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Research: Real Estate
For the three months to 30 June (Q123), Picton Property Income has continued to generate attractive total returns, including valuation gains across each sector of its portfolio. The prospects for further progress from asset management are good, while a conservative balance sheet provides scope for accretive external growth opportunities that may arise.
Picton Property Income |
Strong returns continued through Q123 |
Quarterly trading update |
Real estate |
27 July 2022 |
Share price performance
Business description
Analyst
Picton Property Income is a research client of Edison Investment Research Limited |
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For the three months to 30 June (Q123), Picton Property Income has continued to generate attractive total returns, including valuation gains across each sector of its portfolio. The prospects for further progress from asset management are good, while a conservative balance sheet provides scope for accretive external growth opportunities that may arise.
Year end |
Net property income (£m) |
EPRA earnings* (£m) |
EPRA |
DPS declared (p) |
NAV** per share (p) |
P/NAV |
Yield |
03/21 |
33.5 |
20.1 |
3.7 |
2.93 |
97 |
0.95 |
3.2 |
03/22 |
35.4 |
21.2 |
3.9 |
3.45 |
120 |
0.76 |
3.8 |
03/23e |
37.1 |
21.6 |
4.0 |
3.60 |
130 |
0.70 |
3.9 |
03/24e |
38.6 |
22.7 |
4.2 |
3.66 |
133 |
0.69 |
4.0 |
Note: *EPRA earnings exclude revaluation gains/losses and other exceptional items. **NAV measure is net tangible assets (NTA), currently the same as IFRS NAV.
During the quarter, NAV per share increased by 2.0% to 122.9p and including DPS paid the NAV total return was 2.8%. The 0.875p quarterly dividend was 103% covered and with EPRA earnings of c 0.9p effectively fully distributed, NAV growth was driven by property portfolio valuation gains of 1.9% on a like-for-like basis. Picton’s retail & leisure sector assets (10.4% of portfolio value) showed the strongest like for like growth (2.8%), primarily driven by yield tightening in retail warehouses (two-thirds of the total). Industrial assets (59.3%) continued to show good growth of 2.3%, reflecting rental growth driven by continuing strong occupational demand. For some lower-yielding assets, valuation yields widened modestly. Offices (30.3%) experienced a 0.7% like-for-like increase, mainly reflecting investment into the assets. Including the previously announced £13.7m acquisition of a mixed-use asset in Hammersmith, with strong asset management opportunities, the portfolio value increased to £863m (excluding lease incentives) from £834m at end-FY22. The valuation reflects a net initial yield of 4.1% and a reversionary yield of 5.4%. End-FY22 reversionary income potential of c £11.1m comprised £3.6m from void reduction (mainly refurbished offices) and an aggregate £7.5m from lease incentive run-off and rent uplifts to market levels. During the quarter Picton completed a number of new lettings, lease renewals and regears at a blended average 6% above the end-FY22 estimated rental value (ERV). The occupancy reduction to 91% versus 93% at end-FY21 principally reflects the vacancy (and asset management potential) in the Hammersmith acquisition.
In addition to organic opportunities to grow income and capital values, Picton’s conservative balance sheet provides scope for accretive inorganic growth from asset or even corporate acquisition activity. End-Q123 gross debt of £218.5m comprises mainly long-term fixed-rate debt of £213.6m, with just £4.9m of variable rate borrowing drawn from the c £50m flexible revolving credit facility. The net loan to value ratio was 22.3%. Our forecasts, set out in detail in our June Outlook report, are unchanged.
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Research: Healthcare
Pixium has entered into a convertible notes financing arrangement with US-based healthcare investor European Select Growth Opportunities Fund (ESGO), for up to €30m of notes redeemable in cash and/or in shares, without interest, for a period of up to 36 months. The first tranche of €5.5m (gross) in notes was received on 14 July, and Pixium expects the funding will enable it to maintain operations to the end of Q123. While the possibility of a conversion of note tranche(s) to shares would increase the number of shares outstanding, this arrangement provides funding stability, thus enabling Pixium to execute on its Prima development strategy, which we believe could reach EU market approval in H125.
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