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