As often happens following major market events, some high-quality but less familiar stocks can find themselves overly discounted in the subsequent recovery. UK property investors have been well aware of the attractions of industrial property for several years, given demand/supply dynamics and structural shifts in retail and distribution. Similarly, regional offices have benefited from limited supply, low rents and relatively high yields compared with the London market.
With the lion’s share of its portfolio dedicated to industrial and offices, Picton Property Income REIT (PCTN) appears to fall into the ‘over-discounted’ category trading at a 16% discount to NAV of 95.5p per share just announced for December 2020. This internally managed REIT has a track record of consistent outperformance, its portfolio having achieved top-quartile returns relative to the MSCI UK Quarterly Property Index over one, three, five and ten years. The gross portfolio returns have fed into an average compound NAV total return of 10% per annum in the five years to end September 2020. Remarkably in the most recent financial year impacted by covid-19 the portfolio generated a positive 3.6% return against the index return of -2.9%.
This performance has been driven by an active unconstrained approach to investing in commercial property in the UK that adapts the sector and asset weighting according to market conditions. PCTN describes it as employing an “occupier focused, opportunity led” investment strategy. “Occupier focused” refers to working closely with tenants to understand their needs, enhance occupancy, improve retention and maximise income. “Opportunity led” relates to acquisitions and disposals, as well as asset-management decisions, seeking to buy, manage and sell effectively.