Picton Prop Inc Ltd Net Asset Value and Interim Dividend

 
TIDMPCTN 
 
25 October 2016 
 
                        PICTON PROPERTY INCOME LIMITED 
 
                  ("Picton" or the "Company" or the "Group") 
 
         Net Asset Value as at 30 September 2016 and Interim Dividend 
 
Picton (LSE: PCTN), the income focused property investment company, announces 
its Net Asset Value for the quarter ended 30 September 2016 and Interim 
Dividend. 
 
Highlights during the quarter included: 
 
Financial 
 
  * Increase in Net Assets to GBP423.9 million (30 June 2016: GBP418.0 million). 
  * NAV/EPRA NAV per share rose 1.4% to 78.5 pence (30 June 2016: 77.4 pence). 
  * Total return for the quarter of 2.5% (30 June 2016: 1.3%). 
  * Repaid GBP15.8 million under the revolving credit facility leaving GBP53.0 
    million of undrawn facilities now available. 
  * Net gearing of 31.6% (30 June 2016: 34.4%), which has further reduced post 
    quarter end (see below). 
 
Dividend 
 
  * Dividend of 0.825 pence per share declared and to be paid on 30 November 
    2016 (30 June 2016: 0.825 pence per share). 
  * Post-tax dividend cover for the quarter of 248% (30 June 2016: 111%), or 
    130% prior to the one-off receipt in respect of the Strathmore Hotel, Luton 
    (see below). 
  * Dividend yield of 4.6%, based on a share price of 71.25 pence on 21 October 
    2016. 
 
Portfolio Activity 
 
  * Like-for-like increase in property portfolio valuation of 0.1% (30 June 
    2016: 0.5%). 
  * Completed the sale of Boundary House, Jewry Street, London EC3 for GBP27.8 
    million in line with 30 June 2016 valuation. 
  * Received GBP0.67 million in respect of a Rights of Light claim at Boundary 
    House from a nearby owner. 
  * Occupancy at 93% (30 June 2016: 96%). The decrease, as anticipated, is 
    principally due to the vacancy at 50 Farringdon Road, London EC1. 
  * 10 lettings completed, on average 3% ahead of 30 June 2016 ERV, adding GBP0.9 
    million per annum to the rent roll. 
 
  * Five lease renewals/regears, in line with the 30 June 2016 ERV, securing GBP 
    0.5 million per annum. 
  * Settled outstanding dispute in respect of the Strathmore Hotel, Luton for GBP 
    5.25 million. 
 
Post Quarter End Activity 
 
  * Fully repaid GBP29.1 million zero dividend preference shares reducing the 
    Group's weighted average interest rate to 4.2% and net gearing to 29.6%. 
  * Completed sale of 1 Chancery Lane, London WC2 for GBP17.25 million, 7.8% 
    above June valuation and 2.1% above September valuation. 
  * Let the portfolio's largest industrial void in Harlow, at an initial rent 
    of GBP0.35 million per annum, in line with 30 September 2016 ERV. 
  * Pipeline of 10 lettings for a combined rent of GBP0.8 million and three lease 
    renewal/regears for a combined rent of GBP0.2 million currently under offer. 
 
Commenting, Nick Thompson, Chairman of Picton, said: 
 
"Whilst we cannot avoid Brexit headwinds, our resiliently positioned portfolio 
has meant we have had another good quarter, with encouraging activity post 
quarter end. We have reduced our central London exposure, strengthened our 
balance sheet through the repayment of the ZDPs and improved underlying 
dividend cover. We are well positioned with over GBP50 million available for 
accretive opportunities as they arise." 
 
Michael Morris, Chief Executive of Picton Capital, added: 
 
"We are working hard to maintain momentum within the portfolio and the 
activity, over the usual quieter summer period, speaks for itself. Our priority 
and indeed the opportunity, is to further grow income from this position with 
leasing and active management initiatives we have identified." 
 
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 
 
Katie Le Page, 01481 745 001, [e-mail] 
 
Note to Editors 
 
Picton Property Income Limited is an income focused, property investment 
company listed on the London Stock Exchange. Picton can invest both directly 
and indirectly in commercial property across the United Kingdom. 
 
With Net Assets of GBP423.9 million at 30 September 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. 
 
www.picton.co.uk 
 
MARKET BACKGROUND 
 
The EU referendum result at the end of June has clearly impacted the UK 
property market in July, August and September. According to the MSCI IPD 
Monthly Index, total returns were -2.3% in the quarter to September 2016, 
compared to 1.3% in the quarter to June 2016. Capital growth was -3.6% over the 
quarter, compared with -0.1% in the quarter to June 2016. On a monthly basis, 
capital growth declines reduced in September (-0.2%) compared to August (-0.7%) 
and July (-2.8%). 
 
Across the principal IPD sectors, office values fell by -4.7% (June 2016: 0%), 
industrial by -2.1% (June 2016: 0.4%) and retail by -3.9% (June 2016: -0.4%). 
Out of a total of 37 segments (based on rolling 3 months), only one segment 
recorded positive capital growth (Standard Retail Central London), compared to 
13 last quarter. 
 
Over the quarter to September, rental values rose by 0.2%, compared with 0.6% 
in the quarter to June 2016. Across the principal IPD sectors, office rental 
values grew by 0.2% (June 2016: 0.6%), industrial by 0.4% (June 2016: 1.2%) and 
retail remained flat at 0.0% (June 2016: 0.3%). Over the quarter, the majority 
of the IPD segments recorded positive rental growth, with a majority of rises 
recorded in the industrial sector. Out of a total of 37 segments, 23 segments 
recorded positive rental growth compared to 29 segments last quarter. 
 
NET ASSET VALUE 
 
The unaudited Net Asset Value ('NAV') of Picton, as at 30 September 2016, was GBP 
423.9 million, reflecting 78.5 pence per share, an increase of 1.4% over the 
quarter. 
 
The NAV uplift reflected a positive portfolio movement and covered dividend, 
which was further enhanced by the one-off settlement of a dispute relating to 
the Strathmore Hotel, Luton for GBP5.25 million. This settlement had the effect 
of adding just less than 1.0 pence per share to the 30 September 2016 NAV. 
 
The NAV attributable to the ordinary shares is calculated under International 
Financial Reporting Standards and incorporates the external market valuation as 
at 30 September 2016, including income for the quarter, but does not include a 
provision for the dividend this quarter, which will be paid in November 2016. 
 
Following the Referendum result, in line with the approach adopted by other 
valuers, CBRE Limited, the Group's external valuer, has included the following 
comment in their valuation report:- 
 
"Following the Referendum held on 23 June 2016 concerning the UK's membership 
of the EU, a decision was taken to exit. Since that date, we have monitored 
market transactions and market sentiment in arriving at our opinion of Market 
Value.  After an initial period of uncertainty and an absence of activity, 
transactional volumes and available evidence has risen in most sectors of the 
market and liquidity is returning to more normal levels. This has led to a 
generally more stable outlook for the market. However, there remains a paucity 
of comparable transactions in central London offices, development land and 
buildings, retail parks and large shopping centres and therefore valuations in 
these sectors reflect a greater degree of judgement." 
 
The next independent valuation of the property portfolio is scheduled for 
December 2016 and the unaudited NAV per share, as at 31 December 2016, will be 
announced in January 2017. 
 
A detailed breakdown of the NAV is included in the Appendix. 
 
DIVID 
 
An interim dividend of 0.825 pence per share is declared in respect of the 
period 1 July 2016 to 30 September 2016 (1 April 2016 to 30 June 2016: 0.825 
pence). The dividend will be paid on 30 November 2016 to shareholders on the 
register on 11 November 2016. The ex-dividend date is 10 November 2016. 
 
Post-tax dividend cover over the quarter was 248% (30 June 2016: 111%). This 
reduces to 130% when excluding the settlement agreed of GBP5.25 million at the 
Strathmore Hotel, Luton. 
 
DEBT 
 
In the quarter, GBP15.8 million of the revolving credit facility was repaid, 
using proceeds from the disposal of Boundary House. The Group now has GBP53.0 
million of undrawn facilities currently available. 
 
The Group had total borrowings of GBP234.2 million at 30 September, with a 
weighted average interest rate of 4.6% (100% fixed rate) and a weighted average 
debt maturity profile of approximately 10.7 years. Net gearing, calculated as 
total debt including the zero dividend preference shares ("ZDPs"), less cash, 
as a proportion of gross property value, was 31.6% (30 June 2016: 34.4%). 
 
Following the quarter end the ZDP's were repaid in full for GBP29.1 million using 
proceeds from recent asset disposals. Following this repayment the Group's 
overall debt structure, on a proforma basis, can be summarised as follows:- 
 
  * Total drawn debt has reduced to GBP205.2 million (30 September 2016: GBP234.2 
    million). 
  * Average debt maturity increased to 12.1 years (30 September 2016: 10.7 
    years). 
  * Net gearing reduced to 29.6% (30 September 2016: 31.6%). 
  * Weighted average interest rate reduced to 4.2% (30 September 2016: 4.6%) 
 
PORTFOLIO UPDATE 
 
The portfolio valuation increased 0.1% or GBP0.5 million, primarily as a result 
of our sector weightings combined with active management and leasing activity 
completed during the period. The Group also incurred GBP0.3 million of capital 
expenditure, which has enhanced the portfolio value. 
 
The best performing elements within the portfolio were the central London 

office and industrial segments, reflecting trading and active management 
activity as detailed below. In broad terms, in a post EU referendum 
environment, the negative valuation movements within the portfolio primarily 
reflected either more conservative leasing assumptions, weaker yields or a 
changed leasing position. Conversely active management, improved leasing and 
disposal activity had an offsetting positive impact. 
 
Occupancy across the portfolio decreased to 93% primarily due to the space at 
50 Farringdon Road, London EC1 becoming vacant in August. This single void 
accounts for 40% of the total vacancy across the portfolio. 
 
As at 30 September 2016, the portfolio had a net initial yield of 5.7% 
(allowing for void holding costs) or 5.8% (based on contracted net income) and 
a net reversionary yield of 6.9%. 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 
 
Our strategy to reduce central London office exposure and use the proceeds to 
reduce gearing was concluded with the disposal of Boundary House, London EC3 
and Chancery Lane, London WC2, post quarter end. 
 
The sale of Boundary House, London EC3 completed during the quarter realising GBP 
27.8 million, which was in line with the 30 June 2016 valuation. The sale 
crystallised value created since purchase, having acquired the building in 2006 
for GBP16.1 million. In a separate transaction at Boundary House, the Company 
secured a payment of GBP0.67 million from a nearby owner, in respect of a Rights 
of Light claim. 
 
As reported last quarter, at the end of August we have had two floors returned 
to us at 50 Farringdon Road, London EC1 and the current advice is that we 
expect to let the space some 60% ahead of the rent paid by the outgoing tenant. 
 
We renewed a lease at Angel Gate, London EC1 for a further five years, 
increasing the passing rent by 35% to GBP80,000 per annum which is slightly ahead 
of ERV. There are currently four vacant suites on the estate with an ERV of GBP 
0.18 million. 
 
Industrial 
 
In Oldham, we secured a change of use from industrial to leisure, allowing us 
to complete a lease to The Gym Group on a 15 year term at a rent of GBP0.15 
million per annum, which was 50% ahead of its ERV as a industrial unit. A small 
piece of land was acquired in Oldham as part of this transaction. The net 
valuation uplift was 50%. 
 
We have seen notable occupational demand at Lyon Business Park in Barking, 
where we let the final two smaller units securing GBP70,000 per annum, in line 
with ERV. Following the quarter end we have also completed an Agreement for 
Lease on unit O, our second largest industrial void, at a rent of GBP0.25 million 
per annum, 17% ahead of ERV with a nominal rent free period.  Once various 
Landlord works are completed, the lease will take effect and the estate will be 
fully let which will be reflected in the December valuation. 
 
Retail and Leisure 
 
With occupancy above 99% within this element of the portfolio, the principal 
transaction was the GBP5.25 million settlement in relation to a dispute at the 
Strathmore Hotel, Luton. The existing valuation and leasing arrangement at this 
asset remained unchanged. 
 
The settlement will be received in November but is required to be accounted for 
in this period, which has consequently had a major impact on dividend cover. 
 When received, it will further improve the cash position and reduce net 
gearing. 
 
                                   APPENDIX 
 
NET ASSETS SUMMARY 
 
The unaudited Net Asset Value is as follows: 
 
                               30 Sept 2016    30 June 2016     31 Mar 2016 
                                 GBPmillion        GBPmillion        GBPmillion 
 
Investment properties *            621.1           648.5           646.0 
 
Other assets                       24.1            18.5            17.3 
 
Cash                               35.3            23.4            22.8 
 
Other liabilities                 (22.4)          (22.7)          (19.5) 
 
Borrowings: Loan facilities       (205.2)         (221.2)         (221.5) 
 
                    ZDP's         (29.0)          (28.5)          (28.0) 
 
Net Assets                         423.9           418.0           417.1 
 
Net Asset Value per share          78.5p           77.4p           77.2p 
 
* 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 
 
                                 GBPmillion            %              Pence 
 
NAV at 30 June 2016               418.0                              77.4 
 
Movement in property values       (0.7)            (0.2)            (0.1) 
 
Net income after tax for the       11.0             2.7              2.0 
period 
 
Dividends paid                    (4.4)            (1.1)            (0.8) 
 
NAV at 30 September 2016          423.9             1.4              78.5 
 
PORTFOLIO COMPOSITION 
 
In addition to the 30 September weightings we have also included the proforma 
numbers following the disposal of Chancery Lane, London WC2, which completed on 
14 October. On this basis our London office exposure now comprises 10.9% in 
Central London (Angel Gate, EC1 and 50 Farringdon Road, EC1) and 2.5% in 
Greater London (Croydon). 
 
The Group's portfolio is structured as follows: 
 
Sector                          Weighting           Proforma        Like for Like 
                                30 Sept 16          Weighting     Valuation Change 
                                                   14 Oct 2016 
 
Office - Rest of UK               20.2%               20.8%             -1.4% 
 
Office - Central/Greater          15.8%               13.4%             2.0% 
London 
 
Industrial                        37.8%               38.9%             1.4% 
 
Retail/Leisure                    26.2%               26.9%             -1.8% 
 
Total                             100.0%             100.0%             0.1% 
 
 
 
Geography                       Weighting           Proforma 
                                30 Sept 16          Weighting 
                                                   14 Oct 2016 
 
South East                        33.8%               34.7% 
 
Central & Greater London          24.8%               22.7% 
 
North                             16.1%               16.6% 
 
Midlands                          13.9%               14.2% 
 
Wales                              3.8%               4.0% 
 
South West                         3.8%               3.9% 
 
Scotland                           3.4%               3.5% 
 
Northern Ireland                   0.4%               0.4% 
 
Total                             100.0%             100.0% 
 
TOP TEN ASSETS 
 
The top ten assets, which represent 47% of the portfolio by capital value, are 
detailed below. 
 
Asset                                       Sector                  Location 
 
Parkbury Industrial Estate,               Industrial               South East 
Radlett 
 
River Way Industrial Estate,              Industrial               South East 
Harlow 
 
Angel Gate Office Village, City             Office                   London 
Road, EC1 
 
Stanford House, Long Acre, WC2              Retail                   London 
 
50 Farringdon Road, EC1                     Office                   London 
 
Shipton Way, Rushden,                     Industrial             East Midlands 
Northamptonshire 
 
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 
 
 
 
END 
 

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October 25, 2016 02:00 ET (06:00 GMT)