Further details from the update
A summary of the NAV progression during the three months to 30 June 2018 (Q119) is shown in Exhibit 1. The c £6.0m movement in property values includes a £5.4m, or 0.8% like-for-like, portfolio revaluation movement and a c £0.6m gain on disposals after costs. Income earnings after tax of c £5.7m covered dividends for the quarter by 121%. In aggregate, net assets grew 1.5% and net asset value per share by a similar amount to 91.8p. As discussed below, the early retirement of £33.7m of debt, due to mature in July 2022, that has taken place since the end of Q119, will have a negative impact on Q219 NAV per share of c 0.7p but will reduce recurring interest expenses.
Exhibit 1: Q119 NAV movement
|
Total (£m) |
Movement % |
Per share (p) |
NAV at 31 March 2018 |
487.4 |
|
90.4 |
Movement in property values |
6.0 |
1.3 |
1.2 |
Net income after tax |
5.7 |
1.2 |
1.1 |
Dividends paid |
(4.7) |
(1.0) |
(.9) |
Other |
0.2 |
- |
- |
NAV at 30 June 2018 |
494.6 |
1.5 |
91.8 |
Pro-forma NAV at 30 June 2018* |
491.1 |
0.8 |
91.1 |
Source: Picton. Note: Pro-forma for impact of post period-end early debt repayment.
The composition of the Q119 net asset value can be seen in Exhibit 2. The reduction in the value of investment properties (stated net of lease incentives) in the quarter reflects the completed sales of two office assets for an aggregate £11.8m, 8.4% ahead of the March valuation, partly offset by the positive revaluation movement. As at 30 June 2018, the portfolio had a net initial yield of 5.4%, allowing for void holding costs (March: 5.5%). The increase in the cash balance broadly corresponds to the properties sold. Picton has also helpfully provided a pro-forma position that shows the end-Q119 position adjusted for the subsequent debt repayment.
|
Pro-forma |
|
|
|
|
30 June 2018 |
30 June 2018 |
31 March 2018 |
31 December 2018 |
Investment properties |
669.4 |
669.4 |
674.5 |
665.3 |
Other assets |
16.3 |
16.6 |
17.9 |
18.1 |
Cash |
21.6 |
44.0 |
31.5 |
31.7 |
Other liabilities |
(21.6) |
(21.6) |
(22.5) |
(21.4) |
Borrowings |
(194.6) |
(213.8) |
(214.0) |
(216.3) |
Net assets |
491.1 |
494.6 |
487.4 |
477.4 |
Net asset value per share (p) |
91.1 |
91.8 |
90.4 |
88.6 |
Source: Picton. Note: Pro-forma for impact of post period-end early debt repayment.
On 20 July, Picton completed the early repayment of £33.7m of debt, due July 2022, reducing its total debt outstanding to £194.6m. The debt that was repaid was not due to mature until July 2022 and carried a fixed interest rate of 4.08%. It was repaid using £23m of cash resources, with the balance coming from one of the group’s revolving credit facilities, at a cost of 1.75% above Libor, or c 2.5% currently. The vast majority of the remaining debt (87%) is now fixed under long-term facilities, with the rest at variable rates. Average maturity extends to c 10.6 years and the weighted average cost of debt falls to 4.0%. In addition, Picton has secured other amendments to the loan documentation covering the c £80m debt balance with the lender involved, which will increase operational flexibility. We have adjusted our estimates (shown below) for the repayment, which results in an annualised interest saving of c £1.0m while incurring a one-off repayment fee of £3.2m and crystallising un-amortised loan arrangement fees of c £300k. The impact on NAV, to be recognised in Q219, will be a c 0.7p reduction.
Picton’s industrial portfolio (43% of the total) continued to drive the valuation performance, with a like-for-like gain of 3.4% in the quarter, supported by continuing rental growth. The office portfolio (34.5% of the total) saw a small 0.1% overall like-for-like valuation decline within which regional office performance was positive, with occupier demand remaining strong, while London offices, where Picton is underweight, saw a value decline reflecting a weaker rental outlook. Retail and leisure (22.5% of the portfolio), another area where the portfolio is underweighted, saw a 2.5% like-for-like value decline driven by high street retail property.
During the period, seven lettings, six lease renewals/re-gears and two rent reviews were completed, with a combined annual rent of £0.9m, on average 6.2% ahead of the March ERV. Occupancy remained high at 95% but was slightly lower than March (96%). The reduction reflects the surrender of two leases at business parks within the industrial portfolio, reflecting ongoing active management, where management expects to be able to re-let the units at rents significantly ahead of the previous passing rent.
Our revised estimates allow for the year-to-date property sales and debt repayment, which broadly offset each other at the level of EPRA earnings. The Q119 revaluation movement was consistent with our existing forecasts and EPRA NAV reduces slightly, with the Q119 disposal gain partly offsetting the upfront cost of the debt repayment.
Exhibit 3: Estimates revision
|
Net rental income (£m) |
EPRA EPS (p) |
EPRA NAV/share (p) |
DPS (p) |
|
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
FY19e |
38.5 |
37.8 |
(1.8) |
4.30 |
4.27 |
(0.8) |
94.0 |
93.5 |
(0.6) |
3.57 |
3.57 |
0.0 |
FY20e |
39.1 |
38.1 |
(2.3) |
4.43 |
4.43 |
0.1 |
96.6 |
96.1 |
(0.5) |
3.68 |
3.68 |
0.0 |
Source: Picton Property, Edison Investment Research
Exhibit 4: Financial summary
Year end 31 March |
|
£'000s |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
|
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
31,967 |
35,151 |
40,770 |
47,911 |
42,855 |
42,134 |
42,448 |
Service charge income |
|
|
4,782 |
4,511 |
5,153 |
6,487 |
5,927 |
6,000 |
6,000 |
Total revenue |
|
|
36,749 |
39,662 |
45,923 |
54,398 |
48,782 |
48,134 |
48,448 |
Gross property expenses |
|
|
(8,992) |
(9,320) |
(10,001) |
(12,011) |
(10,335) |
(10,300) |
(10,300) |
Net rental income |
|
|
27,757 |
30,342 |
35,922 |
42,387 |
38,447 |
37,834 |
38,148 |
Administrative expenses |
|
|
(1,139) |
(1,194) |
(1,510) |
(1,613) |
(1,914) |
(1,600) |
(1,650) |
Operating Profit before revaluations |
|
|
26,618 |
29,148 |
34,412 |
40,774 |
36,533 |
36,234 |
36,498 |
Revaluation of investment properties |
|
|
18,422 |
53,163 |
44,171 |
15,087 |
38,920 |
15,000 |
10,000 |
Profit on disposals |
|
|
5,660 |
412 |
799 |
1,847 |
2,623 |
900 |
0 |
Management expenses |
|
|
(2,127) |
(2,591) |
(2,901) |
(3,636) |
(3,652) |
(3,743) |
(3,837) |
Operating Profit |
|
|
48,573 |
80,132 |
76,481 |
54,072 |
74,424 |
48,390 |
42,662 |
Net finance expense |
|
|
(10,868) |
(10,930) |
(11,417) |
(10,823) |
(9,747) |
(12,497) |
(8,762) |
Profit Before Tax |
|
|
37,705 |
69,202 |
65,064 |
43,249 |
64,677 |
35,894 |
33,899 |
Taxation |
|
|
(357) |
(347) |
(216) |
(499) |
(509) |
(205) |
0 |
Profit After Tax |
|
|
37,348 |
68,855 |
64,848 |
42,750 |
64,168 |
35,689 |
33,899 |
Profit After Tax (EPRA) |
|
|
13,266 |
15,280 |
19,878 |
20,566 |
22,625 |
22,989 |
23,899 |
Average Number of Shares Outstanding (m) |
|
|
359.9 |
445.3 |
540.1 |
540.1 |
539.7 |
539.0 |
539.0 |
EPS (p) |
|
|
10.38 |
15.46 |
12.01 |
7.92 |
11.89 |
6.62 |
6.29 |
EPRA EPS (p) |
|
|
3.69 |
3.43 |
3.68 |
3.81 |
4.19 |
4.27 |
4.43 |
Dividends declared per share (p) |
|
|
3.000 |
3.000 |
3.300 |
3.350 |
3.450 |
3.570 |
3.680 |
Dividend cover (x) |
|
|
1.23 |
1.14 |
1.12 |
1.14 |
1.22 |
1.19 |
1.20 |
Ongoing charges ratio (excluding property expenses) |
|
|
1.7% |
1.2% |
1.1% |
1.2% |
1.1% |
1.1% |
1.1% |
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
421,393 |
536,898 |
649,406 |
615,187 |
670,679 |
682,129 |
695,632 |
Investment properties |
|
|
417,207 |
532,926 |
646,018 |
615,170 |
670,674 |
682,124 |
695,627 |
Other non-current assets |
|
|
4,186 |
3,972 |
3,388 |
17 |
5 |
5 |
5 |
Current Assets |
|
|
42,879 |
84,111 |
37,408 |
49,424 |
50,633 |
37,747 |
38,638 |
Debtors |
|
|
10,527 |
14,019 |
14,649 |
15,541 |
19,123 |
15,105 |
15,306 |
Cash |
|
|
32,352 |
70,092 |
22,759 |
33,883 |
31,510 |
22,642 |
23,332 |
Current Liabilities |
|
|
(17,369) |
(17,480) |
(47,521) |
(20,635) |
(22,292) |
(20,458) |
(20,719) |
Creditors/Deferred income |
|
|
(14,434) |
(16,468) |
(18,430) |
(20,067) |
(21,580) |
(19,746) |
(20,007) |
Short term borrowings |
|
|
(2,935) |
(1,012) |
(29,091) |
(568) |
(712) |
(712) |
(712) |
Long Term Liabilities |
|
|
(232,807) |
(233,559) |
(222,161) |
(202,051) |
(211,665) |
(195,467) |
(195,467) |
Long term borrowings |
|
|
(231,081) |
(231,834) |
(220,444) |
(200,336) |
(209,952) |
(193,752) |
(193,752) |
Other long term liabilities |
|
|
(1,726) |
(1,725) |
(1,717) |
(1,715) |
(1,713) |
(1,715) |
(1,715) |
Net Assets |
|
|
214,096 |
369,970 |
417,132 |
441,925 |
487,355 |
503,951 |
518,084 |
Net Assets excluding goodwill and deferred tax |
|
|
214,096 |
369,970 |
417,132 |
441,925 |
487,355 |
503,951 |
518,084 |
NAV/share (p) |
|
|
56.4 |
68.5 |
77.2 |
81.8 |
90.4 |
93.5 |
96.1 |
EPRA NAV/share (p) |
|
|
56.4 |
68.5 |
77.2 |
81.8 |
90.4 |
93.5 |
96.1 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
23,145 |
24,705 |
33,283 |
36,283 |
35,088 |
30,848 |
32,746 |
Net Interest |
|
|
(8,768) |
(8,695) |
(8,836) |
(9,211) |
(9,125) |
(12,497) |
(8,762) |
Tax |
|
|
(394) |
(369) |
(426) |
(232) |
(328) |
(205) |
0 |
Net cash from investing activities |
|
|
(10,838) |
(61,729) |
(68,123) |
48,691 |
(17,811) |
8,276 |
(3,527) |
Ordinary dividends paid |
|
|
(10,711) |
(13,102) |
(17,822) |
(17,957) |
(18,487) |
(19,091) |
(19,766) |
Debt drawn/(repaid) |
|
|
(1,031) |
(3,191) |
14,591 |
(46,450) |
9,183 |
(16,200) |
0 |
Proceeds from shares issued |
|
|
18,043 |
100,121 |
0 |
0 |
0 |
0 |
0 |
Other cash flow from financing activities |
|
|
|
|
|
|
|
|
|
Net Cash Flow |
|
|
9,446 |
37,740 |
(47,333) |
11,124 |
(1,480) |
(8,868) |
690 |
Opening cash |
|
|
22,906 |
32,352 |
70,092 |
22,759 |
33,883 |
32,403 |
23,535 |
Closing cash |
|
|
32,352 |
70,092 |
22,759 |
33,883 |
32,403 |
23,535 |
24,225 |
Closing debt |
|
|
(234,016) |
(232,846) |
(249,535) |
(200,904) |
(210,664) |
(194,464) |
(194,464) |
Closing net (debt)/cash |
|
|
(201,664) |
(162,754) |
(226,776) |
(167,021) |
(178,261) |
(170,929) |
(170,239) |
Net LTV |
|
|
|
|
34.6% |
27.4% |
26.7% |
24.9% |
24.3% |
Source: Picton Property Income, 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 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 2018 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 Investment Research 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 2018. “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. |
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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 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 2018 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 Investment Research 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 2018. “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. |
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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 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 4, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
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