Diversified and consistent

Picton Property Income 30 November 2017 Update
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Picton Property Income

Diversified and consistent

Interim results

Real estate

30 November 2017

Price

85.50p

Market cap

£462m

Net debt (£m) as at 30 September 2017

186.5

Net LTV (%) as at 30 September 2017

28.2

Shares in issue

540.1m

Free float

100%

Code

PCTN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

1.2

11.8

Rel (local)

2.8

0.1

1.3

52-week high/low

87.0p

74.5p

Business description

Picton Property Income is an internally managed investment company that invests in commercial property across the UK. The investment objective is to provide investors with an attractive level of income and the potential for capital growth.

Next events

December 2017 NAV update

January 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

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

Picton’s stated ambition is to be consistently one of the best performing diversified property companies on the main market and the H118 performance supports that goal with continued property outperformance versus its benchmark as it has done over one, three, five and 10 years. This property performance translated into a 7.1% NAV total return during the period including dividends that prospectively represent an attractive and well covered 4% dividend yield. Despite Brexit uncertainties, management expects a positive supply and demand balance in regional industrial and office markets to drive further market rental growth. Ongoing active asset management initiatives provide additional opportunities.

Year end

Revenue (£m)

EPRA EPS*
(£m)

DPS
(p)

EPRA NAV/share
(p)

P/EPRA NAV
(x)

Yield
(%)

03/16

40.8

3.68

3.30

77.2

1.11

3.9

03/17

47.9

3.81

3.33

81.8

1.05

3.9

03/18e

43.2

4.11

3.43

87.2

0.98

4.0

03/19e

44.5

4.29

3.53

89.9

0.95

4.1

Note: *EPRA EPS excludes revaluation gains/losses and other exceptional items. .

Good performance in H118

Picton continued to meet its objective of consistent performance during H118.A property return of 6.3% and income return of 2.9% both outperformed the MSCI IPD Quarterly Benchmark (5.0% and 2.2% respectively). IFRS net profit was £30.7m including a net £19.9m of gains on investments with NAV per share increased by 5% on end-FY17 to 86p. Including dividends paid of 1.7p, the NAV total return was 7.1% over the six-month period. The company intends to pay an increased annual dividend of 3.5p (+3%) commencing with a quarterly DPS of 0.875p to be paid in February 2018. Mainly tracking higher rent growth than forecast our EPRA EPS estimates are increased by c 4% for FY18 and 3% for FY19.

Well positioned with further rent potential

Having reduced Central London exposure last year, Picton’s portfolio is overweight regional industrial and office property and significantly underweight retail and leisure (with no shopping centre exposure). Management expects this positioning to continue to benefit from a general supply and demand imbalance with limited development, that should continue to drive industrial and office rent growth. The expected rental value is £6m ahead of the current contracted run rate, representing significant potential from further void reduction, rent reviews and lease renewals.

Valuation: Not reflecting outperformance

Picton provides an attractive 4% dividend yield that we estimate will be 1.2x covered by EPRA earnings in the current year and with continuing opportunities to grow income from the current portfolio. Income retained is invested in the portfolio to enhance total returns and despite Picton’s strong historic record of relative outperformance it trades on a sector average c 1x P/NAV multiple.

Company description: Diversified and consistent

Picton is an internally managed property investment company with the investment objective of providing shareholders with an attractive level of income, together with the potential for capital growth. It invests across the main UK commercial property sectors, actively managing its assets with a strong focus on occupiers’ needs and seeking opportunities to enhance value within the portfolio. The target lot size is £10-30m which management believes is large enough to support efficient management of the portfolio and provide investment opportunities across the range of asset classes and geographies, while limiting the competition for assets from larger investors. In applying this strategy Picton has created a portfolio that is diversified by sector, geography and by income concentration. Management believes that having an internalised management structure creates alignment with shareholders as it has the capacity to generate economies of scale as the company grows. That growth has also seen a steady increase in lot size, with a tendency to reduce management complexity and contribute towards cost management. In the last financial year the ongoing charges of managing the company (which excludes the expenses directly related to the properties) was 1.2% of average net assets, and declined further to 1.1% in H118, low in a sector context.

Picton has a built a strong and consistent record of returns and its property returns (income and capital) have outperformed its MSCI IPD Quarterly Benchmark over the past one, three, five and 10 years. The annualised returns for various periods ending 30 September 2017 are shown in Exhibit 2 and we note that in H118, the outperformance continued with a gain of 6.3% versus the benchmark 5.0%. With the benefit of gearing, total net asset value returns have exceeded the property returns (Exhibit 2).

Given the UK government’s intention to bring non-resident landlord companies such as Picton within the scope of UK corporation tax, the board is considering a conversion to REIT status. We discuss this on page 5 of this report.

Exhibit 1: Picton NAV total return (change in NAV per share plus dividends paid in the period)

Exhibit 2: Picton property performance vs MSCI IPD Quarterly Benchmark (annualised, to 30 Sept 2017)

Source: Picton

Source: Picton, MSCI

Exhibit 1: Picton NAV total return (change in NAV per share plus dividends paid in the period)

Source: Picton

Exhibit 2: Picton property performance vs MSCI IPD Quarterly Benchmark (annualised, to 30 Sept 2017)

Source: Picton, MSCI

Highlights of the FY18 interim results

Although revenue from properties was in aggregate slightly lower than in the prior year, even after excluding £5.2m of exceptional income in H117, this actually meant that last year’s portfolio rebalancing, which saw two Central London properties and four additional non-core assets sold was substantially absorbed. On a like-for-like (l-f-l) basis, rents grew by 4.4% and occupancy was increased from 94% at end-FY17 to 95%, ahead of the MSCI IPD Quarterly Benchmark of 93%. Last year’s disposal proceeds were used to reduce total debt including relatively expensive zero dividend preference shares, leading to a reduction in current year net financial expense with administrative costs well controlled (H118 ongoing charge 1.1% of average net assets).

Exhibit 3: H117 financial summary and comparison

£000’s unless otherwise stated

H118

H117

FY17

Revenue from properties

24,323

29,894

54,398

Property expenses

(5,605)

(5,324)

(12,011)

Net property income

18,718

24,570

42,387

Total operating expenses

(2,734)

(2,291)

(5,249)

Operating profit

15,984

22,279

37,138

Gains/(losses) on investments

19,850

(304)

16,934

Net finance expense

(4,894)

(5,983)

(10,823)

PBT

30,940

15,992

43,249

Tax

(286)

(334)

(499)

IFRS net profit

30,654

15,658

42,750

EPRA earnings

10,804

10,712

20,566

IFRS EPS (p)

5.7

2.9

7.9

EPRA EPS (p)

2.0

2.0

3.8

DPS (p)

1.7

1.7

3.4

NAV per share, IFRS & EPRA (p)

86

78

82

Source: Company data

The financial highlights of H118 were:

IFRS earnings of £30.7m or 5.7p per share, almost double the level reported in the prior year period and included £17.4m of net revaluation gains and £2.5m of gains on disposal of two non-core properties in the half.

On an EPRA basis, excluding revaluation and disposal gains, earnings were £10.8m or 2.0p per share. This was higher than in H217 (£9.9m) and very slightly up on the prior year period.

Two quarterly dividends of 1.7p in aggregate were paid during the period and a dividend of 0.85p was declared in respect of the quarter ending 30 September for payment on 30 November. A 3% increase in the targeted future annual dividend to 3.5p was announced, with the first quarterly payment of 0.875p planned for payment in February 2018.

NAV per share benefitted from the revaluation and disposal gains as well as retained income earnings (dividends were covered 1.18x) and increased by 5% compared with end-FY17 to 86p per share.

The growth in NAV per share taken together with dividends per share generated a 7.1% NAV total return during the six month period.

Gross debt was £216.6m at 30 September 2017, and taking into account cash and equivalent balances of £30.1m, gearing as measured by the net loan to value ratio (LTV) was 28.2%.

In the following section we provide an update on the portfolio and operational performance.


Portfolio update: Well positioned

Picton believes in a diversified portfolio with a focus on occupiers and their needs to drive income growth. The portfolio was valued at £661.4m at the end of September 2017, consisting of 52 properties with annualised rental income of £41.6m and valued at a net initial yield of 5.7%. Occupancy was 95% at 30 September with a weighted average unexpired lease term (WAULT) of 5.3 years. The portfolio has a strong overweighting to regional industrial property and to a lesser extent, regional office property. Central London office exposure was substantially reduced in 2016. Retail and leisure exposure is significantly below the benchmark and within this there is no shopping centre exposure.

The property return was 6.3% in H118, of which the income return was 2.9%, compared with returns for MSCI IPD Quarterly Benchmark of 5.0% and 2.2% respectively, continuing Picton’s outperformance achieved over previous years. The H118 outperformance can be attributed to being overweight in the better performing sectors in combination with property specific active management and leasing activity. Passing rent increased by 4.4% on a l-f-l basis (with lettings at what was the largest office vacancy, 50 Farringdon Road in London EC1, making a significant contribution) and the expected rental value (ERV) increased by 1.7% on the same basis. During H118, the portfolio value increased by 3.4% on a l-f-l basis. Mirroring the general market trend, the strongest gains achieved within the industrial portfolio (6.0%), followed by the office portfolio (3.1%), with no change in the retail and leisure portfolio.

Exhibit 4: Portfolio sector split by value

Exhibit 5: Geographical split by value

Source: Company data, as at 30 September 2017

Source: Company data, as at 30 September 2017

Exhibit 4: Portfolio sector split by value

Source: Company data, as at 30 September 2017

Exhibit 5: Geographical split by value

Source: Company data, as at 30 September 2017

Two disposals were completed in H117 (non-income producing office assets in Bracknell) for a combined consideration of £9.9m and a significant acquisition of a Grade A waterfront office building in Bristol city centre (Tower Wharf) was completed for a consideration of £23.2m. The Bristol office market is experiencing strong occupier demand with limited availability. The property is currently 64% occupied by four tenants at rents well below market levels while the remaining vacant space is fully refurbished and available to let into the improving occupational market. Since the reporting date, Picton has agreed one small non-core disposal.

Generally, management believes that the portfolio remains well positioned in the current market environment and while continuing to search for opportunities to grow the portfolio further, has no current plans for material changes. Despite the ongoing post-Brexit uncertainty, reflected in weaker sterling, inflationary pressures and a reduction in overall economic growth estimates, the commercial property market continues to hold up well. The recovery in prices since 2009 has been skewed towards London, particularly Central London offices, yet despite this overall commercial property values (measured by the MSCI IPD All Property Capital Growth Index) are on average 21% below the 2007 peak. Looking outside of Central London, development activity has generally remained muted over the past 10 years and is likely to stay so without an increase in rents, such that while growth continues there are many areas where supply is tight. Management believes that the supply and demand imbalance, combined with a lack of development activity, should continue to support rental growth in the office and industrial sectors in particular.

The ERV of Picton’s portfolio is now £47.6m, some £6.0m ahead of the current annualised rental income and representing significant potential upside from further occupancy gains (£2.6m of the total), rent reviews, and lease renewals. During H218 there are 70 lease events across the portfolio representing an aggregate ERV of £7.1m:

Industrial – 23 events with an ERV of £2.0m; 15% ahead of the passing rent

Office – 37 events with an ERV of £3.0m; 5% ahead of the passing rent

Retail – 10 events with an ERV of £2.1m; 20% ahead of the passing rent

Potential REIT conversion: no impact on strategy

The UK government has for some time made clear its interest in bringing non-resident landlord companies, such as Picton, within the scope of UK corporation tax. Alongside changes to capital gains tax, in the November 2017 UK budget the government announced that this will become effective from April 2020, somewhat later than Picton management had expected.

In anticipation, during H118 Picton continued to plan for a potential conversion to REIT status which would have the effect of exempting the company from corporation and income tax, subject to REIT qualification requirements. With the interim results it indicated that subject to clarification of the government’s stance in the budget, it was likely to hold an EGM in early 2018, seeking shareholder approval for any corporate changes that may be required for REIT conversion to proceed. While Picton would remain Guernsey registered post-conversion, it would be necessary for management control to move to the UK. The company is also appraising the benefits of retaining its current technical stock market listing status as an investment company as opposed to the commercial company status more common among internally-managed UK REITs. We note that LondonMetric Property and Redefine have similarly changed from investment company status to commercial company status in the past.

We suspect that given the delay in bringing non-resident landlord companies into the corporation tax regime, Picton will wish to study its position further before making any decision. Importantly, if and whenever it may happen, REIT conversion or a change in listing status is not expected to have any impact on Picton’s investment or portfolio strategy, and there no plans to change the quarterly reporting or dividend cycle. We note that prospective dividend cover under the current corporate structure is c 1.2x, which suggests to us that there may be scope for the payout to increase; for now, management is indicating that it will review dividend policy again if and when REIT conversion takes place.

Financials

Our revised forecasts are shown in Exhibit 6. Our revenue forecast benefits from stronger rental growth during H118 than we had previously allowed for, particularly within the industrial portfolio, feeding through to future periods. With some operational gearing effects, the EPRA EPS forecast increases at a slightly higher pace. Our dividend forecasts (shown as the aggregate quarterly dividends declared during the period) reflect the increase in dividends signalled by management, to an annual 3.5p commencing with a first quarterly payment, barring unforeseen circumstances, of 0.875p in February 2018. If it decided to convert to REIT status we would expect the dividend policy to be reviewed when the transition is complete. Given Picton’s focus on income and its relatively full dividend pay-out we would not expect any material change and with forecast dividend cover of c 1.2x, there is room within our forecasts for the dividend to move higher. Despite increased dividends, forecast EPRA NAV per share also increases, mainly as a result of the higher revaluation gain than we had expected in H118 and our decision to explicitly include future revaluation gains within our forecasts. Following the £17.4m gain recorded in H118 we have included an aggregate £15.0m gain over the next 18 months which effectively maintains the valuation yield on the portfolio after adjusting for modest like-for-like rental growth assumed of c 1.6% pa.

Exhibit 6: Forecast revisions

Revenue (£m)

Adj. EPRA EPS (p)

EPRA NAV/share (p)

DPS (p)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

FY18e

42.5

43.2

1.7%

3.94

4.11

4.2%

84.2

87.2

3.5%

3.4

3.43

0.7%

FY19e

44.0

44.5

1.2%

4.18

4.29

2.6%

84.9

89.9

5.9%

3.5

3.53

0.7%

Source: Edison Investment Research

The net LTV ended H118 at 28.2%, little changed from end-FY17, and below the 30% medium-term target that management believes to represent an appropriate balance between the current potential benefits and risks, particularly given post-Brexit uncertainties. That said, the company maintains a desire to grow the asset base selectively provided suitably attractive opportunities can be sourced and market conditions remain favourable. Given the less than full dividend pay-out of earnings, and the assumption of modest revaluation gains, we forecast net LTV to decline to a little over 27% by the end of FY19, providing some room for asset growth from existing capital resources.

Picton has two fully drawn term loan facilities with Canada Life and Aviva, maturing in 2022 and 2032 respectively. It also has two revolving credit facilities (RCF) with Santander, both now maturing in 2021 after the maturity of one of the facilities was extended during H118. In aggregate, the RCFs provide a debt facility of £51m, of which £12.5m was drawn during H118 as part payment for the Bristol acquisition, leaving c £38m available. It is intended for use on a tactical basis, allowing management to act opportunistically and facilitating a short-term increase in gearing that may be paid down at a later stage with equity issuance or asset sale proceeds. We estimate that full utilisation of the RCF would increase the net LTV to c 32%.


Valuation

Picton pays annual dividends that represent a 4% yield at the current share price. We estimate that the dividends paid in the current year will be 1.2x covered by EPRA/income earnings. While Picton has a strong income focus it also chooses to reinvest into the portfolio in ways designed to support occupancy and income growth with the specific goal of enhancing total return. We have shown the recent NAV total return performance and long-term property return outperformance versus the MSCI IPD Quarterly Benchmark in Exhibits 1 and 2 above.

Turning to a comparison of Picton with other listed property vehicles, Exhibits 7 and 8 show prospective dividend yields and historical P/NAV ratios for a broad universe of property investment companies and REITs. This universe is quite diverse, including specialist investors such as the healthcare property REITs and others focused on long duration income streams, as well as a range of companies with more mainstream commercial portfolios with varying focus on income and capital growth.

Picton’s 4% yield compares with a c 4.5% simple average for the entire universe, whereas its P/NAV of c 1x is in line with the simple average for the universe. Those companies more reliant on capital growth, especially when combined with a greater Central London focus are generally afforded lower valuations currently. Given the paucity of yield opportunities available to investors, the market is currently valuing the visibility of long duration income returns more highly. A more significant move in interest rate expectations, particularly at the longer end of the yield curve could have an impact on this and companies with diversified business models, such as Picton, will have more opportunity to adapt their investment strategies across property types.

Exhibit 7: Universe by prospective dividend yield

Exhibit 8: Universe by P/NAV

Source: Bloomberg, data as at 22 November 2017

Exhibit 7: Universe by prospective dividend yield

Exhibit 8: Universe by P/NAV

Source: Bloomberg, data as at 22 November 2017

It would appear to us that the market’s relative valuation of Picton is not anticipating a continuation of its historical relative property return outperformance and is certainly not pricing in achievement of management’s goal of being sustainably the one of best performing, diversified listed property companies on the main market.

Exhibit 9: Financial summary

Year end 31 March

£'000s

2014

2015

2016

2017

2018e

2019e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

31,967

35,151

40,770

47,911

43,217

44,515

Service charge income

4,782

4,511

5,153

6,487

6,083

6,265

Total revenue

 

 

36,749

39,662

45,923

54,398

49,300

50,781

Gross property expenses

(8,992)

(9,320)

(10,001)

(12,011)

(11,422)

(11,570)

Net rental income

 

 

27,757

30,342

35,922

42,387

37,878

39,211

Administrative expenses

(1,139)

(1,194)

(1,510)

(1,613)

(1,982)

(2,116)

Operating Profit before revaluations

 

 

26,618

29,148

34,412

40,774

35,896

37,095

Revaluation of investment properties

18,422

53,163

44,171

15,087

22,362

10,000

Profit on disposals

5,660

412

799

1,847

2,488

0

Management expenses

(2,127)

(2,591)

(2,901)

(3,636)

(3,660)

(3,752)

Operating Profit

48,573

80,132

76,481

54,072

57,086

43,343

Net Interest

(10,868)

(10,930)

(11,417)

(10,823)

(9,753)

(9,718)

Profit Before Tax

 

 

37,705

69,202

65,064

43,249

47,333

33,625

Taxation

(357)

(347)

(216)

(499)

(614)

(673)

Profit After Tax

37,348

68,855

64,848

42,750

46,719

32,953

Profit After Tax (EPRA)

13,266

15,280

19,878

20,566

22,191

23,153

Average Number of Shares Outstanding (m)

359.9

445.3

540.1

540.1

540.1

540.1

EPS (p)

 

 

10.38

15.46

12.01

7.92

8.65

6.10

Adj EPRA EPS (p)

 

 

3.69

3.43

3.68

3.81

4.11

4.29

Dividends paid per share (p)

 

 

3.000

3.000

3.300

3.325

3.425

3.525

Dividend cover (x)

1.23

1.14

1.12

1.15

1.20

1.22

BALANCE SHEET

Fixed Assets

 

 

421,393

536,898

649,406

618,391

661,446

674,946

Investment properties

417,207

532,926

646,018

615,170

658,279

671,779

Other non-current assets

4,186

3,972

3,388

3,221

3,167

3,167

Current Assets

 

 

42,879

84,111

37,408

49,960

47,764

49,516

Debtors

10,527

14,019

14,649

16,077

16,771

17,391

Cash

32,352

70,092

22,759

33,883

30,993

32,125

Current Liabilities

 

 

(17,369)

(17,480)

(47,521)

(21,171)

(21,163)

(21,783)

Creditors/Deferred income

(14,434)

(16,468)

(18,430)

(20,067)

(20,035)

(20,655)

Short term borrowings

(2,935)

(1,012)

(29,091)

(1,104)

(1,128)

(1,128)

Long Term Liabilities

 

 

(232,807)

(233,559)

(222,161)

(205,255)

(217,185)

(217,185)

Long term borrowings

(231,081)

(231,834)

(220,444)

(203,540)

(215,470)

(215,470)

Other long term liabilities

(1,726)

(1,725)

(1,717)

(1,715)

(1,715)

(1,715)

Net Assets

 

 

214,096

369,970

417,132

441,925

470,862

485,494

Net Assets excluding goodwill and deferred tax

 

 

214,096

369,970

417,132

441,925

470,862

485,494

NAV/share (p)

56.4

68.5

77.2

81.8

87.2

89.9

EPRA NAV/share (p)

56.4

68.5

77.2

81.8

87.2

89.9

CASH FLOW

Operating Cash Flow

 

 

23,145

24,705

33,283

36,283

32,055

34,083

Net Interest

(8,768)

(8,695)

(8,836)

(9,211)

(9,381)

(9,718)

Tax

(394)

(369)

(426)

(232)

(530)

(673)

Net cash from investing activities

(10,838)

(61,729)

(68,123)

48,691

(18,278)

(3,524)

Ordinary dividends paid

(10,711)

(13,102)

(17,822)

(17,957)

(18,497)

(19,037)

Debt drawn/(repaid)

(1,031)

(3,191)

14,591

(46,450)

11,741

0

Proceeds from shares issued

18,043

100,121

0

0

0

0

Other cash flow from financing activities

Net Cash Flow

9,446

37,740

(47,333)

11,124

(2,890)

1,132

Opening cash

 

 

22,906

32,352

70,092

22,759

33,883

30,993

Closing cash

 

 

32,352

70,092

22,759

33,883

30,993

32,125

Closing debt

(234,016)

(232,846)

(249,535)

(204,644)

(216,598)

(216,598)

Closing net (debt)/cash

 

 

(201,664)

(162,754)

(226,776)

(170,761)

(185,605)

(184,473)

Net LTV

34.6%

27.3%

27.8%

27.1%

Source: Company, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Picton Property Income and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Picton Property Income and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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