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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