Picton Property Income (PCTN)

13/11/2024

Results analysis from Kepler Trust Intelligence

Picton Property Income (PCTN) released its half-year results for the six-month period to 30/09/2024, with a return to profit being the main headline. The company generated a profit of £11.5 million during the period.

Profit was driven by capital, income and rental growth, with a like-for-like portfolio valuation increase of 0.8%, contracted rent increases of 1% and estimated rental value (ERV) growth of 1.6%.

Earnings growth was strong, with EPRA earnings of £11.2 million, or 2.1p per share, 11.6% higher than in the same period last year.

PCTN paid dividends of £10.1 million, or 1.85p per share, an increase of 5.7%. Dividend cover was strong, at 111%. The net asset value (NAV) total return over the period was 2.2% and the shareholder total return was 17.4%.

PCTN fully repaid its floating rate debt, using proceeds from the disposal of its Angel Gate property. The remaining £210 million of total borrowings are 100% at fixed rates, with a weighted average interest rate of 3.7% and a weighted average debt maturity of seven years.

From a portfolio construction perspective, PCTN continues to reduce its office exposure, which currently stands at 27% but will fall to 25% with the planned disposals of Longcross, Cardiff and Charlotte Terrace, London.

Michael Morris, chief executive of PCTN, said: "We are progressing our portfolio repositioning strategy and are also encouraged by our pipeline of asset management activity. Alongside our investment into our portfolio, this will drive occupancy, income and capital growth."

Kepler View

Picton Property Income's (PCTN) half-year results were encouraging, as improved earnings saw the portfolio return to profit during the period.

Its strategy of repurposing office assets into alternative use venues continues to bear fruit, with the proceeds of the sale of its Angel Gate property in London being used to repay its revolving credit facility, reducing total borrowings and the LTV.

One of PCTN's key attractions is its internal management structure, which aligns management with shareholders.

The dividend remains a strong suit for PCTN, with cover of 111%, higher than many of its peers. Its reversionary yield could translate into further dividend growth.

UK commercial property capital values have started to react positively to the two interest rate cuts seen since July. A more stable macro environment and continued falling interest rates present a more constructive outlook for the property market more broadly.

The past few years have been a tricky period for REIT managers to navigate, but PCTN's management certainly hasn't stood still. On a discount of c. 27% and with strong income-generating ability, PCTN offers value at an interesting juncture for this asset class.

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