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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Picton Property Income Limited | AQSE:PCTN.GB | Aquis Stock Exchange | Ordinary Share | GB00B0LCW208 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 64.30 | 57.70 | 70.90 | 64.30 | 64.30 | 64.30 | 0.00 | 06:55:37 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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FilesContent.IE5LWA95F47Picton Logos-02.png]25 May 2023
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 2023.
Chair, Lena Wilson CBE, commented:
"Despite the challenges of inflation and higher interest rates, we have
maintained both our EPRA earnings and our long-term track record of
outperformance. We are continuing to upgrade and adapt our assets, ensuring they
remain relevant and attractive to our occupiers, providing income
sustainability.
As a business, we are in a resilient position. We have a strong capital
structure with attractive long-term fixed rate debt. Our portfolio offers
significant income upside, and we are already starting to see stability in asset
values."
Michael Morris, Chief Executive of Picton, commented:
"For the tenth consecutive year we have outperformed the MSCI UK Quarterly
Property Index and our long-term track record shows upper quartile performance
since launch in 2005. We remain focused on our portfolio performance,
operational excellence and acting responsibly, and have strengthened our team
accordingly.
One of the key advantages of having a diversified approach and a team with a
proven track record of managing assets across sectors through several iterations
of the investment cycle, is that we can draw on this experience during more
challenging markets. This year, we have made significant progress, delivering
rental growth and exploring and securing more valuable alternative uses at
selected office assets. We have remained focused on sustainability, with further
progress on our net zero pathway.
After a sharp and significant pricing correction in the property market in 2022,
valuations appear to be stabilising, supported by resilience in the occupational
markets. We will continue to explore opportunities to maximise earnings, whether
at an asset level by capturing reversionary potential with our occupier focused
approach or through growth and the economies of scale that our internally
managed structure can deliver."
Financial performance
- Stable EPRA earnings of £21 million
- Net assets of £548 million, or 100p per share
- Dividends paid of £19 million, 4% higher than preceding year
- Dividend cover of 112%
Defensive capital structure
- Loan to value of 27%
- Weighted average interest rate of 3.8%
- 95% of drawn borrowings fixed with 2031/32 maturities
- EPRA NDV £23 million higher than net assets, reflecting fair value of debt
- £38 million undrawn debt facilities
Resilient operational performance
- Outperforming property portfolio relative to MSCI UK Quarterly Property
Index
- Like-for-like increase in passing rent of 10% and 3% in contracted rent
- Like-for-like estimated rental value increase of 9%
- Capturing rental growth through:
- 39 lettings, 25% ahead of March 2022 ERV
- 37 lease renewals or regears, 6% ahead of March 2022 ERV
- 20 rent reviews, 7% ahead of March 2022 ERV
- Rent collection over 99% for the year
- Occupancy of 91%
- Three separate acquisitions totalling £21 million
Increased investment with sustainability focus
- £6 million invested into upgrading over 15 assets
- Net zero carbon pathway progress, including installation of solar arrays
- 100% compliance with 2023 EPC minimum standards
- Improved EPC profile with 76% of portfolio rated A-C
- Scope 1 and 2 emissions reduced by 24% compared to 2019 baseline
31 March 2023 31 March 2022 31 March 2021
Property valuation £766m £849m £682m
Net assets £548m £657m £528m
EPRA NTA per share 100p 120p 97p
Year ended Year ended Year ended
31 March 2023 31 March 2022 31 March 2021
(Loss)/profit for the year £(90.0)m £147.4m £33.8m
EPRA earnings £21.3m £21.2m £20.1m
Earnings per share (16.5)p 27.0p 6.2p
EPRA earnings per share 3.9p 3.9p 3.7p
Total return (13.9)% 28.3% 6.6%
Total shareholder return (26.4)% 18.7% 0.0%
Total dividend per share 3.5p 3.4p 2.8p
Dividend cover 112% 115% 134%
This announcement contains inside information.
For further information:
Tavistock
James Verstringhe, 020 7920 3150, james.verstringhe@tavistock.co.uk
Picton
Michael Morris, 020 7011 9980, michael.morris@picton.co.uk
Note to Editors
Picton, established in 2005, is a UK REIT. It owns and actively manages a £766
million diversified UK commercial property portfolio, invested across 49 assets
and with around 400 occupiers (as at 31 March 2023). Through an occupier
focused, opportunity led approach to asset management, Picton aims to be one of
the consistently best performing diversified UK focused property companies
listed on the main market of the London Stock Exchange.
For more information please visit: www.picton.co.uk
Chief Executive's Review
Resilient business performance
Against a challenging economic backdrop, we have been able to grow income
through our proactive approach to asset management and have successfully
continued our long-term track record of outperformance.
Following our record profit delivered a year ago, this period has been defined
by a significant change in macroeconomic conditions evidenced by rising interest
rates, inflationary pressures and lower economic growth.
Driven in part by rising food and energy costs, a consequence of the disruption
caused by the war in Ukraine, UK inflation has been over 10% and in response
base rates have quadrupled since this time last year. Asset pricing has been
adversely impacted and commercial real estate has been no exception.
In October 2022, the MSCI Monthly Index recorded the worst month of capital
decline on record and a 21% decline in values between July 2022 and February
2023. After eight months and a much sharper pricing correction than during the
global financial crisis in 2008, markets finally appear to have stabilised, and
positive overall monthly movements were recorded in the Index in March and April
2023.
In these conditions we have continued to focus on what we can control,
undertaking nearly 40% more asset management activity than last year. This has
enabled us to grow rental income and the overall rental value of the portfolio.
With the majority of our debt being fixed, we are insulated from rising
financing costs and have been able to report EPRA earnings of £21.3 million,
marginally ahead of last year. During the year, we paid dividends of £19.1
million, 4% higher than the preceding year with strong dividend cover of 112%.
Performance
Our net assets are £548 million or 100 pence per share, a 16.6% reduction from a
year ago, principally driven by the revaluation of our property portfolio. Our
accounting total return was -13.9% in the year to 31 March 2023.
Our total shareholder return, reflecting share price movement and dividends
paid, was -26.4%. As markets have adjusted to a higher interest rate environment
so too have share prices of UK REITs and discounts have widened in the sector.
However, it is encouraging to see that these discounts have narrowed more
recently as reported asset values have stabilised.
Outperforming property portfolio
For the tenth consecutive year we have outperformed the MSCI UK Quarterly
Property Index. We have now delivered upper quartile returns over three, five,
ten years and since inception in 2005 and we are ranked fifth out of 141
portfolios over the last ten years.
At a portfolio level, we delivered a total property return of -8.7% which
reflects this marked change in the macroeconomic outlook. Asset management
activity drove rental growth and helped offset some of the impact of rising
yields.
Growing occupancy and income
We have seen a resilient occupational market, particularly in the industrial
sector, and we have been able to increase income and rental growth through asset
management and acquisition activity, leading to a 3% increase in contracted
rent, a 10% increase in passing rent and a 9% increase in estimated rental
value, all on a like-for-like basis. Although we have been able to grow net
income there has also been a rise in property costs, primarily driven by void
costs, including service charges, business rates and security.
Growing occupancy is a priority as the portfolio has significant upside income
potential with more than £5.3 million of additional rent available from current
vacancies. With the majority of our vacancy in the office sector, we are
pursuing change of use strategies at a number of office assets to include
residential, student and other uses to help to reduce this void.
Concerns over the health of the UK economy and political uncertainty have led to
a more cautious approach from businesses taking new space during the year.
Occupancy at 31 March 2023 was 91%, lower than the previous year but up from a
low of 90% at September 2022.
Enhancing asset quality
We have invested £6 million into the portfolio this year, across over 15
separate projects. This is partly a reflection of the current occupancy position
but also reflects further upgrading of our assets from a sustainability
perspective.
We are now reviewing on a project-by-project basis whether it is appropriate to
install renewable energy, primarily in the form of solar panels on
refurbishments. Three projects on industrial assets have already recently
completed and whilst these incur additional costs, in due course they will generate a modest supplementary revenue stream, alongside rental income. Operational excellence There is significant work required to upgrade our assets as we seek to reduce emissions from the portfolio and progress on our net zero pathway. This year we have expanded the team and brought in a dedicated Head of Building Surveying to oversee the increasing number of refurbishment projects that we are undertaking. They are now training to become an in-house EPC assessor, which will enable us to better understand and improve our assets. We have decided during the year to bring our company secretarial arrangements in house and have recently appointed a dedicated resource here in London. We will be transitioning these arrangements in the coming months, following this year's Annual General Meeting. We have received positive feedback from recent occupier engagement surveys across our office and industrial assets and have started to roll out occupier apps at a number of our multi-let office assets to improve engagement. Rent collection for the year stood at over 99%. Capital structure We are well placed in terms of our debt structure, with over 95% of borrowing fixed until 2031/32. Our weighted average interest rate is 3.8% per annum, well below current market rates and as our longer-term facilities are fixed directly with our lenders, there is no mark-to-market pricing of our debt in our reported net asset value. This is reflected in our EPRA NDV being £23 million higher than our net asset value. Our loan to value ratio at the year-end was 27% and we have significant headroom against lending covenants on all our facilities. In the current environment, in common with the wider real estate market, and with the share price trading at a discount to net asset value, it has not been possible to raise new equity. Growth Our internalised management model means that our costs are not linked to net asset value, so there is significant potential for earnings accretion that can be delivered through growth. As discounts across the sector persist, the case for consolidation and the creation of larger diversified REITs remains compelling. We continue to believe that the combination of cost savings and earnings growth through economies of scale alongside greater relevance to an investor audience would be well received and there is already evidence of this being the case. We have proactively considered opportunities during the year and we will continue to be an advocate for consolidation where it is beneficial to our shareholders. At a portfolio level we made three acquisitions totalling £21 million during the year. The two principal acquisitions were both mixed-use assets with retail/leisure at the ground floor and offices above. One is fully leased and at the other we have applied for planning consent for residential conversion in respect of some of the vacant space. Acting responsibly As part of our further commitment to integrate sustainability into the business this year, we have included our sustainability reporting within our annual report rather than producing a separate report. The team is increasing its efforts to ensure our assets are relevant and in demand in a net zero future. This year we have set up a Climate Action Working Group covering all areas of the business, ensuring that there is a cohesive approach to our net zero commitments, mitigating the risks of climate change and adapting our portfolio to reduce emissions. Specifically, we have been able to reduce our Scope 1 and 2 emissions by 24% compared to our 2019 baseline year. We have improved the overall EPC ratings of our assets, with 100% of the units within the portfolio being compliant with 2023 EPC minimum standards and 76% by rental value have an EPC rating A-C. We have started to incorporate on-site renewable energy across larger refurbishments and provide greater engagement with occupiers on this issue, further embedding sustainability into our day-to-day activities. Although progress is encouraging, we recognise that we must continue to maintain our focus to meet our 2040 net zero commitment. Outlook Despite macroeconomic conditions, the economy and indeed occupier markets have remained resilient. Equally, the interest rate environment, both in terms of short-term rates and longer-term gilt yields, needs to stabilise and be more supportive, which may be possible when inflationary pressures start to subside. As we have seen this year, whilst occupational demand and tight supply have increased rents in some markets, rising costs have also impacted construction. This, combined with rising yields in the last few months, has started to impact development viability and is likely to be a constraint on supply and support rental levels. Our predominately fixed rate debt with a long maturity profile will provide earnings stability during this more challenging period. Our key focus remains on growing net income further and gaining efficiencies through growth. Michael Morris Chief Executive 24 May 2023 Our Marketplace Signs of economic stability Economic backdrop After a tumultuous year, there are signs that the economic backdrop is beginning to stabilise. Geopolitical tension, the war in Ukraine, rising inflation, the cost of living crisis and the fall-out from the political events and Autumn mini-budget caused unprecedented volatility, high levels of market stress and economic headwinds. Following the end of the pandemic and the war in Ukraine's impact on energy and commodity prices and supply chains, CPI inflation rose to a peak of 11.1% in October 2022. As a shock reaction to the Autumn mini-budget, ten-year Government bond yields increased by approximately 200 basis points in a month to reach 4.5% in late September and the value of sterling fell to historic lows. The Bank of England's response was a series of interest rate hikes, with the base rate rising from 1.75% in August 2022 to 4.5% in May 2023. The ramifications of the increased cost of debt and rise in the risk-free rate have been multifaceted, from the impact on pensions, investment markets and property yields, to house prices, retail sales and consumer and business confidence. Households have been impacted by the cost of living crisis, soaring fuel and energy bills, lower real incomes and rising debt and mortgage costs. Retail sales volumes did rise by 0.6% in the three months to March 2023, however this is the first rolling three-month increase since August 2021. It is hoped that increased post-pandemic tourism will go some way to compensate for weak domestic consumer demand in 2023. The Consumer Price Index (CPI) rose by 8.7% in the 12 months to April 2023. This is the first month that consumer price inflation has been below 10% since August 2022. As inflationary pressures start to reduce, households are expected to increase spending power, helping to drive the economic recovery. In terms of business confidence, the S&P Global/CIPS UK Composite PMI saw the longest period of decline since the Global Financial Crisis of 2007/08, experiencing six consecutive months of contraction to January 2023. This is due largely to the elevated cost of materials and labour putting pressure on profit margins, and higher financing costs hampering expansion plans. A sharp rebound began in February, and the latest data for April shows the Composite PMI was 54.9. Although job vacancies have declined from their recent peak, at 1.08 million, they remain elevated. The strong labour market has driven up average pay; however, in real terms, wages are not keeping up with inflation. At 3.9%, unemployment is very low by historic standards, having risen only slightly from a 50-year low of 3.5% in August 2022. The economic backdrop is now showing positive signs of stabilisation and even recovery. GDP growth has surprised on the upside, with the UK narrowly avoiding a recession in 2022. UK GDP is estimated to have increased 0.1% in the three months to March 2023. Inflation has been more stubborn than expected, owing largely to persistent growth in food prices. There have been improvements in supply driven inflation, as some of the production difficulties and supply chain issues faced by businesses have started to ease, leading to a fall in the price of imported goods. In addition, higher interest rates and the fall in households' disposable incomes have dampened demand driven inflation and fuel prices have fallen significantly. Interest rate expectations have moderated compared to what was predicted in late 2022. Reduced uncertainty and falling inflation have allowed bond yields to stabilise, with ten-year Government bonds now at around 4%. UK property market Due to the sharp rise in the risk-free rate and cost of debt, the MSCI UK Quarterly Property Index All Property equivalent yield moved out by 85 basis points in the three months to December 2022. MSCI reported capital growth of -12.6% for this period, the fastest quarterly correction since December 2008 at the height of the Global Financial Crisis. The situation appears to now be stabilising and the three months to March 2023 saw capital growth of -1.0%. Looking at the year to March 2023, the MSCI UK Quarterly Property Index reported an All Property total return of -12.6%, comprising -16.1% capital growth and 4.1% income return. This is in sharp contrast to the previous year; the total return for the 12 months to March 2022 was 19.5%. Despite the tribulations of the investment market, the occupier market saw a more encouraging performance, and All Property ERV growth for the year to March 2023 was 3.5%. This compares to 3.1% ERV growth for the year to March 2022. Following an extraordinarily strong year of capital growth to March 2022, the low yielding industrial sector was disproportionately affected by the recent
market correction. The MSCI All Industrial total return for the year to March 2023 was -20.4%, comprising capital growth of -23.2% and income return of 3.6%. Capital growth ranged from -18.7% to -27.1% between sub-sectors. On a more positive note, due to ongoing supply constraints and healthy occupier demand, the industrial sector achieved strong rental growth for the year to March 2023 of 8.6%, ranging from 10.0% to 7.2% between sub-sectors. In addition to the recent rise in yields experienced by all sectors, the office sector is still undergoing a structural change reflecting post-pandemic working patterns and sustainability-related costs. There is a growing trend of polarisation between prime, energy efficient space and secondary office stock and locations. MSCI reported an All Office total return of -12.3% for the year to March 2023, comprising -15.3% capital growth and 3.6% income return. Capital growth ranged from -10.3% to -22.7% between sub-sectors. ERV growth was 1.6%, ranging from 2.8% to 0.6% between sub-sectors. Following a prolonged phase of repricing, the retail sector suffered less of an impact from the recent correction than others. The MSCI All Retail total return for the year to March 2023 was -7.9%, comprising capital growth of -12.7% and income return of 5.4%. Capital growth ranged from -5.6% to -17.8% between sub -sectors. The wave of retailer liquidations and CVAs seems to have abated, and arguably retailers that survived the pandemic years should be better placed to weather the storm of weaker consumer demand owing to the cost of living crisis. Following four years of decline, All Retail ERV growth turned positive at 0.4%, ranging from 4.4% to -2.1% between sub-sectors. According to analysis from Property Data, the total investment volume for the year to March 2023 was £50.6 billion, a 31% decrease on the year to March 2022. The slowdown in investment activity is only evident during the six months to March 2023, which is 58% down on the same period for the previous year. Investors have been waiting for greater stability in the macroenvironment, which has more recently been affected by concerns within the banking sector. The five -year swap rate currently stands at around 4%, placing the cost of debt just below the MSCI All Property equivalent yield. More recent data from the MSCI UK Monthly Property Index shows that property values have begun to stabilise with continued positive capital growth in the industrial and retail sectors in April. Portfolio Review Industrial weighting 57% South East 41% Rest of UK 16% Office weighting 32% Central London 13% Rest of UK 10% South East 9% Retail and Leisure weighting 11% Retail Warehouse 7% High Street Rest of UK 2% Leisure 2% Continued proactive management of our portfolio The year has been characterised by significant active management activity, set against headwinds of repricing and occupier caution driven by a rising interest rate environment. We have continued to actively manage the portfolio, increasing passing rent and estimated rental value (ERV) by working with our occupiers, investing into our assets, and advancing our sustainability priorities. The overall portfolio passing rent is £43.3 million, an increase from the prior year of £4.7 million. On a like-for-like basis this increased by 10% and the contracted rent, which is the gross rent receivable after lease incentives, increased by £1.1 million or 3%. The March 2023 ERV of the portfolio is £55.8 million, a 9% increase on the prior year on a like-for-like basis. We had ERV growth of 18% in the industrial sector proven by new lettings and active management, whilst the office sector was up 2% and the retail and leisure sector reduced by 1%. We have been able to offset some of the valuation re-rating through the completion of over 100 asset management transactions. Inflationary pressures and rising energy costs have impacted all sectors but particularly the office sector, where service charges are highest. Occupational demand remains resilient in the industrial sector and in the retail sector it has stabilised for good quality real estate, with the business rates' revaluation acting to reduce occupational costs. The office sector is still going through a period of transition following the pandemic, with a flight to quality and many occupiers still uncertain about working patterns and operating on a more flexible basis. We are adapting our portfolio and exploring alternative uses as we position our portfolio for the medium-term. Our investment into assets has helped us to retain and secure new occupiers while improving our EPC ratings, with our refurbishment guidelines specifying a minimum B rating for most projects. We continue to be occupier focused and this approach remains key to our active management of the portfolio. This philosophy of working in collaboration with our occupiers is a significant contributor to our long-term track record of outperformance. Portfolio overview Performance Our portfolio comprises 49 assets, with around 400 occupiers, and is valued at £766 million with a net initial yield of 5.0% and a reversionary yield of 6.7%. The average lot size of the portfolio is £15.6 million as at 31 March 2023. Our asset allocation, with 57% in industrial, 32% 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 like-for-like valuation decreased by 12%, after a 21% increase in the prior year. This compares with the MSCI UK Quarterly Property Index recording a capital value decrease of 16% over the period. We believe that the portfolio remains well placed in respect of our overall sector allocations. Where demand is weaker, we are exploring higher value alternative use strategies. Industrial The recent economic turmoil has had a direct impact on property yields. Industrial property is the lowest yielding sector, and these yields have risen to maintain the margin above the risk-free rate. Conversely, occupational demand in the sector remains resilient and we are capturing rental growth. A lack of supply, especially of multi-let estates, coupled with increasing build costs, means that occupiers have restricted choice when looking for a unit, which has driven strong rental growth across the country. On a like-for-like basis, capital values decreased by 14%, or £70.7 million, and some of the significant gains over the past two years have been eroded. The passing rent increased by 13% and the ERV grew by 18%, or £4.1 million, on a like-for-like basis. 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 4.4 years. Two of the units have rent reviews outstanding and we expect to secure significant uplifts. The multi-let estates, of which 89% by value are in the South East, total 2.1 million sq ft and we only have eight vacant units out of 161, with one under offer and four currently undergoing refurbishment. The industrial portfolio currently has £7.6 million of reversionary income potential, with £1.3 million relating to the void units. Office In respect of the office sector, it remains a story of Grade A versus everything else with the latter proving harder to lease. There is now a noticeably widening yield gap aligned to quality and increasing capital expenditure required for ongoing upgrades, including sustainability improvements. The investment into our portfolio over the past few years means most of our buildings are good quality, future-proofed and increasingly sustainable with a focus on health and wellbeing - all of which are attractive attributes to occupiers. Several of our properties have alternative use potential, and we have progressed this on three buildings with existing vacancies, further detailed within the portfolio activity section. On a like-for-like basis, capital values decreased by 10%, or £24.4 million. The passing rent increased by 6% and the ERV grew by 2%, or £0.3 million. The office portfolio currently has £5.6 million of reversionary income potential, with £3.6 million relating to the void units. Retail and Leisure The retail and leisure sector was already high yielding and has therefore been less affected by outward yield movement. The cost of living crisis is predicted to further affect the sector; however, our fully leased retail warehouse parks are underpinned by value led retailers. The retail warehouse assets, which make up 7% of the total portfolio, total 0.4 million sq ft in 19 units across four parks and are fully leased, with a weighted average unexpired lease term of 5.2 years. Our high yielding high street portfolio, which makes up 2% of the total portfolio, is fully leased with the exception of one unit in Carlisle which is under offer. We see opportunities in the sector for prime high street locations off rebased rents. On a like-for-like basis, capital values decreased by 8%, or £7.1 million. The passing rent increased by 9% and the ERV declined by 1%, or £0.1 million. The retail and leisure portfolio has negative reversion of £0.7 million per annum, primarily relating to the over renting of the high street retail assets. Portfolio activity Proactive management It has been a very active year in respect of asset management transactions. We completed: - 39 lettings or agreements to lease, 25% ahead of ERV and securing a new contracted rent of £2.3 million
- 37 lease renewals or regears, 6% ahead of ERV, securing an uplift in
contracted rent of £0.7 million
- 20 rent reviews, 7% ahead of ERV, securing an uplift in passing rent
of £0.7 million
- Three lease variations to remove occupier break options, securing £0.4
million of income
- 11 lease surrenders to facilitate active management
Leasing and occupancy
Occupancy has decreased during the year from 93% to 91% with a total void ERV of
£5.3 million, which compares to the MSCI UK Quarterly Property Index of 92% as
at 31 March 2023.
Our industrial portfolio is 95% leased with demand remaining high across the
country. We have only eight vacant industrial units, four of which are being
refurbished.
The office portfolio occupancy is 83%. Our occupancy has reduced primarily due
to three office properties where we are working through potential changes of use
to residential and student accommodation. Excluding these three properties, the
office occupancy rate would increase to 91%.
During the year our SwiftSpace offering has helped to grow occupancy in smaller
units, with nearly a quarter of lettings by number being SwiftSpace lettings
across four properties.
In terms of retail and leisure, occupancy is 94%. The retail warehouse portfolio
is fully leased, and we have one vacant high street shop, which is under offer.
At Regency Wharf, Birmingham, we have a small office element to lease.
Our largest voids are at:
- Angel Gate, London - accounting for 18% of the total portfolio void.
We are in the process of securing change of use at the property to residential
in respect of vacant units.
- Charlotte Terrace, London - accounting for 12% of the total void. We
recently acquired this property and have submitted a planning application for
change of use of part of the space to residential.
- Longcross, Cardiff - accounting for 9% of the total void. We are
working through options for alternative uses.
Retention
Over the year, total ERV at risk due to lease expiries or break options totalled
£5.5 million, in line with the year to March 2022.
We retained 67% of total ERV at risk in the year to March 2023. Of the ERV that
was not retained, a further 8% or £0.5 million was re-let to new occupiers
during the year.
In addition, a further £3.4 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 £6.1 million into the portfolio across over 15
projects, with the top five projects accounting for 65% of the spend.
These have all been aimed at enhancing space to attract occupiers, improve
sustainability credentials and grow income. All works undertaken are in line
with our refurbishment guidelines, outlining best industry practice, which
includes where appropriate, the removal of natural gas from buildings,
installation of solar panels and insulation upgrades in line with our net zero
carbon pathway.
We are continually focused on future-proofing assets from a sustainability
perspective, which has resulted in an improvement in our EPC ratings with 76% of
our properties (by rental value) now rated C and above.
Investment activity
We acquired two new properties during the year, as well as the acquisition of a
further unit at an existing holding.
109-117 High Street, Cheltenham - £5.3 million
This mixed-use property comprises 7,700 sq ft of ground floor retail space with
11,450 sq ft of office space over two upper floors, and is located in
Cheltenham's pedestrianised town centre, adjacent to John Lewis.
Comprehensively refurbished in 2020, the property has good environmental
credentials including EPC ratings of B on both the office and retail elements
and no natural gas.
On purchase it was leased to four occupiers, with an average lease length of 12
years to expiry and eight years to break. We have since surrendered one of the
retail leases and re-let the unit to a national retailer, securing a ten-year
lease, subject to break.
The current contracted rent is £0.4 million, equating to £21 per sq ft, with
most leases containing fixed rental uplifts that will increase income to £0.5
million per annum by 2026.
The purchase price reflected a net initial yield of 7.2%, rising to 9.0% by
2026. The low capital value of £277 per sq ft is below its estimated replacement
cost.
Charlotte Terrace, Hammersmith Road, W14 - £13.7 million
This mixed-use asset comprises four adjoining buildings, which total 28,500 sq
ft of office space and 4,400 sq ft of retail space, arranged over five floors.
The property was redeveloped behind the façade in 1990 and is Grade II listed,
meaning there are no business rates payable on void units.
The property is located close to Olympia, which is currently undergoing a £1
billion redevelopment to deliver a new creative district, with a new theatre,
entertainment venue, hotel, office, retail and leisure space, which will enhance
the surrounding area.
Since purchase we have leased a retail unit and an office suite. We are in the
process of relocating an office occupier, to secure vacant possession of one of
the office buildings so we can seek a change of use to residential and the
planning application for this has been submitted.
The purchase price reflects a net initial yield of 3.3%, rising to over 8% once
fully let and reflecting a low capital value of £417 per sq ft, which is below
its estimated replacement cost. Residential values in the area are approximately
£1,000 per sq ft.
Unit 7V Madleaze Trading Estate, Gloucester - £0.4 million
We acquired another unit on this industrial estate with vacant possession, and
leased the space to an existing occupier. The acquisition helps to consolidate
our ownership.
In addition, we acquired the freehold of our Rushden distribution asset for nil
consideration, having previously owned a long leasehold interest.
Looking ahead
Outlook
The sharp yield correction in 2022 has caused a repricing of commercial
property, but we are now seeing values stabilise, creating potential
opportunities in some sectors.
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 started to future-proof properties to ensure that they are
attractive to occupiers. Our net zero carbon pathway is in place, and we will
continue to invest in the improvement of our buildings.
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 2023 the portfolio had £12.5 million of reversionary income
potential; £5.3 million from letting the vacant space, £4.2 million from
expiring rent-free periods or stepped rents and £3.0 million where the rent is
below market level. This is significant and is our focus for the coming year.
Demand for our industrial properties continues to be resilient as proven by our
high occupancy and growing ERVs. With this sector accounting for 57% of the
total portfolio by value, we believe it will contribute to our performance off
rebased values that are now stable, with supply constraints and high building
costs likely to lead to further rental growth.
Many of our office buildings have had investment into them in recent years, to
upgrade space, create occupier amenities and improve their sustainability
credentials. Our best-in-class offices are attracting and retaining occupiers;
however, where we do have higher vacancy rates, we are exploring higher value
alternative uses, including residential conversion at two central London
properties. The sector is going through an adjustment, and we will look to
reduce exposure through change of use and selective sales.
The retail and leisure sector has recovered following the pandemic, but there
are still headwinds in respect of an oversupply of floor space and a cost of
living crisis impacting disposable income. By virtue of the marked repricing in
this sector in prior years we believe there are opportunities in the sector for
selective acquisitions.
The portfolio is well placed and of a high quality, enabling us to maintain and
enhance income through our proven occupier focused approach. Looking forward,
our focus is on growing occupancy and improving the overall portfolio quality
through selective disposals, reinvestment and refurbishments to improve the
sustainability credentials of our assets.
Jay Cable
Head of Asset Management
Top ten assets
Site Property Approximate Capital No. of Occupancy EPC
type area (sq ft) value occupiers rate (%) rating
(£m)
Parkbury Industrial 343,700 >100 21 98 A-D
Industrial
Estate,
Radlett
River Way Industrial 454,800 50-75 10 100 A-D
Industrial
Estate,
Harlow
Angel Office 64,600 30-50 16 56 B-E
Gate, City
Road,
London EC1
Stanford Office 20,100 30-50 5 100 B-D
Building,
London WC2
Shipton Industrial 312,900 30-50 1 100 C
Way,
Rushden
Datapoint, Industrial 55,100 20-30 6 100 B-C
Cody
Road,
London E16
Lyon Industrial 99,400 20-30 7 76 B-E
Business
Park,
Barking
Tower Office 70,600 20-30 6 90 B-D
Wharf,
Cheese
Lane,
Bristol
50 Office 31,300 20-30 4 100 B
Farringdon
Road,
London EC1
Sundon Industrial 127,800 20-30 11 93 B-D
Business
Park,
Dencora
Way,
Luton
Top ten occupiers
The largest occupiers, based as a percentage of contracted rent, as at 31 March
2023, are as follows:
Occupier Contracted rent (£m) %
Public sector 2.3 4.8
Whistl UK Limited 1.6 3.5
B&Q Plc 1.2 2.6
The Random House Group Limited 1.2 2.5
Snorkel Europe Limited 1.2 2.5
XMA Limited 1.0 2.1
Portal Chatham LLP 1.0 2.0
DHL Supply Chain Limited 0.8 1.7
4 Aces Limited 0.7 1.5
Hi-Speed Services Limited 0.7 1.5
Total 11.7 24.7
Longevity of income
As at 31 March 2023, expressed as a percentage of contracted rent, the average
length of leases to first termination was 4.6 years (2022: 4.8 years). This is
summarised as follows:
%
0 to 1 year 12.9
1 to 2 years 14.2
2 to 3 years 21.7
3 to 4 years 12.5
4 to 5 years 11.5
5 to 10 years 18.4
10 to 15 years 7.6
15 years or more 1.2
Total 100
Financial Review
A year marked by resilient income, despite valuation movements
The early part of this financial year saw the UK economy continue to grow, and
at 30 June 2022 our net asset value reached £670 million. However, the September
mini-budget caused a significant shock to UK markets, with rising interest rates
and bond yields impacting commercial property pricing. The negative capital
growth between September and December was the largest ever quarterly movement
recorded by MSCI.
Our overall loss for the year was £90.0 million, comprising a negative valuation
movement of £111.3 million and EPRA earnings of £21.3 million. This year, we
have seen the reversal of some of the record valuation gains recorded in
2021/22.
Our EPRA earnings, comprising the operating results and net interest expense
were £21.3 million for the year, a small increase over the equivalent figure
last year. As discussed below, rental income rose by 7.1% compared to 2022;
however, this increase was largely offset by higher property operating and void
costs.
Commercial property values fell in the latter half of 2022 as interest rates and
bond yields rose rapidly. Although we have seen valuation movements moderating
in the first quarter of 2023, further interest rate rises may still have an
adverse impact this year.
Based on these results our total return for the year was -13.9%, compared to
28.3% for the year to 31 March 2022.
Net asset value
The net assets of the Group at 31 March 2023 were £547.6 million, or 100 pence
per share, which was a fall of 16.7% over the year. The chart below shows the
components of this decrease.
£m
March 2022 net asset value 657.1
EPRA earnings 21.3
Valuation movement (111.3)
Share-based awards 0.7
Purchase of shares (1.1)
Dividends paid (19.1)
March 2023 net asset value 547.6
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).
2023 2022 2021
£m £m £m
Net assets - IFRS and EPRA net tangible asset value 547.6 657.1 528.2
Fair value of debt 22.8 (6.7) (21.0)
EPRA net disposal value 570.4 650.4 507.2
Net asset value per share (pence) 100 120 97
EPRA net tangible asset value per share (pence) 100 120 97
EPRA net disposal value per share (pence) 105 119 93
Income statement
The result for the year is dominated by the adverse valuation movement at the
end of 2022 as property yields moved out. However, EPRA earnings were stable,
with increased rental income largely offset by increased property costs.
Total revenue from the property portfolio for the year was £51.8 million, up
from £46.5 million last year. Rental income has increased by 7.1% compared to
2022, as a result of the impact of new acquisitions over the full year, as well
as rental growth.
Property operating and void costs have shown a marked increase this year, from
£4.9 million to £7.1 million. This is partly the result of the higher vacancy
rate, but also demonstrates the impact of inflation and higher costs over the
past year. Administrative expenses, however, only increased by a small amount,
£0.2 million, or 3.5%, to a little under £6.0 million. Staff costs were broadly
in line with the previous year, while some one-off costs incurred this year
increased other corporate expenses.
Interest and other finance costs have increased from £8.5 million to £9.0
million. This is partly due to the additional interest on the increased Canada
Life facility, which completed in March 2022. This transaction also extended the
facility to 2031, reduced the interest rate to 3.25% and enabled us to repay
most of the revolving credit facility.
95% of our borrowings are at fixed rates and do not mature until 2031/32. This
year we have drawn down further under our revolving credit facility to finance
acquisitions. Although only a relatively small element of our total borrowings,
the interest rate on our revolving credit facility has increased from 2.3% in
March 2022 to its current rate of 5.8%.
The negative capital movement on the portfolio was £111.3 million for the year,
including the movement on owner-occupied property. The industrial sector saw the
largest movement, especially where yields were lowest.
Dividends
This year we have 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, an increase of 3.6% compared to 2022. Dividend cover for
the year remained healthy at 112%.
Investment properties
The appraised value of our investment property portfolio was £766.2 million at
31 March 2023, lower than the £849.3 million reported a year ago. We have made
acquisitions this year, for a total consideration of £20.6 million, including
costs. These acquisitions are discussed in more detail in the Portfolio Review
section. Also this year, we have invested £6.1 million of capital expenditure in
the portfolio upgrading a number of assets, including Madleaze Trading Estate,
Gloucester, Colchester Business Park, Lyon Business Park, Essex and Metro,
Manchester.
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
Other Comprehensive Income.
At 31 March 2023 the portfolio comprised 49 assets, with an average lot size of
£15.6 million.
Borrowings
Total borrowings are now £224.5 million at 31 March 2023, with the loan to value
ratio at 26.7%. The weighted average interest rate on our borrowings is 3.8%,
while the average loan duration is now 8.4 years.
Our loan facility with Aviva reduced by the regular amortisation, £1.4 million
in the year.
The Group remained fully compliant with its loan covenants throughout the year.
At 31 March 2023, we had £11.9 million drawn under the revolving credit
facility, which matures in 2025. This year we drew down £7.0 million under this
facility, largely to fund the acquisition of the new Cheltenham asset, as well
as for ongoing capital expenditure projects.
The fair value of our drawn borrowings at 31 March 2023 was £201.7 million,
lower than the book value by some £22.8 million. As a result, our EPRA NDV asset
value was £570.4 million at 31 March 2023, higher than the reported net assets
under IFRS. Both lending margins and gilt yields are currently higher relative
to the rates set on our facilities.
A summary of our borrowings is set out in the table below.
2023 2022 2021
Fixed rate loans (£m) 212.6 213.9 166.2
Drawn revolving facility (£m) 11.9 4.9 -
Total borrowings (£m) 224.5 218.8 166.2
Borrowings net of cash (£m) 204.4 180.3 142.8
Undrawn facilities (£m) 38.1 45.1 50.0
Loan to value ratio (%) 26.7 21.2 20.9
Weighted average interest rate (%) 3.8 3.7 4.2
Average duration (years) 8.4 9.6 8.9
Cash flow and liquidity
Our cash outflow for the year was £18.5 million. The cash flow from operating
activities this year is £23.0 million, some 15% higher than the previous year.
We invested £26.8 million during the year; £20.6 million being the consideration
paid for two principal acquisitions, as well as £6.1 million of capital
expenditure. Overall borrowings increased by £5.6 million. Dividends paid
increased to £19.1 million. Our cash balance at the year-end stood at £20.1
million.
Share capital
No new ordinary shares were issued during the year.
The Company's Employee Benefit Trust acquired a further 1,250,000 shares, at a
cost of £1.1 million, or 90 pence per share, during the year. This was to
satisfy the future vesting of awards made under the Long-term Incentive Plan and
Deferred Bonus Plan, and now holds a total of 2,388,694 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.
Andrew Dewhirst
Finance Director
24 May 2023
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. The
statement is set out in the Directors' Report.
Climate-related risks
Last year the Board carried out an assessment of the physical and transition
risks most relevant to the business, and undertook a review of its procedures
for identifying and managing those risks. The recommendations arising from the
review have been implemented this year. The mitigating actions that have been
carried out in respect of climate-related risks are described in the Task Force
on Climate-related Financial Disclosures section of the report, together with
more detail on the risk assessment and modelling undertaken.
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 inflation remaining in the UK economy, causing further interest
rate rises and an adverse impact on asset values;
- further political uncertainty in the lead-up to a general election in
the UK;
- the increasing importance of sustainability issues to all
stakeholders;
- changing demand for commercial space, as businesses reassess their
requirements in the light of more flexible working, advances in AI technology
and employee wellbeing;
- changes in regulations are increasing environmental standards and
property owners must keep pace to avoid the risk of stranded assets; and
- cyber security, with an increased prevalence of ransomware attacks and
greater vulnerability of systems with home working.
Corporate Strategy
1
Political and
economic
Risk Mitigation Commentary Risk trend
Uncertainty The Board Economic uncertainty has risen Increasing
in the UK considers over the year, although is
economy, economic less than in the immediate
whether conditions aftermath of the September
arising from and market mini-budget. Interest rates
political uncertainty have risen significantly and
events or when setting inflation remains at a high
otherwise, strategy, level. The cost of living
brings risks considering crisis is still evident and
to the the industrial disputes,
property financial particularly in the public
market and to strategy of sector, are causing further
occupiers' the business disruption. The UK economy is
businesses. and in not forecast to grow by any
This can making meaningful amount over the
result in investment next year. The war in Ukraine
lower decisions. continues to impact global
shareholder politics and economics.
returns,
lower asset
liquidity and
increased
occupier
failure.
2
Market cycle
Risk Mitigation Commentary Risk trend
The property The Board Economic factors have caused Increasing
market is reviews the more volatility in the
cyclical and Group's property market this year.
returns can strategy and Interest rates and bond yields
be volatile. business have risen, with a consequent
There is an objectives adverse impact on property
ongoing risk on a regular yields and valuations,
that the basis and particularly towards the end
Company fails considers of 2022.
to react whether any
appropriately change is
to changing needed, in
market light of
conditions, current and
resulting in forecast
an adverse market
impact on conditions.
shareholder
returns.
3
Regulatory
and tax
Risk Mitigation Commentary Risk trend
The Group The Board There are no significant No change/ stable
could fail to and senior changes expected to the
comply with management regulatory environment in
legal, receive which the Group operates.
fiscal, regular
health and updates on
safety or relevant
regulatory laws and
matters which regulations
could lead to from the
financial Group's
loss, professional
reputational advisers.
damage or
loss of REIT The Group
status. 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 Sustainability Climate change resilience remains a Increasing
react to is embedded key issue for property owners. The
climate within the increasing cost of energy has
change could Group's raised the importance of building
lead to business model efficiency for occupiers. On-site
reputational and strategy. renewables, such as solar panels,
damage, loss are increasingly being included in
of income and We have refurbishment projects.
value and published our
being unable pathway to net
to attract zero carbon
occupiers. and have
Rising reported on
materials and our progress
energy costs this year.
as a result
of climate We have
change could addressed the
give rise to identification
asset and assessment
obsolescence. of climate
-related risks
as identified
through the
TCFD process.
Property
5
Portfolio
strategy
Risk Mitigation Commentary Risk trend
The Group has The Group The industrial sector, having Increasing
an maintains a benefitted from strong investment
inappropriate diversified demand leading to lower yields, saw
portfolio portfolio in a greater valuation movement in
strategy, as order to 2022. Demand for the office sector
a result of minimise remains muted as businesses continue
poor sector exposure to to reassess their requirements. The
or any one retail sector is showing some
geographical geographical improvement, but from a low base.
allocations, area or
or holding market
obsolete sector.
assets,
leading to
lower
shareholder
returns.
6
Investment
Risk Mitigation Commentary Risk trend
Investment The Executive Volatility in the investment market Increasing
decisions may Committee has increased over the year. There
be flawed as must approve is more uncertainty in making
a result of all investment decisions due to
incorrect investment increasing costs, climate-related
assumptions, transactions risks and recessionary pressures.
poor research over a
or incomplete threshold
due level, and
diligence, significant
leading to transactions
financial require Board
loss. approval.
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 Management Rent collection has remained high No change/ stable
properly prepare throughout the year, with limited
execute business occupier defaults.
asset plans for
business each asset
plans or which are
poor asset reviewed
management regularly.
could lead
to longer The
void Executive
periods, Committee
higher must approve
occupier all
defaults, investment
higher transactions
arrears over a
and low threshold
occupier level, and
retention, significant
all having transactions
an adverse require
impact on Board
earnings approval.
and cash
flow. 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 Group's Following the mini-budget in Increasing
the property September 2022, there were
valuation assets are significant increases in interest
of the valued rates and bond yields, causing
Group's quarterly by commercial property valuations to
property an decline. After a marked fall in
assets independent December, valuations have
could lead valuer with subsequently stabilised to some
to lower oversight by extent. However, further interest
investment the Property rate rises may cause some further
returns Valuation pressure on valuations.
and a Committee.
breach of Market There remains good headroom
loan commentary against the Group's lending
covenants. is provided covenants.
regularly by
the
independent
valuer.
The Board
reviews
financial
forecasts
for the
Group on a
regular
basis,
including
sensitivity
and adequate
headroom
against
financial
covenants.
Operational
9
People
Risk Mitigation Commentary Risk trend
The Group relies The Board has The team has remained No change/ stable
on a small team a remuneration stable throughout the
to implement the policy in year with no leavers.
strategy and run place which Positive feedback was
the day-to-day incentivises received from the
operations. performance employee engagement
Failure to retain and is survey. Flexible working
or recruit key aligned with arrangements for the team
individuals with shareholders' have been maintained.
the right blend interests.
of skills and
experience may All employees
result in poor receive an
decision making annual
and performance
underperformance. appraisal
including
training and
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 The Board The Group has mainly fixed rate No change/ stable
a number of reviews long-term borrowings in place.
loan financial Covenants are monitored
facilities to forecasts regularly and there is good
finance its for the headroom against these. The
activities. Group on a revolving credit facility has
Failure to regular been extended for a further
comply with basis, year until 2025.
covenants or including
to manage sensitivity
refinancing against
events could financial
lead to a covenants.
funding
shortfall for The Group's
operational property
activities. 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 The Board The use of gearing has Increasing
operates a regularly amplified the valuation
geared reviews its movements this year, resulting
capital gearing in lower returns. However, the
structure, strategy Group's loan to value ratio
which and debt remains low.
magnifies maturity
returns from profile, at
the least
portfolio, annually,
both positive in light of
and negative. changing
An market
inappropriate conditions.
level of
gearing The Group
relative to has a
the property revolving
cycle could credit
lead to lower facility in
investment place which
returns. 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, loan covenants and liquidity.
The major risks identified were those relating to high inflation, rising
interest rates, other recessionary pressures and the lead up to a general
election over the period of the assessment. In the ordinary course of business,
the Board reviews a detailed financial model on a quarterly basis, including
forecast market returns. This model allows for different assumptions regarding
lease expiries, breaks and incentives. 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 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 its short
-term facilities which expire 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 2028 and will continue
to be assessed over rolling five-year periods.
The Directors consider that the stress testing performed was sufficiently robust
and that even under extreme 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 2028.
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
Andrew Dewhirst
24 May 2023
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 March 2023
Notes 2023 2022
£000 £000
Income
Revenue from properties 3 51,816 46,543
Property expenses 4 (15,566) (11,098)
Net property income 36,250 35,445
Expenses
Administrative expenses 6 (5,955) (5,755)
Total operating expenses (5,955) (5,755)
Operating profit before movement on investments 30,295 29,690
Investments
Profit on disposal of investment properties 13 - 42
Revaluation of owner-occupied property 14 (382) -
Investment property valuation movements 13 (110,433) 129,801
Total (loss)/profit on investments (110,815) 129,843
Operating (loss)/profit (80,520) 159,533
Financing
Interest received 24 -
Interest paid 8 (9,034) (8,502)
Debt prepayment fees 18 - (4,045)
Total finance costs (9,010) (12,547)
(Loss)/profit before tax (89,530) 146,986
Tax 9 - -
(Loss)/profit after tax (89,530) 146,986
Other comprehensive income
Revaluation of owner-occupied property 14 (434) 434
Total other comprehensive (loss)/income for the year (434) 434
Total comprehensive (loss)/income for the year (89,964) 147,420
Earnings per share
Basic 11 (16.5)p 27.0p
Diluted 11 (16.5)p 26.9p
All items in the above statement derive from continuing operations.
All of the profit and total comprehensive income 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 2023
Notes Share Retained Other Revaluation Total
capital earnings reserves reserve
£000
£000 £000 £000 £000
Balance as at 31 164,400 364,466 (669) - 528,197
March 2021
Profit for the year - 146,986 - - 146,986
Dividends paid 10 - (18,425) - - (18,425)
Share-based awards - - 668 - 668
Purchase of shares 7 - - (730) - (730)
held in trust
Other comprehensive 14 - - - 434 434
income for the year
Balance as at 31 164,400 493,027 (731) 434 657,130
March 2022
Loss for the year - (89,530) - - (89,530)
Dividends paid 10 - (19,091) - - (19,091)
Share-based awards - - 675 - 675
Purchase of shares 7 - - (1,126) - (1,126)
held in trust
Other comprehensive 14 - - - (434) (434)
loss for the year
Balance as at 31 164,400 384,406 (1,182) - 547,624
March 2023
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated balance sheet
as at 31 March 2023
Notes 2023 2022
£000 £000
Non-current assets
Investment properties 13 746,342 830,027
Property, plant and equipment 14 3,415 4,383
Total non-current assets 749,757 834,410
Current assets
Accounts receivable 15 22,749 22,850
Cash and cash equivalents 16 20,050 38,547
Total current assets 42,799 61,397
Total assets 792,556 895,807
Current liabilities
Accounts payable and accruals 17 (19,471) (19,138)
Loans and borrowings 18 (1,129) (1,068)
Obligations under leases 22 (114) (114)
Total current liabilities (20,714) (20,320)
Non-current liabilities
Loans and borrowings 18 (221,635) (215,764)
Obligations under leases 22 (2,583) (2,593)
Total non-current liabilities (224,218) (218,357)
Total liabilities (244,932) (238,677)
Net assets 547,624 657,130
Equity
Share capital 20 164,400 164,400
Retained earnings 384,406 493,027
Other reserves (1,182) (731)
Revaluation reserve - 434
Total equity 547,624 657,130
Net asset value per share 23 100p 120p
These consolidated financial statements were approved by the Board of Directors
on 24 May 2023 and signed on its behalf by:
Andrew Dewhirst
Director
24 May 2023
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated statement of cash flows
for the year ended 31 March 2023
Notes 2023 2022
£000 £000
Operating activities
Operating (loss)/profit (80,520) 159,533
Adjustments for non-cash items 21 111,655 (129,010)
Interest received 24 -
Interest paid (7,937) (8,102)
Decrease/(increase) in accounts receivable 101 (3,305)
(Decrease)/increase in accounts payable and accruals (291) 897
Cash inflows from operating activities 23,032 20,013
Investing activities
Purchase of investment properties 13 (20,613) (25,005)
Capital expenditure on investment properties 13 (6,135) (9,551)
Disposal of investment properties 13 - 726
Purchase of tangible assets 14 (13) (3)
Cash outflows from investing activities (26,761) (33,833)
Financing activities
Borrowings repaid 18 (6,368) (26,917)
Borrowings drawn 18 12,000 79,545
Debt prepayment fees 18 - (4,045)
Financing costs 18 (183) (419)
Purchase of shares held in trust 7 (1,126) (730)
Dividends paid 10 (19,091) (18,425)
Cash (outflows)/inflows from financing activities (14,768) 29,009
Net (decrease)/increase in cash and cash equivalents (18,497) 15,189
Cash and cash equivalents at beginning of year 38,547 23,358
Cash and cash equivalents at end of year 16 20,050 38,547
Notes 1 to 27 form part of these consolidated financial statements.
Notes to the consolidated financial statements For the year ended 31 March 2023 1. General information Picton Property Income Limited (the `Company' and together with its subsidiaries the `Group') was established on 15 September 2005 as a closed ended Guernsey domiciled investment company and entered the UK REIT regime on 1 October 2018. The consolidated financial statements are prepared for the year ended 31 March 2023 with comparatives for the year ended 31 March 2022. 2. Significant 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. 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) 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. - Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) - Annual Improvements to IFRS Standards 2018-2020 - Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) - Reference to the Conceptual Framework (Amendments to IFRS 3) 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 2023 and thus have not been applied by the Group. - IFRS 17 Insurance Contracts - Amendments to IFRS 17 - 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 - Initial Application of IFRS 17 and IFRS 9 - Comparative Information (Amendments to IFRS 17) - Classification of Liabilities as Current or Non-current (Amendments to IAS 1) - 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) 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. 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 with 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. 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
2023 2022
£000 £000
Rents receivable (adjusted for lease incentives) 42,964 40,133
Surrender premiums 147 59
Dilapidation receipts 170 21
Other income 107 118
Service charge income 8,428 6,212
51,816 46,543
Rents receivable have been adjusted for lease incentives recognised of £1.2
million (2022: £2.8 million).
4. Property expenses
2023 2022
£000 £000
Property operating costs 3,491 2,477
Property void costs 3,647 2,409
Recoverable service charge costs 8,428 6,212
15,566 11,098
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
2023 2022
£000 £000
Director and staff costs 3,487 3,415
Auditor's remuneration 195 206
Other administrative expenses 2,273 2,134
5,955 5,755
Auditor's remuneration comprises: 2023 2022
£000 £000
Audit fees:
Audit of Group financial statements 92 92
Audit of subsidiaries' financial statements 87 82
Audit-related fees:
Review of half-year financial statements 16 16
195 190
Non-audit fees:
Additional controls testing - 16
- 16
195 206
7. Director and staff costs
2023 2022
£000 £000
Wages and salaries 1,879 1,765
Non-Executive Directors' fees 275 275
Social security costs 425 402
Other pension costs 34 27
Share-based payments - cash settled 142 201
Share-based payments - equity settled 732 745
3,487 3,415
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 17 June 2022, awards of 500,905 notional shares were
made which vest in June 2024 (2022: 531,108 notional shares). The next awards
are due to be made in June 2023 for vesting in June 2025.
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 Units Units Units Units Units Units Units
Units Units
date at granted cancelled redeemed at granted cancelled
redeemed at
in in in in the in the
in
31 March the the year the year 31 March year year
the year 31 March
2021 year 2022
2023
19 June 438,907 - - (438,907) - - -
- -
2021
29 June 599,534 - - - 599,534 - -
(589,779) 9,755
2022
22 June - 531,108 - - 531,108 - -
- 531,108
2023
17 June - - - - - 500,905 -
- 500,905
2024
1,038,441 531,108 - (438,907) 1,130,642 500,905 -
(589,779) 1,041,768
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 17 June 2022, awards for a maximum of 1,174,589 shares
were granted to employees in respect of the three-year period ending on 31 March
2025. In the previous year, awards of 1,107,155 shares were made on 22 June 2021
for the period ending 31 March 2024.
The three performance 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 17 June 2022 22 June 2021
Share price at date of grant 92.6p 87.3p
Exercise price Nil Nil
Expected term 3 years 3 years
Risk-free rate - TSR condition 2.28% 0.23%
Share price volatility - TSR 28.3% 28.3%
condition
Median volatility of comparator 32.4% 31.8%
group - TSR condition
Correlation - TSR condition 25.0% 29.4%
TSR performance at grant date - TSR (2.5)% 0.3%
condition
Median TSR performance of comparator 2.2% 10.7%
group at grant date - TSR condition
Fair value - TSR condition (Monte 46.0p 37.7p
Carlo method)
Fair value - TPR condition (Black 92.6p 87.3p
-Scholes model)
Fair value - EPS condition (Black 92.6p 87.3p
-Scholes model)
The Trustee of the Company's Employee Benefit Trust acquired 1,250,000 ordinary
shares during the year for £1,126,000 (2022: 750,000 shares for £730,000).
The Group employed ten members of staff at 31 March 2023 (2022: nine). The
average number of people employed by the Group for the year ended 31 March 2023
was nine (2022: ten).
8. Interest paid
2023 2022
£000 £000
Interest payable on loans 8,576 8,134
Interest on obligations under finance leases 175 129
Non-utilisation fees 283 239
9,034 8,502
The loan arrangement costs incurred to 31 March 2023 are £3,328,000 (2022:
£3,325,000). These are amortised over the duration of the loans with £304,000
amortised in the year ended 31 March 2023 and included in interest payable on
loans (2022: £967,000).
9. Tax
The charge for the year is:
2023 2022
£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:
2023 2022
£000 £000
(Loss)/profit before taxation (89,530) 146,986
Expected tax (credit)/charge on ordinary activities at the (17,011) 27,927
standard rate of taxation of 19% (2022: 19%)
Less:
UK REIT exemption on net income (4,044) (3,257)
Revaluation movement not taxable 21,055 (24,662)
Gains on disposal not taxable - (8)
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
2023 2022
£000 £000
Declared and paid:
Interim dividend for the period - 4,365
ended 31 March 2021: 0.8 pence
Interim dividend for the period - 4,644
ended 30 June 2021: 0.85 pence
Interim dividend for the period - 4,640
ended 30 September 2021: 0.85
pence
Interim dividend for the period - 4,776
ended 31 December 2021: 0.875
pence
Interim dividend for the period 4,774 -
ended 31 March 2022: 0.875 pence
Interim dividend for the period 4,775 -
ended 30 June 2022: 0.875 pence
Interim dividend for the period 4,771 -
ended 30 September 2022: 0.875
pence
Interim dividend for the period 4,771 -
ended 31 December 2022: 0.875
pence
19,091 18,425
The interim dividend of 0.875 pence per ordinary share in respect of the period
ended 31 March 2023 has not been recognised as a liability as it was declared
after the year-end. This dividend of £4,771,000 will be paid on 31 May 2023.
11. Earnings per share
Basic and diluted earnings per share is calculated by dividing the net
(loss)/profit 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)/profit and share data used in the basic and
diluted profit per share calculation:
2023 2022
Net (loss)/profit attributable to ordinary (89,964) 147,420
shareholders of the Company from continuing
operations (£000)
Weighted average number of ordinary shares for basic 545,378,286 545,904,197
earnings per share
Weighted average number of ordinary shares for 546,856,450 547,295,589
diluted earnings per share
12. Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2023 and 31
March 2022:
Name Place of incorporation Ownership
proportion
Picton UK Real Estate Guernsey 100%
Trust (Property)
Limited
Picton (UK) REIT (SPV) Guernsey 100%
Limited
Picton (UK) Listed Real Guernsey 100%
Estate
Picton UK Real Estate Guernsey 100%
(Property) No 2 Limited
Picton (UK) REIT (SPV Guernsey 100%
No 2) Limited
Picton Capital Limited England & Wales 100%
Picton (General Guernsey 100%
Partner) No 2 Limited
Picton (General Guernsey 100%
Partner) No 3 Limited
Picton No 2 Limited England & Wales 100%
Partnership
Picton No 3 Limited England & Wales 100%
Partnership
Picton Financing UK England & Wales 100%
Limited
Picton Financing UK (No England & Wales 100%
2) Limited
Picton Property No 3 Guernsey 100%
Limited
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.
2023 2022
£000 £000
Fair value at start of year 830,027 665,418
Capital expenditure on investment properties 6,135 9,551
Acquisitions 20,613 25,005
Disposals - (687)
Acquisition of right of use asset - 897
Realised gains on disposal - 42
Unrealised movement on investment properties (110,433) 129,801
Fair value at the end of the year 746,342 830,027
Historic cost at the end of the year 681,118 654,370
The fair value of investment properties reconciles to the appraised value as
follows:
2023 2022
£000 £000
Appraised value 766,235 849,325
Valuation of assets held under head leases 2,081 2,237
Owner-occupied property (3,248) (4,168)
Lease incentives held as debtors (18,726) (17,367)
Fair value at the end of the year 746,342 830,027
The investment properties were valued by independent valuers, CBRE Limited,
Chartered Surveyors, as at 31 March 2023 and 31 March 2022 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 2023 and 31 March 2022 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:
2023 2022
Office Industrial Retail Office Industrial Retail
and and
Leisure Leisure
Appraised 245,260 439,570 81,405 251,125 509,730 88,470
value (£000)
Area (sq ft, 877 3,240 692 828 3,240 692
000s)
Range of
unobservable
inputs:
Gross ERV (sq
ft per annum)
- range £11.00 £3.30 to £3.23 to £10.96 £2.82 to £3.23 to
to to
£84.12 £27.83 £26.05 £82.32 £26.77 £28.49
- weighted £35.33 £13.16 £11.66 £35.10 £11.47 £11.83
average
Net initial
yield
- range -0.68% 2.28% to 3.51% to 0.92% to 0.00% to 3.07% to
to 7.75% 30.85% 9.00% 6.75% 25.00%
11.65%
- weighted 5.32% 4.30% 8.56% 4.64% 3.25% 7.33%
average
Reversionary
yield
- range 4.76% to 4.83% to 6.87% to 4.29% to 3.04% to 6.19% to
13.55% 8.17% 12.18% 9.63% 7.37% 12.89%
- weighted 7.87% 5.78% 7.98% 7.00% 4.24% 7.42%
average
True
equivalent
yield
- range 4.57% to 4.75% to 7.00% to 4.09% to 3.00% to 6.25% to
10.38% 7.98% 12.17% 9.95% 7.00% 13.02%
- weighted 7.23% 5.51% 8.11% 6.49% 4.11% 7.55%
average
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 2023 Impact on valuation 2022 Impact on valuation
Industrial Increase of Decrease of £36.7m Decrease of £55.2m
50 basis
points
Decrease of Increase of £44.5m Increase of £69.0m
50 basis
points
Office Increase of Decrease of £16.1m Decrease of £11.9m
50 basis
points
Decrease of Increase of £18.0m Increase of £12.5m
50 basis
points
Retail and Increase of Decrease of £4.5m Decrease of £5.1m
Leisure 50 basis
points
Decrease of Increase of £5.1m Increase of £5.9m
50 basis
points
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 2023.
Owner Occupied Property £000 Plant and equipment £000 Total
£000
At 1 April 2021 3,830 281 4,111
Additions - 3 3
Depreciation (96) (69) (165)
Revaluation 434 - 434
At 31 March 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
15. Accounts receivable
2023 2022
£000 £000
Tenant debtors (net of provisions for bad debts) 2,855 4,618
Lease incentives 18,726 17,367
Other debtors 1,168 865
22,749 22,850
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 2023, tenant
debtors of £92,000 (2022: £302,000) were considered impaired and provided for.
16. Cash and cash equivalents
2023 2022
£000 £000
Cash at bank and in hand 20,045 38,542
Short-term deposits 5 5
20,050 38,547
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
2023 2022
£000 £000
Accruals 4,712 4,994
Deferred rental income 8,654 8,399
VAT liability 1,782 1,638
Trade creditors 515 357
Other creditors 3,808 3,750
19,471 19,138
18. Loans and borrowings
Maturity 2023 2022
£000 £000
Current
Aviva facility - 1,433 1,372
Capitalised finance costs - (304) (304)
1,129 1,068
Non-current
Canada Life facility 24 July 2031 129,045 129,045
Aviva facility 24 July 2032 82,089 83,518
NatWest revolving credit facility 26 May 2025 11,900 4,900
Capitalised finance costs - (1,399) (1,699)
221,635 215,764
222,764 216,832
The following table provides a reconciliation of the movement in loans and
borrowings to cash flows arising from financing activities.
2023 2022
£000 £000
Balance at start of year 216,832 163,655
Changes from financing cash flows
Proceeds from loans and borrowings 12,000 79,545
Repayment of loans and borrowings (6,368) (26,917)
Financing costs paid (183) (419)
5,449 52,209
Other changes
Amortisation of financing costs 304 967
Change in accrued financing costs 179 1
483 968
Balance as at 31 March 222,764 216,832
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 £353.2 million (2022: £415.2 million). In the prior year a
debt prepayment fee of £4.0 million was incurred to reset the interest rate on
the Canada Life facility.
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 (2022: £1.3 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 £193.6 million
(2022: £208.1 million).
The Group also has a £50 million revolving credit facility (`RCF') with National
Westminster Bank Plc which matures in May 2025. As at 31 March there was £11.9
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 £143.4 million (2022: £163.2 million).
The fair value of the drawn loan facilities at 31 March 2023, estimated as the
present value of future cash flows discounted at the market rate of interest at
that date, was £201.7 million (2022: £225.6 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 2023
was 3.8% (2022: 3.7%).
19. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of five properties
with commitments outstanding at 31 March 2023 of approximately £2.9 million
(2022: £2.4 million). No further obligations to construct or develop investment
property or for repairs, maintenance or enhancements were in place as at 31
March 2023 (2022: £nil).
20. Share capital and other reserves
2023 2022
£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 2022:
547,605,596)
Share premium 164,400 164,400
The Company has 547,605,596 ordinary shares in issue of no par value (2022:
547,605,596).
No new ordinary shares were issued during the year ended 31 March 2023.
2023 2022
Number of shares Number of shares
Ordinary share capital 547,605,596 547,605,596
Number of shares held (2,388,694) (1,974,253)
in Employee Benefit
Trust
Number of ordinary 545,216,902 545,631,343
shares
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 2,388,694 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
2023 2022
£000 £000
Profit on disposal of investment properties - (42)
Movement in investment property valuation 110,433 (129,801)
Revaluation of owner-occupied property 382 -
Share-based provisions 675 668
Depreciation of tangible assets 165 165
111,655 (129,010)
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:
2023 2022
£000 £000
Future minimum payments due:
Within one year 185 185
In the second to fifth years inclusive 740 740
After five years 8,898 9,083
9,823 10,008
Less: finance charges allocated to future periods (7,126) (7,301)
Present value of minimum lease payments 2,697 2,707
The present value of minimum lease payments is analysed as follows:
2023 2022
£000 £000
Current
Within one year 114 114
114 114
Non-current
In the second to fifth years inclusive 405 410
After five years 2,178 2,183
2,583 2,593
2,697 2,707
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):
2023 2022
£000 £000
Within one year 43,824 41,928
One to two years 39,548 39,244
Two to three years 34,806 35,416
Three to four years 29,506 29,972
Four to five years 25,454 24,748
After five years 105,675 99,788
278,813 271,096
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 2023 Notes Held at Financial assets and Total
liabilities at amortised
fair value cost £000
through profit
or loss £000
£000
Financial
assets
Debtors 15 - 4,023 4,023
Cash and cash 16 - 20,050 20,050
equivalents
- 24,073 24,073
Financial
liabilities
Loans and 18 - 222,764 222,764
borrowings
Obligations 22 - 2,697 2,697
under head
leases
Creditors and 17 - 9,035 9,035
accruals
- 234,496 234,496
31 March 2022 Notes Held at Financial assets and Total
liabilities at amortised
fair value cost £000
through profit
or loss £000
£000
Financial
assets
Debtors 15 - 5,483 5,483
Cash and cash 16 - 38,547 38,547
equivalents
- 44,030 44,030
Financial
liabilities
Loans and 18 - 216,832 216,832
borrowings
Obligations 22 - 2,707 2,707
under head
leases
Creditors and 17 - 9,101 9,101
accruals
- 228,640 228,640
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 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 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:
2023 2022
£000 £000
Total borrowings 224,467 218,835
Gross assets 792,556 895,807
Gearing ratio (must not exceed 65%) 28.3% 24.4%
The Board of Directors monitors the return on capital as well as the level of
dividends to ordinary shareholders. The Group has managed its capital 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:
2023 2022
£000 £000
Total liabilities 244,932 238,677
Less: cash and cash equivalents (20,050) (38,547)
Net debt 224,882 200,130
Total equity 547,624 657,130
Net debt to equity ratio at end of year 0.41 0.30
Credit risk
The following tables detail the balances held at the reporting date that may be
affected by credit risk:
31 March Notes Held at Financial assets and Total
2023 fair value liabilities at amortised
through cost £000
profit
or loss £000
£000
Financial
assets
Tenant 15 - 2,855 2,855
debtors
Cash and 16 - 20,050 20,050
cash
equivalents
- 22,905 22,905
31 March Notes Held at Financial assets and Total
2022 liabilities at amortised
fair value cost £000
through
profit £000
or loss
£000
Financial
assets
Tenant 15 - 4,618 4,618
debtors
Cash and 16 - 38,547 38,547
cash
equivalents
- 43,165 43,165
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. The Group's exposure to and credit ratings of, its
counterparties are continuously monitored and the aggregate value of
transactions concluded is spread amongst approved counterparties.
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 2023 tenant rent
deposits held by the Group's managing agents in segregated bank accounts
totalled £2.6 million (2022: £2.4 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') 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 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 minimise exposure. At 31
March 2023 and at 31 March 2022, 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 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
Capitalised finance costs 304 785 614 1,703
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)
5,807 (49,700) (241,913) (285,806)
31 March 2022 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Cash and cash equivalents 38,547 - - 38,547
Debtors 5,483 - - 5,483
Capitalised finance costs 304 934 765 2,003
Obligations under head leases (185) (740) (9,083) (10,008)
Fixed interest rate loans (8,524) (37,049) (242,891) (288,464)
Floating interest rate loans (113) (5,031) - (5,144)
Creditors and accruals (9,101) - - (9,101)
26,411 (41,886) (251,209) (266,684)
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 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
£38.3 million (2022: £42.5 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.
Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group's
financial assets/(liabilities).
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)
31 March 2022 Less than 1 to 5 More than Total
1 year years 5 years £000
£000 £000 £000
Floating
Cash and cash equivalents 38,547 - - 38,547
Secured loan facilities - (4,900) - (4,900)
Fixed
Secured loan facilities (1,372) (6,127) (206,436) (213,935)
Obligations under leases (114) (410) (2,183) (2,707)
37,061 (11,437) (208,619) (182,995)
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 4.8% 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 £275,000 (2022: £275,000). As at 31 March 2023, the Group
owed £nil to the Non-Executive Directors (2022: £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
A dividend of £4,771,000 (0.875 pence per share) was approved by the Board on 25
April 2023 and will be paid on 31 May 2023.
A further £3,000,000 was drawn down under the revolving credit facility with
National Westminster Bank Plc on 3 May 2023.
This information was brought to you by Cision http://news.cision.com END
(END) Dow Jones Newswires
May 25, 2023 02:00 ET (06:00 GMT)
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