Picton Property Income — Strong returns continued through Q123

Picton Property Income (LSE: PCTN)

Currency in GBP

Last close As at 02/02/2023

GBP0.82

1.80 (2.24%)

Market capitalisation

GBP439m

Research: Real Estate

Picton Property Income — Strong returns continued through Q123

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.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Picton Property Income

Strong returns continued through Q123

Quarterly trading update

Real estate

27 July 2022

Price

91.5p

Market cap

£500m

Net debt (£m) at 30 June 2022

196.1

Net LTV at 30 June 2022

22.3%

Shares in issue

545.6m

Free float

100%

Code

PCTN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

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.

Analyst

Martyn King

+44 (0)20 3077 5722

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

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
EPS* (p)

DPS declared (p)

NAV** per share (p)

P/NAV
(x)

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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