Picton Property Inc. - Preliminary Annual Results
23/05/2024 07:00
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RNS Number : 5375P Picton Property Income Limited 23 May 2024
23 May 2024
PICTON PROPERTY INCOME LIMITED
("Picton", the "Company" or the "Group")
LEI: 213800RYE59K9CKR4497
Preliminary Annual Results
Picton announces its annual results for the year ending 31 March 2024.
Chair, Lena Wilson CBE, commented:
"These results demonstrate that we have been able to grow EPRA earnings
despite the impacts of inflation, higher interest rates and a weaker economic
backdrop.
This year, helped by our industrial exposure and strategy to reposition
non-core office assets for alternative uses, our portfolio has outperformed
the MSCI UK Quarterly Property Index. This marks our eleventh consecutive year
of outperformance and maintains our track record of upper quartile performance
since launch in 2005.
We have a resilient business model with long-term fixed rate financing,
and we are confident in our ability to capture the significant income upside
potential from our portfolio. I am pleased that we were able to announce
in April a near 6% dividend increase."
Michael Morris, Chief Executive of Picton, commented:
"Our approach capitalises on real estate being an ever-evolving asset class,
with buildings continually adapted, upgraded or repurposed to meet changing
occupier demand.
There remains significant income upside within the portfolio, whether that is
captured directly at rent review or lease expiry or through the recycling of
assets and reinvestment.
Our priority in the short-term is continuing to grow EPRA earnings while
focusing on improving our share price rating to be more reflective of the
performance and potential of the business."
Robust financial performance delivering EPRA earnings growth
‒ EPRA earnings of £21.7 million, up 2% (2023: £21.3 million)
‒ Net assets of £524.5 million, or 96p per share (2023: £547.6
million, or 100p per share)
‒ Dividends paid during the financial year of £19.1 million
(2023: £19.1 million)
‒ Strong dividend cover of 114%
Outperforming property portfolio with improving income and reversionary
potential
‒ Continued MSCI outperformance for 11 consecutive years with a
total property return of 1.6% for the year (MSCI UK Quarterly Property Index:
-1.0%)
‒ Delivered upper quartile outperformance against the MSCI UK
Quarterly Property Index over three, five and ten years, and since launch in
2005
‒ Repositioned portfolio to reduce office exposure with two office
assets held for sale at year end (totalling £35.7 million)
‒ Capturing rental growth through:
‒ 26 lettings, 3% ahead of March 2023 ERV
‒ 31 lease renewals or regears, 2% ahead of March 2023 ERV
‒ 13 rent reviews, 2% ahead of March 2023 ERV
‒ 3% increase in passing rent, contracted rent and ERV
‒ 4.5% increase in net property income
‒ Diversified income stream with stable occupancy of 91%, over 99%
rent collection and WAULT of 4.2 years to break or 5.8 years to expiry
‒ Portfolio with significant reversionary potential of £12.8
million, 29% above the March 2024 passing rent
Valuable long-term debt structure
‒ Loan to value of 28%
‒ Weighted average interest rate of 3.9%
‒ 93% of drawn borrowings fixed with 2031/32 maturities
‒ EPRA NDV of 101p per share, reflecting fair value of debt
Continued sustainability progress towards net zero targets
‒ Improvement in portfolio EPC ratings, with 80% now rated A-C
(2023: 76%)
‒ Reduction in Scope 1 and 2 emissions by 16% compared to 2019
baseline
‒ £4.5 million invested into upgrading over 20 assets
‒ 99% of leases completed during the year contained green clauses
‒ Increase in solar capacity of 184% compared to 2023
Positive activity post year-end supporting dividend increase
‒ Reduced office exposure with the sale of Angel Gate, London EC1
for £29.6 million
‒ Sale proceeds used in part to repay £16.4 million drawn under
RCF, the £50.0 million facility is now undrawn
‒ Weighted average interest rate on debt facilities reduced with
100% now fixed at 3.7%
‒ Occupancy increases to 93% when excluding assets held for sale
‒ Completed lease extensions at Grantham (industrial), Radlett
(industrial) and Marlow (office) for a combined rent of £2.5 million per
annum, a 14% increase on the previous passing rent
‒ Encouraging pipeline of leasing activity, agreed subject to
contract, for a combined rent of £0.9 million per annum, at Bristol (office),
Bracknell (industrial), Warrington (industrial) and Gloucester (industrial)
‒ Dividend increased by 5.7% to 3.7p per share, effective from May
2024
31 March 2024 31 March 2023 31 March 2022
Property valuation £745m £766m £849m
Net assets £524m £548m £657m
EPRA NTA per share 96p 100p 120p
Year ended Year ended Year ended
31 March 2024
31 March 2023
31 March 2022
(Loss)/profit for the year £(4.8)m £(90.0)m £147.4m
EPRA earnings £21.7m £21.3m £21.2m
Earnings per share (0.9)p (16.5)p 27.0p
EPRA earnings per share 4.0p 3.9p 3.9p
Total return (0.9)% (13.9)% 28.3%
Total shareholder return (1.0)% (26.4)% 18.7%
Total dividend per share 3.5p 3.5p 3.4p
Dividend cover 114% 112% 115%
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE UK
MARKET ABUSE REGULATION
For further information:
Tavistock
James Verstringhe
020 7920 3150, james.verstringhe@tavistock.co.uk
Picton
Kathy Thompson, Company Secretary
020 7011 9988, kathy.thompson@picton.co.uk
About Picton
Established in 2005, Picton is listed on the main market of the London Stock
Exchange and is a constituent of a number of EPRA indices including the FTSE
EPRA Nareit Global Index.
Picton owns and actively manages a £745 million UK commercial property
portfolio, invested across 49 assets and with around 400 occupiers (as at 31
March 2024).
Through an occupier focused, opportunity led approach, Picton aims to be one
of the consistently best performing diversified UK REITs and has delivered
upper quartile outperformance and a consistently higher income return than the
MSCI Quarterly Property Index since launch.
With a portfolio strategically positioned to capture income and capital
growth, currently weighted towards the industrial sector, Picton's agile
business model provides flexibility to adapt to evolving market trends over
the long-term.
Picton has a responsible approach to business and is committed to being net
zero carbon by 2040.
For more information please visit: www.picton.co.uk
Chief Executive's Review
Well-positioned and resilient portfolio
We have successfully continued our long-term track record of outperformance
through our proactive approach to asset management.
This year, we have increased both rental income and the reversionary potential
of our portfolio, despite the impact of higher costs, and we have also been
able to grow our EPRA earnings. The business is well-positioned with valuable
long-term fixed rate debt and we continue to outperform the MSCI UK Quarterly
Property Index.
Despite a challenging economic backdrop we have achieved letting success
across all areas of the portfolio and extended or increased income, capturing
reversionary potential and demonstrating rental growth within the portfolio.
The team has worked incredibly hard and I would like to thank them for their
individual and collective contributions over the last 12 months as we have
continued to make good progress with our strategic priorities.
Performance
We have seen considerably more stability in the property market, however, it
has not been an easy operating environment with the ongoing impact of rising
interest rates affecting sentiment and activity. Our portfolio valuation
reduced from £766 million to £745 million or 2.8% over the year,
contributing to a decline in net assets of 4.2% to £524 million or 96 pence
per share. Encouragingly our net assets showed stability between December 2023
and March 2024, the first time since the 2022 disruption in bond markets.
Despite this, we have improved many key metrics over the year. Most notably,
we have increased the passing rent, contracted rent and also the reversionary
potential of the portfolio by 3%.
We have operated with a well-covered dividend of 114% (covered for the twelfth
consecutive year) and earlier this month we were able to announce a near 6%
uplift, increasing the dividend above its pre-pandemic level.
Our share price performance over the year has been weaker, with a total
shareholder return of -1%. At the year-end our discount to net asset value was
32%, but encouragingly this has narrowed in recent weeks, in part reflecting
some of the positive activity that we have been able to announce.
Portfolio Performance
Outperforming property portfolio
We have again outperformed the MSCI UK Quarterly Property Index, now for the
eleventh consecutive year and we continue to deliver upper quartile
performance since launch in 2005.
Our diversified approach and long-term track record highlight the benefits of
being able to adapt the portfolio to changing market conditions.
Growing occupancy and income
We have taken steps to reposition the portfolio, through our alternative use
strategy, looking to reduce our office exposure. During the year, we exchanged
contracts to sell two part-vacant office buildings, both at premiums to the
preceding valuation. One disposal completed following the year-end and the
other is conditional upon planning permission which is expected to be obtained
during the next financial year.
Headline occupancy remained stable at 91%. Occupancy in our industrial and
retail assets was more than 97%, but offices remained lower, in part due to
market conditions, and also the need to obtain vacant possession on some
assets in order to maximise disposal proceeds. Excluding the two assets held
for sale at the year- end, occupancy rose to 93%.
We have been able to grow rental income and capture some of the reversionary
potential in the portfolio through leasing activity and rent reviews during
the year, particularly in the industrial assets, and further details are
within the Portfolio Review section.
Operational excellence
The long-term success we have had at a property level has also been mirrored
with prudent management of our balance sheet.
We have been able to repay our revolving credit facility using proceeds from
an asset sale, post year-end. At the time of writing, our revolving credit
facility of £50.0 million remains fully undrawn and we will be exploring
options to extend this ahead of its maturity next year.
We have a valuable debt structure with 100% of our long-term debt fixed for
over seven years and at an average interest rate of 3.7%, well below the
prevailing market rate. The fair value of our debt book is not reflected in
our reported net assets, but in our EPRA NDV which is 5% higher or 101 pence
per share.
During the year, we incurred a number of non-recurring costs to further
develop and improve the operation of the business. Effective from October, we
internalised our company secretarial function, which has improved our
corporate governance and our overall operational effectiveness.
We have also recruited a new Chief Financial Officer, Saira Johnston, as
successor to Andrew Dewhirst who retired at the end of the financial year.
Andrew has been with the Company since 2011 and will be greatly missed by the
team. We are looking forward to working with Saira who has a proven track
record in real estate finance.
Despite the inflationary pressures on costs generally and an increase in these
one-off costs, we have been able to grow EPRA earnings by 2.2% over the year.
Acting responsibly
We have continued to invest in our portfolio to ensure not only that it meets
the needs of today's occupiers but is also future-proofed and helps us achieve
our net zero carbon commitments.
We have invested in our assets and improved our portfolio EPCs with 80% of the
portfolio now rated A-C. This is yet another year-on-year improvement and
compares with 55% A-C rated in 2020.
We have made good progress in removing gas installations and converting
heating to electrical systems across five assets. This is reflected in the 10%
reduction in like-for-like Scope 1 emissions in the year. We have installed
more on-site renewables in the form of solar this year than in any preceding
period; an increase in capacity of 184%.
Consolidation and growth
The Board and the team are committed to act in the interests of all
stakeholders and recognise the need to remain relevant to shareholders. Much
has been written about the challenges with the UK listed markets generally.
Real estate businesses have been impacted by the rising interest rate
environment and wide share price discounts have led to consolidation,
acquisitions and managed wind-downs.
We considered multiple opportunities during the year and specifically had
extensive discussions in 2023 about a possible combination with UK Commercial
Property REIT, which we were disappointed to be unable to progress. We still
believe there is merit in consolidation, and equally that there is a place for
a well-managed diversified REIT that can adapt to changing market conditions.
While the rationale for merging was to capitalise on our internalised
management model and track record, allowing shareholders to benefit from the
economies of scale, we believe this corporate activity also had some adverse
short-term impact on our share price.
Outlook
2024 appears to have started with considerably more momentum than the
preceding year and this has been apparent in the continued rental growth and
stabilisation in capital growth as captured in the MSCI indices. The occupier
markets remain more resilient than some had expected and we have a good
pipeline of activity across all areas of the portfolio.
Our approach capitalises on real estate being an ever-evolving asset class,
with buildings continually adapted, upgraded or repurposed to meet changing
occupier demand.
There remains significant income upside within the portfolio, whether that is
captured directly at rent review or lease expiry or through the recycling of
assets and reinvestment.
Our priority in the short-term is continuing to grow EPRA earnings while
focusing on improving our share price rating to be more reflective of the
performance and potential of the business.
Michael Morris
Chief Executive
22 May 2024
Our Marketplace
Lower interest rates will fuel economic recovery
Economic backdrop
After a challenging 2023, the UK economy appears to be improving, with
inflation falling and the Bank of England widely anticipated to commence base
rate cuts in the second half of 2024. This expected reduction in interest
rates should continue the positive momentum in terms of improving business,
investor and consumer confidence, as the cost of debt and cost of living
pressures continue to ease.
Despite increases in long-term UK Government bond yields over the year,
paralleled by similar rises in property yields, there are signs of
stabilisation emerging.
The economy has already recovered from the mild technical recession of 2023,
with the Office for National Statistics estimating encouragingly strong GDP
growth of 0.6% for the first three months of 2024.
In terms of output, both services and production contributed positively to the
recovery, recording growth of 0.7% and 0.8% respectively. Output from
construction fell -0.9%, which somewhat reflects the bad weather conditions
that affected the building sector during this period. In terms of expenditure,
increases in the volume of net trade, household and Government spending
contributed to economic growth.
Inflation has fallen a long way from its forty-year peak of 11.1% in October
2022, with the annual increase in the consumer prices index in March 2024 at
3.2%. Core inflation (excluding energy, food and tobacco prices), which has
been more stubborn, reduced to 4.2% in March 2024.
There has recently been some softening within the labour market, with the
unemployment level increasing to 4.3%, and job vacancy numbers on a downward
trend, however real wage growth is now positive and has remained so since June
2023. As at March 2024, wage growth in real terms was 2.0% per annum for
regular pay and 1.7% per annum for total pay.
The housing market has remained resilient in the face of rising interest
rates, and house price growth has started to re-emerge, with new mortgage
rates down from the peak of summer 2023. According to the Halifax House Price
Index, house prices grew 1.1% in the year to April 2024. Widespread loan
defaults and forced sales have not been a feature of this downturn, partly due
to stricter lending criteria and high levels of employment in comparison to
previous market cycles.
According to the ONS, retail sales volumes have been on a downward trajectory
since April 2021, whereas retail sales values have been rising, which reflects
the impact of inflation. Looking at the quarter to March 2024, retail sales
volumes did increase by 1.9% compared to the previous three months, following
the low sales volumes over the Christmas period. Going forwards, households
benefitting from falling inflation and interest rates should support consumer
spending.
The short to medium-term economic outlook offers signs of cautious optimism.
Downside risks remain, particularly in relation to geopolitical instability in
the Middle East and eastern Europe, which could potentially fuel inflationary
pressures.
The timing of and scale of the Bank of England's interest rate cuts are highly
dependent on the trajectory of inflation and strength of the labour market in
the coming months.
UK property market
For the year to March 2024, the property market remained subdued as the impact
of higher interest rates continued to be felt.
The MSCI UK Quarterly Property Index reported an All Property total return of
-1.0%, comprising -5.5% capital growth and 4.7% income return. This was a
significant improvement on the -12.6% total return for the year to March 2023.
In March 2024, the MSCI All Property equivalent yield was 6.6% (March 2023:
6.2%).
The occupier market has recently shown more resilience than the investment
market, with All Property ERV growth for the year to March 2024 recorded at
3.7% (March 2023: 3.5%).
The All Property averages mask nuances at sector and sub-sector levels, with
polarisation remaining a key theme.
Of the three main sectors, industrial was the best performer, both in terms of
investment returns and rental growth. Standard industrial market fundamentals
are particularly favourable, with continued healthy demand for well-placed
units and low levels of supply.
The MSCI Industrial total return for the year to March 2024 was 4.4%,
comprising capital growth of 0.0% and an income return of 4.3%. Looking at
sub-sectors, capital growth ranged from -0.9% for Distribution Warehouses to
1.7% for Standard Industrial - London.
In March 2024 the MSCI Industrial equivalent yield was 6.0% (March 2023:
5.7%). Industrial rental growth for the year to March 2024 was 6.5% and strong
in all sub-sectors, ranging from 5.7% for Standard Industrial - Rest of UK to
7.0% for Standard Industrial - London.
The office sector is still undergoing a period of recalibration, with
increasing refurbishment and upgrading costs, combined with weaker and more
selective occupational demand, impacting both pricing and investor sentiment.
The MSCI Office total return for the year to March 2024 was -9.5%, comprising
-13.1% capital growth and 4.1% income return. Office capital growth was
negative across all sub-sectors, ranging from -18.7% in the Rest of London to
-9.9% in Central London. In March 2024 the MSCI Office equivalent yield was
7.6% (March 2023: 6.7%). Office rental growth for the year to March 2024 was
2.8% and positive for all sub-sectors, ranging from 0.5% for the Rest of
London to 4.6% in Central London, however, these rental growth numbers do not
reflect capital invested into upgrading space.
The retail sector has shown signs of stabilisation, aided by easing inflation
and a recovery in real earnings positively impacting consumer confidence.
However, store closures and CVAs still remain a feature of the market and not
all sub-sectors are recovering at the same pace.
The MSCI Retail total return for the year to March 2024 was -0.2%, comprising
capital growth of -5.9% and income return of 6.0%.
Retail capital growth ranged from -8.3% to -1.0% between sub-sectors;
Supermarkets experienced the strongest fall in capital values, whereas Out of
Town Shopping Centres was the best performer. In March 2024, the MSCI Retail
equivalent yield was 6.8% (March 2023: 6.6%). Retail ERV growth was 1.0%, with
sub-sectors ranging from -1.6% for Shopping Centres - In Town to 3.7% for
Department Stores.
During the year there has been lacklustre transactional activity, due to the
increased cost of debt and falling capital values. MSCI recorded £40.1
billion of investment transactions for the year to March 2024, which is 27%
down on the £55.4 billion recorded for the year to March 2023 and 51% lower
than the £82.1 billion transacted in the year to March 2022. Transactions in
the industrial sector had the highest weighting, comprising 24% of the total.
With interest rates anticipated to reduce from the second half of 2024 and
increased liquidity in the lending market, it is expected that trading
activity will begin to pick up as we head towards the end of the year.
Portfolio Review
Industrial weighting 59%
South East 42%
Rest of UK 17%
Office weighting 30%
Rest of UK 9%
South East 8%
Central London 7%
Alternative use 6%
Retail and Leisure weighting 11%
Retail Warehouse 7%
High Street Rest of UK 2%
Leisure 2%
Continued portfolio outperformance
This year we have been able to repurpose assets to unlock value with
alternative use potential and continue our property level outperformance.
We continue to actively manage the portfolio completing over 80 asset
management transactions, increasing both passing rent and estimated rental
value (ERV).
At the year-end, the portfolio passing rent was £44.7 million, an increase
from the prior year of £1.4 million, or 3%. The contracted rent, which is the
gross rent receivable after the expiry of lease incentives, also increased by
3% or £1.2 million.
The March 2024 ERV of the portfolio was £57.6 million, a 3% increase on the
prior year. We had ERV growth of 3% in the industrial sector proven by new
lettings and active management. The office sector was up 4% with our central
London holdings in Farringdon and Covent Garden particularly benefitting from
rental growth, and the retail and leisure sector increased by 1%.
Recognising the weak economic backdrop during the year, occupational markets
have been remarkably resilient, and there is a noticeable improvement so far
in 2024 compared with 2023.
Occupational demand remains robust in the industrial sector and in the retail
sector it has stabilised for good quality real estate. The office sector is
still going through a period of transition, with the very best quality and
greener buildings seeing rental growth, while offices requiring greater
capital investment or which are in the wrong location, are struggling to
attract occupiers.
We have successfully repurposed office assets in Cardiff for student
accommodation and in London for residential use, resulting in exchange of
contracts to sell both assets at premiums to the preceding quarterly
independent valuation. We are also pursuing an alternative use strategy at
Charlotte Terrace, London W14.
Our investment into over 20 assets has helped us to retain and secure new
occupiers while improving our EPC ratings for the fourth consecutive year.
Portfolio overview
Performance
Our portfolio comprises 49 assets, with around 400 occupiers, and is valued at
£744.6 million with a net initial yield of 5.2% and a reversionary yield of
7.0%. The average lot size of the portfolio is £15.2 million as at 31 March
2024.
Our asset allocation, with 59% in industrial, 30% in office and 11% in retail
and leisure, combined with transactional activity, has enabled us to
materially outperform the MSCI UK Quarterly Property Index over the year.
Overall, the valuation only decreased by 3%, after a 12% decrease in the prior
year. This compares with the MSCI UK Quarterly Property Index recording
capital growth of -5.5% over the period.
We believe that the portfolio remains well placed in respect of our overall
sector allocations, which are critical to outperformance when there is such a
divergence in returns.
Industrial
We believe that industrial yields, and valuations are now stabilising for some
of the best multi-let estates. Due to the level of development of distribution
units over the past few years, we are of the opinion that secondary units may
struggle to attract occupiers.
Occupational demand in the sector remains good and we are capturing rental
growth. A lack of supply of multi-let estates, coupled with high build costs,
means that occupiers have restricted choice when looking for a unit, which has
driven rental growth across the country.
Capital values were marginally positive over the year. The passing rent
increased by 12% and the ERV grew by 3%, or £0.9 million.
We remain committed to the sector over the medium-term, primarily due to the
strength of occupational demand, lack of supply and low capital expenditure
requirements.
Our UK-wide distribution warehouse assets total 1.2 million sq ft in five
units, which are fully leased with a weighted average unexpired lease term of
3.8 years.
The multi-let estates, of which 88% by value are in the South East, total 2.1
million sq ft and we only have seven vacant units out of 158, with two under
offer and one currently undergoing refurbishment.
The industrial portfolio currently has £6.1 million of reversionary income
potential, with £0.7 million relating to the void units.
Office
There is limited appetite for investment in the office sector, due to concerns
about occupational demand and capital expenditure requirements. While this is
certainly the case in respect of some secondary buildings, prime offices are
still attracting occupiers and showing rental growth as reflected in our
portfolio.
Asset selection is key. Each building must be viewed independently, in respect
of its location and dynamics, sustainability, flexibility of floorplates and
occupier amenities. Certain secondary locations lack occupier demand
post-pandemic, and are more suited to alternative use strategies.
We have a rolling capital investment programme, which is currently focused on
removing natural gas from buildings as we upgrade air-conditioning systems
that have reached or are approaching the end of their life.
Capital values decreased by 8%, or £20.4 million. The passing rent decreased
by 7%, some of which was related to obtaining vacant possession for
alternative uses, and the ERV grew by 4%, or £0.8 million.
Excluding the properties held for sale, the office portfolio currently has
£5.9 million of reversionary income potential, with £2.9 million relating to
the void units.
Retail and Leisure
The cost of living crisis has further affected the sector, with
well-publicised retail failures this year. However, it is again very asset
specific and if the location is not significantly oversupplied there is
occupational demand for well-configured units. We see opportunities in the
sector for certain retail warehouse and prime high street locations off
rebased rents.
Our fully leased retail warehouse parks are underpinned by value-led retailers
and make up 7% of the total portfolio. They consist of 0.4 million sq ft in 19
units across four parks and are fully leased, with a weighted average
unexpired lease term of 4.6 years.
Our high yielding high street portfolio, which makes up 2% of the total
portfolio, is fully leased except for two small shops in Carlisle that became
available during the second half of the year.
Capital values decreased by 2%, or £1.6 million. The passing rent increased
by 2% and the ERV increased by 1%, or £0.1 million.
The retail and leisure portfolio has negative reversion of £0.8 million per
annum, primarily relating to the overrenting of some of the high street retail
assets.
Portfolio activity
Proactive management
It has been an active year in respect of asset management transactions.
We completed:
‒ 26 lettings or agreements to lease, 3% ahead of ERV and securing
additional contracted rent of £2.4 million
‒ 31 lease renewals or regears, 2% ahead of ERV, securing an
uplift in contracted rent of £0.4 million
‒ 13 rent reviews, 2% ahead of ERV, securing an uplift in passing
rent of £0.8 million
‒ Five lease variations to remove occupier break options, securing
£1.0 million of income
‒ Seven lease surrenders to facilitate active management
Leasing and occupancy
Occupancy has been stable during the year at 91%, rising to 93%, excluding the
two office assets which are held for sale at the year-end. This compares to
the MSCI UK Quarterly Property Index of 92% as at 31 March 2024. The total
void ERV is £3.7 million, excluding the held for sale properties.
Our industrial portfolio is 98% leased with demand remaining high across the
country. We have only seven vacant industrial units, with two under offer and
one being refurbished.
The office portfolio occupancy is 80%, or 85%, excluding the properties held
for sale. Seven of our office buildings are fully leased, two are being sold
and we have suites available in the remaining eight buildings with four of
these being over 25% vacant by ERV.
In terms of retail and leisure, occupancy is 98%. The retail warehouse
portfolio is fully leased, and we have two small vacant high street shops. At
Regency Wharf, Birmingham, we have one remaining office suite to lease.
Our largest voids, excluding the two properties held for sale, which account
for 31% of the void, are at:
‒ Tower Wharf, Bristol - accounting for 13% of the total void. We
have agreed terms to upsize an existing occupier, increasing their floorspace
by 146%. We will be offering fully fitted suites in respect of the remaining
space, which is to be refurbished later this year.
‒ Charlotte Terrace, London - accounting for 13% of the total
void. We are working through options for alternative uses and are awaiting
planning permission.
‒ Colchester Business Park, Colchester - accounting for 11% of the
total void. The majority relates to an office building that recently became
available. We are working up a refurbishment of the property, to include
SwiftSpace suites, and already have occupational interest.
Retention
Over the year, total ERV at risk, due to lease expiries or break options,
totalled £6.4 million. This excludes office buildings where we have
intentionally kept space vacant for change of use.
We retained 76% of total ERV at risk in the year to March 2024. Of the ERV
that was not retained, a further 1% or £0.1 million was re-let to new
occupiers during the year.
In addition, a further £2.7 million of ERV was retained by either removing
future breaks or extending future lease expiries ahead of the lease event.
Portfolio investment
Refurbishment upgrades
Over the year, we have invested £4.5 million into the portfolio across more
than 20 projects, with the top five projects accounting for 57% of the spend.
These have all been aimed at enhancing space to retain and attract occupiers,
improve sustainability credentials and grow income. All works undertaken are
in line with our sustainable refurbishment guidelines, outlining best industry
practice. Where appropriate, we remove natural gas from buildings, install
solar panels and upgrade insulation, in line with our net zero carbon pathway.
We are continually focused on future-proofing our assets from a sustainability
perspective, which has resulted in an improvement in our EPC ratings with 80%
of our properties (by rental value) now rated C and above, an increase of 4%
on the prior year.
Investment activity
The investment market was subdued throughout 2023, with a low volume of
transactions. However, since the start of 2024, we have seen more activity in
the market, reflecting greater optimism.
No acquisitions were made during the year, and we exchanged contracts to sell
two properties as detailed below.
Angel Gate, London EC1
Contracts were exchanged at the end of March 2024 to sell Angel Gate, EC1,
with completion occurring mid-April. The sale is in line with our strategy to
repurpose appropriate office assets and follows the securing of residential
planning consents during 2023.
The sale consideration was 5% ahead of the 31 December 2023 valuation of
£28.1 million. The property is approximately 50% occupied and represented 19%
of the total portfolio void at the year-end.
Longcross, Cardiff
During the year, we exchanged contracts to sell this almost vacant office
building to an experienced student accommodation developer.
The transaction is conditional on planning permission, which will be submitted
during Summer 2024. The sale price is dependent on the exact planning consent
obtained and, in particular, upon the number of rooms secured. The base price
was 16% ahead of the March 2023 valuation and we expect to benefit from an
overage payment once planning is secured. We will retain an adjacent small
income-producing industrial unit and vacant car parking site.
To facilitate the disposal, we have completed a number of surrenders that
ensure we can secure vacant possession in 2024, albeit this has a short-term
negative effect on portfolio occupancy and net income.
Currently, the property is approximately 90% vacant and represents 12% of the
total portfolio void.
Looking ahead
Outlook
The sharp yield correction in 2022/23 caused a widespread repricing of
commercial property, but we are now seeing values stabilise and indeed some
are increasing. Occupational markets on the whole have continued to remain
positive even when values were falling. With interest rates predicted to
reduce in the second half of 2024, we can see values rising for prime
properties in all three sectors we are invested in.
The quality of our portfolio, which has benefited from significant investment
in respect of refurbishments and sustainability upgrades in recent years,
means that we have future-proofed properties that are attractive to occupiers.
Our occupiers remain our key focus and we have long-standing relationships
with many of them, which enable us to work with and assist businesses as they
grow and contract.
As at 31 March 2024, the portfolio had £12.8 million of reversionary income
potential; £5.3 million from letting the vacant space, £3.9 million from
expiring rent-free periods or stepped rents and £3.6 million where the rent
is below market level.
There is a wide disparity in performance across the sectors and it comes back
to a building's fundamentals and micro-location. Good quality, well-located
real estate will attract occupiers, but secondary assets will remain in less
demand. The quality of the portfolio combined with sector weightings are
critical to outperformance.
Demand for our multi-let industrial properties continues to be good as proven
by our high occupancy, significant rental growth over the year and growing
ERVs. Our distribution portfolio remains fully let. With industrial accounting
for 59% of the total portfolio by value, we believe it will contribute to our
performance, with supply constraints and high building costs likely to lead to
further rental growth.
Each office building has to be viewed on its own merits, with the majority of
our buildings offering strong fundamentals in terms of amenities, natural
light, adaptable floor plates and above average car parking facilities. Our
strategy to reduce office exposure, where we believe there is a lack of
occupational demand and a higher value alternative use can be created, is
successfully moving forward with two sales exchanged and further potential
opportunities identified.
The retail sector is now seeing some stability, despite recent retailer
closures, for example The Body Shop and Wilko, however, value retailers are
taking a lot of the space becoming available. The sector provides an
attractive yield and buying opportunities for best-in-class stock.
The portfolio remains well-placed and of a high quality, enabling us to
maintain and enhance income through our proven occupier focused approach.
Our focus is on reducing office exposure, which will enable higher occupancy,
and improving the overall portfolio income through reinvestment and
refurbishment.
Jay Cable
Head of Asset Management
Top ten assets
Site Property type Approximate area (sq ft) Capital value (£m) No. of occupiers Occupancy rate (%) EPC rating
Parkbury Industrial Estate, Radlett Industrial 340,900 >100 20 98 A-D
River Way Industrial Estate, Harlow Industrial 454,800 50-75 9 100 A-D
Stanford Building, London WC2 Office 20,100 30-50 5 100 B-D
Datapoint, Cody Road, London E16 Industrial 55,100 20-30 6 100 B-C
Shipton Way, Rushden Industrial 312,900 20-30 1 100 C
Angel Gate, City Road, London EC1* Office 64,600 20-30 14 52 B-D
Lyon Business Park, Barking Industrial 99,400 20-30 8 100 B-E
Sundon Business Park, Dencora Way, Luton Industrial 127,800 20-30 12 100 B-D
Tower Wharf, Cheese Lane, Bristol Office 70,600 20-30 5 67 B-C
50 Farringdon Road, London EC1 Office 31,300 20-30 4 100 B
*Asset held for sale.
Top ten occupiers
The largest occupiers, based as a percentage of contracted rent, as at 31
March 2024, are as follows:
Occupier Contracted rent (£m) %
Public sector 1.7 3.6
Whistl UK Limited 1.6 3.4
The Random House Group Limited 1.6 3.4
B&Q Plc 1.2 2.6
Snorkel Europe Limited 1.2 2.4
XMA Limited 1.0 2.0
Portal Chatham LLP 0.9 1.8
DHL Supply Chain Limited 0.8 1.6
4 Aces Limited 0.7 1.4
Hi-Speed Services Limited 0.7 1.4
Total 11.4 23.6
Longevity of income
As at 31 March 2024, expressed as a percentage of contracted rent, the average
length of leases to first termination was 4.2 years (2023: 4.6 years). This is
summarised as follows:
%
0 to 1 year 14.3
1 to 2 years 24.1
2 to 3 years 15.2
3 to 4 years 10.7
4 to 5 years 9.0
5 to 10 years 20.3
10 to 15 years 5.3
15 years or more 1.1
Total 100
Financial Review
Earnings growth to support dividend increase
We have delivered net property income growth and increased EPRA earnings
during the year, despite a challenging economic backdrop and high interest
rate environment.
EPRA earnings, comprising the operating profit before movement on investments,
less the net interest expense, was £21.7 million, an increase of 2.2% during
the financial year. This was driven by growth in net property income of 4.5%
which was primarily delivered from the industrial assets.
The overall loss for the year was £4.8 million which arose as a result of the
negative valuation movements of £26.5 million despite commercial property
values stabilising during the last quarter of the financial year.
We have prioritised the divestment of low-income producing office assets in
order to support earnings growth over the medium-term which has enabled us to
repay our floating rate debt after the year-end. We are focused on delivering
a covered and sustainable dividend through our sector and asset allocation
alongside asset management that supports dividend progression for our
shareholders.
Net asset value
The Group's net assets as at 31 March 2024 was £524.5 million, or 96 pence
per share. This reflected a decrease of 4% or 4 pence per share over the
financial year. The analysis of the net asset value movement is set out below.
£m
March 2023 net asset value 547.6
EPRA earnings 21.7
Valuation movement (26.5)
Share-based awards 0.8
Dividends paid (19.1)
March 2024 net asset value 524.5
The following table reconciles the net asset value calculated in accordance
with International Financial Reporting Standards (IFRS) with that of the
European Public Real Estate Association (EPRA).
2024 2023 2022
£m £m £m
Net assets - IFRS and EPRA net tangible asset value 524.5 547.6 657.1
Fair value of debt 24.7 22.8 (6.7)
EPRA net disposal value 549.2 570.4 650.4
Net asset value per share (pence) 96 100 120
EPRA net tangible asset value per share (pence) 96 100 120
EPRA net disposal value per share (pence) 101 105 119
Income statement
Net property income increased by £1.6 million during the financial year to
£37.9 million, delivering a 4.5% increase year-on-year.
Total revenue from the property portfolio increased by 4% to £45.1 million,
excluding service charge income. The increase was primarily driven by rental
growth in the property portfolio (£0.9 million) and other income (£0.8
million). The industrial assets contributed to additional rental income of
around £1.0 million with notable rent reviews concluding at Grantham and
Gloucester, in addition to the incremental income from the acquisition of
Cheltenham that completed in the previous financial year. Rent collection has
continued to be strong, reflecting the quality of our occupiers and asset
management oversight.
Total property and void expenses, excluding service charge costs, have been
stable during the financial year. We are focused on reducing these further
with the office disposal programme; the two office assets held for sale as at
the 31 March 2024 contributed to around 15% of the property costs.
We recognise the importance of cost management and the inflationary pressures
on our costs, particularly in relation to administrative costs. These expenses
increased by £1.3 million to £7.2 million during the financial year, which
includes the following non-recurring items:
‒ Costs in relation to abortive corporate activity of £0.2
million;
‒ Costs for internalising the company secretarial function and
lender consents of £0.3 million; and
‒ Chief Financial Officer transition costs of £0.1 million
Staff costs increased year-on-year due to additional headcount and salary
reviews agreed at the start of the year.
Our EPRA cost ratio (excluding direct vacancy costs) has increased from 21% to
23% during the financial year in part due to the non-recurring items noted
above.
The Group cost ratio has increased from 1.0% to 1.2% which is due to the lower
average net asset value over the period and the increased administrative
costs.
Net finance costs
Our cost of debt increased from £9.0 million to £9.5 million. This was
mainly due to amounts drawn under our revolving credit facility with interest
charged at 150bps above SONIA. The revolving credit facility balance
outstanding as at 31 March 2024 was £16.4 million which was repaid following
the year-end.
Interest income received during the year was £0.6 million, which reflects the
higher interest rate environment in addition to amounts received from managing
agents in respect of interest on client monies from previous periods.
Dividends
This year, we maintained our quarterly dividend rate of 0.875 pence per share,
equating to an annual rate of 3.5 pence per share. Total dividends paid out
were £19.1 million, in line with 2023. Dividend cover for the year was 114%.
Following the year-end we increased our annual dividend rate to 3.7 pence per
share, following the sale of Angel Gate, London and subsequent debt repayment.
Investment properties
As at 31 March 2024, the portfolio comprised 49 assets and the appraised value
was £744.6 million.
The negative capital movement on the portfolio was £26.5 million for the
year, which was primarily driven by yield movement.
There were no acquisitions or disposals completed during the year, however, we
exchanged contracts to sell the following office assets, which are classified
as assets held for sale as at 31 March 2024:
‒ Longcross, Cardiff
‒ Angel Gate, London
We have continued to invest in the property portfolio and incurred £4.5
million in capital expenditure during the financial year to support the rental
income increases and capital values over the medium to longer-term.
In line with last year, the value of the floor that we occupy at Stanford
Building, London, has been excluded from the value of Investment Properties
and included separately with Property, Plant and Equipment. Any capital
movements arising from the revaluation of this element of the property are
shown within the Consolidated Statement of Comprehensive Income.
Summary of borrowings
2024 2023 2022
Fixed rate loans (£m) 211.1 212.6 213.9
Drawn revolving facility (£m) 16.4 11.9 4.9
Total borrowings (£m) 227.5 224.5 218.8
Borrowings net of cash (£m) 207.7 204.4 180.3
Undrawn facilities (£m) 33.6 38.1 45.1
Loan to value ratio (%) 27.9 26.7 21.2
Weighted average interest rate (%) 3.9 3.8 3.7
Average duration (years) 7.2 8.4 9.6
Borrowings
Total borrowings were £227.5 million at 31 March 2024, with the loan to value
ratio at 27.9%. The weighted average interest rate on our borrowings was 3.9%
while the average loan duration was 7.2 years.
The fair value of our drawn borrowings at 31 March 2024 was £202.8 million,
lower than the book value by some £24.7 million. As a result, our EPRA NDV
asset value was £549 million at 31 March 2024, higher than the reported net
assets under IFRS. Both lending margins and gilt yields continue to be higher
relative to the rates set on our facilities.
At 31 March 2024, we had £16.4 million drawn under revolving credit facility,
which was fully repaid in April 2024 with the sale proceeds from Angel Gate,
London. The £50.0 million facility matures in May 2025 and we will seek to
extend it during the year in order to provide flexibility to execute
transactions and manage cash flow. We have strong banking relationships with
our lenders; the Group has remained fully compliant with its loan covenants
and has made scheduled amortisation payments during the year of £1.4 million.
Cash flow and liquidity
During the year, our cash balances reduced by £0.3 million. The cash flow
from operating activities this year was £20.2 million and we invested £4.5
million in capital expenditure into the property portfolio. Overall borrowings
increased by £3.1 million and dividends paid were £19.1 million. Our cash
balance at the year-end stood at £19.8 million.
Share capital
No new ordinary shares were issued during the year.
The Company's Employee Benefit Trust now holds 1,642,440 shares. As the Trust
is consolidated into the Group's results, these shares are effectively held in
treasury and therefore have been excluded from the net asset value and
earnings per share calculations, from the date of purchase.
Saira Johnston
Chief Financial Officer
22 May 2024
Principal Risks
Managing risks
The Board recognises that there are risks and uncertainties that could have a
material impact on the Group's results.
Risk management provides a structured approach to the decision-making process
such that the identified risks can be mitigated and the uncertainty
surrounding expected outcomes can be reduced. The Board has developed a Risk
Management Policy which it reviews on a regular basis. The Audit and Risk
Committee carries out a detailed assessment of all risks, whether investment
or operational, and considers the effectiveness of the risk management and
internal control processes. The Executive Committee is responsible for
implementing strategy within the agreed Risk Management Policy, as well as
identifying and assessing risk in day-to-day operational matters. The
Management Committees support the Executive Committee in these matters. The
small number of employees and relatively flat management structure allow risks
to be quickly identified and assessed. The Group's risk appetite will vary
over time and during the course of the property cycle. The principal risks -
those with potential to have a material impact on performance and results -
are set out here, together with mitigating controls.
The UK Corporate Governance Code requires the Board to make a Viability
Statement. This considers the Company's current position and principal and
emerging risks and uncertainties combined with an assessment of the future
prospects for the Company, in order that the Board can state that the Company
will be able to continue its operations over the period of their assessment.
Emerging risks
During the year, the Board has considered themes where emerging risks or
disrupting events may impact the business. These may arise from behavioural
changes, political or regulatory changes, advances in technology,
environmental factors, economic conditions or demographic changes.
All emerging risks are reviewed as part of the ongoing risk management
process.
The principal emerging risks have been identified to be:
‒ High and persisting discounts to asset values within the listed
property sector adversely impacting investor sentiment;
‒ Political uncertainty in the lead-up to a general election in
the UK;
‒ Cyber security and rapid changes in technology such as AI are
causing businesses to reshape their operational activities;
‒ Structural changes within the office sector, as businesses
continue to reassess their requirements in light of homeworking, technology
advances and ESG factors;
‒ Changes in regulations are increasing environmental standards
and property owners must keep pace to avoid the risk of stranded assets; and
‒ Increasing demand on the electrical infrastructure being driven
by decarbonisation and the phasing out of fossil fuels.
Corporate Strategy
1
Political and economic
Risk Mitigation Commentary Risk trend
Uncertainty in the UK economy, whether arising from political events or The Board considers economic conditions and market uncertainty when setting The UK economy has been more stable this year, after the volatility seen in No change/ stable
otherwise, brings risks to the property market and to occupiers' businesses. strategy, considering the financial strategy of the business and in making 2022/23. However, growth has been muted and only limited growth is forecast in
This can result in lower shareholder returns, lower asset liquidity and investment decisions. the medium-term. Interest rates remain high. The prospect of a general
increased occupier failure.
election in the UK this year is also causing uncertainty. Global events, such
as the crisis in the Middle East and the continuing war in Ukraine, are also
hampering economies.
2
Market cycle
Risk Mitigation Commentary Risk trend
The property market is cyclical and returns can be volatile. There is an The Board reviews the Group's strategy and business objectives on a regular Although interest rates rose during 2023, it appears that these have peaked Decreasing
ongoing risk that the Company fails to react appropriately to changing market basis and considers whether any change is needed, in light of current and and are forecast to fall later in the year. Bond yields, however, have
conditions, resulting in an adverse impact on shareholder returns. forecast market conditions. remained relatively high and have increased since the start of 2024.
3
Regulatory and tax
Risk Mitigation Commentary Risk trend
The Group could fail to comply with legal, fiscal, health and safety or The Board and senior management receive regular updates on relevant laws and There are no significant changes expected to the regulatory environment in No change/ stable
regulatory matters which could lead to financial loss, reputational damage or regulations from the Group's professional advisers. which the Group operates.
loss of REIT status.
The Group has a Health and Safety Committee which monitors all health and
safety issues, including oversight of the Property Manager.
The Group is a member of the BPF and EPRA, and management attend industry
briefings.
4
Climate change resilience
Risk Mitigation Commentary Risk trend
Failure to react to climate change could lead to reputational damage, loss of Sustainability is embedded within the Group's business model and strategy. Adaptation to climate change and asset resilience is an important issue for No change/ stable
income and value and being unable to attract occupiers. Physical and
property owners. This year, the Group has developed its on-site renewable
transitional risks associated with climate change could give rise to asset We have published our net zero carbon pathway and have reported on our strategy, with the installation of solar panels at a number of properties.
obsolescence. progress this year.
We have addressed the identification and assessment of climate-related risks
as identified through the TCFD process.
Property
5
Portfolio strategy
Risk Mitigation Commentary Risk trend
The Group has an inappropriate portfolio strategy, as a result of poor sector The Group maintains a diversified portfolio in order to minimise exposure to The Group has implemented a strategy to reduce its office sector weighting Increasing
or geographical allocations, or holding obsolete assets, leading to lower any one geographical area or market sector. through exploring higher value alternative uses. The outlook for the
shareholder returns.
industrial and retail sectors is positive over the medium-term.
6
Investment
Risk Mitigation Commentary Risk trend
Investment decisions may be flawed as a result of incorrect assumptions, poor The Executive Committee must approve all investment transactions over a Uncertainty and high interest rates have impacted investment market volumes in No change/ stable
research or incomplete due diligence, leading to financial loss. threshold level, and significant transactions require Board approval. the UK this year. Recessionary pressures have started to ease and interest
rates are expected to fall later in 2024.
A formal appraisal and due diligence process is carried out for all potential
purchases, including environmental assessments.
A review of each acquisition is performed within two years of completion.
7
Asset management
Risk Mitigation Commentary Risk trend
Failure to properly execute asset business plans or poor asset management Management prepare business plans for each asset which are reviewed regularly. The occupational market has shown positive signs since the beginning of 2024. No change/ stable
could lead to longer void periods, higher occupier defaults, higher arrears
Rent collection has remained high throughout the year, with limited occupier
and low occupier retention, all having an adverse impact on earnings and cash The Executive Committee must approve all investment transactions over a defaults.
flow. threshold level, and significant transactions require Board approval.
Management maintain close contact with occupiers to have early indication of
intentions.
Management regularly assess the performance of the Group's Property Manager.
8
Valuation
Risk Mitigation Commentary Risk trend
A fall in the valuation of the Group's property assets could lead to lower The Group's property assets are valued quarterly by an independent valuer with Commercial property values have declined to a modest extent over the year. Decreasing
investment returns and a breach of loan covenants. oversight by the Property Valuation Committee. Market commentary is provided Interest rates have risen in the early part of the year but are considered to
regularly by the independent valuer. have peaked and may fall later in 2024.
The Board reviews financial forecasts for the Group on a regular basis, There remains good headroom against the Group's lending covenants.
including sensitivity and adequate headroom against financial covenants.
Operational
9
People
Risk Mitigation Commentary Risk trend
The Group relies on a small team to implement the strategy and run the The Board has a remuneration policy in place which incentivises performance The Group's Finance Director retired at the end of March, and there has been a No change/ stable
day-to-day operations. Failure to retain or recruit key individuals with the and is aligned with shareholders' interests. transition period with his successor. The Group's company secretarial function
right blend of skills and experience may result in poor decision making and
has been brought in-house. Feedback from the employee engagement survey
underperformance. All employees receive an annual performance appraisal, including training and remained positive.
development needs.
There is a Non-Executive Director responsible for employee engagement who
provides regular feedback to the Board.
Financial
10
Finance strategy
Risk Mitigation Commentary Risk trend
The Group has a number of loan facilities to finance its activities. Failure The Board reviews financial forecasts for the Group on a regular basis, The Group has mainly fixed rate long-term borrowings in place with maturities No change/ stable
to comply with covenants or to manage refinancing events could lead to a including sensitivity against financial covenants. in 2031 and 2032. Covenants are monitored regularly and there is good headroom
funding shortfall for operational activities.
against these. The revolving credit facility does not mature until 2025.
The Group's property assets are valued quarterly by an independent valuer with
oversight by the Property Valuation Committee. Market commentary is provided
regularly by the independent valuer.
The Audit and Risk Committee considers the going concern status of the Group
biannually.
11
Capital structure
Risk Mitigation Commentary Risk trend
The Group operates a geared capital structure, which magnifies returns from The Board regularly reviews its gearing strategy and debt maturity profile, at Following asset sales the Group's revolving credit facility has been fully No change/ stable
the portfolio, both positive and negative. An inappropriate level of gearing least annually, in light of changing market conditions. repaid subsequent to the year-end. As a result the Group's loan to value ratio
relative to the property cycle could lead to lower investment returns.
has reduced.
The Group has a revolving credit facility in place which can be repaid if
required to reduce the level of gearing.
Viability assessment and statement
The UK Corporate Governance Code requires the Board to make a 'viability
statement' which considers the Company's current position and principal and
emerging risks and uncertainties combined with an assessment of the future
prospects for the Company, in order that the Board can state that the Company
will be able to continue its operations over the period of their assessment.
The Board conducted this review over a five-year timescale, considered to be
the most appropriate for long-term investment in commercial property. The
assessment has been undertaken taking into account the principal and emerging
risks and uncertainties faced by the Group which could impact its investment
strategy, future performance, financing and liquidity.
The major risks identified were those relating to market risk in relation to
persistent inflation, high interest rates, other recessionary pressures and
the lead up to a general election over the period of the assessment as well as
financing, liquidity and other operational risks.
In the ordinary course of business, the Board reviews quarterly forecasts,
including forecast market returns. The forecasts include assumptions regarding
lease expiries, breaks and incentives and capital expenditure. For the
purposes of the viability assessment of the Group, the model covers a
five-year period and is stress tested under various scenarios.
The Board considered a number of scenarios and their impact on the Group's
property portfolio and financial position. These scenarios included different
levels of rent collection, occupier defaults, void periods and incentives
within the portfolio, and the consequential impact on property costs and loan
covenants. All lease events and assumptions were reviewed over the period
under the different scenarios, including their impact on revenue and cash
flow. Forecast movements in capital values, based on input from external
economic consultants, were included in these scenarios, including their
potential impact on the Group's loan covenants. The Group's long-term loan
facilities are contracted to be in place throughout the assessment period,
while the Board has assumed that the Group will continue to have access to,
but is not reliant on, its revolving credit facility which expires in 2025.
The Board considered the impact of these scenarios on its ability to continue
to pay dividends at different rates over the assessment period.
These matters were assessed over the period to 31 March 2029 and will continue
to be assessed over rolling five-year periods.
The Directors consider that the scenario testing performed was sufficiently
robust and that even under stressed conditions the Company remains viable.
Based on their assessment, and in the context of the Group's business model
and strategy, the Directors expect that the Group will be able to continue in
operation and meet its liabilities as they fall due over the five-year period
to 31 March 2029.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with International Financial Reporting Standards, as
issued by the IASB, and applicable law.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period.
In preparing these financial statements, the Directors are required to:
‒ Select suitable accounting policies and then apply them
consistently;
‒ Make judgements and estimates that are reasonable, relevant and
reliable;
‒ State whether applicable accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements;
‒ Assess the Group and Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
‒ Use the going concern basis of accounting unless they either
intend to liquidate the Group or the Company or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal controls as they
determine are necessary to enable the preparation of the financial statements
that are free from material misstatement, whether due to fraud or error, and
have a general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, and for
the preparation and dissemination of financial statements. Legislation in
Guernsey governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' responsibility statement in respect of the Annual Report and
financial statements
We confirm that to the best of our knowledge:
‒ The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and
‒ The Strategic Report includes a fair review of the development
and performance of the business and the position of the Issuer, together with
a description of the principal risks and uncertainties that they face.
We consider the Annual Report and accounts, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
By Order of the Board
Saira Johnston
22 May 2024
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 March 2024
Notes 2024 2023
£000 £000
Income
Revenue from properties 3 54,690 51,816
Property expenses 4 (16,799) (15,566)
Net property income 37,891 36,250
Expenses
Administrative expenses 6 (7,219) (5,955)
Total operating expenses (7,219) (5,955)
Operating profit before movement on investments 30,672 30,295
Investments
Revaluation of owner-occupied property 14 223 (382)
Investment property valuation movements 13 (26,757) (110,433)
Total loss on investments (26,534) (110,815)
Operating profit/(loss) 4,138 (80,520)
Financing
Interest income 8 604 24
Interest expense 8 (9,531) (9,034)
Total finance costs (8,927) (9,010)
Loss before tax (4,789) (89,530)
Tax 9 - -
Loss after tax (4,789) (89,530)
Other comprehensive income
Revaluation of owner-occupied property 14 - (434)
Total other comprehensive loss for the year - (434)
Total comprehensive loss for the year (4,789) (89,964)
Earnings per share
Basic 11 (0.9)p (16.5)p
Diluted 11 (0.9)p (16.5)p
All items in the above statement derive from continuing operations.
All of the loss and total comprehensive loss for the year is attributable to
the equity holders of the Company.
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated statement of changes in equity
for the year ended 31 March 2024
Notes Share Retained earnings Other reserves Revaluation reserve Total
capital
£000 £000 £000 £000
£000
Balance as at 31 March 2022 164,400 493,027 (731) 434 657,130
Loss for the year - (89,530) - - (89,530)
Dividends paid 10 - (19,091) - - (19,091)
Share-based awards - - 675 - 675
Purchase of shares held in trust 7 - - (1,126) - (1,126)
Other comprehensive loss for the year 14 - - - (434) (434)
Balance as at 31 March 2023 164,400 384,406 (1,182) - 547,624
Loss for the year - (4,789) - - (4,789)
Dividends paid 10 - (19,089) - - (19,089)
Share-based awards - - 729 - 729
Balance as at 31 March 2024 164,400 360,528 (453) - 524,475
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated balance sheet
as at 31 March 2024
Notes 2024 2023
£000 £000
Non-current assets
Investment properties 13 688,310 746,342
Property, plant and equipment 14 3,499 3,415
Total non-current assets 691,809 749,757
Current assets
Investment properties held for sale 13 35,733 -
Accounts receivable 15 26,601 22,749
Cash and cash equivalents 16 19,773 20,050
Total current assets 82,107 42,799
Total assets 773,916 792,556
Current liabilities
Accounts payable and accruals 17 (20,622) (19,471)
Loans and borrowings 18 (1,194) (1,129)
Obligations under leases 22 (114) (114)
Total current liabilities (21,930) (20,714)
Non-current liabilities
Loans and borrowings 18 (224,940) (221,635)
Obligations under leases 22 (2,571) (2,583)
Total non-current liabilities (227,511) (224,218)
Total liabilities (249,441) (244,932)
Net assets 524,475 547,624
Equity
Share capital 20 164,400 164,400
Retained earnings 360,528 384,406
Other reserves (453) (1,182)
Revaluation reserve - -
Total equity 524,475 547,624
Net asset value per share 23 96p 100p
These consolidated financial statements were approved by the Board of
Directors on 22 May 2024 and signed on its behalf by:
Saira Johnston
Chief Financial Officer
22 May 2024
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated statement of cash flows
for the year ended 31 March 2024
Notes 2024 2023
£000 £000
Operating activities
Operating profit/(loss) 4,138 (80,520)
Adjustments for non-cash items 21 27,406 111,655
Interest received 102 24
Interest paid (9,085) (7,937)
(Increase)/decrease in accounts receivable (3,350) 101
Increase/(decrease) in accounts payable and accruals 996 (291)
Cash inflows from operating activities 20,207 23,032
Investing activities
Purchase of investment properties 13 - (20,613)
Capital expenditure on investment properties 13 (4,458) (6,135)
Purchase of property, plant and equipment 14 (4) (13)
Cash outflows from investing activities (4,462) (26,761)
Financing activities
Borrowings repaid 18 (1,433) (6,368)
Borrowings drawn 18 4,500 12,000
Financing costs 18 - (183)
Purchase of shares held in trust 7 - (1,126)
Dividends paid 10 (19,089) (19,091)
Cash outflows from financing activities (16,022) (14,768)
Net decrease in cash and cash equivalents (277) (18,497)
Cash and cash equivalents at beginning of year 20,050 38,547
Cash and cash equivalents at end of year 16 19,773 20,050
Notes 1 to 27 form part of these consolidated financial statements.
Notes to the consolidated financial statements
For the year ended 31 March 2024
1. General information
Picton Property Income Limited (the 'Company' and together with its
subsidiaries the 'Group') was established in Guernsey on 15 September 2005. It
has a premium listing on the London Stock Exchange as a commercial company and
entered the UK REIT regime on 1 October 2018. The consolidated financial
statements are prepared for the year ended 31 March 2024 with comparatives for
the year ended 31 March 2023.
2. Material accounting policies
Basis of accounting
The financial statements have been prepared on a going concern basis and adopt
the historical cost basis, except for the revaluation of investment
properties, share-based awards and property, plant and equipment. Historical
cost is generally based on the fair value of the consideration given in
exchange for the assets. The financial statements, which give a true and fair
view, are prepared in accordance with International Financial Reporting
Standards (IFRS Accounting Standards) as issued by the IASB and the Companies
(Guernsey) Law, 2008.
The Directors have assessed whether the going concern basis remains
appropriate for the preparation of the financial statements. They have
reviewed the Group's principal and emerging risks, existing loan facilities,
access to funding and liquidity position and then considered different adverse
scenarios impacting the portfolio and the potential consequences on financial
performance, asset values, dividend policy, capital projects and loan
covenants. Under all these scenarios the Group has sufficient resources to
continue its operations, and remain within its loan covenants, for the
foreseeable future and in any case for a period of at least 12 months from the
date of these financial statements.
Based on their assessment and knowledge of the portfolio and market, the
Directors have therefore continued to adopt the going concern basis in
preparing the financial statements.
The financial statements are presented in pounds sterling, which is the
Company's functional currency. All financial information presented in pounds
sterling has been rounded to the nearest thousand, except when otherwise
indicated.
New or amended standards issued
The accounting policies adopted are consistent with those of the previous
financial period, as amended to reflect the adoption of new standards,
amendments and interpretations which became effective in the year as shown
below.
‒ IFRS 17 Insurance Contracts
‒ Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
‒ Definition of Accounting Estimates (Amendments to IAS 8)
‒ Deferred Tax Related to Assets and Liabilities Arising from a
Single Transaction - Amendments to IAS 12 Income Taxes
The adoption of these standards has had no material effect on the consolidated
financial statements of the Group. At the date of approval of these financial
statements, there are a number of new and amended standards in issue but not
yet effective for the financial year ended 31 March 2024 and thus have not
been applied by the Group.
‒ Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
‒ Non-current Liabilities with Covenants (Amendments to IAS 1)
‒ Sale or Contributions of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
‒ Amendments to IAS 7 and IFRS 7 - Supplier Finance Arrangements
‒ Amendments to IAS 21 - Lack of Exchangeability
‒ IFRS 18 Presentation and Disclosure in Financial Statements
‒ IFRS 19 Subsidiaries without Public Accountability
The adoption of these new and amended standards, together with any other IFRSs
or IFRIC interpretations that are not yet effective, are not expected to have
a material impact on the financial statements of the Group other than IFRS 18
(Presentation and Disclosure in Financial Statements) that the Group is in the
process of assessing.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets, liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
estimates about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis.
Significant judgements and estimates
Judgements made by management in the application of IFRSs that have a
significant effect on the financial statements and major sources of estimation
uncertainty are disclosed in Note 13.
The critical estimates and assumptions relate to the investment property and
owner-occupied property valuations applied by the Group's independent valuer.
Revisions to accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in the year of
the revision and future years if the revision affects both current and future
years.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company at the reporting date. The
Group controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
these returns through its power over the entity.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group. These financial statements include the results
of the subsidiaries disclosed in Note 12. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
Fair value hierarchy
The fair value measurement for the Group's assets and liabilities is
categorised into different levels in the fair value hierarchy based on the
inputs to valuation techniques used. The different levels have been defined as
follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3: unobservable inputs for the asset or liability.
The Group recognises transfers between levels of the fair value hierarchy as
of the end of the reporting period during which the transfer has occurred.
Investment properties
Freehold property held by the Group to earn income or for capital
appreciation, or both, is classified as investment property in accordance with
IAS 40 'Investment Property'. Property held under head leases for similar
purposes is also classified as investment property. Investment property is
initially recognised at purchase cost plus directly attributable acquisition
expenses and subsequently measured at fair value. The fair value of investment
property is based on a valuation by an independent valuer who holds a
recognised and relevant professional qualification and who has recent
experience in the location and category of the investment property being
valued.
The fair value of investment properties is measured based on each property's
highest and best use from a market participant's perspective and considers the
potential uses of the property that are physically possible, legally
permissible and financially feasible.
The fair value of investment property generally involves consideration of:
‒ Market evidence on comparable transactions for similar
properties;
‒ The actual current market for that type of property in that type
of location at the reporting date and current market expectations;
‒ Rental income from leases and market expectations regarding
possible future lease terms;
‒ Hypothetical sellers and buyers, who are reasonably informed
about the current market and who are motivated, but not compelled, to transact
in that market on an arm's length basis; and
‒ Investor expectations on matters such as future enhancement of
rental income or market conditions.
Gains and losses arising from changes in fair value are included in the
Consolidated Statement of Comprehensive Income in the year in which they
arise. Purchases and sales of investment property are recognised when
contracts have been unconditionally exchanged and the significant risks and
rewards of ownership have been transferred.
An investment property is derecognised for accounting purposes upon disposal
or when no future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the Consolidated Statement of
Comprehensive Income in the year the asset is derecognised. Investment
properties are not depreciated.
The majority of the investment properties are charged by way of a first
ranking mortgage as security for the loans made to the Group; see Note 18.
Property, plant and equipment
Owner-occupied property
Owner-occupied property is stated at its revalued amount, which is determined
in the same manner as investment property. It is depreciated over its
remaining useful life (in this case 40 years) with the depreciation included
in administrative expenses. On revaluation, any accumulated depreciation is
eliminated against the gross carrying amount of the property concerned, and
the net amount restated to the revalued amount. Subsequent depreciation
charges are adjusted based on the revalued amount. Any difference between the
depreciation charge on the revalued amount and that which would have been
charged under historic cost is transferred between the revaluation reserve and
retained earnings as the property is used. Any gain arising on this
remeasurement is recognised in profit or loss to the extent that it reverses a
previous impairment loss on the specific property, with any remaining gain
recognised in other comprehensive income and presented in the revaluation
reserve. Any loss is recognised in profit or loss. However, to the extent that
an amount is included in the revaluation surplus for that property, the loss
is recognised in other comprehensive income and reduces the revaluation
surplus within equity.
Plant and equipment
Plant and equipment is depreciated on a straight-line basis over the estimated
useful lives of each item of plant and equipment. The estimated useful lives
are between three and five years.
Leases
Where the Group holds interests in investment properties other than as
freehold interests (e.g. as a head lease), these are accounted for as right of
use assets, which is recognised at its fair value on the Balance Sheet, within
the investment property carrying value. Upon initial recognition, a
corresponding liability is included as a lease liability. Minimum lease
payments are apportioned between the finance charge and the reduction of the
outstanding liability so as to produce a constant periodic rate of interest on
the remaining lease liability. Contingent rent payable, being the difference
between the rent currently payable and the minimum lease payments when the
lease liability was originally calculated, are charged as expenses within
property expenditure in the years in which they are payable.
The Group leases its investment properties under commercial property leases
which are held as operating leases. An operating lease is a lease other than a
finance lease. A finance lease is one where substantially all the risks and
rewards of ownership are passed to the lessee. Lease income is recognised as
income on a straight-line basis over the lease term. Direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount
of the leased asset and recognised as an expense over the lease term on the
same basis as the lease income. Upon receipt of a surrender premium for the
early termination of a lease, the profit, net of dilapidations and
non-recoverable outgoings relating to the lease concerned, is immediately
reflected in revenue from properties if there are no relevant conditions
attached to the surrender.
Cash and cash equivalents
Cash includes cash in hand and cash with banks. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash with original maturities in three months or less and that are
subject to an insignificant risk of change in value.
Income and expenses
Income and expenses are included in the Consolidated Statement of
Comprehensive Income on an accruals basis. All of the Group's income and
expenses are derived from continuing operations.
Lease incentive payments are amortised on a straight-line basis over the
period from the date of lease inception to the end of the lease term and
presented within accounts receivable. Lease incentives granted are recognised
as a reduction of the total rental income, over the term of the lease.
Property operating costs include the costs of professional fees on letting and
other non-recoverable costs.
The income charged to occupiers for property service charges and the costs
associated with such service charges are shown separately in Notes 3 and 4 to
reflect that, notwithstanding this money is held on behalf of occupiers, the
ultimate risk for paying and recovering these costs rests with the property
owner.
Employee benefits
Defined contribution plans
A defined contribution plan is a retirement benefit plan under which the
Company pays fixed contributions into a separate entity and will have no legal
or constructive obligation to pay further amounts. Obligations for
contributions to defined contribution pension plans are recognised as an
expense in the Consolidated Statement of Comprehensive Income in the periods
during which services are rendered by employees.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognised
for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Share-based payments
The fair value of the amounts payable to employees in respect of the Deferred
Bonus Plan, when these are to be settled in cash, is recognised as an expense
with a corresponding increase in liabilities, over the period that the
employees become unconditionally entitled to payment. Where the awards are
equity settled, the fair value is recognised as an expense, with a
corresponding increase in equity. The liability is remeasured at each
reporting date and at settlement date. Any changes in the fair value of the
liability are recognised under the category staff costs in the Consolidated
Statement of Comprehensive Income.
The grant date fair value of awards to employees made under the Long-term
Incentive Plan is recognised as an expense, with a corresponding increase in
equity, over the vesting period of the awards. The amount recognised as an
expense is adjusted to reflect the number of awards for which the related
non-market performance conditions are expected to be met, such that the amount
ultimately recognised is based on the number of awards that meet the related
non-market performance conditions at the vesting date. For share-based payment
awards subject to market conditions, the grant date fair value of the
share-based awards is measured to reflect such conditions and there is no
adjustment between expected and actual outcomes.
The cost of the Company's shares held by the Employee Benefit Trust is
deducted from equity in the Consolidated Balance Sheet. Any shares held by the
Trust are not included in the calculation of earnings or net assets per share.
Dividends
Dividends are recognised in the period in which they are declared.
Accounts receivable
Accounts receivable are stated at their nominal amount as reduced by
appropriate allowances for estimated irrecoverable amounts. The Group applies
the IFRS 9 simplified approach to measuring expected credit losses, which uses
a lifetime expected impairment provision for all applicable accounts
receivable. Bad debts are written off when identified.
Loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair
value of the consideration received net of issue costs associated with the
borrowing. After initial recognition, loans and borrowings are subsequently
measured at amortised cost using the effective interest method. Amortised cost
is calculated by taking into account any issue costs, and any discount or
premium on settlement. Gains and losses are recognised in profit or loss in
the Consolidated Statement of Comprehensive Income when the liabilities are
derecognised for accounting purposes, as well as through the amortisation
process.
Assets classified as held for sale
Any investment properties on which contracts for sale have been exchanged but
which had not completed at the period end are disclosed as properties held for
sale as control over the properties is still retained over the period end.
Investment properties included in the held for sale category continue to be
measured in accordance with the accounting policy for investment properties.
Other assets and liabilities
Other assets and liabilities, including trade creditors, accruals, other
creditors, and deferred rental income, which are not interest bearing are
stated at their nominal value.
Share capital
Ordinary shares are classified as equity.
Revaluation reserve
Any surplus or deficit arising from the revaluation of owner-occupied property
is taken to the revaluation reserve. A revaluation deficit is only taken to
retained earnings when there is no previous revaluation surplus to reverse.
Taxation
The Group elected to be treated as a UK REIT with effect from 1 October 2018.
The UK REIT rules exempt the profits of the Group's UK property rental
business from UK corporation and income tax. Gains on UK properties are also
exempt from tax, provided they are not held for trading. The Group is
otherwise subject to UK corporation tax.
Principles for the Consolidated Statement of Cash Flows
The Consolidated Statement of Cash Flows has been drawn up according to the
indirect method, separating the cash flows from operating activities,
investing activities and financing activities. The net result has been
adjusted for amounts in the Consolidated Statement of Comprehensive Income and
movements in the Consolidated Balance Sheet which have not resulted in cash
income or expenditure in the related period.
The cash amounts in the Consolidated Statement of Cash Flows include those
assets that can be converted into cash without any restrictions and without
any material risk of decreases in value as a result of the transaction.
3. Revenue from properties
2024 2023
£000 £000
Rents receivable (adjusted for lease incentives) 43,910 42,964
Surrender premiums 102 147
Dilapidation receipts 952 170
Other income 124 107
Service charge income 9,602 8,428
54,690 51,816
Rents receivable have been adjusted for lease incentives recognised of £nil
(2023: £1.2 million).
4. Property expenses
2024 2023
£000 £000
Property operating costs 3,075 3,491
Property void costs 4,122 3,647
Recoverable service charge costs 9,602 8,428
16,799 15,566
5. Operating segments
The Board is responsible for setting the Group's strategy and business model.
The key measure of performance used by the Board to assess the Group's
performance is the total return on the Group's net asset value. As the total
return on the Group's net asset value is calculated based on the net asset
value per share calculated under IFRS as shown at the foot of the Consolidated
Balance Sheet, assuming dividends are reinvested, the key performance measure
is that prepared under IFRS. Therefore, no reconciliation is required between
the measure of profit or loss used by the Board and that contained in the
financial statements.
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board is of the opinion that the Group, through its subsidiary undertakings,
operates in one reportable industry segment, namely real estate investment,
and across one primary geographical area, namely the United Kingdom, and
therefore no segmental reporting is required. The portfolio consists of 49
commercial properties, which are in the industrial, office, retail and leisure
sectors.
6. Administrative expenses
2024 2023
£000 £000
Director and staff costs 4,191 3,487
Auditor's remuneration 248 195
Other administrative expenses 2,780 2,273
7,219 5,955
Auditor's remuneration comprises: 2024 2023
£000 £000
Audit fees:
Audit of Group financial statements 120 92
Audit of subsidiaries' financial statements 103 87
Audit-related fees:
Review of interim financial statements 25 16
248 195
7. Director and staff costs
2024 2023
£000 £000
Wages and salaries 2,422 1,879
Non-Executive Directors' fees 287 275
Social security costs 435 425
Other pension costs 47 34
Share-based payments - cash settled 189 142
Share-based payments - equity settled 811 732
4,191 3,487
Employees participate in two share-based remuneration arrangements: the
Deferred Bonus Plan and the Long-term Incentive Plan (the 'LTIP').
For all employees, a proportion of any discretionary annual bonus will be an
award under the Deferred Bonus Plan. With the exception of Executive
Directors, awards are cash settled and vest after two years. The final value
of awards is determined by the movement in the Company's share price and
dividends paid over the vesting period. For Executive Directors, awards are
equity settled and also vest after two years. On 14 June 2023, awards of
834,885 notional shares were made which vest in June 2025 (2023: 500,905
notional shares). The next awards are due to be made in June 2024 for vesting
in June 2026.
The table below summarises the awards made under the Deferred Bonus Plan.
Employees have the option to defer the vesting date of their awards for a
maximum of seven years.
Vesting date Units at Units granted in the year Units cancelled in the year Units redeemed in the year Units at 31 March 2023 Units granted in the year Units cancelled in the year Units redeemed in the year Units at
31 March 2022 31 March 2024
29 June 2022 599,534 - - (589,779) 9,755 - - (9,755) -
22 June 2023 531,108 - - - 531,108 - - (391,152) 139,956
17 June 2024 - 500,905 - - 500,905 - (2,117) - 498,788
14 June 2025 - - - - - 834,885 (2,305) - 832,580
1,130,642 500,905 - (589,779) 1,041,768 834,885 (4,422) (400,907) 1,471,324
The Group also has a Long-term Incentive Plan for all employees which is
equity settled. Awards are made annually and vest three years from the grant
date. Vesting is conditional on three performance metrics measured over each
three-year period. Awards to Executive Directors are also subject to a further
two-year holding period. On 14 June 2023, awards for a maximum of 1,219,010
shares were granted to employees in respect of the three-year period ending on
31 March 2026. In the previous year, awards of 1,174,589 shares were made on
17 June 2022 for the period ending 31 March 2025.
The metrics are:
‒ Total shareholder return (TSR) of Picton Property Income
Limited, compared to a comparator group of similar listed companies;
‒ Total property return (TPR) of the property assets held within
the Group, compared to the MSCI UK Quarterly Property Index; and
‒ Growth in EPRA earnings per share (EPS) of the Group.
The fair value of share grants is measured using the Monte Carlo model for the
TSR metric and a Black-Scholes model for the TPR and EPS metrics. The fair
value is recognised over the expected vesting period. For the awards made
during this year and the previous year the main inputs and assumptions of the
models, and the resulting fair values, are:
Assumptions
Grant date 14 June 2023 17 June 2022
Share price at date of grant 76.2p 92.6p
Exercise price Nil Nil
Expected term 3 years 3 years
Risk-free rate - TSR condition 4.8% 2.28%
Share price volatility - TSR condition 27.4% 28.3%
Median volatility of comparator group - TSR condition 27.2% 32.4%
Correlation - TSR condition 38.6% 25.0%
TSR performance at grant date - TSR condition 7.0% (2.5)%
Median TSR performance of comparator group at grant date - TSR condition 2.3% 2.2%
Fair value - TSR condition (Monte Carlo method) 35.0p 46.0p
Fair value - TPR condition (Black-Scholes model) 76.2p 92.6p
Fair value - EPS condition (Black-Scholes model) 76.2p 92.6p
The Trustee of the Company's Employee Benefit Trust did not acquire any
ordinary shares during the year (2023: 1,250,000 shares for £1,126,000).
The Group employed 12 members of staff at 31 March 2024 (2023: ten). The
average number of people employed by the Group for the year ended 31 March
2024 was 11 (2023: nine).
8. Interest expense and interest income
Interest paid 2024 2023
£000 £000
Interest payable on loans 9,146 8,576
Interest on obligations under finance leases 174 175
Non-utilisation fees 211 283
9,531 9,034
The loan arrangement costs incurred to 31 March 2024 are £3,328,000 (2023:
£3,328,000). These are amortised over the duration of the loans with
£304,000 amortised in the year ended 31 March 2024 and included in interest
payable on loans (2023: £304,000).
Interest income of £604,000 (2023: £24,000) includes £502,000 received from
managing agents in respect of interest earned on client monies in respect of
the current and previous financial periods.
9. Tax
The charge for the year is:
2024 2023
£000 £000
Tax expense in year - -
Total tax charge - -
A reconciliation of the tax charge applicable to the results at the statutory
tax rate to the charge for the year is as follows:
2024 2023
£000 £000
Loss before taxation (4,789) (89,530)
Expected tax (credit)/charge on ordinary activities at the standard rate of (1,197) (17,011)
taxation of 25% (2023: 19%)
Less:
UK REIT exemption on net income (5,437) (4,044)
Revaluation movement not taxable 6,634 21,055
Total tax charge - -
As a UK REIT, the income profits of the Group's UK property rental business
are exempt from corporation tax, as are any gains it makes from the disposal
of its properties, provided they are not held for trading. The Group is
otherwise subject to UK corporation tax at the prevailing rate.
As the principal company of the REIT, the Company is required to distribute at
least 90% of the income profits of the Group's UK property rental business.
There are a number of other conditions that are also required to be met by the
Company and the Group to maintain REIT tax status. These conditions were met
in the year and the Board intends to conduct the Group's affairs such that
these conditions continue to be met for the foreseeable future. Accordingly,
deferred tax is no longer recognised on temporary differences relating to the
property rental business.
10. Dividends
2024 2023
£000 £000
Declared and paid:
Interim dividend for the period ended 31 March 2022: 0.875 pence - 4,774
Interim dividend for the period ended 30 June 2022: 0.875 pence - 4,775
Interim dividend for the period ended 30 September 2022: 0.875 pence - 4,771
Interim dividend for the period ended 31 December 2022: 0.875 pence - 4,771
Interim dividend for the period ended 31 March 2023: 0.875 pence 4,771 -
Interim dividend for the period ended 30 June 2023: 0.875 pence 4,770 -
Interim dividend for the period ended 30 September 2023: 0.875 pence 4,771 -
Interim dividend for the period ended 31 December 2023: 0.875 pence 4,777 -
19,089 19,091
The interim dividend of 0.925 pence per ordinary share in respect of the
period ended 31 March 2024 has not been recognised as a liability as it was
declared after the year-end. This dividend of £5,050,000 will be paid on 31
May 2024.
11. Earnings per share
Basic and diluted earnings per share is calculated by dividing the net loss
for the year attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares in issue during the year, excluding
the average number of shares held by the Employee Benefit Trust for the year.
The diluted number of shares also reflects the contingent shares to be issued
under the Long-term Incentive Plan.
The following reflects the loss and share data used in the basic and diluted
profit per share calculation:
2024 2023
Net loss attributable to ordinary shareholders of the Company from continuing (4,789) (89,964)
operations (£000)
Weighted average number of ordinary shares for basic earnings per share 545,437,264 545,378,286
Weighted average number of ordinary shares for diluted earnings per share 547,092,154 546,856,450
12. Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2024 and
31 March 2023:
Name Place of incorporation Ownership
proportion
Picton UK Real Estate Trust (Property) Limited Guernsey 100%
Picton (UK) REIT (SPV) Limited Guernsey 100%
Picton (UK) Listed Real Estate Guernsey 100%
Picton UK Real Estate (Property) No 2 Limited Guernsey 100%
Picton (UK) REIT (SPV No 2) Limited Guernsey 100%
Picton Capital Limited England & Wales 100%
Picton (General Partner) No 2 Limited Guernsey 100%
Picton (General Partner) No 3 Limited Guernsey 100%
Picton No 2 Limited Partnership England & Wales 100%
Picton No 3 Limited Partnership England & Wales 100%
Picton Financing UK Limited England & Wales 100%
Picton Financing UK (No 2) Limited England & Wales 100%
Picton Property No 3 Limited Guernsey 100%
The results of the above entities are consolidated within the Group financial
statements.
Picton UK Real Estate Trust (Property) Limited and Picton (UK) REIT (SPV)
Limited own 100% of the units in Picton (UK) Listed Real Estate, a Guernsey
Unit Trust (the 'GPUT'). The GPUT holds a 99.9% interest in both Picton No 2
Limited Partnership and Picton No 3 Limited Partnership and the remaining
balances are held by Picton (General Partner) No 2 Limited and Picton (General
Partner) No 3 Limited, respectively.
13. Investment properties
The following table provides a reconciliation of the opening and closing
amounts of investment properties classified as Level 3 recorded at fair value.
2024 2023
£000 £000
Fair value at start of year 746,342 830,027
Capital expenditure on investment properties 4,458 6,135
Acquisitions - 20,613
Unrealised movement on investment properties (26,757) (110,433)
Fair value at the end of the year 724,043 746,342
Historic cost at the end of the year 685,576 681,118
The fair value of investment properties reconciles to the appraised value as
follows:
2024 2023
£000 £000
Current
Appraised value of properties held for sale 35,900 -
Lease incentives held as debtors of properties held for sale (167) -
35,733 -
Non-current
Appraised value 708,740 766,235
Valuation of assets held under head leases 2,046 2,081
Owner-occupied property (3,391) (3,248)
Lease incentives held as debtors (19,085) (18,726)
688,310 746,342
Fair value at the end of the year 724,043 746,342
As at 31 March 2024, contracts have been exchanged to sell Angel Gate, London
EC1 and Longcross, Cardiff so these assets have been classified as assets held
for sale, net of lease incentives. The sale of Angel Gate completed in April
2024 and the sale of Longcross is due to complete towards the end of the year.
As at 31 March 2023, there were no assets classified as held for sale.
The investment properties were valued by independent valuers, CBRE Limited,
Chartered Surveyors, as at 31 March 2024 and 31 March 2023 on the basis of
fair value in accordance with the version of the RICS Valuation - Global
Standards (incorporating the International Valuation Standards) and the UK
national supplement (the Red Book) current as at the valuation date. The total
fees earned by CBRE Limited from the Group are less than 5% of their total UK
revenue.
The fair value of the Group's investment properties has been determined using
an income capitalisation technique, whereby contracted and market rental
values are capitalised with a market capitalisation rate. The resulting
valuations are cross-checked against the equivalent yields and the fair market
values per square foot derived from comparable market transactions on an arm's
length basis.
In addition, the Group's investment properties are valued quarterly by CBRE
Limited. The valuations are based on:
‒ Information provided by the Group, including rents, lease terms,
revenue and capital expenditure. Such information is derived from the Group's
financial and property systems and is subject to the Group's overall control
environment
‒ Valuation models used by the valuers, including market-related
assumptions based on their professional judgement and market observation
The assumptions and valuation models used by the valuers, and supporting
information, are reviewed by senior management and the Board through the
Property Valuation Committee. Members of the Property Valuation Committee,
together with senior management, meet with the independent valuer on a
quarterly basis to review the valuations and underlying assumptions, including
considering current market trends and conditions, and changes from previous
quarters. The Board will also consider whether circumstances at specific
investment properties, such as alternative uses and issues with occupational
tenants, are appropriately reflected in the valuations. The fair value of
investment properties is measured based on each property's highest and best
use from a market participant's perspective and considers the potential uses
of the property that are physically possible, legally permissible and
financially feasible.
As at 31 March 2024 and 31 March 2023, all of the Group's properties,
including owner-occupied property, are Level 3 in the fair value hierarchy as
it involves use of significant judgement. There were no transfers between
levels during the year and the prior year. Level 3 inputs used in valuing the
properties are those which are unobservable, as opposed to Level 1 (inputs
from quoted prices) and Level 2 (observable inputs either directly, i.e. as
prices, or indirectly, as derived from prices).
Information on these significant unobservable inputs per sector of investment
properties is disclosed as follows:
2024 2023
Office Industrial Retail and Leisure Office Industrial Retail and Leisure
Appraised value (£000) 224,885 439,945 79,810 245,260 439,570 81,405
Area (sq ft, 000s) 874 3,240 692 877 3,240 692
Range of unobservable inputs:
Gross ERV (sq ft per annum)
- range £6.00 to £87.81 £3.79 to £27.95 £3.35 to £21.53 £11.00 to £84.12 £3.30 to £27.83 £3.23 to £26.05
- weighted average £38.26 £13.37 £11.63 £35.33 £13.16 £11.66
Net initial yield
- range -4.85% to 10.73% 2.30% to 7.75% 6.80% to 42.40% -0.68% to 11.65% 2.28% to 7.75% 3.51% to 30.85%
- weighted average 5.22% 4.63% 9.17% 5.32% 4.30% 8.56%
Reversionary yield
- range 5.09% to 15.01% 4.82% to 8.05% 7.00% to 12.72% 4.76% to 13.55% 4.83% to 8.17% 6.87% to 12.18%
- weighted average 8.81% 5.86% 8.20% 7.87% 5.78% 7.98%
True equivalent yield
- range 4.85% to 10.83% 4.75% to 8.00% 7.25% to 12.25% 4.57% to 10.38% 4.75% to 7.98% 7.00% to 12.17%
- weighted average 7.75% 5.66% 8.29% 7.23% 5.51% 8.11%
An increase/decrease in ERV will increase/decrease valuations, while an
increase/decrease to yield decreases/increases valuations. We have reviewed
the ranges used in assessing the impact of changes in unobservable inputs on
the fair value of the Group's property portfolio and concluded these were
still reasonable. The table below sets out the sensitivity of the valuation to
changes of 50 basis points in yield.
Sector Movement 2024 Impact on valuation 2023 Impact on valuation
Industrial Increase of 50 basis points Decrease of £35.7m Decrease of £36.7m
Decrease of 50 basis points Increase of £43.1m Increase of £44.5m
Office Increase of 50 basis points Decrease of £14.6m Decrease of £16.1m
Decrease of 50 basis points Increase of £16.5m Increase of £18.0m
Retail and Leisure Increase of 50 basis points Decrease of £4.3m Decrease of £4.5m
Decrease of 50 basis points Increase of £4.9m Increase of £5.1m
14. Property, plant and equipment
Property, plant and equipment principally comprises the fair value of
owner-occupied property. The fair value of these premises is based on the
appraised value at 31 March 2024.
Owner Occupied Property £000 Plant and equipment £000 Total
£000
At 1 April 2022 4,168 215 4,383
Additions - 13 13
Depreciation (104) (61) (165)
Revaluation (816) - (816)
At 31 March 2023 3,248 167 3,415
Additions - 4 4
Depreciation (80) (63) (143)
Revaluation 223 - 223
At 31 March 2024 3,391 108 3,499
15. Accounts receivable
2024 2023
£000 £000
Tenant debtors (net of provisions for bad debts) 5,279 2,855
Lease incentives 19,252 18,726
Other debtors 2,070 1,168
26,601 22,749
The estimated fair values of receivables are the discounted amount of the
estimated future cash flows expected to be received and the approximate value
of their carrying amounts.
Amounts are considered impaired using the lifetime expected credit loss
method. Movement in the balance considered to be impaired has been included in
the Consolidated Statement of Comprehensive Income. As at 31 March 2024,
tenant debtors of £193,000 (2023: £92,000) were considered impaired and
provided for.
16. Cash and cash equivalents
2024 2023
£000 £000
Cash at bank and in hand 19,747 20,045
Short-term deposits 26 5
19,773 20,050
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are made for varying periods of between one
day and one month depending on the immediate cash requirements of the Group
and earn interest at the respective short-term deposit rates. The carrying
amounts of these assets approximate to their fair value.
17. Accounts payable and accruals
2024 2023
£000 £000
Accruals 4,839 4,712
Deferred rental income 7,963 8,654
VAT liability 1,899 1,782
Trade creditors 631 515
Other creditors 5,290 3,808
20,622 19,471
18. Loans and borrowings
Maturity 2024 2023
£000 £000
Current
Aviva facility - 1,497 1,433
Capitalised finance costs - (303) (304)
1,194 1,129
Non-current
Canada Life facility 24 July 2031 129,045 129,045
Aviva facility 24 July 2032 80,591 82,089
NatWest revolving credit facility 26 May 2025 16,400 11,900
Capitalised finance costs - (1,096) (1,399)
224,940 221,635
226,134 222,764
The following table provides a reconciliation of the movement in loans and
borrowings to cash flows arising from financing activities.
2024 2023
£000 £000
Balance at start of year 222,764 216,832
Changes from financing cash flows
Proceeds from loans and borrowings 4,500 12,000
Repayment of loans and borrowings (1,433) (6,368)
Financing costs paid - (183)
3,067 5,449
Other changes
Amortisation of financing costs 303 304
Change in accrued financing costs - 179
303 483
Balance as at 31 March 226,134 222,764
The Group has a £129.0 million loan facility with Canada Life which matures
in July 2031. Interest is fixed at 3.25% per annum over the remaining life of
the loan. The loan agreement has a loan to value covenant of 65% and an
interest cover test of 1.75. The loan is secured over the Group's properties
held by Picton No 2 Limited Partnership and Picton UK Real Estate Trust
(Property) No 2 Limited, valued at £348.1 million (2023: £353.2 million).
Additionally, the Group has a £95.3 million term loan facility with Aviva
Commercial Finance Limited which matures in July 2032. The loan is for a term
of 20 years and was fully drawn on 24 July 2012 with approximately one-third
repayable over the life of the loan in accordance with a scheduled
amortisation profile. The Group has repaid £1.4 million in the year (2023:
£1.4 million). Interest on the loan is fixed at 4.38% per annum over the life
of the loan. The facility has a loan to value covenant of 65% and a debt
service cover ratio of 1.4. The facility is secured over the Group's
properties held by Picton No 3 Limited Partnership and Picton Property No 3
Limited, valued at £184.3 million (2023: £193.6 million).
The Group also has a £50.0 million revolving credit facility (RCF) with
National Westminster Bank Plc which matures in May 2025. As at 31 March there
was £16.4 million drawn under the facility, interest is charged at 150 basis
points over SONIA on drawn balances and there is an undrawn commitment fee of
60 basis points. The facility is secured on properties held by Picton UK Real
Estate Trust (Property) Limited, valued at £138.7 million (2023: £143.4
million).
The fair value of the drawn loan facilities at 31 March 2024, estimated as the
present value of future cash flows discounted at the market rate of interest
at that date, was £202.8 million (2023: £201.7 million). The fair value of
the drawn loan facilities is classified as Level 2 under the hierarchy of fair
value measurements.
There were no transfers between levels of the fair value hierarchy during the
current or prior years.
The weighted average interest rate on the Group's borrowings as at 31 March
2024 was 3.9% (2023: 3.8%).
19. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of eight properties
with commitments outstanding at 31 March 2024 of approximately £4.2 million
(2023: £2.9 million). No further obligations to construct or develop
investment property or for repairs, maintenance or enhancements were in place
as at 31 March 2024 (2023: £nil).
20. Share capital and other reserves
2024 2023
£000 £000
Authorised:
Unlimited number of ordinary shares of no par value - -
Issued and fully paid:
547,605,596 ordinary shares of no par value (31 March 2023: 547,605,596) - -
Share premium 164,400 164,400
The Company has 547,605,596 ordinary shares in issue of no par value (2023:
547,605,596).
No new ordinary shares were issued during the year ended 31 March 2024.
2024 2023
Number of shares Number of shares
Ordinary share capital 547,605,596 547,605,596
Number of shares held in Employee Benefit Trust (1,642,440) (2,388,694)
Number of ordinary shares 545,963,156 545,216,902
The fair value of awards made under the Long-term Incentive Plan is recognised
in other reserves.
Subject to the solvency test contained in the Companies (Guernsey) Law, 2008
being satisfied, ordinary shareholders are entitled to all dividends declared
by the Company and to all of the Company's assets after repayment of its
borrowings and ordinary creditors. The Trustee of the Company's Employee
Benefit Trust has waived its right to receive dividends on the 1,642,440
shares it holds but continues to hold the right to vote. Ordinary shareholders
have the right to vote at meetings of the Company. All ordinary shares carry
equal voting rights.
The Directors have authority to buy back up to 14.99% of the Company's
ordinary shares in issue, subject to the annual renewal of the authority from
shareholders. Any buy-back of ordinary shares will be made subject to Guernsey
law, and the making and timing of any buy-backs will be at the absolute
discretion of the Board.
21. Adjustment for non-cash movements in the cash flow statement
2024 2023
£000 £000
Movement in investment property valuation 26,757 110,433
Revaluation of owner-occupied property (223) 382
Share-based provisions 729 675
Depreciation of tangible assets 143 165
27,406 111,655
22. Obligations under leases
The Group has entered into a number of head leases in relation to its
investment properties. These leases are for fixed terms and subject to regular
rent reviews. They contain no material provisions for contingent rents,
renewal or purchase options nor any restrictions outside of the normal lease
terms.
Lease liabilities in respect of rents on leasehold properties were payable as
follows:
2024 2023
£000 £000
Future minimum payments due:
Within one year 185 185
In the second to fifth years inclusive 740 740
After five years 8,712 8,898
9,637 9,823
Less: finance charges allocated to future periods (6,952) (7,126)
Present value of minimum lease payments 2,685 2,697
The present value of minimum lease payments is analysed as follows:
2024 2023
£000 £000
Current
Within one year 114 114
114 114
Non-current
In the second to fifth years inclusive 409 405
After five years 2,162 2,178
2,571 2,583
2,685 2,697
Operating leases where the Group is lessor
The Group leases its investment properties under commercial property leases
which are held as operating leases.
At the reporting date, the Group's future income based on the unexpired lease
length was as follows (based on annual rentals):
2024 2023
£000 £000
Within one year 43,818 43,824
One to two years 38,530 39,548
Two to three years 33,085 34,806
Three to four years 28,687 29,506
Four to five years 24,411 25,454
After five years 98,539 105,675
267,070 278,813
These properties are measured under the fair value model as the properties are
held to earn rentals. Commercial property leases typically have lease terms
between five and ten years and include clauses to enable periodic upward
revision of the rental charge according to prevailing market conditions. Some
leases contain options to break before the end of the lease term.
23. Net asset value
The net asset value per share calculation uses the number of shares in issue
at the year-end and excludes the actual number of shares held by the Employee
Benefit Trust at the year-end; see Note 20.
24. Financial instruments
The Group's financial instruments comprise cash and cash equivalents, accounts
receivable, secured loans, obligations under head leases and accounts payable
that arise from its operations. The Group does not have exposure to any
derivative financial instruments. Apart from the secured loans, as disclosed
in Note 18, the fair value of the financial assets and liabilities is not
materially different from their carrying value in the financial statements.
Categories of financial instruments
31 March 2024 Notes Held at Financial assets and liabilities at amortised cost Total
fair value through profit or loss £000 £000
£000
Financial assets
Debtors 15 - 7,349 7,349
Cash and cash equivalents 16 - 19,773 19,773
- 27,122 27,122
Financial liabilities
Loans and borrowings 18 - 226,134 226,134
Obligations under head leases 22 - 2,685 2,685
Creditors and accruals 17 - 10,760 10,760
- 239,579 239,579
31 March 2023 Notes Held at Financial assets and liabilities at amortised cost Total
fair value through profit or loss £000 £000
£000
Financial assets
Debtors 15 - 4,023 4,023
Cash and cash equivalents 16 - 20,050 20,050
- 24,073 24,073
Financial liabilities
Loans and borrowings 18 - 222,764 222,764
Obligations under head leases 22 - 2,697 2,697
Creditors and accruals 17 - 9,035 9,035
- 234,496 234,496
25. Risk management
The Group invests in commercial properties in the United Kingdom. The
following describes the risks involved and the risk management framework
applied by the Group. Senior management reports regularly both verbally and
formally to the Board, and its relevant Committees, to allow them to monitor
and review all the risks noted below.
Capital risk management
The Group aims to manage its capital to ensure that the entities in the Group
will be able to continue as a going concern while maximising the return to
stakeholders through optimising its capital structure. The Board's policy is
to maintain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain the future development of the business.
The capital structure of the Group consists of debt, as disclosed in Note 18,
cash and cash equivalents and equity attributable to equity holders of the
Company, comprising issued share capital, reserves, retained earnings and
revaluation reserve. The Group is not subject to any external capital
requirements.
The Group monitors capital primarily on the basis of its gearing ratio. This
ratio is calculated as the principal borrowings outstanding, as detailed under
Note 18, divided by the gross assets. There is a limit of 65% as set out in
the Articles of Association of the Company. Gross assets are calculated as
non-current and current assets, as shown in the Consolidated Balance Sheet.
At the reporting date the gearing ratios were as follows:
2024 2023
£000 £000
Total borrowings 227,533 224,467
Gross assets 773,916 792,556
Gearing ratio (must not exceed 65%) 29.4% 28.3%
The Board of Directors monitors the return on capital as well as the level of
dividends to ordinary shareholders. The Group has managed its financing risk
by entering into long-term loan arrangements with different maturities, which
will enable the Group to manage its borrowings in an orderly manner over the
long-term. The Group also has a revolving credit facility which provides
greater flexibility in managing the level of borrowings.
The Group's net debt to equity ratio at the reporting date was as follows:
2024 2023
£000 £000
Total liabilities 249,441 244,932
Less: cash and cash equivalents (19,773) (20,050)
Net debt 229,668 224,882
Total equity 524,475 547,624
Net debt to equity ratio at end of year 0.44 0.41
Credit risk
The following tables detail the balances held at the reporting date that may
be affected by credit risk:
31 March 2024 Notes Held at Financial assets and liabilities at amortised cost Total
fair value through profit
or loss £000 £000
£000
Financial assets
Tenant debtors 15 - 5,279 5,279
Cash and cash equivalents 16 - 19,773 19,773
- 25,052 25,052
31 March 2023 Notes Held at Financial assets and liabilities at amortised cost Total
fair value through profit £000 £000
or loss
£000
Financial assets
Tenant debtors 15 - 2,855 2,855
Cash and cash equivalents 16 - 20,050 20,050
- 22,905 22,905
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group
has adopted a policy of only dealing with creditworthy counterparties and
obtaining collateral where appropriate, as a means of mitigating the risk of
financial loss from defaults.
Tenant debtors consist of a large number of occupiers, spread across diverse
industries and geographical areas. Ongoing credit evaluations are performed on
the financial condition of tenant debtors and, where appropriate, credit
guarantees or rent deposits are acquired. As at 31 March 2024, tenant rent
deposits held by the Group's managing agents in segregated bank accounts
totalled £2.5 million (2023: £2.6 million). The Group does not have access
to these rent deposits unless the occupier defaults under its lease
obligations. Rent collection is outsourced to managing agents who report
regularly on payment performance and provide the Group with intelligence on
the continuing financial viability of occupiers. The Group does not have any
significant concentration risk whether in terms of credit risk exposure to any
single counterparty or any group of counterparties having similar
characteristics. The credit risk on liquid funds is limited because the
counterparties are banks with strong credit ratings assigned by international
credit rating agencies.
The carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents the Group's maximum exposure to
credit risk. The Board continues to monitor the Group's overall exposure to
credit risk.
The Group has a panel of banks with which it makes deposits, based on credit
ratings assigned by international credit rating agencies and with set
counterparty limits that are reviewed regularly. The Group's main cash
balances are held with National Westminster Bank Plc (NatWest), Nationwide
International Limited (Nationwide), Santander plc (Santander) and Lloyds Bank
Plc (Lloyds). Insolvency or resolution of the bank holding cash balances may
cause the Group's recovery of cash held by them to be delayed or limited. The
Group manages its risk by monitoring the credit quality of its bankers on an
ongoing basis. NatWest, Nationwide, Santander and Lloyds are rated by all the
major rating agencies. If the credit quality of any of these banks were to
deteriorate, the Group would look to move the relevant short-term deposits or
cash to another bank. Procedures exist to ensure that cash balances are split
between banks to reduce overall exposure to credit risk. At 31 March 2024 and
at 31 March 2023, Standard & Poor's short-term credit rating for each of
the Group's bankers was A-1.
There has been no change in the fair values of cash or receivables as a result
of changes in credit risk in the current or prior periods, due to the actions
taken to mitigate this risk, as stated above.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board,
which has put in place an appropriate liquidity risk management framework for
the management of the Group's short, medium and long-term funding and
liquidity management requirements. The Group's liquidity risk is managed on an
ongoing basis by senior management and monitored on a quarterly basis by the
Board by maintaining adequate reserves and loan facilities, continuously
monitoring forecasts, loan maturity profiles and actual cash flows and
matching the maturity profiles of financial assets and liabilities for a
period of at least 12 months.
The table below has been drawn up based on the undiscounted contractual
maturities of the financial assets/(liabilities), including interest that will
accrue to maturity.
31 March 2024 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Cash and cash equivalents 20,366 - - 20,366
Debtors 7,349 - - 7,349
Obligations under head leases (185) (740) (8,712) (9,637)
Fixed interest rate loans (9,262) (37,049) (224,367) (270,678)
Floating interest rate loans (1,117) (16,571) - (17,688)
Creditors and accruals (10,760) - - (10,760)
6,391 (54,360) (233,079) (281,048)
31 March 2023 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Cash and cash equivalents 20,652 - - 20,652
Debtors 4,023 - - 4,023
Obligations under head leases (185) (740) (8,898) (9,823)
Fixed interest rate loans (9,262) (37,049) (233,629) (279,940)
Floating interest rate loans (690) (12,696) - (13,386)
Creditors and accruals (9,035) - - (9,035)
5,503 (50,485) (242,527) (287,509)
The Group expects to meet its financial liabilities through the various
available liquidity sources, including a secure rental income profile, asset
sales, undrawn committed borrowing facilities and, in the longer-term, debt
refinancing.
Market risk
The Group's activities are primarily within the real estate market, exposing
it to very specific industry risks.
The yields available from investments in real estate depend primarily on the
amount of revenue earned and capital appreciation generated by the relevant
properties, as well as expenses incurred. If properties do not generate
sufficient revenues to meet operating expenses, including debt service costs
and capital expenditure, the Group's operating performance will be adversely
affected.
Revenue from properties may be adversely affected by the general economic
climate, local conditions such as oversupply of properties or a reduction in
demand for properties in the market in which the Group operates, the
attractiveness of the properties to occupiers, the quality of the management,
competition from other available properties and increased operating costs.
In addition, the Group's revenue would be adversely affected if a significant
number of occupiers were unable to pay rent or its properties could not be
rented on favourable terms. Certain significant expenditure associated with
investment in real estate (such as external financing costs and maintenance
costs) is generally not reduced when circumstances cause a reduction in
revenue from properties. By diversifying in regions, sectors, risk categories
and occupiers, senior management expects to mitigate the risk profile of the
portfolio effectively. The Board continues to oversee the profile of the
portfolio to ensure these risks are managed.
The valuation of the Group's property assets is subject to changes in market
conditions. Such changes are taken to the Consolidated Statement of
Comprehensive Income and thus impact on the Group's net result. A 5% increase
or decrease in property values would increase or decrease the Group's net
result by £37.2 million (2023: £38.3 million).
Interest rate risk management
Interest rate risk arises on interest payable on the revolving credit facility
only. The Group's senior debt facilities have fixed interest rates over the
terms of the loans. The amount drawn under the revolving credit facility makes
up a small proportion of the overall debt; the Group therefore has limited
exposure to interest rate risk on its borrowings and no sensitivity is
presented. The Group manages its interest rate risk by entering into long-term
fixed rate debt facilities.
Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group's
financial assets/(liabilities).
31 March 2024 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Floating
Cash and cash equivalents 19,773 - - 19,773
Secured loan facilities - (16,400) - (16,400)
Fixed
Secured loan facilities (1,497) (6,686) (202,950) (211,133)
Obligations under leases (114) (409) (2,162) (2,685)
18,162 (23,495) (205,112) (210,445)
31 March 2023 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Floating
Cash and cash equivalents 20,050 - - 20,050
Secured loan facilities - (11,900) - (11,900)
Fixed
Secured loan facilities (1,433) (6,401) (204,733) (212,567)
Obligations under leases (114) (405) (2,178) (2,697)
18,503 (18,706) (206,911) (207,114)
Concentration risk
As discussed above, all of the Group's investments are in the UK and therefore
the Group is exposed to macroeconomic changes in the UK economy. Furthermore,
the Group derives its rental income from around 400 occupiers, although the
largest occupier accounts for only 3.6% of the Group's annual contracted
rental income.
Currency risk
The Group has no exposure to foreign currency risk.
26. Related party transactions
The total fees earned during the year by the Non-Executive Directors of the
Company amounted to £287,000 (2023: £275,000). As at 31 March 2024, the
Group owed £nil to the Non-Executive Directors (2023: £nil).
The remuneration of the Executive Directors is set out in Note 7 and in the
Annual Remuneration Report.
Picton Property Income Limited has no controlling parties.
27. Events after the Balance Sheet date
The sale of Angel Gate, London EC1 completed on 16 April 2024 for
£29,600,000.
The £16,400,000 drawn under the revolving credit facility with National
Westminster Bank Plc was repaid in full on 18 April 2024.
A dividend of £5,050,000 (0.925 pence per share) was approved by the Board on
30 April 2024 and will be paid on 31 May 2024.
END
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