Net Asset Value and Interim Dividend

24 January 2017

PICTON PROPERTY INCOME LIMITED
(“Picton” or the “Company” or the “Group”)

Net Asset Value as at 31 December 2016 and Interim Dividend

Picton (LSE: PCTN) announces its Net Asset Value for the quarter ended 31 December 2016 and Interim Dividend. 

Highlights during the quarter included:

Financial

• Increase in Net Assets to £434.4 million (30 September 2016: £423.9 million).
• NAV/EPRA NAV per share rose 2.5% to 80.4 pence (30 September 2016: 78.5 pence).
• Total return for the quarter of 3.5% (30 September 2016: 2.5%).
• Repaid in full 7.25% zero dividend preference shares for £29.1 million using proceeds from asset disposals.
• Reduction in net gearing to 28.3% (30 September 2016: 31.6%).
• Reduction in the weighted average annual interest rate to 4.2% (30 September 2016: 4.6%).

Dividend

• Dividend of 0.85 pence per share declared and to be paid on 28 February 2017 (30 September 2016: 0.825 pence per share).
• Annual dividend increased by 3%, equivalent to 3.4 pence per share, delivering a yield, based on 20 January 2017 share price, of 4.4%.
• Dividend cover for the quarter of 112% (30 September 2016: 130%).

Portfolio Activity

• Like-for-like increase in property portfolio valuation of 1.9% (30 September 2016: 0.1%).
• Increased occupancy to 94% (30 September 2016: 93%).
• Completed nine lettings, on average 2% ahead of September ERV, adding £1.3 million per annum to the rent roll, including:

              - The two largest industrial voids in Barking and Harlow, for a combined initial rent of £0.6 million per annum.

              - 50 Farringdon Road, London EC1 – First Floor North Wing, at an initial rent of £0.42 million per annum.

• Completed £17.7 million of disposals of 1 Chancery Lane, London WC2 and 6 Argyle Street, Bath.
• Resultant portfolio of 55 assets with average lot size of £11.4 million.

Post Quarter End Activity

• Completed the sale of 2 Bath Street, Bath for £2.75 million, 10% above the December valuation.

Commenting, Nick Thompson, Chairman of Picton, said:

“We have continued to make good progress over the quarter on many fronts. We have enhanced occupancy and had notable success on both lettings and asset disposals. We have repaid debt, which has simplified our corporate structure and achieved an 8% reduction in our average annual interest rate. Our continued high dividend cover enables us to declare an increased dividend today, which is payable to shareholders next month.”

Michael Morris, Chief Executive of Picton Capital, added:

“This quarter, we have delivered strong NAV growth and a total return of 10.8% for 2016. By comparison the MSCI IPD Monthly Index showed a total return of 2.6% for 2016. This is a reflection of our capital structure, portfolio composition and the considerable asset management activity undertaken.”

This announcement contains inside information.

For further information:

Tavistock
Jeremy Carey/James Verstringhe, 020 7920 3150, [e-mail]

Picton Capital Limited
Michael Morris, 020 7011 9980, [e-mail]

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
 

Sam Walden, 01481 745 001, [e-mail]

Note to Editors

Picton is an income focused, property investment company listed on the London Stock Exchange.

With Net Assets of £434.4 million at 31 December 2016, the Company's objective is to provide shareholders with an attractive level of income, together with the potential for capital growth by investing in the principal commercial property sectors. Picton can invest both directly and indirectly in commercial property across the United Kingdom.

www.picton.co.uk

NET ASSET VALUE

The unaudited Net Asset Value (‘NAV’) of Picton, as at 31 December 2016, was £434.4 million, reflecting 80.4 pence per share, an increase of 2.5% over the quarter.

The NAV attributable to the ordinary shares is calculated under International Financial Reporting Standards and incorporates the external market valuation as at 31 December 2016, including income for the quarter, but does not include a provision for the increased dividend this quarter, which will be paid in February 2017.

The next independent valuation of the property portfolio is scheduled for March 2017 and the unaudited NAV per share, as at 31 March 2017, will be announced in April 2017.

A detailed breakdown of the NAV is included in the Appendix.

DIVIDEND

An increased interim dividend of 0.85 pence per share is declared in respect of the period 1 October 2016 to 31 December 2016 (1 July 2016 to 30 September 2016: 0.825 pence). The dividend will be paid on 28 February 2017 to shareholders on the register on 10 February 2017. The ex-dividend date is 9 February 2017.

Post-tax dividend cover over the quarter was 112% (30 September 2016: 130%).

DEBT

In the quarter, the 7.25% zero dividend preference shares were repaid in full for £29.1 million using proceeds from asset disposals in this and the previous quarter. This repayment has simplified the capital structure of the Group as well as reducing net gearing and the overall cost of debt.

Total borrowings at 31 December were £204.9 million, with a weighted average interest rate of 4.2% (100% fixed rate) and a weighted average debt maturity profile of approximately 12.0 years. Net gearing, calculated as total debt less cash, as a proportion of gross property value, was 28.3% (30 September 2016: 31.6%).

The Group currently has access to £53.0 million of undrawn facilities. If drawn, interest will be charged at 175 basis points over 3 month LIBOR, which is currently equivalent to 2.1% per annum.

PORTFOLIO UPDATE

The like for like portfolio valuation increased 1.9% or £11.9 million, primarily as a result of our positioning in the better performing industrial and office sectors, active management and leasing activity completed during the period. The Group incurred £1.8 million of capital expenditure over the period.

Occupancy across the portfolio increased to 94%, principally reflecting leasing activity.

As at 31 December 2016, the portfolio had a net initial yield of 5.8% (allowing for void holding costs) or 5.9% (based on contracted net income) and a net reversionary yield of 7.0%. The weighted average unexpired lease term based on headline rent was unchanged from the previous quarter at 5.7 years.

Key highlights in the quarter included:

Office

The sale of 1 Chancery Lane, London WC2 was completed realising £17.25 million, which was 2% ahead of the 30 September 2016 valuation. Having acquired the building in 2005 for £9.0 million, the sale crystallised the value created since purchase and concludes our strategy to reduce the portfolio’s central London exposure.

At 50 Farringdon Road, London, the larger wing on the first floor was leased to the multidisciplinary contractor, Volker Wessels, on a ten year lease, subject to break in the fifth year. The annual rent is £0.42 million, which is in line with ERV.

Industrial

In Radlett, a tenant break clause was removed in return for a short rent free period and secured the occupier until 2022. Concurrently, a rent review at the unit was settled, securing income of £85,000 per annum which was a 19% increase on the passing rent and 8% ahead of ERV.

The largest industrial void, at Unit D River Way in Harlow was let to BOC on a ten year lease with no break at £0.35 million per annum, which is in line with the September ERV. An Agreement for Lease was also completed on the only other vacant unit on the estate, which will complete once planning is secured by the occupier.

The second largest industrial void, at Unit O Lyon Business Park in Barking, was let at a rent of £0.25 million per annum, 6% ahead of the September ERV, and 17% ahead of the prior rent passing.

Retail and Leisure

At Queens House in Glasgow, an increase over 25% of the prior passing rent was achieved on a restaurant unit securing a new rent of £160,500 per annum, over 25% ahead of the September ERV.

A small non-core retail asset at 6 Argyle Street, Bath was sold for £0.5 million, which was in line with the September valuation.

MARKET BACKGROUND

According to the MSCI IPD Monthly Index, total returns were 2.6% in the quarter to December 2016, compared to -2.3% in the quarter to September 2016. Capital growth was 1.1% over the quarter, compared with -3.6% in the quarter to September 2016. Capital growth has been positive each consecutive month since October. In December monthly growth was 0.7%, its highest monthly rise since December 2015.

Across the principal IPD sectors, industrial capital values grew by 2.7% (September 2016: -2.1%), office by 1.0% (September 2016: -4.7%) and retail by 0.4% (September 2016: -3.9%). Out of a total of 37 segments (based on rolling three months), 29 segments recorded positive capital growth compared to only one last quarter. The eight negative movements were only seen in the office and retail sectors.

Over the quarter to December 2016, rental values rose by 0.5%, compared with 0.2% in the quarter to September 2016. Across the principal IPD sectors, industrial rental values grew by 1.3% (September 2016: 0.4%), office by 0.3% (September 2016: 0.2%) and retail by 0.3% (September 2016: 0.0%). Over the quarter, 30 of the IPD segments recorded positive rental growth compared to 23 segments last quarter. The seven negative movements were only seen in the office and retail sectors.

APPENDIX

NET ASSETS SUMMARY

The unaudited Net Asset Value is as follows:

	31 Dec 2016 £million	30 Sept 2016 £million	30 June 2016 £million
Investment properties *	615.6	621.1	648.5
Other assets	17.6	24.1	18.5
Cash	28.2	35.3	23.4
Other liabilities	(22.1)	(22.4)	(22.7)
Borrowings: Loan facilities ZDP’s	(204.9)	(205.2) (29.0)	(221.2) (28.5)
Net Assets	434.4	423.9	418.0
Net Asset Value per share	80.4p	78.5p	77.4p

* The investment property valuation is stated net of lease incentives.

The movement in Net Asset Value can be summarised as follows:

	Total	Movement	Per share
	£million	%	Pence
NAV at 30 September 2016	423.9		78.5
Movement in property values	10.0	2.4	1.8
Net income after tax for the period	5.0	1.2	0.9
Dividends paid	(4.5)	(1.1)	(0.8)
NAV at 31 December 2016	434.4	2.5	80.4

PORTFOLIO COMPOSITION

The portfolio consisted of 55 assets and an average lot size of £11.4 million at the end of December 2016.

The Group’s portfolio is structured as follows:

Sector	Portfolio weightings 31 Dec 2016	Like for like valuation change
Industrial sub-total	39.2%	2.8%
South East	26.1%
Rest of UK	13.1%
Offices sub-total	34.4%	2.3%
South East	21.5%
Rest of UK	8.7%
City	4.2%
Retail and Leisure sub-total	26.4%	0.2%
Retail warehouse	10.5%
High Street - Rest of UK	7.8%
High Street -  South East	5.6%
Leisure	2.5%
Total	100%	1.9%

TOP TEN ASSETS

The top ten assets, which represent 48% of the portfolio by capital value, are detailed below.

Asset	Sector	Location
Parkbury Industrial Estate, Radlett	Industrial	South East
River Way Industrial Estate, Harlow	Industrial	South East
Angel Gate Office Village, City Road, EC1	Office	London
Stanford House, Long Acre, WC2	Retail	London
50 Farringdon Road, EC1	Office	London
Shipton Way, Rushden, Northamptonshire	Industrial	East Midlands
Pembroke Court, Chatham	Office	South East
Queens Road, Sheffield	Retail Warehouse	North
Phase II Parc Tawe, Swansea	Retail Warehouse	Wales
Metro, Manchester	Office	North West

ENDS