(19,546)

Short term borrowings

(29,091)

(568)

(712)

(833)

(888)

Long Term Liabilities

 

 

(222,161)

(202,051)

(211,665)

(192,847)

(165,957)

Long term borrowings

(220,444)

(200,336)

(209,952)

(191,136)

(164,248)

Other lon -term liabilities

(1,717)

(1,715)

(1,713)

(1,711)

(1,709)

Net Assets

 

 

417,132

441,925

487,355

499,415

509,283

Net Assets excluding goodwill and deferred tax

 

 

417,132

441,925

487,355

499,415

509,283

NAV/share (p)

77

82

90

93

93

Fully diluted EPRA NAV/share (p)

77

82

90

93

93

CASH FLOW

Operating Cash Flow

 

 

33,283

36,283

35,088

34,756

21,361

Net Interest

(8,836)

(9,211)

(9,125)

(8,630)

(7,943)

Tax

(426)

(232)

(328)

(845)

123

Net cash from investing activities

(68,123)

48,691

(17,811)

10,251

24,994

Ordinary dividends paid

(17,822)

(17,957)

(18,487)

(18,860)

(19,039)

Debt drawn/(repaid)

14,591

(46,450)

9,183

(22,616)

(27,204)

Net proceeds from shares issued/repurchased

0

0

(893)

(398)

6,107

Other cash flow from financing activities

Net Cash Flow

(47,333)

11,124

(2,373)

(6,342)

(1,601)

Opening cash

 

 

70,092

22,759

33,883

31,510

25,168

Closing cash

 

 

22,759

33,883

31,510

25,168

23,567

Debt as per balance sheet

(249,535)

(200,904)

(210,664)

(191,969)

(165,136)

Un-amortised loan arrangement fees

0

(3,740)

(3,376)

(2,700)

(2,329)

Closing net (debt)/cash

 

 

(226,776)

(170,761)

(182,530)

(169,501)

(143,898)

Net LTV

34.6%

27.3%

26.7%

24.7%

21.7%

Source: Picton Property Income data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Picton Property Income and prepared and issued by Edison, in consideration of a fee payable by Picton Property Income. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

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United States of America

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Picton Property Income and prepared and issued by Edison, in consideration of a fee payable by Picton Property Income. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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