In a successful FY18, Picton Property Income Ltd (LON:PCTN) again outperformed the MSCI IPD Quarterly Benchmark property return, as it has now done over one, three, five and 10 years. Moderate gearing enhanced the EPRA NAV total return to 14.9%. The industrial and office property markets, towards which Picton’s portfolio has a strong bias, remain robust with widespread rental growth. In addition, Picton’s portfolio continues to offer significant reversionary potential despite an already high level of occupancy. Plans to convert to UK REIT status later in the year should enhance future profitability, with no material impact on investment and portfolio strategy.
Strong delivery in FY18
Adjusting for the exceptional income received in FY17, net rental income grew 3.5% to £38.4m in FY18. Occupancy increased to 96% and the annualised rent roll increased by 3.9%. Costs were little changed, other than for c £300k of REIT conversion expense, with the ongoing charge ratio falling to 1.1%. EPRA EPS grew by 10.1% and the quarterly DPS was increased by 3% during the year to an annualised 3.5p, 1.22x covered by FY18 EPRA EPS. Like-for-like valuation gains of 6.5% contributed to a 10.5% EPRA NAV increase to 90p, taking NAV total return to 14.9%. LTV reduced to 26.7%, with 95% of debt fixed with an average maturity of more than 10 years at a blended cost of 4.1%. We have modestly increased our FY19 EPS and NAV estimates.
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