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Picton Property Income
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== Sensitivities == The commercial property market is cyclical, historically exhibiting substantial swings in valuation through cycles. Income returns are significantly more stable, but still fluctuate according to tenant demand and rent terms. From a sector viewpoint Edison Investment Research also highlights the increased risks and uncertainties that attach to development activity, including planning consents, timing, construction risks and the long lead times to completion and eventual occupation. Picton is not a developer, but is exposed to similar but lesser uncertainties, as it actively invests in improvements to existing assets with the aim of enhancing long-term income growth and returns. More generally, Edison Investment Research notes the sensitivity to: * Economic risk: the war in Ukraine and sharply rising inflation, to a much lesser extent reflected in interest rates, are creating a high level of uncertainty regarding the global and UK economic outlook. Although the incidence and impact of the pandemic has substantially eased, there remains some uncertainty about the potential emergence of new strains. * Sector risk: some of the inherent cyclical risk to vacancy in commercial property can be mitigated by portfolio diversification. Picton invests across the main UK commercial property sectors, with a portfolio that is well diversified by property and by individual occupiers. As at end-FY22 public sector entities represented the largest tenant groups by contracted rent (5.0%) and the largest individual tenant for 3.6%. The 10 largest assets accounted for 55% of portfolio value. Significant reversionary income potential provides the potential for rental income growth even if market level rent growth slows. * Energy performance considerations: a failure to successfully meet regulatory and/or tenant expectations for energy performance enhancement would likely affect Picton’s ability to let properties on satisfactory terms and may make properties unlettable. * Funding risks: Picton’s current borrowings are overwhelmingly fixed rate and long term, protecting the company from rising interest rates. Additional shorter-term, floating rate borrowing facilities provide flexibility to fund opportunistic acquisitions. * Management risk: as Picton is internally managed there is some management risk. With a relatively small team, the loss of any senior member has the potential to be disruptive and if any of the directors were to leave, they would need to be replaced. {| class="wikitable" |+Exhibit 8: Financial summary<ref>Source: Picton Property Income historical data, Edison Investment Research forecasts.</ref> !Year end 31 March (£m) !2018 !2019 !2020 !2021 !2022 !2023e !2024e |- ! !IFRS !IFRS !IFRS !IFRS !IFRS !IFRS !IFRS |- | colspan="8" |'''PROFIT & LOSS''' |- |Rents receivable, adjusted for lease incentives |41.4 |40.9 |37.8 |36.6 |40.1 |41.6 |42.9 |- |Other income |1.4 |1.1 |1.2 |1.5 |0.2 |0.5 |0.5 |- |Service charge income |5.9 |5.7 |6.7 |5.3 |6.2 |6.9 |7.2 |- |Revenue from properties |48.8 |47.7 |45.7 |43.3 |46.5 |49.1 |50.5 |- |Property operating costs |(2.6) |(2.3) |(2.3) |(2.4) |(2.5) |(2.6) |(2.7) |- |Property void costs |(1.8) |(1.4) |(3.0) |(2.2) |(2.4) |(2.5) |(2.1) |- |Recoverable service charge costs |(5.9) |(5.7) |(6.7) |(5.3) |(6.2) |(6.9) |(7.2) |- |Property expenses |(10.3) |(9.4) |(12.0) |(9.9) |(11.1) |(12.0) |(12.0) |- |Net property income |38.4 |38.3 |33.6 |33.5 |35.4 |37.1 |38.6 |- |Administrative expenses |(5.6) |(5.8) |(5.6) |(5.4) |(5.8) |(6.2) |(6.6) |- |Operating Profit before revaluations |32.9 |32.5 |28.1 |28.1 |29.7 |30.9 |32.0 |- |Revaluation of investment properties |38.9 |10.9 |(0.9) |12.9 |129.8 |48.7 |15.5 |- |Profit on disposals |2.6 |0.4 |3.5 |0.9 |0.0 |0.0 |0.0 |- |Operating Profit |74.4 |43.7 |30.7 |41.8 |159.5 |79.6 |47.5 |- |Net finance expense |(9.7) |(9.1) |(8.3) |(8.0) |(8.5) |(9.3) |(9.3) |- |Debt repayment fee |0.0 |(3.2) | | |(4.0) | | |- |Profit Before Tax |64.7 |31.4 |22.4 |33.8 |147.0 |70.3 |38.1 |- |Taxation |(0.5) |(0.5) |0.1 |0.0 |0.0 |0.0 |0.0 |- |Profit After Tax (IFRS) |64.2 |31.0 |22.5 |33.8 |147.0 |70.3 |38.1 |- |Adjust for: | | | | | | | |- |Investment property valuation movement |(38.9) |(10.9) |0.9 |(12.9) |(129.8) |(48.7) |(15.5) |- |Profit on disposal of investment properties |(2.6) |(0.4) |(3.5) |(0.9) |(0.0) |0.0 |0.0 |- |Exceptional income /expenses |0.0 |3.2 |0.0 |0.0 |4.0 |0.0 |0.0 |- |Profit After Tax (EPRA) |22.6 |22.9 |19.9 |20.1 |21.2 |21.6 |22.7 |- |Fully diluted average Number of Shares Outstanding (m) |539.7 |541.0 |546.2 |546.8 |547.3 |545.6 |545.6 |- |EPS (p) |11.89 |5.75 |4.14 |6.20 |26.93 |12.88 |6.99 |- |EPRA EPS (p) |4.19 |4.25 |3.66 |3.68 |3.88 |3.95 |4.15 |- |Dividend declared per share (p) |3.43 |3.50 |3.25 |2.93 |3.45 |3.60 |3.66 |- |Dividends paid per share (p) |3.400 |3.500 |3.500 |2.750 |3.375 |3.575 |3.645 |- |Dividend cover (x) EPRA EPS/DPS declared |1.22 |1.21 |1.13 |1.26 |1.13 |1.10 |1.13 |- |Dividend cover (x) - paid dividends |1.22 |1.21 |1.05 |1.34 |1.15 |1.11 |1.14 |- |Total return |14.7% |6.4% |4.4% |6.6% |27.9% |10.8% |5.5% |- |EPRA cost ratio including direct vacancy costs) |23.7% |22.9% |28.3% |26.9% |26.0% |26.5% |26.1% |- | colspan="8" |'''BALANCE SHEET''' |- |Fixed Assets |670.7 |676.1 |654.5 |669.5 |834.4 |906.2 |930.8 |- |Investment properties |670.7 |676.1 |654.5 |665.4 |830.0 |901.9 |926.4 |- |Other non-current assets |0.0 |0.0 |0.0 |4.1 |4.4 |4.4 |4.4 |- |Current Assets |50.6 |39.5 |41.2 |42.9 |61.4 |41.9 |37.2 |- |Debtors |19.1 |14.3 |17.6 |19.6 |22.9 |22.0 |22.0 |- |Cash |31.5 |25.2 |23.6 |23.4 |38.5 |19.9 |15.2 |- |Current Liabilities |(22.3) |(23.3) |(20.4) |(19.9) |(20.3) |(20.2) |(20.2) |- |Creditors/Deferred income |(21.6) |(22.5) |(19.5) |(18.9) |(19.3) |(19.3) |(19.3) |- |Short term borrowings |(0.7) |(0.8) |(0.9) |(0.9) |(1.1) |(1.0) |(1.0) |- |Long Term Liabilities |(211.7) |(192.8) |(166.0) |(164.4) |(218.4) |(219.4) |(220.3) |- |Long term borrowings |(210.0) |(191.1) |(164.2) |(162.7) |(215.8) |(216.8) |(217.7) |- |Other long term liabilities |(1.7) |(1.7) |(1.7) |(1.7) |(2.6) |(2.6) |(2.6) |- |Net Assets |487.4 |499.4 |509.3 |528.2 |657.1 |708.6 |727.5 |- |NAV/share (p) |90 |93 |93 |97 |120 |130 |133 |- |Fully diluted EPRA NTA/share (p) |90 |93 |93 |97 |120 |130 |133 |- | colspan="8" |'''CASH FLOW''' |- |Operating Cash Flow |35.1 |34.8 |21.4 |26.0 |28.1 |32.5 |32.7 |- |Net Interest |(9.1) |(8.6) |(7.9) |(7.5) |(8.1) |(8.4) |(8.4) |- |Tax |(0.3) |(0.8) |0.1 |0.1 |0.0 |0.0 |0.0 |- |Net cash from investing activities |(17.8) |10.3 |25.0 |(1.3) |(33.8) |(23.2) |(9.1) |- |Ordinary dividends paid |(18.5) |(18.9) |(19.0) |(15.0) |(18.4) |(19.5) |(19.9) |- |Debt drawn/(repaid) |9.2 |(22.6) |(27.2) |(1.8) |52.2 |0.0 |0.0 |- |Net proceeds from shares issued/repurchased |(0.9) |(0.4) |6.1 |(0.6) |(0.7) |0.0 |0.0 |- |Other cash flow from financing activities | | | | |(4.0) | | |- |Net Cash Flow |(2.4) |(6.3) |(1.6) |(0.2) |15.2 |(18.6) |(4.7) |- |Opening cash |33.9 |31.5 |25.2 |23.6 |23.4 |38.5 |19.9 |- |Closing cash |31.5 |25.2 |23.6 |23.4 |38.5 |19.9 |15.2 |- |Debt as per balance sheet |(210.7) |(192.0) |(165.1) |(163.7) |(216.8) |(217.7) |(218.6) |- |Un-amortised loan arrangement fees |(3.4) |(2.7) |(2.3) |(2.6) |(2.0) |(1.1) |(0.2) |- |Closing net (debt)/cash |(182.5) |(169.5) |(143.9) |(142.8) |(180.3) |(198.9) |(203.6) |- |Net LTV |26.7% |24.7% |21.7% |20.9% |21.2% |23.4% |24.0% |}
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