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LONDON (Alliance News) - Picton Property Income Ltd Tuesday joined sector peers in reporting higher returns, earnings and asset values during its last financial year as the UK commercial property market continued to be buoyant, and it also bought two modern office buildings in Chatham, Kent for GBP19.05 million, reflecting a net initial yield of 8.62%.
The commercial property investor said its net assets rose to GBP370.0 million as of March 31, from GBP214.1 million a year earlier, while its profit after tax for the year was GBP68.9 million, up from GBP37.3 million, its net asset value per share rose to 69 pence, from 56p, and its total return rose to 27.4% from 21.6%.
"We have made considerable progress during the last 12 months, improving occupancy and delivering strong property returns, which have been further enhanced by our use of debt. As well as many portfolio transactions, we have also made a number of selective but accretive acquisitions. There has been a marked improvement in sentiment among occupiers, especially in the regions outside of London, and we look forward to capitalising on this momentum in the coming year," Chief Executive Michael Morris said.
However, it kept its dividend for the last financial year at 3.0 pence, flat on a year earlier, meaning it was covered by earnings by 117%, down from 124% a year earlier. Total shareholder return fell to 32.3% from 50.2%.
It said it has been able to increase its dividend since the end of the year, and its current annualised dividend is 3.3p, reflecting a dividend yield of 4.7% based on its June 5 share price of 70.75p.
"Income is a significant factor for the company and its shareholders, and we are pleased to remain one of the higher yielding, fully covered property investment companies," it said.
Picton raised GBP102 million during the year through a share placing programme, and invested GBP62.1 million in five new property assets, as well as committing a further GBP20 million since the end of the year. Over GBP4 million was invested in refurbishments, while it sold four assets for GBP4.4 million, on average 14% ahead of the March 2014 valuation.
It improved the occupancy in its portfolio to 95%, from 91%, signed 26 lease renewals and re-gears that retained GBP2.2 million of annual income and made 68 lettings for GBP4.4 million in additional annual income.
Picton said it hasn't decided yet whether to adopt UK real estate investment trust status, as several of its immediate peers have done.
"During the last 12 months we have seen a marked positive rebound within the commercial property market. We view the improvement in occupier markets and general economic sentiment positively, especially given the backdrop of increasingly tight supply. Whilst we expect another year of double digit returns for UK commercial property in 2015, we expect the rate of growth to be lower than in 2014," the company said in an outlook statement.
"We believe our ability to invest across the whole UK market will enable us to continue to take advantage of attractive investment opportunities and accretive asset management transactions. I believe we are well placed, recognising our diverse portfolio and bias towards the office and industrial sectors, and we remain confident about our prospects," it added.
The two new offices it has bought comprise 35,000 square feet and 51,000 square feet, respectively, on a business park in the Chatham Maritime office district. They are held by way of a 136 year ungeared leasehold interest.
They produce a diversified annual income of GBP1.7 million, reflecting an average rent of GBP20 a square foot, and are currently occupied by Canterbury Christ Church University NHS Property Services and Vanquis Bank with an average weighted lease length to expiry of 9.1 years and to earliest termination of 2.9 years.
The purchase price reflects a low capital value of GBP220 per square foot, which is below the estimated cost of construction, Picton said.
"These are high quality buildings and we believe this is an attractive entry point both in terms of overall capital value and yield profile. Recognising the limited supply in this market, we are confident about prospects and believe we can improve the income profile further," Morris said.
"This is a significant deployment of proceeds from the final tranche of our placing programme. We have another income enhancing opportunity actively under consideration and hope to report further in the coming weeks," he added.
Picton Property Income shares were up 1.8% at 71.75 pence Tuesday morning.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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