Picton Property Inc. - Trading Update and Net Asset Value

Picton Property Income

28/01/2025 07:00

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RNS Number : 8557U  Picton Property Income Limited  28 January 2025

28 January 2025

PICTON PROPERTY INCOME LIMITED

('Picton', the 'Company' or the 'Group')

LEI: 213800RYE59K9CKR4497

 

Trading Update and Net Asset Value as at 31 December 2024

 

 

Picton today announces its Net Asset Value ('NAV') for the quarter ended 31
December 2024.

 

Lena Wilson CBE, Chair of Picton, commented:

"In my last update as Chair, I am delighted that we are delivering a NAV
uplift, which is driven by property portfolio growth. This is a reflection of
our continued upgrading and investment into the portfolio, proactive asset
management and ability to capture rental growth. Our dividend remains fully
covered and we have a strong balance sheet".

 

Michael Morris, Chief Executive of Picton, commented:

"This was a strong quarter and reflects both progress at a portfolio level and
our hands-on approach to improving income and creating value. We are now
expecting completion of our asset disposals prior to the March year end, which
will reduce our office exposure to below 25% and will further improve our
portfolio occupancy to 95%".

 

Financial highlights

 •    Net assets of £536.8 million (30 September 2024: £524.8 million)
 •    NAV/EPRA net tangible assets per share increased by 2.3% to 98.5 pence (30
      September 2024: 96.3 pence)
 •    Total return for the quarter of 3.2% (30 September 2024: 1.3%)
 •    Weighted average interest rate on debt, fixed at 3.7% (30 September 2024:
      3.7%), with weighted average maturity of 7.0 years
 •    Loan-to-value ratio (LTV) of 25.3% (30 September 2024: 25.3%)

 

Operational highlights

 •    Like-for-like portfolio valuation increase of 2.2% over the quarter, with
      asset management driving strong growth in the retail warehouse sub-sector in
      particular. Across the portfolio there was a 0.1% improvement in equivalent
      yield and 1% rental growth
 •    Significant capital investment into the portfolio of £4.3 million,
      principally upgrading office assets in Bristol, Chatham, Colchester and
      Marlow. The like-for-like portfolio valuation increase net of capital
      expenditure was 1.6%
 •    Exchanged contracts for the disposal of a part-vacant office asset for £13.1
      million, 5% ahead of the September 2024 valuation; and completed the section
      106 agreement in Cardiff enabling both disposals to complete before the March
      year end
 •    Acquisition of a unit adjacent to an existing asset for £0.5 million,
      reflecting a net initial yield of 7.7%
 •    Completed three active management transactions, upsizing existing occupiers,
      removing break clauses and restructuring leases, to secure £1.5 million of
      income, 15% ahead of September 2024 estimated rental value (ERV)
 •    Completed nine new lettings with a combined annual rent of £1.3 million, 6%
      ahead of the September 2024 ERV
 •    Renewed six leases with a combined annual rent of £1.1 million, an increase
      of 44% on the previous passing rent and 7% ahead of the September 2024 ERV
 •    Occupancy of 92% (September 2024: 92%) or 95% excluding assets contracted to
      be sold

 

Dividend

 •    Interim dividend of 0.925 pence per share declared for the period 1 October
      2024 to 31 December 2024 and to be paid on 28 February 2025 (1 July 2024 to 30
      September 2024: 0.925 pence per share)
 •    Annualised dividend equivalent to 3.7 pence per share, delivering a dividend
      yield of 5.8%, based on the share price at close of business on 31 December
      2024
 •    Dividend cover for the quarter of 111%

 

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE UK
MARKET ABUSE REGULATION

 

For further information:

 

Tavistock

James Verstringhe

020 7920 3150, james.verstringhe@tavistock.co.uk
(mailto:james.verstringhe@tavistock.co.uk)

 

Picton

Kathy Thompson, Company Secretary

020 7011 9988, kathy.thompson@picton.co.uk
(mailto:kathy.thompson@picton.co.uk)

 

About Picton

Established in 2005, Picton is listed on the main market of the London Stock
Exchange and is a constituent of a number of EPRA indices including the FTSE
EPRA Nareit Global Index.

 

Picton owns and actively manages a £737 million UK commercial property
portfolio, invested across 48 assets and with around 350 occupiers (as at 31
December 2024).

 

Through an occupier focused, opportunity led approach, Picton aims to be one
of the consistently best performing diversified UK REITs and has delivered
upper quartile outperformance and a consistently higher income return than the
MSCI Quarterly Property Index since launch.

 

With a portfolio strategically positioned to capture income and capital
growth, currently weighted towards the industrial sector, Picton's agile
business model provides flexibility to adapt to evolving market trends over
the long-term.

 

Picton has a responsible approach to business and is committed to being net
zero carbon by 2040.

 

For more information please visit: www.picton.co.uk (http://www.picton.co.uk)

 

 

NET ASSET VALUE

The NAV of Picton as at 31 December 2024 was £536.8 million, or 98.5 pence
per share, reflecting a 2.3% increase over the quarter or 3.2% on a total
return basis.

 

The NAV attributable to the ordinary shares is calculated under IFRS and
incorporates the independent market valuation as at 31 December 2024,
including income for the quarter, but does not include a provision for the
dividend this quarter, which will be paid in February 2025.

                            31 Dec 2024   30 Sept 2024   30 Jun 2024   31 Mar 2024

                            £million      £million       £million      £million
 Investment properties*     718.9         702.9          700.2         727.4
 Other assets               26.6          25.2           26.7          26.9
 Cash                       23.5          28.2           32.1          19.8
 Other liabilities          (22.2)        (21.1)         (24.1)        (22.1)
 Borrowings                 (210.0)       (210.4)        (210.8)       (227.5)
 Net Assets                 536.8         524.8          524.1         524.5
 Net Asset Value per share  98.5p         96.3p          96.0p         96.1p

 

*The investment property valuation is stated net of lease incentives and
includes the value of owner-occupied property.

 

The movement in NAV can be summarised as follows:

 

                                      Total       Movement  Per share

                                      £million    %         Pence
 NAV at 30 September 2024             524.8                 96.3
 Movement in property values          11.1        2.1       2.0
 Net income after tax for the period  5.6         1.1       1.0
 Dividends paid                       (5.0)       (1.0)     (0.9)
 Other                                0.3         0.1       0.1
 NAV at 31 December 2024              536.8       2.3       98.5

 

As at close of business on 31 December 2024, the Company's share price of 64.0
pence reflected a 35% discount to the NAV of 98.5 pence per share.

 

DIVIDEND DECLARATION

A separate announcement has been released today declaring a dividend of 0.925
pence per share in respect of the period 1 October 2024 to 31 December 2024 (1
July 2024 to 30 September 2024: 0.925 pence).

 

Dividend cover for the quarter was 111%.

 

DEBT

Total borrowings as at 31 December 2024 reduced to £210.0 million, with all
debt drawn under long-term fixed rate facilities.

 

The weighted average debt maturity profile is approximately 7.0 years and the
weighted average interest rate is fixed at 3.7%. The net LTV ratio, calculated
as total debt less cash, as a proportion of gross property value, is 25.3% (30
September 2024: 25.3%).

 

Picton has £50 million available through its undrawn revolving credit
facility. This facility expires in May 2025 and the Company has commenced the
process for an orderly refinancing ahead of that date.

 

MARKET BACKGROUND

The MSCI UK Monthly Property Index showed a positive total return for All
Property for the three months to December 2024 of 2.6%, comprising an income
return of 1.4% and capital growth of 1.2%.

 

All Property rental growth was 0.9% for the three months to December 2024
(September 2024: 0.9%). On a rolling three-month basis, All Property rental
growth has remained positive since February 2021.

 

The All Property Net Initial Yield was 5.3% in December 2024, compared to 5.5%
in September 2024.

 

The market performance for the three months to December for All Property and
the three main sectors is shown below. All of the industrial, retail warehouse
and shopping centre segments saw positive capital growth in the period.
Although still negative, office capital growth at -0.7% was the best since
August 2022, and three office segments saw positive growth for the period. All
standard retail capital growth turned positive in the quarter for the first
time since May 2022. In terms of rental growth, over 80% of all segments were
positive for the three months to December 2024.

 

 Three months to December 2024            All Property  Industrial  Office  Retail

 Total Return                             2.6%          3.5%        0.6%    3.4%

 Income Return                            1.4%          1.2%        1.3%    1.7%

 Capital Growth                           1.2%          2.2%        -0.7%   1.6%
 Number of segments with positive growth  22            7           3       12
 Number of segments with negative growth  10            0           7       3

 ERV Growth                               0.9%          1.5%        0.4%    0.7%
 Number of segments with positive growth  26            7           8       11
 Number of segments with negative growth  6             0           2       4

 

(Source: MSCI UK Monthly Property Index)

 

PORTFOLIO UPDATE

 

Valuation

On a like-for-like basis, the independent property valuation increased by 2.2%
to £737.4 million. With significant investment into key office assets, the
valuation uplift was 1.6% net of capital expenditure and acquisitions. The
valuation gains were driven by a small change (-6 bps) in equivalent yield,
rental growth of 1% and leasing and active management activity as detailed
below.

 

The property portfolio has a net initial yield of 5.1% and a reversionary
yield of 6.9%. The current portfolio value is 14% below the estimated
replacement cost.

 

The breakdown of valuation movements over the quarter are shown below:

 

 Sector                    Portfolio    Like-for-like      Comment

                           allocation   valuation change

 Industrial                61.8%        1.9%               ERV Growth +0.7%
 South East                44.0%                           Equivalent yield change -4bps
 Rest of UK                17.8%                           Capital Expenditure of £1.1m

 Office                    26.9%        2.3%               ERV Growth +0.9%
 London City and West End  7.4%                            Equivalent yield change -2bps
 South East                7.7%                            Capital Expenditure of £2.8m
 Rest of UK                8.8%
 Alternative use assets    3.0%

 Retail and Leisure        11.3%        3.6%               ERV Growth +2.5%
 Retail Warehouse          7.3%                            Equivalent yield change -33bps
 High Street - Rest of UK  2.3%                            Capital Expenditure of £0.4m
 Leisure                   1.7%

 Total                     100%         2.2%

 

During the quarter a process to appoint a new independent valuer commenced,
with a change expected to be effective from June 2025. This is a requirement
of the RICS regulations introduced in 2023.

 

A breakdown of activity by sector is detailed below:

 

Industrial

We have completed the acquisition of a freehold retail warehouse/trade counter
unit at 90 Bristol Road, Gloucester for £0.5 million, funded through cash
resources. The property comprises 5,100 sq ft and is located adjacent to our
Mill Place Trading Estate ownership. The acquisition will improve the estate's
overall roadside frontage to Bristol Road.

 

The off-market transaction was structured as a sale and leaseback and reflects
a net initial yield of 7.7%, increasing to 8.7% in year six, based on a fixed
rental uplift. The purchase price reflects a low capital value of £98 per sq
ft, which is less than half of the estimated replacement cost.

 

At Mill Place Trading Estate, Gloucester, we have enabled the largest occupier
to expand and have extended their lease commitment by a further five years.
This involved leasing a vacant unit, relocating another occupier, upgrading
space and the demolition of a small unit, enabling open storage land to be
leased and realised. The new lettings total £0.1 million per annum, and
combined with the regear of their current leases, secures £0.3 million per
annum, subject to a minimum uplift in 2026 at an open market rent review. The
combined new rent is 8% ahead of the September 2024 ERV.

 

In Luton, after completion of a comprehensive refurbishment, delivering an A
rated EPC, we let the only void unit at an annual rent of £0.2 million, 11%
ahead of September 2024 ERV.

 

At River Way Industrial Estate, Harlow, in a back-to-back transaction, we have
surrendered a lease from an occupier in financial difficulty and re-leased it
to a new occupier. The new rent of £0.6 million per annum is more than 50%
ahead of the previous passing rent and is 4% higher than the September 2024
ERV.

 

At Datapoint, London, E16 we extended the lease of the largest occupier which
was due to expire in December 2024 by a further five years. The rent
increased by 47% and was 3% ahead of the September 2024 ERV.

 

At Madleaze Trading Estate, Gloucester, where last quarter we entered into an
Agreement for Lease with our largest occupier, extending their lease
commitment by a further ten years, we have completed the replacement of one of
their roofs in line with the regear terms previously agreed. In addition, we
have leased them a further unit on a SwiftSpace agreement in line with ERV,
meaning we only have two units remaining available on the estate, with good
interest.

 

Office

During the quarter we exchanged contracts to sell Charlotte Terrace, London
W14 with completion expected shortly. The disposal was in line with our
strategy of disposing of assets that have been repositioned for alternative
use. We secured residential planning consent in respect of a significant part
of the void office element in August this year. The disposal price of £13.1
million was in line with the December 2024 valuation and a 5% premium to the
external valuation as at 30 September 2024.

 

In Cardiff a resolution to grant planning consent was secured in September
2024. After the period end, the Section 106 agreement was finalised and
completion is due in March 2025, assuming there is no judicial review. The
final sale price is £8.4 million, reflecting overage provisions in the
contract. The price is a 28% premium to the valuation in September 2023, which
was the valuation prior to the sale being agreed and is in line with the
December 2024 valuation.

 

At 401 Grafton Gate, Milton Keynes, we extended two office leases,
representing approximately a quarter of the space, that was due to expire in
November 2025. We have agreed an immediate rental uplift of 37% to £0.4
million per annum, 17% ahead of the September ERV. As part of the transaction,
we will be comprehensively upgrading the air conditioning within the building
which should achieve an A rated EPC.

 

We are making good progress at a number of sustainability led office
refurbishments, which deliver enhanced occupier amenities, a transition from
gas to electric air conditioning and improved EPC ratings to A or B:

 

 •    Tower Wharf, Bristol - Comprehensive refurbishment of two office suites. Two
      thirds of the space has been pre let and will complete in March 2025. The
      remainder is fully fitted and available to lease having completed in January
      2025.
 •    Pembroke Court, Chatham - Provision of solar and replacement of the air
      conditioning system in Building 50. Due to complete in March 2025.
 •    Colchester Business Park - Comprehensive refurbishment of Building 200, Phase
      1. Due to complete in March 2025.
 •    Atlas House, Marlow - Refurbishment of vacant office suite. Completed January
      2025.

 

Retail

In Sheffield, we extended a lease of a retail warehouse unit, expiring in
2027, for a further ten years at the current rent of £1.2 million per annum,
subject to a minimum fixed uplift in 2029 to £1.4 million per annum. The unit
is future proofed with a B rated EPC.

 

We let two retail warehouse units, in line with the September 2024 ERV:

 

 •    At Gloucester Retail Park, we obtained planning consent for leisure use in
      2024 and secured a letting to Europe's largest trampoline park operator at
      £0.2 million per annum. The lease will commence next month on completion of
      our works.
 •    At Angouleme Retail Park, Bury, we secured a letting with a leading UK bed
      retailer at £0.1 million per annum.

 

Occupancy

Occupancy is 92%, but will rise to 95% after the period end following
completion of the agreed asset disposals.

 

 

 

 

 

Top 10 Holdings

 Asset                                                   Sector      Location
 Parkbury Industrial Estate, Radlett, Hertfordshire      Industrial  South East
 River Way Industrial Estate, Harlow, Essex              Industrial  South East
 Stanford Building, Long Acre, London, WC2               Office      London
 Datapoint, Cody Road, London, E16                       Industrial  London
 Lyon Business Park, Barking, London                     Industrial  Outer London
 Shipton Way, Rushden, Northamptonshire                  Industrial  East Midlands
 Sundon Business Park, Luton, Bedfordshire               Industrial  South East
 Tower Wharf, Cheese Lane, Bristol                       Office      South West
 50 Farringdon Road, London, EC1                         Office      London
 Trent Road, Grantham                                    Industrial  East Midlands

 

ENDS

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