PICTON PROPERTY
INCOME LIMITED
ANNUAL REPORT 2014
Contents
Page
PICTON PROPERTY INCOME LIMITED
WhO WE ARE
Picton Property Income
Limited is an income
focused, internally
managed investment
company, which invests
in commercial property
across the United Kingdom.
Established in 2005, Picton has over 850
investors and is listed on the London Stock
Exchange. Its investment objective is to
provide shareholders with an attractive level
of income, together with the potential for
capital growth, by investing in the principal
commercial property sectors.
Picton has a portfolio of UK commercial
property valued at £423.0 million, comprising
57 assets with around 380 occupiers.
The portfolio is predominantly invested in the
office and industrial sectors (72%) and is biased
towards London and the South East (66%).
We invest in assets where we believe there
are opportunities to enhance either income or
value and this is primarily achieved by providing
space that meets our occupiers’ requirements.
As at 31 March 2014, based on capital values,
the sector and geographical exposure was:
Sector exposure
Geographical exposure
3.3%
24.9%
38.8%
30.2%
36.0%
33.0%
33.8%
KEY
INDUSTRIAL
OFFICES
CENTRAL AND
GREATER LONDON
RETAIL
LEISURE
REST OF UK
SOUTH EAST
CONTENTS
1 Review of Business
Financial and Operational Highlights
Chairman’s Statement
2 Strategic Report
4
5
8
12
Investment Manager’s Report
Business Model and Strategy
Key Performance Indicators
13
15
17
32
Financial Review
Risk Management
35
Corporate Responsibility Statement 38
3 Directors’ Report
and Governance
Board of Directors
Investment Management Team
Corporate Goverance Report
Remuneration Report
Property Valuation
Committee Report
Directors’ Report
Audit Committee Report
Independent Auditor’s Report
42
4 Financial Statements
60
43
45
47
49
51
53
55
57
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement
of Cash Flows
Notes to the Consolidated
Financial Statements
5 Other Information
Supplementary Disclosures
(Unaudited)
Five Year Financial Summary
Glossary of Terms
Shareholder Information
61
62
63
64
65
88
89
94
95
97
CONTENTS
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1 Review of Business
2 Strategic Report
During the year we
have completed many
investment and asset
management transactions,
that have helped to
re-shape the portfolio,
create value or enhance
income. Examples of
these are set out in the
following case studies.
REFURBISHMENT
3
FULL OCCUPANCY
7
ACQUISITION
11
ACQUISITION
14
REFURBISHMENT
37
LETTING
41
LETTING
59
2
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
REFURBIShMENT
Carried out a substantial refurbishment
at Citylink, Croydon, of the common
areas and created a new reception, to
assist in the leasing of vacant space.
BEFORE
3
AFTER
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Review of
Business
1
Financial and Operational Highlights
Chairman’s Statement
5
8
ANNUAL REPORT 2014
4
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
REVIEW OF BUSINESS
FINANCIAL AND OPERATIONAL hIGhLIGhTS
Property Assets
net of lease
incentives
Net Assets
Profit After Tax
£417.6m
£382.7m
£411.7m
£214.1m
£169.4m
£196.1m
£37.3m
£(14.6)m
£6.5m
NAV Per Share
Dividends Paid Per Share
Earnings Per Share
56p
49p
57p
3.0p
3.5p
5.0p
10.4p
(4.2)p
1.9p
Dividend Cover
Total Shareholder Return
Total Return
124%
122%
83%
50.2%
6.2 %
(11.1)%
21.6%
(7.6)%
2.4%
YEAR TO 31 MARCH 2014
YEAR TO 31 MARCH 2013
15 MONTHS TO 31 MARCH 2012
EPRA Performance Measures
EPRA earnings per share
EPRA NAV per share
EPRA NNNAV per share
EPRA cost ratio (inc. direct vacancy costs)
EPRA cost ratio (exc. direct vacancy costs)
EPRA net initial yield
EPRA ‘topped-up’ net initial yield
EPRA vacancy rate
2014
3.7p
56p
61p
23.5%
18.0%
6.5%
6.7%
8.7%
2013
4.3p
49p
51p
22.5%
17.2%
7.0%
7.4%
12.4%
2012
4.1p
58p
57p
29.3%
22.9%
6.5%
7.1%
8.9%
See Supplementary Disclosures on page 89 for a breakdown of EPRA performance measures and definitions.
5
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED FINANCIAL hIGhLIGhTS
Total return of 21.6%
for the year
Increase in EPRA NAV
to 56 pence per share,
up 14.3%
Profit for the year of
£37.3 million, up from
a loss of £14.6 million
for March 2013
Dividend cover of 124%,
reflecting dividends
paid of 3 pence per
share, or £10.7 million
Gains on investment
properties of
£24.1 million
Reduction in loan to
value ratio to 48%,
down from 55%
£18.2 million of new
equity raised at an
average premium to
net asset value of 5.7%
OPERATIONAL hIGhLIGhTS
Improved portfolio
occupancy from
88% to 91%
Annual property return
of 14.0%, outperforming
the IPD Quarterly
Benchmark return
Re-shaped portfolio
through the year by
reducing the number
of assets and increasing
the average lot size
Over £2 million invested
into refurbishment
projects to improve
income generation
and retention
16 lease renewals and
re-gears retaining
£1.5 million per annum
47 lettings completed
during the year
securing £2.4 million
in additional income
• Invested £53.6 million
in new property
assets during
the year
• Completed asset
disposals for
proceeds of £44.9
million, on average
15.7% ahead of the
March 2013 valuation
• Diversified cash
flow and income
concentration
through asset swap
ANNUAL REPORT 2014
6
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
CASE STUDY
FULL OCCUPANCY
Full occupancy was achieved at Chancery
Lane WC2, Stanford House WC2 and
Datapoint Business Centre E16 following
refurbishment and leasing initiatives.
7
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PICTON PROPERTY INCOME LIMITED ChAIRMAN’S STATEMENT
Within our own portfolio there has been
valuation growth and we have improved
occupancy throughout the year. Our capital
structure and use of debt have enhanced
performance, leading to an increase in the
net asset value over the year.
Strategy
The Company’s objective is
to provide investors with an
attractive level of income, with
the potential for capital growth.
With the Company’s shares now trading at
a modest premium to net asset value, we
decided to issue more equity and make
further investments in the market. This has
helped us to re-shape the portfolio with a
focus on larger lot sizes, through making
both acquisitions and disposals. As we
increase the size of the portfolio, Picton
will also benefit from the economies of
scale resulting from our internalised
management structure.
A clear example of where our ‘hands on’
approach supports our strategic thinking
is our ability to understand and appreciate
the issues faced by our occupiers. During
the year we launched our Occupier Packs,
set out our Picton Promise service delivery
standards, established London ‘Touchdown
Rooms’ for our occupiers and implemented
a referral scheme.
We have improved occupancy throughout
the year, which the Board believes is
testament to our occupier focus and,
in particular, there is evidence that some
of the transactions arose as a result of
our relationship with occupiers.
Introduction
In the 12 months to 31 March
2014 Picton made considerable
progress against its strategic
objectives and our occupier
focused, opportunity led
approach is achieving positive
results for the Company and
its shareholders.
The shareholder total return for the 12
months to 31 March 2014 was 50.2% and
the total return, based on net asset value,
was 21.6%. It is pleasing for the Company
to have had such a strong year, but we
are not complacent and intend to build
on this positive momentum now that we
are operating in more favourable property
market conditions.
We have started to see property values
stablise in the UK commercial property
market, which is a very different situation
compared to this time last year. In particular,
markets outside central London are starting
to show signs of resilience after a prolonged
period of re-pricing. The combination of
improving investor sentiment, transaction
volumes and market pricing has led to
a rise in capital values over twelve
consecutive months.
Nicholas Thompson
Chairman
8
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
REVIEW OF BUSINESS
ChAIRMAN’S STATEMENT
Portfolio
We have made good progress
at the portfolio level and more
detail about activity is contained
in the Investment Manager’s
report. This is most evident
through the valuation gains
and the growth in occupancy
over four consecutive quarters,
achieved through both leasing
activity and a focus on occupier
retention. Occupancy within the
portfolio grew from 88% in March
2013 to 91% in March 2014.
Where we have extended income security,
this has in turn contributed to the strong
growth in net asset value and as ever there
remains a continual balance between the
income and capital position.
We have also re-shaped the portfolio with
three acquisitions and seven disposals over
the year. This has led to an increase in the
average lot size within the portfolio of over
19% which now stands at £7.4 million, with
an average income profile of 6.7 years.
Disposals have been made at a significant
premium to their March 2013 valuations,
which we believe justifies our decision
not to reduce gearing at the time of our
refinancing in 2012, when valuations were
being assessed against a backdrop of much
weaker pricing.
At a portfolio level we instigated further
initiatives to control costs. During the year
we re-negotiated a number of key supplier
contracts or made changes to suppliers
to ensure we continue to receive the
best possible advice in the most cost
effective manner.
Overview of performance
The strong performance this year,
on many levels, demonstrates
the success of our internally
managed, closed ended
investment company structure.
Financing
Following the equity issue on 20
May 2014, Picton has a market
capitalisation of around £270
million, which has increased
significantly since March 2013.
At the portfolio level, thus ignoring the
impact of gearing and corporate level costs,
the total property return, as measured by
IPD, was 14%, ahead of the IPD Quarterly
Benchmark, which returned 13.6%.
As stated earlier, the total return, impacted
principally by the movement in portfolio
valuation and the impact of gearing, has also
been strong at 21.6% for the year.
The shareholder total return was 50.2% for
the year, driven in part by a marked, and
long overdue, re-rating of the Company’s
shares, which are currently trading at a
modest premium to the most recently
reported net asset value.
This increase is a result of the growth in
the Company’s net assets, the issuance of
new equity and a marked re-rating of the
Company’s ordinary shares. This re-rating
enabled the Group to raise £18.2 million in
new equity during 2013 and invest further
into the recovering UK property market.
One of the Group’s key strategic priorities is
the effective use of debt, which has, against
stable and improving market conditions,
positively contributed to a higher return on
equity. In an environment where there is
expectation that interest rates will rise, we
are fortunate to have a fixed cost of debt
with a long and staggered maturity profile,
which is one of the most attractive within
the sector.
The Group’s level of gearing has reduced
over the year as asset values rose and the
new equity was invested. The loan to value
ratio now stands at 48%, compared with
55% twelve months ago. Our aim is to have
a medium term, mid cycle, gearing ratio of
around 35%.
We have previously indicated a desire
to grow the business, recognising that
economies of scale will result from our
internalised management structure. This is
evidenced through the small share placings
undertaken in September and November
last year. Most recently, and following the
year end, we announced and successfully
completed a further £35 million equity fund
raising. We believe the way we structured
this fundraising as part of an overall placing
programme, which provides the Company
with the ability to raise £100 million, will
minimise cash drag for shareholders while
providing us with the flexibility to take
advantage of opportunities arising in
the market.
The total property return, as
measured by IPD, was
14.0%
outperforming the IPD
Quarterly Benchmark
9
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Dividends and income
During the year the Group paid
dividends of £10.7 million and
maintained one of the strongest
levels of dividend cover within the
peer group, at 124%. This cover
reflects the re-based dividend
level which was set in late 2012
and has allowed us to operate
with a less obsessive focus on
income, and has arguably led
to stronger overall total returns.
We believe that the income return this year,
combined with the re-rating of the ordinary
shares, provides evidence to support the
decision taken in 2012 to take a more
prudent approach to distribution and that
investors accept this was the right choice to
deliver better returns in the longer term.
The flexibility afforded by our covered
dividend policy has enabled us to focus in
particular on the portfolio occupancy position
and accept that, in order to achieve longer
term capital and income growth, in the short
term there may be a lower income return.
The income surplus has been retained and
where appropriate re-invested back into
specific asset management initiatives.
We are seeing some impact from the
over-renting in the portfolio as new rents,
albeit on longer leases, are re-set at levels
lower than historically, recognising the
change in the economic environment
post 2007. There will always be a balance
between short term income against longer
term capital and income growth.
The Board regularly reviews the level of
dividend distribution and has concluded
that the current policy remains appropriate.
Whilst there is undoubtedly improvement
in the markets, rental growth is unlikely to
directly translate into income growth in the
short term. We believe that as the Company
continues to deploy funds and achieves
efficiencies from growth, this situation will
reverse and will provide greater scope to
review the policy in the future.
Controls, Governance and
Regulation
As set out in the Corporate
Governance report, the Group’s
activities fall within the scope of
the Alternative Investment Fund
Managers Directive. We have
determined that the Company
will act as the Manager under
these regulations, and as a result
of our internalised structure,
will not be subject to further
corporate level costs.
Specifically, the Board has established a Risk
Committee, to ensure that the Group’s risk
management policies are addressed in the
context of the responsibilities taken on by
the Board under this Directive.
We have continued to keep control of costs
and the internalised structure is working
well. All members of staff are remunerated
in a way that aligns their interests with
shareholders, which we think is hugely
important for the Company. This alignment
and focus on operational efficiency was
demonstrated this year when, with the
increase in equity, there was no resultant
increase in management costs.
Outlook
In terms of the investment
markets the positive change in
sentiment is extremely beneficial
for the Company. The Board
and the wider Picton team are
working hard to ensure that the
Company continues to prosper
and are focused in particular
on deploying the new equity
into property acquisitions in a
disciplined manner.
Whilst improving, occupier markets are
generally still subdued, but we are seeing
increasingly positive signs and rental growth
is starting to emerge, more specifically in
pockets outside central London.
The Board remains confident that, with
our current capital structure, internalised
management, covered dividend and portfolio
composition, along with the increased
firepower to make accretive acquisitions,
Picton is in a strong position to capitalise
on opportunities and deliver value
for shareholders.
Nicholas Thompson
Chairman
13 June 2014
50.2%
Total shareholder return
21.6%
Total return
10
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
ACQUISITION
Acquired a significant multi-let industrial
estate at Radlett, Herts, located inside the
M25 through an off market property swap.
Income can be enhanced through active
management and letting opportunities.
11
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Strategic
Report
2
Business Model and Strategy
Key Performance Indicators
Investment Manager’s Report
Financial Review
Risk Management
Corporate Responsibility Statement
13
15
17
32
35
38
12
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
Picton invests in commercial
property and owns a portfolio
consisting of 57 assets located
throughout the United Kingdom.
The portfolio covers the main
commercial property sectors
of office, industrial, retail, retail
warehouse and leisure, and has
around 380 occupiers providing
a diversified income stream from
a wide range of businesses. The
majority of this income is paid out
to investors in the form of quarterly
dividends, after deducting
operating and financing costs.
The Group is managed and controlled by its
Board which is based in Guernsey.
The Company’s Investment Restrictions
are set out on the Company’s website at
www.pictonproperty.co.uk
Strategy
The Company’s objective is to provide
investors with an attractive level of income,
with the potential for capital growth.
This is achieved by creating a portfolio of
assets with a high income bias. Assets are
managed to maximise the potential for both
income and, where appropriate, capital
growth. This is achieved through, amongst
Key strategic priorities
other things, improving the quality of
accommodation, extending income longevity
and exploring the potential to create value
through refurbishment, change of use or
redevelopment.
In addition we look to recycle capital where
opportunities exist for better risk adjusted
returns. The ability to invest across the
UK market and across sectors means
that we can be opportunity led. Equally,
understanding and meeting the needs of
new and existing occupiers is paramount.
Growth of net income
We aim to grow net income over the long term
through the active management of the property
portfolio. We aim to add additional annual
income from new lettings, lease renewals
and re-gears. We also strive to reduce the
portfolio voids by attracting new occupiers,
and by investing in our assets to make them
best in class in their local markets.
Working with our occupiers
We maintain regular communication with all our
occupiers. By doing this, we understand their
needs and can work to meet their requirements
in a timely manner. This year we have introduced
our occupier focused initiatives including the
‘Picton Promise’ – eight commitments to quality
and service that underpin every aspect
of our occupier experience. We believe that
these initiatives will lead to enhanced
occupancy and retention rates.
Operational efficiency
Picton is an internally managed investment
company. Its Investment Manager, Picton
Capital Limited, is a wholly owned subsidiary
company and has 11 permanent staff, as
at 31 March 2014. We believe this efficient
operating model will allow Picton to benefit
from economies of scale as it grows.
We constantly review property operating
costs and employ strategies to reduce
costs where possible.
Portfolio and asset management
Active asset management is core to our
approach and will continue to be implemented
to achieve further value enhancement of
our assets.
In addition, we will seek to acquire new
assets for the portfolio that offer the potential
of income and value enhancement whilst
disposing of assets that have been
identified as contributing less in terms
of performance, structure and risk.
Effective use of debt
Over the long term we believe that gearing will
increase returns to shareholders. The income
return from the portfolio will be enhanced by
the low, long term fixed interest rates in place
on the Group’s borrowings. At this stage of
the property cycle, gearing is proving accretive
to returns from the property portfolio. The
Board reviews the level of gearing in place on
a regular basis so that the Group can adapt to
changing market conditions as necessary.
13
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
CASE STUDY
CASE STUDY
ACQUISITION
Picton purchased Lyon Business Park,
Barking, a multi-let industrial estate, in
September 2013. The refurbishment of the
common areas to improve signage and
attract new occupiers has been completed.
14
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
KEY PERFORMANCE INDICATORS
The following key performance
indicators are considered to
be the most appropriate for
measuring how successful the
business has been in meeting its
strategic objectives. They also
play a key role in determining
remuneration strategy for the
Picton Capital team, as set out in
the Remuneration Report.
Total Shareholder Return
Total Return
50.2%
6.2%
(11.1)%
21.6%
(7.6)%
2.4%
The Total Shareholder Return measures the
change in the Company’s share price over
the year plus dividends paid.
The Total Return measures the change in
the Group’s net asset value, calculated in
accordance with IFRS, over the year plus
dividends paid.
Total Property Return
Property Income Return
14.0%
(0.7)%
5.0%
3 YEARS
5.3%
5 YEARS
7.7%
7.1%
7.0%
8.1%
3 YEARS
6.8%
5 YEARS
7.2%
The Total Property Return is the combined
ungeared income and capital return from
the Group’s property portfolio for the year,
as calculated by IPD.
The Property Income Return, as calculated
by IPD, is the ungeared income return of
the portfolio.
YEAR TO 31 MARCH 2014
YEAR TO 31 MARCH 2013
15 MONTHS TO 31 MARCH 2012
15
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1 Review of Business
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PICTON PROPERTY INCOME LIMITED
EPRA net asset value
per share
EPRA vacancy rate
Ongoing Charges
56p
49p
58p
8.7%
12.4%
8.9%
1.7%
1.7%
2.0%
The net asset value per share, calculated
in accordance with EPRA, measures the
value of shareholders’ equity in the business.
A reconciliation to the reported net asset
value under IFRS is provided in the
Financial Review on page 32.
The vacancy rate measures the amount
of vacant space in the portfolio at the end
of each financial period.
Ongoing Charges represents the annual
running costs of the Group. It is the
proportion of recurring operating costs
(management and other operating expenses)
to the average net asset value. The above
figures exclude property operating costs,
as the Board considers that these are not
recurring in nature, nor are they a measure
of how efficiently the business is run.
The Supplementary Disclosures section
on page 89 provides further analysis of
Ongoing Charges.
EPRA earnings per share
Loan to Value ratio
3.7p
4.3p
4.1p
47.7%
54.5%
48.3%
The earnings per share, calculated in
accordance with EPRA, measures the
operational profit generated by the business
that is attributable to our shareholders.
The loan to value ratio is total Group
borrowings, net of cash, as a percentage
of the total portfolio value.
See the Supplementary Disclosures section
on page 89 for further details.
16
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
Offices which have declined by 56.5% over
the same period.
The latest IPD Monthly data for April shows
that the rate of capital movement over a one
month period was 0.8% at the All Property
level, a slight slowdown from 1.0% in March
but still up from -0.04% in April 2013. While
London still outperforms, performance in the
regions has picked up markedly over the last
year, with the majority of regional segments
now recording positive growth in the year to
March 2014. For the quarter to March 2014,
35 of the 37 IPD segments recorded positive
capital growth movements, compared to
only four in March 2013.
The IPD Quarterly Digest recorded a 1.5%
rise in rents for All Property in the year to
March 2014. Rents in the office sector grew
by 4.4%, industrial by 1.3% and retail rents
fell by -0.2%. The strongest rise in rents
was seen in Mid-town Offices at 8.9%,
which compares to -1.6% for East Midlands
Offices. In terms of rental growth, 19
segments recorded positive rental
growth in March 2014, compared to
ten in March 2013.
The IPD Quarterly Digest in March 2014
recorded an improved occupancy rate
of 90.9% for All Property, higher than the
89.6% recorded in March 2013.
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
PROPERTY MARKET OVERVIEW
Economic backdrop
Wider market conditions have
improved substantially over
the last twelve months with
GDP in March standing at 3.1%,
its highest level since 2008.
According to the Office for
National Statistics, growth has
been at its fastest pace since
the onset of the downturn.
While economic growth has improved, the
Consumer Price Index (CPI) has fallen over
the course of the year. In March 2014, CPI
was 1.6%, down from 2.8% a year earlier
and at its lowest rate since October 2009.
CPI inflation declined reflecting in part falling
household energy costs. The Retail Price
Index in March was 2.5%, down from
3.3% in March 2013 and at its lowest
rate since 2009.
The Markit/CIPS readings for Services
and Manufacturing strengthened as the
economy improved. The latest Markit/CIPS
Report on Services showed that headline
activity continued to rise, recording 58.7 in
April 2014, compared to 52.9 in April 2013.
Similarly, the Markit/CIPS Manufacturing PMI
in April 2014 was 57.3, up from 49.8 in
April 2013.
According to the Office for National
Statistics, the number of people unemployed
between January and March 2014 was 2.2
million, 309,000 lower than a year earlier.
The unemployment rate, measured as those
seeking and available for work, was 6.8%
for January to March 2014, down from 7.8%
for the same period in 2013. Pay excluding
bonuses for employees between December
2013 and February 2014 was 1.3% higher
than a year earlier.
Net new lending to commercial property
remains negative and has now fallen
for eleven consecutive quarters. In the
first quarter of 2014 net new lending to
commercial property was -£3.0 billion.
Commercial property now accounts for 9%
of all outstanding lending, well below its
peak of around 12%, and broadly in line with
the long run average of 8%.
17
As at 30 May 2014, ten year gilt yields were
2.6%, compared to 1.8% at the end of
March 2013. The Bank of England base rate
remains unchanged at 0.5%.
UK property market
According to the Investment
Management Association, for
the year to 31 March 2014,
investment into UK property
funds totalled £2.4 billion, a
considerable improvement
from £258 million in the previous
year. Net sales of property funds
totalled £798 million in the first
quarter of 2014, significantly more
than the £97 million recorded in
the first quarter of 2013.
As measured by the IPD Quarterly Digest,
All Property total returns for the year
to March 2014 were 13.3%. Capital
movements contributed 7.0% and the
income return was 5.9%. In terms of capital
growth, offices were the best performing
sector in the year returning 11.6%, followed
by industrial at 9.6% and retail at 4.0%.
After some years of falling values, the UK
is now experiencing increasing investment
market activity outside London where values
have stabilised and, in some sectors, started
to increase rapidly, with the IPD Monthly
Index showing the fastest rise in capital
growth since May 2010. The improving
markets have led to transactions being
completed by vendors who had previously
been unwilling to sell assets at a loss. This
has had the benefit of transaction volumes
increasing significantly and additional liquidity
returning to the market.
According to the IPD Monthly Digest, values
are still considerably below their June 2007
peak. At the All Property level, values at
the end of March 2014 were 33% below
their peak. There is also a wide divergence
between London and the regions, for
example values in Central London Retail at
the end of March were 17.1% above their
previous June 2007 peak, compared to Rest
of UK Shopping Centres which were 60.9%
below. Similarly West End Offices are 0.7%
below their peak compared to South West
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Office market
The office sector outperformed
both retail and industrial in the
year. Total returns for the sector
for the 12 months to March 2014
were 17.5% of which income
contributed 5.3%, while capital
values grew by 11.6%. Total
returns were best in West End and
Mid-town Offices at 20%, Rest of
South East Offices at 19.4% and
weakest for Rest of UK at 9.9%.
Capital movements by geographic region
ranged from 16.1% for Inner London Offices
to -2.1% for North West Offices.
Overall, office rents rose by 1.5% over the
year. Rental rises were best for Mid-town
Offices at 8.9% and worst for East Midlands
Offices at -1.6%.
Occupancy rates for offices at the end of
March 2014 were 85.9%, higher than the
82.6% recorded in March 2013.
Industrial market
Total returns for the sector for
the 12 months to March 2014
were 17.0%, of which income
contributed 6.9%, while capital
values grew by 9.6%. Returns
were strongest in East Midlands at
19.6% and weakest in Wales
at 11.8%.
Central London assets continued to perform
well, delivering 10.6% capital growth, while
capital value movements ranged from
10.8% for West Midlands to 3.4% for
Northern Ireland.
Overall, industrial rents for the year grew
by 1.3%. Rental growth was strongest for
London, which rose by 2.2%, and weakest
for Wales, which fell by -1.7%.
Occupancy rates for industrial at the end of
March 2014 were 88.8%, higher than the
87.8% recorded 12 months ago.
Retail market
The retail sector was the worst
performing sector in the year,
delivering 10.0% total return.
Total return comprised 5.8%
income return and 4.0% capital
growth. The strongest returns
were recorded in West End retail
and the weakest was Northern
Ireland, the range of capital
value movements being 17.4%
to -1.8% respectively.
Overall, retail rents fell by -0.2% in the
year, while rental growth ranged from -1.9%
for Northern Ireland to 6.0% for City and
Mid-town.
Occupancy rates for retail at the end of
March 2014 were 94.4%, higher than the
93.9% recorded 12 months ago.
Capital Value Movement from June 2007 Peak
Rental Growth 12 months to March 2014
Source: IPD Monthly Digest
Source: IPD Quarterly Digest
30
20
10
0
%
-10
-20
-30
-40
-50
-60
-70
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18
N
W
O
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3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
PORTFOLIO REVIEW
The Group’s property portfolio
comprised 57 assets at 31 March
2014, with over 380 occupiers. It
was valued by CBRE Limited at
£423.0 million.
Based on capital values, the sector
and geographical exposure was:
Central & Greater London
South East
Rest of UK
2.1%
4.3%
7.1%
TOTAL
30.2%
8.8%
TOTAL
36.0%
18.8%
25.1%
INDUSTRIAL (38.8% OF PORTFOLIO)
OFFICES (33.0% OF PORTFOLIO)
RETAIL AND LEISURE (28.2% OF PORTFOLIO)
9.4%
TOTAL
33.8%
5.4%
19.0%
ASSETS
57
OCCUPIERS
380
19
PORTFOLIO VALUE
£423m
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED As at 31 March 2014, the portfolio
generated a net initial yield
of 6.9% before void costs, with
an occupancy rate of 91%. In
rental terms this reflects a current
passing rent, net of ground rent,
of £30.9 million per annum. Within
the portfolio there are broadly
equal components where rent
is likely to rise at the next lease
event (for example in London
where historic rental levels are
lower than current market levels),
and vice versa in the regional
markets, where historic rental
levels are higher than the current
market would support.
Further income can be generated and
value created through the leasing of vacant
space and, based on the rental value of the
portfolio as at March 2014, the reversionary
yield would be 7.6%, representing an
additional £2.6 million per annum.
We have made good progress over the last
twelve months improving the occupancy
rate from 88% to 91% and our primary
focus remains on maintaining and increasing
the current income profile and leasing
vacant space. Occupancy is strongest in
our industrial and retail portfolios, whilst
the office sector, in particular outside
central London, is where our efforts are
concentrated.
The portfolio’s total return for the year
to 31 March 2014 was 14.0%, a 0.4%
outperformance relative to the IPD Quarterly
Benchmark. This outperformance was driven
by our higher exposure to the office and
industrial sectors, whilst at the same time
benefiting from an overweight exposure to
London in the retail sector.
The capital value movements for the same
period grew by 6.4% across the portfolio.
Office values rose by 8.5%, with London
assets growing by 19.5% compared to
the Rest of UK where they fell by -1.3%.
Industrial values grew by 9.1% and retail and
leisure by 1.7%.
Overall, like-for-like growth in the portfolio’s
estimated rental values was 0.7% during
the year to March 2014. Rents in the office
sector grew by 2.4%, driven by growth in
London of 11.4%. Rents outside of London
fell, with the Rest of the UK recording a fall
of -1.9%. Similarly, the retail and leisure
sectors fell by -3.5%.
In more recent months we have started to
see improving and encouraging signs in the
regions and, whilst this has not yet translated
into rental growth, it may not be so far
away, especially in markets where supply
remains constrained.
We have continued our strategy of
re-shaping the portfolio. As a result of
disposals there has been a reduction in
the number of assets in the portfolio from
62 to 57, whilst there have been three
acquisitions during the year.
Highlights of portfolio activity during the
last twelve months are detailed by sector
later within this report.
Industrial
Offices
Retail and Leisure
RENTAL GROWTH
2.2%
RENTAL GROWTH
2.4%
RENTAL GROWTH
(3.5)%
CAPITAL VALUE GROWTH
CAPITAL VALUE GROWTH
CAPITAL VALUE GROWTH
9.1%
8.5%
1.7%
WHOLE
PORTFOLIO
RENTAL
GROWTH
0.7%
WHOLE
PORTFOLIO
CAPITAL VALUE
GROWTH
6.4%
20
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
OCCUPIER PACKS
Strengthened relationships with
occupiers with creation of Picton
Promise, providing London touchdown
rooms and a referral scheme.
21
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
REFERRALOCCUPIER FOCUSEDOPPORTUNITY LEDOur eight commitments to quality and serviceWe have created the Picton Promise: eight commitments to quality and service that underpin every aspect of the Picton occupier experience we and our managing agents, CBRE, provide.We want our occupiers to be successful in our buildings and will help wherever possible. As a Picton occupier:1. You will experience excellent customer service.2. The service will represent good value for money. 3. You can always speak to a dedicated Picton team member.4. We will respond promptly to your enquiries.5. We will act on your feedback where possible.6. We will try to help you ‘right size’ your business space.7. Your environment will be safe and clean.8. We aim to improve energy efficiency where possible. Michael Morris, Chief ExecutivePicton Capital Limited020 7011 9980michael.morris@pictoncapital.co.ukPICTON PROPERTY INCOME LIMITED STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
Top Ten Assets
The largest assets in the portfolio as at
31 March 2014, ranked by capital value,
represent just over 50% of the total portfolio
valuation and are detailed below.
Acquisition
Date
Property Type
Tenure
Approximate
Area
Occupancy
Rate
Sq Ft
%
PARKBURY INDUSTRIAL ESTATE, RADLETT
March 2014
Industrial
Freehold
UNITS A-G2, RIVER WAY INDUSTRIAL ESTATE, hARLOW
December 2006
Industrial
Freehold
STANFORD hOUSE, 12/14 LONG ACRE, LONDON WC2
May 2010
ANGEL GATE OFFICE VILLAGE, CITY ROAD, LONDON EC1
October 2005
Retail
Office
Freehold
Freehold
50 FARRINGDON ROAD, LONDON EC1
October 2005
Office
Leasehold
BOUNDARY hOUSE, JEWRY STREET, LONDON EC3
May 2006
Office
Freehold
PARC TAWE, PhASE II, LINK ROAD, SWANSEA
1-3 ChANCERY LANE, LONDON WC2
October 2005
October 2005
Retail
Leasehold
Office
Freehold
COLChESTER BUSINESS PARK, ThE CRESCENT, COLChESTER
October 2005
Office
Leasehold
UNIT 3220, MAGNA PARK, LUTTERWORTh
December 2006
Industrial
Leasehold
336,700
449,500
19,300
60,800
32,000
45,000
116,700
15,100
150,700
160,900
93*
100
100
79**
100
80**
100
100
94
100
* Excludes rental guarantees on units 2 and 3
** Vacant space undergoing refurbishment
Retention Rates
For the year ended 31 March 2014, based
on rental value, the percentage of income
that was retained on lease expiry or break
options was 47%. This comprises 67%
retained on lease expiry and 33% after break
options and in part reflects that markets
have undergone significant structural change
and rental re-pricing over recent years,
where passing rents are higher than market
rents. Therefore, occupiers have a greater
propensity to action break clauses or vacate
on lease expiry.
Income Concentration
There is a wide diversity of occupiers
within the portfolio, as set out opposite,
and compared to the IPD Benchmark, by
contracted rent, as at 31 March 2014.
Income Concentration by Industry
Source: IPD IRIS Report March 2014
40
35
30
25
%
20
15
10
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Picton
Benchmark
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22
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
%
4.2
3.1
3.0
2.6
2.6
2.0
1.9
1.9
1.7
1.5
24.5
* Two separate occupational leases
** Includes 2015 fixed rental uplift
*** 2013 rent review outstanding
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
Top Ten Occupiers
The top ten occupiers, based as a
percentage of annual rental income, as at
31 March 2014, is summarised as follows:
Occupier
DhL SUPPLY ChAIN LIMITED*
SNORKEL EUROPE LIMITED
CADENCE DESIGN SYSTEMS LIMITED
TRAINLINE.COM LIMITED
EDWARD STANFORD LIMITED***
RICOh UK LIMITED
VIGLEN LIMITED**
ASDA STORES LIMITED
AMCOR PACKAGING UK LIMITED
PREMIER FOOD GROUP LIMITED
Total
Longevity of Income
As at 31 March 2014, based as a percentage
of current annual rent, the average length
of the leases to the first termination was 6.7
years. This is summarised as follows:
Whilst this lease expiry profile shows that
most expiries are up to five years, this is
not unexpected, as in our experience most
occupiers still require flexibility and usually
commit to either a lease of five years or, if
longer, to a break after five years.
Over the first five years of the term the
maximum income at risk in any one year
reflects less than 17% of the expiry profile and
we would expect the majority of this income to
be retained through either renewals or break
clauses not being actioned.
As a result of lease restructuring undertaken
this year and the change in portfolio
composition, we have significantly reduced
the reliance on any single occupier and have
smoothed the lease expiry profile over the next
five years, with the maximum single income
risk in the next year accounting for 1.6% of the
current annual rent.
Up to 5 years
61.0%
5 to 10 years
25.3%
10 to 15 years
4.6%
15 to 25 years
6.4%
25 years and over
2.7%
23
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
1
M25
5
4
2
1
5
3
1
7
7
18
M25
11
10
15
20
4
6
2
11
PROPERTY TYPES
INDUSTRIAL
OFFICE
RETAIL AND LEISURE
10
10
17
13
8
14
17
13
3
17
18
15
7
9
3
11
8
5
14
16
19
6
12
6
8
13
9
2
21
15
9
16
12
12
16
4
19
24
14
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
Properties valued in excess of £30 million
PARKBURY INDUSTRIAL ESTATE, RADLETT, hERTS.
UNITS A-G2, RIVER WAY INDUSTRIAL ESTATE, hARLOW, ESSEx
1
2
Properties valued between £10 million and £15 million
3
UNIT 3220, MAGNA PARK, LUTTERWORTh, LEICS.
Properties valued between £5 million and £10 million
LYON BUSINESS PARK, BARKING, ESSEx
DATAPOINT BUSINESS CENTRE, CODY ROAD, LONDON E16
VIGO 250, BIRTLEY ROAD, WAShINGTON, TYNE AND WEAR
NONSUCh INDUSTRIAL ESTATE, 1-25 KILN LANE, EPSOM, SURREY
UNITS 1-13 DENCORA WAY, SUNDON PARK, LUTON, BEDS.
ThE BUSINESS CENTRE, MOLLY MILLARS LANE, WOKINGhAM, BERKS.
LAWSON MARDON BUILDINGS, KETTLESTRING LANE, YORK
hAYNES WAY, SWIFT VALLEY INDUSTRIAL ESTATE, RUGBY, WARWICKShIRE
WESTERN INDUSTRIAL ESTATE, DOWNMILL ROAD, BRACKNELL
Properties valued under £5 million
EASTER COURT, GEMINI PARK, WARRINGTON
MIDDLETON TRADE PARK, OLDhAM ROAD, MANChESTER
ABBEY BUSINESS PARK, MILL ROAD, NEWTOWNABBEY, BELFAST
MAGNET TRADE CENTRE, WINNERSh, READING
MANChESTER ROAD/DRURY LANE, OLDhAM, LANCS.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
INDUSTRIAL PORTFOLIO
PERCENTAGE
OF PORTFOLIO
38.8%
£164.4 million
Value
2,116,000 sq ft
Internal Area
£12.3 million
Annual Rental Income
£12.8 million
Estimated Rental Value
96.9%
Occupancy
17
Number of Assets
Largest occupiers
% of total
portfolio
1. DhL SUPPLY ChAIN LIMITED
2. SNORKEL EUROPE LIMITED
3. VIGLEN LIMITED*
4. AMCOR PACKAGING
UK LIMITED
5. PREMIER FOOD GROUP
LIMITED
* including fixed rental uplift
4.2
3.1
1.9
1.7
1.5
25
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Overall, within the industrial portfolio we let
20 units at a combined rent of £925,000 per
annum, including the largest industrial void,
renewed six leases with a combined rent
of £1.0 million per annum and surrendered
three leases to facilitate active management
transactions.
Distribution assets
In a key transaction, through
a property swap, we sold a
distribution unit at 5320 Magna
Park, Lutterworth, in exchange
for the acquisition of Parkbury
Industrial Estate in Radlett. The
Lutterworth unit was over-rented
by some 25% and let to Primark
with a break option in 2016.
This transaction was undertaken specifically
to de-risk the income profile of the portfolio.
In addition to achieving what we believe is a
strong price for our existing asset, we were
also able to eliminate the cash drag effect of
the reinvestment process while maintaining
the high quality and nature of the holding.
We have already identified occupiers for the
vacant units and commenced a number of
active management initiatives.
The Group has retained its holding at
3220 Magna Park, Lutterworth and DHL’s
lease was renewed for a further ten years
from December 2014, subject to a break,
securing a 5% uplift on the rent to £885,000
per annum. This transaction added over £2
million to the value of the asset and secured
the position in respect of the largest income
risk through lease expiry in 2014.
The distribution portfolio remained fully let
during the year, with Tanfield Plc assigning
the lease of Vigo 250 in Washington to
Snorkel Europe Limited.
Multi-let assets
We have continued to see good
occupational demand for our
estates, with rental growth coming
through in the South East. We
currently have 14 units available to
let, out of a total of 147.
As highlighted above, the most significant
activity was the acquisition of Parkbury for
£40.5 million which is a high quality modern
industrial estate constructed in two phases
between 2003 and 2009. The property
comprises a 336,700 sq ft multi-let industrial
estate of 24 units on an 18.2 acre site, with a
site cover of approximately 32%. The estate
was acquired with two vacant units, thereby
offering the potential to grow income in the
short term. At the time of purchase, the
weighted average unexpired lease term was
6.9 years to lease end dates and 5.3 years
to break options.
During the year we also acquired Lyon
Business Park in Barking for £9.6 million.
This estate is well located, directly on the
A13 and close to the junction with the
A406. We are currently refurbishing the
three vacant units and expect to let them
quickly, based on our experience at nearby
Datapoint Business Centre, where rents are
over 40% higher, as highlighted below.
Three smaller estates were sold in the year
at Lancing, Portsmouth and Reading where
we had completed the business plans, for a
combined sale price of £5.0 million.
Highgrove Industrial Estate, Portsmouth
A ten unit multi-let estate totalling 16,000
sq ft in an established industrial area of
Portsmouth. The estate at the time of sale
had one vacant unit. The disposal price of
£1.3 million reflected a 20% gain relative to
the preceding valuation.
Successful letting campaign
and rental growth
Datapoint, Cody Road, London E16
This estate was acquired in 2010 and
comprises seven industrial units built
around 1990.
Three units became vacant at the same
time due to the insolvency of two occupiers
in 2012. Subsequently we fully refurbished
one unit and carried out a ‘light touch’
refurbishment of the other two, which
culminated in the letting of all three units
and securing two national covenants, Arriva
Transport Solutions and MGN Limited.
The final letting was for a term of five years
at a new headline rent for the estate
setting good evidence for forthcoming
negotiations and showing strong
occupational demand.
Relocating occupiers to
accommodate anchor tenant
requirement
Middleton Trade Park
The estate was acquired in 2010, and
comprises 13 light industrial units built in
the 1980s. Due to the small size of the units
the estate has typically attracted local
occupiers. The strategy was to attract an
anchor trade counter occupier to improve
the appeal of the estate and, in due
course, drive rental growth.
Two occupiers were relocated elsewhere
on the estate to create a single large
unit of 5,800 sq ft and this facilitated a
letting to Screwfix, starting our strategy of
repositioning this asset.
Heron Industrial Estate, Reading
Letting of the largest industrial void
This multi-let industrial estate comprised
seven units totalling 49,300 sq ft located in
Spencer’s Wood, approximately one mile
south of junction 11 of the M4. At the time
of disposal the estate was fully let following
the completion of recent lettings. The
disposal price of £3.6 million was 14%
ahead of the preceeding valuation and
reflected a net initial yield of 5%.
Examples of asset management initiatives
that have taken place over the year are set
out here.
Unit F1 River Way Industrial Estate, harlow
As reported on a year ago, the 50,000
sq ft Unit F1 at River Way in harlow
became vacant following a lease expiry.
The dilapidations from the outgoing
occupier covered over 80% of the
refurbishment cost and the refurbishment
project created a well presented property
with an improved EPC rating.
Within two months of completing the works
we let the unit to hoddesdon Distribution on
a ten year lease, subject to a break option,
at a rent of £340,000 per annum, 8% ahead
of the estimated rental value.
26
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
OFFICE PORTFOLIO
Properties valued between £20 million and £25 million
1
ANGEL GATE OFFICE VILLAGE, CITY ROAD, LONDON EC1
Properties valued between £15 million and £20 million
50 FARRINGDON ROAD, LONDON EC1
BOUNDARY hOUSE, JEWRY STREET, LONDON EC3
Properties valued between £10 million and £15 million
COLChESTER BUSINESS PARK, ThE CRESCENT, COLChESTER, ESSEx
1-3 ChANCERY LANE, LONDON WC2
Properties valued between £5 million and £10 million
401 GRAFTON GATE EAST, MILTON KEYNES, BUCKS.
CITYLINK, ADDISCOMBE ROAD, CROYDON
800 PAVILION DRIVE, NORThAMPTON BUSINESS PARK, NORThAMPTON
Properties valued under £5 million
L'AVENIR, OPLADEN WAY, WESTWICK, BRACKNELL, BERKS.
QUEENS hOUSE, 19/29 ST VINCENT PLACE, GLASGOW
LONGCROSS COURT, NEWPORT ROAD, CARDIFF
TRIDENT hOUSE, 42/48 VICTORIA STREET, ST ALBANS, hERTS.
WATERSIDE PARK, LONGShOT LANE, BRACKNELL, BERKS.
WESTLEA CAMPUS, ChELMSFORD ROAD, SWINDON, WILTS.
ATLAS hOUSE, ThIRD AVENUE, GLOBE PARK, MARLOW, BUCKS.
SENTINEL hOUSE, ANCELLS BUSINESS PARK, FLEET, hANTS.
WATERSIDE hOUSE, KIRKSTALL ROAD, LEEDS
MERChANTS hOUSE, CROOK STREET, ChESTER
8-9 COLLEGE PLACE, SOUThAMPTON
MARShALL BUILDING,122-124 DONEGALL STREET, BELFAST
ThE CLOISTERS, ORChARD STREET, DARTFORD
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
PERCENTAGE
OF PORTFOLIO
33.0%
£139.4 million
Value
877,000 sq ft
Internal Area
£10.3 million
Annual Rental Income
£13.0 million
Estimated Rental Value
83.0%
Occupancy
21
Number of Assets
Largest occupiers
% of total
portfolio
1. CADENCE DESIGN
SYSTEMS LIMITED
2. TRAINLINE.COM LIMITED
3. RICOh UK LIMITED
4. ESSEx COUNTY COUNCIL
5. TECh MAhINDRA LIMITED
3.0
2.6
2.0
1.3
1.2
27
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED In the office sector, the central London
market remains buoyant. During the year
we started to see occupational demand
increasing in the regions, culminating in 22
lettings during the year adding £1.2 million
per annum after incentives.
The long leasehold of 28 Austin Friars was
sold for £4.2 million, following completion of
the business plan, and Picton Capital have
retained space at the property for their own
occupation. The sale price was 18% ahead
of the March 2013 valuation and 95% ahead
of the purchase price in 2010.
We completed lettings in London at
1 Chancery Lane, Stanford House,
Angel Gate Office Village and Boundary
House, ahead of estimated rental value.
The first phase of the refurbishment of
Citylink, Croydon has completed. The
property provides some of the best office
space in this market opposite East Croydon
station and in an architect-led scheme
we have reconfigured the entrance,
created a show suite and installed new
air-conditioning. We plan to commence the
second phase of the scheme in the summer
to complete the building and secure a rental
in excess of £600,000 per annum.
In the regions, we completed a notable
letting of 900, The Crescent on Colchester
Business Park to Central Essex Community
Services, who have taken a ten year lease,
subject to a break, at a rent of £200,000
per annum. This was the biggest letting
in the Colchester market for a number of
years. Although slightly below estimated
rental value, minimal capital expenditure was
required on the property and overall this
resulted in a valuation uplift.
At Atlas House in Marlow, the last available
suite was let on a ten year lease, subject to
a break, at £78,000 per annum, in line with
estimated rental value. The property is
now fully let.
We also completed lettings in Cardiff,
Chester, Glasgow and St Albans securing
over £110,000 per annum.
Examples of significant initiatives that have
taken place over the year are set out here.
Refurbishment, letting and change
of use
Surrendering space to allow for
development
Stanford house, London WC2
Westlea Campus, Swindon
Stanford house is an attractive Grade II listed
building located on Long Acre in Covent
Garden. We had two vacant office floors at
this property a year ago and our goal was
to get the property fully let and submit a
planning application for a change of use.
In summary we:
- Let the two floors on leases outside the
1954 Act (giving flexibility on lease expiry)
and paying a combined rent of £343,500
per annum.
- Extended the residential tenancy on
the fifth floor flat and at the same time
increased the rent to £40,250 per annum to
coincide with the expiry of the fourth floor
office lease.
- Received full planning consent for change
of use from offices to residential, creating
ten flats. The valuation uplift on securing
consent was £2.0 million and we are also
looking at submitting a second application
to increase the residential floor space.
This property comprises three detached
1980s office buildings totalling 76,000 sq ft
on a 6.1 acre site. The buildings are in need
of refurbishment and there is no occupier
demand in this market. Our strategy for
this property was very much focused on
alternative use and the upside potential
from residential and retail use.
In summary we:
- Surrendered the two remaining leases
at the property for a premium payment
to Picton of £0.1 million. The surrender
completed in December 2013.
- Agreement to sell part of the site to Aldi
for £1.65 million, ahead of valuation,
subject to planning.
- Worked up a joint planning application
with Aldi to secure full planning permission
for the store and outline permission for
residential on the remainder of the site
which is expected to be received in the
summer.
- Are currently negotiating the outstanding
- Commenced the demolition of the
rent review on the retail element and
expect to secure a substantial increase
in rent this year.
buildings to facilitate a disposal in 2014.
Consolidating ownership
Unit 5, Angel Gate, London EC1
This property was acquired during the year
for £975,000 subject to the vendor taking a
lease over two floors of the property at an
annual rent of £45,000 (£24.00 per sq ft).
The price reflected a net initial yield of 4.41%
and a reversionary yield of over 9%. On a
capital value basis, it equates to £254 per
sq ft and the transaction was in line with
our strategy of buying in the long leasehold
units at prices below valuation in order to
consolidate our control over the estate and
any redevelopment of the site in the longer
term. There is strong interest in the vacant
floors and we expect to let them quickly.
Maintaining income and increasing
the rental profile
Boundary house, London EC3
We have continued momentum at this older
City office building, providing high quality
useable space in the insurance district.
During the year:
- We have refurbished the common areas
to create modern attractive space.
- We have let a refurbished suite, removed
break options in two leases, renewed
three leases, agreed to relocate an
occupier from 2,700 sq ft to 6,200 sq ft and
surrendered a lease where the occupier
was paying £23.00 per sq ft.
- Overall the rent roll in respect of the
above transactions was in excess of
£500,000 per annum.
- The estimated rental value has increased
by 18% during the period and current
lettings are now in excess of this.
- Demand remains strong for the product
we have created.
28
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
Properties valued between £25 million and £30 million
1
STANFORD hOUSE, 12-14 LONG ACRE, LONDON WC2
Properties valued between £15 million and £20 million
2
PARC TAWE, PhASE II, LINK ROAD, SWANSEA
Properties valued between £5 million and £10 million
ANGOULEME WAY RETAIL PARK, BURY, GREATER MANChESTER
56 CASTLE STREET, 2/12 ENGLISh STREET AND 12-21 ST CUThBERTS LANE, CARLISLE, CUMBRIA
53/55/57 BROADMEAD, BRISTOL
STRAThMORE hOTEL, ARNDALE CENTRE, LUTON, BEDS.
REGENCY WhARF, BROAD STREET, BIRMINGhAM
17/19 FIShERGATE, PRESTON
SCOTS CORNER, hIGh STREET/INSTITUTE ROAD, BIRMINGhAM
3
4
5
6
7
8
9
10
78-80 BRIGGATE, LEEDS
Properties valued under £5 million
72/78 MURRAYGATE, DUNDEE
123 hIGh STREET, GUILDFORD, SURREY
UNITS 1-3, 18/28 VICTORIA LANE, hUDDERSFIELD, WEST YORKS.
ThISTLE hOTEL, UNIT 1 & LE PAVILION, BRIGhTON
6/12 PARLIAMENT ROW, hANLEY, STAFFS.
2 BATh STREET, BATh
7 & 9 WARREN STREET, STOCKPORT
113 hIGh STREET, SUTTON
6 ARGYLE STREET, BATh
11
12
13
14
15
16
17
18
19
RETAIL AND LEISURE
PORTFOLIO
PERCENTAGE
OF PORTFOLIO
28.2%
£119.2 million
Value
516,000 sq ft
Internal Area
£8.6 million
Annual Rental Income
£8.0 million
Estimated Rental Value
95.7%
Occupancy
19
Number of Assets
Largest occupiers
% of total
portfolio
1. EDWARD STANFORD LIMITED
2. ASDA STORES LIMITED
3. hOMEBASE LIMITED
4. BARCLAYS BANK PLC
5. COUNTYWIDE
DEVELOPMENTS LIMITED
2.6
1.9
1.4
1.3
1.0
29
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Retail
During the year, we sold two retail properties
at 2 George Street, Richmond and 3 Lower
Borough Walls in Bath. The combined sale
price was £2.2 million, 8% ahead of the
March 2013 valuation. The disposals were
in line with our strategy to sell smaller assets
in the portfolio, where business plans have
been completed and we can sell at an
attractive price.
We have let six units at a combined rent
of £300,000 per annum including our
largest retail void. We currently have nine
vacant units in Birmingham, Carlisle,
Hanley, Stockport and Southampton and
encouragingly, at the time of reporting, have
had strong interest in over 50% of the units.
Leisure
The tenant of the Strathmore Hotel in Luton,
Menzies, went into liquidation during the
period and the hotel is currently unoccupied.
We are taking legal action against the
guarantor of the occupational lease to
mitigate our position and we expect this to
be resolved in the coming year. There has
been an adverse effect on the valuation of
this property and its income, and we would
expect this to unwind once the situation is
resolved.
In Brighton, where we own a number of long
leasehold interests, we agreed a premium
of £37,500 to widen the user clause in
one of the long leasehold interests. We
are in discussions with the freeholder of
the property to restructure our holding to
facilitate an exit in due course.
Examples of activity during the year are set
out here.
Securing occupier for largest void
Parc Tawe, Swansea
Unit 3 Parc Tawe, Swansea, was our largest
retail void a year ago. During the year we
secured planning permission for a change
of use, and the unit was let to xercise4less,
at a rent of £155,000 per annum for a term
of 15 years without a break option. The park
is now fully let.
Extending income
Kings heath, Birmingham
At our property in Kings heath, Birmingham,
we extended Iceland’s lease by ten years
to 2028, securing £75,000 per annum subject
to a review in 2018. This contributed to the
positive valuation performance of the asset
over the year.
Creating smaller units to attract
occupiers
Longcross Court, Cardiff
In Cardiff, we sub-divided the former bank
unit at Longcross Court and let it to two
occupiers for £43,900 per annum, 20%
ahead of estimated rental value. Following
the letting, all of the retail units at this
property are now fully occupied.
At this property we also settled two rent
reviews for a combined annual rent of
£22,000 per annum, achieving a 4% uplift
on the previous passing rent.
Combining units to create the right
space for the market
Crown and Mitre, Carlisle
At the Crown and Mitre complex, Carlisle,
we are in the process of combining four
vacant units, which have attracted interest
from a national retailer with whom we have
agreed terms. We expect to complete the
works and letting in the summer, allowing
the retailer to open before Christmas.
Following this letting the property will be
fully let.
30
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
INVESTMENT MANAGER’S REPORT
OUTLOOK
It is self evident on a number of
levels that we are operating in
improving market conditions.
Firstly there are increasing signs
of renewed investor interest
following the marked re-pricing
since 2007, in particular in markets
outside of London that until
recently have not shown signs
of recovery.
Secondly, occupier markets, albeit at a
slower rate, are starting to show positive
signs of recovery against a backdrop of the
very limited creation of new space since the
onset of the financial crisis.
We are already witnessing a period of
upward price movements as some of the
very pessimistic assessments of occupier
markets are now proving to be more positive
than first thought. This is leading to further
upward valuation movements but not
necessarily leading to income growth
at this stage.
Looking a little further ahead we expect
rental growth to become more widespread,
particularly in sub-sectors where supply is
constrained through a lack of development
in recent years.
Finally we are seeing the easing of credit
conditions and there would appear to be a
much more competitive lending market for
the real estate sector than has been the case
for many years, which is extremely helpful for
creating more normalised conditions.
Consensus forecasts for total returns are
positive over the next two to three years,
driven by an improvement in GDP forecasts,
an improved rental market outlook
and an expectation that there will be
yield compression for secondary
commercial property.
We firmly believe our occupier focused,
opportunity led approach will continue to
deliver results. Our objectives for this year
include further increasing the portfolio’s
occupancy, improving the income profile
and creating value through identified
asset management initiatives. We see
selective trading activity further enhancing
performance, set against a backdrop of
improving market conditions, in particular
outside the core London markets.
Picton Capital Limited
13 June 2014
‘‘
We firmly believe
our occupier
focused, opportunity
led approach
will continue to
deliver results.
‘‘
31
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED FINANCIAL REVIEW
The reported results for the year
ended 31 March 2014 show a
strong overall performance,
with good investment returns
and an improved covered
dividend position. Net assets have
increased, following the positive
performance for the year, with
new equity being raised and
invested into the portfolio.
Increases in the share price gave
a shareholder return for the year
of over 50%.
Net Asset Value
The final six months of the financial year
saw strong valuation increases across the
property portfolio, which, together with a
further issue of equity towards the end of
2013, helped push the Group’s net asset
value up to £214.1 million, from £169.4
million a year ago.
The table top right reconciles the net
asset value calculated in accordance with
International Financial Reporting Standards
(IFRS), with that of the European Public Real
Estate Association (EPRA).
The net asset value per share increased by
14.3% during the year to 56 pence, up from
49 pence at 31 March 2013. The factors
contributing to this rise are set out here.
NET ASSET VALUE (IFRS)
FAIR VALUE OF INTEREST RATE SWAPS
EPRA NET ASSET VALUE
FAIR VALUE OF INTEREST RATE SWAPS
FAIR VALUE OF DEBT
EPRA TRIPLE NET ASSET VALUE
NET ASSET VALUE PER ShARE (PENCE)
EPRA NET ASSET VALUE PER ShARE (PENCE)
EPRA TRIPLE NET ASSET VALUE (PENCE)
2014
£m
214.1
-
214.1
-
17.8
231.8
56
56
61
2013
£m
169.4
-
169.4
-
5.7
2012
£m
196.1
5.1
201.2
(5.1)
-
175.1
196.1
49
49
51
57
58
57
OPENING NET ASSET VALUE PER ShARE
REVALUATION SURPLUS/(DEFICIT)
PROFIT ON DISPOSAL OF PROPERTIES
PROFIT AFTER TAx
DIVIDENDS PAID
GAINS ON DISPOSAL OF FINANCIAL DERIVATIVES
2014
2013
pence
pence
49.0
5.0
1.5
3.5
(3.0)
-
57.0
(9.0)
-
4.0
(3.5)
0.5
CLOSING NET ASSET VALUE PER ShARE
56.0
49.0
32
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
FINANCIAL REVIEW
Income Statement
The total comprehensive income for the
year was £37.3 million, up from a loss of
£14.6 million for the year to 31 March 2013.
The main component of the result for 2014
were gains on investments of £24.1 million,
comprising revaluation gains of £18.4 million
and a profit on asset disposals of
£5.7 million.
The income profit for the year, excluding
all capital gains and losses, but taking into
account the income and expenditure relating
to the property portfolio, management costs
and financing, was £13.3 million, down from
£14.7 million reported for the year to
31 March 2013. The principal factors
behind this fall are set out below.
Rental income, net of bad debt provisions,
at £31.0 million, is around £1.1 million lower
than the previous year. There are a number
of factors that have contributed to this
position. Falls in rental values over recent
years have crystallised with lease expiries
and new lettings taking place during the
year, at new lower market rates. Additionally
there are specific provisions against
the income due from a small number of
tenants where full recoverability is in doubt.
Additional income from asset management
initiatives is also lower in the current year.
The following table sets out the Group’s
like-for-like rental income by sector for the
two years ended 31 March 2014.
Offices
Industrial
Retail & Leisure
Total
2014
£000
2013
£000
LIKE-FOR-LIKE RENTAL INCOME
10,857
11,619
PROPERTIES ACQUIRED
PROPERTIES SOLD
11
107
-
70
2014
£000
8,470
417
3,027
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
8,723
8,052
8,401
27,379
28,743
-
3,189
-
95
-
123
428
3,229
-
3,382
Totals
10,975
11,689
11,914
11,912
8,147
8,524
31,036
32,125
Management costs have increased to
£2.1 million for the current year, from £1.7
million. This year Picton Capital has had
a full staff complement, and there has
also been a full year of accruals under the
Long Term Incentive Plan, which came
into effect in the year to 31 March 2013.
Increased management costs have however
been largely offset by lower operating
expenses, including reduced valuation and
administration costs, and benefiting from
the removal of costs associated with the
previous securitised financing arrangements.
Finance costs for the year were £11.0
million, a reduction of some £0.6 million
compared to the previous year, as the lower
cost of the new loan facilities are evident for
a full year.
As stated above, the Group made
revaluation gains of £18.4 million, a rise
of 6.4% for the portfolio on a like-for-like
basis over the year. Additionally the Group
disposed of seven property assets during
the year, including its largest asset, unit 5320
at Magna Park in Lutterworth. Overall there
was a realised gain of £5.7 million arising
on disposals.
The Group’s earnings per share for the year
was 10.4 pence, compared to a loss for
2013 of 4.2 pence. On an EPRA basis, the
earnings per share was 3.7 pence, down
from 4.3 pence for the year ended 31 March
2013, largely as a result of the decline in
rental income as stated above.
Dividends
The Group has maintained its dividend level
throughout the year, at 0.75 pence per share
on a quarterly basis, or 3 pence for the
year. Dividend cover for the year was 124%,
ahead of the cover for 2013 of 122%. The
surplus of income profit over dividends, of
£2.6 million, also contributed to the overall
increase in net asset value for the year.
33
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
Investment properties
The value of the Group’s property portfolio
increased to £417.6 million at 31 March
2014, up from £382.7 million at the previous
year end. There were a greater level of
investment transactions this year, with a
number of smaller assets being disposed
of, and also the investment of the proceeds
from the issues of new equity that took
place during the year. Additionally the Group
completed an asset swap with another listed
company, disposing of its largest asset and
acquiring a large multi-let industrial property.
Overall acquisitions totalled £53.6 million
for the year, with disposals of £44.9 million.
The number of properties held fell from 62 to
57. Valuation gains also contributed to the
increase in the portfolio. Capital expenditure
on the portfolio totalled £2.1 million in
the year.
The Group has 22 million zero dividend
preference shares in issue, which mature
in October 2016. These shares accrue
additional capital at 7.25% per annum, giving
a final capital entitlement of 132.3 pence
per share, or £29.1 million. The additional
capital accrued over the current year was
£1.6 million.
A small repayment of the Group’s unsecured
loan stock was made during the year,
reducing the balance outstanding to
£2.0 million.
The average interest rate on all of the
Group’s borrowings was 4.5% as at 31
March 2014. The fair value of the Group’s
debt, which is not accounted for under IFRS,
was £216.2 million at 31 March 2014. The
benchmark gilt rates have increased since
the senior loans were taken out in 2012,
while lending margins have tended to fall.
The gross redemption yield on the zero
dividend preference shares at the year
end was 4.69%.
BORROWINGS (£M)
GEARING (%)
WEIGhTED AVERAGE INTEREST RATE (%)
AVERAGE DURATION OF DEBT (YEARS)
2014
2013
234.0
47.7
4.5
13.4
233.4
54.5
4.5
14.5
Borrowings
The Group’s debt facilities have remained in
place throughout the year.
The overall loan to value ratio, based on
the net debt position, at 31 March 2014
was 47.7%, down from 54.5% at the end
of last year. This movement largely reflects
the positive property valuation movements
during the financial year.
The key financing statistics of the Group are
shown in the table to the right.
The senior debt facilities are with Canada
Life and Aviva Commercial Finance, for
£113.7 million and £95.3 million respectively.
Both facilities have fixed interest rates.
Approximately one third of the Aviva loan is
repaid through quarterly amortisation over
the term of the loan, with £0.9 million being
repaid this year. The Group has maintained
compliance with all of its loan covenants
throughout the year.
Cash flow and liquidity
The Group had a net cash inflow for the year
of £9.4 million, resulting in a cash balance of
£32.4 million at 31 March 2014. The Group’s
cash reserves were boosted by issues of
new ordinary shares, raising £18.0 million
after costs. There was a net investment
of £10.8 million into the property portfolio,
including expenditure on existing properties.
Dividends of £10.7 million were paid
during the year.
34
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
RISK MANAGEMENT
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 reviews its policy to risk management
on a regular basis. The Risk Committee
oversees investment risk management and
the Audit Committee considers operational
risks and mitigating controls at each
meeting. 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 below,
together with mitigating controls.
CORPORATE STRATEGY
AND PERFORMANCE
Risk and Impact
Risk Change
Mitigation
The property market is cyclical and returns
can be volatile. Failure to react appropriately
to changing market conditions could have a
significant impact on the Group’s results.
Returns can vary significantly between
different geographical areas and sectors.
The Group’s properties could underperform
as a result of a poor portfolio strategy.
INVESTMENT AND PROPERTY
MANAGEMENT
The Board reviews the Group’s strategy on
a regular basis and considers whether any
change is needed, in light of current market
conditions and forecast changes.
The Group maintains a diversified portfolio
in order to minimise exposure to any one
geographical area or market sector.
Risk and Impact
Risk Change
Mitigation
Decisions to buy or sell assets based on
incorrect assumptions, poor research or
incomplete due diligence could result in lower
investment returns.
Active management initiatives or capital
expenditure decisions do not enhance values
due to flawed analysis or assumptions.
Poor asset management can lead to long void
periods, low occupier retention, high occupier
arrears and defaults, and cash flow problems.
The Investment Manager prepares business
plans for each asset on an annual basis.
All investment decisions are made by the
Board following a formal appraisal and due
diligence process.
All asset management and investment
decisions are subject to a formal internal
review process with clear authority limits.
The Group’s asset managers are focused
on income generation and maintain close
contact with occupiers to ensure their space
requirements are understood and addressed
proactively. Creditworthiness checks of
potential occupiers are carried out prior
to letting.
35
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
FINANCIAL
Risk and Impact
The assumptions used in the valuation of
property assets include many external factors,
including prevailing economic conditions. In
adverse conditions there can be a reduction in
property values leading to a fall in the Group’s
net asset value and potentially failure to meet
financing covenants.
A fall in the Group’s investment property
values could lead to a breach of its loan
covenants, and leave the Group without
sufficient long-term funding.
An increase in interest rates could lead to
a fall in the Group’s earnings.
The Group operates a geared capital
structure, which will magnify returns from
the property portfolio, both positive and
negative. An inappropriate level of gearing
for the property cycle could lead to lower
investment returns.
Fluctuations in cash flows from operating
activities can have a detrimental impact on
debt servicing, asset management initiatives
and shareholder returns.
OPERATIONAL
Risk and Impact
A failure to attract and retain staff of a
suitable calibre to manage the Group’s affairs
could lead to poor shareholder returns. The
increase in risk this year reflects an increasingly
competitive employment market.
The Group could fail to anticipate legal, fiscal
or regulatory changes, which may lead to an
adverse financial or regulatory impact.
health and safety management processes
could fail, leading to financial or
reputational loss.
Risk Change
Mitigation
The Group maintains detailed forecasts of
its property portfolio, which are subject to
regular scenario testing. In this way the Group
will be able to react to expected changes in
economic conditions in a timely manner.
Covenant headroom and sensitivity to
forecast asset values are regularly monitored
by the Board.
The Group has entered into long-term fixed
rate loan facilities and hence have certainty
over interest cost for the foreseeable future.
The Group has a gearing strategy in place
and the Board regularly reviews property
market forecasts, so that it is able to
amend its strategy in the light of changing
market conditions.
Cash flow forecasts are regularly prepared
and reviewed by the Board to ensure sufficient
cash resources are available to meet the
operating needs of the business. Debt
covenants are continually monitored and
reported to the Board.
Risk Change
Mitigation
The Group has a remuneration policy in
place which incentivises performance and
is aligned to the results of the Group. The Board
commissions independent reviews of market
remuneration to ensure salary levels
are competitive.
The Group employs various professional
advisers who provide regular updates in
relevant laws and regulations.
The Group’s property manager is required
to carry out all necessary health and safety
checks, and is subject to the oversight of the
Investment Manager.
KEY
Decrease in risk
No change in risk
Increase in risk
36
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
REFURBIShMENT
A substantial refurbishment was
completed at Angel Gate, London EC1,
aimed at attracting higher rental levels
through the Technology Media and
Telecommunications sector.
37
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED STRATEGIC REPORT
CORPORATE RESPONSIBILITY STATEMENT
The Board is responsible for setting
the values and standards of the
Group, including leadership on
environmental and social issues.
The Group has set a framework for
conducting business in a way that makes
a positive contribution to society, whilst
minimising any negative impacts on people
and the environment.
Greenhouse Gas Emissions
We have measured our
greenhouse gas (GhG) footprint
for the first time, for this Annual
Report. Data has been
compiled for the year ended
31 December 2013.
Our GHG emissions for the year totalled
5,030 tCO2e. The table below shows
this separated by scope, as provisioned
in the GHG Protocol. As this is the first
measurement of our footprint, this year will
act as our baseline year for demonstrating
carbon reductions going forward. Picton’s
GHG inventory has been compiled using an
Operational Control approach.
We are committed to reducing our carbon
footprint. We have completed energy audits
and have sent questionnaires to our property
managers to understand where energy-
saving opportunities lie within the portfolio.
In order to express our annual emissions
in relation to the growth of our business,
and to negate the effects of acquisitions
and disposals, we report GHG emissions
intensity measurements, in tonnes of CO2
per square metre of property floor area
(tCO2e/m²).
We have reported on all the emission
sources required under UK legislation, and
have additionally disclosed business travel
(scope 3) emissions. These sources fall
within the Group’s consolidated financial
statements. We have calculated and
reported our emissions in line with the
GHG Protocol Corporate Accounting and
Reporting Standard (revised edition) and
emission factors from the UK Government’s
GHG Conversion Factors for Company
Reporting 2014. 9% of carbon reported
was based upon estimates and as such
the results are preliminary and subject
to revision.
Emission source
GhG
Scope
Absolute GhG
emissions
GhG
Intensity
tCO2e
tCO2e/m²
COMBUSTION OF FUEL AND OPERATION
OF FACILITIES
ELECTRICITY, hEAT, STEAM AND COOLING
PURChASED FOR OWN USE
BUSINESS TRAVEL
1
2
3
1,388
0.008
3,630
0.020
12
N/A
Total
5,030
0.028
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5 Other Information
ANNUAL REPORT 2014
STRATEGIC REPORT
CORPORATE RESPONSIBILITY STATEMENT
The Environment
It is recognised that certain
natural resources are finite
and must therefore be used
responsibly. This is achieved by
controlling any environmental
burdens caused by the Group.
The Group understands the importance
of managing climate change risks and the
increasingly challenging environmental
legislative context. It recognises that by
taking a responsible and sustainable
approach to property investment, long-term
performance will be protected
and enhanced.
Picton is integrating energy saving and
sustainability measures into its portfolio
activities where possible through ensuring
compliance and managing the impact of
forthcoming legislation. The aim is to deliver
cost-effective and pragmatic reductions in
the portfolio’s environmental impact and
occupancy costs through the property
lifecycle, as follows:
• Through property management activities,
delivering cost-effective savings
• At refurbishment, through raising
standards beyond building regulations
These measures will continue to be rolled
out this year as part of the Group’s drive
towards sustainability, and will help to reduce
occupancy costs as well as delivering
significant environmental impact deductions.
Surveys were carried out at Longcross Court
in Cardiff, Trident House in St. Albans and
1 Chancery Lane, London. Through simple
low-cost changes the following savings were
identified:
• Estimated annual savings (kWh) – 66,569
• Percentage average saving of property
annual consumption – 16%
• Estimated annual savings - £15,340
In the Supplementary Disclosures
section on pages 89 to 93 we have
disclosed the absolute and intensity
performance measures as set out by
the EPRA Sustainability Best Practice
Recommendations. These will allow the
Group to identify and target key impact
areas across the portfolio, contributing
to better management of the overall
environmental performance and to formulate
indicator targets to track sustainability
performance.
It is the policy of the Group, in the
workplace, to:
Fairness and equality
The Group values the
contributions made by all its
employees and believes that
a diverse workforce is key to
maximising business effectiveness.
The Group aims to select, recruit, develop
and promote the very best people and is
committed to creating a workplace where
everyone is treated with dignity and respect,
and where individual difference is valued.
This is accomplished by:
• Ensuring equal opportunities in the
recruitment process
• Paying staff fair and competitive salaries
and having reasonable and competitive
family and well-being policies
• Being opposed to any form of less
favourable treatment, whether through
direct or indirect discrimination,
harassment or victimisation, accorded to
employees and applicants for employment
on the grounds of sex, sexual orientation,
marital or parental status, disability, race,
religious beliefs, creed, colour, nationality,
age, ethnic or national origin, or any other
protected characteristic
• Through informed due diligence
• Constantly strive to reduce the amount
at acquisition
of paper used
• Encourage staff to use public transport
where possible to reduce CO2 emissions
• Pick products wisely such as using
recycled paper and avoiding disposable
or non-biodegradable items
• Recycle, by offering accessible recycling
bins in the office
• Use energy-efficient products and
appliances and reduce consumption
where possible
• Measuring and reporting on our activities
and performance in a transparent manner
Following the success in reducing energy
consumption and saving occupancy costs
at our three largest office properties,
the Group has carried out further energy
audits at key sites and have identified the
following opportunities:
• Replacing traditional light bulbs with more
efficient LEDs
• Installing passive infrared sensor lighting
in common areas to save energy when
buildings are not occupied
• Implementing switch controls
39
CONTENTS
Contents
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Charity and local communities
Building and maintaining
good relationships with local
communities is fundamental to
Picton. Community relations are
based on mutual trust, respect
and active partnership.
The Group demonstrates its commitment
by making donations and sponsoring and
supporting numerous charities and social
activities. For the year ended 31 March
2014 the Group made charitable donations
totalling £10,000.
Picton Capital has continued to support a
variety of charities, principally through The
Funding Network, whose aim is to achieve
long-term social change. The Funding
Network enables individuals to join together
to support social change projects. They are
the UK’s first public open giving forum and
have been described as the ‘Dragons’ Den’
for charities. They have raised over £6 million
for over 800 diverse local, national and
international projects.
All Picton employees are encouraged to play
a positive role in community activities and
individual charitable fundraising is supported
through the process of ‘matched giving’.
The Group continued with its office-
wide initiative for employees to donate
their time to charity. In September 2013,
Picton employees created a ‘mythological
wonderland’ themed reading corner at Harry
Gosling Primary School in Tower Hamlets, to
inspire and encourage pupils when reading
and learning.
Performance and development
The Group aims to provide a
business environment that inspires
staff and encourages them to
realise their full potential by giving
them access to development
and training opportunities.
This is attained through the following
key principles:
• Development should be continuous;
staff should always be actively seeking
improved performance
• Regular investment of time in learning is
seen as an essential part of working life
• Development needs are met by a mix
of activities, which include internal and
external training courses, structured ‘on
the job’ work experience and through
interaction with professional colleagues
Health and wellbeing
health and wellbeing is critical
to the business, both within the
property portfolio and also within
the office environment.
The Group’s commitment to providing a safe
and healthy working environment for
all employees is achieved by:
• Adhering to the appropriate health and
safety standards
• Providing a working environment that
enables employees to work effectively
and free from unnecessary anxiety,
stress and fear
• Offering private health benefits to
all employees
• Ensuring employees can report
inappropriate behaviour or concerns
through the whistle blowing policy
• Providing all employees with a suitable
level of training
• Having appropriate family-friendly policies
40
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and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
LETTING
The largest industrial void in the portfolio,
at River Way Industrial Estate in Harlow,
was let during the year, achieving 100%
occupancy at the estate.
41
CONTENTS
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Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Directors’
Report and
Governance
3
Board of Directors
Investment Management Team
Corporate Governance Report
Remuneration Report
Property Valuation Committee Report
Directors’ Report
Audit Committee Report
Independent Auditor’s Report
43
45
47
49
51
53
55
57
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5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
BOARD OF DIRECTORS
Nicholas Thompson
Chairman
Trevor Ash
Chairman of the
Management Engagement
Committee
Robert Sinclair
Chairman of the Audit
Committee
Age 65, was formerly Director and Head
of Fund and Investment Management at
Prudential Property Investment Management
and has served on the Board as Chairman
since 2005. He is currently Chairman of IPD’s
UK & Ireland Consultative Group, a director
of the Lend Lease Retail Partnership and
an independent director of the Association
of Real Estate Funds. He is a Fellow of the
Royal Institution of Chartered Surveyors
and a member of the Property Forum of the
Association of Investment Companies.
Age 68, was formerly Managing Director of
Rothschild Asset Management (CI) Limited
(until 1999) and a non-executive director
of Rothschild Asset Management Limited.
He retired as a director of NM Rothschild &
Sons (CI) Limited in 2007. He is a director
of a number of funds managed by Merrill
Lynch, JPMorgan, Rothschild Group and
Insight. He is also a director of Investors
in Global Real Estate Limited, and is a
Fellow of the Chartered Institute for
Securities & Investment.
Age 64, is Managing Director of the
Guernsey based Artemis Group and a
director of a number of investment fund
management companies and investment
funds associated with clients of that Group.
He has served on the Board since 2005.
Robert is Chairman of Schroder Oriental
Income Fund Limited, Chairman of Sirius
Real Estate Limited, a director of Secure
Property Development & Investment Limited
and a director of Chariot Oil & Gas Limited.
He is a Fellow of the Institute of Chartered
Accountants in England and Wales, and
a member of the Institute of Chartered
Accountants of Scotland.
43
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
Roger Lewis
Chairman of the Property
Valuation Committee
Vic Holmes
Chairman of
the Remuneration
Committee
Age 66, has extensive experience in the
property sector, most recently as a director
of Berkeley Group Holdings Plc for over
15 years, the last eight of which was as
Chairman, a position from which he retired at
the end of July 2007. He subsequently acted
as a consultant to the Berkeley Group and
is currently a non-executive director of three
Jersey based subsidiaries of the Berkeley
Group, as well as being a director of the
States of Jersey Development Company
Limited. Prior to this, he was UK Group
Chief Executive Officer of Crest Nicholson
Group PLC from 1983 to 1991. He is also
currently a director of Grand Harbour
Marina Plc (Malta), of Camper and
Nicholsons Marina Investments Limited
and of Cambian Global Timberland Limited.
He was appointed to the Board in 2010.
Age 57, was Chief Executive of Northern
Trust’s businesses in the Channel Islands
until he retired from full time employment in
November 2011. He joined the Board on
1 January 2013. He serves as a director
for a number of companies involved in the
funds sector, for groups such as Permira,
Ashmore, Foreign and Colonial, DBAG and
Renshaw Bay. He is also a director of Next
Energy Solar Fund Limited (a London
Listed Company) and was elected as
Chairman of the Guernsey Investment
Funds Association in April 2013. He is
a Fellow of the Association of Chartered
Certified Accountants.
44
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
INVESTMENT MANAGEMENT TEAM
The investment management team comprises 11 permanent
employees, and includes five real estate professionals, two
qualified accountants and four further support staff. The senior
management of Picton Capital are:
Michael Morris
Chief Executive
Andrew Dewhirst
Finance Director
Jay Cable
Director
Michael, age 42, is Chief Executive of
Picton Capital Limited and is responsible for
devising and overseeing the implementation
of all aspects of the Company’s investment
strategy. Formerly, he was Director and Fund
Manager at ING Real Estate Investment
Management (UK) Limited, and he has
worked with the Group since it launched
in 2005. He has over 19 years of real
estate experience and is a member of the
Investment Property Forum. Michael sits
on the Property Panel of the Association
of Investment Companies and the CPD
steering committee of the Investment
Property Forum. He has obtained the
Investment Management Certificate and the
IPF Diploma in Property Investment.
Andrew, age 54, joined Picton Capital
Limited as Finance Director in March
2011. Previously he was Director of Client
Accounting at ING Real Estate Investment
Management (UK) Limited, a role he
had held since January 2006. At ING he
was responsible for the accounting and
administration of all the UK real estate
vehicles and separate client accounts.
Prior to joining ING Andrew was Director
of Securities and Property Accounting at
Hermes Pensions Management Limited. He
has over 25 years’ experience in the real
estate and financial services sector. Andrew
is an associate member of the Institute of
Chartered Accountants in England and
Wales and a member of the Investment
Property Forum.
Jay, age 36, is Head of Asset Management
at Picton Capital Limited. In this role he
is responsible for overseeing all asset
management activities in respect of the
Group’s property portfolio. Formerly he
was Director at ING Real Estate Investment
Management (UK) Limited, and has worked
with the Group since it launched in 2005.
Jay plays an active role in devising and
implementing the Company’s strategy and
is a member of Picton Capital’s Investment
Committee. He has over 13 years of real
estate experience and is a member of the
Royal Institution of Chartered Surveyors and
of the Investment Property Forum.
45
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
Fraser D’Arcy
Investment Director
Fraser, age 38, joined Picton Capital Limited
as Investment Director in January 2013.
He is primarily responsible for transactional
activity within the portfolio to manage
effective recycling of capital. Previously he
was an Investment Surveyor at Threadneedle
Property Investments Limited from 2006,
where he was responsible for acquisitions
and disposals in all sectors across the UK
market. Prior to this he was an Associate
Director at Insight Investment, having started
his career at Scottish Widows Investment
Partnership as an Investment Manager.
He has 14 years of investment experience
in UK real estate and has obtained the
Investment Management Certificate.
Fraser is a member of the Royal Institution
of Chartered Surveyors and of the
Investment Property Forum.
The other members of the
team are:
Laurence Jones
Senior Asset Manager
Tim Hamlin
Asset Manager
James Forman
Financial Controller
Sonya Kapur
Research Analyst
Adam Green
Accounts Assistant
Clare Bunning
Office Manager
Sarah Barnes
Team Secretary
46
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
The Company is a member of
the Association of Investment
Companies (“AIC”) and applies
the principles of the AIC Code
of Corporate Governance
(the “AIC Code”).
The Board has considered the principles
and recommendations of the AIC Code by
reference to the AIC Corporate Governance
Guide for Investment Companies (“AIC
Guide”). The AIC Code, as explained by
the AIC Guide, addresses all the principles
set out in the UK Corporate Governance
Code (the ‘UK Code’), as well as setting out
additional principles and recommendations
on issues that are of specific relevance to the
Company. The Financial Reporting Council
has confirmed that, by following the AIC
Guide, investment company boards should
fully meet their obligations in relation to the
UK Code.
The Board considers that reporting against
the principles and recommendations of
the AIC Code, and by reference to the AIC
Guide (which incorporates the UK Code), will
provide better information to shareholders.
Except as disclosed below, the Company
has complied throughout the year with the
recommendations of the AIC Code and the
relevant provisions of the UK Code.
By complying with the AIC Code and the
UK Code, the Board considers that it is in
compliance with the provisions of the Code
of Corporate Governance published by the
Guernsey Financial Services Commission.
Alternative Investment Fund
Managers Directive
This Directive is European legislation which
creates an EU-wide framework for regulating
an alternate investment fund manager
(AIFM). The Group’s activities fall within the
scope of the Directive and the Board has
determined that the Company itself will act
as AIFM for these purposes.
Non-Mainstream Pooled
Investments
The Company currently conducts its affairs
so that its shares can be recommended
by independant financial advisers to retail
investors in accordance with the FCA’s
rules in relation to non-mainstream pooled
investments, and intends to continue to do
so for the foreseeable future.
Committees
The Board has established five Committees:
Audit, Remuneration, Property Valuation,
Risk and Management Engagement. The
terms of reference for these Committees are
available on the Company’s website.
The Risk Committee was established in
February 2014 and held its first meeting
subsequent to the year end date. A
separate Risk Committee has been
established in order to address the Group’s
risk management given the additional
responsibilities taken on by the Board in
respect of its role as Alternative Investment
Fund Manager.
The Board has not established a separate
Nominations Committee as these duties
are performed by the whole Board for
practical reasons.
The Board
The Board retains full responsibility for
the direction and control of the Company,
including investment policy and strategy,
dividend policy and gearing. The Board
meets regularly, normally quarterly, and more
frequently if necessary.
The Board has delegated responsibility for
operational matters under an Investment
Management Agreement to its Investment
Manager, Picton Capital Limited.
Composition
The Company is led and controlled by
a Board comprising of non-executive
Directors, all of whom have wide experience
and are considered to be independent.
In making any new appointment the Board
will consider a number of factors, but
principally the skills and experience that will
be relevant to the specific role and that will
complement the existing Board members.
The Articles of Association stipulate that all
new Directors shall retire at their first Annual
General Meeting and offer themselves for
re-appointment. One third, or the number
nearest to but not exceeding one third, of
the Directors shall retire and offer themselves
for re-appointment at each subsequent
Annual General Meeting.
The Board considers that the length of
time each Director, including the Chairman,
serves on the Board should not be limited
and therefore have not set a finite tenure
policy. This issue, as well as that of future
succession planning, is reviewed annually as
part of the Board evaluation process, and
as a result of the latest evaluation further
arrangements have been put in place to
secure continuity.
The Board believes that it is in the
shareholders’ best interests for the Chairman
to be the point of contact for all matters
relating to the governance of the Company
and as such has not appointed a senior
independent non-executive Director.
47
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PICTON PROPERTY INCOME LIMITED Attendance at Board and
Committee Meetings
The meetings below were the scheduled
Board and Committee meetings. Additional
meetings were held to deal with other matters
as required and are not included.
Reports from the Audit, Remuneration and
Property Valuation Committees follow the
Corporate Governance Report.
Board
Audit
Remuneration
Property
Valuation
Management
Engagement
4 Meetings
2 Meetings
2 Meetings
4 Meetings
2 Meetings
NIChOLAS ThOMPSON
ROBERT SINCLAIR
TREVOR ASh
ROGER LEWIS
VIC hOLMES
4
3
4
4
4
2
2
2
2
2
2
2
2
2
2
4
3
4
4
4
2
2
2
2
2
Evaluation
The performance of the Board and its
Committees is evaluated on an annual basis.
This is carried out by external consultants
every three years, the latest being in 2010,
and internally by the Directors for intervening
years. An internal evaluation was performed
in March 2013, using questionnaires
prepared by the Company’s Administrator.
The questionnaires, which were completed
anonymously, addressed all aspects of the
running of the Company. The Board has
appointed Trust Associates Limited to carry
out an external evaluation during 2014.
Management Engagement
Committee
The Management Engagement Committee
comprises all of the Directors of the
Company and is chaired by Trevor Ash.
The Committee reviewed the performance
of the Administrator and the Investment
Manager and considered that both were
satisfactory and compliant with the terms
of the respective agreements, and also
found that the Board had continued to act
independently of the Investment Manager
and any shareholder throughout the year.
Internal control and risk
management
The Directors acknowledge that they are
responsible for establishing and maintaining
the Group’s system of internal controls and
reviewing its effectiveness. Internal control
systems are designed to manage rather
than eliminate the failure to achieve business
objectives and can only provide reasonable,
and not absolute, assurance against material
misstatement or loss. They have therefore
established an on-going process designed
to meet the particular needs of the Group in
managing the risks to which it is exposed,
consistent with the guidance provided by the
Turnbull Committee. Such review procedures
have been in place throughout the full
financial year, and up to the date of the
approval of the financial statements, and the
Board is satisfied with their effectiveness.
This process involves a review by the Board
of the control environment within the Group’s
service providers to ensure that the Group’s
requirements are met.
The Group does not have an internal audit
function. Given the scale of the Group’s
operations, the Board has determined
that a separate internal audit function is
unnecessary and that additional procedures
carried out by the external auditor in
conjunction with the audit of the Group’s
accounts provides the Board with sufficient
assurance regarding the internal control
systems in place. The Board continues to
place reliance on the Administrator’s internal
control systems.
These systems are designed to ensure
effective and efficient operations, internal
control and compliance with laws and
regulations. In establishing the systems
of internal control, regard is paid to the
materiality of relevant risks, the likelihood of
costs being incurred and costs of control.
It follows, therefore, that the systems of
internal control can only provide reasonable,
but not absolute, assurance against the risk
of material misstatement or loss.
The effectiveness of the internal control
systems is reviewed annually by the Board
and the Audit Committee. The Audit
Committee has a discussion annually with
the auditor to ensure that there are no issues
of concern in relation to the audit opinion on
the financial statements and, if necessary,
representatives of the Investment Manager
would be excluded from that discussion.
Relations with shareholders
In conjunction with the Board, the
Administrator keeps under review the
register of members of the Company. All
shareholders are encouraged to participate
in the Company’s Annual General Meeting.
All Directors normally attend the Annual
General Meeting, at which shareholders
have the opportunity to ask questions and
discuss matters with the Directors and
senior management. Investors are able to
direct any questions for the Board via the
Secretary.
The Chairman regularly attends analyst
meetings and roadshows to meet investors.
The outcome of these meetings is
communicated to the rest of the Board.
48
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4 Financial Statements
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ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
REMUNERATION REPORT
The Remuneration Committee
comprises all of the Directors of
the Company and is chaired by
Vic holmes.
Terms of reference
The Committee will consider the
following matters:
• Appointment of, and terms of reference
for, any remuneration consultants
• Remuneration levels for the Directors,
within the limit set by the Company’s
Articles of Association
• Recommend remuneration policies
to the Board for Directors and
senior management
• Review and note remuneration trends
across the Group
• Determine the policy for expense claims
by Directors
Activity
The Committee met twice during the year
ended 31 March 2014 and considered the
following matters:
• Remuneration trends across similar
property companies
• Remuneration review and Long Term
Incentive Plan awards for Picton Capital
employees
• Proposals for the deferral of Long Term
Incentive Plan awards
• Appointment of external consultants to
review the level of Directors’ fees
• Performance of the Committee
Remuneration policy
The objective of the Group’s remuneration
policy is to have a simple and transparent
remuneration structure aligned with the
Group’s strategy.
The Group aims to provide a remuneration
package which will retain Directors and
management with the skills and experience
necessary to manage the Group and
maximise shareholder value on a long
term basis. The remuneration policy aims
to incentivise management by rewarding
49
performance through enhanced
shareholder value.
Directors receive an annual fee as set out
below plus additional fees on a time spent
basis, if applicable. Directors will not receive
share options or other performance related
elements, unless approved in advance by
shareholders.
The Committee has determined the
remuneration policy for the management
and staff of Picton Capital Limited following
independent advice and recommendations
from Hewitt New Bridge Street.
Terms of employment
The terms of appointment of the Directors
are documented in letters of appointment.
They have a three month notice period and
their appointment would terminate without
compensation if not re-elected at the Annual
General Meeting.
The Directors have no service contracts
or interests in any material contracts with
the Group.
Directors’ fees
All of the Directors of the Company are non-
executive and their fees are recommended
by the Board. The level of Directors’ fees
were independently reviewed in August
2011 by Hewitt New Bridge Street. The
recommendations from their report were
adopted by the Remuneration Committee
and the following annual fee rates became
effective from 1 January 2012, which are
reflective of the internalised management
arrangements from that date, and have been
set at the lower quartile level compared to
the Company’s benchmarked peer group of
similar companies. Any additional time spent
above the expected annual commitments
will be compensated at the rate of £1,200
per day.
Expected annual time
commitment
Annual
rate
ChAIRMAN
ChAIRMAN OF ThE AUDIT COMMITTEE
ChAIRMAN OF ThE PROPERTY VALUATION COMMITTEE
DIRECTOR
Days
£
30
22
22
20
63,000
38,000
35,000
33,000
The total fees earned by each Director for the year ended 31 March 2014 were as follows:
NIChOLAS ThOMPSON
ROBERT SINCLAIR
TREVOR ASh
ROGER LEWIS
VIC hOLMES
TJEERD BORSTLAP
31 March 2014
31 March 2013
£
£
63,000
38,000
33,000
35,000
33,000
-
63,000
38,000
33,000
35,000
8,250
16,500
Total
202,000
193,750
No additional fees were earned above the annual expected time commitment for the
year ended 31 March 2014. The Company’s Articles set an annual limit of £300,000
for Directors’ remuneration.
CONTENTS
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PICTON PROPERTY INCOME LIMITED
The Committee determined that there would
be an overall increase of 2.8% in base
salaries from 1 April 2014 (2013: nil).
For the year ended 31 March 2014, the
Committee agreed that bonuses awarded
to Picton Capital staff would total £242,000
payable on 31 March 2014 (2013: £190,000)
and £353,000 in Long Term Incentive
Plan awards (2013: £334,000). The Long
Term Incentive Plan awards were made at
the prevailing share price, and equate to
622,000 units, of which 311,000 units vest
on 31 March 2016 and 311,000 units vest
on 31 March 2017. The cost to the Group
of awards made is spread over the vesting
periods in accordance with its accounting
policy. The accrued cost at 31 March 2014
was £321,000 (2013: £38,000). A summary
of the awards made to Picton Capital staff is
set out in note 7 to the financial statements.
Annual bonus
A discretionary annual bonus
may be awarded to recognise
individual performance. An award
will take into account three factors:
the underlying performance of
the Group, the underlying real
estate return and the individual’s
performance. Bonus payments are
not pensionable. An element of any
award will be made in units in the
Long Term Incentive Plan.
Long term incentive plan
A share-based long term incentive
plan has been established that
aligns remuneration with that of
shareholders. Any award under
the plan is linked to both share
price movement and dividend
distributions. Awards will normally
vest in either two or three years.
Other benefits
These include private medical
insurance and life cover.
Picton Capital Limited
remuneration
The Group’s Investment Manager employed
11 staff as at 31 March 2014.
The policy and components of remuneration
set by the Committee in respect of Picton
Capital Limited directors and staff are
as follows.
Base salary
Base salaries are based on market
data provided by the Company’s
independent advisers. Base salaries
are reviewed annually on 1 April.
Pension
The Group makes contributions
for eligible employees into a
Group personal pension plan to a
maximum of 12% of base salary.
Further contributions to a maximum
of 5% will be paid by the Group if
matched by additional voluntary
contributions by the employee.
Share Ownership
Directors and employees are encouraged to
maintain a shareholding in the Company’s
shares to provide alignment with investors,
although in the case of Picton Capital staff,
alignment is also achieved through awards
under the Long Term Incentive Plan.
The number of shares beneficially held by
each Director, and senior management,
(including spouses), as at 31 March 2014
were as follows
Mrs Elizabeth Thompson additionally holds
45,249 zero dividend preference shares
issued by Picton ZDP Limited.
Directors
NIChOLAS ThOMPSON *
ROBERT SINCLAIR
TREVOR ASh
ROGER LEWIS
VIC hOLMES
Senior management
Members of senior management also hold
units in the Long Term Incentive Plan. At 31
March 2014 the number of units that had
been awarded to senior management and
yet to vest was 1,161,781 (2013: 729,590).
MIChAEL MORRIS **
ANDREW DEWhIRST
JAY CABLE
FRASER D’ARCY
* includes 64,433 shares held by Mrs Elizabeth Thompson
** includes 28,596 shares held by Mrs Joanne Morris
50
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
Shares
150,434
15,000
225,000
400,000
-
53,596
13,300
7,030
-
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
PROPERTY VALUATION COMMITTEE REPORT
The Property Valuation
Committee comprises all of the
Directors of the Company and is
chaired by Roger Lewis.
Terms of Reference
The Committee shall review the quarterly
valuation reports produced by the
independent valuers before their submission
to the Board, looking in particular at:
• Significant adjustments from
previous quarters
• Individual property valuations
• Commentary from the Investment
Manager
• Significant issues that should be raised
with the Investment Manager
• Material and unexplained movements in
Activity
The Committee met four times during the
year ended 31 March 2014. Members of
the Property Valuation Committee, together
with the Investment Manager, met with the
independent valuer each quarter to review
the valuations and considered the
following matters:
• Property market conditions and trends
• Movements compared to previous
quarters
• Yields on properties within the portfolio
• Letting activity and vacant properties
the Company’s net asset value
• Covenant strength and lease lengths
• Compliance with applicable standards
• Estimated rental values
and guidelines
• Reviewing findings or recommendations
of the valuers
• The appointment, remuneration and
removal of the Company’s valuers,
making such recommendations to
the Board as appropriate
• Comparable market evidence
The Committee was satisfied with the
valuation process throughout the year.
Appointment of Valuer
CBRE Limited was appointed as sole
external valuer to the Group, effective from
31 March 2013, and carry out a valuation of
the Group’s property assets each quarter,
the results of which are incorporated into
the Group’s half year and annual financial
statements, and the quarterly net
asset statements.
51
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED 52
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
DIRECTORS’ REPORT
The Directors of Picton Property
Income Limited present the
Annual Report and audited
financial statements for the year
ended 31 March 2014.
The Company is a closed ended investment
company and is registered under the
provisions of the Companies (Guernsey)
Law, 2008.
Principal activity
The principal activity of the Group is property
investment with the objective of providing
shareholders with an attractive level of
income together with the potential for capital
growth, by investing in a diversified UK
commercial property portfolio.
With effect from 29 October 2008, the
Company became regulated under
the Protection of Investors (Bailiwick of
Guernsey) Law, 1987 (as amended). Under
this regulation, the Company was deemed
to be authorised by the Guernsey Financial
Services Commission.
Results and dividends
The results for the year are set out in the
Consolidated Statement of Comprehensive
Income. As set out in note 11 to the
consolidated financial statements, the
Company has paid four interim dividends
of 0.75 pence per share, making a total
dividend for the year ended 31 March 2014
of 3.0 pence per share (2013: 3.5 pence).
Directors and Directors’ interests
The Directors of the Company who served
throughout the year are set out on pages
43 to 44.
The Directors’ interests in the shares of the
Company as at 31 March 2014 are set out in
the Remuneration Report on page 50.
Listings
The Company is listed on the main market
of the London Stock Exchange.
Share capital
The issued share capital of the Company
as at 31 March 2014 was 379,869,729 (31
March 2013: 345,336,118) ordinary shares
of no par value.
On 5 September 2013 the Company issued
12,305,185 new ordinary shares of no par
value at 51.5 pence per share for cash and
on 27 November 2013 issued a further
22,228,426 new ordinary shares of no par
value at 53.5 pence per share for cash.
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 this
authority from shareholders. Any buy back of
ordinary shares is, and will be, made subject
to Guernsey law, and the making and
timing of any buy backs are at the absolute
discretion of the Board.
Statement of going concern
The Group’s business activities, together
with the factors affecting performance,
investment activities and future development
are set out in the Strategic Report. The
financial position of the Group, including
its liquidity position, borrowing facilities
and debt maturity profile, is set out in the
Financial Review and in the consolidated
financial statements.
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.
Substantial shareholdings
Based on notifications received and on
information provided by the Company’s
brokers, the Company understands the
following shareholders held a beneficial
interest of 3% or more of the Company’s
issued share capital as at June 2014.
Issued
share
capital
%
18.20
6.92
4.92
4.57
4.49
3.87
3.84
3.81
3.08
INVESTEC WEALTh
& INVESTMENT LIMITED
J O hAMBRO CAPITAL
MANAGEMENT
PREMIER FUND MANAGERS
LIMITED
RAThBONE INVESTMENT
MANAGEMENT
ThREADNEEDLE ASSET
MANAGEMENT LIMITED
BLACKROCK INVESTMENT
MANAGEMENT LIMITED
ALLIANCE TRUST SAVINGS
LIMITED
ThAMES RIVER CAPITAL
BREWIN DOLPhIN LIMITED
Disclosure of information
to auditors
The Directors who held office at the date of
approval of this Directors’ Report confirm
that, so far as they are each aware, there is
no relevant audit information of which the
Company’s auditors are unaware; and each
Director has taken all the steps that he ought
to have taken as a Director to make himself
aware of any relevant audit information and
to establish that the Company’s auditors are
aware of that information.
Auditors
KPMG Channel Islands Limited (the
“Auditor”) has expressed its willingness
to continue in office as the Company’s
auditor and a resolution proposing its
reappointment will be submitted at the
Annual General Meeting.
53
CONTENTS
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Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
Statement of Directors’
responsibilities
The Directors are responsible for preparing
the Directors’ 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 have
elected to prepare the financial statements
in accordance with International Financial
Reporting Standards, as issued by the IASB,
and applicable law.
The financial statements are required by law
to give a true and fair view of the state of
affairs of the Company and of the profit or
loss of the Company 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 and prudent;
• state whether applicable accounting
standards have been followed, subject
to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time the
financial position of the Company and to
enable them to ensure that the financial
statements comply with the Companies
(Guernsey) Law, 2008. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Company and to prevent and
detect fraud and other irregularities.
Directors’ responsibility statement
in respect of the Annual Report
and Financial Statements
The Directors confirm that to the best
of their knowledge and belief the report
and accounts taken as a whole, is fair,
balanced and understandable and provides
the information necessary to assess the
Company’s performance, business model
and strategy.
Directors’ responsibility statement
under the Disclosure and
Transparency Rules 4.1.12
The Directors confirm to the best of their
knowledge and belief:
(a) the financial statements, prepared in
accordance with International Financial
Reporting Standards, give a true and
fair view of the assets, liabilities,
financial position and profit or loss
of the Company and the undertakings
included in the consolidation taken
as a whole; and
(b) the Strategic Report includes a fair
review of development and performance
of the business and the position of
the Company and the undertakings
included in the consolidation taken as
a whole, together with a description of
the principal risks and uncertainties
that they face.
By Order of the Board
Robert Sinclair
13 June 2014
54
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
AUDIT COMMITTEE REPORT
The Audit Committee comprises
all of the Directors of the
Company and is chaired by
Robert Sinclair.
Meetings of the Audit Committee are
attended by the Finance Director of Picton
Capital Limited and other members of the
finance team, and the external auditors.
The external auditors are given the
opportunity to discuss matters without
management presence.
Terms of Reference
The Committee’s terms of reference include
consideration of the following issues:
• Financial reporting, including
significant accounting judgments
and accounting policies
• Internal controls and risk
management systems
• The Group’s relationship with the
external auditor, including effectiveness
and independence
• Internal audit and the programme
of controls testing
• Reporting responsibilities
Activity
The Committee met twice during the year
ended 31 March 2014 and considered the
following matters:
• External audit strategy and plan
• Audit and accounting issues of
significance
• The Annual and Interim Reports of
the Group
• Reports from the external auditors
• The effectiveness of the audit process
and the independence of KPMG Channel
Islands Limited
• Review of business risks and internal
controls and risk review
• Stock Exchange announcements
55
Financial Reporting and
Significant Reporting Matters
The Committee considers all financial
information published in the annual and
half-year financial statements and considers
accounting policies adopted by the Group,
presentation and disclosure of the financial
information and the key judgements
made by management in preparing
the financial statements.
The Directors are responsible for preparing
the Annual Report. At the request of the
Board, the Committee considered whether
the 2014 Annual Report was fair, balanced
and understandable and whether it provided
the necessary information for shareholders to
assess the Group’s performance, business
model and strategy.
The key area of judgement that the
Committee considered in reviewing the
financial statements was the valuation of the
Group’s investment properties.
The valuation is conducted on a quarterly
basis by independent valuers, and is subject
to oversight by the Property Valuation
Committee. It is a key component of the
annual and half year financial statements
and is inherently subjective, requiring
significant judgement. Members of the
Property Valuation Committee, together
with the Investment Manager, meet with
the independent valuer on a quarterly basis
to review the valuations and underlying
assumptions, including the year end
valuation process. The Chairman of the
Property Valuation Committee reported
to the Audit Committee at its meeting in
May 2014 and confirmed that the following
matters had been considered in discussions
with the independent valuers:
• Property market conditions;
• Yields on properties within the portfolio;
• Letting activity and vacant properties;
• Covenant strength and lease lengths;
• Estimated rental values; and
• Comparable market evidence.
The Audit Committee reviewed the report
from the Chairman of the Property Valuation
Committee including the assumptions
applied to the valuation and considered their
appropriateness, as well as considering
current market trends and conditions, and
valuation movements compared to previous
quarters. The Audit Committee considered
the valuation and agreed that this was
appropriate for the financial statements.
The Committee was satisfied that the
2014 Annual Report is fair, balanced and
understandable and included the necessary
information as set out above, and it has
confirmed this to the Board.
Internal controls
The Board is responsible for the Company’s
internal control system and for reviewing its
effectiveness. It has therefore established
a process designed to meet the particular
needs of the Company in managing the risks
to which it is exposed.
As part of this process, a risk matrix has
been prepared that identifies the Company’s
key functions and the individual activities
undertaken within those functions. From
this, the Board has identified the Company’s
principal risks and the controls employed
to manage those risks. These are reviewed
at each Audit Committee meeting. Also the
Audit Committee has agreed a programme
of additional controls testing which is
carried out by the external auditor, in order
to provide the Board with comfort that the
controls are operating as intended and
have been in place throughout the year.
The Board also monitors the investment
performance of the Company against its
objectives and receives reports from the
Investment Manager and Administrator
each quarter on their activities. The Audit
Committee has received and reviewed
a copy of CBRE Limited’s Real Estate
Accounting Services – Service Organisation
Control Report as at 30 September 2013,
prepared in accordance with International
Standard on Assurance Engagements
3402, in respect of property management
accounting services provided to Picton
Capital Limited.
Given the scale of the Group’s operations,
the Board has determined that a separate
internal audit function is unnecessary and
that additional procedures carried out by the
external auditor in conjunction with the audit
of the Group’s accounts will provide the
Board with sufficient assurance regarding the
internal control systems in place.
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Independence of Auditors
It is the policy of the Audit Committee that
non-audit work will not be awarded to
the external auditors if there is a risk their
independence may be conflicted. The
Committee must approve in advance all
non-audit assignments to be carried out by
the external auditors.
The fees payable to the Group’s auditor
and its member firms are shown here
The non-audit fees include £12,000 for
additional controls testing, carried out
by KPMG Channel Islands Limited, and
£5,000 in respect of the Picton Capital FCA
CASS audit, carried out by KPMG LLP.
Annual Auditor Assessment
On an annual basis, the Committee
assesses the qualifications, expertise and
independence of the Group’s external
auditor, as well as the effectiveness of
the audit process. It does this through
discussion and enquiry with senior
management, review of a detailed
assessment questionnaire and confirmation
from the external auditor. The Committee
also considers the external audit plan,
setting out the auditor’s assessment of the
key audit risk areas and reporting received
from the external auditor in respect of both
the half year and year end reports and
accounts.
AUDIT FEES
INTERIM REVIEW FEES
NON-AUDIT FEES
Total
31 March 2014
31 March 2013
£000
£000
119
20
17
156
116
14
40
170
As part of the review of auditor
independence and effectiveness, KPMG
Channel Islands Limited has confirmed that:
• They have internal procedures in place
to identify any aspects of non-audit work
which could compromise their role as
auditor and to ensure the objectivity of the
audit report;
• The total fees paid by the Group during
the year do not represent a material part
of their total fee income; and
• They consider that they have maintained
their independence throughout the year.
In evaluating KPMG Channel Islands Limited
the Committee completed its assessment
of the external auditor for the financial
period under review. It has satisfied itself
as to their qualifications and expertise and
remains confident that their objectivity and
independence are not in any way impaired
by reason of the non-audit services which
they provide to the Group.
KPMG Channel Islands Limited have been
auditors to the Group since the year ended
31 December 2009 following a tender
process in July 2009. The Senior Statutory
Auditor, Neale Jehan, has served two years
in this position.
The Committee recommends that KPMG
Channel Islands Limited are recommended
for re-appointment at the next Annual
General Meeting.
Robert Sinclair
Chairman of the Audit
Committee
13 June 2014
56
3 Directors’ Report
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
DIRECTORS’ REPORT AND GOVERNANCE
INDEPENDENT AUDITOR’S REPORT
TO ThE MEMBERS OF PICTON
PROPERTY INCOME LIMITED
Opinions and conclusions arising
from our audit
Opinion on financial statements
We have audited the consolidated
financial statements (the “financial
statements”) of Picton Property Income
Limited (the “Company”) and together
with its subsidiaries (together, the
“Group”) for the year ended 31 March
2014 which comprise the Consolidated
Statement of Comprehensive Income, the
Consolidated Statement of Changes in
Equity, the Consolidated Balance Sheet,
the Consolidated Statement of Cash
Flows and the related notes. The financial
reporting framework that has been applied
in their preparation is applicable law and
International Financial Reporting Standards
as issued by the IASB. In our opinion, the
financial statements:
• give a true and fair view of the state of the
Group’s affairs as at 31 March 2014 and
of its profit for the year then ended;
• have been properly prepared in
accordance with International Financial
Reporting Standards as issued by the
IASB; and
• comply with the Companies (Guernsey)
Law, 2008.
Our assessment of risks of
material misstatement
The risks of material misstatement detailed
in this section of this report are those risks
that we have deemed, in our professional
judgment, to have had the greatest effect
on: the overall audit strategy; the allocation
of resources in our audit; and directing the
efforts of the engagement team. Our audit
procedures relating to these risks were
designed in the context of our audit of the
financial statements as a whole. Our opinion
on the financial statements is not modified
with respect to any of these risks, and we
do not express an opinion on these
individual risks.
In arriving at our audit opinion above on
the financial statements, the risk of material
misstatement that had the greatest effect on
our audit was as follows:
57
Valuation of Investment Properties
(£417.2 million)
Refer to the Audit Committee Report on
page 55, Note 2 significant accounting
policies and Note 14 Investment
Properties disclosures.
• The risk – The Group’s property portfolio
accounted for 89.9% of the Group’s total
assets as at 31 March 2014. The fair
value of the investment properties at 31
March 2014 was assessed by the Board
of Directors based on an independent
valuation prepared by the Group’s external
property valuer. As highlighted in the
Audit Committee Report, the valuation
of the Group’s property portfolio, given
it represents the majority of the total
assets of the Group and requires the use
of significant judgment and subjective
assumptions, is a significant area of
our audit.
• Our response – Our audit procedures
with respect to the Group’s investment
properties included, but were not limited
to, testing the design, implementation and
operating effectiveness of the relevant
controls, use of our own UK Real Estate
specialist group to review the valuation
prepared by the external property valuer
and to evaluate the appropriateness of the
valuation methodologies and assumptions
used, including undertaking discussions
on key findings with the external valuer
and challenging the assumptions used.
We compared key inputs to the valuation
such as current and estimated rental
income, initial and equivalent yields,
estimated capital value, occupancy and
tenancy contracts for consistency with
other audit findings. We also considered
the Group’s investment property valuation
policies and their application as described
in the notes to the financial statements
for compliance with International Financial
Reporting Standards as issued by the
IASB in addition to the adequacy of
disclosures in Notes 2 and 14 in relation to
the fair value of the investment properties.
Our application of materiality
and an overview of the scope
of our audit
Materiality is a term used to describe the
acceptable level of precision in financial
statements. Auditing standards describe a
misstatement or an omission as “material” if
it could reasonably be expected to influence
the economic decisions of users taken on
the basis of the financial statements. The
auditor has to apply judgment in identifying
whether a misstatement or omission is
material and to do so the auditor identifies
a monetary amount as “materiality for the
financial statements as a whole”.
The materiality for the financial statements
as a whole was set at £4.3 million. This has
been calculated using a benchmark of the
Group’s total assets (of which it represents
approximately 0.9%) which we believe is the
most appropriate benchmark as investment
property values are considered as the prime
driver of returns to shareholders and main
focus of users of the financial statements.
We agreed with the Audit Committee to
report to it all corrected and uncorrected
misstatements we identified through our
audit with a value in excess of £215,000, in
addition to other audit misstatements below
that threshold that we believe warranted
reporting on qualitative grounds.
For the purposes of the Group audit, the
audit of the Company’s subsidiaries were all
performed by the Group audit team based
on the materiality levels set out above.
Our assessment of materiality has informed
our identification of significant risks of
material misstatement and the associated
audit procedures performed in those areas
as detailed above.
Whilst the audit process is designed to
provide reasonable assurance of identifying
material misstatements or omissions it is
not guaranteed to do so. Rather we plan
the audit to determine the extent of testing
needed to reduce to an appropriately low
level the probability that the aggregate of
uncorrected and undetected misstatements
does not exceed materiality for the financial
statements as a whole. This testing requires
us to conduct significant depth of work on
a broad range of assets, liabilities, income
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED and expense as well as devoting significant
time of the most experienced members of
the audit team, in particular the Responsible
Individual, to subjective areas of the
accounting and reporting process.
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the Group’s
circumstances and have been consistently
applied and adequately disclosed; the
reasonableness of significant accounting
estimates made by the Board of Directors;
and the overall presentation of the financial
statements. In addition, we read all the
financial and non-financial information
in the Annual Report to identify material
inconsistencies with the audited financial
statements and to identify any information
that is apparently materially incorrect based
on, or materially inconsistent with, the
knowledge acquired by us in the course of
performing the audit. If we become aware
of any apparent material misstatements or
inconsistencies we consider the implications
for our report.
Matters on which we are required
to report by exception
Under International Standards on Auditing
(ISAs) (UK and Ireland) we are required to
report to you if, based on the knowledge we
acquired during our audit, we have identified
other information in the Annual Report that
contains a material inconsistency with either
that knowledge or the financial statements,
a material misstatement of fact, or that is
otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies
between the knowledge we acquired
during our audit and the Directors’
statement that they consider that the
Annual Report and financial statements
taken as a whole is fair, balanced
and understandable and provides the
information necessary for members to
assess the Group’s performance, business
model and strategy; or
• the Audit Committee Report does
not appropriately address matters
communicated by us to the Audit
Committee.
Under the Companies (Guernsey) Law,
2008, we are required to report to you if,
in our opinion:
• the Company has not kept proper
accounting records; or
• the financial statements are not in
agreement with the accounting records; or
• we have not received all the information
and explanations, which to the best of our
knowledge and belief are necessary for
the purpose of our audit.
Under the Listing Rules we are required to
review the part of the Corporate Governance
Statement on pages 47 to 48 relating to
the Company’s compliance with the nine
provisions of the UK Corporate Governance
Code specified for our review.
We have nothing to report in respect of the
above responsibilities.
Scope of report and
responsibilities
The purpose of this report and restrictions on
its use by persons other than the Company’s
members as a body.
This report is made solely to the Company’s
members, as a body, in accordance with
section 262 of the Companies (Guernsey)
Law, 2008 and, in respect of any further
matters on which we have agreed to report,
on terms we have agreed with the Company.
Our audit work has been undertaken so that
we might state to the Company’s members
those matters we are required to state to
them in an auditor’s report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
Company and the Company’s members, as
a body, for our audit work, for this report, or
for the opinions we have formed.
Respective responsibilities of
directors and auditor
As explained more fully in the Directors’
Responsibilities Statement set out on page
54, the directors are responsible for the
preparation of the financial statements
and for being satisfied that they give a true
and fair view. Our responsibility is to audit,
and express an opinion on, the financial
statements in accordance with applicable
law and ISAs (UK and Ireland). Those
standards require us to comply with the UK
Ethical Standards for Auditors.
The maintenance and integrity of the
www.pictonproperty.co.uk website is
the responsibility of the Directors of
Picton Property Income Limited; the
work carried out by auditors does not
involve consideration of these matters and
accordingly, KPMG Channel Islands Limited
accepts no responsibility for any changes
that may have occurred to the financial
statements or audit report since 13 June
2014. KPMG Channel Islands Limited has
carried out no procedures of any nature
subsequent to 13 June 2014 which in any
way extends this date.
Neale D Jehan
For and on behalf of KPMG
Channel Islands Limited
Chartered Accountants and
Recognised Auditors
20 New Street
St Peter Port
Guernsey
GY1 4AN
13 June 2014
58
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
CASE STUDY
LETTING
Let the largest single retail void in
the portfolio at Parc Tawe, Swansea,
after securing planning consent for
a change in use, to a gym operator.
59
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
61
62
63
64
65
4
Financial
Statements
60
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and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT
OF COMPREhENSIVE INCOME
For the year ended 31 March 2014
Income
REVENUE FROM PROPERTIES
PROPERTY ExPENSES
Net property income
Expenses
MANAGEMENT ExPENSES
OThER OPERATING ExPENSES
Total operating expenses
Operating profit before movement on investments
Investments
PROFIT/(LOSS) ON DISPOSAL OF INVESTMENT PROPERTIES
INVESTMENT PROPERTY VALUATION MOVEMENTS
Total profit/(loss) on investments
Operating profit/(loss)
Financing
INTEREST RECEIVABLE
INTEREST PAYABLE
REALISED GAINS ON DISPOSAL OF DERIVATIVE FINANCIAL INSTRUMENTS
Total finance costs
Profit/(loss) before tax
TAx
Note
Income
£000
Capital
£000
Total
£000
Total
£000
31 March
2014
31 March
2013
3
4
6
8
14
14
36,749
(8,992)
27,757
(2,127)
(1,139)
(3,266)
24,491
-
-
-
-
-
-
-
36,749
(8,992)
27,757
(2,127)
(1,139)
(3,266)
38,812
(8,989)
29,823
(1,682)
(1,592)
(3,274)
24,491
26,549
-
-
-
5,660
18,422
24,082
5,660
18,422
24,082
(4)
(30,937)
(30,941)
24,491
24,082
48,573
(4,392)
164
9
(11,032)
-
(10,868)
-
-
-
-
164
114
(11,032)
(11,674)
-
(10,868)
1,617
(9,943)
13,623
24,082
37,705
(14,335)
10
(357)
-
(357)
(272)
Total comprehensive income
13,266
24,082
37,348
(14,607)
Earnings/(loss) per share
BASIC AND DILUTED
12
3.7p
6.7p
10.4p
(4.2)p
The total column of this statement represents the Group’s Consolidated Statement of Comprehensive Income. The supplementary income
return and capital return columns are prepared under guidance published by the Association of Investment Companies. All items in the above
statement derive from continuing operations.
All of the profit and total comprehensive income for the year is attributable to the equity holders of the Company.
Notes 1 to 27 form part of these consolidated
financial statements.
61
CONTENTS
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Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED CONSOLIDATED STATEMENT
OF ChANGES IN EQUITY
For the year ended 31 March 2014
Note
£000
£000
Share Capital
Retained
Earnings
Total
£000
Balance as at 31 March 2012
39,149
156,961
196,110
LOSS FOR ThE YEAR
DIVIDENDS PAID
Balance as at 31 March 2013
ISSUE OF ORDINARY ShARES
ISSUE COSTS OF ShARES
PROFIT FOR ThE YEAR
DIVIDENDS PAID
11
20
20
11
-
-
(14,607)
(12,087)
(14,607)
(12,087)
39,149
130,267
169,416
18,229
(186)
-
-
-
-
37,348
(10,711)
18,229
(186)
37,348
(10,711)
Balance as at 31 March 2014
57,192
156,904
214,096
Notes 1 to 27 form part of these consolidated
financial statements.
62
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE ShEET
As at 31 March 2014
Non-current assets
INVESTMENT PROPERTIES
TANGIBLE ASSETS
ACCOUNTS RECEIVABLE
Total non-current assets
Current assets
INVESTMENT PROPERTIES hELD FOR SALE
ACCOUNTS RECEIVABLE
CASh AND CASh EQUIVALENTS
Total current assets
Total assets
Current liabilities
ACCOUNTS PAYABLE AND ACCRUALS
LOANS AND BORROWINGS
OBLIGATIONS UNDER FINANCE LEASES
Total current liabilities
Non-current liabilities
LOANS AND BORROWINGS
OBLIGATIONS UNDER FINANCE LEASES
Total non-current liabilities
Total liabilities
Net assets
Equity
ShARE CAPITAL
RETAINED EARNINGS
Total equity
31 March 2014
31 March 2013
Note
£000
£000
14
15
14
15
16
17
18
22
18
22
20
417,207
382,729
140
4,046
170
4,518
421,393
387,417
425
10,102
32,352
42,879
-
7,945
22,906
30,851
464,272
418,268
(14,330)
(2,935)
(104)
(17,369)
(13,620)
(2,999)
(108)
(16,727)
(231,081)
(1,726)
(232,807)
(230,401)
(1,724)
(232,125)
(250,176)
(248,852)
214,096
169,416
57,192
156,904
39,149
130,267
214,096
169,416
Net asset value per share
23
56p
49p
These consolidated financial statements
were approved by the Board of Directors on
13 June 2014 and signed on its behalf by:
Robert Sinclair
Director
63
Notes 1 to 27 form part of these consolidated
financial statements.
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
CONSOLIDATED STATEMENT
OF CASh FLOWS
For the year ended 31 March 2014
Operating activities
OPERATING PROFIT/(LOSS)
ADJUSTMENTS FOR NON-CASh ITEMS
INTEREST RECEIVED
INTEREST PAID
TAx PAID
Cash inflows from operating activities
Investing activities
CAPITAL ExPENDITURE ON INVESTMENT PROPERTIES
ACQUISITION OF INVESTMENT PROPERTIES
DISPOSAL OF INVESTMENT PROPERTIES
PURChASE OF TANGIBLE ASSETS
Cash outflows from investing activities
Financing activities
ISSUE OF ORDINARY ShARES
ISSUE COSTS OF ORDINARY ShARES
BORROWINGS REPAID
BORROWINGS DRAWN
TERMINATION OF DERIVATIVES
FINANCING COSTS
DIVIDENDS PAID
Cash inflows/(outflows) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
31 March 2014
31 March 2013
Note
£000
£000
21
14
14
14
11
48,573
(25,428)
164
(8,932)
(394)
13,983
(2,060)
(19,611)
10,850
(17)
(10,838)
18,229
(186)
(1,031)
-
-
-
(10,711)
6,301
(4,392)
27,662
114
(8,887)
(7)
14,490
(1,998)
-
72
(83)
(2,009)
-
-
(230,888)
231,047
(3,487)
(5,275)
(12,087)
(20,690)
9,446
(8,209)
22,906
31,115
Cash and cash equivalents at end of year
16
32,352
22,906
Notes 1 to 27 form part of these consolidated
financial statements.
64
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
Under IFRS 9 (2009), financial assets
are classified and measured based on
the business model in which they are
held and the characteristics of their
contractual cash flows. IFRS 9 (2010)
introduces additional changes relating
to financial liabilities. The IASB currently
has an active project to make limited
amendments to the classification and
measurement requirements of IFRS 9 and
add new requirements to address the
impairment of financial assets and hedge
accounting. IFRS 9 (2010) and (2009)
are effective for annual periods beginning
on or after 1 January 2018, with early
adoption permitted. The adoption of these
standards is expected to have an impact
on the Group’s financial assets, but no
impact on the Group’s financial liabilities.
• IAS 32 Offsetting Financial Assets and
Financial Liabilities, effective for periods
beginning on or after 1 January 2014.
The amendments to IAS 32 clarify the
offsetting criteria by explaining when an
entity currently has a legally enforceable
right to set-off and when gross settlement
is considered to be equivalent to
net settlement.
The Directors do not expect that the
adoption of the standards listed above
will have a material impact on the Group’s
financial statements in the year of initial
application, other than on presentation
and disclosure.
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 consolidated financial statements are
prepared for the year ended 31 March 2014
with comparatives for the year ended 31
March 2013.
2 Significant accounting policies
Basis of accounting
The financial statements have been
prepared on a going concern basis and
adopt the historical cost basis, except for
the revaluation of investment properties.
Historical cost is generally based on the fair
value of the consideration given in exchange
for the assets. The financial statements are
prepared in accordance with International
Financial Reporting Standards (“IFRS”) as
adopted by IASB and are in compliance with
the Companies (Guernsey) Law, 2008.
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.
Changes in accounting policies
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.
to profit or loss at a future point in time
would be presented separately from
items that will never be reclassified. The
amendment affects presentation only and
has no impact on the Group’s financial
position
or performance.
• IFRS 10 Consolidated Financial
Statements, effective for accounting
periods beginning on or after 1 January
2013. IFRS 10 establishes a single control
model that applies to all entities including
special purpose entities. The changes
introduced require management to focus
on whether power exists over an entity,
the exposure or right to variable returns
from its involvement with that entity and
its ability to use its power to affect those
returns. In particular, IFRS 10 requires
the consolidation of entities it controls on
the basis of de facto circumstances. In
accordance with IFRS 10, management
have reassessed the relationship between
entities. Notwithstanding the above, the
adoption of IFRS 10 had no impact on
the Group.
• IFRS 12 Disclosure of Interests in
Other Entities requires disclosure of the
significant judgements and assumptions
that an entity has made in determining
the nature of its interest in another entity
or arrangement. It also contains extensive
disclosure requirements for subsidiaries,
associates, joint ventures, unconsolidated
structured entities and unconsolidated
subsidiaries. The objective of IFRS 12 is
to require disclosure that helps users of
financial statements to evaluate:
• IFRS 13 Fair Value Measurement.
− The nature of, and risks associated
IFRS 13 establishes a single source of
guidance under IFRS for all fair value
measurements. IFRS 13 does not change
when an entity is required to use fair value,
but rather provides guidance on how to
measure fair value under IFRS when fair
value is required or permitted. A number
of additional disclosures have been made
in notes 14 and 18.
• Amendment to IAS 1 Presentation of
Financial Statements. The amendments
to IAS 1 change the grouping of items
presented in Other Comprehensive
Income. Items that could be reclassified
with, an entity’s interests in other
entities; and
− The effect of those interests on the
entity’s financial position, financial
performance and cash flows.
At the date of approval of these financial
statements, the following standards and
interpretations were in issue but not yet
effective for the financial year and have not
been adopted early:
• IFRS 9 Financial Instruments, introduces
new requirements for the classification
and measurement of financial assets.
65
CONTENTS
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1 Review of Business
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PICTON PROPERTY INCOME LIMITED 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 making
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
on-going basis.
The fair value measurement for the assets
and 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.
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.
The critical estimate and assumption relates
to the investment property valuations applied
by the Group’s independent valuer and this
is described in more detail in the accounting
policy below and in note 14. 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.
Critical judgements, where made, are
disclosed within the relevant section of
the financial statements in which such
judgements have been applied. Key
judgements relate to the treatment of
business combinations, lease classifications,
or employee benefits where different
accounting policies could be applied.
These are described in more detail in the
accounting policy notes below, or in the
relevant notes to the financial statements.
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 right 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 accounts include the results
of the subsidiaries disclosed in note 13.
All intra-group transactions, balances,
income and expenses are eliminated
on consolidation.
Business combinations
The Group acquires subsidiaries that own
real estate. At the time of acquisition, the
Group considers whether the acquisition
represents the acquisition of a business.
The Group accounts for an acquisition as a
business combination where an integrated
set of activities is acquired in addition to
the property. More specifically, the following
criteria are considered:
• The number of items of land and buildings
owned by the subsidiary
• The extent to which significant processes
are acquired and in particular the
extent of ancillary services provided
by the subsidiary
• Whether the subsidiary has allocated its
own staff to manage the property and/
or to deploy any processes, including
provision of all relevant administration and
information to the entity’s owners
• When the acquisition of subsidiaries does
not represent a business, it is accounted
for as an acquisition of a group of assets
and liabilities
Goodwill on business combinations
is measured as the fair value of the
consideration transferred less the net
recognised amount (fair value) of the
identifiable assets acquired and liabilities
assumed, all measured as of the acquisition
date. When the excess is negative, this is
recognised immediately in the Statement of
Comprehensive Income.
Transaction costs, other than those
associated with the issue of debt or
equity securities, that the Group incurs in
connection with a business combination are
expensed as incurred.
Presentation of the Statement
of Comprehensive Income
In order to better reflect the activities of an
investment company and in accordance with
guidance issued by the AIC, supplementary
information which analyses the Statement
of Comprehensive Income between items
of a revenue and capital nature has been
presented alongside the Statement of
Comprehensive Income.
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 finance leases
for similar purposes is also classified as
investment property. Investment property
is initially recognised at purchase cost plus
directly attributable acquisition expenses.
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 Group ensures the use of
suitable qualified external valuers valuing the
investment properties held by the Group.
66
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
2 Significant accounting policies (continued)
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 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 item of investment property is
derecognised 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 Statement of Comprehensive Income
in the year the item is derecognised.
Investment properties are not depreciated.
Realised and unrealised gains on investment
properties have been presented as
capital items within the Statement of
Comprehensive Income.
The loans have a first ranking mortgage over
the majority of properties, see note 14.
Leases
Finance leases, which transfer to the Group
substantially all the risks and benefits
incidental to ownership of the leased item
are capitalised at the inception of the lease
67
at the fair value of the leased property or,
if lower, the present value of the minimum
lease payments. Lease payments are
apportioned between finance charges and
a reduction of the lease liability to achieve
a constant rate of interest on the remaining
balance of the liability. Finance charges
are charged directly to the Statement of
Comprehensive Income.
An operating lease is a lease other than a
finance lease. Lease income is recognised in
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. The financial statements reflect
the requirements of SIC 15, ‘Operating
Leases – Incentives’ to the extent that
they are material. Premiums received on
the surrender of leases are recorded as
income immediately 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
Statement of Comprehensive Income on
an accruals basis. All of the Group’s
income and expenses are derived from
continuing operations.
Revenue is recognised to the extent that it
is probable that the economic benefit will
flow to the Group and the revenue can be
reliably measured.
Lease incentive payments are amortised
on a straight-line basis over the period
from the date of lease commencement to
the lease end. Upon receipt of a surrender
premium for the early determination of a
lease, the profit, net of dilapidations and
non-recoverable outgoings relating to the
lease concerned, is immediately reflected in
revenue from properties.
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 post-
employment 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 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 Long
Term Incentive Plan, which are 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. The
liability is re-measured at each reporting
date and at settlement date. Any changes
in the fair value of the liability are recognised
as staff costs in the Statement of
Comprehensive Income.
CONTENTS
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED Dividends
Assets classified as held for sale
Dividends are recognised in the period in
which they are declared.
Trade receivables
Trade receivables are stated at their
nominal amount as reduced by appropriate
allowances for estimated irrecoverable
amounts. An estimate for doubtful debts is
made when collection of the full amount is
no longer probable. 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 rate 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 the Statement of
Comprehensive Income when the liabilities
are derecognised, as well as through the
amortisation process.
A property is classified as held for sale
when their carrying amount is to be
recovered principally through a sales
transaction and a sale is highly probable.
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 are not interest
bearing and are stated at their nominal value.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to
the issue of ordinary shares are recognised
as a deduction from equity.
Taxation
The Directors conduct the affairs of the Group
such that the management and control of the
Group is not exercised in the United Kingdom
and that the Group does not carry on a trade
in the United Kingdom. Accordingly the Group
will not be liable to United Kingdom taxation
on its income or capital gains arising in the
United Kingdom, other than certain income
deriving from a United Kingdom source.
The Group is subject to United Kingdom
taxation on income arising on the investment
properties after deduction of allowable debt
financing costs and allowable expenses.
The Group is tax exempt in Guernsey for
the year ended 31 March 2014.
Principles for the Statement of Cash Flows
The 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 Statement of Comprehensive
Income and movements in the Balance Sheet
which have not resulted in cash income or
expenditure in the relating period.
The cash amounts in the 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. Dividends
that have been paid are included in the cash
flow from financing activities.
3 Revenue from properties
RENTS RECEIVABLE (ADJUSTED FOR LEASE INCENTIVES)
SURRENDER PREMIUMS
DILAPIDATION RECEIPTS
OThER INCOME
SERVICE ChARGE INCOME
Rents receivable includes lease incentives recognised of £1.0 million (31 March 2013: £1.0 million).
31 March 2014
31 March 2013
£000
£000
31,036
157
677
97
4,782
32,125
702
1,039
59
4,887
36,749
38,812
68
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
4 Property expenses
The Board is charged with setting the
PROPERTY OPERATING ExPENSES
PROPERTY VOID COSTS
RECOVERABLE SERVICE ChARGE COSTS
31 March 2014
31 March 2013
£000
£000
2,527
1,683
4,782
8,992
2,426
1,676
4,887
8,989
5 Operating segments
The Board is charged with setting the Company’s investment 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 re-invested, 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 have delegated the day to day implementation of this strategy to the Investment Manager but retain responsibility to ensure that
adequate resources of the Company are directed in accordance with their decisions. The operating activities of the Investment Manager are
reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board.
The Investment Manager has been given authority to act on behalf of the Company in certain situations. Under the terms of the Investment
Management Agreement, subject to the overall supervision of the Board, the Investment Manager advises on the investment strategy of the
Company, advises the Company on its borrowing policy and geared investment position, manages the investment of the Company’s short term
liquid resources, and advises on the use and management of derivatives and hedging by the Company. Whilst the Investment Manager may
make operational decisions on a day to day basis regarding the property investments, any changes to the investment strategy or allocation
decisions have to be approved by the Board, even though they may be proposed by the Investment Manager.
The Board therefore retains full responsibility for investment policy and strategy. The Investment Manager will always act under the terms of the
Investment Management Agreement which cannot be changed without the approval of the Board. 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 57 commercial properties, which are in the industrial, office, retail, retail warehouse,
and leisure sectors.
6 Management expenses
STAFF COSTS
OThER MANAGEMENT COSTS
31 March 2014
31 March 2013
£000
£000
1,610
517
2,127
1,194
488
1,682
The Investment Manager for the Group is Picton Capital Limited, a wholly owned subsidiary company. The above staff and other management costs
are those incurred by Picton Capital Limited during the year.
69
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PICTON PROPERTY INCOME LIMITED
7 Staff costs
WAGES AND SALARIES
SOCIAL SECURITY COSTS
OThER PENSION COSTS
ShARE-BASED PAYMENTS
31 March 2014
31 March 2013
£000
£000
1,072
130
125
283
1,610
925
118
113
38
1,194
Staff costs are those of the employees of Picton Capital Limited. Employees in the Group participate in a share-based Long Term Incentive Plan
(‘LTIP’). Awards made under the LTIP are linked to the Company’s share price and dividends paid, and normally vest after periods of two or three years.
Employees must still be in the Group’s employment to receive payment on the vesting date. During the year the Group made awards of 621,586 units
(year ended 31 March 2013: 852,790 units), of which 310,793 units vest on 31 March 2016 and 310,793 units vest on 31 March 2017.
The table below summarises the awards made under the Long Term Incentive Plan to Picton Capital staff. Employees have the option to defer the vesting
date of their awards for a maximum of seven years. The units redeemed in the year were paid out subsequent to the year end at a cost of £68,000.
Vesting Date
31 MARCh 2014
31 MARCh 2015
31 MARCh 2016
31 MARCh 2017
Units at start
of year
Units granted
in the year
Units cancelled
in the year
Units redeemed
in the year
Units at end
of year
223,595
356,695
272,500
-
-
-
310,793
310,793
852,790
621,586
-
-
-
-
-
(109,525)
-
-
-
114,070
356,695
583,293
310,793
(109,525)
1,364,851
The emoluments of the Directors are set out in the Remuneration Report section of the Directors’ Report.
The Group employed 11 members of staff at 31 March 2014 (31 March 2013: 12). The average number of people employed by the Group for the year
ended 31 March 2014 was 12 (31 March 2013: 10).
8 Other operating expenses
Recurring costs
VALUATION ExPENSES
ADMINISTRATOR FEES
AUDITOR’S REMUNERATION
DIRECTORS’ FEES
OThER ExPENSES
Exceptional costs
DEBT SERVICING COSTS
OThER ExCEPTIONAL COSTS
31 March 2014
31 March 2013
£000
£000
71
193
156
202
517
157
221
170
194
625
1,139
1,367
-
-
-
163
62
225
1,139
1,592
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
8 Other operating expenses (continued)
Auditor’s remuneration comprises:
Audit fees
AUDIT OF GROUP FINANCIAL STATEMENTS
AUDIT OF SUBSIDIARIES’ FINANCIAL STATEMENTS
Audit related fees
REVIEW OF hALF YEAR FINANCIAL STATEMENTS
Non-audit fees
LIQUIDATION FEES
ADDITIONAL CONTROLS TESTING
FCA CASS AUDIT
9
Interest payable
INTEREST PAYABLE ON LOANS AT AMORTISED COST
CAPITAL ADDITIONS ON zERO DIVIDEND PREFERENCE ShARES
INTEREST ON OBLIGATIONS UNDER FINANCE LEASES
AMORTISATION OF FINANCE COSTS
31 March 2014
31 March 2013
£000
£000
56
63
20
139
-
12
5
17
156
52
64
14
130
21
14
5
40
170
31 March 2014
31 March 2013
£000
£000
8,797
1,647
115
473
8,863
1,881
115
815
11,032
11,674
The loan arrangement costs incurred to 31 March 2014 are £5,275,000 (31 March 2013: £5,275,000), these are amortised over the duration
of the loans with £473,000 written off in the year ended 31 March 2014. For the year ended 31 March 2013 £815,000 was written off to the
Statement of Comprehensive Income; of which £531,000 related to the previous loan facilities.
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PICTON PROPERTY INCOME LIMITED 10 Tax
The charge for the year is:
UK INCOME TAx AT 20%
31 March 2014
31 March 2013
£000
£000
357
357
272
272
A reconciliation of the income tax charge applicable to the results at the statutory income tax rate to the charge for the year is as follows:
Profit/(loss) before taxation
37,705
(14,335)
Expected tax charge on ordinary activities at the standard rate of taxation of 20%
7,541
(2,867)
31 March 2014
31 March 2013
£000
£000
Less:
REVALUATION (GAINS)/LOSSES NOT TAxABLE
INCOME NOT TAxABLE, INCLUDING INTEREST RECEIVABLE
ExPENDITURE NOT ALLOWED FOR INCOME TAx PURPOSES
LOSSES UTILISED
CAPITAL ALLOWANCES AND OThER ALLOWABLE DEDUCTIONS
Total tax charge
(4,816)
(64)
542
(10)
(2,836)
5,174
(163)
986
(23)
(2,835)
357
272
For the year ended 31 March 2014 there was an income tax liability of £357,000 in respect of the Group (31 March 2013: £272,000).
The Group is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed fee of £600 per
company is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation will arise on capital gains.
The Directors conduct the affairs of the Group such that the management and control of the Group is not exercised in the United Kingdom and
that the Group does not carry on a trade in the United Kingdom.
The Group is subject to United Kingdom taxation on income arising on the investment properties after deduction of allowable debt financing
costs and allowable expenses. The treatment of such costs and expenses in estimating the overall tax liability for the Group requires judgement
and assumptions regarding their deductibility. The Directors have considered comparable market evidence and practice in determining the extent
to which these are allowable.
No deferred tax asset has been recognised from unused tax losses which total £3.0 million as the Group is only able to utilise the losses to offset
taxable profits in certain discrete business streams, and the Group considers the probability of realising the benefit in future periods in these
business streams as remote (31 March 2013: £2.7 million).
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
11 Dividends
Declared and paid:
INTERIM DIVIDEND FOR ThE PERIOD ENDED 31 MARCh 2012: 1 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 30 JUNE 2012: 1 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 30 SEPTEMBER 2012: 0.75 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 31 DECEMBER 2012: 0.75 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 31 MARCh 2013: 0.75 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 30 JUNE 2013: 0.75 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 30 SEPTEMBER 2013: 0.75 PENCE
INTERIM DIVIDEND FOR ThE PERIOD ENDED 31 DECEMBER 2013: 0.75 PENCE
31 March 2014
31 March 2013
£000
£000
-
-
-
-
2,590
2,590
2,682
2,849
3,453
3,454
2,590
2,590
-
-
-
-
10,711
12,087
The interim dividend of 0.75 pence per ordinary share in respect of the period ended 31 March 2014 has not been recognised as a liability as it
was declared after the year end. A dividend of £2,849,000 was paid on 30 May 2014.
12 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the net profit/(loss) for the year attributable to ordinary shareholders of the Company by
the weighted average number of ordinary shares in issue during the year. The following reflects the profit/(loss) and share data used in the basic
and diluted profit/(loss) per share calculation:
31 March 2014
31 March 2013
NET PROFIT/(LOSS) ATTRIBUTABLE TO ORDINARY ShAREhOLDERS OF ThE COMPANY
FROM CONTINUING OPERATIONS (£000)
37,348
(14,607)
WEIGhTED AVERAGE NUMBER OF ORDINARY ShARES FOR BASIC AND DILUTED PROFIT/(LOSS)
PER ShARE
359,866,250
345,336,118
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PICTON PROPERTY INCOME LIMITED
13 Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2014:
PICTON UK REAL ESTATE (PROPERTY) LIMITED
PICTON (UK) REIT (SPV) LIMITED
PICTON (UK) LISTED REAL ESTATE
PICTON UK REAL ESTATE (PROPERTY) NO 2 LIMITED
PICTON (UK) REIT (SPV NO 2) LIMITED
PICTON (UK) LISTED REAL ESTATE LIMITED
MERBROOK BUSINESS PROPERTY UNIT TRUST*
MERBROOK PRIME RETAIL PROPERTY UNIT TRUST*
MERBROOK BRISTOL PROPERTY UNIT TRUST*
MERBROOK SWINDON PROPERTY UNIT TRUST*
PICTON CAPITAL LIMITED
PICTON zDP LIMITED
PICTON (GENERAL PARTNER) NO 2 LIMITED
PICTON (GENERAL PARTNER) NO 3 LIMITED
PICTON NO 2 LIMITED PARTNERShIP
PICTON NO 3 LIMITED PARTNERShIP
PICTON PROPERTY NO 3 LIMITED
PICTON FINANCE LIMITED
* the “JPUTS”
Place of
incorporation
Ownership
proportion
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Jersey
Jersey
Jersey
Jersey
England & Wales
Guernsey
Guernsey
Guernsey
England & Wales
England & Wales
Guernsey
Guernsey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The results of these entities are consolidated within the Group financial statements.
Picton UK Real Estate (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.
Picton No 3 Limited Partnership owns all of the units in the JPUTs, which are each registered as Jersey Unit Trusts.
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
14 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.
FAIR VALUE AT START OF YEAR
ACQUISITIONS
CAPITAL ExPENDITURE ON INVESTMENT PROPERTIES
DISPOSALS
REALISED GAINS/(LOSSES) ON DISPOSAL
ChANGE IN FAIR VALUE
TRANSFER TO ASSETS CLASSIFIED AS hELD FOR SALE
Fair value at the end of the year
historic cost at the end of the year
The fair value of investment properties reconciles to the Appraised Value as follows:
APPRAISED VALUE
VALUATION OF ASSETS hELD UNDER FINANCE LEASES
LEASE INCENTIVES hELD AS DEBTORS
ASSETS CLASSIFIED AS hELD FOR SALE
Fair value at the end of the year
31 March 2014
31 March 2013
£000
£000
382,729
53,611
2,060
(44,850)
5,660
18,422
(425)
411,744
-
1,998
(72)
(4)
(30,937)
-
417,207
382,729
566,494
549,167
31 March 2014
31 March 2013
£000
£000
423,020
386,391
1,166
(6,554)
(425)
1,483
(5,145)
-
417,207
382,729
The investment properties were valued by CBRE Limited, Chartered Surveyors, as at 31 March 2014 and 31 March 2013 on the basis of fair
value in accordance with the RICS Valuation – Professional Standards (2012). The total fees earned by CBRE Limited from the Group is less than
5% of their total UK revenue.
As at 31 March 2014 The Cloisters, Dartford had an unconditional sales offer so has been reclassified as an asset held for sale. The sale
completed on 16 April 2014. As at 31 March 2013 there were no assets classified as held for sale.
Included within acquisitions and disposals in the above table is a swap transaction whereby the Group acquired an asset for a consideration of
£40.5 million, before costs, satisfied by the transfer of one of its investment properties sold for £34.0 million, plus a cash balance of £6.5 million.
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 arms length basis.
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PICTON PROPERTY INCOME LIMITED
The Group’s investment properties are valued quarterly by independent valuers. The valuations are based on:
• Information provided by the Investment Manager including rents, lease terms, revenue and capital expenditure. Such information is derived
from the Investment Manager’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 the Investment Manager and the Board
through the Property Valuation Committee. Members of the Property Valuation Committee, together with the Investment Manager, 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 Directors will also consider where circumstances at specific investment properties,
such as alternate 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 2014, all of the Group’s properties are level 3 in the fair value hierarchy as it involves use of significant inputs and there were no
transfers between levels during the 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, i.e. derived from prices).
Information on these significant unobservable inputs per sector of investment properties is disclosed as follows:
APPRAISED VALUE (£000)
AREA (SQ FT, 000S)
Range Of Unobservable Inputs:
Gross ERV (sq ft per annum)
RANGE
WEIGhTED AVERAGE
Net initial yield
RANGE
WEIGhTED AVERAGE
Reversionary yield
RANGE
WEIGhTED AVERAGE
True equivalent yield
RANGE
WEIGhTED AVERAGE
Offices
Industrial
Retail and Leisure
139,395
877
164,395
2,116
119,230
516
£7.57 – £46.01
£3.55 – £14.86
£7.32 – £81.04
£24.03
£7.12
£31.49
0% – 19.5%
5.21% – 11.71%
3.49% – 14.60%
6.42%
6.86%
6.65%
5.44% – 20.86%
6.08% – 12.57%
4.08% – 18.63%
8.83%
7.32%
6.59%
5.56% – 13.6%
6.22% – 12.62%
4.46% – 19.47%
8.43%
7.49%
7.06%
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
14 Investment properties (continued)
An increase/decrease in ERV will increase/decrease valuations, while an increase/decrease to yield decreases/increases valuations.
The table below sets out the sensitivity of the valuation to changes of 50 basis points in yield.
INDUSTRIAL
OFFICE
RETAIL AND LEISURE
15 Accounts receivable
Current
TENANT DEBTORS (NET OF PROVISIONS FOR BAD DEBTS)
LEASE INCENTIVES
OThER DEBTORS
CAPITALISED FINANCE COSTS
Non-current
CAPITALISED FINANCE COSTS
Movement
Impact on Valuation
Increase of 50 basis points
Decrease of £11.3m
Decrease of 50 basis points
Increase of £13.0m
Increase of 50 basis points
Decrease of 50 basis points
Decrease of £9.0m
Increase of £10.2m
Increase of 50 basis points
Decrease of 50 basis points
Decrease of £8.1m
Increase of £9.5m
31 March 2014
31 March 2013
£000
£000
2,327
6,554
749
472
10,102
4,046
4,046
1,435
5,145
892
473
7,945
4,518
4,518
14,148
12,463
Tenant debtors, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less
an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable.
Bad debts are written off when identified.
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PICTON PROPERTY INCOME LIMITED
16 Cash and cash equivalents
CASh AT BANK AND IN hAND
ShORT TERM DEPOSITS
31 March 2014
31 March 2013
£000
£000
16,006
16,346
14,311
8,595
32,352
22,906
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 their fair value.
17 Accounts payable and accruals
ACCRUALS
DEFERRED RENTAL INCOME
VAT LIABILITY
INCOME TAx LIABILITY
TRADE CREDITORS
OThER CREDITORS
31 March 2014
31 March 2013
£000
£000
3,180
6,702
1,530
228
499
2,191
2,544
6,784
1,035
265
580
2,412
14,330
13,620
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3 Directors’ Report
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
18 Loans and borrowings
Current
SECURED LOAN FACILITY
UNSECURED LOAN STOCK
Non-current
SECURED LOAN FACILITY
SECURED LOAN FACILITY
SECURED LOAN FACILITY
zERO DIVIDEND PREFERENCE ShARES
Maturity
31 March 2014
31 March 2013
£000
£000
-
-
20 July 2022
24 July 2027
24 July 2032
15 October 2016
968
1,967
2,935
33,718
80,000
92,995
24,368
927
2,072
2,999
33,718
80,000
93,963
22,720
231,081
230,401
234,016
233,400
The Group has a loan with Canada Life Limited for £113.7 million, which is fully drawn. The loan is for a term of 15 years, with £33.7 million
repayable on the tenth anniversary of drawdown. Interest is fixed at 4.08% over the 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.
Additionally the Group has a term loan facility agreement with Aviva Commercial Finance Limited for £95.3 million, which was fully drawn on 24
July 2012. The loan is for a term of 20 years, with approximately one third repayable over the life of the loan in accordance with a scheduled
amortisation profile. The Group has repaid £0.9 million in the year (2013: £0.4 million). Interest on the loan is fixed at 4.38% 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, Picton Property No 3 Limited and the JPUTs.
The fair value of the secured loan facilities at 31 March 2014, estimated as the present value of future cash flows discounted at the market rate
of interest at that date, was £188.3 million (2013: £202.0 million). The fair value of the secured loan facilities is classified as Level 2 under the
hierarchy of fair value measurements.
The Group has 22,000,000 zero dividend preference shares (ZDPs) in issue with a maturity date of 15 October 2016. The ZDPs accrue
additional capital at a rate of 7.25% per annum, resulting in a final capital entitlement at maturity of 132.3 pence per share. The ZDPs do not
receive any dividends or income distributions, and are listed on the London Stock Exchange. The ZDPs were issued by Picton ZDP Limited,
a wholly owned subsidiary company.
The fair value of the zero dividend preference shares at 31 March 2014, based on the quoted market price at that date, was £25.9 million (2013:
£23.7 million). The fair value of the zero dividend preference shares is classified as Level 1 under the hierarchy of fair value measurements.
The Group’s unsecured loan stock pays interest at 0.5% above six month LIBOR. The loan stock is repayable at the request of the holders
on 31 March and 30 September each year. The Group has the option to repay the loan stock at any time by giving four months notice.
The weighted average interest rate on the Group’s borrowings as at 31 March 2014 was 4.51% (31 March 2013: 4.49%).
19 Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of 17 properties with commitments outstanding at 31 March 2014 of approximately
£1.9 million (2013: £1.0 million). There was also a contractual obligation in place at year end to purchase an investment property for £11.5
million. No further obligations to construct or develop investment property or for repairs, maintenance or enhancements were in place as at
31 March 2014.
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PICTON PROPERTY INCOME LIMITED
20 Share capital
Authorised:
UNLIMITED NUMBER OF ORDINARY ShARES OF NO PAR VALUE
Issued and fully paid:
379,869,729 ORDINARY ShARES OF NO PAR VALUE (31 MARCh 2013: 345,336,118)
31 March 2014
31 March 2013
£000
£000
-
-
-
-
ShARE PREMIUM
57,192
39,149
On 5 September 2013 the Company issued 12,305,185 new ordinary shares of no par value at 51.5 pence per share for cash of £6,337,000
and on 27 November 2013 issued a further 22,228,426 new ordinary shares of no par value at 53.5 pence per share for cash of £11,892,000.
The consideration received net of expenses has been credited to the share premium account.
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. 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 and provided that the ZDP Share Cover for the ZDPs is not less than 3.5 times, after the proposed repurchase.
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
(PROFIT)/LOSS ON DISPOSAL OF INVESTMENT PROPERTIES
(INCREASE)/DECREASE IN INVESTMENT PROPERTY VALUATION
DEPRECIATION OF TANGIBLE ASSETS
INCREASE IN RECEIVABLES
INCREASE/(DECREASE) IN PAYABLES
31 March 2014
31 March 2013
£000
£000
(5,660)
(18,422)
47
(2,158)
765
4
30,937
32
(1,379)
(1,932)
(25,428)
27,662
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3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
22 Obligations under leases
The Group has entered into a number of 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.
Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:
Future minimum payments due:
WIThIN ONE YEAR
IN ThE SECOND TO FIFTh YEARS INCLUSIVE
AFTER FIVE YEARS
31 March 2014
31 March 2013
£000
£000
116
466
7,965
8,547
116
466
8,082
8,664
LESS: FINANCE ChARGES ALLOCATED TO FUTURE PERIODS
(6,717)
(6,832)
The present value of minimum lease payments is analysed as follows;
Current
WIThIN ONE YEAR
Non-current
IN ThE SECOND TO FIFTh YEARS INCLUSIVE
AFTER FIVE YEARS
1,830
1,832
31 March 2014
31 March 2013
£000
£000
104
104
352
1,374
1,726
1,830
108
108
385
1,339
1,724
1,832
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PICTON PROPERTY INCOME LIMITED
Operating leases where the Group is lessor
The Group leases its investment properties under operating leases.
At the reporting date, the Group’s future income based on the unexpired lessor lease length was as follows (based on annual rentals):
WIThIN ONE YEAR
IN ThE SECOND TO FIFTh YEARS INCLUSIVE
AFTER FIVE YEARS
31 March 2014
31 March 2013
£000
£000
29,495
94,845
122,343
30,539
93,144
144,494
246,683
268,177
The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are
measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases have remaining
lease terms of more than five years.
23 Net asset value
The net asset value per ordinary share is based on net assets at the year end and 379,869,729 (31 March 2013: 345,336,118) ordinary shares,
being the number of ordinary shares in issue at the year end.
At 31 March 2014, the Company had a net asset value per ordinary share of £0.56 (31 March 2013: £0.49).
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3 Directors’ Report
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
24 Financial instruments
The Group’s financial instruments comprise cash and cash equivalents, accounts receivable, secured loans, zero dividend preference shares,
obligations under finance 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 and the zero dividend preference shares, 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 2014
Note
£000
£000
held at fair value
through profit or loss
Financial assets
and liabilities at
amortised cost
Financial assets
CASh AND CASh EQUIVALENTS
ACCOUNTS RECEIVABLE
Financial liabilities
LOANS
OBLIGATIONS UNDER FINANCE LEASES
ACCOUNTS PAYABLE AND ACCRUALS
16
15
18
22
17
-
-
-
-
-
-
-
32,352
14,148
46,500
234,016
1,830
14,330
250,176
held at fair value
through profit or loss
Financial assets
and liabilities at
amortised cost
31 March 2013
Note
£000
£000
Financial assets
CASh AND CASh EQUIVALENTS
ACCOUNTS RECEIVABLE
Financial liabilities
LOANS
OBLIGATIONS UNDER FINANCE LEASES
ACCOUNTS PAYABLE AND ACCRUALS
16
15
18
22
17
-
-
-
-
-
-
-
22,906
12,463
35,369
233,400
1,832
13,620
248,852
Total
£000
32,352
14,148
46,500
234,016
1,830
14,330
250,176
Total
£000
22,906
12,463
35,369
233,400
1,832
13,620
248,852
83
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1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED 25 Risk management
The Group invests in commercial properties in the United Kingdom. The following describes the risks involved and the applied risk management.
The Investment Manager 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 the optimisation of the debt and equity balance. The Board’s policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain future development of the business.
The capital structure of the Group consists of debt, as disclosed in note 18, cash and cash equivalents and equity attributable to equity holders
of the Company, comprising issued capital, reserves and retained earnings. The Group is not subject to any external capital requirements.
The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Group has managed
its capital risk by entering into long term loan arrangements which will enable the Group to reduce its borrowings in an orderly manner over
the long term.
The Group’s net debt to equity ratio at the reporting date was as follows:
TOTAL LIABILITIES
LESS: CASh AND CASh EQUIVALENTS
Net Debt
Total equity
Net debt to equity ratio at end of year
Interest rate risk management
31 March 2014
31 March 2013
£000
£000
250,176
32,352
217,824
248,852
22,906
225,946
214,096
169,416
1.02
1.33
Interest rate risk arises on interest payable on the unsecured loan stock only. The Group’s senior debt facilities have fixed interest rates over the
lives of the loans and thus the Group has limited exposure to interest rate risk on the majority of its borrowings and no sensitivity is presented.
Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group’s financial assets/(liabilities).
31 March 2014
Floating
CASh AND CASh EQUIVALENTS
UNSECURED LOAN STOCK
Fixed
SECURED LOAN FACILITIES
zERO DIVIDEND PREFERENCE ShARES
Less than
one year
1 to 5
Years
More than
5 years
£000
£000
£000
Total
£000
32,352
(1,967)
-
-
-
-
32,352
(1,967)
(968)
(4,325)
(202,388)
(207,681)
-
(24,368)
-
(24,368)
29,417
(28,693)
(202,388)
(201,664)
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3 Directors’ Report
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
FINANCIAL STATEMENTS
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
25 Risk management (continued)
31 March 2013
Floating
CASh AND CASh EQUIVALENTS
UNSECURED LOAN STOCK
Fixed
SECURED LOAN FACILITIES
zERO DIVIDEND PREFERENCE ShARES
Less than
one year
1 to 5
Years
More than
5 years
£000
£000
£000
Total
£000
22,906
(2,072)
-
-
-
-
22,906
(2,072)
(927)
(4,140)
(203,541)
(208,608)
-
(22,720)
-
(22,720)
19,907
(26,860)
(203,541)
(210,494)
Credit risk
The following tables detail the balances held at the reporting date that may be affected by credit risk:
31 March 2014
Note
£000
£000
held at fair value
through profit or loss
Financial assets
and liabilities at
amortised cost
Financial assets
CASh AND CASh EQUIVALENTS
TENANT DEBTORS
16
15
-
-
-
32,352
2,327
34,679
held at fair value
through profit or loss
Financial assets
and liabilities at
amortised cost
31 March 2013
Note
£000
£000
Financial assets
CASh AND CASh EQUIVALENTS
TENANT DEBTORS
16
15
-
-
-
22,906
1,435
24,341
Total
£000
32,352
2,327
34,679
Total
£000
22,906
1,435
24,341
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 sufficient collateral where appropriate, as a means of mitigating
the risk of financial loss from defaults. The Group’s exposure and credit ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that
are reviewed regularly.
Trade debtors consist of a large number of occupiers, spread across diverse industries and geographical areas. On-going credit evaluations are
performed on the financial condition of trade debtors, and where appropriate, credit guarantees are acquired. The Group does not have any
significant 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 high credit ratings assigned by international credit rating agencies. 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.
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2 Strategic Report
PICTON PROPERTY INCOME LIMITED A provision of £1,400,000 (2013: £540,000) exists at the year end, in relation to outstanding debtors that are considered to be impaired
based on a review of individual debtor balances. The Group believes that unimpaired amounts that are overdue by more than 30 days are still
collectable, based on the historic payment behaviours and extensive analyses of the underlying customers’ credit ratings.
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 exposure to credit risk.
The Group has a panel of banks with which it makes deposits, based on credit ratings with set counterparty limits. The Group’s main cash
balances are held with National Westminster Bank plc (“NatWest”), Santander plc (“Santander”), Nationwide International Limited (“Nationwide”)
and The Royal Bank of Scotland plc (“RBS”). Bankruptcy or insolvency of the bank holding cash balances may cause the Group’s rights with
respect to the cash held by them to be delayed or limited. The Group manages its risk by monitoring the credit quality of its bankers on an on-
going basis. NatWest, Santander, Nationwide and RBS are rated by all the major rating agencies. If the credit quality of these banks deteriorates,
the Group would look to move the short term deposits or cash to another bank. Procedures exist to ensure that cash balances are split between
banks to minimise exposure. At 31 March 2014 Standard & Poor’s credit rating for Nationwide was A-1 and the Group’s remaining bankers had
an A-2 rating.
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 built 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 manages liquidity
risk by maintaining adequate reserves and loan facilities by continuously monitoring forecasts and actual cash flows and matching the maturity
profiles of financial assets and liabilities.
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 2014
CASh
ACCOUNTS RECEIVABLE
FINANCE LEASE LIABILITY
FIxED INTEREST RATE LOANS
FLOATING INTEREST RATE FACILITY
ACCOUNTS PAYABLE AND ACCRUALS
31 March 2013
CASh
ACCOUNTS RECEIVABLE
FINANCE LEASE LIABILITY
FIxED INTEREST RATE LOANS
FLOATING INTEREST RATE FACILITY
ACCOUNTS PAYABLE AND ACCRUALS
Less than
one year
1 to 5
Years
More than
5 years
£000
£000
£000
Total
£000
32,392
14,148
Total
£000
22,935
12,463
-
-
-
-
(1,248)
(1,830)
(67,945)
(281,786)
(359,439)
-
-
-
-
(1,978)
(14,330)
(64,365)
(283,034)
(331,037)
Less than
one year
1 to 5
Years
More than
5 years
£000
£000
£000
-
4,046
(466)
-
4,518
(466)
32,392
10,102
(116)
(9,708)
(1,978)
(14,330)
16,362
22,935
7,945
(116)
(9,708)
(2,086)
(13,620)
(1,250)
(1,832)
(67,945)
(291,494)
(369,147)
-
-
-
-
(2,086)
(13,620)
5,350
(63,893)
(292,744)
(351,287)
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
NOTES TO ThE CONSOLIDATED
FINANCIAL STATEMENTS
FOR ThE YEAR ENDED
31 MARCh 2014
25 Risk management (continued)
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 and capital expenditure, the Group’s revenue 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 (including real estate taxes).
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 each equity investment in real estate (such as external
financing costs, real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in revenue from
properties. By diversifying in regions, sectors, risk categories and occupiers, the Investment Manager expects to lower the risk profile of the
portfolio. The Board continues to oversee the profile of the portfolio to ensure risks are managed. See the Investment Manager’s report for the
geographical spread and the analysis of the top ten occupiers of the portfolio.
The valuation of the Group’s property assets is subject to changes in market conditions. Such changes are taken to the 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 £21.2 million (31 March 2013: £19.3 million).
Concentration risk
As discussed above, all of the Group’s investments are in the UK and therefore it is exposed to macroeconomic changes in the UK economy.
Furthermore, the Group places reliance on a limited number of occupiers for its rental income, with one occupier accounting for 4.2% 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 five Directors of the Company was £202,000 (31 March 2013: £194,000). As at 31 March 2014 the
Group owed £nil to the Directors (31 March 2013: £nil). The emoluments of each Director are set out in the Remuneration Report section of the
Directors’ Report.
Picton Property Income Limited has no controlling parties.
27 Events after the balance sheet date
A dividend of £2,849,000 (0.75 pence per share) was approved by the Board on 22 April 2014 and paid on 30 May 2014.
The Group has disposed of one property since 31 March 2014 for proceeds of £425,000 and made one acquisition for £11,475,000, before
costs of disposal and acquisition respectively.
The Company announced its intention to undertake an initial offer, offer for subscription and placing programme on 1 May 2014. On 19 May
an extraordinary general meeting was held at which shareholders approved these proposals and on 23 May the Company issued 59,322,034
shares at 59 pence per share, raising £33.8 million after costs, bringing the total number of shares in issue to 439,191,763.
87
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2 Strategic Report
PICTON PROPERTY INCOME LIMITED
Other
Information
5
Supplementary Disclosures (Unaudited)
Five Year Financial Summary
Glossary of Terms
Shareholder Information
89
94
95
97
88
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
OTHER INFORMATION
SUPPLEMENTARY DISCLOSURES (UNAUDITED)
Ongoing Charges
The Ongoing Charges figure is based
on historical information and provides
shareholders with an indication of the likely
level of cost that will be incurred in managing
the Group. The Association of Investment
Companies (AIC) is the trade body for
closed-ended investment companies.
The AIC recommended methodology for
calculating Ongoing Charges uses the
annual recurring operational expenses as a
percentage of the average net asset value
over the period.
PROPERTY ExPENSES
MANAGEMENT ExPENSES
OThER OPERATING ExPENSES
Exclude:
ExCEPTIONAL COSTS (SEE NOTE 8)
Recurring operational expenses
31 March 2014
31 March 2013
£000
£000
4,210
2,127
1,139
-
7,476
4,102
1,682
1,592
(225)
7,151
AVERAGE NET ASSET VALUE OVER ThE YEAR
192,073
177,279
Ongoing charges
Ongoing charges (excluding property expenses)
3.9%
1.7%
4.0%
1.7%
Loan to Value
The loan to value (LTV) is calculated by
taking the Group’s total borrowings, net
of cash, as a percentage of the total
portfolio value.
Gearing
Using the method recommended by the AIC,
Gearing is calculated by dividing the Group’s
total assets, less cash, by shareholders’
funds.
TOTAL BORROWINGS
Less:
CASh AND CASh EQUIVALENTS
Total net borrowings
31 March 2014
31 March 2013
£000
£000
234,016
233,400
(32,352)
201,664
(22,906)
210,494
Investment property valuation
423,020
386,391
Loan to value
47.7%
54.5%
31 March 2014
31 March 2013
£000
£000
464,272
418,268
(32,352)
431,920
(22,906)
395,362
214,096
169,416
101.7%
133.4%
TOTAL ASSETS
Less:
CASh AND CASh EQUIVALENTS
Total equity
Gearing
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PICTON PROPERTY INCOME LIMITED
EPRA Disclosures
The European Public Real Estate Association (EPRA) is the industry body representing listed companies in the real estate sector. EPRA publishes
Best Practice Recommendations (BPR) to establish consistent reporting by European property companies. Further information on the EPRA
BPR can be found at www.epra.com.
EPRA Earnings per share
EPRA Earnings represents the earnings
from core operational activities, excluding
investment property revaluations and
gains/losses on asset disposals.
It demonstrates the extent to which
dividend payments are underpinned
by recurring operational activities.
31 March 2014
31 March 2013
£000
£000
PROFIT/(LOSS) FOR ThE YEAR AFTER TAxATION
37,348
(14,607)
Exclude:
INVESTMENT PROPERTY VALUATION MOVEMENT
GAIN/LOSS ON DISPOSAL OF INVESTMENT PROPERTIES
(18,422)
(5,660)
30,937
4
ChANGE IN FAIR VALUE OF DERIVATIVE FINANCIAL
INSTRUMENTS
EPRA earnings
-
(1,617)
13,266
14,717
Weighted average number of shares in issue (000s)
359,866
345,336
EPRA earnings per share
3.7p
4.3p
EPRA NAV per share
The EPRA Net Asset Value highlights the fair
value of net assets on an on-going, long-
term basis. It excludes assets and liabilities
that are not expected to crystallise in normal
circumstances such as the fair value of
financial derivatives and deferred taxes on
property valuation surpluses.
BALANCE ShEET NET ASSETS
FAIR VALUE OF FINANCIAL INSTRUMENTS
DEFERRED TAx
31 March 2014
31 March 2013
£000
£000
214,096
169,416
-
-
-
-
214,096
169,416
EPRA NNNAV per share
The EPRA Triple Net Asset Value includes
the fair value adjustments in respect of all
material balance sheet items.
Shares in issue (000s)
379,870
345,336
EPRA NAV per share
56p
49p
EPRA NAV
FAIR VALUE OF DEBT
DEFERRED TAx
EPRA NNNAV
31 March 2014
31 March 2013
£000
£000
214,096
17,817
-
169,416
5,747
-
231,913
175,163
Shares in issue (000s)
379,870
345,336
EPRA NNNAV per share
61p
51p
90
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
OTHER INFORMATION
SUPPLEMENTARY DISCLOSURES (UNAUDITED)
EPRA Net Initial Yield (NIY)
EPRA NIY is calculated as the annualised
rental income based on the cash rents
passing at the balance sheet date, less
non-recoverable property operating
expenses, divided by the gross market
valuation of the properties.
INVESTMENT PROPERTY VALUATION
ALLOWANCE FOR ESTIMATED PURChASERS’ COSTS
Gross up property portfolio valuation
ANNUALISED CASh PASSING RENTAL INCOME
PROPERTY OUTGOINGS
Annualised net rents
31 March 2014
31 March 2013
£000
£000
423,020
24,763
447,783
31,227
(2,285)
28,942
386,391
22,892
409,283
30,980
(2,194)
28,786
EPRA Net Initial Yield
6.5%
7.0%
EPRA “topped-up” Net Initial Yield
The EPRA “topped-up” NIY is calculated by
making an adjustment to the EPRA NIY in
respect of the expiration of rent free periods
(or other unexpired lease incentives such as
discounted rent periods and step rents).
31 March 2014
31 March 2013
£000
£000
EPRA NIY ANNUALISED NET RENTS
ANNUALISED CASh RENT ThAT WILL APPLY AT ExPIRY OF
LEASE INCENTIVES
Topped-up annualised net rents
28,942
880
29,822
28,786
1,691
30,477
EPRA “topped-up” NIY
6.7%
7.4%
EPRA Vacancy Rate
EPRA Vacancy Rate is the estimated rental
value (ERV) of vacant space divided by the
ERV of the whole property, expressed as
a percentage.
31 March 2014
31 March 2013
£000
£000
ANNUALISED POTENTIAL RENTAL VALUE OF VACANT
PREMISES
ANNUALISED POTENTIAL RENTAL VALUE FOR ThE
COMPLETE PROPERTY PORTFOLIO
2,956
4,170
33,810
33,559
EPRA Vacancy Rate
8.7%
12.4%
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PICTON PROPERTY INCOME LIMITED
EPRA Cost Ratio
EPRA Cost Ratio reflects the overheads and
operating costs as a percentage of the gross
rental income.
PROPERTY OPERATING ExPENSES
PROPERTY VOID COSTS
MANAGEMENT ExPENSES
OThER OPERATING ExPENSES
Less:
GROUND RENT COSTS
EPRA Costs (including direct vacancy costs)
PROPERTY VOID COSTS
EPRA Costs (excluding direct vacancy costs)
GROSS RENTAL INCOME
LESS GROUND RENT COSTS
Gross rental income
31 March 2014
31 March 2013
£000
£000
2,527
1,683
2,127
1,139
(249)
7,227
(1,683)
5,544
31,036
(249)
30,787
2,426
1,676
1,682
1,592
(207)
7,169
(1,676)
5,493
32,125
(207)
31,918
EPRA Cost Ratio (including direct vacancy costs)
23.5%
22.5%
EPRA Cost Ratio (excluding direct vacancy costs)
18.0%
17.2%
EPRA Sustainability Reporting
This table sets out energy consumption from
the Group’s portfolio by sector.
Sector
Total energy
consumption from
electricity
Total energy
consumption from
fuels
Building energy
intensity
kWh
kWh
kWh/m2/year
Where data was unavailable, consumption has
been estimated using intensity ratios. Estimated
data accounts for less than 1% of electricity data
and 29% of gas data.
INDUSTRIAL
OFFICE
RETAIL AND LEISURE
32,913
7,705,700
410,685
10,423
5,002,849
2,528,888
Total
8,149,298
7,542,160
6.8
3,474.3
1,011.1
4,492.2
This table sets out the Group’s direct and
indirect greenhouse gas (GHG) emissions
by sector.
Sector
Total direct
emissions
Total indirect
emissions
GhG emissions
intensity
Note: Scopes 1 and 2. Where data was unavailable,
emissions were estimated using intensity ratios.
Estimated data accounts for less than 9%
of emissions.
INDUSTRIAL
OFFICE
RETAIL AND LEISURE
Total
tCO2e
kgCO2e/m2/year
14.7
3,432.7
183.0
3,630.4
2.7
1,266.5
254.3
1,523.5
tCO2e
1.9
920.7
465.4
1,388.0
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4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
OTHER INFORMATION
SUPPLEMENTARY DISCLOSURES (UNAUDITED)
This table sets out the Group’s water
withdrawal by source.
Sector
Where data was unavailable, consumption has been
estimated using intensity ratios. Estimated data
accounts for 26% of water consumption.
This table sets out the Scope 3 business
travel emissions for Picton directors and
employees.
INDUSTRIAL
OFFICE
RETAIL AND LEISURE
Total
CAR
AIR
TRAIN
All transport
Total water withdrawn
by source
Building water intensity
m3
m3/m2/year
5,356.4
33,164.2
7,936.1
46,456.7
0.9
7.9
2.7
11.5
Total kgCO2e emissions
Total distance
kgCO2e
3,427.9
7,846.4
1,122.0
12,396.3
The following table sets out the Group’s
waste by disposal route.
Sector
Recycling
Composting
Recovery
Incineration
Tonnes
Tonnes
Tonnes
Tonnes
Landfill
Tonnes
Other
Tonnes
INDUSTRIAL
OFFICE
Total
Proportion of waste
by disposal route (%)
21.2
138.9
160.1
56
-
17.5
17.5
6
7.3
0.1
7.4
3
-
2.4
2.4
1
4.2
91.6
95.8
34
-
0.3
0.3
-
Where data was unavailable, waste weights have
been estimated. Estimated data accounts for 37% of
waste data. Proportion of waste by disposal route was
estimated using proportions of actual data available.
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km
17,303
45,419
22,879
85,601
Total
Tonnes
32.7
250.8
283.5
100
PICTON PROPERTY INCOME LIMITED FIVE YEAR FINANCIAL SUMMARY
Income Statements
2014
2013
2012
2010
2009
NET PROPERTY INCOME
MANAGEMENT ExPENSES
OThER OPERATING ExPENSES
ExCEPTIONAL COSTS
Income Profit
NET FINANCE COSTS
Income profit before tax
TAx
Income profit after tax
PROPERTY GAINS AND LOSSES
FINANCING GAINS AND LOSSES
Profit/loss after tax
DIVIDENDS PAID
27.7
(2.1)
(1.1)
-
24.5
(10.9)
13.6
(0.4)
13.2
24.1
-
37.3
10.7
29.8
(1.7)
(1.4)
(0.2)
26.5
(11.5)
15.0
(0.3)
14.7
(30.9)
1.6
(14.6)
12.1
36.2
(3.8)
(1.4)
(2.5)
28.5
(14.6)
13.9
0.3
14.2
(13.9)
6.2
6.5
17.3
30.8
(2.9)
(2.4)
(0.9)
24.6
(10.1)
14.5
(0.3)
14.2
18.0
(0.6)
31.6
13.5
28.3
(3.2)
(1.5)
(1.5)
22.1
(10.1)
12.0
-
12.0
(31.9)
0.6
(19.3)
9.9
Balance Sheets
2014
2013
2012
2010
2009
INVESTMENT PROPERTIES
BORROWINGS
OThER ASSETS AND LIABILITIES
Net assets
NET ASSET VALUE PER ShARE (PENCE)
EPRA NET ASSET VALUE PER ShARE (PENCE)
EARNINGS PER ShARE (PENCE)
DIVIDENDS PER ShARE (PENCE)
DIVIDEND COVER (%)
ShARE PRICE (PENCE)
All figures are in £million unless otherwise stated.
Reporting dates are annually except 2012 which
is a 15 month period to 31 March 2012.
417.6
(234.0)
30.5
214.1
56
56
10.4
3.0
124
56.8
382.7
(233.4)
20.1
169.4
49
49
(4.2)
3.5
122
40.0
411.7
(233.0)
17.4
196.1
57
58
1.9
5.0
82
41.3
424.3
(245.9)
28.5
206.9
60
63
9.3
4.0
105
53.5
352.6
(217.3)
45.8
181.1
55
58
(5.9)
3.0
121
53.8
94
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
OTHER INFORMATION
GLOSSARY OF TERMS
AIC
Annual Rental Income
CIPS
Contracted rent
DTR
Dividend cover
Earnings per share (EPS)
EPC
EPRA
Estimated rental value (ERV)
Fair value
Fair value movement
FRI lease
Gearing
Group
Association of Investment Companies.
Cash rents passing at the Balance
Sheet date.
Chartered Institute of Purchasing
and Supply.
The contracted gross rent receivable
which becomes payable after all the
occupier incentives in the letting
have expired.
Disclosure and Transparency Rules,
issued by the United Kingdom
Listing Authority.
Income profit after tax divided
by dividends paid.
Profit for the period attributable to
equity shareholders divided by the
average number of shares in issue
during the period.
Energy performance certificate.
European Public Real Estate Association,
the industry body representing listed
companies in the real estate sector.
The external valuers’ opinion as to the
open market rent which, on the date
of the valuation, could reasonably be
expected to be obtained on a new letting
or rent review of a property.
The estimated amount for which a
property should exchange on the
valuation date between a willing buyer
and a willing seller in an arm’s length
transaction after the proper marketing
and where parties had each acted
knowledgeably, prudently and
without compulsion.
An accounting adjustment to change
the book value of an asset or liability to
its fair value.
A lease which imposes full repairing and
insuring obligations on the tenant, relieving
the landlord from all liability for the cost of
insurance and repairs.
Total assets, less cash, divided by
shareholders’ funds, expressed as a
percentage, as defined by the AIC.
Picton Property Income Limited and
its subsidiaries.
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CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
IASB
IFRS
Property income return
Initial yield
IPD
Lease incentives
NAV
Ongoing charges
Over-rented
PMI
Reversionary yield
Weighted average debt maturity
Weighted average interest rate
Weighted average lease term
ZDP
ZDP share cover
International Accounting
Standards Board.
International Financial
Reporting Standards.
The ungeared income return of the
portfolio as calculated by IPD.
Annual cash rents receivable (net of
head rents and the cost of vacancy), as
a percentage of gross property value, as
provided by the Group’s external valuers.
Rents receivable following the expiry of
rent-free periods are not included.
Investment Property Databank, an
organisation supplying independent
market indices and portfolio benchmarks
to the property industry.
Incentives offered to occupiers to enter
into a lease. Typically this will be an initial
rent-free period, or a cash contribution
to fit-out. Under accounting rules the
value of the lease incentives is amortised
through the Income Statement on a
straight-line basis until the lease expiry.
Net Asset Value is the equity attributable
to shareholders calculated under IFRS.
Total operating expenses, excluding one
off costs, as a percentage of the average
net asset value over the period, as defined
by the AIC.
Space where the passing rent is above
the ERV.
Purchasing Managers Indexes.
The estimated rental value as a
percentage of the gross property value.
Each tranche of Group debt is multiplied
by the remaining period to its maturity and
the result is divided by total Group debt in
issue at the period end.
The Group loan interest per annum at the
period end, divided by total Group debt in
issue at the period end.
The average lease term remaining to
first break, or expiry, across the portfolio
weighted by contracted rental income
(including rent-frees).
Zero dividend preference share.
The Group’s net asset value, including any
accrued ZDP capital additions, divided by
the final ZDP liability on their maturity.
96
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
OTHER INFORMATION
ShAREhOLDER INFORMATION
Shareholder Enquiries
Website
All enquiries relating to holdings in Picton
Property Income Limited, including
notification of change of address, queries
regarding dividend/interest payments or the
loss of a certificate, should be addressed to
the Company’s registrars.
The Company has a corporate website which
holds, amongst other information, a copy of
our latest annual report and accounts, a list of
properties held by the Group and copies of all
press announcements released over the last
five years.
Directors
Nicholas Thompson (Chairman)
The site can be found at:
www.pictonproperty.co.uk
Trevor Ash
Vic Holmes
Roger Lewis
Robert Sinclair
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Registered Number: 43673
Administrator and Secretary
Northern Trust International Fund
Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
T: 01481 745 001
E: team_picton@ntrs.com
Investment Manager
Picton Capital Limited
28 Austin Friars
London
EC2N 2QQ
T: 020 7628 4800
E: enquiries@pictoncapital.co.uk
Registrar
Computershare Investor Services
(Guernsey) Limited
NatWest House
Le Truchot,
St Peter Port
Guernsey
GY1 1WD
Property Valuers
CBRE Limited
Henrietta House
Henrietta Place
London
W1G 0NB
Tax Adviser
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Corporate Brokers
JP Morgan Securities Limited
25 Bank Street
London
E14 5JP
Oriel Securities Limited
150 Cheapside
London
EC2V 6ET
Auditor
KPMG Channel Islands Limited
20 New Street
St Peter Port
Guernsey
GY1 4AN
Media
Tavistock Communications
131 Finsbury Pavement
London
EC2A 1NT
T: 020 7920 3150
E: jverstringhe@tavistock.co.uk
97
Solicitors
As to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
As to English Property Law
DLA Piper UK LLP
India Buildings
Water Street
Liverpool
L2 0NH
As to Guernsey Law
Carey Olsen
PO Box 98
Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
Financial Calendar
Annual Results announced
16 June 2014
Annual Results posted to shareholders
18 July 2014 (provisional)
Annual General Meeting
12 November 2014
Interim Management Statement (first half)
July 2014 (provisional)
2014 Half Year Results to be announced
November 2014 (provisional)
Interim Management Statement (second half)
January 2015 (provisional)
Dividend Payment Dates
August/November/February/May
CONTENTS
Contents
Page
1 Review of Business
2 Strategic Report
PICTON PROPERTY INCOME LIMITED
98
3 Directors’ Report
and Governance
4 Financial Statements
5 Other Information
ANNUAL REPORT 2014
Picton Property Income Limited
Trafalgar Court
Les Banques
St. Peter Port
Guernsey, GY1 3QL
T: 01481 745 001
www.pictonproperty.co.uk
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