Against a challenging economic backdrop, we have been able to grow income through our proactive approach to asset management and have successfully continued our long-term track record of outperformance.
Outperforming property portfolio For the tenth consecutive year we have outperformed the MSCI UK Quarterly Property Index. We have now delivered upper quartile returns over three, five, ten years and since inception in 2005 and we are ranked fifth out of 141 portfolios over the last ten years. At a portfolio level, we delivered a total property return of -8.7% which reflects this marked change in the macroeconomic outlook. Asset management activity drove rental growth and helped offset some of the impact of rising yields. Growing occupancy and income We have seen a resilient occupational market, particularly in the industrial sector, and we have been able to increase income and rental growth through asset management and acquisition activity, leading to a 3% increase in contracted rent, a 10% increase in passing rent and a 9% increase in estimated rental value, all on a like-for-like basis. Although we have been able to grow net income there has also been a rise in property costs, primarily driven by void costs, including service charges, business rates and security. Growing occupancy is a priority as the portfolio has significant upside income potential with more than £5.3 million of additional rent available from current vacancies. With the majority of our vacancy in the office sector, we are pursuing change of use strategies at a number of office assets to include residential, student and other uses to help to reduce this void. Concerns over the health of the UK economy and political uncertainty have led to a more cautious approach from businesses taking new space during the year. Occupancy at 31 March 2023 was 91%, lower than the previous year but up from a low of 90% at September 2022.
Following our record profit delivered a year ago, this period has been defined by a significant change in macroeconomic conditions evidenced by rising interest rates, inflationary pressures and lower economic growth. Driven in part by rising food and energy costs, a consequence of the disruption caused by the war in Ukraine, UK inflation has been over 10% and in response base rates have quadrupled since this time last year. Asset pricing has been adversely impacted and commercial real estate has been no exception. In October 2022, the MSCI Monthly Index recorded the worst month of capital decline on record and a 21% decline in values between July 2022 and February 2023. After eight months and a much sharper pricing correction than during the global financial crisis in 2008, markets finally appear to have stabilised, and positive overall monthly movements were recorded in the Index in March and April 2023. In these conditions we have continued to focus on what we can control, undertaking nearly 40% more asset management activity than last year. This has enabled us to grow rental income and the overall rental value of the portfolio. With the majority of our debt being fixed, we are insulated from rising financing costs and have been able to report EPRA earnings of £21.3 million, marginally ahead of last year. During the year, we paid dividends of £19.1 million, 4% higher than the preceding year with strong dividend Our net assets are £548 million or 100 pence per share, a 16.6% reduction from a year ago, principally driven by the revaluation of our property portfolio. Our accounting total return was -13.9% in the year to 31 March 2023. Our total shareholder return, reflecting share price movement and dividends paid, was -26.4%. As markets have adjusted to a higher interest rate environment so too have share prices of UK REITs and discounts have widened in the sector. However, it is encouraging to see that these discounts have narrowed more recently as reported asset values have stabilised. cover of 112%. Performance
100p Net asset value per share 3.9p EPRA earnings per share
Picton Property Income Limited Annual Report 2023
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