Reinstating forecasts following robust Q121

Picton Property Income 4 August 2020 Update
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Picton Property Income

Reinstating forecasts following robust Q121

Q121 NAV update

Real estate

4 August 2020

Price

68p

Market cap

£371m

Net debt (£m) at 30 June 2020

147.8

Net LTV (%) at 30 June 2020

22.4

Shares in issue

545.5m

Free float

100%

Code

PCTN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.0)

2.0

(24.8)

Rel (local)

(2.2)

(2.9)

(9.3)

52-week high/low

103.00p

52.00p

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 the proactive management of the portfolio.

Next events

Q121 DPS payment

28 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

Despite challenging market conditions, Picton’s Q121 DPS was well-covered by EPRA earnings and robust portfolio capital values. Combined with low gearing, NAV per share was just 1.3% lower versus Q420 and including DPS paid, the NAV total return was -0.6%. With encouraging rent collection data continuing and the lockdown easing, we have reinstated our estimates and look for the quarterly DPS run-rate to increase in H221.

Year end

Net property income (£m)

EPRA earnings* (£m)

EPRA
EPS* (p)

DPS
(p)**

EPRA NAV/
share (p)

P/NAV
(x)

Yield
(%)

03/19

38.3

22.9

4.3

3.50

93

0.74

5.1%

03/20

33.6

19.9

3.7

3.25

93

0.74

4.7%

03/21e

30.5

17.6

3.2

2.75

88

0.78

4.0%

03/22e

33.4

19.9

3.6

3.50

88

0.77

5.1%

Note: *EPRA earnings excludes revaluation gains/losses and other exceptional items. No Edison forecasts currently provided. **Declared basis. 3.5p paid during FY19 and FY20.

Fully covered DPS and robust NAV in Q121

At the reduced quarterly dividend rate of 0.625p per share, dividends declared for Q121 (c £3.4m) were 118% covered by EPRA earnings of c £4.0m. On a like-for-like basis the portfolio valuation decreased by a relatively modest 0.8% (the MSCI Monthly Digest shows a negative 3.5% capital return over the same period), benefiting from an overweight stance in the industrial and office sectors (more than 80% of the total). Combined with modest c 22% gearing the NAV performance was robust at 92.2p. Rent collection continues to be encouraging and the easing of the lockdown should support a further improvement in H221 and although a good deal of economic and market uncertainty remains, we have tentatively reinstated estimates. Our NAV forecast allows for further market-led valuation weakness. For FY22 we assume a more normal collection pattern and some capture of the significant reversionary potential embedded in the portfolio.

We expect DPS to increase in H2

We anticipate an increase in the quarterly DPS run-rate in H221 to 0.75p per quarter in Q321 and Q421. Our forecast aggregate DPS for the year of 2.75p is 1.17x covered by forecast EPRA earnings and to be covered by rent receipts requires that 95% of IFRS rental income is collected. Picton has already provided £1.3m (c 30%) against unpaid rents and we assume an increase to c £2.0m by end-FY21. As the IFRS rental income is already reduced by rent receivable provisions, full cash cover is equivalent to collecting 91% of the rent roll in place at the start of FY21. Meanwhile, Picton is supported by a strong balance sheet with low levels of gearing and significant reversionary potential to increase income as recent and soon-to-be completed refurbishments are let.

Valuation: Yield pick-up with DPS upside potential

The prospective FY21e yield of 4.0% (or 3.6% based on the current quarterly DPS run-rate) compares favourably with risk-free alternatives (below 0.2% for 10-year UK government debt). The more than 25% discount to Q121 EPRA NAV compares with a five-year average of 3% and anticipates capital value weakness.

Robust Q121 developments

Encouraging rent collection

Rent collection for the March quarter has increased slightly to 86% (as at 24 July), with agreed deferrals of 9%. Of the balance, 2% forms part of active management transactions (typically the exchange of a short-term rent free period in exchange for other lease enhancements such as the removal of break options or an extension of the term) and 3% remains unpaid and due.

So far, 72% of the June quarter rents have been received but this increases to 85% including agreed monthly payments that are expected to be received by the end of the quarter. Agreed deferrals represent 5% and active management 3%. The balance of 7% represents unpaid rents that are due. The June data appear encouraging as we had anticipated a lower collection of June rents whereas the 72% collection rate compares with 71% for March after the same number of days.

Exhibit 1: Rent collection summary

June quarter rents

March quarter rents

(%)

Industrial

Office

Retail & Leisure

Total

Total

Collected

70%

85%

50%

72%

86%*

Moved from quarterly to monthly payment

16%

4%

26%

13%

Deferred

5%

2%

11%

5%

9%

Active management

1%

3%

8%

3%

2%

Outstanding

8%

6%

5%

7%

3%

Total

100%

100%

100%

100%

100%

Source: Picton Property Income as at 24 July 2020. Note: *Includes rents collected on a monthly basis.

Relatively modest Q121 decline in portfolio values

On a like-for-like basis the portfolio valuation decreased by 0.8%, or £5.3m. We view this as a strong performance in current market conditions (the MSCI Monthly Digest shows a negative 3.5% capital return for the period) and significantly benefitted from a positive performance from Picton’s industrial assets resulting from asset management initiatives. Picton’s office assets showed a slight decline in value with estimated rental values stable in the regions and reducing just 1% in London. In common with the sector, the retail and leisure assets showed a more marked decline. Across the sectors, the external valuations reflect where rents remain unpaid.

Exhibit 2: Quarterly (Q121) portfolio valuation movement

Picton portfolio
weight

Picton portfolio valuation movement

MSCI capital
growth*

Industrial

48.6%

0.7%

-1.7%

Office

33.6%

-1.3%

-2.5%

Retail and leisure

17.8%

-3.7%

-6.6%

Total

100.0%

-0.8%

-3.5%

Source: Picton Property Income. Note: *MSCI Monthly Digest.

Fully covered Q121 DPS and robust NAV

At the reduced quarterly dividend rate of 0.625p per share, dividends declared for Q121 (c £3.4m) were 118% covered by EPRA earnings of c £4.0m, while the relatively small decline in property valuations, combined with the modest c 22% gearing at the start of the quarter, meant that the NAV performance was robust. At 92.2p, the NAV per share was 1.3% lower than at end-FY20.

Exhibit 3: Quarterly NAV progression

Q121

Q420

Q320

Q220

Q120

£m unless stated otherwise

30-Jun-20

31-Mar-20

31-Dec-19

30-Sep-19

30-Jun-19

Opening NAV

509.2

519.1

510.7

508.4

499.4

Movement in property values

(6.9)

(9.4)

7.7

2.3

2.0

Equity issued

0.0

0.0

0.0

(.7)

7.0

Net income after tax for the period

4.0

4.2

5.5

5.5

4.7

Dividends paid

(3.4)

(4.7)

(4.8)

(4.8)

(4.7)

Other

0.2

0.1

Closing NAV

503.2

509.3

519.1

510.7

508.4

NAV per share (p)

92.2

93.4

95.2

93.6

93.0

Source: Picton Property Income

Included within the £4.0m of EPRA earnings in Q121 is the accounting recognition, as income, of rents due that while not yet collected are expected to be received. However, this is after a £0.8m provision (Q420: £0.5m) against rent receivables, bringing the total to £1.3m or c 30% of rents that are currently unpaid.

The portfolio value movement shown in Exhibit 3 also captures continuing capital expenditure, mostly related to refurbishment of the Stanford Building, which is unlikely to be recognised in the portfolio valuation and NAV until completion and letting.

Estimates reinstated

The pandemic came too late to significantly impact the year ended 31 March 2020 (FY20) although the results reported for the year did include a prudential c £0.5m non-cash provision against March quarter rent collections and a negative impact on year-end valuations and NAV. Our forecasts for FY21 were withdrawn at the start of the pandemic due to the heightened uncertainty about the extent and duration of the pandemic and its potential impact on accounting income, cash rent collection and capital values. Although a good deal of uncertainty remains, we believe it is now reasonable to make tentative forecasts, supported by published cash rental collection data, the Q120 performance and recent trends in market valuations. However, we note that our confidence in these forecasts is lower than normal and that the actual results could be materially higher or lower in several respects.

Income assumptions

The factors that will determine future rental income include:

Retention of existing clients and success with letting vacant space. At the start of FY21, 8.8% of contracted rent (c £3.6m) was subject to a lease break option or expiry during the following 12 months. Start-year vacancy represented a £5.2m estimated rental value (ERV), reflecting a material amount of refurbishment activity, much of which is now complete or close to completion. Letting this vacant space has the potential to significantly support income and capital values through these more challenging times and 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.

Non-contractual tenant failures, particularly in the more challenged retail and leisure sectors.

Potential weakness in ERVs, particularly in the retail and leisure sector, with the impact on current rents potentially accelerated by market weakness with lower rents agreed to maintain occupancy.

For FY21 we have assumed that:

Picton makes further provisions against rent receivables, taking the total to £1.5m (£0.8m in Q121) and £2.0m in total, including the £0.5m provision taken in Q420.

That the balance of leasing activity is otherwise neutral through the year.

FY21 rental income is thus assumed to be £35.6m (including a c £0.9m IFRS smoothing adjustment) compared with the £36.2m contracted passing rent (before IFRS adjustment) at the start of the year.

In some instances, the assumed aggregate £2.0m provisions taken against rents receivable may represent concessions with occupancy and rent income continuing, but in most cases we would expect a reduction in contracted income and an increase in occupancy until such time as re-letting occurs. Our FY22 forecast assumes an improvement in contracted passing rent to £38.2m by end-FY22 which implies a net capture of the reversionary potential in FY22 of c £3–4.0m.

Capital assumptions

Taking account of recent market trends and the unusually wide range of market forecasts, Exhibit 4 shows our best guess at capital value movements across the market for FY21 and applied to the Picton portfolio as at end-FY21. Reflecting the strong performance in Q121 we have allowed for Picton’s industrial assets to do a little better than we expect for the market as a whole, but otherwise we have made no allowance for portfolio-specific asset management initiatives. Given the level of uncertainty our assumptions are best treated as an illustration. For FY22 we see the possibility for some improvement in valuations if market conditions return to a more normal situation. We would also expect the leasing progress that we have assumed to support capital values as well as benefiting income. However, given the scale of uncertainty we have for now assumed flat capital values in FY22.

Exhibit 4: Portfolio valuation assumptions for FY21

End-FY20
valuation (£m)

Assumed FY21 valuation movement (%)

Assumed FY21 valuation movement (£m)

Office

224.6

-6.0%

(13.5)

Industrial

318.3

-3.0%

(9.5)

Retail

121.7

-8.0%

(9.7)

Total portfolio

664.6

-4.9%

(32.8)

Source: Edison Investment Research

Based on these assumptions our forecast end-FY21 EPRA NAV per share is 88p (FY20: 93p and Q120: 92p). Alternatively, each 1% increase/decrease in the total portfolio value is equivalent to an increase/decrease in EPRA NAV per share of c 1.2p. For the end-Q121 EPRA NAV (88p) to fall to match the current share price (68p) would require a c 20% reduction in the portfolio value.

Dividend assumptions

Based on our income assumptions we expect Picton to increase the level of quarterly DPS payments in the second half of the year and our 2.75p aggregate FY21 DPS forecast assumes quarterly declarations of 0.75p per share in Q321 and Q421 after 0.625p per share in both Q221 and Q221. At 2.75p the aggregate DPS is 1.17x covered by our forecast EPRA earnings and for DPS to be covered by rental receipts requires 95% of IFRS rental income to be collected. As the IFRS rental income is already reduced by rent receivables provisions, full cash cover requires 91% collection of the start-year contracted rent roll.

Our income assumptions for FY22 imply further scope for DPS to increase and we assume a return to aggregate DPS of 3.5p for the year. At this level DPS is 1.04x covered by EPRA EPS and with collection of a part of the FY21 deferred rents continuing into FY22, the cash cover of DPS should be higher.

Forecast summary

Our forecasts are shown in detail in Exhibit 7 and a summary is shown in Exhibit 5. For FY21 we show a comparison with our pre-pandemic forecasts, withdrawn in March 2020. We provide FY22 forecasts for the first time.

Exhibit 5: Estimate summary

Net property income (£m)

EPRA earnings (£m)

EPRA EPS (p)

EPRA NAV/share (p)

DPS (p)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

FY21e

36.8

30.5

(17.1)

23.1

17.6

(23.9)

4.6

3.2

(29.5)

96.0

88

(8.6)

3.50

2.75

(21.4)

FY22e

N/A

33.4

N/A

N/A

19.9

N/A

N/A

3.6

N/A

N/A

87

N/A

N/A

3.50

N/A

Source: Edison Investment Research. Note: The FY21 ‘old forecast’ was in place before the COVID-19 pandemic and was subsequently withdrawn.

Valuation

Our forecast 2.75p FY21 DPS represents a 4.0% prospective FY21 yield (or 3.7% based on the current quarterly rate of DPS of 0.625p or 2.5p annualised). If DPS further increases to 3.5p in FY22 as our forecasts indicate, the prospective FY22 yield is 5.0%. Meanwhile, the 26% discount to the Q121 NAV compares with an average 3% discount over the past five years.

In Exhibit 6 we show a summary performance and valuation comparison of Picton and what we consider to be its closest diversified income-oriented peers. 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 payout 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 also note that this historical data does not reflect our expectation that Picton’s DPS will increase later in the year. Picton shares have outperformed the peer group over most periods which we attribute to its 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 6: 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

51

107

0.56

10.5

7.9

-8%

10%

-46%

-47%

BMO Real Estate Investments

54

130

0.56

8.1

4.6

-10%

9%

-33%

-40%

BMO Commercial Property Trust

58

465

0.48

5.2

5.2

-6%

-12%

-46%

-53%

Custodian

86

362

0.90

6.9

4.4

-4%

1%

-26%

-27%

Regional REIT

67

290

0.60

12.3

11.3

-10%

-10%

-36%

-45%

Schroder REIT

35

180

0.60

5.2

4.4

5%

-1%

-36%

-40%

Standard Life Investment Property

56

228

0.70

7.6

5.1

-7%

-19%

-35%

-44%

Average

0.63

8.3

5.4

-6%

-3%

-37%

-42%

Picton

68

374

0.74

4.8

3.7

-3%

3%

-24%

-37%

Index level

Prospective yield (%)

UK property index

1,467

3.0

-1%

2%

-8%

-26%

FTSE All-Share Index

3,261

3.5

-4%

2%

-19%

-24%

Source: Company data, Refinitiv prices at 3 August 2020. Note: *Based on last reported EPRA NAV; **based on DPS declared in past 12 months; ***based on last declared DPS annualised.

Exhibit 7: Financial summary

Year end 31 March

£'000s

2016

2017

2018

2019

2020

2021e

2022e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Rents receivable, adjusted for lease incentives

39,663

40,555

41,412

40,942

37,780

35,605

38,130

Other income

1,107

7,356

1,443

1,073

1,155

300

400

Service charge income

5,153

6,487

5,927

5,718

6,729

5,697

6,101

Revenue from properties

 

 

45,923

54,398

48,782

47,733

45,664

41,602

44,631

Property operating costs

(3,308)

(3,501)

(2,578)

(2,342)

(2,293)

(2,400)

(2,400)

Property void costs

(1,540)

(2,023)

(1,830)

(1,373)

(3,005)

(3,000)

(2,700)

Recoverable service charge costs

(5,153)

(6,487)

(5,927)

(5,718)

(6,729)

(5,697)

(6,101)

Property expenses

(10,001)

(12,011)

(10,335)

(9,433)

(12,027)

(11,097)

(11,201)

Net property income

 

 

35,922

42,387

38,447

38,300

33,637

30,505

33,430

Administrative expenses

(4,411)

(5,249)

(5,566)

(5,842)

(5,563)

(5,072)

(5,663)

Operating Profit before revaluations

 

 

31,511

37,138

32,881

32,458

28,074

25,433

27,767

Revaluation of investment properties

44,171

15,087

38,920

10,909

(882)

(32,761)

0

Profit on disposals

799

1,847

2,623

379

3,479

0

0

Operating Profit

76,481

54,072

74,424

43,746

30,671

(7,328)

27,767

Net finance expense

(11,417)

(10,823)

(9,747)

(9,088)

(8,286)

(7,867)

(7,859)

Debt repayment fee

(3,245)

Profit Before Tax

 

 

65,064

43,249

64,677

31,413

22,385

(15,195)

19,908

Taxation

(216)

(499)

(509)

(458)

124

0

0

Profit After Tax (IFRS)

64,848

42,750

64,168

30,955

22,509

(15,195)

19,908

Adjust for:

Investment property valuation movement

(44,171)

(15,087)

(38,920)

(10,909)

882

32,761

0

Profit on disposal of investment properties

(799)

(1,847)

(2,623)

(379)

(3,479)

0

0

Exceptional income /expenses

0

(5,250)

0

3,245

0

0

0

Profit After Tax (EPRA)

19,878

20,566

22,625

22,912

19,912

17,566

19,908

Fully diluted average Number of Shares Outstanding (m)

540.1

540.1

539.7

541.0

546.2

547.6

547.6

EPS (p)

 

 

12.01

7.92

11.89

5.75

4.14

(2.79)

3.65

EPRA EPS (p)

 

 

3.68

3.81

4.19

4.25

3.66

3.22

3.65

Dividend declared per share (p)

 

 

3.30

3.33

3.43

3.50

3.25

2.75

3.50

Dividends paid per share (p)

 

 

3.300

3.300

3.400

3.500

3.500

2.625

3.375

Dividend cover (x) – EPRA EPS/DPS declared

Dividend cover (x) - paid dividends

112%

115%

122%

121%

105%

123%

108%

EPRA cost ratio including direct vacancy costs)

22.8%

26.1%

23.7%

22.9%

28.3%

29.0%

27.8%

BALANCE SHEET

Fixed Assets

 

 

649,406

615,187

670,679

676,127

654,506

627,745

633,745

Investment properties

646,018

615,170

670,674

676,102

654,486

627,725

633,725

Other non-current assets

3,388

17

5

25

20

20

20

Current Assets

 

 

37,408

49,424

50,633

39,477

41,168

39,285

35,652

Debtors

14,649

15,541

19,123

14,309

17,601

20,363

22,482

Cash

22,759

33,883

31,510

25,168

23,567

18,922

13,170

Current Liabilities

 

 

(47,521)

(20,635)

(22,292)

(23,342)

(20,434)

(20,380)

(20,380)

Creditors/Deferred income

(18,430)

(20,067)

(21,580)

(22,509)

(19,546)

(19,547)

(19,547)

Short term borrowings

(29,091)

(568)

(712)

(833)

(888)

(833)

(833)

Long Term Liabilities

 

 

(222,161)

(202,051)

(211,665)

(192,847)

(165,957)

(166,388)

(166,758)

Long term borrowings

(220,444)

(200,336)

(209,952)

(191,136)

(164,248)

(164,673)

(165,043)

Other long term liabilities

(1,717)

(1,715)

(1,713)

(1,711)

(1,709)

(1,715)

(1,715)

Net Assets

 

 

417,132

441,925

487,355

499,415

509,283

480,262

482,259

Net Assets excluding goodwill and deferred tax

 

 

417,132

441,925

487,355

499,415

509,283

480,262

482,259

NAV/share (p)

77

82

90

93

93

88

88

Fully diluted EPRA NAV/share (p)

77

82

90

93

93

88

88

CASH FLOW

Operating Cash Flow

 

 

33,283

36,283

35,088

34,756

21,361

23,179

26,156

Net Interest

(8,836)

(9,211)

(9,125)

(8,630)

(7,943)

(7,497)

(7,489)

Tax

(426)

(232)

(328)

(845)

123

0

0

Net cash from investing activities

(68,123)

48,691

(17,811)

10,251

24,994

(6,008)

(6,008)

Ordinary dividends paid

(17,822)

(17,957)

(18,487)

(18,860)

(19,039)

(14,319)

(18,411)

Debt drawn/(repaid)

14,591

(46,450)

9,183

(22,616)

(27,204)

0

0

Net proceeds from shares issued/repurchased

0

0

(893)

(398)

6,107

0

0

Other cash flow from financing activities

Net Cash Flow

(47,333)

11,124

(2,373)

(6,342)

(1,601)

(4,645)

(5,752)

Opening cash

 

 

70,092

22,759

33,883

31,510

25,168

23,567

18,922

Closing cash

 

 

22,759

33,883

31,510

25,168

23,567

18,922

13,170

Debt as per balance sheet

(249,535)

(200,904)

(210,664)

(191,969)

(165,136)

(165,506)

(165,876)

Un-amortised loan arrangement fees

0

(3,740)

(3,376)

(2,700)

(2,329)

(1,959)

(1,589)

Closing net (debt)/cash

 

 

(226,776)

(170,761)

(182,530)

(169,501)

(143,898)

(148,543)

(154,295)

Net LTV

34.6%

27.3%

26.7%

24.7%

21.7%

24.2%

24.9%

Source: Company 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.

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

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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