RCS - Picton Property Inc. - Results analysis from Kepler Trust Intelligence

Picton Property Income

28/05/2024 16:52

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RNS Number : 1515Q  Picton Property Income Limited  28 May 2024

Picton Property Income (PCTN)

28/05/2024

Results analysis from Kepler Trust Intelligence

Self-managed REIT Picton Property Income (PCTN) has released its results for
the year ending 31/03/2024. PCTN delivered a property total return of 1.6% for
the year, compared to a -1.0% decline in the MSCI UK Quarterly Property Index.
The valuation of the property portfolio declined though, and NAV per share
fell from 100p to 96p.

That said, PCTN has delivered top quartile property level outperformance over
the nearly two-decade period since IPO in 2004.

Dividends for the year totalled £19.1m, or 3.5p per share. Dividends of 3.5p
were covered at 114%. In April a 5.7% increase in dividends was announced
effective May 2024.

PCTN has made strong progress in repositioning its portfolio away from office
assets. Central London property Angel Gate was sold after the period end in
April for £29.6m - 5% ahead of the valuation at the end of the 2023 calendar
year. The REIT has also exchanged contracts to sell Longcross, an office
building in Cardiff, to a student accommodation developer.

The managers used £16.5m of the proceeds from the Angel Gate sale to repay
funds drawn from the REIT's RCF. This reduced the weighted average interest
rate on borrowings to 3.7% from 3.9% and means that PCTN's borrowings are now
100% fixed rate.

The PCTN portfolio has a net initial yield of 5.2% and a reversionary yield of
7.0%. Passing rent was £44.7m, compared to an estimated rental value of
£57.6m.

PCTN Chief Executive Michael Morris said: "Our approach capitalises on real
estate being an ever-evolving asset class, with buildings continually adapted,
upgraded or repurposed to meet changing occupier demand. There remains
significant income upside within the portfolio, whether that is captured
directly at rent review or lease expiry or through the recycling of assets and
reinvestment."

Kepler View

Picton Property Income (PCTN) continues to pay a high, fully covered dividend.
The 5.7% increase to dividends announced in May illustrates the portfolio's
strength and the manager's ability to raise rents and increase earnings,
despite inflationary pressures.

The team have been quick to respond to shifts in the market and manage the
portfolio accordingly. In this instance that has meant shifting the portfolio
away from offices and in to more in-demand areas, like logistics and
industrial assets. April's disposal of the Angel Gate asset, as well as the
prospective sale of Longcross, which looks set to be achieved at a mark up to
prior valuations, is proof that repurposing properties is more than just a
nice, theoretical idea.

There's no doubt that higher interest rates continue to play on investors'
minds when it comes to property. The fact PCTN trades at a c. 33% discount as
at 23/05/2024 is illustrative of that. However, at a certain point you have to
question what further level of assurance is required. The REIT continues to
offer attractive potential upside via its wide discount and reversionary
potential, without even factoring in the strength of its balance sheet and
underlying portfolio.

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