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Picton Property Income
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== Portfolio summary == At 31 March 2022 (end-FY21), the externally assessed fair value of the investment portfolio was £849.3m (the balance sheet value includes an adjustment for lease incentives and finance leases), comprising 47 assets let to more than individual occupiers, reflecting a net initial yield of 4.0% and a reversionary yield of 5.4%. {| class="wikitable" |+Exhibit 13: Key portfolio data<ref>Source: Picton Property Income.</ref> !Year end March !FY22 !FY21 |- |Portfolio valuation |£849m |£682m |- |Number of properties |47 |46 |- |Average lot size |£18.1m |£14.8m |- |EPRA net initial yield |4.0% |4.8% |- |Net reversionary yield |5.4% |6.3% |- |Annualised rental income |£38.7m |£36.5m |- |Annualised reversionary income |£49.8m |£45.4m |- |Occupancy as % of ERV |93% |91% |- |WAULT |4.8 years |4.9 years |} Despite active positioning, the diversity of the portfolio and occupier base spreads risk and is a key factor in supporting a stable income stream. Industrial property and retail warehouse assets represent c two-thirds of the portfolio by value and have been strong drivers of performance. {| class="wikitable" |+Exhibit 14: Strongly weighted in well-performing sectors, FY22<ref>Source: Picton Property Income.</ref> ! !Portfolio allocation (%) !Valuation (£m) !Like-for-like valuation change (%) |- |Industrial weighting |60.0 |509.7 |34 |- |o/w South East |44.0 | | |- |o/w Rest of UK |16.0 | | |- |Office weighting |30.0 |251.1 |2 |- |o/w London City & West End |11.0 | | |- |o/w Rest of UK |10.0 | | |- |o/w South East |9.0 | | |- |Retail & Leisure weighting |10.0 |88.5 |17 |- |o/w Retail Warehouse |7.0 | | |- |o/w High Street Rest of UK |2.0 | | |- |o/w Leisure |1.0 | | |- |Total |100.0 |849.3 |21 |} Although the pandemic has significantly accelerated some of the ongoing structural shifts in the property market, market fundamentals and consensus point to a continuation of existing trends. In this context Picton believes its portfolio is well placed in respect of both its sector allocations and the quality of its assets, although it expects FY23 returns to slow from the exceptional level of FY22, with less polarisation across sectors. Demand for industrial properties remains robust with supply constrained, reflected in a high level of occupancy and growing ERVs for Picton’s smaller multi-let estates. Key drivers of occupational demand are the continued growth of e-commerce and the importance of managing supply chains. Picton expects its industrial assets to continue to contribute strongly to performance. Although the pandemic has raised many questions about the future role of the office, Picton believes the ‘death of the office’ has been vastly overstated and notes the important role that the office plays in company culture and productivity, being a place for both concentrated work and collaboration, connection, innovation and social interaction. Most office occupiers are now working on a flexible basis, with staff typically present in the office for two to three days a week, but the company has seen no significant reduction in the overall floorspace demanded. A ‘flight to quality’ is leading to occupiers wanting to upgrade their space, attract staff and enhance their ability to meet their own sustainability targets. With a limited market supply, Picton expects a pick-up in rental growth for good quality space. For similar but opposite reasons, poor quality space is in less demand. Retail warehousing valuations have been improving, with retailers preferring out of town sites over the high street, not least because of the convenience to shoppers including ease of parking and ability to support online purchases through click and collect. Picton’s retail warehouse assets are now fully occupied. Although high street retail has begun to stabilise an oversupply of floor space remains.
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