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Picton Property Income
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== Significant NAV uplift and modest changes to income forecasts == The FY22 NAV was well ahead of Edison Investment Research's forecast while recurring EPRA earnings were broadly in line with its expectations (Exhibit 1). For FY23, Edison's forecast for NAV is increased while its EPRA earnings are very modestly reduced, driven mainly by the impact of inflation on property and administrative costs. Edison Investment Research has not changed its DPS forecast. {| class="wikitable" |+Exhibit 15: Forecast changes<ref>Source: Edison Investment Research.</ref> ! ! colspan="3" |Net property income (£m) ! colspan="3" |EPRA earnings (£m) ! colspan="3" |EPRA EPS (p) ! colspan="3" |EPRA NAV/share (p) ! colspan="3" |DPS declared (p) |- | |Old |New |% chg |Old |New |% chg |Old |New |% chg |Old |New |% chg |Old |New |% chg |- |FY23e |35.8 |37.1 |3.4 |21.9 |21.6 |(1.4) |4.0 |4.0 |(1.5) |117 |130 |10.6 |3.60 |3.60 |0.0 |- |FY24e |N/A |38.6 |N/A |N/A |22.7 |N/A |N/A |4.2 |N/A |N/A |133 |N/A |N/A |3.66 |N/A |} Our last published forecasts included a part-year FY22 contribution from the acquisition of the Madleaze Trading Estate in Gloucester in October 2021 (initial annualised rental income of £0.75m) but did not reflect the acquisition of Mill Place Trading Estate, also in Gloucester, in February 2022 (initial annualised rental income of £0.68m). The refinancing that was completed at the end of March 2022 had no material impact on FY22. Edison Investment Research's revised forecasts also include the May 2022 acquisition of the Charlotte Terrace mixed-use property in Hammersmith Road, London (initial annualised rent of £0.5m). Edison Investment Research expects further accretive net acquisition investment but have not assumed this in its forecasts. Forecast growth in gross rent roll is primarily driven by reversionary capture in industrial and further void reduction in offices, partly offset by rent pressure in retail, where for some properties current rents are above market levels. At the group level Edison Investment Research looks for annualised rent roll to increase from £38.7m at end-FY22 to £41.4m at end-FY23 and £41.4m at end-FY24. Edison Investment Research estimates this implies an increase in portfolio occupancy from 93% at end-FY22 to 95% by end-FY24. Edison forecast 3.5% growth in net rental income in FY23 with the underlying growth rate held back by a non-repeat of rent provision reversals, at least not on the same scale as in FY22)9. Increased inflation suppresses Edison Investment Research's forecasts and although the March 2022 refinancing has lowered the average cost of debt, average debt has increased with recent investment. Although Edison Investment Research forecasts only a modest increase in FY23 EPRA EPS, given the strong level of dividend cover Edison continues to anticipate an increase in FY23 DPS to 0.9p per quarter or an annualised 3.6p (versus a Q422 annualised annualise rate of 3.5p). For FY24, Edison forecasts aggregate DPS of 3.66p. Although the UK commercial property market has entered FY23 with good momentum, particularly for the industrial sector, Edison Investment Research is conscious of the economic and political challenges that are evident in the UK and globally and assume a significant slowdown in capital growth in FY23 and in FY24. This may prove to be overly prudent. Edison has assumed gross like-for-like revaluation gains of 4.5% in FY23 and just 0.5% in FY24. Adjusting for capex and acquisition costs this represents gains per share of 8.9p in FY23 and 2.8p in FY24 or total returns of 10.8% and 5.5% respectively including DPS paid. Edison Investment Research estimates that each 1% increase/decrease in the total portfolio value is equivalent to an increase/decrease in NAV per share of c 1.7p.
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