Strong H122 with good growth potential

Picton Property Income 23 November 2021 Update
Download PDF

Picton Property Income

Strong H122 with good growth potential

Interim results

Real estate

23 November 2021

Price

99p

Market cap

£542m

Net debt (£m) at 30 September 2021

162.9

Net LTV at 30 September 2021

21.9%

Shares in issue

547.6m

Free float

100%

Code

PCTN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.6)

3.0

32.2

Rel (local)

(1.5)

1.4

14.3

52-week high/low

100.40p

71.30p

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

Q222 DPS paid

30 November 2021

Analyst

Martyn King

+44 (0)20 3077 5745

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

The H122 IFRS profit of £53.9m was the highest that Picton Property Income has ever recorded for a six-month period. EPRA earnings and dividends also grew as the property portfolio showed further strong outperformance. Strong reversionary potential and financial flexibility for accretive acquisitions are positive indicators for further growth, while Picton is attuned to the value-creating potential of sector consolidation.

Year end

Net property income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

DPS
(p)**

EPRA NTA/
share (p)

P/NTA
(x)

Yield
(%)

03/20

33.6

19.9

3.7

3.25

93

1.06

3.3

03/21

33.5

20.1

3.7

2.93

97

1.02

3.0

03/22e

35.0

21.5

3.9

3.45

108

0.92

3.5

03/23e

35.8

21.9

4.0

3.60

114

0.87

3.6

Note: *EPRA earnings excludes revaluation gains/losses and other exceptional items. **Declared basis.

Portfolio performance underpins 10.2% total return

Capital values increased by 7.4% like-for-like in H122. Excluding revaluation gains, EPRA earnings and dividends both increased while rent collection was strong. Occupancy increased to 93% (FY21: 91%), the result of strong tenant retention and new lettings. Quarterly DPS declared has increased by 6.3% since Q421 to 0.85p and represents an annualised rate of 3.4p, almost back to pre-pandemic levels (3.5p). DPS paid was 121% covered by EPRA earnings (up c 8%). At the portfolio level, the total property return (income and capital growth) of 9.0% was above the 7.6% returned by MSCI UK Quarterly Property Index, as it has been over one, three, five and 10 years and since inception. At the company level, the net asset value (NAV) total return was 10.2%, including 8.5% growth in NAV per share to 105p and DPS paid.

Strong growth potential

Financial and operational performance continues to benefit from active asset management, including investment in the portfolio and sector positioning. Capex aims to enhance the quality, sustainability and occupier appeal of assets. The strong overweighting of industrial assets continues to drive performance, although this has begun to broaden across sectors. The organic growth opportunity remains strong, with a c £9m gap between passing rent and estimated rental value (ERV). Low gearing (LTV of 21.9%) and £36m of undrawn low-cost flexible borrowing provides an opportunity for accretive acquisitions, such as the £13.1m industrial acquisition in September. Picton has also expressed its interest in exploiting its strong performance record and scalable internalised structure to engage in sector consolidation where there is an opportunity to create additional value.

Valuation: Good yield with DPS growth potential

The annualised rate of quarterly DPS (3.4p) represents a yield of 3.5% (slightly higher on our forecast DPS). This compares favourably with risk-free alternatives, and we expect further DPS growth in FY22 and FY23. The price/end-H122 EPRA NTA is c 0.94x, below the five-year average of c 0.97x and a peak of c 1.1x.

Strong H122 financial and operating performance

Picton Property Income reported strong results for the six months ended 30 September 2021 (H122). Including strong property revaluation gains, the IFRS profit 1of £53.9m was the highest that it has ever recorded for a six-month period. Excluding revaluation gains, operational progress, including an increase in occupancy to 93%, supported growth in recurring EPRA earnings and dividends. At the portfolio level, the total property return (income and capital growth) of 9.0% was above the 7.6% returned by MSCI UK Quarterly Property Index, as it has been over one, three, five and 10 years and since inception.2 Performance has been top quartile in each of the seven years ended 30 September 2021. At the company level, the accounting total return (or NAV total return)3 was 10.2%. The H122 operational momentum and the recent accretive £13.1m acquisition of a multi-let industrial estate, funded with low-cost flexible debt, will support H222. Reversionary income potential embedded in the portfolio remains significant at c £9m, while a low 21.9% loan to value ration and further undrawn debt of £36m leaves Picton well place for further inorganic growth.

Total comprehensive income of £54.4m included revaluation on owner occupied property.

  To 30 September 2021.

  The change in net asset value per share plus dividends paid (but not reinvested).

Exhibit 1: Summary of H122 financial performance

Sep-21

Sep-20

Mar-21

£m unless stated otherwise

H122

H121

H122/H121

FY21

Rental income

19.7

17.6

11.5%

36.6

Other income

0.2

1.3

1.5

Property operating costs

(1.3)

(0.9)

(2.4)

Void costs

(0.9)

(1.5)

(2.2)

Net property income

17.6

16.5

6.5%

33.5

Total operating expenses

(2.7)

(2.3)

17.2%

(5.4)

EPRA operating profit

14.9

14.2

4.7%

28.1

Net finance expense

(3.9)

(4.1)

-4.2%

(8.0)

Tax

0.0

0.0

0.0

EPRA earnings

10.9

10.1

8.4%

20.1

Debt prepayment fees

0.0

0.0

0.0

Profit on disposal of investment property

0.0

0.0

0.9

Investment property valuation movements

43.0

(6.4)

12.9

IFRS net profit

53.9

3.7

33.8

EPRA EPS (p)

2.0

1.8

8.3%

3.7

IFRS EPS (p)

10.0

0.7

6.2

DPS declared (p)

1.70

1.33

2.93

DPS paid (p)

1.65

1.25

2.75

Dividend cover

1.21

1.48

1.34

Net assets, IFRS & EPRA (£m)

573.6

505.9

528.2

NAV per share, IFRS & EPRA (p)

105

93

97

NAV total return

10.2%

0.7%

6.6%

Carried value of investment properties

726.0

646.7

665.4

Net LTV

21.9%

22.4%

20.9%

Source: Picton Property Income data, Edison Investment Research

We highlight the key features of the H122 results:

Net rental income increased 11.5% to £19.7m versus H121 and, despite a reduction in other property income (H121 included £1.2m of non-recurring dilapidation receipts), net property income increased 6.5% to £17.6m.

Rent collection remains strong, with 96% of rent due for H122 collected and, at the date of reporting, 97% of the September quarter rent either collected or expected to be collected under monthly payment plans.

Operating expenses increased versus H121, although the annualised rate was at a similar level to FY21. The year-on-year increase was largely due to higher employee costs, particularly the variable element of remuneration, linked to the positive share price performance.

Offsetting the increase operating expenses, finance expenses fell, reflecting a slight reduction in average debt and the average cost of debt.

EPRA earnings increased 8.4% year on year to £10.9m, with EPRA EPS of 2.0p (H121: 1.8p and H221: 1.9p).

Dividends per share of 1.70p was 121% covered by EPRA earnings. The Q122 DPS declared of 0.85p was up 6.3% on Q421 and represents an annualised rate of 3.4p, almost back to pre-pandemic levels (3.5p).

Including £43.0m of property gains (discussed in the next section), IFRS earnings were £53.9m and NAV increased 8.6% to £573.6m. NAV per share/EPRA net tangible assets (NTA) increased to 105p.

Exhibit 2: NAV bridge

Source: Picton Property Income data

Financial results underpinned by strong track record of portfolio performance

At the portfolio level Picton has built a strong and consistent track record of outperformance versus the MSCI UK Quarterly Property Index (‘the index’), generating above index income returns and total property returns on an ungeared basis over the one, three, five, seven and 10 years (to 30 September 2021). Performance has been top quartile compared with the more than 200 portfolios that comprise the benchmark in each of the seven years ended 30 September 2021.

Exhibit 3: Total property return versus index*

Exhibit 4: Property income return versus index*

Source: Picton Property Income, MSCI. Data to 30 September 2021. Note: *Annualised percentage returns.

Source: Picton Property Income, MSCI. Data to 30 September 2021. Note: *Annualised percentage returns.

Exhibit 3: Total property return versus index*

Source: Picton Property Income, MSCI. Data to 30 September 2021. Note: *Annualised percentage returns.

Exhibit 4: Property income return versus index*

Source: Picton Property Income, MSCI. Data to 30 September 2021. Note: *Annualised percentage returns.

Among the factors supporting this strong performance, we note:

Successful asset management underpinned by the group’s occupier focus, whereby it seeks to work closely with tenants to understand their needs, enhance occupancy, improve retention and maximise income. Picton continues to invest in its assets, improving the quality of the space and making it more appealing to occupiers and better able to meet their needs.

Although Picton maintains a diversified portfolio, its unconstrained approach to portfolio construction has enabled it to make strategic adaptations to sector and asset positioning in response to changing market conditions. The significant weighting to the industrial property sector and underweight, highly selective exposure to the retail property continues to benefit performance.

Portfolio and market update

Exhibit 5 shows a summary of Picton’s portfolio at 30 September 2021 (end-H122). The c £745m valuation4 reflected a net initial yield of 4.5% and a reversionary yield of 5.9%. During H122 a non-core retail asset was sold for £0.75m (16% ahead of the end-FY21 valuation) and shortly before the period end the £13.1m (before costs) acquisition of a city centre industrial estate in Gloucester was completed. Adjusted for these transactions and £4.4m of capex the like-for-like gain in valuation was 7.4%, driven by the strength of industrial property combined with leasing and asset management activity. Since end-FY21, occupancy increased from 91% to 93%, the result of strong tenant retention and new lettings. Lease transactions have on average been ahead of the March 2021 ERV5, while ERV has continued to grow. New lettings added £2.2m pa to contracted rent roll at average 2.2% above ERV. Lease renewals/regears retained £0.3m pa of rents with an average 5.4% uplift over ERV. Completed rent reviews secured a £0.1m pa uplift, 10.8% above ERV. Overall, annualised contracted rent roll increased from £36.5m in March 2021 to £38.3m, including a 3.2% like-for-like increase. Total ERV increased from £45.4 to £47.2, including a 1.9% like-for-like increase.

The carried value of £726m includes adjustment for lease incentives, property used by the company, and assets held under finance leases.

The externally estimated market rental value at full occupancy and without lease incentives.

Exhibit 5: Portfolio summary

30-Sep-21

31-Mar-21

H122

FY21

Portfolio valuation

£745m

£682 million

Number of properties

46

46

Average lot size

£16.2m

£14.8 million

Net initial yield

4.5%

4.8%

Net reversionary yield

5.9%

6.3%

Annualised rental income

£38.3m

£36.5 million

Annualised reversionary income

£47.2m

£45.4 million

Occupancy as % ERV

93%

91%

Weighted average unexpired lease term

4.9 years

Source: Picton Property Income

Just before the end of H122, Picton acquired the Madleaze Trading Estate, which is well positioned in central Gloucester, adjacent to the Gloucester Quays Retail Park and the Gloucester and Sharpness canal. It comprises 18 industrial units let to eight occupiers with two units vacant and under refurbishment for re-letting. Rents of £2.74 per sq ft are affordable and the capital value a low £44 per sq ft, well below the estimated reinstatement cost. The rental income of £0.75m pa is included in H122 contracted rent roll (but with no material contribution to H122 income) and reflects a net initial yield of 6.1%. Rental income is expected to increase to £0.86m pa once the estate is fully let, and further still as rents are reset to market levels over the medium term.

On a smaller scale, a non-core retail asset was sold for £0.75m, 16.3% ahead of the March valuation.

Strong industrial weighting continues to lead returns

Over recent months, the UK commercial property market returns have continued to be driven by the industrial sector. With limited supply and strong demand, encouraged by the accelerated shift to online purchasing and supply chain concerns, capital values and rents continue to grow strongly. The office sector has shown signs of benefitting from the gradual ‘return to the office’ and has shown modest rental growth and relatively flat capital values. The retail and leisure sector has shown a significantly slower decline in rental values while capital values have begun to improve from the previous steep decline, but performance varies markedly across sub-sectors. Leisure assets have benefitted from the removal of lockdown restrictions but within retail, shopping centres and high street locations continue to suffer from excess supply. Retail warehouse assets have seen good growth in capital values, benefiting from restricted supply, generally free parking and the convenience that is complementary to growth in online sales, both for click-and-collect and customer returns.

Picton’s portfolio remains strongly weighted towards industrial property (c 56% by value compared with c 33% for the index6) and significantly underweight in retail and leisure (the c 11% weighting is less than half the index weight. Picton’s office exposure of c 33% is slightly higher than the index (c 28%). In line with broad market trends, industrials continued to drive H122 performance, although each of the broad sectors showed positive like for like valuation movements. In retail and leisure, Picton benefitted from strong growth in retail warehouse valuations (c 7% of the portfolio and almost two-thirds of its total retail and leisure exposure).

The MSCI UK Quarterly Property Index.

Exhibit 6: Sector allocation and valuation movements

Portfolio allocation

Valuation

Like-for-like valuation change

Industrial weighting

55.9%

£416.7m

11.8%

o/w South East

41.2%

13.7%

o/w Rest of UK

14.7%

6.4%

Office weighting

33.1%

£246.9m

0.6%

o/w London City and West End

8.0%

2.6%

o/w Inner and Outer London

4.4%

-4.5%

o/w South East

10.2%

2.0%

o/w Rest of UK

10.5%

0.1%

Retail & Leisure weighting

11.0%

£81.6m

7.8%

o/w Retail Warehouse

6.9%

11.4%

o/w High Street Rest of UK

2.6%

-2.3%

o/w Leisure

1.5%

10.9%

Total

100.0%

£745.2m

7.4%

Source: Picton Property Income

Significant potential within the existing portfolio

The end-H122 ERV of £47.2m was £8.9m, or 24%, ahead of the annualised contracted rent roll of £38.3m. Void reduction represents £3.5m of the potential upside, with the balance comprising the upside from lease incentive run-off (c £2.8m) and the potential to increase existing rents to market levels at lease expiry (c £2.6m).

Exhibit 7: Reversion potential

Source: Picton Property Income

By sector, the greatest potential is within the industrial and office sectors. With occupancy close to full in the industrial sector, the upside is from reversion to market rents (which continue to increase) while in the office sector there is considerable upside from void reduction. In retail and leisure there is scope to increase occupancy, although on average contracted rents are above ERV. Which is likely to put pressure on average rent levels.

Exhibit 8: ERV by sector at end-FY21

£m unless stated otherwise

Contracted rent roll

ERV

Occupancy

Reversion

Total

Void reduction

Other*

Industrial

17.5

20.9

100%

3.5

0.3

3.2

Office

14.0

19.2

86%

5.1

2.7

2.4

Retail and leisure

6.8

7.1

93%

0.3

0.5

(0.2)

Portfolio total

38.3

47.2

93%

8.9

3.5

5.4

Source: Picton Property Income data and Edison Investment Research. Note: *Run-off of lease incentives and reversion to market-level rents.

Although occupancy continued to increase during H122, it remains below the longer-term trend. In part this reflects asset management and a deliberate refurbishment in recent years, but the pandemic has slowed letting, particularly in the office sector. The top five voids within the portfolio account for more than 70% of the total, most of which represents current or recently completed office refurbishments.

Exhibit 9: Portfolio occupancy trend

Source: Picton Property Income data

Financial flexibility for acquisitions

Funding for the recent industrial estate purchase was provided from Picton’s revolving credit facility (RCF) with a cost of 1.5% pa plus Libor (c 1.6% in total). The spread between funding costs and the net initial yield of 6.1% makes the acquisition clearly accretive to earnings. With a low c 22% loan to value (LTV) ratio and a further £36m available under the RCF, Picton is well positioned for further accretive acquisitions. Its approach to acquisitions is typically opportunistic within the goal of maintaining a diversified structure and management indicates that assets from any of the main sectors will be considered based on their attractiveness, especially in areas where rental growth will offset inflationary concerns.

External growth

The UK commercial real estate sector saw considerable share price weakness at the start of the pandemic and although the market has substantially recovered since, many UK listed commercial property companies have continued to trade at a material discount NAV (Exhibit 15 below). In combination with well-publicised issues in unlisted property funds,7 Picton identifies an opportunity for the market consolidation, to generate economies of scale through the removal of duplicated management costs, improved liquidity and greater overall efficiency. With its strong track record of property performance and a scalable internalised cost structure, Picton appears well paced to create additional shareholder value by increasing the size of its portfolio. Although it is often difficult for all parties involved to reach agreement on such transactions, we note that Drum Income Fund was recently agreed acquired by Custodian REIT in an agreed transaction and Yew Grove REIT has recently agreed to an acquisition by Slate Office REIT.

Given the relative illiquidity of real estate assets some open-ended funds have struggled to meet investor redemptions when markets are volatile and/or have found it necessary to hold significant, and often inefficient, precautionary cash balances to meet potential redemptions. Asset sales forced by redemption requests have in some cases also acted as a drag on performance.

Forecasts increased

We have increased our forecasts for EPRA earnings (particularly for FY22) and NAV/EPRA NTA, with the recovery in occupancy and property values coming through faster than we had assumed. Quarterly DPS has increased once during FY22 but is running below the level we had previously assumed, despite earnings being higher. We continue to forecast further increases in H222 and again in FY23, with the FY23e DPS representing a new high level.

Exhibit 10: Summary of forecast revisions

Net property income (£m)

EPRA earnings (£m)

EPRA EPS (p)

EPRA NAV/share (p)

DPS declared (p)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg

Old

New

% chg

Old

New

% chg

FY22e

33.9

35.1

3.4

20.4

21.5

5.5

3.7

3.9

5.5

103

108

5.2

3.50

3.45

(1.4)

FY23e

35.2

35.8

1.9

21.4

21.9

2.1

3.9

4.0

2.2

107

114

6.9

3.58

3.60

0.6

Source: Edison Investment Research

Our forecasts, shown in detail in Exhibit 15, are based on an unchanged portfolio (but include an impact from the late H122 industrial estate acquisition). The company continues to monitor potential accretive acquisition opportunities and with modest gearing and undrawn borrowing facilities is well placed to fund these, a potential uplift to our forecasts.

Forecast growth in gross rent roll is driven by reversionary capture in industrial and void reduction in offices, partly offset by rent pressure in retail, where for some properties, current rents are above market levels. At the group level we look for annualised rent roll to increase from £36.5m at end-FY21 to £38.2m (previously £37.7m) at end-FY22 and £40.5m (previously £39.3m) at end-FY23. We estimate this implies an increase in portfolio occupancy from 93% at H122 to 95% by end-FY23.

We forecast an increase in Q422 DPS from 0.85p per share to 0.9p per share and for this to be maintained throughout FY23. At 3.6p the aggregate FY23e DPS would be above the pre-pandemic level of 3.5p. We forecast FY23 dividend cover of c 1.1x.

For Picton and across the market, to varying degrees, each of the main sectors showed positive capital value movements in the six months to end-September 2021.8 We forecast further growth in capital values for Picton, driven by increased occupancy and contracted rents. The H122 like-for-like gain in values was 7.4% and net of capex and acquisition costs the gain per share was c 8p. Our forecasts include like-for-like gains of 2.3% in H222 (a net 2.5p per share) and 5.1% in FY23 (5.6p).

  Based on the MSCI UK Monthly Property Index for the market.

We estimate that each 1% increase/decrease in the total portfolio value is equivalent to an increase/decrease in EPRA NTA per share of c 1.5p.

Valuation and performance

Although total-return driven, Picton puts a strong focus on sustainable dividends, fully covered by earnings, at a level that provides the financial flexibility to pursue asset management initiatives. These are aimed at enhancing asset quality, occupancy, rental income and capital values, and medium-term value creation. Quarterly dividend payments were consistently maintained at the height of the pandemic and during lockdown, but at a reduced level. As uncertainty about rent collection eased, increased quarterly DPS payments were declared in Q221 and Q221 and increased again in Q122. The current annualised rate of 3.4p has almost returned to the pre-pandemic level of 3.5p. With 121% cover by EPRA earnings in H122 and improving prospects, we forecast further increases.

Exhibit 11: Quarterly DPS per share

Source: Picton Property Income historical DPS declared, Edison Investment Research

Combining growth in EPRA NTA per share with DPS paid over the past five and a half years (to 30 September 2021/end-H122),9 Picton has generated an aggregate NAV/EPRA NTA total return10 of 59.4% or a compound annual average return of 8.8% (without assuming reinvestment of dividends paid). Our forecasts imply a total return of 8.1% in FY22 and 7.4% in FY23.

  The strong performance in H122 lifted the annualised total return from 8.0% in the five complete years to end-FY21.

  There is no difference currently between Picton’s IFRS NAV and EPRA NTA.

Exhibit 12: Accounting total return*

Year ending 31 March

FY17

FY18

FY19

FY20

FY21

H122

Cumulative FY17–H122

Opening EPRA NTA per share (p)

77

82

90

93

93

97

77

Closing EPRA NTA per share (p)

82

90

93

93

97

105

105

DPS paid (p)

3.30

3.40

3.50

3.50

2.75

1.65

18.1

EPRA NTA total return

10.2%

14.7%

6.4%

4.4%

6.6%

10.2%

59.4%

Compound annual total return

8.8%

Source: Picton Property Income data, Edison Investment Research. Note: *Change in EPRA NTA per share plus dividends paid but not reinvested.

The current quarterly run rate of DPS (3.4p) represents a 3.5% FY22e yield. While the current P/EPRA NTA per share (H122: 105p) of 0.94x shows a significant recovery from early 2020, as pandemic uncertainty was at a high, and is now in line with the five-year average of c 0.94x, it remains below the high of c 1.1x.

Exhibit 13: Share price/NAV history

Source: Company data, Refinitiv prices as at 17 November 2021

Exhibit 14 shows a summary performance and valuation comparison of Picton and what we consider to be its closest diversified income-oriented peers. Over 12 months, Picton’s share price performance is ahead of the group average, which shows a wide spread of performances, and the broad UK property sector and UK equity market. Picton shares trade on a lower yield than the group average while its P/NTA is above average. The factors that support this valuation include 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 14: Peer valuation and price performance comparison

Price
(p)

Market cap
(£m)

P/NAV
(x)*

Trailing yield (%)**

Share price performance

1 month

3 months

12 months

From 12M high

AEW REIT

114

181

1.04

7.0

5%

10%

48%

0%

BMO Real Estate Investments

85

204

0.77

4.2

0%

14%

41%

-4%

BMO Commercial Property Trust

102

812

0.78

4.1

2%

2%

43%

-3%

Circle Property

212

61

0.77

3.1

3%

6%

23%

-8%

Custodian

94

396

0.89

5.3

-3%

-5%

6%

-12%

Ediston Property

80

168

0.89

5.7

4%

11%

22%

-1%

LondonMetric

275

2503

1.29

3.2

7%

7%

20%

-2%

McKay Securities

221

207

0.72

3.8

2%

-3%

5%

-10%

Palace Capital

262

121

0.72

4.5

8%

3%

27%

-7%

Regional REIT

91

392

0.92

6.9

4%

4%

10%

-3%

Schroder REIT

52

253

0.78

5.2

2%

1%

36%

-3%

Standard Life Investment Property

73

296

0.79

5.2

0%

-1%

23%

-5%

Average

0.86

4.8

3%

4%

25%

-5%

Picton

99

540

0.94

3.3

-1%

4%

30%

-2%

UK property sector index

1,958

5%

1%

25%

-1%

UK equity market index

4,147

1%

1%

16%

-2%

Source: Company data, Refinitiv prices as at 23 November 2021. Note: *Based on last reported EPRA NAV/NTA. **Based on trailing 12-month DPS declared.

Exhibit 15: Financial summary

Year end 31 March (£m)

2017

2018

2019

2020

2021

2022e

2023e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Rents receivable, adjusted for lease incentives

40.6

41.4

40.9

37.8

36.6

39.2

40.2

Other income

7.4

1.4

1.1

1.2

1.5

0.3

0.3

Service charge income

6.5

5.9

5.7

6.7

5.3

5.5

5.6

Revenue from properties

54.4

48.8

47.7

45.7

43.3

45.0

46.1

Property operating costs

(3.5)

(2.6)

(2.3)

(2.3)

(2.4)

(2.5)

(2.7)

Property void costs

(2.0)

(1.8)

(1.4)

(3.0)

(2.2)

(1.9)

(2.0)

Recoverable service charge costs

(6.5)

(5.9)

(5.7)

(6.7)

(5.3)

(5.5)

(5.6)

Property expenses

(12.0)

(10.3)

(9.4)

(12.0)

(9.9)

(10.0)

(10.3)

Net property income

42.4

38.4

38.3

33.6

33.5

35.0

35.8

Administrative expenses

(5.2)

(5.6)

(5.8)

(5.6)

(5.4)

(5.6)

(6.0)

Operating Profit before revaluations

37.1

32.9

32.5

28.1

28.1

29.4

29.9

Revaluation of investment properties

15.1

38.9

10.9

(0.9)

12.9

56.7

30.3

Profit on disposals

1.8

2.6

0.4

3.5

0.9

0.0

0.0

Operating Profit

54.1

74.4

43.7

30.7

41.8

86.1

60.2

Net finance expense

(10.8)

(9.7)

(9.1)

(8.3)

(8.0)

(8.0)

(8.0)

Debt repayment fee

0.0

0.0

(3.2)

Profit Before Tax

43.2

64.7

31.4

22.4

33.8

78.2

52.2

Taxation

(0.5)

(0.5)

(0.5)

0.1

0.0

0.0

0.0

Profit After Tax (IFRS)

42.8

64.2

31.0

22.5

33.8

78.2

52.2

Adjust for:

Investment property valuation movement

(15.1)

(38.9)

(10.9)

0.9

(12.9)

(56.7)

(30.3)

Profit on disposal of investment properties

(1.8)

(2.6)

(0.4)

(3.5)

(0.9)

(0.0)

0.0

Exceptional income /expenses

(5.3)

0.0

3.2

0.0

0.0

0.0

0.0

Profit After Tax (EPRA)

20.6

22.6

22.9

19.9

20.1

21.5

21.9

Fully diluted average Number of Shares Outstanding (m)

540.1

539.7

541.0

546.2

546.8

546.8

546.3

EPS (p)

7.92

11.89

5.75

4.14

6.20

14.33

9.58

EPRA EPS (p)

3.81

4.19

4.25

3.66

3.68

3.94

4.01

Dividend declared per share (p)

3.33

3.43

3.50

3.25

2.93

3.45

3.60

Dividends paid per share (p)

3.300

3.400

3.500

3.500

2.750

3.350

3.600

Dividend cover (x) EPRA EPS/DPS declared

115%

122%

121%

113%

126%

114%

111%

Dividend cover (x) - paid dividends

115%

122%

121%

105%

134%

117%

111%

EPRA cost ratio including direct vacancy costs)

26.1%

23.7%

22.9%

28.3%

26.9%

25.3%

26.0%

BALANCE SHEET

Fixed Assets

615.2

670.7

676.1

654.5

669.5

747.1

785.0

Investment properties

615.2

670.7

676.1

654.5

665.4

742.6

780.5

Other non-current assets

0.0

0.0

0.0

0.0

4.1

4.5

4.5

Current Assets

49.4

50.6

39.5

41.2

42.9

39.7

35.5

Debtors

15.5

19.1

14.3

17.6

19.6

19.0

18.0

Cash

33.9

31.5

25.2

23.6

23.4

20.7

17.5

Current Liabilities

(20.6)

(22.3)

(23.3)

(20.4)

(19.9)

(20.0)

(20.0)

Creditors/Deferred income

(20.1)

(21.6)

(22.5)

(19.5)

(18.9)

(19.1)

(19.1)

Short term borrowings

(0.6)

(0.7)

(0.8)

(0.9)

(0.9)

(1.0)

(1.0)

Long Term Liabilities

(202.1)

(211.7)

(192.8)

(166.0)

(164.4)

(178.1)

(178.5)

Long term borrowings

(200.3)

(210.0)

(191.1)

(164.2)

(162.7)

(176.4)

(176.8)

Other long term liabilities

(1.7)

(1.7)

(1.7)

(1.7)

(1.7)

(1.7)

(1.7)

Net Assets

441.9

487.4

499.4

509.3

528.2

588.7

622.0

NAV/share (p)

82

90

93

93

97

108

114

Fully diluted EPRA NTA/share (p)

82

90

93

93

97

108

114

CASH FLOW

Operating Cash Flow

36.3

35.1

34.8

21.4

26.0

30.9

31.6

Net Interest

(9.2)

(9.1)

(8.6)

(7.9)

(7.5)

(7.5)

(7.6)

Tax

(0.2)

(0.3)

(0.8)

0.1

0.1

0.0

0.0

Net cash from investing activities

48.7

(17.8)

10.3

25.0

(1.3)

(20.5)

(7.5)

Ordinary dividends paid

(18.0)

(18.5)

(18.9)

(19.0)

(15.0)

(18.3)

(19.6)

Debt drawn/(repaid)

(46.5)

9.2

(22.6)

(27.2)

(1.8)

13.3

0.0

Net proceeds from shares issued/repurchased

0.0

(0.9)

(0.4)

6.1

(0.6)

(0.5)

0.0

Other cash flow from financing activities

Net Cash Flow

11.1

(2.4)

(6.3)

(1.6)

(0.2)

(2.6)

(3.2)

Opening cash

22.8

33.9

31.5

25.2

23.6

23.4

20.7

Closing cash

33.9

31.5

25.2

23.6

23.4

20.7

17.5

Debt as per balance sheet

(200.9)

(210.7)

(192.0)

(165.1)

(163.7)

(177.4)

(177.7)

Un-amortised loan arrangement fees

(3.7)

(3.4)

(2.7)

(2.3)

(2.6)

(2.2)

(1.8)

Closing net (debt)/cash

(170.8)

(182.5)

(169.5)

(143.9)

(142.8)

(158.8)

(162.1)

Net LTV

27.3%

26.7%

24.7%

21.7%

20.9%

21.0%

20.4%

Source: Picton Property Income historical data, Edison Investment Research forecasts


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 £60,000 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 2021 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

1185 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

1185 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 £60,000 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 2021 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

1185 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

1185 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

Share this with friends and colleagues