Open main menu
Home
Random
Donate
Recent changes
Special pages
Community portal
Preferences
About Stockhub
Disclaimers
Search
User menu
Talk
Contributions
Create account
Log in
Editing
Picton Property Income
(section)
Warning:
You are not logged in. Your IP address will be publicly visible if you make any edits. If you
log in
or
create an account
, your edits will be attributed to your username, along with other benefits.
Anti-spam check. Do
not
fill this in!
== Significant organic growth potential embedded in the portfolio == The end-FY22 ERV of £49.8m was £11.1m or 29% ahead of the annualised contracted rent roll of £38.7m. Void reduction represents £3.6m of the potential upside, with the balance comprising the upside from lease incentive run-off (c £4.5m) and the potential to increase existing rents to market levels at lease expiry (c £3.0m). {| class="wikitable" |+Exhibit 9: ERV by sector at end-FY22<ref>Source: Picton Property Income data and Edison Investment Research estimates. Note: Columns may not total due to rounding. *Includes £4.5m of rent free ‘run-off’ and £3.0m upside from contracted rents to market rents.</ref> ! rowspan="2" |£m unless stated otherwise ! rowspan="2" |Passing rent ! rowspan="2" |ERV ! rowspan="2" |Occupancy ! colspan="3" |Reversion |- !Total !Void reduction !Other* |- |Industrial |17.6 |23.4 |98% |5.8 |0.3 |5.5 |- |Office |14.0 |19.3 |87% |5.3 |2.7 |2.6 |- |Retail and leisure |7.1 |7.1 |93% |0.0 |0.5 |(0.5) |- | |38.7 |49.8 |93% |11.1 |3.6 |7.5 |} By sector, the greatest potential is within the industrial and office sectors. With occupancy close to full in the industrial sector, the upside is from reversion to market rents (which continue to increase) while in the office sector, despite strong letting progress in FY22, considerable upside remains from void reduction. In retail and leisure, retail warehouse parks (65% of Picton’s sector exposure) are trading well and driving overall sector rent growth, but there remains an oversupply of space in high street retail and rents remain above market levels. At 92.8% at end-FY22, EPRA occupancy is in line with the five- and 10-year averages but remains c 3pp below recent peaks. The top five voids within the portfolio accounted for c £2.5m (65%) of the upside potential from void reduction. In part, the current level of occupancy reflects the recent increase investment in refurbishment and asset repositioning, including sustainability projects. More than half of the vacant buildings were under refurbishment with the remainder available to let and being actively marketed. Even if void reduction were to stall there would still be an opportunity for rental income to increase through reversionary capture3 as well as from a full-period contribution from recently acquired assets. '''Exhibit 7: 10-year portfolio occupancy trend<ref>Source: Picton Property Income data.</ref>''' [[File:Image8-a001b1a747dea1812d7432c5c98d79b1.png|600x600px]] While lease maturities reflect an element of income risk, they also provide an opportunity to reset rents towards or ahead of ERV, as was the case in FY22. Across the portfolio, the FY22 weighted average lease term (WAULT) to first termination was 4.8 years with c 40% of rental income due to mature over the next three years (Exhibit 10), representing a reasonable balance of risk and opportunity in Edison's view. In the industrial sector, 41 lease events are forecast for the coming year, with an overall ERV that is 10% higher than the current passing rent of £2.7m, proving the opportunity to grow income. In the office sector the focus will be on reducing voids although 33 lease events are forecast with an average ERV 4.0% above passing rent. '''Exhibit 11: Lease maturity profile<ref>Source: Picton Property Income.</ref>''' [[File:Image9-807dd1c27257d1fef8cb85b5a0ef2f50.png|600x600px]] Across the broad UK commercial property sector, over the medium term, income returns have been relatively stable compared with the volatility displayed by capital values. Edison Investment Research therefore believes it reasonable to expect medium-term rental growth to broadly match inflation. Over shorter periods, this may not be the case as the relationship will be influenced by the incidence and nature of rent reviews as well as the timing of lease maturities. As inflation rates have increased, investment flows into those companies with long, inflation-linked leases have remained strong. These generally provide a high level of income growth certainty and although indexed rent increases are typically capped at around 4%, below current inflation levels, this does have the additional advantage of ensuring rent levels remain affordable to tenants. An alternative perspective is that shorter-term, open-market leases with a typical term of five years to first break provide an opportunity for landlords to rebase rents towards market levels, which may further adjust for inflation. Good-quality properties, attractive to tenants, with strong sustainability credentials should have the capacity to benefit from open-market rental growth to mitigate the impacts of inflation.
Summary:
Please note that all contributions to Stockhub may be edited, altered, or removed by other contributors. If you do not want your writing to be edited mercilessly, then do not submit it here.
You are also promising us that you wrote this yourself, or copied it from a public domain or similar free resource (see
Stockhub:Copyrights
for details).
Do not submit copyrighted work without permission!
Cancel
Editing help
(opens in new window)