Picton Property Income Ltd (LON:PCTN) is an internally managed property company, which has assembled a £624m portfolio diversified by sector, geography and also income concentration. Long-term performance has been strong; its portfolio has outperformed the MSCI quarterly benchmark in the last one, three, five and 10 years. It has also often exceeded its targeted geared IRRs of 10-15%. Last year’s property return of 9.9% was more than double the benchmark. Improving occupancy, rental increases and falling interest costs from debt reduction in FY17 should underpin earnings growth in FY18-19, thereby supporting the dividend yield of over 4%. Despite this track record and yield, Picton trades at a discount to the sector average P/NAV, even after the share price recovery we have seen in the last year.
FY17 results: REIT conversion now on the cards
Picton reported a 3% increase in adjusted FY17 EPRA EPS and a 6% rise in EPRA NAV to 81.8p. This was accompanied by an 18% fall in debt to £205m, following the repayment of the zero dividend preference shares and the sale of non-core assets, so net gearing fell to 27%. In its results statement Picton said it is likely to be in the interests of the company to convert to a UK REIT in 2018, which could potentially increase the dividend payout and yield, but we estimate would have little impact on NAV initially. It is currently an offshore investment company, so plans to put a proposal before shareholders in due course.
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