14 November
2017
PICTON PROPERTY INCOME
LIMITED
LEI: 213800RYE59K9CKR4497
HALF YEAR RESULTS
("PICTON", THE “COMPANY” OR THE "GROUP")
Picton (LSE: PCTN) announces its half year results for the six
month period to 30 September
2017.
Continued NAV and earnings growth with
dividend increase
- Profit after tax of £30.7 million
- Total return for the six months of 7.1%
- Increase in EPRA NAV per share of 5.0%, to
86 pence per share
- Gearing of 28.2% and weighted average
interest rate reduced from 4.2% to 4.1%
- Dividends paid of £9.2 million or
1.7 pence per share
- Dividend cover of 118%
- 3% increase in annual dividend announced
today, to 3.5 pence per share
Portfolio outperformance
- Total property return of 6.3%, outperforming
the MSCI IPD Quarterly Benchmark of 5.0%
- Improved occupancy to 95%, ahead of the MSCI
IPD Quarterly Digest of 93%
- Acquisition of multi-let office in
Bristol for £23.2 million
- Two disposals for £9.9 million, 37% ahead of
March 2017 valuation
- Like-for-like portfolio rental income growth
of 4.4%
- Like-for-like ERV growth of 1.7%
- 8% increase in average lot size to £12.7
million
|
30
September
2017 |
31
March
2017 |
Property assets* |
£652.1m |
£615.2m |
Net assets |
£463.8m |
£441.9m |
EPRA NAV per
Share |
86p |
82p |
* net of lease incentives, see Note 9.
|
Six
months to
30 September 2017 |
Six
months to
30 September 2016 |
Profit after tax |
£30.7m |
£15.7m |
Earnings per
share |
5.7p |
2.9p |
EPRA earnings per
share |
2.0p |
2.0p |
Total return |
7.1% |
3.8% |
Total shareholder
return |
3.9% |
5.7% |
Total dividend per
share |
1.70p |
1.65p |
Dividend cover |
118% |
179%** |
** 120% prior to one-off income.
Picton Chairman, Nicholas Thompson, commented:
“As demonstrated by these results the team remains focused on
our objective to achieve consistent long-term performance on behalf
of our shareholders. Additionally it is pleasing to be able to
announce a further increase in our level of dividend. With an eye
on the future, we remain committed to our current portfolio
strategy whilst ensuring the Company is prepared to be able to
convert to UK REIT status. This decision will depend on the
forthcoming result of the Government’s consultation into bringing
non-resident landlord companies, like Picton, into the scope of UK
corporation tax.”
Michael
Morris, Chief Executive of Picton Capital, commented:
“We have continued to make
considerable progress in the first half, improving occupancy and
increasing the overall lot size of the portfolio. Strong
performance from the industrial and logistics sector in particular,
contributed to NAV growth, along with the disposal of two non-core
assets. With our recent Bristol
acquisition there is £6 million of reversionary potential in the
portfolio and we believe that capturing this is key to driving
income and valuation growth in the short to medium term. As we
continue to seek to grow the business and enhance returns, we are
confident that Picton is well placed to continue delivering value
for shareholders.”
This announcement contains inside information.
For further information:
Tavistock
Jeremy Carey/James Verstringhe, 020 7920 3150,
james.verstringhe@tavistock.co.uk
Picton Capital Limited
Michael Morris, 020 7011 9980,
michael.morris@picton.co.uk
The Company Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Andy Le Page, 01481 745 001,
team_picton@ntrs.com
Note to Editors
Picton is a property investment company established in
2005. It owns and actively manages a £661 million diversified
UK commercial portfolio, invested across 52 assets and with around
350 occupiers (as at 30 September
2017). Through an occupier-focused, opportunity-led approach
to asset management, Picton aims to be one of the consistently best
performing diversified UK property companies listed on the main
market of the London Stock Exchange.
www.picton.co.uk
CHAIRMAN’S STATEMENT
For the half year to 30 September
2017, I am pleased to report another set of good financial
results, as evidenced by a profit after tax of £31 million, and a
5% increase in the net asset value over the six months.
The Company generated earnings per ordinary share of
5.7 pence. Net assets rose by £22
million to stand at £464 million at 30 September, or 86 pence per share. Based on these results the
total return for the period was 7.1%.
Within the property portfolio, we have grown occupancy and
achieved some significant lettings, which are set out in more
detail in the Investment Manager’s Report.
Strategy
As we stated in our last Annual Report, our aim is to be one of
the consistently best performing UK diversified property companies
listed on the main market of the London Stock Exchange.
In order to achieve this aim, we have five key strategic
priorities – working with occupiers, growing net income,
operational efficiency, portfolio and asset management and the
effective use of debt.
Performance
At the portfolio level, our assets have continued to outperform
the MSCI IPD Quarterly Benchmark delivering a total property return
of 6.3%, against 5.0%, in part driven by our income focus, our
portfolio allocation and some attractively priced disposals.
Our ongoing charges over the period reduced to 1.1%, compared to
1.2% at 31 March 2017.
Whilst we have made good progress over the period, our objective
is to generate consistent long term performance. Over the last five
years we have increased our net asset value by 65% and our property
portfolio has delivered an average annual total return of
12.7%.
Property Portfolio
In common with the wider market, the strongest performance
within the portfolio has been in the industrial sector, followed by
offices, with the retail and leisure sector making little progress,
against a backdrop of higher inflation affecting retailers and
consumers alike.
Through investment activity and growth in capital values, we
have increased the average lot size within the portfolio, by some
8% to £12.7 million, which in turn reflects part of our
strategy to improve operational efficiency.
Occupancy improved over the period and now stands at 95%, ahead
of the market at 93%. We are confident of further lettings
success which will improve the position.
Capital Structure
Recognising market risks and the ongoing uncertainty following
last year’s referendum result, we believe that it remains
appropriate in the current climate to try and keep our gearing
level below 30%. During the last six months, we extended one
of our two revolving credit facilities, moving the maturity date
from 2018 to 2021. We intend to make use of these facilities on a
tactical basis. A short-term increase in gearing, with the
potential to pay down debt via equity issuance or future asset
sales, gives us operational flexibility and allows us to act
opportunistically. During the period, we made a drawdown of £12.5
million to partly fund the acquisition of our new Bristol asset.
The Company’s shares continue to trade broadly in line with the
net asset value, against a backdrop of some UK REITs and property
companies trading at significant premiums or discounts.
Future Growth
The Directors believe that Picton is in a strong position to
benefit from the economies of scale that would result from prudent
growth of the Company’s portfolio. As an internally managed
company, we can do this without proportionately increasing our cost
base.
We will continue to seek to grow the asset base of the Company
selectively with attractive opportunities, provided that these are
sourced under the right market conditions.
Corporate Structure
Earlier this year the Government ran a consultation exploring
the case and option for bringing non-resident landlord companies,
such as Picton, into the scope of UK corporation tax. We expect any
legislation in this regard to be announced in the Budget later this
month. In anticipation of this, we have continued to progress our
planning for a potential conversion to a UK REIT in 2018.
Contingent on the timing of the introduction of any new
legislation, we expect to hold an extraordinary general meeting
early in 2018 to seek shareholder approval for any corporate
changes that may be required with UK REIT conversion. As part of
this process, we are also reviewing how we can optimise our
internal management structure by reducing costs and improving
efficiency to maximise shareholder value. Although we do not intend
to change our investment approach and portfolio strategy, we are
undertaking an appraisal of the benefits of the Company’s current
technical listing status as an investment company, rather than that
of a commercial company, which would be more in-line with our
internally managed peers.
Board Composition
In our 2017 Annual Report, I highlighted that we would be
seeking to recruit a new Director this year and I am pleased to
confirm that, after a comprehensive search and selection process,
we announced the appointment of Mark
Batten to the Board in October. Mark, a recently retired
partner from PwC, has extensive experience in financial services,
real estate, corporate finance, structuring and transactions and
will further broaden the skill set of the Board. He will
become Chairman of the Audit and Risk Committee during 2018 and
Robert Sinclair has kindly agreed to
remain on the Board to help facilitate this transition.
Dividends
During the period we paid £9.2 million in dividends, which were
118% covered by income profit.
We have said previously that our policy is to maintain a covered
dividend in the long term, which is important in enabling the
Company to invest back into the portfolio and safeguard future
performance, whilst also allowing us to grow dividends
progressively as our earnings increase.
Last year we announced a 3% dividend increase, having previously
increased the dividend by 10% in 2015. I am pleased to confirm that
after careful consideration by the Board, a further 3% increase in
the Company’s dividend has been approved. The annual dividend will
be increased to 3.5 pence per share
and the first quarterly dividend of 0.875
pence per share is expected to be paid in February 2018. Once any transition to a UK REIT
is complete we will revisit our dividend policy, particularly
in the light of REIT regime distribution requirements.
Outlook
Consensus forecasts indicate that future returns look set to be
driven in the short term by income. Picton remains well
positioned at a macro level in terms of its sector allocation and I
am confident that the team will, through active management,
continue to unlock value and outperform the market.
We believe the basics of asset management, occupier retention
and growing income through leasing are our core strengths. With £6
million of reversionary potential within the portfolio, we believe
that capturing this is key to driving income and valuation growth
in the short to medium term. As we continue to seek to grow the
business and enhance returns, the Board is confident that Picton is
well placed to carry on delivering value for shareholders.
Nicholas Thompson
Chairman
13 November 2017
INVESTMENT MANAGER’S REPORT
Occupancy
95%
Number of assets
52
Average lot size
£12.7m
Estimated rental value
£47.6m
Economic Backdrop
During the last six months no significant progress appears to
have been made in the negotiations surrounding the UK’s exit from
the European Union, creating a general feeling of uncertainty.
Despite this, UK GDP has been positive, albeit growing at a modest
rate of 0.4% in the third quarter of 2017 and 0.3% in the second
quarter of 2017.
Together with persistently higher than expected inflation,
primarily driven by weak sterling as well as low productivity, the
future economic growth outlook remains subdued. Despite this, the
labour market has been resilient, recording its highest level of
employment in over four decades.
The decision to leave the European Union is having a noticeable
impact on the economic outlook. The increase in the inflation rate
reflects the impact of the fall in sterling on the price of
imports. In order to counter this inflationary pressure earlier
this month the Bank of England
increased the Base Rate by 0.25% to 0.5%, its first rise in ten
years. In our view, this suggests that they are sufficiently
confident that the economy can absorb this rise without significant
impact and whilst further rises are possible, the Monetary Policy
Committee stated that any future increases would be expected to be
at a gradual pace and to a limited extent. They also indicated that
there remains considerable risks to the economic outlook, including
the response of households, businesses and financial markets to
developments related to the process of EU withdrawal and with this
move, the Committee has further headroom to respond as
required.
UK Property Market
The commercial property market has held up well against this
backdrop. The MSCI IPD Monthly Index shows a total return for All
Property for the six months to September
2017 of 5.2%, with an income return of 2.7%. Capital growth
for the six months to September 2017
was 2.4% compared to 2.0% for the six months to March 2017. Rental growth was positive at 1.0%
for the six months to September, marginally higher than 0.8% for
the six months to March 2017. Initial
yields have moved from 5.3% in March
2017 to 5.2% in September
2017.
Industrial remained the best performing sector for the six
months to September with total returns of 9.6%, almost double the
All Property average. For the same period, office and retail
returns were 4.0% and 3.7%, respectively.
The MSCI IPD Quarterly Digest recorded an occupancy rate of
93.0% in September 2017 (March 2017: 92.8%).
In the industrial sector, returns comprised 2.8% income and 6.7%
capital growth. Rental growth was 2.6%. In terms of capital growth
by segment, growth ranged from 2.8% in North and Scotland to 8.7% in London. Similarly, rental growth ranged from
4.9% in Inner South East to 1.0% for North and Scotland.
In the office sector, returns comprised 2.4% income and 1.6%
capital growth. Rental growth was 0.7%. In terms of capital growth
by segment, growth ranged from 2.9% in Outer South East to -2.0% in
Scotland. Similarly, rental growth
ranged from 3.0% for Outer South East to -0.3% for Scotland.
In the retail sector, returns comprised 3.0% income and 0.7%
capital growth. Rental growth was 0.3%. In terms of capital growth
by segment, growth ranged from 3.5% for Retail Warehouses in
London to -2.5% for Rest of UK
Shopping Centres. Similarly, rental growth ranged from 2.2% for
South East Retail Warehouses to -1.5% for West Midland Standard
Retail.
According to Property Data, total investment for the six months
to September 2017 was £30 billion, an
increase of 10.2% compared to £27.2 billion in the six months to
March 2017. Over half of total
investment in the period was from overseas investors.
Performance
For the six months to September, the portfolio returned 6.3%,
outperforming the MSCI IPD Quarterly Benchmark which delivered
5.0%. The income return was 2.9%, 0.7% ahead of the Benchmark.
The portfolio valuation increased on a like-for-like basis by
3.4% over the period. The industrial portfolio increased by 6.0%
and the office portfolio by 3.1%, while there was no change in the
retail and leisure portfolio.
Our overweight position to the better performing sectors
combined with active management and leasing activity contributed to
the portfolio’s outperformance. Passing rent increased on a
like-for-like basis by 4.4%, with the lettings at 50 Farringdon
Road, London EC1 being the major
driver. Overall, like-for-like ERV grew by 1.7%, led by the
industrial portfolio at 3.0%, followed by the office portfolio at
1.5% and no change on the retail and leisure portfolio.
Portfolio Strategy
We believe that our diversified portfolio strategy, focus on
income, overweight position to the better performing industrial and
office sectors and our strong occupier focus is entirely
appropriate for current market conditions. We remain committed to
providing good quality space that businesses want to occupy and to
working with our occupiers to assist them in achieving their
goals.
We have demonstrated over the long term our ability to
consistently deliver a higher than average income return despite a
shorter than average lease expiry profile. By offering occupiers
flexibility, we have been able to maintain a high occupancy rate.
Where occupiers vacate, our aim is to create a product which is
attractive to occupiers and re-lets easily. Over the six months, we
have invested £2.3 million back into our assets, including
refurbishing vacant space at 180 West George Street, Glasgow and at Angel Gate, London, developing the Starbucks pod unit at
Gloucester Retail Park and modernising our industrial estate in
Wokingham.
Investment Activity
Investment activity over the period reflected our strategy of
investing into sectors where we have identified value and income
growth potential and disposing of assets where upside is limited
and business plans have been completed.
Two non-income producing office assets in Bracknell were sold
for a combined consideration of £9.9 million, representing an
overall gain of 37% above the March valuation. L’Avenir was a
single-let office, which became vacant at the end of June. Phoenix
House was also vacant and followed the disposal of Queensgate
House, both in Waterside Park, earlier in the year. The rationale
for the disposals was the attractive pricing relative to the future
leasing and redevelopment risk.
During the period, we completed the acquisition of a grade A
waterfront office building located in Bristol city centre for £23.2 million. Tower
Wharf was constructed in 2005 to a BREEAM ‘Excellent’ rating, and
provides over 70,000 sq ft of office accommodation arranged over
ground and five upper floors. With 25,400 sq ft of vacant
accommodation already fully refurbished to a high standard, we
envisage leasing the space quickly in a strong occupational market.
This is a good example of the type of investment opportunity where
we can unlock attractive future performance.
The purchase price reflects a net initial yield of 3.6%, which
is expected to grow to 7.5% on leasing the remaining vacant space
and capturing the full reversionary potential. The purchase price
represents a capital value of approximately £328 per sq ft, in line
with the estimated replacement cost.
Occupancy
Occupancy has increased over the period to 95%, primarily due to
the lettings at 50 Farringdon Road, London EC1 and Unit E, River Way, Harlow, which contribute a combined
rent of over £1 million per annum.
The purchase of Tower Wharf, Bristol held back the occupancy as it is
currently 64% occupied, which provides significant upside potential
upon letting. Combined with the recently refurbished floors at 180
West George Street in Glasgow,
these two properties account for 44% of the portfolio void. Both
buildings provide grade A space in regional city centre markets
with tight supply and we are confident about the letting
prospects.
Looking Ahead
The portfolio has £6.0 million of reversion, primarily in the
industrial and office sectors. £2.6 million of the reversion is
from lettings, £1.6 million from lease renewals and rent reviews
with the remainder from contracted uplifts. The supply and demand
imbalance, combined with a lack of development, should drive rental
growth in the industrial and office sectors in particular,
providing further upside.
Picton Capital Limited
13 November 2017
INVESTMENT MANAGER’S REPORT
INDUSTRIAL PORTFOLIO
|
30 September
2017 |
31 March
2017 |
Value |
£265.4
million |
£250.4
million |
Internal Area |
2,730,000
sq ft |
2,730,000
sq ft |
Annual Rental
Income |
£15.8
million |
£15.3
million |
Estimated Rental
Value |
£17.8
million |
£17.3
million |
Occupancy |
98.2% |
98.6% |
Number of Assets |
17 |
17 |
The industrial portfolio has continued to perform well. Tight
supply, limited development and continued demand has resulted in
significant rental growth, especially in the South East, which we
have captured through asset management activity. Capital values
increased by 6.0% on a like-for-like basis. The rent roll increased
by 3.3% to £15.8 million per annum and the ERV grew by 3.0% to
£17.8 million on a like-for-like basis. The portfolio has a
weighted average lease length of 4.8 years to the first lease
event.
The UK wide distribution warehouse portfolio totals 1.3 million
sq ft in six fully income producing units, let to occupiers
including Belkin, DHL and The Random House Group. The multi-let
estates, 69% located in the South East and 31% in the rest of the
UK, total 1.4 million sq ft and are 97% let. Eight units are
vacant, three of which were recently surrendered.
Notable lettings during the period include our largest
industrial void, at Unit E, River
Way in Harlow. This follows receipt of planning consent for
a change of use, thereby satisfying conditions contained within an
Agreement to Lease, completed earlier in the year. The 30,500
sq ft letting secures a minimum ten-year term certain and will
produce an initial rent of £0.2 million per annum.
We have secured £0.14 million of additional income from five
rent reviews settled over the period, 2% ahead of ERV. Two tenants
have been retained at renewal securing £0.22 million per annum, 8%
above ERV. Three leases were surrendered to facilitate active
management and we expect to increase the passing rent, on
re-letting, by 31% to £0.22 million per annum. Two of these units
are under offer.
The industrial portfolio currently has £2.0 million of reversion
and with high occupancy we can look to capture this through active
management and lease events. Looking to the end of 2018, we have 23
lease events with an ERV of £2.0 million per annum, £0.3 million
above the current passing rent.
OFFICE PORTFOLIO
|
30 September
2017 |
31 March
2017 |
Value |
£236.3
million |
£213.9
million |
Internal Area |
936,000
sq ft |
925,000
sq ft |
Annual Rental
Income |
£14.9
million |
£13.8
million |
Estimated Rental
Value |
£18.8
million |
£17.6
million |
Occupancy |
89.8% |
87.5% |
Number of Assets |
18 |
19 |
Our office portfolio was rebalanced last year towards the
regional markets, with 64% outside London, which has helped us to outperform. On
a like-for-like basis capital values increased by 3.1% and the rent
roll increased by 9.7% to £14 million per annum. The portfolio has
a weighted average lease length of 3.8 years, assisted by recent
lettings and active management such as at Sentinel House in Fleet,
where we removed the break clauses from two leases extending the
income from 2020 to 2025 with no incentive.
The portfolio is 90% let and letting activity was dominated by
the largest office vacancy at 50 Farringdon Road. Three suites of a
combined 15,600 sq ft have been let, generating a combined rent of
£0.81 million per annum. The lettings are 2% ahead of ERV and
87% of the building is now let.
We have secured a 70% uplift at one rent review, increasing the
rent to £0.19 million per annum, 7% over ERV, and retained three
tenants at lease renewal securing £0.28 million per annum, 3% above
ERV.
The short-term opportunities are the letting of the recently
acquired Tower Wharf, Bristol,
which is being marketed with good interest, and 180 West George
Street, Glasgow where the
refurbishment was completed in August. The combined ERV of voids at
these two properties is £1.1 million. Along with the final suite at
50 Farringdon Road, these three properties account for 69% of the
total office void.
We believe that our regional offices will perform well due to a
tight supply in key locations, continued demand for space and the
potential for rents to increase from relatively low levels. In
London, the occupational market is
active but more subdued. The portfolio has £3.8 million of
reversionary potential and up to the end of 2018 the office
portfolio has 37 lease events with an ERV of £3.0 million per
annum, £0.14 million above the current passing rent.
RETAIL AND LEISURE PORTFOLIO
|
30 September
2017 |
31 March
2017 |
Value |
£159.7
million |
£160.1
million |
Internal Area |
824,000
sq ft |
824,000
sq ft |
Annual Rental
Income |
£10.9
million |
£11.0
million |
Estimated Rental
Value |
£11.0
million |
£11.0
million |
Occupancy |
97.1% |
98.8% |
Number of Assets |
17 |
17 |
On a like-for-like basis both capital values and the rent roll
remained flat over the period, with passing rent being £10.9
million per annum. The portfolio has a weighted average lease
length of 7.9 years and is rack rented. The retail portfolio is
delivering the highest yield of 6.3% and a lot of the rents have
been rebased since 2007.
The largest asset in the retail and leisure portfolio by value
is Stanford House in Covent Garden, a prime central London asset. 40% is in four retail warehouses
with active management potential, and the remainder is in high
street retail and leisure.
There has been limited asset management activity in the retail
and leisure portfolio reflecting the already high occupancy at 97%.
The most significant void relates to a retail warehouse unit in
Bury, Greater Manchester, which recently became
vacant. We are working on a comprehensive refurbishment to attract
new retailers. The park continues to be anchored by TK Maxx.
During the period, the creation of the pod unit at Gloucester
Retail Park was finished and a lease completed with a Starbuck’s
franchisee for ten years at £60,000 per annum. At the same time, we
improved the landscaping and signage, and resurfaced the car
park.
Existing trends will continue in retail and leisure, with big
regional cities and the best micro-locations succeeding at the
expense of more secondary locations; however, we consider our
exposure to the sector to be robust with added value opportunities
on the retail warehouse parks and at Stanford House in Covent
Garden in particular. Up to the end of 2018 the retail and leisure
portfolio has only ten lease events with an ERV of £2.1 million per
annum, £0.43 million above the current passing rent. 73% of this
reversion relates to Stanford House, where the leases are lined up
to secure vacant possession to facilitate a comprehensive
refurbishment and repositioning scheme in 2018.
TOP TEN ASSETS
The largest assets in the portfolio as at 30 September 2017, ranked by capital value,
represent 48% of the total portfolio valuation and are detailed
below:
|
Sector |
Tenure |
Approximate
Area (sq ft) |
Parkbury Industrial
Estate, Radlett, Herts. |
Industrial |
Freehold |
336,700 |
River Way Industrial
Estate, Harlow, Essex |
Industrial |
Freehold |
455,000 |
Angel Gate Office
Village, City Road, London EC1 |
Office |
Freehold |
64,500 |
Stanford House, Long
Acre, London WC2 |
Retail |
Freehold |
19,600 |
50 Farringdon Road,
London EC1 |
Office |
Leasehold |
31,000 |
Tower Wharf,
Bristol |
Office |
Freehold |
70,600 |
Shipton Way, Rushden,
Northants. |
Industrial |
Freehold |
312,850 |
Pembroke Court,
Chatham, Kent |
Office |
Leasehold |
86,300 |
Colchester Business
Park, Colchester, Essex |
Office |
Leasehold |
151,000 |
Queens Road,
Sheffield |
Retail Warehouse |
Freehold |
106,000 |
A full portfolio listing is available on the Company’s website:
www.picton.co.uk
PORTFOLIO ALLOCATION BY VALUE
Sector |
% |
Industrial |
40.1 |
South East |
27.5 |
Rest of UK |
12.6 |
Office |
35.7 |
London City & West
End |
4.2 |
Inner & Outer
London |
8.8 |
South East |
10.6 |
Rest of UK |
12.1 |
Retail &
Leisure |
24.2 |
Retail Warehouse |
9.8 |
High Street – Rest of
UK |
6.8 |
High Street – South
East |
5.5 |
Leisure |
2.1 |
DIRECTORS’ RESPONSIBILITIES
STATEMENT OF PRINCIPAL RISKS AND
UNCERTAINTIES
The Company’s assets comprise direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general and its investment
properties. Other risks faced by the Company include economic,
investment and strategic, regulatory, management and control,
operational and financial risks.
These risks, and the way in which they are managed, are
described in more detail under the heading ‘Risk Management’ within
the Strategic Report in the Company’s Annual Report for the year
ended 31 March 2017. The Company’s
principal risks and uncertainties have not changed materially since
the date of that report.
STATEMENT OF GOING CONCERN
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Therefore, they continue to adopt the going
concern basis in preparing the financial statements.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE INTERIM REPORT
We confirm that to the best of our knowledge:
a. the condensed set of consolidated
financial statements has been prepared in accordance with IAS 34
‘Interim Financial Reporting’;
b. the Chairman’s Statement and
Investment Manager’s Report (together constituting the Interim
Management Report) together with the Statement of Principal Risks
and Uncertainties above include a fair review of the information
required by the Disclosure Guidance and Transparency Rules (‘DTR’)
4.2.7R, being an indication of important events that have occurred
during the first six months of the financial year, a description of
principal risks and uncertainties for the remaining six months of
the year, and their impact on the condensed set of consolidated
financial statements; and
c. the Chairman’s Statement together
with the condensed set of consolidated financial statements include
a fair review of the information required by DTR 4.2.8R, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period, and any changes in the related party
transactions described in the last Annual Report that could do
so.
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.
By Order of the Board
Robert
Sinclair
Director
13 November 2017
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 SEPTEMBER
2017
|
Note |
Income
£000 |
Capital
£000 |
6 months
ended
30 September 2017
unaudited
Total
£000 |
6 months ended
30 September 2016
unaudited
Total
£000 |
Year
ended
31 March
2017
audited
Total
£000 |
Income |
|
|
|
|
|
|
Revenue from
properties |
3 |
24,323 |
– |
24,323 |
29,894 |
54,398 |
Property expenses |
4 |
(5,605) |
– |
(5,605) |
(5,324) |
(12,011) |
Net property
income |
|
18,718 |
– |
18,718 |
24,570 |
42,387 |
Expenses |
|
|
|
|
|
|
Management
expenses |
|
(1,810) |
– |
(1,810) |
(1,610) |
(3,636) |
Other operating
expenses |
|
(924) |
– |
(924) |
(681) |
(1,613) |
Total operating
expenses |
|
(2,734) |
– |
(2,734) |
(2,291) |
(5,249) |
|
|
|
|
|
|
|
Operating profit
before movement on investments |
|
15,984 |
– |
15,984 |
22,279 |
37,138 |
|
|
|
|
|
|
|
Gains and (losses)
on investments |
|
|
|
|
|
|
Profit/(loss) on
disposal of investment properties |
9 |
– |
2,488 |
2,488 |
(570) |
1,847 |
Investment property
valuation movements |
9 |
– |
17,362 |
17,362 |
266 |
15,087 |
Total gains/(losses)
on investments |
|
– |
19,850 |
19,850 |
(304) |
16,934 |
|
|
|
|
|
|
|
Operating
profit |
|
15,984 |
19,850 |
35,834 |
21,975 |
54,072 |
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
Interest
receivable |
|
10 |
– |
10 |
35 |
62 |
Interest payable |
|
(4,904) |
– |
(4,904) |
(6,018) |
(10,885) |
Total finance
costs |
|
(4,894) |
– |
(4,894) |
(5,983) |
(10,823) |
|
|
|
|
|
|
|
Profit before
tax |
|
11,090 |
19,850 |
30,940 |
15,992 |
43,249 |
Tax |
|
(286) |
– |
(286) |
(334) |
(499) |
Profit and total
comprehensive income for the period |
|
10,804 |
19,850 |
30,654 |
15,658 |
42,750 |
|
|
|
|
|
|
|
Earnings per
share |
|
|
|
|
|
|
Basic and diluted |
7 |
2.0p |
3.7p |
5.7p |
2.9p |
7.9p |
The total column of this statement represents the Group’s
Condensed Consolidated Statement of Comprehensive Income. The
supplementary income return and capital return columns are both
prepared under guidance published by the Association of Investment
Companies. All items in the above statement derive from continuing
operations.
All income is attributable to the equity holders of the Company.
There are no minority interests. Notes 1 to 15 form part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 SEPTEMBER
2017
|
Note |
Share
Capital
£000 |
Other
Reserves
£000 |
Retained
Earnings
£000 |
Total
£000 |
Balance as at 31
March 2016 |
|
157,449 |
– |
259,683 |
417,132 |
Profit for the
period |
|
– |
– |
15,658 |
15,658 |
Dividends paid |
6 |
– |
– |
(8,911) |
(8,911) |
|
|
|
|
|
|
Balance as at 30
September 2016 |
|
157,449 |
– |
266,430 |
423,879 |
Profit for the
period |
|
– |
– |
27,092 |
27,092 |
Dividends paid |
6 |
– |
– |
(9,046) |
(9,046) |
|
|
|
|
|
|
Balance as at 31
March 2017 |
|
157,449 |
– |
284,476 |
441,925 |
Profit for the
period |
|
– |
– |
30,654 |
30,654 |
Share based awards |
|
– |
358 |
– |
358 |
Dividends paid |
6 |
– |
– |
(9,181) |
(9,181) |
|
|
|
|
|
|
Balance as at 30
September 2017 |
|
157,449 |
358 |
305,949 |
463,756 |
Notes 1 to 15 form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED BALANCE
SHEET
AS AT 30 SEPTEMBER 2017
|
Note |
30 September
2017
unaudited
£000 |
30 September
2016
unaudited
£000 |
31 March
2017
audited
£000 |
Non-current
assets |
|
|
|
|
Investment
properties |
9 |
652,104 |
621,149 |
615,170 |
Tangible assets |
|
12 |
34 |
17 |
Accounts
receivable |
|
3,155 |
3,470 |
3,204 |
Total non-current
assets |
|
655,271 |
624,653 |
618,391 |
|
|
|
|
|
Current
assets |
|
|
|
|
Accounts
receivable |
|
16,256 |
21,208 |
16,077 |
Cash and cash
equivalents |
|
30,071 |
35,302 |
33,883 |
Total current
assets |
|
46,327 |
56,510 |
49,960 |
|
|
|
|
|
Total
assets |
|
701,598 |
681,163 |
668,351 |
|
|
|
|
|
Current
liabilities |
|
|
|
|
Accounts payable and
accruals |
|
(19,421) |
(21,246) |
(19,958) |
Loans and
borrowings |
10 |
(1,128) |
(30,115) |
(1,104) |
Obligations under
finance leases |
|
(109) |
(109) |
(109) |
Total current
liabilities |
|
(20,658) |
(51,470) |
(21,171) |
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
Loans and
borrowings |
10 |
(215,470) |
(204,098) |
(203,540) |
Obligations under
finance leases |
|
(1,714) |
(1,716) |
(1,715) |
Total non-current
liabilities |
|
(217,184) |
(205,814) |
(205,255) |
|
|
|
|
|
Total
liabilities |
|
(237,842) |
(257,284) |
(226,426) |
|
|
|
|
|
Net assets |
|
463,756 |
423,879 |
441,925 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
11 |
157,449 |
157,449 |
157,449 |
Retained earnings |
|
305,949 |
266,430 |
284,476 |
Other reserves |
11 |
358 |
– |
– |
|
|
|
|
|
Total
equity |
|
463,756 |
423,879 |
441,925 |
|
|
|
|
|
Net asset value per
share |
13 |
86p |
78p |
82p |
These condensed consolidated financial statements were approved
by the Board of Directors on 13 November
2017 and signed on its behalf by:
Robert Sinclair
Director
Notes 1 to 15 form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS
FOR THE HALF YEAR ENDED 30 SEPTEMBER
2017
|
Note |
6 months
ended
30 September 2017
unaudited
£000 |
6 months ended
30 September
2016
unaudited
£000 |
Year ended
31 March
2017
audited
£000 |
Operating
activities |
|
|
|
|
Operating profit |
|
35,834 |
21,975 |
54,072 |
Adjustments for
non-cash items |
12 |
(19,480) |
327 |
(16,894) |
Interest received |
|
10 |
35 |
62 |
Interest paid |
|
(4,532) |
(4,702) |
(9,273) |
Tax paid |
|
(202) |
(91) |
(232) |
Increase in
receivables |
|
(202) |
(7,087) |
(2,344) |
(Decrease)/ increase in
payables |
|
(709) |
2,710 |
1,449 |
Cash inflows from
operating activities |
|
10,719 |
13,167 |
26,840 |
|
|
|
|
|
Investing
activities |
|
|
|
|
Acquisition of
investment properties |
9 |
(24,543) |
– |
– |
Capital expenditure on
investment properties |
9 |
(2,266) |
(2,507) |
(2,819) |
Disposal of investment
properties |
|
9,725 |
27,602 |
51,510 |
Purchase of tangible
assets |
|
(7) |
– |
– |
Cash
(outflows)/inflows from investing activities |
|
(17,091) |
25,095 |
48,691 |
|
|
|
|
|
Financing
activities |
|
|
|
|
Borrowings repaid |
|
(546) |
(16,323) |
(45,965) |
Borrowings drawn |
|
12,500 |
– |
– |
Financing costs |
|
(213) |
(485) |
(485) |
Dividends paid |
6 |
(9,181) |
(8,911) |
(17,957) |
Cash
inflows/(outflows) from financing activities |
|
2,560 |
(25,719) |
(64,407) |
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents |
|
(3,812) |
12,543 |
11,124 |
|
|
|
|
|
Cash and cash
equivalents at beginning of period/year |
|
33,883 |
22,759 |
22,759 |
|
|
|
|
|
Cash and cash
equivalents at end of period/year |
|
30,071 |
35,302 |
33,883 |
Notes 1 to 15 form part of these condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 SEPTEMBER
2017
1. GENERAL INFORMATION
Picton Property Income Limited (the “Company” and together with
its subsidiaries the “Group”) was registered on 15 September 2005 as a closed ended Guernsey
investment company.
The financial statements are prepared for the period from 1
April to 30 September 2017, with
unaudited comparatives for the period from 1 April to 30 September 2016. Comparatives are also provided
from the audited financial statements for the year ended
31 March 2017.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
IAS 34 ‘Interim Financial Reporting’. They do not include all of
the information required for full annual financial statements, and
should be read in conjunction with the financial statements of the
Group as at and for the year ended 31 March
2017.
The accounting policies applied by the Group in these financial
statements are the same as those applied by the Group in its
financial statements as at and for the year ended 31 March 2017.
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards
(‘IFRS’) as adopted by the IASB. The Group’s annual financial
statements for the year ended 31 March
2017 refer to new Standards and Interpretations none of
which had a material impact on these financial statements. There
have been no significant changes to management judgement and
estimates as disclosed in the last annual report and financial
statements for the year ended 31 March
2017.
3. REVENUE FROM PROPERTIES
|
6 months
ended
30 September
2017
£000 |
6 months ended
30 September
2016
£000 |
Year ended
31 March
2017
£000 |
Rents receivable
(adjusted for lease incentives) |
20,366 |
20,730 |
40,555 |
Surrender premiums |
133 |
213 |
263 |
Dilapidation
receipts |
689 |
155 |
1,090 |
Other income |
134 |
6,005 |
6,003 |
Service charge
income |
3,001 |
2,791 |
6,487 |
|
24,323 |
29,894 |
54,398 |
Rents receivable includes lease incentives recognised of £0.1
million (30 September 2016: £0.9
million, 31 March 2017: £0.9
million).
In the period ended 30 September
2016 and year ended 31 March
2017, £5.3 million was included within other income from the
settlement received in respect of a dispute at the Strathmore Hotel
in Luton.
4. PROPERTY EXPENSES
|
6 months
ended
30 September
2017
£000 |
6 months ended
30 September
2016
£000 |
Year ended
31 March
2017
£000 |
Property operating
expenses |
1,704 |
1,468 |
3,501 |
Property void
costs |
900 |
1,065 |
2,023 |
Recoverable service
charge costs |
3,001 |
2,791 |
6,487 |
|
5,605 |
5,324 |
12,011 |
5. OPERATING SEGMENTS
The Board is charged with setting the Company’s investment
policy and strategy in accordance with the Company’s investment
restrictions and overall objectives. 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 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 52 commercial properties, which are in
the industrial, office, retail, retail warehouse and leisure
sectors.
6. DIVIDENDS
Declared and paid: |
6 months
ended
30 September
2017
£000 |
6 months ended
30 September
2016
£000 |
Year ended
31 March
2017
£000 |
Interim dividend for
the period ended 31 March 2016: 0.825 pence |
– |
4,455 |
4,455 |
Interim dividend for
the period ended 30 June 2016: 0.825 pence |
– |
4,456 |
4,456 |
Interim dividend for
the period ended 30 September 2016: 0.825 pence |
– |
– |
4,456 |
Interim dividend for
the period ended 31 December 2016: 0.85 pence |
– |
– |
4,590 |
Interim dividend for
the period ended 31 March 2017: 0.85 pence |
4,590 |
– |
– |
Interim dividend for
the period ended 30 June 2017: 0.85 pence |
4,591 |
– |
– |
|
9,181 |
8,911 |
17,957 |
The interim dividend of 0.85 pence
per ordinary share in respect of the period ended 30 September 2017 has not been recognised as a
liability as it was declared after the period end. A dividend of
£4,591,000 will be paid on 30 November
2017.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net
profit for the period attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue
during the period. The following reflects the profit and share data
used in the basic and diluted profit per share calculation:
|
6 months
ended
30 September 2017 |
6 months ended
30 September
2016 |
Year ended
31 March
2017 |
Net profit attributable
to ordinary shareholders of the Company from continuing operations
(£000) |
30,654 |
15,658 |
42,750 |
Weighted average number
of ordinary shares for basic profit/(loss) per share |
540,053,660 |
540,053,660 |
540,053,660 |
Weighted average number
of ordinary shares for diluted profit/(loss) per share |
541,084,131 |
540,053,660 |
540,053,660 |
The diluted number of shares reflects
the contingent shares to be issued under the Long Term Incentive
Plan.
8. FAIR VALUE MEASUREMENTS
The fair value measurement for the financial assets and
financial liabilities are 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. The fair value of the Group’s secured loan facilities,
as disclosed in note 10, are included in Level 2.
Level 3: unobservable inputs for the asset or liability. The
fair value of the Group’s investment properties is included in
Level 3.
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. There were no transfers between levels for
the period ended 30 September
2017.
The fair value of all other financial assets and liabilities is
not materially different from their carrying value in the financial
statements.
The Group’s financial risk management objectives and policies
are consistent with those disclosed in the consolidated financial
statements for the year ended 31 March
2017.
9. INVESTMENT PROPERTIES
|
6 months
ended
30 September 2017
£000 |
6 months
ended
30 September
2016
£000 |
Year ended
31 March
2017
£000 |
Fair value at start of
period/year |
615,170 |
646,018 |
646,018 |
Acquisitions |
24,543 |
– |
– |
Capital expenditure on
investment properties |
2,266 |
2,507 |
2,819 |
Disposals |
(9,725) |
(27,072) |
(50,601) |
Realised gains on
disposal |
2,520 |
– |
2,440 |
Realised losses on
disposal |
(32) |
(570) |
(593) |
Unrealised gains on
investment properties |
25,416 |
7,336 |
25,729 |
Unrealised losses on
investment properties |
(8,054) |
(7,070) |
(10,642) |
Fair value at the
end of the period/year |
652,104 |
621,149 |
615,170 |
Historic cost at
the end of the period/year |
659,722 |
670,047 |
654,057 |
The fair value of investment properties reconciles to the
appraised value as follows:
|
30 September
2017
£000 |
30 September
2016
£000 |
31 March
2017
£000 |
Appraised value |
661,415 |
630,460 |
624,410 |
Valuation of assets
held under finance leases |
1,660 |
1,701 |
1,680 |
Lease incentives held
as debtors |
(10,971) |
(11,012) |
(10,920) |
Fair value at the
end of the period/year |
652,104 |
621,149 |
615,170 |
As at 30 September 2017, all of
the Group’s properties are Level 3 in the fair value hierarchy as
it involves the use of significant inputs and there were no
transfers between levels during the period. 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, i.e. derived
from prices).
The investment properties were valued by CBRE Limited, Chartered
Surveyors, as at 30 September 2017 on
the basis of fair value in accordance with the RICS Valuation –
Global Standards 2017 which incorporates the International
valuation standards and the RICS Valuation – Professional Standards
UK January 2014 (revised April 2015). There were no significant changes to
the inputs into the valuation process (ERV, net initial yield,
reversionary yield and true equivalent yield), or assumptions and
techniques used during the period, further details on which were
included in note 14 of the consolidated financial statements of the
Group for the year ended 31 March
2017.
The Group’s borrowings (note 10) are secured by a first ranking
fixed charge over the majority of investment properties held.
10. LOANS AND BORROWINGS
|
Maturity |
30 September
2017
£000 |
30 September
2016
£000 |
31 March
2017
£000 |
Current |
|
|
|
|
Aviva facility |
– |
1,128 |
1,080 |
1,104 |
Zero dividend
preference shares |
15
October 2016 |
– |
29,035 |
– |
|
|
1,128 |
30,115 |
1,104 |
Non-current |
|
|
|
|
Santander revolving
credit facility |
18 June
2021 |
12,500 |
– |
– |
Canada Life
facility |
20 July
2022 |
33,718 |
33,718 |
33,718 |
Canada Life
facility |
24 July
2027 |
80,000 |
80,000 |
80,000 |
Aviva facility |
24 July
2032 |
89,252 |
90,380 |
89,822 |
|
|
215,470 |
204,098 |
203,540 |
|
|
216,598 |
234,213 |
204,644 |
In 2012, the Group entered into loan facilities with Canada Life
Limited and Aviva Commercial Finance Limited for £113.7 million and
£95.3 million respectively. The facility with Canada Life has a
term of 15 years, with £33.7 million repayable on the tenth
anniversary of drawdown. The Aviva facility has a term of 20 years
with approximately one third repayable over the life of the loan in
accordance with a scheduled amortisation profile.
The fair value of the secured loan facilities at 30 September 2017, estimated as the present value
of future cash flows discounted at the market rate of interest at
that date, was £223.2 million (30 September
2016: £235.3 million, 31 March
2017: £229.1 million). The fair value of the secured loan
facilities is classified as Level 2 under the hierarchy of fair
value measurements.
The Group has two revolving credit facilities (“RCF”) with
Santander Corporate & Commercial Banking. The facility that had
a maturity date of 2018 was extended during the period and now
expires at the same time as the second RCF, in June 2021. The extended RCF is initially for £24
million, and once drawn, interest is charged at 190 basis points
over 3 month LIBOR. In total the Group has £51.0 million available
under both facilities, of which £12.5 million was drawn down in the
period.
The weighted average interest rate on the Group’s borrowings as
at 30 September 2017 was 4.10%
(30 September 2016: 4.59%,
31 March 2017: 4.21%).
11. SHARE CAPITAL AND OTHER
RESERVES
The Company has 540,053,660 ordinary shares in issue of no par
value (30 September 2016:
540,053,660, 31 March 2017:
540,053,660).
The balance on the Company’s share premium account as at
30 September 2017 was £157,449,000
(30 September 2016: £157,449,000,
31 March 2017: £157,449,000).
The fair value of awards made under the Long Term Incentive Plan
is recognised in other reserves.
12. ADJUSTMENT FOR NON-CASH MOVEMENTS
IN THE CASH FLOW STATEMENT
|
6 months
ended
30 September 2017
£000 |
6 months
ended
30 September
2016
£000 |
Year ended
31 March
2017
£000 |
(Profit)/loss on
disposal of investment properties |
(2,488) |
570 |
(1,847) |
Investment property
valuation movements |
(17,362) |
(266) |
(15,087) |
Share based
provisions |
358 |
– |
– |
Depreciation of
tangible assets |
12 |
23 |
40 |
|
(19,480) |
327 |
(16,894) |
13. NET ASSET VALUE
The net asset value per ordinary share is based on net assets at
the period end and 540,053,660 (30 September
2016: 540,053,660, 31 March
2017: 540,053,660) ordinary shares, being the number of
ordinary shares in issue at the period end.
At 30 September 2017, the Company
had a net asset value per ordinary share of £0.86 (30 September 2016: £0.78, 31 March 2017: £0.82).
14. RELATED PARTY TRANSACTIONS
The total fees earned during the period by the five Directors of
the Company were £103,000 (30 September
2016: £103,000, 31 March 2017:
£205,500). As at 30 September 2017
the Group owed £nil to the Directors (30
September 2016 and 31 March
2017: £nil).
There have been no changes in the related parties transactions
described in the last annual report that could have a material
effect on the financial position or performance of the Group in the
first six months of the current financial year.
The Company has no controlling parties.
15. EVENTS AFTER THE BALANCE SHEET
DATE
A dividend of £4,591,000 (0.85
pence per share) was approved by the Board on 19 October 2017 and is payable on 30 November 2017.
The Group has exchanged on the disposal of one property since
30 September 2017 for proceeds of
£0.6 million.
ENDS