IMS, NAV and Interim Dividend

RNS Number : 1854W

Picton Property Income Limited

26 January 2012

 



Picton Property Income Limited

26 January 2012                                                      

PICTON PROPERTY INCOME LIMITED (LSE: PCTN) - Net Asset Value as at 31 December 2011, Interim Dividend and Interim Management Statement

Picton Property Income Limited ("Picton" or "the Company"), the internally managed Investment Company with an income focused approach to the UK commercial property market, announces its Net Asset Value, Interim Dividend and Interim Management Statement as at 31 December 2011.

·      NAV per share 60 pence (September 2011: 61 pence).

·      Net Assets of GBP 207.9 million (September 2011: GBP 211.3 million).

·      Successful completion of Internalisation of Management.

·      Continued enhancement of occupancy rate over the period to 92%.

·      Refinancing discussions regarding debt facilities progressing well.

·      Repayment of GBP 1.2 million of debt following asset sales.

·      Exceptional costs of GBP 1.1 million reflecting corporate activity and internalisation.

·      Interim dividend declared of 1 pence per share.

Commenting, Nick Thompson, Chairman of Picton, said:

"Having successfully completed our internalisation process we have acheived a significant milestone for the Company.  Our focus is now on putting in place new debt facilities whilst continuing to actively manage the underlying portfolio to enhance both the income and capital position."

Michael Morris, Chief Executive of Picton Capital, said:

"Against the wider economic background we are pleased to have been able to enhance occupancy over the period.  In the short term we expect conditions to remain challenging, so our focus will be on initiatives to further enhance income through reducing vacancies and mitigating costs."

NET ASSET VALUE

The unaudited Net Asset Value ('NAV') of Picton as at 31 December 2011 decreased by 1.6% to GBP 207.9 million, approximately 60 pence per share. 

The NAV attributable to the Ordinary Shares is calculated under International Financial Reporting Standards ('IFRS'), which includes the marked to market value of the interest rate swap contracts.

The movement in the NAV was primarily driven by exceptional one off costs and the underlying movement in the property valuation over the quarter, which is further detailed below. This is the first negative movement in the property valuation since June 2009. 

This NAV figure incorporates the external portfolio valuation as at 31 December 2011.  It includes income for the quarter and is calculated after the deduction of dividends paid prior to 31 December 2011, but it does not include a provision for the quarterly dividend announced herein which will be paid in February 2012.

An external valuer will next value the property portfolio during March 2012 and the NAV per share as at 31 March 2012 will be issued in April 2012.

A more detailed breakdown of the NAV is included within the Appendix below.

DIVIDEND

The Company also announces an interim dividend of 1 pence per share in respect of the period 1 October 2011 to 31 December 2011. The dividend payment will be paid on 24 February 2012 to shareholders on the register on 10 February 2012. The ex-dividend date will be 8 February 2012.

INTERNALISATION

The Company has now completed its internalisation process effective 1 January 2012, having achieved the necessary lender consents last year. 

It has established a wholly owned FSA regulated subsidiary, Picton Capital Limited, which has assumed the responsibilities of the outgoing Investment Manager. Picton Capital has a team of 10 dedicated employees of which seven have been recruited from the outgoing Manager providing portfolio and operational continuity. The team includes five real estate and three finance professionals.

The internalisation is expected to lead to cost savings of around GBP 0.6 million per annum on a like for like basis, GBP 0.2 million higher than originally envisaged and it is anticipated that the management costs for 2012 will be in the order of GBP 2.5 million.  This equates to 1.2% of the net assets of the Company. 

CORPORATE ACTIVITY

The Company is alert to the wider opportunities to progress the development of Picton in the interests of shareholders.  Following the announcement in March 2011 by Invista Foundation Property Trust ("IFPT") that it was reviewing its management arrangements, and with encouragement from some of our shareholders, we took the opportunity to review the possibility of merging with IFPT.  The Board considered a merger to have significant merits but, having outlined these merits to the Board of IFPT, it did not prove possible to structure a recommended transaction on a basis which would have been to the benefit of Picton's shareholders.  Accordingly, we withdrew our proposal to the board of IFPT in October 2011. 

The Company has now fully reflected all costs associated with the above initiatives within this statement.

REFINANCING & DEBT

The Company has formally commenced the process of seeking to refinance its existing debt facilities and       discussions have been held with a range of major financial institutions that have expressed an interest in providing financing to the Company.  In the next phase, the Company will now seek formal financing proposals from these institutions. The Company expects to put in place a facility or facilities with multiple lenders and its objective is to secure a debt refinancing in the first half of 2012.  The Company will provide a further update to investors as soon as it is commercially practicable to do so. 

Ahead of any refinancing the Company continued to reduce borrowing and made GBP 1.2 million of debt repayments following asset sales during the preceding quarter.  The Company continues to remain compliant and operate with all banking covenants.

MARKET BACKGROUND

The final quarter of 2011 was dominated by uncertainties surrounding the Eurozone and the publication of weak economic data.  The Office for Budget Responsibility reduced its GDP forecasts for both 2011 and 2012 and unemployment figures continued to rise.

Set against a backdrop of weaker economic prospects, the UK property market, as measured by the IPD Monthly Index, also recorded its first negative valuation movement since July 2009.  The underlying market remains polarised and there generally appears to be a preference for, and wide pricing differential between, assets with longer term, bond like characteristics and those with short term income profiles.

According to the IPD Monthly Index, property market total returns remained positive, recording 1.61% over the preceding 3 months, driven by an income return of 1.64%, but with a capital decline of -0.03%.

This comprised capital growth in October of 0.05% followed by a fall of -0.02% in November 2011 and -0.07% in December 2011.  Over the quarter on a sector by sector basis, the office sector, driven by Central London offices saw capital growth of 0.24%, but both the Retail and Industrial Sectors recorded capital declines of -0.28% and -0.17% respectively.  The initial yield remained broadly the same as in September 2011 at 6.22% compared with 6.42% 12 months ago. Positively, occupancy rates within the wider market improved marginally over the period to 90.3%

The most recent IPF consensus forecasts indicate a total return for 2012 of 4.5%, but with capital declines of -1.7% over the year.

PORTFOLIO UPDATE

The underlying portfolio decreased in value by -0.6% on a like for like basis over the quarter.  This was not consistent across sectors with the London Office and Industrial portfolios showing positive growth. Of the Company's assets, 43 either maintained or enhanced value, but equally there were declines in respect of 20 assets.

This was primarily driven by the regional office portfolio, where the Company saw a write down in values where investor demand for shorter term income remains subdued.  In respect of the Company's regional office portfolio, the current 'market' value of the assets is equivalent to approximately 60% of their most recent estimate of cost of construction.

A more detailed breakdown of the portfolio and valuation movements is included within the Appendix below.

Over the period, the Company completed ten lettings, seven lease renewals and two active management initiatives and the aggregate headline rental value of the lettings achieved over the quarter was GBP 442,000 per annum.  Generally transactions have been achieved in line with or ahead of estimated rental value, although the Company has maintained a pragmatic approach in the current market and undertaken a few transactions below ERV, where there would be a positive valuation impact.

Key transactions during the quarter include :-

Retail

Swansea - Removed short term occupier and re-let retail warehouse, increasing the lease term (to 10 years) and increasing the income by GBP 100,000 pa, ahead of ERV.

Leeds - Lease extension, enhancing value and removing short term occupational uncertainty.

Hanley - Two new lettings, to achieve 100% retail occupancy at the block.

Birmingham - Further letting in line with ERV to achieve 100% occupancy at the block.

London, Chancery Lane, WC1 - Lease renewal in line with ERV.

Office

London, Angel Gate, EC1 - Two lease renewals in line with ERV.

Marlow -  Letting of additional space to existing tenant.

Colchester - Letting following surrender in March  2011, in line with ERV.

Industrial

London, Datapoint, E16 - Rent review and lease extension ahead of ERV setting evidence for other units on the Estate and extending cashflow.

Reading - Lease Renewal ahead of ERV.

Leisure

Birmingham - Surrender and simultaneous reletting of restaurant unit to existing and expanding occupier in line with ERV.

The Company continues its strategic asset disposal programme and over the period completed one small disposal of a vacant industrial unit forming part of the Lancing holding for GBP 75,000, a 15% premium to the last valuation.

In addition over the quarter the Company rationalised its Property Management outsourcing to a single supplier, CBRE, which will provide further cost savings to the Company.

As at 31 December 2011, the portfolio had a net initial yield of 7.0% and a net reversionary yield of 7.7%. The occupancy rate improved to 92%, from 91% in September 2011, and the average lease length was 7.2 years.

Appendix

Q4 NET ASSETS SUMMARY

The unaudited NAV is as follows:

	31 Dec 2011 £m	30 Sep 2011 £m	30 Jun 2011 £m	31 Mar 2011 £m
Investment properties *	422.1	425.2	425.8	425.6
Other assets	41.4	44.5	43.1	41.9
Other liabilities	(18.2)	(18.5)	(17.3)	(16.2)
Borrowings: Securitised loan                    Liquidity facility                    Bank loan                    Loan stock                    ZDP's	(171.6) (10.7) (17.0) (2.2) (29.5)	(171.6) (10.7) (18.2) (2.2) (29.0)	(171.6) (10.7) (20.1) (2.3) (28.5)	(171.6) (10.7) (20.1) (2.3) (28.0)
Market value of interest rate swaps	(6.4)	(8.2)	(9.5)	(9.4)
Net Assets	207.9	211.3	208.9	209.2
Net Asset Value per share	60p	61p	61p	61p
EPRA Net Assets	214.3	219.5	218.4	218.6
EPRA Net Asset Value per share	62p	64p	63p	63p

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

The movements in the Net Assets can be summarised as follows;

	Total	movement	Per share
	£m	%	Pence
Net Assets at 30 September 2011	211.3		61
Movement in property values (realised and unrealised )	(3.6)	(1.7)	(1)
Movement in swap value	1.8	0.8	-
Net income for the period  (after distributions)	(1.6)	(0.7)	-
Net Assets at 31 December 2011	207.9	(1.6)	60

PORTFOLIO COMPOSITION

The Company's current portfolio is structured as follows :-

Sector	Weighting 31 Dec 2011	Like for Like Valuation Change
Retail	19.9%	0.0%
Offices - Central/Greater London	14.9%	0.4%
Offices - Rest of UK	19.9%	-  3.5%
Industrial	33.6%	1.0%
Leisure	4.4%	-  1.9%
Retail Warehouse	7.3%	0.0%
Total	100%

GEOGRAPHICAL WEIGHTINGS

Geography	Weighting 31 Dec 2011
Central London	15.1%
Greater London	7.3%
South East	30.6%
South West	4.2%
East Midlands	12.0%
West Midlands	4.5%
Yorkshire & the Humber	4.6%
North West	10.5%
North East	2.5%
Scotland	2.5%
Wales	5.7%
Northern Ireland	0.5%
Total	100%

TOP TEN ASSETS

Asset	Weighting 31 Dec 2011
River Way Industrial Estate, Harlow	7.3%
Unit 5320 Magna Park, Lutterworth	6.8%
Stanford House, Long Acre, WC2	5.0%
Phase II Parc Tawe, Swansea	4.2%
Colchester Business Park, Colchester	3.5%
50 Farringdon Road, EC1	3.4%
Boundary House, Jewry Street, EC3	3.2%
Angouleme Way, Bury	3.0%
1-3 Chancery Lane, WC2	2.7%
Angel Gate Office Village, City Road, EC1	2.6%
Total	41.8%

For further information:

Tavistock Communications

Jeremy Carey/James Verstringhe, 020 7920 3150

Picton Capital Limited

Michael Morris, 020 7628 4800, [e-mail] 

David Sauvarin

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey

GY1 3QL

Tel:       [phone]

Fax:      [phone]

Note to Editors

Picton Property Income Limited* ('Picton') is an income focused, internally managed Investment Company listed on the London and Channel Islands Stock Exchanges.  It was established in 2005 to invest both directly and indirectly in commercial property across the United Kingdom.

With Net Assets of GBP 207.9 million at 31 December 2011 and approximately 850 investors, 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 Property Income Limited changed its name from ING UK Real Estate Income Trust Limited on 1 June 2011.

 

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