Trading Update and NAV

31 January 2023 

PICTON PROPERTY INCOME LIMITED
(“Picton”, the “Company” or the “Group”)
LEI: 213800RYE59K9CKR4497

Trading Update and Net Asset Value as at 31 December 2022

Picton announces its Net Asset Value for the quarter ended 31 December 2022.

Financial Highlights

· Net assets of £557.3 million (30 September 2022: £636.4 million).

· NAV/EPRA NTA per share decreased by -12.4% to 102.2 pence (30 September 2022: 116.7 pence).

· Total return for the quarter of -11.7% (30 September 2022: -4.3%).

· LTV of 26.4% (30 September 2022: 24.1%).

Operational Highlights

· Like-for-like portfolio valuation movement of -9.0% over the quarter caused by upward yield movement across all sectors (MSCI Monthly UK Property Index, Capital Growth -15.6%).

· Completed nine lettings across all sectors, securing a combined annual rent of £0.4 million, 7% ahead of the September 2022 ERV.

· Renewed / regeared 12 leases across all sectors, with a combined annual rent of £0.5 million, an increase of 28% against the previous passing rent and 3% ahead of the September 2022 ERV.

· Secured an average increase of 39% against the previous passing rent from four rent reviews in the industrial sector, with a combined annual rent of £1.0 million, which was 3% ahead of the September 2022 ERV.

· Purchased one small industrial unit for £0.4 million in Gloucester adjacent to an existing ownership.

· Strong rent collection for December quarter with 99% received including monthly payments.

· Stable occupancy of 90% (30 September 2022: 90%).

Dividend

· Interim dividend of 0.875 pence per share declared in respect of the period 1 October 2022 to 31 December 2022 and to be paid on 28 February 2023 (1 July 2022 to 30 September 2022: 0.875 pence per share).

· Annualised dividend equivalent to 3.5 pence per share, delivering a dividend yield of 4.4%, based on 27 January 2023 share price.

· Dividend cover for the quarter of 112% (30 September 2022: 121%).

Lena Wilson CBE, Chair of Picton, commented:

“During the quarter we have seen the impact of market volatility on our property portfolio valuation. Our modest gearing level, predominately fixed rate loan facilities and strong dividend cover have helped to mitigate the impact on net assets. Encouragingly, looking at the MSCI Monthly Index at an All Property level, rental growth remains positive and the rate of capital decline reduced in December relative to October and November.”

Michael Morris, Chief Executive of Picton, commented:

“Although we have seen further upward yield movement in the valuation of our assets, at a property level we have been able to offset some of this impact through asset management and leasing activity which has also grown rental income. Our outperformance over the quarter relative to the MSCI Monthly Index demonstrates the team is focused on unlocking potential in our portfolio.”

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

For further information:

Tavistock 

James Verstringhe, 020 7920 3150, [e-mail]

Picton

Michael Morris, 020 7011 9980, [e-mail] 

Note to Editors

Picton, established in 2005, is a UK REIT. It owns and actively manages a £775 million diversified UK commercial property portfolio, invested across 49 assets and with around 400 occupiers (as at 31 December 2022).

Through an occupier focused, opportunity led approach to asset management, Picton aims to be one of the consistently best performing diversified UK focused property companies listed on the main market of the London Stock Exchange.

For more information please visit: www.picton.co.uk 

NET ASSET VALUE

The unaudited Net Asset Value (‘NAV’) of Picton as at 31 December 2022 was £557.3 million, or 102.2 pence per share, reflecting -12.4% over the quarter or -11.7% 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 2022, including income for the quarter, but does not include a provision for the dividend this quarter, which will be paid in February 2023.

	31 Dec 2022 £million	30 Sept 2022 £million	30 Jun 2022 £million	31 Mar 2022 £million
Investment properties*	758.6	835.4	863.2	834.2
Other assets	23.8	27.5	25.5	24.2
Cash	20.3	19.7	22.4	38.5
Other liabilities	(20.6)	(21.0)	(22.6)	(21.0)
Borrowings	(224.8)	(225.2)	(218.5)	(218.8)
Net Assets	557.3	636.4	670.0	657.1
Net Asset Value per share	102.2p	116.7p	122.9p	120.4p

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

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

	Total £million	Movement %	Per share Pence
NAV at 30 September 2022	636.4		116.7
Movement in property values	(79.8)	(12.5)	(14.6)
Net income after tax for the period	5.3	0.9	1.0
Dividends paid	(4.8)	(0.8)	(0.9)
Other	0.2	-	-
NAV at 31 December 2022	557.3	(12.4)	102.2

DIVIDEND DECLARATION

A separate announcement has been released today declaring a dividend of 0.875 pence per share in respect of the period 1 October 2022 to 31 December 2022 (1 July 2022 to 30 September 2022: 0.875 pence).

Dividend cover over the quarter was 112% (30 September 2022: 121%).

DEBT 

Total borrowings at 31 December 2022 were £224.8 million. The majority is drawn under long-term fixed rate facilities with only £11.9 million drawn under the revolving credit facility. Borrowings were reduced through quarterly amortisation within one of the long-term debt facilities.

The net loan-to-value ratio, calculated as total debt less cash, as a proportion of gross property value, is 26.4% (30 September 2022: 24.1%). 

The weighted average debt maturity profile of the Group is approximately 8.6 years and the weighted average interest rate is 3.8%.

Picton has £38.1 million available through its undrawn revolving credit facility (30 September 2022: £38.1 million).

MARKET BACKGROUND

According to the MSCI Monthly UK Property Index, the All Property total return was -14.5% for the quarter to December 2022, compared to -4.1% for the previous quarter. 

MSCI Capital Growth for the quarter showed the largest decline since the Monthly Index began in 1987, surpassing the movement during the final quarter of 2008 at the height of the Global Financial Crisis. MSCI Capital Growth over the three months was -15.6% (September 2022: -5.1%). Whilst the monthly All Property Capital Growth in October and November was -6.9% and -5.9% respectively, in December this slowed markedly to -3.7%.

The occupier market is a more positive story, with rents at an All Property level growing 0.7% in the quarter according to MSCI (September 2022: 1.0%). ERV growth was driven by the industrial sector at 1.6%, with offices at 0.3% but -0.2% in the retail sector. Occupancy was 90.1% (September 2022: 90.5%).

A more detailed breakdown of the MSCI Monthly Digest for the quarter to December 2022 is shown below:

MSCI Capital Growth

		Number of MSCI segments
	Quarterly movement	Positive growth	Negative growth
Industrial	-20.3%	0	7
Office	-12.7%	0	10
Retail	-12.3%	0	19
All Property	-15.6%	0	36

MSCI Estimated Rental Value (ERV) Growth

		Number of MSCI segments
	Quarterly movement	Positive growth	Negative growth
Industrial	1.6%	7	0
Office	0.3%	7	3
Retail	-0.2%	5	14
All Property	0.7%	19	17

According to MSCI, at an All Property level Capital Growth was -19.9% for the six months to December 2022. By sector this comprises -26.9% in industrial, -15.0% in office and -15.3% in retail.

PORTFOLIO UPDATE

On a like-for-like basis the portfolio valuation movement was -9.0% as yields have moved upwards in all sectors. The valuation movements over the quarter are shown below:

Sector	Portfolio allocation	Like-for-like valuation change	Average equivalent  yield movement
Industrial	57.4%	-9.9%	+75 bps
South East	41.7%
Rest of UK	15.7%
Office	32.1%	-7.4%	+55 bps
London City and West End	7.2%
Inner and Outer London	5.7%
South East	9.1%
Rest of UK	10.1%
Retail and Leisure	10.5%	-8.3%	+65 bps
Retail Warehouse	6.6%
High Street – Rest of UK	2.3%
Leisure	1.6%
Total	100%	-9.0%

During the quarter, 41 assets saw a valuation decline, compared with 36 assets during the September quarter. Eight assets saw no movement or a slight uplift in value, primarily reflecting a higher yield profile initially or leasing and active management activity over the period. Since June 2022, the valuation movement has been -12%, which reflects an average equivalent yield movement of approximately +100 bps.

The industrial sector saw the largest movements, primarily due to the lower yield profile within the sector. Conversely, we continue to see rising rental values and been able to capture further ERV growth. This included three rent reviews at a combined rent of £0.9 million, 39% ahead of the previous passing rent and 5% ahead of the September ERV at our largest two industrial estates in Harlow and Radlett.

One small industrial unit was purchased for £0.4 million at Madleaze Trading Estate, Gloucester, consolidating our ownership. The purchase has allowed us to relocate an occupier, unlocking an asset management transaction where we have secured a seven-year lease increasing the passing rent by over 150%.

In the office sector we leased several small suites in Colchester, Glasgow and London, securing £0.2 million per annum, 7% ahead of the September ERV. In addition, we regeared a lease at 180 West George Street, Glasgow, securing an additional five years to 2030 and increasing the passing rent by 17% to £0.2 million, 7% ahead of the September ERV.

In the retail and leisure sector, retail warehouse assets saw larger downward valuation movements than higher yielding high street assets. In terms of activity, we relocated an occupier at Scots Corner, Birmingham, which allowed another occupier to expand their business taking two units with the rent 9% ahead of the September ERV.

As at 31 December 2022, the portfolio had a net initial yield of 4.8% (allowing for void holding costs) or 5.1% (based on contracted net income), equivalent yield of 6.4% and a net reversionary yield of 6.6%. The weighted average unexpired lease term, based on headline rent, was 4.5 years. 

Occupancy remained stable at 90%.

The top ten assets, which represent 54% 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
Stanford Building, Long Acre, WC2	Office	London
Datapoint, Cody Road, E16	Industrial	London
Angel Gate, City Road, EC1	Office	London
Lyon Business Park, Barking	Industrial	Outer London
Shipton Way, Rushden, Northants	Industrial	East Midlands
Tower Wharf, Cheese Lane, Bristol	Office	South West
50 Farringdon Road, EC1	Office	London
Sundon Business Park, Luton	Industrial	South East

ENDS