Picton Property Income Limited Annual Report 2016

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FY2016 Annual Report · Picton Property Income Limited

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Picton property income limited
Annual Report 2016

Occupier focused, opportunity led

24814.02 20 July 2016 6:54 PM Proof 9

Continuing to invest in our portfolio for future
growth and shareholder value.

Property Assets

Net Assets

£646m 21.2%

(2015: £533m)

£417m 12.7%

(2015: £370m)

We have continued to reshape the portfolio, and have invested a further £73 million into
the property market, through five acquisitions, and have made three disposals totalling
£9.4 million. The increase in the size of the portfolio reflects both valuation gains and the
new acquisitions.

More information on our significant acquisitions can be found in
our Investment Manager’s Report on pages 24 to 41

Read our Case Studies demonstrating Strategy in Action on pages 12 to 19

Pembroke court, chatham

Boundary house, london, ec3

Queens road, sheffield

Metro, greater manchester

You can see our achievements at
www.picton.co.uk/about-us/our-history

Building on
10 years of
progress

Occupier focused, opportunity led

Welcome to our
2016 annual report

Who we are
Picton Property Income Limited is an income
focused, internally managed investment company,
which invests in a diversified commercial property
portfolio located across the United Kingdom.

Established in 2005, Picton has a main market listing on the London Stock Exchange.
We have a portfolio of UK commercial property valued at £655 million, comprising 58
assets with around 400 occupiers. The portfolio is, by value, predominantly invested in
the office and industrial sectors (75%) and is biased towards London and the South East
(60%). 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.

Our structure
The Board of Picton Property Income Limited
is fully responsible for the direction and control
of the Company, including investment policy
and strategy.

The investment manager to the Group is Picton Capital Limited, a wholly owned
subsidiary company, which implements investment policy once determined by the Board.
Our investment management team comprises 12 permanent employees and includes six
property professionals, three qualified accountants and three further support employees.
The team’s entrepreneurial leadership style and complementary set of skills enable
them to implement effective investment policies and strategies that drive sustainable
long-term growth. The team is led by its Chief Executive, Michael Morris, and his review
of the year is set out on pages 20 and 21.

One of the benefits of the Company’s structure is that management costs are not linked
to the size of the Company, which is unlike most traditional investment companies. This
means that, with growth, the Company benefits from increasing economies of scale,
which will enhance returns.

Equity
shareholders

Picton property
income limited

zdp
shareholders

Picton capital
limited

Picton zdp
limited

loan
facilities

Property
portfolio

Why invest in us
Our 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.

Our key attributes are:

1 Offering diversified exposure to the UK commercial property market.
2 Having one of the highest and fully covered dividend yields within the sector and above

the UK REIT average.

3 Utilising gearing to enhance returns over the long term.
4 Actively managing our assets with an occupier focused and opportunity led approach.
This has continued to deliver outperformance at a portfolio level, ahead of the MSCI
IPD Quarterly Benchmark.

5 Having an internalised management structure creating alignment with shareholders

and generating economies of scale through growth.

“We are pleased to report a total profit of £64.8 million,
attributed to an income profit of £19.9 million and
capital gains of £44.9 million, which have produced a
total return for the year of 17.9%.”

“The return from the property portfolio was 14.3%,
ahead of the MSCI IPD Quarterly Benchmark for the
year. The portfolio has been reshaped following a
combination of non-core asset disposals and new
acquisitions. This has increased the average lot size
by some 70% over the last four years.”

Our purpose
We invest in a diversified
commercial property
portfolio located across
the United Kingdom. We
provide space to meet
occupiers’ requirements,
and in turn enhance value
for our shareholders.

What makes
us different
We have depth of
expertise; however, our
management costs are not
linked to the size of the
Company, which is unlike
most traditional investment
companies.

This means that, with growth, the Company
benefits from increasing economies of
scale, which in turn enhance returns for
investors.

Geographical weightings (%)

South East 32.1
London 27.5
Midlands 15.6
North 13.5
Wales 3.8
South West 3.6
Scotland 3.6
Northern Ireland 0.3

See page 26 for more details

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In this year’s report

Chief
executive’s
review

How we have delivered against
our five strategic priorities

See page 20 for more details

i n g a diverse portf

i er fo

c c
O

Picton
property
income
limited

ortun i t y l e d

Our
business
model

How we aim to deliver long-term
shareholder value

See page 10 for more details

e
t

m
a
n
a
g
e
m
e
n
t

e
s
i
t
r
e
p
x
e

f
o

h
t

ble recurrin g i n c o m e

Our top
10 assets

Our largest assets represent over 46%
of the total portfolio, by value

See page 29 for more details

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Strategic Report

2016 Highlights

2016 EPRA Measures

Chairman’s Statement

Our Marketplace

Our Business Model

Our Strategy

Chief Executive’s Review

Key Performance Indicators

Investment Manager’s Report

Financial Review

Managing Risk

Being Responsible

Governance

Chairman’s Introduction

Board of Directors

Investment Management Team

Corporate Governance Report

Nominations Committee Report

Audit and Risk Committee Report

Property Valuation Committee Report

Remuneration Report

Directors’ Report

Financial Statements

Independent Auditor’s Report

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

Other Information

EPRA Disclosures
Supplementary Disclosures

Property Portfolio

5 Year Financial Summary

Glossary

Financial Calendar

Shareholder Information

Look out for these icons:

Read more about our Strategy
on page 11

Our 5 strategic priorities

Linking our
performance to
EPRA best practices
recommendations

We have a range of key performance
indicators that we use to measure the
performance and success of the business.
We consider that industry standard
measures, such as those calculated
by MSCI IPD, are appropriate to use
alongside certain EPRA measures and
others that are relevant to our business.

In this regard we consider that the EPRA
net asset value per share, earnings per
share and vacancy rate are the most
appropriate measures to use in assessing
our performance.

EPRA Net Asset Value per Share (pence)

2016 77
2015 69
2014 56
2013 49

Why we use this indicator
The net asset value per share, calculated in
accordance with EPRA, measures the value of
shareholders’ equity in the business.

Our Performance in 2016
The EPRA NAV per share has continued to
grow strongly throughout the year.

Strategic link

EPRA Vacancy Rate (%)

EPRA Earnings per Share (pence)

2016 3.9
2015 4.8
2014 8.7
2013 12.4

2016 3.7
2015 3.4
2014 3.7
2013 4.3

Growth of net income

Working with our occupiers

Operational efficiency

Portfolio and asset management

Effective use of debt

Why we use this indicator
The vacancy rate measures the amount of
vacant space in the portfolio at the end of each
financial period.

Our Performance in 2016
The EPRA vacancy rate has continued
to fall as the asset management team
have focused on letting vacant space in
improving market conditions. It is at its
lowest level since June 2007.

Why we use this indicator
The earnings per share, calculated in
accordance with EPRA, measures the
operational profit generated by the business
that is attributable to our shareholders.

Our Performance in 2016
The increased EPRA earnings per share is
partly due to the deployment of funds into
new property acquisitions, and also the
improving occupancy.

Strategic link

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Picton Property Income LimitedAnnual Report 2016Total Return (%)

Total Property Return (%)

Property Income Return (%)

2016 17.9
2015 27.4
2014 21.6
2013 (7.6)

2016 14.3
2015 19.0
2014 14.0
2013 (0.7)

2016 6.0
2015 6.1
2014 7.1
2013 7.0

Why we use this indicator
The Total Return measures the performance
of the Group based on its published results. It
is the change in the Group’s net asset value,
calculated in accordance with IFRS, over the
year, plus dividends paid.

Our Performance in 2016
Driven by valuation gains and the increase
in net income, Picton continues to deliver
high returns with a Total Return of 17.9%
for the year.

Why we use this indicator
The Total Property Return is the combined
ungeared income and capital return from our
property portfolio for the year, as calculated by
MSCI IPD.

Our Performance in 2016
For the third year running we have
outperformed MSCI IPD, delivering a
return of 14.3% compared to the MSCI IPD
Quarterly Benchmark return of 11.3% for the
year, and we have also outperformed on a
three and ten year basis.

Why we use this indicator
The Property Income Return, as calculated by
MSCI IPD, is the ungeared income return of the
portfolio.

Our Performance in 2016
With our portfolio biased towards income
generation, this is an important indicator.
The return for the year of 6.0% was ahead
of the MSCI IPD Quarterly Benchmark of
4.7%, and we have also outperformed on a
three, five and ten year basis.

Strategic link

Total Shareholder Return (%)

Loan to Value Ratio (%)

Ongoing Charges (%)

2016 1.9
2015 32.3
2014 50.2
2013 6.2

2016 34.6
2015 30.1
2014 47.7
2013 54.5

2016 1.1
2015 1.2
2014 1.7
2013 1.7

Why we use this indicator
The Total Shareholder Return measures the
change in our share price over the year plus
dividends paid. This is the return seen by
investors on their shareholdings.

Why we use this indicator
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 for further details.

Our Performance in 2016
The negative movement in share price of
the real estate sector has generated a Total
Shareholder Return of 1.9% to investors.

Our Performance in 2016
The loan to value ratio has increased over
the year as funds raised from the equity
issuance in March 2015 were deployed into
the market.

Strategic link

Why we use this indicator
The Ongoing Charges ratio 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
provides further analysis of the Ongoing
Charges ratio.

Our Performance in 2016
The Ongoing Charges ratio has fallen this
year, as the economies of scale arising
from the growth in our net assets have
flowed into the results. Operating expenses,
principally the management costs of Picton
Capital Limited, have not grown at the
same rate as the increase in assets, thus
enhancing shareholder returns.

Strategic link

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www.picton.co.ukStock code: PCTNStrategic ReportInvestment
manager’s report

“Looking ahead we
will continue to be
‘opportunity led and
occupier focused’
and look forward to
unlocking further active
management initiatives.”

Number of assets

Average lot size

£11.3m

Estimated rental value

£47.6m

The asset management team have had another
successful year.

We have seen a strong occupational market,
which has assisted us in completing 35 lettings,
pushing up our occupancy level to 96%.

Numerous active management transactions
have been undertaken and these have assisted
us in again outperforming the MSCI IPD
Quarterly Benchmark, on a total return basis,
which we have done for the last one, three and
ten years.

There has been significant activity in terms of
reshaping the portfolio over the year. We have
acquired three modern office buildings and a
city centre retail warehouse asset, as well as
adding a further building at our Angel Gate
holding, investing in total £73 million after costs.
All were acquired on favourable terms and offer
potential for future income and capital growth,
some of which has already occurred as a result
of our active management. In addition, we have
disposed of three non-core assets for total
proceeds of £9.4 million after costs, following
the completion of asset management initiatives.

Our portfolio now comprises 58 assets, with
around 400 occupiers, it is valued at £655
million, and the average lot size has increased
to £11.3 million. As a result of the new
acquisitions, and rental growth in the portfolio,
the passing rent has risen to £40.4 million,
up from £34.6 million a year ago, with an
estimated rental value of £47.6 million.

We have set out in the following sections
the principal activity in each of the sectors in
which we are invested. Looking ahead we will
continue to be ‘opportunity led and occupier
focused’ and look forward to unlocking further
active management initiatives.

Jay Cable
Director and Head of Asset Management,
Picton Capital Limited

Fraser D’Arcy
Investment Director,
Picton Capital Limited
27 June 2016

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Picton Property Income LimitedAnnual Report 2016www.picton.co.uk
Stock code: PCTN

Pictured:
62/68 Bridge Street, Peterborough

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Strategic ReportInvestment
manager’s report

Sector split (%)

Industrial 36.1
Office
Retail & Leisure 25.3

38.6

Geographic split (%)

Central and Greater London 27.5%

Industrial 3.3
18.9
Office
Retail & Leisure 5.3

South East 32.1%

Industrial 20.1
11.2
Office
Retail & Leisure 0.8

Rest of uK 40.4%

Industrial 12.7
Office
Retail & Leisure 19.2

8.5

Portfolio overview
As at 31 March 2016, the portfolio generated
a net initial yield of 5.6% after void costs, which
in rental terms reflects a current passing rent of
£40.4 million per annum.

The portfolio’s total return for the year to
31 March 2016 was 14.3%, which equates to
a 300 basis points outperformance relative to
the MSCI IPD Quarterly Benchmark. The Picton
portfolio’s overweight exposure to City offices,
South East offices and South East industrials,
along with the effect of active management
initiatives, has helped the portfolio.

The portfolio’s capital value for the year grew
by 9%. Regional office values rose by 15%,
with London offices growing by 19%. Industrial
values grew by 9% and retail and leisure
by 1%.

Overall, like-for-like growth in the portfolio’s
estimated rental values was 5% during the
year to March 2016. Estimated rental values in
the office sector grew by 10% over the year,
predominantly driven by growth in London of
20%. Industrial estimated rental values grew by
6% with retail and leisure declining by 1%.

We have had a good year for lettings,
generating an additional £2.3 million of income
after incentives, the overall rent being 3.8%
ahead of the March 2015 estimated rental
values. As predicted last year we were able to
increase the occupancy rate which currently
stands at 96%. Our aim is to continue to
maintain occupancy at a high level across
the portfolio.

The estimated rental value (ERV) of the void
portfolio is £1.9 million per annum and 50%
of our void property has only been vacant for
under a year.

Income retained through lease renewals and
re-gears totalled £2.9 million per annum after
incentives, 2% ahead of the March 2015
estimated rental values.

We have continued our strategy of reshaping
the portfolio. As a result of three disposals and
five acquisitions the number of properties in
the portfolio is 58 and the average lot size has
increased by 19% to £11.3 million.

Outlook for the
coming year
The occupational market remains robust and
we expect to maintain our high occupancy
level, whilst capturing rental growth as supply
remains limited. Whilst we have a shorter than
average lease expiry profile, we see this as
a positive in a rising market. On lettings and
renewals, we are able to secure longer leases
locking in higher rents and creating value.

A number of our current voids are under offer
and over the next 12 months our two largest
lease events are at 50 Farringdon Road in
London, where we are seeing strong demand,
and at 180 West George Street in Glasgow,
where, as predicted on purchase, we have
two floors coming back in November. Our
refurbishment timetable at this property will
mean the building is ready to let in early 2017,
when we believe there will be little competing
space in the market.

Market forecasts suggest the Rest of UK offices
and industrial sub-sectors are likely to be better
performers on an annualised basis between
2016 and 2020. Half of our office portfolio is
located outside of London, while our industrial
exposure is also higher than the MSCI IPD
Quarterly Benchmark, at 36% compared
to 19%.

Our retail and leisure assets account for
25.3% of the portfolio, compared to the MSCI
IPD Quarterly Benchmark of 50.6%. The
London retail sub-sector continues to be the
top performer across all asset classes and
our Stanford House asset in Covent Garden
accounts for 21% of our total retail and leisure
exposure. The retail asset rents have mostly
been rebased and we see tentative signs
of rental growth, predominantly in our retail
warehouse assets, coming through in the
next year.

Income has become a more significant
component of total returns, accounting for 44%
at the end of March 2016, compared to 31%
in March 2015. Capital growth as a percentage
of total returns fell to 53% in March 2016 from
65% in March 2015.

The focus is on continuing the strategy of de-
risking income through active management and
capturing rental growth. With high occupancy
levels and good demand, we believe we
are in a strong position to capitalise on this
throughout the portfolio.

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Picton Property Income LimitedAnnual Report 2016Our locations
Integral to our Business Model is our
investment objective that enables us to create
a portfolio that is diverse not just in terms
of sector or geography but also by income
concentration.

Key to map:

Industrial

Office

Retail and Leisure

Portfolio rental growth

5.2%

Portfolio capital value growth

9.2%

Occupancy level

96%

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manager’s report

Longevity of income
As at 31 March 2016, based as a percentage
of contracted rent, the average length of the
leases to the first termination was 5.9 years.
This is summarised as follows:

Retention rates
Total income at risk in the portfolio fell from £4.3 million in the year to March 2015 to £2.4 million
in the year to March 2016, a 43% reduction. The portfolio retained 54% of total income at risk in
the year to March 2016, this comprised of 52% retention for those on lease expiry and 68% after
break options.

Income concentration
There is a wide diversity of occupiers within the portfolio, as set out below, which are compared to
the MSCI IPD Quarterly Benchmark by contracted rent, as at 31 March 2016.

Picton (%)

Benchmark (%)

up to 5 years

62.0%

5 to 10 years

24.0%

10 to 15 years

7.4%

15 to 25 years

5.4%

25 years and over

1.2%

Industry Sector

Services

Retail Trade

Financial Services

Manufacturing

Transportation, Communications

Public Administration

Wholesale Trade

Construction

Mining

Undetermined/ ineligible/unmatched

Source: MSCI IPD IRIS Report March 2016

Occupier

Belkin Limited

DHL Supply Chain Limited

B&Q Plc

Snorkel Europe Limited

The Random House Group Limited

Cadence Design Systems Limited

Trainline.com Limited

Edward Stanford Limited

Portal Chatham LLP

10 XMA Limited

Total

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27.0

23.7

13.6

13.5

11.2

3.8

3.4

1.7

0.0

2.1

100

Contracted Rent
(£000)

1,690

1,560

1,243

1,008

1,000

972

835

785

707

652

20.6

35.9

15.5

8.1

5.8

3.6

4.2

0.7

0.6

5.0

100

4.0

3.7

2.9

2.4

2.3

2.0

1.8

1.7

1.5

10,452

24.7

Top ten occupiers
The top ten occupiers, based as a percentage of contracted rent, as at 31 March 2016, are
summarised as follows:

Picton Property Income LimitedAnnual Report 2016Top ten assets
The largest assets in the portfolio as at 31 March 2016, ranked by capital value, represent just over 46% of the total portfolio valuation
and are detailed below.

01 Parkbury
industrial
estate, radlett

Acquisition date

03/2014

Property type

Tenure

Industrial

Freehold

Approx. area sq ft 336,700

Occupancy rate

97%

02 River way
industrial
estate, harlow

Acquisition date

12/2006

Property type

Tenure

Industrial

Freehold

Approx. area sq ft 455,000

Occupancy rate

88%

03 Angel gate,
city road,
london EC1

04 Stanford
house, long acre,
london WC2

05 Boundary
house, Jewry
street, london EC3

Acquisition date

10/2005

Acquisition date

05/2010

Acquisition date

05/2006

Property type

Tenure

Office

Freehold

Property type

Tenure

Retail

Freehold

Property type

Tenure

Office

Freehold

Approx. area sq ft

64,500

Approx. area sq ft

19,700

Approx. area sq ft

45,000

Occupancy rate

93%

Occupancy rate

100%

Occupancy rate

100%

07 Belkin
unit,shipton
way, rushden

Acquisition date

07/2014

Property type

Industrial

Tenure

Leasehold

Approx. area sq ft 312,850

Occupancy rate

100%

06 50 Farringdon
road, london EC1

Acquisition date

10/2005

Property type

Office

Tenure

Leasehold

Approx. area sq ft

32,000

Occupancy rate

100%

08 Pembroke
court, chatham

Acquisition date

06/2015

Property type

Office

Tenure

Leasehold

Approx. area sq ft

86,300

Occupancy rate

100%

09 Phase ii, parc
tawe retail
park, swansea

Acquisition date

10/2005

Property type

Retail

Tenure

Warehouse

Leasehold

Approx. area sq ft 116,700

Occupancy rate

100%

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10 Queens
road, sheffield

Acquisition date

08/2015

Property type

Retail

Tenure

Warehouse

Freehold

Approx. area sq ft 103,000

Occupancy rate

100%

www.picton.co.ukStock code: PCTNStrategic ReportInvestment
manager’s report

CASE STuDy: INDuSTRIAL

River way
industrial estate
harlow

Taking advantage of short term
income in a rising market

The opportunity we
recognised
We are looking to turn the short income profile
at the property to our advantage, by securing
new occupiers and growing rents at lease
events. At Fleet House (the largest unit on the
estate), DHL committed to a new ten year
lease, subject to break, at an initial rent of £0.62
million per annum. Three months rent-free was
granted and the initial rent is in line with ERV.

The rent review at unit A, dated February 2015,
was settled at £170,000 per annum, a 16%
uplift on the previous passing rent and 6%
ahead of ERV.

In smaller transactions, we have renewed the
lease at unit F2 for a further five years at a rent
of £68,000 per annum, 3.5% ahead of ERV
and with a four month rent-free period. The
September 2016 break option at Unit F3, where
the passing rent is £58,000 per annum, was

removed in return for a capital contribution to
a power upgrade equivalent to three months
rent-free. The September 2016 rent review
remains open and we expect an uplift.

Over the coming year we have three units with
an ERV of £0.58 million per annum coming
back due to tenant break options. Due to the
strong occupier demand for this estate, two of
the units are already under offer with the new
leases expected to commence the day after the
break date.

Currently we are on-site refurbishing the only
vacant unit, which is our largest industrial void
at 50,000 sq ft with an ERV of £350,000 per
annum. The works will complete in the summer
and we currently have strong interest from an
occupier to take a ten year lease.

We continue to see strong interest at all size
levels on this estate and are in preliminary
discussions with occupiers ahead of lease
events in 2017.

Number of
occupiers

Size

455,000sq ft

Strategy in action

Portfolio and
asset management

Key property details

Increase in value

Annual Rent

year built

EPC Rating

£2.4m

1970s

C-E

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Picton Property Income LimitedAnnual Report 2016www.picton.co.uk
Stock code: PCTN

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Strategic ReportIn Epsom, at Nonsuch Industrial Estate,
assisting another occupier to ‘right size’, we
surrendered a lease and subsequently re-let
the unit for a ten-year term, without break, at a
rent of £37,000 per annum with no incentive.
The new rent equates to £16 per sq ft, which
is 6% ahead of ERV and sets a new tone for
the estate. A further lease was renewed for a
further ten years without break, increasing the
previous passing rent by 29% to £40,000 per
annum, which was 14% ahead of ERV. Two
rent reviews were settled increasing the annual
rent roll by £17,000, 13% ahead of ERV. We
have one remaining unit to let.

Following completion of the refurbishment of
three units at Dencora Way in Luton, we have let
them all for a combined £173,000 per annum,
5% ahead of ERV. In another transaction on
the estate, we removed a tenant break clause
securing £54,000 per annum for another five
years, at a level 11% ahead of the current ERV.
A rent review was also settled increasing the
annual rent roll by £16,000, 10% ahead of ERV.

At Wokingham we renewed the lease of the
second largest unit on the estate, with the
occupier taking a ten year lease (subject
to break) at £228,000 per annum rising to
£255,000 in year three with three months rent-
free. The initial rent is 60% ahead of ERV and
sets great evidence on the estate. A rent review
was settled increasing the annual rent roll and
was 28% ahead of ERV. We currently have two
small units to let, one of which is under offer.

Sector outlook
The de-risking of income streams will continue
and strong occupational demand means we
can negotiate longer leases on renewal with
little or no incentive as can be seen from the
transactions described above. Looking forward,
we expect to maintain the high occupancy
rate and continue to capture the rental growth
coming through on lettings and lease events on
the back of the demand and reducing supply.

Investment
manager’s report

Industrial portfolio review

Occupancy in the industrial portfolio is 94.2%, a slight
decrease on last year, and in total we have nine units to
let. Our largest void is the 50,000 sq ft unit D in Harlow,
which is currently being refurbished and will be ready
to let in the summer. We are seeing strong demand
for this estate, demonstrated by the fact that we have
three units coming back later this year, two of which
are currently under offer before the existing leases have
expired.

In Harlow, DHL committed to a new ten year
lease at the largest unit on the estate, subject
to break, at an initial rent of £0.62 million per
annum. Three months rent-free was granted
and the initial rent is in line with ERV. In smaller
transactions we have renewed the lease at unit
F2 for a further five years at a rent of £68,000
per annum, 3.5% ahead of ERV and with a four
month rent-free period. The September 2016
break option at Unit F3, where the passing rent
is £58,000 per annum, was removed in return
for a capital contribution to a power upgrade
equivalent to three months rent-free. The
September 2016 rent review remains open and
we expect an uplift. The rent review at unit A,
dated February 2015, was settled at £170,000
per annum, a 16% uplift on the previous
passing rent and 6% ahead of ERV.

At our multi-let industrial estate, Datapoint
in Bromley-by-Bow, we completed two rent
reviews securing a combined uplift of £68,000
per annum. The overall uplift was 25% ahead
of the previous passing rent and 21% ahead
of ERV. At nearby Lyon Business Park in
Barking two units have been let for a combined
£75,000 per annum, 13% ahead of ERV. We
have two units available, both of which are
refurbished and under offer.

Our second largest industrial void is unit
O at Lyon Business Park, Barking, which
was surrendered in an active management
transaction in January 2015. The unit was
under offer to a good covenant last summer
but due to the prospective tenant being unable
to secure planning, the letting was aborted at a
late stage. The unit is now under offer at a rent
ahead of that agreed last year.

Activity across the industrial portfolio included
the letting of eight units at a combined rent of
£0.52 million per annum, the renewal of seven
leases with a combined rent of £1.2 million
per annum and the surrender of two leases to
facilitate active management.

We have seen rental growth of 6% across
the industrial portfolio and are experiencing
demand across all of our estates.

Highlights of the year
At the Group’s largest holding at Parkbury,
Radlett, we surrendered a 22,000 sq ft unit
and the next month re-let the space (without
refurbishment) to an existing occupier on a ten
year lease (no break) for £220,000 per annum
with six months rent-free. The letting was 20%
ahead of the previous passing rent and ERV.
The transaction allowed our occupier to ‘right
size’ their business by staying on the estate in
line with our Picton occupier promise. Three
rent reviews were settled increasing the annual
rent roll by £62,000, 6% ahead of ERV. One
lease was renewed for a further five years,
increasing the previous passing rent by 5% to
£104,000 per annum, which was 3% ahead of
ERV. There is currently one vacant unit out of
24, which is being refurbished.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016
Portfolio key metrics

Value

Internal Area

Annual Rental Income

Estimated Rental Value

Occupancy

Number of Assets

Property

Units A–G2, River Way Industrial Estate, Harlow, Essex

Parkbury Industrial Estate, Radlett, Herts.

Grantham Book Services, Trent Road, Grantham, Lincs.

Belkin Unit, 3 Shipton Way, Rushden, Northants.

Vigo 250, Birtley Road, Washington, Tyne and Wear

Unit 3220, Magna Park, Lutterworth, Leics.

Lawson Mardon Buildings, Kettlestring Lane, York

Units 1–13 Dencora Way, Sundon Park, Luton, Beds.

Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire

The Business Centre, Molly Millars Lane, Wokingham, Berks.

Lyon Business Park, Barking, Essex

Easter Court, Gemini Park, Warrington

Abbey Business Park, Mill Road, Newtownabbey, Belfast

Datapoint Business Centre, Cody Road, London E16

Nonsuch Industrial Estate, 1–25 Kiln Lane, Epsom, Surrey

Western Industrial Estate, Downmill Road, Bracknell, Berks.

Manchester Road/Drury Lane, Oldham, Lancs.

Magnet Trade Centre, Winnersh, Reading

Largest occupiers

Belkin Limited

DHL Supply Chain Limited

Snorkel Europe Limited

The Random House Group Limited

XMA Limited

24814.02 20 July 2016 6:54 PM Proof 9

2016

2015

£236.6 million

£217.7 million

2,745,200 sq ft

2,736,500 sq ft

£14.4 million

£14.2 million

£16.8 million

£15.9 million

94.2%

Area
(sq ft)

455,000

336,700

336,100

312,850

246,800

160,900

157,800

127,500

101,800

100,500

98,000

81,500

61,700

54,800

41,700

41,500

16,400

13,700

96.5%

Freehold/
Leasehold

% of total
portfolio

4.0

3.7

2.4

1.5

www.picton.co.ukStock code: PCTNStrategic ReportInvestment
manager’s report

CASE STuDy: OFFICE

Angel gate
office village
london, EC1

Continued repositioning
of the asset and capturing
rental growth

The opportunity we
recognised
Over the past few years we have seen a
dramatic turnaround at this property. We
have repositioned the buildings by creating
contemporary ‘media’ style space and have
revitalised the common areas. As a result we
have seen very strong occupational demand
with units letting quickly and rents are now
approaching £50 per sq ft – 150% ahead of
where they were historically.

Since 2012, Picton has acquired three units
as part of its ongoing strategy to consolidate
its ownership at this core holding. In April, we
acquired a fourth long leasehold interest at
Unit 12 for a net consideration of £1.1 million,
reflecting approximately £350 per sq ft. The unit
comprises a 3,200 sq ft self contained office
which was approximately 70% occupied.

The passing rent on purchase was £46,000
per annum, reflecting a low average rental of
just under £20 per sq ft. The passing rent is
currently £70,000 per annum and the value is
£1.5 million with further active management
angles.

Three units have been comprehensively
refurbished during the year and were quickly re-
let for a total rent of £446,000, 23% above ERV
and double the previous passing rents.

The final vacant unit is currently under offer at a
rent of £151,000 (in line with ERV) to a national
café operator to be their new headquarters
building when they take occupation in June.

We continue to utilise lease events and
active management to grow and increase the
longevity of the income stream.

Number of
occupiers

year built

1989

Size

64,500sq ft

EPC Rating

C-E

24814.02 20 July 2016 6:54 PM Proof 9

Strategy in action

Portfolio and
asset management

Working with our
occupiers

Key property details

Increase in value

31%

Annual Rent

£1.7m

Picton Property Income LimitedAnnual Report 2016www.picton.co.uk
Stock code: PCTN

24814.02 20 July 2016 6:54 PM Proof 9

Strategic ReportInvestment
manager’s report

Office portfolio review

Occupancy in the office portfolio is 95.8%, 2.7%
ahead of last year. Our largest void is an office
suite in St. Albans, which is under offer, and the
second largest is at Longcross Court in Cardiff
where we have four suites to let, one of which
is under offer. The Cardiff market has been
challenging and we are pleased to see renewed
occupational activity at this asset.

We let 24 suites at a combined rent of £1.5
million per annum, in line with ERV, renewed five
leases with a combined rent of £344,000 per
annum, 11% ahead of ERV, and surrendered six
leases to facilitate active management.

The most significant activity included the
acquisition of three modern office buildings for a
combined price of £51 million, which are currently
valued at £54 million. This growth in capital value
is attributable to the early active management
at Chatham and Glasgow, which is highlighted
below.

We have seen total rental growth of 9.1% across
the office portfolio.

Highlights of the year
Two office buildings in Chatham, Kent were
acquired for £19.05 million in June 2015,
reflecting a net initial yield of 8.62%. 30 and 50
Pembroke Court comprise two attractive and
well specified modern buildings of 35,000 sq ft
and 51,000 sq ft respectively. On purchase, the
average weighted lease length to the earliest
termination was 2.9 years. Since purchase we
have completed a lease regear at one of the
buildings, extending the income of £0.6 million
per annum (subject to review in 2018) by a further
ten years to 2028, in return for a short rent-free
period. Following this, we also regeared another
occupier’s lease, securing a ten year term at an
initial rent of £0.71 million, with 2.5% per annum
compound increases for the length of the lease.

We acquired a modern office building in Glasgow
for £14.25 million in August, reflecting a net initial
yield of 7.8%. 180 West George Street was
constructed in 2000 and provides 52,000 sq ft
of office accommodation over basement, ground
and six upper floors and is located on a prime
street in the heart of Glasgow’s central business
district. It is fully let and produces a net annual
rental income of £1.18 million, equivalent to an
average rent of under £23 per sq ft. Occupiers
include TSB Bank, Standard Life and Michael
Page and the weighted average unexpired lease
term is 1.7 years. We have agreed to regear the
lease of a floor, setting new evidence at £26 per
sq ft, which is in line with our assumptions on
purchase. Space is coming back at this property
in November, as predicted on purchase, and the
building is going to be fully refurbished in order to
launch a Grade A product in early 2017, which

we believe will be good timing due to a lack of
competing space.

Metro, Trafford Road, Salford Quays,
was acquired in February. The building is
approximately two miles west of Manchester city
centre and close to the BBC’s home at Media
City. The property was acquired for £17.6 million
and is fully let to four tenants producing £1.15
million per annum, reflecting a net initial yield
of 6.2%, rising to 8.3% in April 2017, with an
average lease length of 8.3 years to expiry (5.6
years to break). It is let off a low average rent
of £21.50 per sq ft, including the car parking
spaces.

Continuing our ongoing consolidation strategy
at Angel Gate, London EC1, the long leasehold
interest at Unit 12 was acquired for £1.1 million,
reflecting approximately £350 per sq ft. The unit
comprises a 3,200 sq ft self-contained office
which was approximately 70% occupied.

Also at Angel Gate, we have continued our
rolling refurbishment programme which has
resulted in four lettings adding £466,000 per
annum, 23% ahead of ERV. We have regeared a
lease, securing a minimum five-year term on an
unrefurbished property at £132,000 per annum,
which is 9% ahead of ERV and 62% ahead of the
previous passing rent. We continue to see strong
demand for this scheme and have one vacant
building to let where the refurbishment has just
completed; it is under offer.

In terms of disposals, the sale of non-income
producing land at Westlea in Swindon was
completed during the year, as the final conditions
following planning consent were satisfied,
enabling a 15,000 sq ft foodstore and up to 70
residential units on the site. The 1.6 acre retail
element of the site was sold to Aldi for £1.65
million and the remaining 4.4 acres were sold to
a national housebuilder for £3.12 million.

The sale of College Place, Southampton was
completed for £1.5 million. The sale of this mixed
use property follows the leasing of the ground
floor unit at a rent of £50,000 per annum, 39%
ahead of the preceding ERV. The sale price was
11% ahead of the preceding valuation.

In St. Albans we surrendered an office suite
where the occupier was paying £173,000
per annum (£24.50 per sq ft). The floor is
being refurbished and we have entered into
an Agreement for Lease on half the space at
a rent of £93,000 per annum (£28.50 per sq
ft) and have strong interest in the rest of the
space. During the year we also surrendered an
occupier’s lease with a year to break and re-let
the suite for a term of five years at £44,000 per
annum, 10% ahead of both ERV and the previous
passing rent.

In Fleet, the leasing transaction of 33,000 sq ft
completed to a serviced office occupier, following
refurbishment works undertaken by Picton, at a
stepped rent rising to £400,000 per annum, plus
a top up reflecting occupancy within the building.
Due to the stepped rent incentive, the letting was
42% below ERV, taking the average of the rent
over the first five years of the lease; however, a
minimal rent free period was granted.

At Building 100, Colchester Business Park, we
renewed the lease for a further ten years, subject
to break, at a rent of £200,000 per annum with
three months rent-free. The rent is 19% ahead
of ERV. There are currently three vacant offices
available, one of which came back at the end of
March and the other two are under offer.

Elsewhere we are pleased to confirm the
following properties are now fully let:

• Citylink, Croydon where an occupier took
a seven year lease, subject to break, at
£104,000 per annum (10% ahead of ERV)

• 401 Grafton Gate, Milton Keynes where we
let 6,500 sq ft on a ten year lease, subject to
break, at £114,000 per annum (6% ahead of
ERV)

• Queens House, Glasgow where six suites were
let for a combined £100,000 (18% ahead of
ERV)

At 50 Farringdon Road we are getting two floors
back in the summer, following an occupier break
option. The current passing rent is £0.84 million
per annum and the occupier had a capped
rent review at £1.14 million per annum (£45
per sq ft) and would have received six months
rent free after the break date. The building was
comprehensively refurbished five years ago and
we are seeing strong demand for this mid-town
location adjacent to Farringdon Station. We
expect to let the space quickly for £1.4 million per
annum (£55 per sq ft) with minimal expenditure.

Sector outlook
Our central London portfolio remains almost
fully let, with the only void at Angel Gate, which
is under offer. The floors at Farringdon Road
are coming back this summer, but the building
presents well and we already have interest. The
regional portfolio is seeing growth in occupier
demand, demonstrated by our experience in St.
Albans, translating into rental growth in markets
where good quality space is becoming scarce.
The only other notable voids on the horizon are in
a number of south east offices, but a combination
of reducing supply and the advantages of
attractive higher value uses are likely to create
opportunities rather than be seen as a short term
risk.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Portfolio key metrics

Value

Internal Area

Annual Rental Income

Estimated Rental Value

Occupancy

Number of Assets

Property

Colchester Business Park, The Crescent, Colchester, Essex

Pembroke Court, Chatham, Kent

Longcross Court, Newport Road, Cardiff

Metro, Salford Quays, Manchester

Angel Gate Office Village, City Road, London EC1

401 Grafton Gate East, Milton Keynes, Bucks.

180 West George Street, Glasgow

Queens House, 19/29 St Vincent Place, Glasgow

800 Pavilion Drive, Northampton Business Park, Northampton

Citylink, Addiscombe Road, Croydon

Boundary House, Jewry Street, London EC3

L’Avenir, Opladen Way, Westwick, Bracknell, Berks.

Sentinel House, Ancells Business Park, Fleet, Hants.

50 Farringdon Road, London EC1

Waterside Park, Longshot Lane, Bracknell, Berks.

Waterside House, Kirkstall Road, Leeds

Atlas House, Third Avenue, Globe Park, Marlow, Bucks.

Merchants House, Crook Street, Chester

Trident House, 42/48 Victoria Street, St Albans, Herts.

1–3 Chancery Lane, London WC2

Marshall Building,122–124 Donegall Street, Belfast

Largest occupiers

Cadence Design Systems Limited

Trainline.com Limited

Portal Chatham LLP

Ricoh UK Limited

BPP Holdings Limited

24814.02 20 July 2016 6:54 PM Proof 9

2016

2015

£252.1 million

£173.4 million

999,400 sq ft

799,800 sq ft

£14.8 million

£10.6 million

£19.9 million

£14.2 million

95.8%

Area
(sq ft)

150,700

86,300

72,900

71,000

64,500

57,100

52,000

50,200

49,400

48,200

45,000

41,300

33,600

32,000

30,200

25,200

24,800

22,200

18,900

15,100

8,700

93.1%

Freehold/
Leasehold

% of total
portfolio

2.3

2.0

1.7

1.5

1.2

www.picton.co.ukStock code: PCTNStrategic ReportInvestment
manager’s report

CASE STuDy: RETAIL AND LEISuRE

Regency
wharf
birmingham

Repositioning of this
well located leisure asset

The opportunity we
recognised
After several occupier defaults during the
recession we had two vacant restaurants at this
scheme. In order to attract new occupiers we
rejuvenated the estate and set about creating
a strong social media campaign to attract
customers.

Graffiti Life were hired to create a Regency
Wharf mural / motif by the main entrance, and
also install iconic “ghost-writing” across the
Glassworks building, giving the estate much
needed prominence and fully branded visibility.

In respect of lettings, Karaoke Box signed
up for their first unit outside of London. Their
launch in November 2015 received significant
press coverage both for their state-of-the-art

fit-out and opening night. Karaoke Box took a
new 15 year lease, no break, at £80,000 per
annum with a 12 month rent incentive.

The other vacant restaurant was let to Rub
Smokehouse, who have become a popular
destination on Broad Street. Rub took a new
15 year lease, subject to break, at £70,000 per
annum with a nine month rent incentive. Both
lettings were in line with ERV and the estate is
now fully let with a much improved and more
diverse occupier line-up.

In addition, the central courtyard area, originally
designed as an amphitheatre space, was
returned once again to an entertainment
arena. Picton utilised this area in the summer of
2015 to host an inaugural street food event.

Number of
occupiers

Size

44,300sq ft

IMAGE REQUIRED

Strategy in action

Working with our
occupiers

Growth of net income

Key property details

Increase in value

Annual Rent

year built

EPC Rating

£640,000

2001

C-E

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016www.picton.co.uk
Stock code: PCTN

24814.02 20 July 2016 6:54 PM Proof 9

Strategic ReportInvestment
manager’s report

Retail and leisure portfolio review

At our former industrial holding in Oldham,
which was vacant, we have entered into an
Agreement to Purchase an adjoining plot of
land from the Council for £80,000 to increase
the car parking provision, entered into an
Agreement for Lease with The Gym Limited
and secured planning for a change of use. The
lease completes in the early summer following
works to the unit and The Gym Limited is taking
a 15 year lease at £150,000 per annum. The
rent secured is 52% ahead of the former ERV.

Sector outlook
The portfolio remains very well let and we
expect to maintain these high occupancy levels.
Rents have been rebased across the majority of
the assets and we are beginning to see pockets
of rental growth such as at Gloucester.

Occupancy in the retail and leisure portfolio is 99.4%, a
3.3% increase on last year. We have three small shops
available in Birmingham, Carlisle and Hanley with a
combined ERV of £60,000 per annum.

Three units were let during the year for a
combined income of £227,500 per annum
(after incentives), 2% ahead of ERV.

We have seen negative rental growth of 1%
across the retail and leisure portfolio, reflecting
trading conditions in this sector.

Highlights of the year
We acquired a freehold retail warehouse in
Sheffield for £17.7 million, reflecting a net initial
yield of 6.6%. The property is well located
close to Sheffield city centre, in an established
retail warehouse location and adjacent to
Queens Road Retail Park. It was built in 2002
on a nine acre site, comprising a 103,000 sq
ft retail warehouse with a 40,000 sq ft outdoor
garden centre, builders’ yard and 460 space
car park. The property is leased to B&Q Plc for
a further 11.8 years at an annual rent of £1.24
million, which equates to a low overall rent of
approximately £12 per sq ft and is subject to
review in December 2017.

A non-core high street retail unit in Guildford
was sold for £3.25 million, reflecting a net initial
yield of 4.3%. The unit is leased to L’Oreal (UK)
Limited, trading as Kiehl’s, for a further 4.8
years at an annual passing rent of £148,000.
This price reflects a 9.2% premium to the
preceding valuation and a 30% uplift from the
2010 acquisition price.

At Gloucester Retail Park, acquired in March
2015, we have secured planning under an
Agreement for Lease with Pure Gym who
are, in a back to back transaction, taking the
Carpetright unit on a ten year lease at a rent of
£140,000 per annum, 32% ahead of ERV. The
surrender premium from Carpetright is covering
the works to the unit and the letting sets new
evidence on the park. In a separate transaction,
we await planning for a drive through in the
car park which is under offer to a Starbuck’s
franchisee. Both lettings improve the tenant mix
on the park and will drive footfall.

Following a wider repositioning exercise at
Regency Wharf, Birmingham, two lettings have
completed, achieving 100% occupancy. We
leased the ground floor unit to Karaoke Box at
a rent of £80,000 per annum and the third floor
unit to Rub Smokehouse, at a rent of £70,000
per annum, both of which were in line with the
preceding ERV.

We have partly settled the legal dispute in
respect of the Strathmore Hotel in Luton, but
are still pursuing another interested party,
seeking a final settlement in respect of this
issue within the next financial year.

Pictured:
62/68 Bridge Street, Peterborough, Gloucester Retail Park and 53/55/57 Broadmead, Bristol

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016
Portfolio key metrics

Value

Internal Area

Annual Rental Income

Estimated Rental Value

Occupancy

Number of Assets

Property

Parc Tawe, Phase II, Link Road, Swansea

Gloucester Retail Park, Eastern Avenue, Gloucester

Queens Road, Sheffield

62/68 Bridge Street, Peterborough

Strathmore Hotel, Arndale Centre, Luton, Beds.

Angouleme Way Retail Park, Bury, Greater Manchester

17/19 Fishergate, Preston, Lancs.

Regency Wharf, Broad Street, Birmingham

Scots Corner, High Street/Institute Road, Birmingham

56 Castle Street, 2/12 English Street and 12–21 St Cuthberts Lane, Carlisle, Cumbria

Stanford House, 12–14 Long Acre, London WC2

6/12 Parliament Row, Hanley, Staffs.

Units 1–3, 18/28 Victoria Lane, Huddersfield, West Yorks.

53/55/57 Broadmead, Bristol

72/78 Murraygate, Dundee

7 & 9 Warren Street, Stockport

78–80 Briggate, Leeds

2 Bath Street, Bath

6 Argyle Street, Bath

Largest occupiers

B&Q Plc

Edward Stanford Limited

Asda Stores Limited

GLH Hotels Limited

Homebase Limited

24814.02 20 July 2016 6:54 PM Proof 9

2016

2015

£165.9 million

£149.7 million

830,700 sq ft

732,300 sq ft

£11.2 million

£9.8 million

£10.9 million

£9.9 million

99.4%

Area
(sq ft)

116,700

112,400

103,000

88,700

81,600

76,200

59,900

44,300

30,000

23,900

19,600

17,300

14,600

10,500

9,700

8,700

7,700

4,700

1,200

96.1%

Freehold/
Leasehold

F/L

% of total
portfolio

2.9

1.8

1.4

1.2

1.0

www.picton.co.ukStock code: PCTNStrategic ReportFinancial
review

“Our average annual return
over the last three years
is more than 22%,
providing evidence of the
continued success of our
strategy.”

EPRA best practices
recommendations
The EPRA key performance measures
for the year are set out on page 4 of the
Report, with more detail provided in the
EPRA Disclosures section which starts on
page 97. There are further references to
the Best Practices Recommendations in
the Financial Review under the appropriate
headings, and again more detail is
provided in the EPRA Disclosures section.

2016 was another year of strong financial results for
Picton. The total profit of nearly £65 million pushed net
assets to over £417 million, an increase of over 12%.

Taking into account the increased dividend paid
out this year, our total return was close to 18%.
Our average annual return over the last three
years is more than 22%, providing evidence of
the continued success of our strategy. We have
strengthened the portfolio through a number of
notable acquisitions, investing more than £73
million in new assets, and a further £4 million in
existing assets.

As a result of this investment, we have been
able to grow the income profit by 30% to nearly
£20 million.

Our growth in net assets has produced further
economies of scale, resulting in another fall
in the Ongoing Charges ratio, down 8%
compared to last year, to 1.1%

Andrew Dewhirst
Finance Director, Picton Capital Limited
27 June 2016

Pictured:
Belkin Unit, 3 Shipton Way, Rushden

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 201624814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNStrategic ReportFinancial
review

“We paid four quarterly
dividends of 0.825 pence
per share, totalling
3.3 pence for the year,
an increase of 10%
over 2015.”

Total Revenue

£45.9m

Dividend

3.3p

Property Assets

£646.0m

Net asset value
The net assets of the Group rose over the year
by 12.7%, to £417.1 million, driven by a total
profit for the year of £64.8 million, or earnings
per share of 12 pence. The EPRA net asset
value rose from 69 pence to 77 pence.

The following table reconciles the net
asset value calculated in accordance with
International Financial Reporting Standards
(IFRS) with that of the European Public Real
Estate Association (EPRA).

Net asset value – EPRA and IFRS
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 per
share (pence)

2016
£m

417.1
(21.8)
395.3

2015
£m

370.0
(19.8)
350.2

2014
£m

214.1
17.8
231.9

Income statement
Total revenue from the property portfolio was
£45.9 million, an increase of 15.8% over 2015.
This reflects the additional income generated
from the new assets acquired in the year. Net
property income, after deducting the direct
expenses associated with the portfolio, was
up over 18% to £35.9 million.

The Group is subject to UK tax on its net
property income and management fees, in total
£0.2 million for the year. We are monitoring
the UK government’s BEPS proposals closely,
and the implications for the Group if these are
implemented as currently drafted; however, at
this stage it is too early to provide a definitive
response.

The like-for-like change in rental income
compared to the previous year, on an EPRA
basis, is set out in the EPRA Disclosures on
page 99.

The income profit for the year was £19.9
million, an increase of 30% from 2015. This,
together with the capital gains, resulted in a
total profit for the year of £64.8 million.

Operating expenses increased to £4.4 million,
partly due to the impact of the market testing of
staff salary rates in early 2015, but also some
additional corporate level costs.

Financing costs are broadly in line with previous
years, given the fixed interest rates in place
on the majority of the Group’s borrowings, but
with some extra costs associated with the new
revolving credit facility and the zero dividend
preference shares. The repayment of the ZDPs
is discussed further below.

Capital gains on the portfolio were £45 million
for the year, as detailed further under the
Investment Properties section.

Dividends
We paid four quarterly dividends of 0.825
pence per share, totalling 3.3 pence for the
year, an increase of 10% over 2015. As a result
of the increase, dividend cover has fallen back
to 112% for the year, but we consider this to
be an appropriate level, given that a full year’s
impact of the new acquisitions has yet to come
through in the results. The Board will continue
to monitor the level of dividends.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Capital structure
Our equity balance remained unchanged over
the year, as, along with the real estate sector
generally, our share price moved to a discount
to net asset value.

The Group’s net gearing ratio, using the
method prescribed by the AIC, increased
to 59.2%, from 48.9% a year ago. Further
details are provided in the Supplementary
Disclosures section.

Cash flow and liquidity
Our cash balances fell to £22.8 million at the
year end, which represents a more normal
position compared to 2015. Operating activities
generated £24.0 million for the year, an increase
from £15.6 million last year.

Investment properties
The fair value of our investment property
portfolio increased to £646.0 million at 31
March 2016, up from £532.9 million in March
2015. Included within this uplift are acquisitions
of £73.1 million, which are detailed in the
Investment Manager’s Report, and capital
expenditure across the existing portfolio of £4.4
million, enhancing the quality of the assets and
space available. Three small non-core assets
were disposed of, for proceeds of £9.4 million,
realising £0.8 million when compared to the
2015 valuation. The overall revaluation gain was
£44.2 million, representing a 9.2% like-for-like
increase in the valuation of the portfolio. At 31
March 2016 the portfolio comprised 58 assets,
with an average lot size of £11.3 million.

A further analysis of capital expenditure,
in accordance with EPRA Best Practice
Recommendations, is set out in the EPRA
Disclosures section on page 99.

Borrowings
Total borrowings increased to £249.5 million at
31 March 2016, largely due to the drawdown
under the revolving credit facility to help fund
the acquisition of the Salford Quays asset.
Our senior loan facilities with Canada Life and
Aviva remained in place, reduced only by the
amortisation of the Aviva facility (£1.0 million in
the year). The Group remained fully compliant
with the loan covenants throughout the year.

A summary of our borrowings is set out below:

Our 22 million zero dividend preference shares
continued to roll up additional capital at an
annual rate of 7.25%, £1.9 million over the year.
These shares mature this year in October 2016,
and it is our intention to repay them in full. With
current market interest rates considerably lower
than the effective ZDP rate, we expect to make
a significant saving on finance costs in the
future, if the current level of borrowing
is maintained.

In February 2016 we made our first drawdown
under the Santander revolving credit facility, for
£15.8 million. This facility is set at a floating rate
of interest, 175 basis points above three month
LIBOR. There remains a further £10.2 million
undrawn under this facility.

We have now recently agreed a new five year
revolving credit facility with Santander for £27
million, on broadly the same terms as the
existing facility. In addition to potentially utilising
this for the ZDP repayment, it also provides
us additional financing for the future at a time
when capital raising may be more constrained.

The Group’s loan to value ratio increased to
34.6% at 31 March 2016, as was expected,
compared to 2015, when the Group held higher
cash balances following the equity raising in
the year.

The fair value of our borrowings at 31 March
2016 was £271.3 million, higher than the book
amount, due to the current very low gilt rates
and lower margins in the lending market.

Total borrowings (£m)
Borrowings net of cash (£m)
Undrawn facilities (£m)
Loan to value ratio (%)
Weighted average interest rate (%)
Average duration (years)

2016

249.5
226.8
10.2
34.6
4.4
10.7

2015

232.8
162.8
26.0
30.1
4.6
12.4

2014

234.0
201.7
–
47.7
4.5
13.4

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNStrategic ReportManaging risk

The Board recognises
that there are risks and
uncertainties that could
have a material impact
on our 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. Due to some overlap in responsibilities,
the Board has merged the Risk and Audit
Committees so that all risks, whether
investment or operational, will be considered by
a single committee. 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.

The 2014 UK Corporate Governance Code
requires the Board to make a ‘viability
statement’ which considers the Company’s
current position and principal risks and
uncertainties combined with an assessment of
the future prospects for the Company, in order
that the Board can state that the Company
will be able to continue its operations over the
period of their assessment. This statement is
set out in the Directors’ Report.

Risk trend key

Increase in risk

Decrease in risk

No change in risk

Risk and Impact

Mitigation

Risk Trend

Corporate Strategy and Performance

Macroeconomic conditions and
future political events (whilst
uncertain in outcome) bring risks
to the property market generally
and to the businesses of our
occupiers.

The level of uncertainty in financial
markets has been heightened in
recent months due to a number of
global and national issues.

The property market is cyclical
and returns can be volatile. Failure
to react appropriately to changing
market conditions could have a
significant impact on our results.

Despite a strong occupier market,
capital growth has slowed and is
forecast to moderate further.

Returns can vary significantly
between different geographical
areas and sectors. Our properties
could underperform as a result of
a poor portfolio strategy.

The Board considers economic conditions
and the uncertainty regarding political
events when setting strategy and in making
investment decisions.

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.

We maintain a diversified portfolio in
order to minimise exposure to any one
geographical area or market sector.

Investment and Property Management

Decisions to buy or sell assets
based on incorrect assumptions,
poor research or incomplete due
diligence could result in lower
investment returns.

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.

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.

All asset management and investment
decisions are subject to a formal internal
review process with clear authority limits.

Our 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.

Operational

A failure to attract and retain
employees of a suitable calibre to
manage our affairs could lead to
poor shareholder returns.

We have a remuneration policy in place
which incentivises performance and
is aligned to our results. The Board
commissions independent reviews of
market remuneration to ensure salary levels
are competitive.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Risk and Impact

Operational

We 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.

Financial

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.

The Directors consider that
current uncertainty around
economic conditions following
the Eu referendum vote has
heightened this risk.

A fall in our investment property
values could lead to a breach of
our loan covenants, and leave the
Group without sufficient long-term
funding.

An increase in interest rates could
lead to a fall in our earnings.

Mitigation

Risk Trend

We employ 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.

We maintain detailed forecasts of our
property portfolio, which are subject to
regular scenario testing. In this way we 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.

We have entered into long-term fixed
interest rate loans on the majority of our
facilities and hence have reasonable
certainty over interest cost for the
foreseeable future.

We operate a geared capital
structure, which will magnify
returns from the property portfolio,
both positively and negatively. An
inappropriate level of gearing for
the property cycle could lead to
lower investment returns.

We have 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. Our current strategy is to
reduce the level of gearing as the property
cycle progresses.

Fluctuations in cash flows from
operating activities can have
a detrimental impact on debt
servicing, asset management
initiatives and shareholder returns.

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.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNStrategic ReportBeing
responsible

The Board is responsible
for setting the values and
standards of the Group,
including leadership on
environmental and social
issues.

Why this is important to us

We have in place 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.

One of our key priorities is to work with our occupiers, so that we can understand their needs
and aim to meet their current and future requirements. We will use our expertise in asset
management to provide modern flexible space that is safe, clean and energy efficient. We
believe that it is important for all of the stakeholders in the business that we put sustainability
at the forefront in all of our activities. In this way we can constantly strive to reduce the
environmental burdens from our business.

Diversity

Board

Our people
fairness and equality
We value the contributions made by all of our
employees and believe that a diverse workforce
is key to maximising business effectiveness. We
aim to select, recruit, develop and promote
the very best people and are committed to
creating a workplace where everyone is treated
with dignity and respect, and where individual
difference is valued.

This is accomplished by:

Men 5

Women 0

• Ensuring equal opportunities in the

Investment
management
team

Men 8

Women 3

Total

Men 13

Women 3

recruitment process

• Paying 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, age, ethnic
or national origin, or any other protected
characteristic.

Employee alignment
Unlike traditional investment companies
we have a dedicated internal investment
management team whose entire focus is
on creating long term value for our
shareholders. Our employees are fully aligned
through our remuneration policy, ensuring
that outperformance is suitably recognised
in bonus awards.

Diversity
We recognise the benefits of diversity and
the value this brings to the Group. We aim to
maintain the right blend of skills, experience
and knowledge in the Board and investment
management team.

24814.02 20 July 2016 6:54 PM Proof 9

Performance and development
We aim to provide a business environment
that inspires our employees 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;

employees should always be actively seeking
to improve 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 well-being
Health and well-being is critical to the business,
both within the property portfolio and also
within the office environment.

Our 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
whistleblowing policy

• Having appropriate family friendly policies.

Picton Property Income LimitedAnnual Report 2016Picton art prize

Celebrating outstanding public art, giving students and
graduates valuable opportunities, offering artists support
to produce new work.

The Picton Art Prize is a new public art platform
that gives an early career artist the opportunity
to create an original work for installation.

We invited students and recent graduates
of University of the Arts, London to submit
proposals for this new sculptural commission.

The Picton Art Prize is an exciting new
collaboration between Picton and University
of the Arts, London, a collaboration that
highlights both the importance of support for
emerging artists and the impact their work can
have when it finds its home in the heart of a
community.

The winner was Alex J. Wood, whose sculpture
“Celestial” is now in place at Angel Gate Office
Village.

Solar feasibility study

Last year we carried out a solar photovoltaic feasibility
study across the portfolio to determine potential sites
suited to solar installations.

The aim was to reduce the reliance on
electricity from non-renewable sources at the
site and reduce tenant occupancy costs by
providing lower energy prices.

We selected 401 Grafton Gate in Milton Keynes
as the first site, and we have installed a 50kWp
solar panel array at this multi-let office building.
This is reducing our carbon footprint and has
been successful in providing cheaper electricity
to the occupiers.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNStrategic ReportBeing
responsible

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 our activities.

Assessment of the environmental performance
of our portfolio is ongoing. In order to
continue to improve, we work closely with our
property managers and occupiers to develop
cost-effective measures to increase energy
efficiency. We also use our consultants at
CBRE to engage with property managers and
create sustainability improvements at each
asset where we have control.

Sustainability initiatives have been incorporated
into all maintenance schedules including
replacing conventional light bulbs with LEDs
in common areas, installing motion sensitive
lighting, optimising plant equipment and
building management systems to reduce
energy consumption.

We have installed a 50kWp solar panel array
at one of our multi-let office buildings, 401
Grafton Gate in Milton Keynes. This is reducing
our carbon footprint and providing cheaper
electricity from a renewable source to the
occupiers of the building.

We have carried out a number of in-depth
energy audits at selected assets, identified
as significant energy consuming sites. The
focus of these audits has been to determine
the most efficient means of reducing energy
consumption while delivering value to the
occupiers. The recommendations made by
the audits are being assessed with a view to
implementation over the next year.

Additionally, we have launched a project to
appraise the risk of each property under the
Minimum Energy Performance standards that
will come into force from September 2018.
Corrective measures will be identified for any
assets with an F or G rating and these will be
integrated into the asset business plans in
order to achieve the appropriate higher ratings.

Our absolute carbon emissions have increased
this year, due partly to the acquisition of a
number of assets, including multi-let offices
which are relatively energy intensive, but also
fluctuations in occupancy. This year we are
aiming to reduce both absolute and like-for-
like emissions through the identification and
implementation of further energy efficiency
measures across the portfolio.

In the workplace it is our policy to:

• Constantly strive to reduce the amount

of paper used

• Encourage employees 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

reporting against epra sustainability best practice
This is the third year that we have reported our overall energy, greenhouse gas, water and
waste usage by sector. In the EPRA Disclosures section 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.

The following measures are set out in the EPRA Disclosures section towards the end of the
Report:

Issue Type
Energy

Greenhouse gas emissions

Water

Waste

Business travel

Sustainability Performance Measure
Total electricity consumption
Like-for-like total electricity consumption
Total fuel consumption
Like-for-like total fuel consumption
Building energy intensity
Total direct GHG emissions
Total indirect GHG emissions
Like-for-like total direct GHG emissions
Like-for-like total indirect GHG emissions
GHG intensity from building energy
Total water consumption
Like-for-like total water consumption
Building water intensity
Total weight of waste by disposal route
Like-for-like total weight of waste by disposal route
Total business travel emissions

There is no district heating or cooling consumption within the portfolio and so there is nothing
to report against these sustainability measures.

One asset within the portfolio, Angel Gate Office Village, has a sustainability certification (ISO
14001), while our latest acquisition, Metro in Salford Quays, has a BREEAM ‘Excellent’ rating,
giving an overall level of certification of 3.4% across the portfolio.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016www.picton.co.uk
Stock code: PCTN

Greenhouse gas emissions
We have measured our greenhouse gas (GHG) footprint for the third time for this year’s Annual
Report, building on the recommendations from last year. This year’s data has again been compiled
for the calendar year to 31 December 2015. Our GHG emissions for the year totalled 5,346 tCO2e,
compared to 4,963 last year, an increase of 8%. The table below shows this separated by scope,
as provisioned in the GHG Protocol. Our 2015 footprint compared to the 2013 baseline year
shows a small increase of 5% (2014: fall of 2%). Our GHG inventory has been compiled using an
Operational Control approach.

CO2 (metric tonnes)

2015 5,346
2014 4,711
2013 5,070

Emission source

Combustion of fuel and
operation of facilities
Electricity, heat, steam and
cooling purchased for own use
Business travel
Total

GHG
Scope

2
3

2015
Absolute
GHG
emissions
(tCO2e)

GHG
Intensity
(tCO2e/m²)

2014

Absolute
GHG
emissions
(tCO2e)

GHG
Intensity
(tCO2e/m²)

994

0.005

951

0.005

4,342
10
5,346

0.022
N/A
0.028

4,005
8
4,963

0.021
N/A
0.026

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.

Charity and local communities
We continue 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 £9 million for over 1,300
diverse local, national and international projects.

For the year ended 31 March 2016 the Group made charitable donations totalling over £7,000.

In July 2015 seven members of the Picton team cycled 235 miles from Waterloo Station in London
to Waterloo in Belgium, to mark the tenth anniversary of the launch of Picton, which coincided with
the 200th anniversary of the battle where General Sir Thomas Picton fought under Wellington. The
ride successfully raised £20,000 for three charities – War Child, LandAid and The Funding Network.

Our employees are encouraged to play a positive role in community activities and individual
charitable fundraising is supported through the process of ‘matched giving’.

24814.02 20 July 2016 6:54 PM Proof 9

Strategic ReportGovernance

Chairman’s Introduction

Board of Directors

Investment Management Team

Corporate Governance Report

Nominations Committee Report

Audit and Risk Committee Report

Property Valuation Committee Report

Remuneration Report

Directors’ Report

24814.02 20 July 2016 6:54 PM Proof 9

Chairman’s
introduction

www.picton.co.uk
Stock code: PCTN

“As a Board we recognise
the importance of good
corporate governance
and aim to be open and
transparent in our dealings
with shareholders.”

The Board is committed to maintaining a high standard
of corporate governance and transparency throughout
the business.

Read more about our Nominations
Committee on page 60

Read more about our Audit and
Risk Committee on pages 61 to 63

I would like to thank shareholders for their
support in passing all of the resolutions
presented at last year’s Annual General
Meeting. This year, along with the usual annual
resolutions, we will be seeking approval for
changes to the Company’s Articles to bring
them into line with the requirements
of Guernsey company law.

Finally I would again like to express my
thanks to Trevor Ash, who stepped down
on 1 October 2015, for his invaluable
contribution to the Board since the launch
of the Company in 2005.

Nicholas Thompson
Chairman
27 June 2016

As a member of the Association of Investment
Companies, we comply with the AIC Code,
which ensures the Group meets its obligations
under the UK Corporate Governance Code.

In 2014 we set up a separate Risk Committee,
to help us address the additional responsibilities
arising from the Alternative Investment Fund
Managers Directive, including developing a
Risk Management Policy across the Group. We
recognised that there would be some overlap
in responsibilities with the Audit Committee
and subsequently have concluded that the
two committees should be merged, which was
effective from February 2016.

This year we have established a separate
Nominations Committee, which has already met
twice. It has considered a number of matters,
including succession planning, and also the
proposed appointment of Michael Morris to
the Board.

As a Board we recognise the importance of
good corporate governance and aim to be
open and transparent in our dealings with
shareholders. We encourage involvement with
industry bodies, and a number of the Directors
actively participate with the AIC in both
Guernsey and the UK.

Pictured:
Pembroke Court, Chatham

24814.02 20 July 2016 6:54 PM Proof 9

Governance
Board of
directors

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 20164. Vic holmes
Chairman of the remuneration
committee
Age 59, 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,
DBAG, GAM, Atlantis and Roundshield. He is
also Chairman of Generali Worldwide Insurance
Company Limited, a director of Next Energy
Solar Fund Limited and Chairman designate of
Highbridge Multi-Strategy Fund Limited (both
London listed companies), and was Chairman
of the Guernsey Investment Funds Association
from April 2013 until April 2015. He is a Fellow
of the Association of Chartered Certified
Accountants.

5. Michael morris
Michael, age 44, has over 22 years’ experience
in the UK commercial property sector,
working initially in private practice, becoming
a Senior Director and Fund Manager at ING
Real Estate Investment Management (UK)
Limited. Michael was appointed to the Board
on 1 October 2015. He has worked with
the Group since it launched in 2005 and is
currently Chief Executive of Picton Capital
Limited. Within this role he is responsible
for the Group’s Investment Management
operation, overseeing the implementation
of all aspects of the Company’s investment
strategy. He is a member of the Investment
Property Forum and sits on both the Property
and Infrastructure Forum 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.

1. Nicholas thompson
Chairman
Age 67, 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 MSCI
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.

2. Robert sinclair
Chairman of the audit and risk
committee
Age 66, 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 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.

3. Roger lewis
Chairman of the property
valuation committee
Age 69, 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 were 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.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceInvestment
management team

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016The investment management team comprises 12 permanent employees, and includes six
real estate professionals, three qualified accountants and three further support employees.

8. Sonya kapur
Sonya Kapur joined Picton Capital Limited in
January 2012. Previously she worked at BNP
Paribas Real Estate as an investment analyst.
She is responsible for all aspects of analysis
and research within the Company. Sonya has
the IPF Diploma in Property Investment.

9. James forman
James is the Financial Controller at Picton
Capital Limited. In this role, he is responsible
for all the accounting and financial reporting
for the Group. He has worked with the Group
since 2005 and has 16 years’ experience in
the real estate sector. James is a Fellow of the
Association of Chartered Certified Accountants.

10. Adam green
Adam Green joined Picton Capital Limited
in January 2012 from Invista Real Estate
Investment Management as Accounts
Assistant. Adam is a member of the
Association of Chartered Certified Accountants.

11. Clare bunning
Clare Bunning is responsible for the day-to-
day management of the office and oversees
all aspects of administration support within
the Company. She has worked with the Group
since May 2007, and is currently on maternity
leave.

12. Sarah barnes
Sarah Barnes joined Picton Capital Limited in
June 2014 and provides administration support
to the team.

1. Michael morris
Chief executive
Michael, age 44, 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.
He is also a non-executive director of Picton
Property Income Limited.

2. Andrew dewhirst
Finance director
Andrew, age 56, 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.

3. Jay cable
Director
Jay, age 38, 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 16 years of
real estate experience and is a member of the
Royal Institution of Chartered Surveyors and of
the Investment Property Forum.

4. Fraser d’arcy
Investment director
Fraser, age 40, 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 16 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.

5. Laurence jones
Laurence Jones is a Senior Asset Manager at
Picton Capital Limited, and a member of the
Royal Institution of Chartered Surveyors and
has obtained the Investment Management
Certificate. In this role, he is responsible for
delivering all the asset management initiatives
required to fulfil the portfolio’s strategy. He has
12 years of real estate experience and has
worked on the Group’s portfolio since
July 2007.

6. Tim hamlin
Tim Hamlin is a Senior Asset Manager at
Picton Capital Limited and a member of the
Royal Institution of Chartered Surveyors and
has obtained the Investment Management
Certificate. He is responsible for the formulation
and implementation of asset level business
plans in line with the overall portfolio strategy.
He has nine years of real estate experience and
eight years working with the Group’s portfolio.

7. Matthew barker
Matthew Barker joined Picton Capital Limited
as an Asset Manager in August 2014 from
JLL. He is a member of the Royal Institution
of Chartered Surveyors and is responsible
for assisting with the asset management and
performance of the property portfolio in order to
deliver superior returns.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceCorporate
governance report

As a member of the
Association of Investment
Companies (“AIC”), the
Company has been reporting
against the principles and
recommendations of the
AIC Code of Corporate
Governance (the “AIC Code”)
and the accompanying AIC
Corporate Governance Guide
for Investment Companies
(the “AIC Guide”). In these
financial statements, the
Company is reporting against
the February 2015 AIC
Code and AIC Guide which
take into account updates
made to the UK Corporate
Governance Code in
September 2014.

The Board has considered the principles and
recommendations of the AIC Code by reference
to the 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.

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
composed of non-executive Directors, all of
whom have wide experience and, with the
exception of Michael Morris, who is the Chief
Executive of the Group’s Investment Manager,
are considered to be independent. Although
two members of the Board have now served
for more than a term of nine years, they are
considered to be independent in character
and judgement.

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
reappointment. 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 has not set a finite tenure policy.
However, the Board has determined that any
Director who has served for more than nine
years will offer themselves for reappointment
on an annual basis. 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.

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
independent 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 four Committees:
Audit and Risk, Remuneration, Property
Valuation and Nominations. The Audit and
Risk Committees were merged with effect
from February 2016. The terms of reference
for these Committees are available on the
Company’s website. Given Michael Morris’s
position as Chief Executive of the Company’s
Investment Manager, the Board has agreed
that he will not serve on any of the Board
Committees.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Attendance at board and committee meetings

Nicholas Thompson
Robert Sinclair
Trevor Ash (to 1 October 2015)
Roger Lewis
Vic Holmes
Michael Morris (from 1 October 2015)

Board
(5 meetings)
5
3
3
5
5
2

Audit
(3 meetings)
3
3
2
3
3
–

Remuneration
(2 meetings)
2
2
–
1
2
–

Property
Valuation
(4 meetings)
2
3
1
4
3
–

Risk
(4 meetings)
2
2
1
2
2
–

Nominations
(2 meetings)
2
1
1
2
2
–

The above meetings were the scheduled Board and Committee meetings. Additional meetings were held to deal with other matters as required and
are not included above.

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 is available to meet investors
if requested. The outcome of these meetings
is communicated to the rest of the Board.

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 and internally by the Directors for
intervening years. The latest external evaluation
was performed in August 2014, by Trust
Associates, who have carried out previous
external evaluations. An internal evaluation
was carried out in February 2016, using
questionnaires prepared by the Company’s
Administrator. The evaluation addressed all
aspects of the running of the Board.

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 ongoing 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. Following the change to
internalised management, and 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. 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 and Risk Committee. The Audit and
Risk 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.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceNominations
committee report

The Nominations Committee
is chaired by Nicholas
Thompson. The other
members of the Committee
are Vic Holmes, Robert
Sinclair and Roger Lewis.

Terms of reference
The Committee’s terms of reference include
consideration of the following issues:

• Review and make recommendations

regarding the size and composition of the
Board;

• Consider and make recommendations

regarding succession planning for the Board
and senior management;

• Identify and nominate candidates to fill Board

vacancies as they arise;

• Review the results of the Board evaluation

relating to composition;

• Review the time requirements for Directors;

and

• Recommend the membership of Board

Committees.

Activity
The Committee met twice during the year
ended 31 March 2016 and considered the
following matters:

• Considered the appointment of Michael

Morris to the Board to fill the vacancy left
by the retirement of Trevor Ash;

• Succession planning; and

• Composition of the subsidiary company

boards.

Succession planning
During the year the Committee considered
succession planning, which was part of the
Board evaluation process. The Board has
not set a finite tenure policy, as it does not
believe that the length of time each Director
serves should be limited, however it has
determined that all Directors who have served
more than nine years will offer themselves for
re-appointment annually. Trevor Ash retired
from the Board on 1 October 2015, and
the Committee recommended to the Board
that Michael Morris, who had extensive
experience of the Group since its launch
in 2005, be appointed in his place. As part
of this process the Committee assessed
the skills and knowledge appropriate to the
role and considered that Michael met the
required criteria. The Committee has also
considered the timings of retirement of other
long serving directors in order to ensure an
orderly succession, and is satisfied that suitable
arrangements are in place to secure continuity.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Audit and risk
committee report

The Audit and Risk
Committee is chaired by
Robert Sinclair. The other
members of the Committee
are Nicholas Thompson,
Roger Lewis and Vic Holmes.
Meetings of the Audit and
Risk Committee are attended
by the Finance Director of
Picton Capital Limited and
other members of the finance
team, and the external
auditor. The external auditor
is given the opportunity to
discuss matters without
management presence. The
separate Audit and Risk
Committees were combined
with effect from February
2016, with the first meeting
of the merged Committee
taking place in May 2016.
The terms of reference set
out below are those of the
merged Committee.

Terms of reference
The Committee’s terms of reference include
consideration of the following issues:

• Financial reporting, including significant
accounting judgements and accounting
policies;

• Adoption of the Group’s Risk Management

Policy;

Activity
The Audit Committee met three times
during the year ended 31 March 2016 and
considered the following matters:

• External audit strategy and plan;

• Audit and accounting issues of significance;

• The Annual and Interim Reports of the

• Monitoring and evaluating the risks relating to

Group;

the Group;

• Reports from the external auditor;

• Evaluation of the Group’s risk profile and risk
appetite, and whether these are aligned with
its investment objectives;

• The effectiveness of the audit process and

the independence of KPMG Channel Islands
Limited;

• Internal controls and risk management

systems;

• Ensuring that key risks are being effectively

measured, managed and mitigated;

• The Group’s relationship with the external

auditor, including effectiveness and
independence;

• Internal audit and the programme of controls

testing; and

• Reporting responsibilities.

• Review of business risks and internal

controls and risk review; and

• Stock Exchange announcements.

The Risk Committee met twice during the
year ended 31 March 2016 and considered
the following matters:

• The Risk Management Policy for the Group;

• Oversight responsibility and interaction with

the Audit Committee; and

• The Risk Matrix and mitigating controls.

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www.picton.co.ukStock code: PCTNGovernanceAudit and risk
committee report

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 2016 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 and Risk Committee at its meeting
in May 2016 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 and Risk 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 Committee considered the valuation
and agreed that this was appropriate for the
financial statements. The Committee was
satisfied that the 2016 Annual Report is fair,
balanced and understandable and included the
necessary information as set out above, and it
has confirmed this to the Board.

Risk management policy
The Committee has considered and adopted a
Risk Management Policy for the Group.

The purpose of the Risk Management Policy
is to strengthen the proper management of
risks through proactive risk identification, risk
management, and risk acceptance pertaining
to all activities undertaken by the Group. The
Risk Management Policy is intended to:

• Ensure that major risks are reported to the

Board for review and acceptance;

• Result in the management of those risks

that may significantly affect the pursuit of the
stated strategic goals and objectives;

• Embed a culture of evaluation and identifying
risks at multiple levels within the Group; and

• Meet legal and regulatory requirements.

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 and Risk Committee meeting. Also
the 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 Committee
has received and reviewed a copy of CBRE
Limited’s Real Estate Accounting Services
– Service Organisation Control Report as at
31 December 2015, 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.

Independence of auditor
It is the policy of the Group that non-audit work
will not be awarded to the external auditor
if there is a risk their independence may be
conflicted. The Committee monitors the level
of fees incurred for non-audit services to
ensure that this is not material, and obtains
confirmation, where appropriate, that separate
personnel are involved in any non-audit services
provided to the Group. The Committee must
approve in advance all non-audit assignments
to be carried out by the external auditor.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016In 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
auditor to the Group since the year ended 31
December 2009 following a tender process
in July 2009. The audit engagement partner,
Neale Jehan, has served four years in this
position.

The Committee recommends that KPMG
Channel Islands Limited are recommended
for reappointment at the next Annual General
Meeting.

Robert Sinclair
Chairman of the Audit and Risk Committee
27 June 2016

The fees payable to the Group’s auditor and its
member firms are as follows:

year ended
31 March
2016
£000
104
19
19
142

Year ended
31 March
2015
£000
119
19
25
163

Audit fees
Interim review fees
Non-audit fees

The non-audit fees include £15,000 for
additional controls testing, carried out by
KPMG Channel Islands Limited, and £4,000
in respect of the Picton Capital Limited FCA
CASS review, 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.

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.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceProperty valuation
committee report

The Property Valuation
Committee is chaired by
Roger Lewis. The other
members of the Committee
are Nicholas Thompson,
Robert Sinclair and
Vic Holmes.

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;

Activity
The Committee met four times during the
year ended 31 March 2016. 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

• Significant issues that should be raised with

quarters;

the Investment Manager;

• Material and unexplained movements in the

Company’s net asset value;

• Yields on properties within the portfolio;

• Letting activity and vacant properties;

• Compliance with applicable standards and

• Covenant strength and lease lengths;

guidelines;

• Reviewing findings or recommendations of

the valuers; and

• The appointment, remuneration and

removal of the Company’s valuers, making
such recommendations to the Board as
appropriate.

• Estimated rental values; and

• 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 carries 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.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016The Directors
Picton Property Income Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL

27 June 2016

Dear Sirs

Picton property portfolio — valuation as at 31 March 2016
In accordance with the terms of our appointment as External Valuers to Picton Property Income Limited, we have valued the freehold
and leasehold properties in which the Fund has an interest as at 31 March 2016, for accounting purposes. Our valuations have been
prepared on the basis of ‘Fair Value’ in accordance with the RICS Valuation – Professional Standards, January 2014. We confirm that
the “Fair Value” reported above, for the purpose of financial reporting under International Financial Reporting Standards (IFRS) and UK
Generally Accepted Accounting Practice (UK GAAP), is effectively the same as “Market Value”.

On the basis, assumptions, terms and conditions as set out within our Valuation Report dated 31 March 2016, we are of the
opinion that the aggregate values of the properties we value in the Picton investment property portfolio, as at 31 March 2016, are
£654,605,000 (SIX HUNDRED FIFTY FOUR MILLION SIX HUNDRED AND FIVE THOUSAND POUNDS), exclusive of VAT.

Our opinion of Market Value was derived using comparable recent market transactions on arm’s length terms.

The total fees, including the fee for this assignment, earned by CBRE Ltd (or other companies forming part of the same group of
companies within the UK) from the Addressee (or other companies forming part of the same group of companies) is less than 5.0% of
the total UK revenues.

This letter is for the use only of the party to whom it is addressed for the specific purpose set out herein and no responsibility is
accepted to any third party for the whole or any part of its contents.

Yours faithfully

Nick Knight MRICS
Executive Director
RICS Registered Valuer
For and on behalf of CBRE Limited

www.cbre.co.uk
Registered in England No 3536032 Registered Office St Martin’s Court 10 Paternoster Row London EC4M 6HP
CBRE Limited is regulated by the RICS and is an appointed representative of CBRE Indirect Investments Service Limited
which is authorised and regulated by the Financial Conduct Authority.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceRemuneration
report

The Remuneration
Committee is chaired by
Vic Holmes. The other
members of the Committee
are Nicholas Thompson,
Roger Lewis and
Robert Sinclair.

Terms of reference
The Committee will consider the following
matters:

• Appointment of, and setting the terms of

reference for, any remuneration consultants;

• Setting and reviewing remuneration levels
for the Directors, within the limit set by the
Company’s Articles of Association;

• Recommending remuneration policies to the
Board for Directors and senior management
of Picton Capital Limited; and

• Reviewing remuneration trends across the

sector.

Activity
The Committee met twice during the year
ended 31 March 2016 and considered the
following matters:

• Annual remuneration review and Long Term
Incentive Plan awards for Picton Capital
Limited employees;

• Benchmark market levels of salary and
benefits applicable to Picton Capital
employees;

• The impact of changes in UK pensions

legislation to the Group; and

• Consideration of a new target based long

term bonus scheme.

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 who possess 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 performance through
enhanced shareholder value.

Directors receive an annual fee as set out on
page 67. The independent Directors will not
receive share options or other performance
related elements.

The Committee has determined the
remuneration policy for the management
and staff of Picton Capital Limited following
independent advice from external advisers.

Terms of employment
The terms of appointment of the independent
Directors are documented in letters of
appointment. They have a six month notice
period and their appointment would terminate
without compensation if not re-elected at the
Annual General Meeting. The independent
Directors have no service contracts or interests
in any material contracts with the Group.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Picton capital Limited
remuneration
The Group’s Investment Manager employed
13 staff, including maternity cover, as at
31 March 2016 (2015: 12 staff).

During the year the Committee considered
the impact of changes in UK pensions
legislation and determined that the Directors of
Picton Capital Limited would receive a salary
supplement rather than any company pension
contributions. The level of salary supplement
was set such that there was no additional cost
to the Group.

The Committee has reviewed the variable
element of Picton Capital Limited remuneration
and have proposed that a new target
based long term bonus scheme should
be implemented during 2016, to bring the
Company’s remuneration into line with similar
internally managed companies. It is envisaged
that such a scheme will be based upon a small
number of long term performance metrics
measured over a three year timescale. Awards
will be made annually and granted in shares,
subject to minimum threshold performance
conditions being achieved.

Directors’ fees
All of the Directors of the Company are
non-executive. The fees of the independent
Directors are recommended by the Board.
Michael Morris does not receive a fee as a
Director of the Company but is remunerated
in his capacity as Chief Executive of Picton
Capital Limited. The level of Directors’ fees was
independently reviewed in September 2014
by Deloitte LLP against a benchmark group
of similar companies. The new rates became
effective on 1 January 2015, and will next be
reviewed after three years.

Chairman
Chairman of the Audit and Risk
Committee
Chairman of the Property
Valuation Committee
Chairman of the Remuneration
Committee
Director

Annual rate
£
82,500

43,000

40,000

36,000
241,500

The total fees earned by each Director for the
year ended 31 March 2016 were as follows:

Nicholas Thompson
Robert Sinclair
Trevor Ash
Roger Lewis
Vic Holmes
Michael Morris

31 March
2016
£
82,500
43,000
18,000
40,000
40,000
–
223,500

31 March
2015
£
67,875
39,250
33,750
36,250
34,750
–
211,875

No additional fees were earned above the
annual expected time commitment for the year
ended 31 March 2016. The Company’s Articles
set an annual limit of £300,000 for Directors’
remuneration.

The policy and components of current
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 10% 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. From 1 April 2016 the Directors
of Picton Capital Limited receive a salary
supplement of 15% of base salary in lieu of
company pension contributions

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 Deferred Bonus
Scheme (previously called the Long Term
Incentive Plan).

Deferred bonus scheme
A share-based deferred bonus scheme has
been established that aligns remuneration
with that of shareholders. Any award under
the scheme 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.

The above components do not include the
proposed new long term bonus plan, which
will be an additional element in future years.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceThe directors of Picton Capital Limited (Michael
Morris and senior management, as above)
also hold units in the Deferred Bonus Scheme.
At 31 March 2016 the number of units that
had been awarded to Picton Capital Limited
Directors and yet to vest was 1,583,685 (2015:
1,457,640).

Vic Holmes
Chairman of the Remuneration Committee
27 June 2016

Remuneration
report

In considering the salary and bonus review for
2016, the Committee received an independent
benchmarking review, which considered market
salaries and benefits for each member of the
Picton Capital team. The Committee also
considered the key performance indicators
for the year in relation to individual and team
objectives set at the start of the year. In
conclusion, the Committee determined that
there would be an average increase of 6.0% in
base salaries from 1 April 2016 (2015: 12.7%)
and an overall bonus pool of 94% of base
salaries (2015: 99%).

For the year ended 31 March 2016, the
Committee agreed that bonuses awarded
to Picton Capital staff would total £458,000
payable on 31 March 2016 (2015: £379,000)
and £519,000 in Deferred Bonus Scheme
awards (2015: £516,000). The Deferred Bonus
Scheme awards were made at the prevailing
share price, and equate to 744,000 units, of
which 372,000 units vest on 31 March 2018
and 372,000 units vest on 31 March 2019. 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 2016 was £971,000 (2015: £635,000).
A summary of the awards made to Picton
Capital Limited staff is set out in Note 7 to the
financial statements.

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 Limited
staff, alignment is also achieved through
awards under the Deferred Bonus Scheme.

The numbers of shares beneficially held
by each Director and senior management
(including spouses), as at 31 March 2016,
were as follows:

Directors
Nicholas Thompson *
Robert Sinclair
Roger Lewis
Vic Holmes
Michael Morris†

Senior
management
Andrew Dewhirst
Jay Cable
Fraser D’Arcy**

31 March
2016
200,000
15,000
530,000
27,214
53,596

31 March
2015
184,836
15,000
530,000
–
53,596

31 March
2016
20,000
9,505
8,687

31 March
2015
15,000
9,505
–

* Includes 81,634 shares held by Mrs Elizabeth
Thompson

† Includes 28,596 shares held by Mrs Joanne Morris

** Held by Mrs Rebecca D’Arcy

Mrs Elizabeth Thompson additionally holds
45,249 zero dividend preference shares issued
by Picton ZDP Limited.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Directors’
report

The Directors of Picton
Property Income Limited
present the Annual Report
and audited financial
statements for the year
ended 31 March 2016.

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
0.825 pence per share, making a total dividend
for the year ended 31 March 2016 of 3.3 pence
per share (2015: 3.0 pence).

Directors and directors’
interests
The Directors of the Company who served
throughout the year are set out on page 107.

The Directors’ interests in the shares of the
Company as at 31 March 2016 are set out in
the Remuneration Report.

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 2016 was 540,053,660 (2015:
540,053,660) ordinary shares of no par value.

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 Board is
satisfied that the Group has sufficient financial
resources available for it to meet the liability
arising from the maturity of the zero dividend
preference shares in October 2016.

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.

Viability assessment
and statement
The 2014 UK Corporate Governance Code
requires the Board to make a ‘viability
statement’ which considers the Company’s
current position and principal risks and
uncertainties combined with an assessment of
the future prospects for the Company, in order
that the Board can state that the Company
will be able to continue its operations over the
period of their assessment.

The Board conducted this review over a five
year timescale, considered to be the most
appropriate for long-term investment in
commercial property. The assessment has been
undertaken, taking into account the principal
risks and uncertainties faced by the Group which
could impact its investment strategy, future
performance, loan covenants and liquidity.

The major risks identified as relevant to the
viability assessment were those relating to
a downturn in the UK commercial property
market and the resultant impact on the
valuation of the property portfolio, the level of
rental income receivable and the subsequent
effect on cash resources and financial
covenants. The Board took into account the
illiquid nature of the Company’s property
assets, the existence of long-term borrowings,
the effects of significant falls in valuations
and rental income on the ability to remain
within financial covenants, maintain dividend
payments and retain investors. These matters
were assessed over the period to 31 March
2021, and will continue to be assessed over
five year rolling periods.

24814.02 20 July 2016 6:54 PM Proof 9

www.picton.co.ukStock code: PCTNGovernanceDirectors’
report

In the ordinary course of business the Board
reviews a detailed financial model on a quarterly
basis, including forecast market returns. This
model uses prudent assumptions regarding
lease expiries, breaks and incentives. For the
purposes of the viability assessment of the
Group, the model has been adjusted to cover
a five year period and is stress tested with a
number of scenarios. These include significant
falls in capital values (in line with previous
market conditions), pessimistic assumptions
around lease breaks and expiries, increased
void periods and incentives, and increases
in tenant defaults. The Directors carried out
their assessment prior to the EU referendum.
However, they consider that the stress testing
performed was sufficiently robust that even
under extreme conditions the Company
remains viable.

Based on their assessment, and in the context
of the Group’s business model and strategy,
the Directors expect that the Group will be able
to continue in operation and meet its liabilities
as they fall due over the five year period to 31
March 2021.

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 9 June 2016.

Investec Wealth & Investment
Limited
Canaccord Genuity Wealth
Management
Blackrock Inc.
Premier Fund Managers
Limited
Alliance Trust Savings Limited
Thames River Capital

% of issued
share capital

17.9

5.8
5.1

5.1
4.1
3.0

Disclosure of information
to auditor
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 auditor is 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 auditor is aware
of that information.

The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website, and for the preparation
and dissemination of financial statements.
Legislation in Guernsey governing the
preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.

Directors’ responsibility
statement in respect of
the annual report and
financial statements
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:

• the financial statements, prepared in

accordance with International Financial
Reporting Standards, as issued by the
IASB, 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

• 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
27 June 2016

Auditor
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.

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.

24814.02 20 July 2016 6:54 PM Proof 9

Picton Property Income LimitedAnnual Report 2016Financial
statements

Independent Auditor’s Report

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

Pictured:
Metro, Greater Manchester

24814.02 21 July 2016 10:15 AM Proof 2

7171

www.picton.co.ukStock code: PCTNFinancial StatementsIndependent auditor’s report

to the members of picton property income limited

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 judgement 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 £6.5 million. This has
been calculated using a benchmark of the
Group’s total asset value (of which it represents
approximately 1%) which we believe is the
most appropriate benchmark as investment
property values are considered as the prime
driver of returns to the shareholders and the
main focus of users of the financial statements.

We agreed with the Audit and Risk Committee
to report to it all corrected and uncorrected
misstatements we identified through our audit
with a value in excess of £322,850 in addition
to other audit misstatements below that
threshold that we believe warranted reporting
on qualitative grounds.

The Group audit team performed the audit
of the Group as if it was a single operating
entity based on the aggregated set of financial
information for the Group. The audit was
performed using the materiality levels set
out above and covered 100% of total Group
revenue, Group profit before taxation and total
Group assets.

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
its subsidiaries (together, the “Group”) for the
year ended 31 March 2016 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. In
our opinion, the financial statements:

• give a true and fair view of the state of the
Group’s affairs as at 31 March 2016 and of
its total comprehensive income for the year
then ended;

• have been properly prepared in accordance

with International Financial Reporting
Standards; 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
judgement, 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:

Valuation of Investment Property
(£646 million)
Refer to page 61 of the Report of the Audit and
Risk Committee, Note 2 significant accounting
policies and Note 14 investment property
disclosures

• The risk

The Group’s investment property portfolio
accounted for 94% of the Group’s total
assets as at 31 March 2016. The fair value
of the investment property at 31 March 2016
was assessed by the Board of Directors
based on independent valuations prepared
by the Group’s external property valuer. As
highlighted in the Audit and Risk Committee
Report, the valuation of the Group’s
investment property portfolio, given it
represents the majority of the total assets of
the Group and requires the use of significant
judgement and subjective assumptions,
is a significant area of our audit.

• Our response

Our audit procedures with respect to
the valuation of the Group’s investment
property included, but were not limited to,
testing the design, implementation and
operating effectiveness of the relevant
controls, involvement of our own Real
Estate specialist, to examine the valuations
prepared by the external property valuer
and to evaluate the appropriateness of the
valuation methodologies and assumptions
used, including reviewing general market
information and undertaking discussions on
key findings with the external valuer.

We challenged the external valuer’s
assumptions and data by comparing key inputs
to the valuation, such as current rental income
and initial and equivalent yields, for consistency
with other audit findings.

We also considered the Group’s disclosures in
relation to the use of estimates and judgements
regarding fair value of investment property
and the Group’s valuation policies adopted
and fair value disclosures in Note 2 and Note
14 for compliance with International Financial
Reporting Standards.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Scope 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 70,
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.

Neale D Jehan
For and on behalf of
KPMG Channel Islands Limited

Chartered Accountants
and Recognised Auditors

Glategny Court, Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
27 June 2016

• the disclosures in Note 2 of the financial

statements concerning the use of the going
concern basis of accounting.

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 and Risk 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 53 to 70 relating to the
Company’s compliance with the 11 provisions
of the UK Corporate Governance Code
specified for our review.

We have nothing to report in respect of the
above responsibilities.

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 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.

Disclosures of principal risks
Based on the knowledge we acquired during
our audit, we have nothing material to add or
draw attention to in relation to:

• the Directors’ Viability Assessment and
Statement on page 69, concerning the
principal risks, their management, and,
based on that, the Directors’ assessment
and expectations of the Company’s
continuing in operation over the five years
to 31 March 2021; or

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsConsolidated statement
of comprehensive income

for the year ended 31 march 2016

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 on disposal of investment properties
Investment property valuation movements
Total profit on investments

Operating profit
Financing
Interest received
Interest paid
Total finance costs

Profit before tax
Tax
Total comprehensive income
Earnings per share
Basic and diluted

Income
£000

45,923
(10,001)
35,922

(2,901)
(1,510)
(4,411)

31,511

Capital
£000

–
–
–

–

2016
Total
£000

45,923
(10,001)
35,922

(2,901)
(1,510)
(4,411)

2015
Total
£000

39,662
(9,320)
30,342

(2,591)
(1,194)
(3,785)

31,511

26,557

–
–
–

799
44,171
44,970

412
53,163
53,575

31,511

44,970

76,481

80,132

144
(11,561)
(11,417)

20,094
(216)
19,878

–
–
–

44,970
–
44,970

144
(11,561)
(11,417)

65,064
(216)
64,848

184
(11,114)
(10,930)

69,202
(347)
68,855

3.7p

8.3p

12.0p

15.4p

Notes

3
4

6
8

14
14

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Consolidated statement
of changes in equity

for the year ended 31 march 2016

Balance as at 31 March 2014
Issue of ordinary shares
Issue costs of shares
Profit for the year
Dividends paid

Balance as at 31 March 2015
Issue costs of shares
Profit for the year
Dividends paid

Balance as at 31 March 2016

Notes 1 to 27 form part of these consolidated financial statements.

Notes

Share
Capital
£000
57,192
102,176
(2,055)
–
–

157,313
136
–
–

Retained
Earnings
£000
156,904
–
–
68,855
(13,102)

212,657
–
64,848
(17,822)

Total
£000
214,096
102,176
(2,055)
68,855
(13,102)

369,970
136
64,848
(17,822)

157,449

259,683

417,132

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsConsolidated
balance sheet

As at 31 march 2016

Non-current assets
Investment properties
Tangible assets
Accounts receivable
Total non-current assets

Current assets
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

Net asset value per share

Notes

2016
£000

2015
£000

15
16

17
18
22

18
22

646,018
57
3,331
649,406

14,649
22,759
37,408

532,926
101
3,871
536,898

14,019
70,092
84,111

686,814

621,009

(18,321)
(29,091)
(109)
(47,521)

(16,365)
(1,012)
(103)
(17,480)

(220,444)
(1,717)
(222,161)

(231,834)
(1,725)
(233,559)

(269,682)

(251,039)

417,132

369,970

157,449
259,683

157,313
212,657

417,132

369,970

77p

69p

These consolidated financial statements were approved by the Board of Directors on 27 June 2016 and signed on its behalf by:

Robert Sinclair
Director
27 June 2016

Notes 1 to 27 form part of these consolidated financial statements.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Consolidated statement
of cash flows

for the year ended 31 march 2016

Operating activities
Operating profit
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
Financing costs
Dividends paid
Cash (outflows)/inflows from financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Notes

14
14
14

2016
£000

76,481
(43,198)
144
(8,980)
(426)
24,021

(4,403)
(73,084)
9,365
(1)
(68,123)

–
–
(1,011)
15,800
(198)
(17,822)
(3,231)

2015
£000

80,132
(55,427)
184
(8,879)
(369)
15,641

(4,070)
(62,059)
4,410
(10)
(61,729)

102,176
(2,055)
(2,936)
–
(255)
(13,102)
83,828

(47,333)

37,740

70,092

32,352

Cash and cash equivalents at end of year

22,759

70,092

Notes 1 to 27 form part of these consolidated financial statements.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

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 2016 with comparatives for
the year ended 31 March 2015.

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 issued by IASB and are in compliance with the Companies
(Guernsey) Law, 2008.

The Board is satisfied that the Group has sufficient financial resources available to it to meet the liability arising from the maturity of the zero dividend
preference shares in October 2016. The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and continue to adopt the going concern basis in preparing the financial statements.

The financial statements are presented in pounds sterling, which is the Company’s functional currency. All financial information presented in pounds
sterling has been rounded to the nearest thousand, except when otherwise indicated.

New or amended standards issued
The accounting policies adopted are consistent with those of the previous financial period, as amended to reflect the adoption of new standards,
amendments and interpretations which became effective in the year as shown below.

• Annual Improvements to IFRSs (2010–2012 Cycle)

• Annual Improvements to IFRSs (2011–2013 Cycle)

• IAS 19: Employee Benefits – Defined Benefit Plans: Employee Contribution

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
ended 31 March 2016 and have not been adopted early:

• IFRS 9: Financial Instruments

• Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations

• IFRS 16: Leases

• Amendments to IAS 1: Disclosure Initiative

• Amendments to IAS 16: Property Plant and Equipment

• Amendments to IAS 27: Equity Method in Separate Financial Statements

• Amendments to IAS 28: Investments in Associates and Joint Ventures

• Amendments to IAS 38: Intangible Assets

• Amendments to IAS 41: Agriculture

• Annual Improvements to IFRSs (2014)

The Directors are in the process of assessing the full impact of the standards listed above but do not expect them to have a material impact on the
Group’s financial statements in the year of initial application, other than on presentation and disclosure.

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 ongoing basis.

The critical estimate and assumption relate to the investment property valuations applied by the Group’s independent valuer and this is described in
more detail 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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Key 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 rights to, variable returns from its involvement with the entity and has the ability to
affect these returns through its power over the entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control
is transferred out of the Group. These financial statements include the results of the subsidiaries disclosed in Note 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; and

• 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 Consolidated 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 Consolidated 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 Consolidated Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the
Consolidated Statement of Comprehensive Income.

fair value hierarchy
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.

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.

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;

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

2. Significant accounting policies (continued)
• 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 Consolidated 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 Consolidated 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 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 Consolidated 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 Consolidated 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 inception to the lease end. Upon receipt of a
surrender premium for the early termination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease concerned, is
immediately reflected in revenue from properties.

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 Consolidated Statement of Comprehensive Income in the periods during which services are rendered by employees.

Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Share-based payments
The fair value of the amounts payable to employees in respect of the Deferred Bonus Scheme, 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 remeasured
at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as staff costs in the Consolidated Statement
of Comprehensive Income.

Dividends
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 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
Consolidated Statement of Comprehensive Income when the liabilities are derecognised, as well as through the amortisation process.

Other assets and liabilities
Other assets and liabilities, including trade creditors and accruals, other debtors and creditors, and deferred rental income, 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 2016.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxation reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.

Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are measured at the tax rates that are expected to
apply to the period when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet
date. Deferred income tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future
reversal of the underlying timing differences can be deducted. As the Directors consider that the value of the property portfolio is likely to be realised
by sale rather than use over time, and that no charge to Guernsey or United Kingdom taxation will arise on capital gains, no provision has been made
for deferred tax on valuation uplifts.

Principles for the Consolidated Statement of Cash Flows
The Consolidated Statement of Cash Flows has been drawn up according to the indirect method, separating the cash flows from operating activities,
investing activities and financing activities. The net result has been adjusted for amounts in the Consolidated Statement of Comprehensive Income and
movements in the Consolidated Balance Sheet which have not resulted in cash income or expenditure in the relating period.

The cash amounts in the Consolidated Statement of Cash Flows include those assets that can be converted into cash without any restrictions and
without any material risk of decreases in value as a result of the transaction. Dividends that have been paid are included in the cash flow from financing
activities.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

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 £1.2 million (2015: £1.2 million).

4. Property expenses

Property operating expenses
Property void costs
Recoverable service charge costs

2016
£000
39,663
339
108
660
5,153
45,923

2016
£000
3,308
1,540
5,153
10,001

2015
£000
34,088
464
528
71
4,511
39,662

2015
£000
2,861
1,948
4,511
9,320

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 reinvested, the key performance measure is that prepared under IFRS. Therefore no reconciliation is
required between the measure of profit or loss used by the Board and that contained in the financial statements.

The Board has delegated the day-to-day implementation of this strategy to the Investment Manager but retains responsibility to ensure that adequate
resources of the Company are directed in accordance with its 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 58 commercial properties, which are in the industrial, office, retail, retail warehouse, and leisure sectors.

6. Management expenses

Staff costs
Other management costs

2016
£000
2,328
573
2,901

2015
£000
2,019
572
2,591

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 20167. Staff costs

Wages and salaries
Social security costs
Other pension costs
Share-based payments

2016
£000
1,475
204
150
499
2,328

2015
£000
1,258
175
125
461
2,019

Staff costs are those of the employees of Picton Capital Limited. Employees in the Group participate in a share-based Deferred Bonus Scheme,
previously called the Long Term Incentive Plan. Awards made under the Deferred Bonus Scheme 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 744,444 units (2015: 719,512 units), of which 372,222 units vest on 31 March 2018 and
372,222 units vest on 31 March 2019.

The table below summarises the awards made under the Deferred Bonus Scheme to Picton Capital Limited’s staff. Employees have the option to
defer the vesting date of their awards for a maximum of seven years. The units which vested at 31 March 2016 and were not deferred were paid out
subsequent to the year end at a cost of £391,000 (2015: £147,000).

Vesting Date
31 March 2014
31 March 2015
31 March 2016
31 March 2017
31 March 2018
31 March 2019

Units
at 31 March
2014
114,070
356,695
583,293
310,793
–
–
1,364,851

Units
granted in
the year
–
–
–
359,756
359,756
–
719,512

Units
cancelled in
the year
–
(2,480)
(3,232)
(1,982)
–
–
(7,694)

Units
redeemed in
the year
(104,100)
(186,165)
–
–
–
–
(290,265)

Units
at 31 March
2015
9,970
168,050
580,061
668,567
359,756
–
1,786,404

Units
granted
in the year
–
–
–
–
372,222
372,222
744,444

Units
redeemed
in the year
(7,050)
(13,050)
(502,385)
–
–
–
(522,485)

Units
at 31 March
2016
2,920
155,000
77,676
668,567
731,978
372,222
2,008,363

The emoluments of the Directors are set out in the Remuneration Report.

The Group employed 13 members of staff at 31 March 2016 (2015: 12). The average number of people employed by the Group for the year ended
31 March 2016 was 13 (2015: 12).

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

8. Other operating expenses

Valuation expenses
Administrator fees
Auditor’s remuneration
Directors’ fees
Professional fees
Other expenses

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:
Additional controls testing
FCA CASS audit
Tax compliance

9. Interest paid

Interest payable on loans at amortised cost
Capital additions on zero dividend preference shares
Interest on obligations under finance leases
Non-utilisation fees
Amortisation of finance costs

2016
£000
108
201
142
224
505
330
1,510

2016
£000

56
48

19
123

15
4
–
19
142

2016
£000
8,751
1,900
115
169
626
11,561

2015
£000
87
192
163
212
382
158
1,194

2015
£000

56
63

19
138

14
4
7
25
163

2015
£000
8,758
1,766
115
–
475
11,114

The loan arrangement costs incurred to 31 March 2016 are £5,728,000 (2015: £5,728,000). These are amortised over the duration of the loans with
£626,000 written off in the year ended 31 March 2016 (2015: £475,000).

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201610. Tax
The charge for the year is:

Current UK income tax
Income tax adjustment to provision for prior year

UK corporation tax

Total tax charge

2016
£000
235
(137)
98
118
118
216

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 before taxation
Expected tax charge on ordinary activities at the standard rate of taxation of 20%
Less:
Revaluation gains not taxable
Income not taxable, including interest receivable
Expenditure not allowed for income tax purposes
Losses utilised
Capital allowances and other allowable deductions
Losses carried forward to future years
Adjustment to provision for prior years
Total income tax charge

2016
£000
65,064
13,013

(8,994)
(215)
696
(129)
(4,136)
–
(137)
98

2015
£000
250
(54)
196
151
151
347

2015
£000
69,202
13,840

(10,715)
(138)
584
(102)
(3,334)
115
(54)
196

For the year ended 31 March 2016 there was an income tax liability of £98,000 in respect of the Group (2015: £196,000) and corporation tax of
£118,000 (2015: £151,000).

The Group is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed fee of £1,200 per company
per year 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 rental 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. This is shown above as Current UK income tax. UK corporation tax relates to the corporation tax arising in respect of Picton
Capital Limited.

No deferred tax asset has been recognised from unused tax losses which total £4.6 million (2015:£4.8 million) as the Group is only able to utilise the
losses to offset taxable profits in certain discrete business streams, and the Directors consider the probability of realising the benefit of these losses,
except to an immaterial extent, to be low.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

11. Dividends

Declared and paid:
Interim dividend for the period ended 31 March 2014: 0.75 pence
Interim dividend for the period ended 30 June 2014: 0.75 pence
Interim dividend for the period ended 30 September 2014: 0.75 pence
Interim dividend for the period ended 31 December 2014: 0.75 pence
Interim dividend for the period ended 31 March 2015: 0.825 pence
Interim dividend for the period ended 30 June 2015: 0.825 pence
Interim dividend for the period ended 30 September 2015: 0.825 pence
Interim dividend for the period ended 31 December 2015: 0.825 pence

2016
£000

2015
£000

–
–
–
–
4,455
4,455
4,456
4,456
17,822

2,849
3,294
3,294
3,665
–
–
–
–
13,102

The interim dividend of 0.825 pence per ordinary share in respect of the period ended 31 March 2016 has not been recognised as a liability as it was
declared after the year end. A dividend of £4,455,000 was paid on 31 May 2016.

12. Earnings per share
Basic earnings per share is calculated by dividing the net profit 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 and share data used in the basic and diluted profit per
share calculation:

Net profit attributable to ordinary shareholders of the Company from continuing operations (£000)
Weighted average number of ordinary shares for basic and diluted profit per share

13. Investments in subsidiaries

The Company had the following principal subsidiaries as at 31 March 2016:

Name
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*
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”)

2016
64,848
540,053,660

2015
68,855
445,259,094

Place of
incorporation
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Jersey
Jersey
Jersey
England & Wales
Guernsey
Guernsey
Guernsey
England & Wales
England & Wales
Guernsey
Guernsey

Ownership
proportion
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

The results of the above 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. During the year Merbrook Swindon
Property Unit Trust was wound up following the disposal of its property assets. The Directors have approved the winding up of the three remaining
JPUTs once their assets and liabilities have been distributed to Picton No 3 Limited Partnership.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201614. 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 on disposal
Realised losses on disposal
Unrealised gains on investment properties
Unrealised losses on investment properties
Fair value at the end of the year

2016
£000
532,926
73,084
4,403
(9,365)
799
–
51,125
(6,954)
646,018

2015
£000
417,632
62,059
4,070
(4,410)
438
(26)
60,094
(6,931)
532,926

Historic cost at the end of the year

685,499

628,645

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
Fair value at the end of the year

2016
£000
654,605
1,731
(10,318)
646,018

2015
£000
540,905
1,155
(9,134)
532,926

The investment properties were valued by CBRE Limited, Chartered Surveyors, as at 31 March 2016 and 31 March 2015 on the basis of fair value in
accordance with the RICS Valuation – Professional Standards (2014). The total fees earned by CBRE Limited from the Group are less than 5% of their
total UK revenue.

The fair value of the Group’s investment properties has been determined using an income capitalisation technique, whereby contracted and market
rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the equivalent yields and the fair
market values per square foot derived from comparable market transactions on an arm’s length basis.

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
alternative uses and issues with occupational tenants, are appropriately reflected in the valuations. The fair value of investment properties is measured
based on each property’s highest and best use from a market participant’s perspective and considers the potential uses of the property that are
physically possible, legally permissible and financially feasible.

As at 31 March 2016 and 31 March 2015 all of the Group’s properties are Level 3 in the fair value hierarchy as it involves use of significant inputs.
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).

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

14. Investment properties (continued)

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

2016

Industrial
236,635
2,745

Retail and
Leisure
165,885
831

Offices
252,085
999

2015

Industrial
217,745
2,736

Offices
173,420
800

Retail and
Leisure
149,740
732

£7.57–£56.35
£29.38

£3.15–£16.78
£7.33

£5.24–£80.36
£28.75

£7.57–£50.99
£26.83

£2.98–£15.31
£6.94

£5.74–£81.04
£30.53

1.04%–18.75% -4.75%–9.64% 3.23%–12.58% -1.09%–25.47%
5.36%

5.23%

5.61%

6.22%

0%–10.55% 2.65%–14.47%
6.00%

6.18%

5.05%–15.94% 5.30%–11.87% 4.25%–9.27% 5.07%–18.02% 5.68%–13.15% 4.08%–18.46%
6.39%

6.87%

7.64%

7.12%

5.78%

6.60%

5.05%–14.73% 5.48%–10.94% 4.38%–9.53%
6.51%

6.98%

6.67%

0%–13.13% 5.80%–12.59% 4.50%–20.05%
6.93%

7.15%

7.03%

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.

Movement
Increase of 50 basis points
Decrease of 50 basis points
Increase of 50 basis points
Decrease of 50 basis points
Increase of 50 basis points
Decrease of 50 basis points

2016
Impact on valuation
Decrease of £18.0m
Increase of £21.1m
Decrease of £19.9m
Increase of 22.0m
Decrease of £12.5m
Increase of £14.6m

Sector
Industrial

Office

Retail and Leisure

15. Accounts receivable

Current
Tenant debtors (net of provisions for bad debts)
Lease incentives
Other debtors
Income tax receivable
Capitalised finance costs

Non-current
Capitalised finance costs

2015
Impact on valuation
Decrease of £15.7m
Increase of £18.2m
Decrease of £12.5m
Increase of £14.4m
Decrease of £10.5m
Increase of £12.3m

2016
£000

2015
£000

3,209
10,318
578
4
540
14,649

3,331
3,331
17,980

3,871
9,134
388
–
626
14,019

3,871
3,871
17,890

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201616. Cash and cash equivalents

Cash at bank and in hand
Short-term deposits

2016
£000
20,063
2,696
22,759

2015
£000
16,416
53,676
70,092

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

18. Loans and borrowings

Current
Aviva facility
Zero dividend preference shares

Non-current
Santander revolving credit facility
Canada Life facility
Canada Life facility
Aviva facility
Zero dividend preference shares

2016
£000
4,197
8,621
1,934
–
232
3,337
18,321

2016
£000

1,057
28,034
29,091

15,800
33,718
80,000
90,926
–
220,444
249,535

2015
£000
3,803
7,482
1,935
206
750
2,189
16,365

2015
£000

1,012
–
1,012

–
33,718
80,000
91,982
26,134
231,834
232,846

Maturity

–
15 October 2016

25 March 2018
20 July 2022
24 July 2027
24 July 2032
15 October 2016

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, valued at £270.5 million (2015:£256.9 million).

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 £1.0 million in the year (2015: £1.0 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, valued at £229.1 million (2015: £206.4 million).

On 26 March 2015 a £26.0 million revolving credit facility was put in place with Santander Corporate & Commercial Banking for three-years. On
17 February 2016 £15.8 million was drawn down under the facility, leaving £10.2 million undrawn at year end. Interest is charged at 175 basis points
over three month LIBOR and the non-utilisation fee is 70 basis points. The facility is secured over properties held by Picton (UK) REIT (SPV No 2)
Limited, valued at £57.1 million (2015: £54.7 million).

The fair value of the secured loan facilities at 31 March 2016, estimated as the present value of future cash flows discounted at the market rate of
interest at that date, was £243.1 million (2015: £224.9 million). The fair value of the secured loan facilities is classified as Level 2 under the hierarchy of
fair value measurements.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

18. Loans and borrowings (continued)
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 2016, based on the quoted market price at that date, was £28.2 million (2015: £27.7
million). The fair value of the zero dividend preference shares is classified as Level 1 under the hierarchy of fair value measurements (2015: Level 1).

There were no transfers between levels of the fair value hierarchy during the current or prior years.

The weighted average interest rate on the Group’s borrowings as at 31 March 2016 was 4.43% (2015: 4.56%).

In accordance with the AIFM Directive, information in relation to the Group’s leverage is required to be made available to investors. The Group’s
maximum and average actual leverage levels at 31 March 2016 are shown below:

Maximum limit
Actual

Gross
method
285%
157%

Commitment
method
285%
160%

For the purpose of the AIFM Directive, leverage is any method which increases the Group’s exposure, including the borrowing of cash and use of
derivatives. It is expressed as a percentage of the Group’s exposure to its net asset value and is calculated on both a gross and commitment method.

Under the gross method, exposure represents the sum of the Group’s positions after deduction of cash balances, without taking account of any
hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain
hedging and netting positions are offset against each other.

The leverage limits are set by the Board and are in line with the maximum leverage levels permitted in the Company’s Articles of Incorporation.

19. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of 13 properties with commitments outstanding at 31 March 2016 of approximately
£3.3 million (2015: £3.2 million). No further obligations to construct or develop investment property or for repairs, maintenance or enhancements
were in place as at 31 March 2016.

20. Share capital

Authorised:
Unlimited number of ordinary shares of no par value
Issued and fully paid:
540,053,660 ordinary shares of no par value
(31 March 2015: 540,053,660)
Share premium

2016
£000

2015
£000

–

–
157,449

–
157,313

The Company issued no new ordinary shares during the year (2015: 160,183,931 shares). The issue costs of new shares in the year ended 31 March
2015 of £2.1 million included an over-accrual of £136,000 which was reversed in the current year.

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201621. Adjustment for non-cash movements in the cash flow statement

Profit on disposal of investment properties
Increase in investment property valuation
Depreciation of tangible assets
Increase in receivables
Increase in payables

2016
£000
(799)
(44,171)
45
(712)
2,439
(43,198)

2015
£000
(412)
(53,163)
49
(3,764)
1,863
(55,427)

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

Less: finance charges allocated to future periods
Present value of minimum lease payments

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

2016
£000

116
466
7,732
8,314
(6,488)
1,826

2016
£000

109
109

397
1,320
1,717
1,826

2015
£000

116
466
7,849
8,431
(6,603)
1,828

2015
£000

103
103

351
1,374
1,725
1,828

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

2016
£000
39,556
124,853
116,228
280,637

2015
£000
35,617
121,873
134,409
291,899

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.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

23. Net asset value
The net asset value per ordinary share is based on net assets at the year end and 540,053,660 (2015: 540,053,660) ordinary shares, being the
number of ordinary shares in issue at the year end.

At 31 March 2016, the Company had a net asset value per ordinary share of £0.77 (2015: £0.69).

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 2016
Financial assets
Accounts receivable
Cash and cash equivalents

Financial liabilities
Loans
Obligations under finance leases
Accounts payable and accruals

31 March 2015
Financial assets
Accounts receivable
Cash and cash equivalents

Financial liabilities
Loans
Obligations under finance leases
Accounts payable and accruals

Held at fair
value through
profit or loss
£000

Note

15
16

18
22
17

–
–
–

–
–
–
–

Held at fair
value through
profit or loss
£000

Note

15
16

18
22
17

–
–
–

–
–
–
–

Financial
assets and
liabilities at
amortised
cost
£000

17,980
22,759
40,739

249,535
1,826
18,321
269,682

Financial
assets and
liabilities at
amortised
cost
£000

17,890
70,092
87,982

232,846
1,828
16,365
251,039

Total
£000

17,980
22,759
40,739

249,535
1,826
18,321
269,682

Total
£000

17,890
70,092
87,982

232,846
1,828
16,365
251,039

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016The 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 intends to repay its zero dividend preference shares in full on the maturity date, and has a new five-year revolving credit facility which can be
used for this purpose but also provides greater flexibility in managing the level of borrowings.

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

2016
£000
269,682
(22,759)
246,923
417,132
0.59

2015
£000
251,039
(70,092)
180,947
369,970
0.49

Interest rate risk management
Interest rate risk arises on interest payable on the revolving credit facility only. The Group’s senior debt facilities have fixed interest rates over the 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 2016
Floating
Cash and cash equivalents
Secured loan facilities
Fixed
Secured loan facilities
Zero dividend preference shares

31 March 2015
Floating
Cash and cash equivalents
Fixed
Secured loan facilities
Zero dividend preference shares

Less than
1 year
£000

1 to 5
Years
£000

More than
5 years
£000

22,759
–

(1,057)
(28,034)
(6,332)

–
(15,800)

(4,718)
–
(20,518)

–
–

(199,926)
–
(199,926)

Less than
1 year
£000

1 to 5
Years
£000

More than
5 years
£000

Total
£000

22,759
(15,800)

(205,701)
(28,034)
(226,776)

Total
£000

70,092

(1,012)
–
69,080

–

70,092

(4,517)
(26,134)
(30,651)

(201,183)
–
(201,183)

(206,712)
(26,134)
(162,754)

Credit risk
The following tables detail the balances held at the reporting date that may be affected by credit risk:

31 March 2016
Financial assets
Tenant debtors
Cash and cash equivalents

Held at
fair value
through
profit or loss
£000

Financial
assets and
liabilities at
amortised
cost
£000

–
–
–

3,209
22,759
25,968

Note

15
16

Total
£000

3,209
22,759
25,968

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsNotes to the consolidated
financial statements

for the year ended 31 march 2016

25. Risk management (Continued)

31 March 2015
Financial assets
Tenant debtors
Cash and cash equivalents

Held at
fair value
through
profit or loss
£000

Financial
assets and
liabilities at
amortised
cost
£000

–
–
–

3,871
70,092
73,963

Note

15
16

Total
£000

3,871
70,092
73,963

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. Ongoing 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.

A provision of £288,000 (2015: £2,049,000) 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. At 31 March 2016 debtors overdue by more
than 30 days totalled £227,000 (2015: £2,595,000).

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 ongoing 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 2016 and at 31 March 2015 Standard & Poor’s credit rating for Nationwide and Santander 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 Group has concluded on a new five-year revolving credit facility to manage liquidity requirements arising from the
ZDP maturity.

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.

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201631 March 2016
Cash
Accounts receivable
Finance lease liability
Fixed interest rate loans
Floating interest rate loans
Accounts payable and accruals

31 March 2015
Cash
Accounts receivable
Finance lease liability
Fixed interest rate loans
Accounts payable and accruals

Less than
one year
£000
22,787
14,649
(116)
(38,822)
(364)
(18,321)
(20,187)

Less than
one year
£000
70,180
14,019
(116)
(9,708)
(16,365)
58,010

1 to 5
Years
£000
–
3,331
(466)
(38,832)
(16,158)
–
(52,125)

1 to 5
Years
£000
–
3,871
(466)
(67,945)
–
(64,540)

More than
5 years
£000
–
–
(1,244)
(262,370)
–
–
(263,614)

More than
5 years
£000
–
–
(1,246)
(272,078)
–
(273,324)

Total
£000
22,787
17,980
(1,826)
(340,024)
(16,522)
(18,321)
(335,926)

Total
£000
70,180
17,890
(1,828)
(349,731)
(16,365)
(279,854)

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.

The valuation of the Group’s property assets is subject to changes in market conditions. Such changes are taken to the Consolidated Statement of
Comprehensive Income and thus impact on the Group’s net result. A 5% increase or decrease in property values would increase or decrease the
Group’s net result by £32.7 million (2015: £27.0 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 4.0% 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 Directors of the Company amounted to £223,500 (2015: £211,875). As at 31 March 2016 the Group
owed £nil to the Directors (2015: £nil). The emoluments of each Director are set out in the Remuneration Report.

Picton Property Income Limited has no controlling parties.

27. Events after the balance sheet date
A dividend of £4,455,000 (0.825 pence per share) was approved by the Board on 25 April 2016 and paid on 31 May 2016.

A new five-year £27 million revolving credit facility has been entered into with Santander Corporate & Commercial Banking on 21 June 2016.

The result of the referendum on 23 June was that the UK should leave the EU. While the full impact of this result is uncertain, the Directors are
considering the implications for the Group.

24814.02 21 July 2016 10:15 AM Proof 2

www.picton.co.ukStock code: PCTNFinancial StatementsFinancial StatementsOther
Information

EPRA Disclosures
Supplementary Disclosures
Property Portfolio
5 Year Financial Summary
Glossary
Financial Calendar
Shareholder Information

102

103

104

105

106

107

9696

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016EPRA
disclosures (unaudited)

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.

Profit/(loss) for the year after taxation
Exclude:
Investment property valuation movement
Gains on disposal of investment properties
EPRA earnings
Weighted average number of shares in issue (000s)
EPRA earnings per share

2016
£000
64,848

(44,171)
(799)
19,878
540,054
3.7p

2015
£000
68,855

(53,163)
(412)
15,280
445,259
3.4p

2014
£000
37,348

(18,422)
(5,660)
13,266
359,866
3.7p

EPRA NAV per share
The EPRA Net Asset Value highlights the fair value of net assets on an ongoing, 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
EPRA NAV
Shares in issue (000s)
EPRA NAV per share

2016
£000
417,132
–
–
417,132
540,054
77p

EPRA NNNAV per share
The EPRA Triple Net Asset Value includes the fair value adjustments in respect of all material balance sheet items.

EPRA NAV
Fair value of debt
Deferred tax
EPRA NNNAV
Shares in issue (000s)
EPRA NNNAV per share

2016
£000
417,132
(21,807)
–
395,325
540,054
73p

2015
£000
369,970
–
–
369,970
540,054
69p

2015
£000
369,970
(19,781)
–
350,189
540,054
65p

2014
£000
214,096
–
–
214,096
379,870
56p

2014
£000
214,096
17,817
–
231,913
379,870
61p

24814.02 21 July 2016 10:15 AM Proof 2

Other Informationwww.picton.co.ukStock code: PCTNEPRA
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
EPRA Net Initial Yield

2016
£000
654,605
44,478
699,083
40,365
(957)
39,408
5.6%

2015
£000
540,904
31,629
572,533
34,580
(1,026)
33,554
5.9%

2014
£000
423,020
24,763
447,783
31,227
(2,285)
28,942
6.5%

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).

EPRA NIY annualised net rents
Annualised cash rent that will apply at expiry of lease incentives
Topped-up annualised net rents
EPRA “topped-up” NIY

2016
£000
39,408
3,947
43,355
6.2%

2015
£000
33,554
3,724
37,278
6.5%

2014
£000
28,942
880
29,822
6.7%

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.

Annualised potential rental value of vacant premises
Annualised potential rental value for the complete property portfolio
EPRA Vacancy Rate

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
EPRA Cost Ratio (including direct vacancy costs)
EPRA Cost Ratio (excluding direct vacancy costs)

24814.02 21 July 2016 10:15 AM Proof 2

2016
£000
1,867
47,596
3.9%

2016
£000
3,308
1,540
2,901
1,510

(259)
9,000
(1,540)
7,460
39,663
(259)
39,404
22.8%
18.9%

2015
£000
1,920
40,013
4.8%

2015
£000
2,861
1,948
2,591
1,194

(159)
8,435
(1,948)
6,487
34,088
(159)
33,929
24.9%
19.1%

2014
£000
2,956
33,810
8.7%

2014
£000
2,527
1,683
2,127
1,139

(249)
7,227
(1,683)
5,544
31,036
(249)
30,787
23.5%
18.0%

Picton Property Income LimitedAnnual Report 2016
Capital expenditure
The table below sets out the capital expenditure incurred over the financial year, in accordance with EPRA Best Practices Recommendations.

Acquisitions
Development
Like-for-like portfolio
Other
Total capital expenditure

2016
£000
–
–
4,403
–
4,403

Like-for-like rental growth
The table below sets out the like-for-like rental growth of the portfolio, by sector, in accordance with EPRA Best Practices Recommendations.

Like-for-like rental
income
Properties acquired
Properties sold

Offices

Industrial

2016
£000

11,457
2,036
(59)
13,434

2015
£000

10,727
–
68
10,795

2016
£000

12,069
2,688
–
14,757

2015
£000

12,775
2,170
–
14,945

Retail and Leisure
2016
£000

2015
£000

9,002
2,381
89
11,472

7,555
608
185
8,348

Total

2016
£000

32,528
7,105
30
39,663

2015
£000
8
–
4,062
–
4,070

2015
£000

31,057
2,778
253
34,088

EPRA sustainability reporting
The Group’s sustainability data reported below is for the year ended 31 December 2015, with comparatives for the year ended 31 December 2014.

The table below sets out the total energy consumption from the Group’s portfolio by sector.

Sector
Industrial
Office
Retail and Leisure
Total

Total energy
consumption from
electricity
(kWh)
113,415
8,745,475
535,483
9,394,373

Total energy
consumption from
fuels
(kWh)
14,235
5,067,628
306,214
5,388,077

Building energy
intensity
(kWh/m²/year)
1.65
181.67
21.05
76.38

Where data was unavailable, emissions were estimated by prorating the daily consumption calculated from available information. Estimated data
accounts for less than 1% of electricity data and 49% of gas data.

The table below sets out the like-for-like energy consumption by sector, and the change from the previous year.

Sector
Industrial
Office
Retail and Leisure
Total

Electricity consumption (kWh)

Fuel consumption (kWh)

2015
113,415
7,606,289
529,299
8,249,003

2014
80,933
7,411,602
578,833
8,071,368

Change
40.1%
2.6%
–8.6%
2.2%

2015
6,956
4,856,635
306,214
5,169,805

2014
110,764
4,674,832
308,414
5,094,010

Change
–93.7%
3.9%
–0.7%
1.5%

24814.02 21 July 2016 10:15 AM Proof 2

Other Informationwww.picton.co.ukStock code: PCTNEPRA
disclosures (unaudited)

The table below sets out the Group’s direct and indirect greenhouse gas (GHG) emissions by sector.

Sector
Industrial
Office
Retail and Leisure
Total

Total direct
emissions
(tCO2e)
3
935
56
994

Total indirect
emissions
(tCO2e)
52
4,042
248
4,342

GHG emissions
intensity
(kgCO2e/m²/year)
0.00
0.21
0.14
0.03

Note: Scope 1 and 2. Where data was unavailable, emissions were estimated by prorating the daily rate of consumption calculated from available
information. Estimated data accounts for 49% of emissions.

The table below sets out the Group’s like-for-like direct and indirect greenhouse gas emissions by sector.

Sector
Industrial
Office
Retail and Leisure
Total

Direct emissions (tCO2e)

Indirect emissions (tCO2e)

2015
1
896
57
954

2014
20
865
57
942

Change
–93.8%
3.6%
–1.0%
1.2%

2015
52
3,516
245
3,813

2014
40
3,663
286
3,989

Change
31.1%
–4.2%
–14.3%
–4.4%

The table below sets out the Group’s water withdrawal by source.

Sector
Industrial
Office
Retail and Leisure
Total

Total water
withdrawn by source
(m³)
600
28,473
523
29,596

Building water
intensity
(m³/m²/year)
0.10
0.43
0.99
0.38

Where data was unavailable, consumption has been estimated by prorating the daily rate of consumption calculated from available information.
Estimated data accounts for 5.0% of water consumption.

The following table sets out the Group’s like-for-like total water consumption by sector.

2015
600
26,853
523
27,976

Water withdrawn (m³)

2014
600
26,143
524
27,267

Change
0.0%
2.7%
-0.1%
2.6%

Sector
Industrial
Office
Retail and Leisure
Total

100

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016The following table sets out the Group’s waste by disposal route.

Sector
Industrial
Office
Retail and Leisure
Total
Proportion of waste by
disposal route (%)

Recycling
(kg)
–
260,331
265,000
525,331

Composting
(kg)
–
21,434
–
21,434

Recovery
(kg)
–
–
–
–

Incineration
(kg)
–
90,045
261,000
351,045

Landfill
(kg)
–
158,548
–
158,548

Other
(kg)
–
–
–
–

Total
(kg)
–
530,358
526,000
1,056,358

–

100

Where data was unavailable, waste weights have been estimated by prorating available information or using last year’s data using intensity ratios.
Proportion of waste by disposal route was calculated using proportions of actual data available.

The table below sets out the Group’s like-for-like weight of waste by disposal route.

Recycling

Composting

Incineration

Landfill

Total

Office
Retail and Leisure

2015
260,331
265,000
525,331
21,434
–
21,434
90,045
261,000
351,045
158,548
–
158,548
530,358
526,000
1,056,358

2014
144,385
309,655
454,040
18,789
–
18,789
68,356
–
68,356
119,617
309,655
429,272
351,147
619,310
970,457

Change
80.3%
–14.4%
15.7%
14.1%
–
14.1%
31.7%
–
413.6%
32.5%
–100.0%
–63.1%
51.0%
–15.1%
8.9%

The table below sets out the Scope 3 business travel emissions for Picton Directors and employees.

Car
Air
Train
All transport

Total kgCO2e
emissions
2,559
5,508
1,687
9,754

Total distance
(km)
14,036
35,908
37,450
87,394

24814.02 21 July 2016 10:15 AM Proof 2

101

Other Informationwww.picton.co.ukStock code: PCTNSupplementary
disclosures (unaudited)

Ongoing charges
The Ongoing Charges ratio 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 the Ongoing Charges ratio 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
Recurring operational expenses
Average Net Asset Value over the year
Ongoing Charges
Ongoing Charges (excluding property expenses)

2016
£000
4,848
2,901
1,510
9,259
400,415
2.3%
1.1%

2015
£000
4,809
2,591
1,194
8,594
304,546
2.8%
1.2%

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.

Total borrowings
Less:
Cash and cash equivalents
Total net borrowings
Investment property valuation
Loan to value

2016
£000
249,535

(22,759)
226,776
654,605
34.6%

2015
£000
232,846

(70,092)
162,754
540,905
30.1%

Gearing
Using the method recommended by the AIC, Gearing is calculated by dividing the Group’s total assets, less cash, by shareholders’ funds.

Total assets
Less:
Cash and cash equivalents

Total equity
Gearing

2016
£000
686,814

(22,759)
664,055
417,132
59.2%

2015
£000
621,009

(70,092)
550,917
369,970
48.9%

2014
£000
4,210
2,127
1,139
7,476
192,073
3.9%
1.7%

2014
£000
234,016

(32,352)
201,664
423,020
47.7%

2014
£000
464,272

(32,352)
431,920
214,096
101.7%

102

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Property
portfolio

Properties valued in excess of £30 million
• Parkbury Industrial Estate, Radlett, Herts.
• Units A-G2, River Way Industrial Estate, Harlow, Essex
• Angel Gate Office Village, City Road, London EC1
• Stanford House, 12-14 Long Acre, London WC2

Properties valued between £25 million and £30 million
• Boundary House, Jewry Street, London EC3
• 50 Farringdon Road, London EC1

Properties valued between £20 million and £25 million
• Belkin Unit, 3 Shipton Way, Rushden, Northants.
• 30 & 50 Pembroke Court, Chatham, Kent

Properties valued between £15 million and £20 million
• Parc Tawe, Phase II, Link Road, Swansea
• B&Q, Queens Road, Sheffield
• Metro Building, Salford Quays, Manchester
• Colchester Business Park, The Crescent, Colchester, Essex
• 1-3 Chancery Lane, London WC2
• Angouleme Way Retail Park, Bury, Greater Manchester
• Citylink, Addiscombe Road, Croydon

Properties valued between £10 million and £15 million
• Gloucester Retail Park, Eastern Avenue, Gloucester
• Unit 3220, Magna Park, Lutterworth, Leics.
• 180 West George Street, Glasgow
• Grantham Book Services, Trent Road, Grantham, Lincs.
• 401 Grafton Gate East, Milton Keynes, Bucks.
• Lyon Business Park, Barking, Essex
• Datapoint Business Centre, Cody Road, London E16
• Units 1-13 Dencora Way, Sundon Park, Luton, Beds.
• The Business Centre, Molly Millars Lane, Wokingham, Berks.

Properties valued between £5 million and £10 million
• Vigo 250, Birtley Road, Washington, Tyne and Wear
• Nonsuch Industrial Estate, 1-25 Kiln Lane, Epsom, Surrey
• 62/68 Bridge Street, Peterborough
• Regency Wharf, Broad Street, Birmingham
• 56 Castle Street, 2/12 English Street and 12-21 St Cuthberts Lane,

Carlisle, Cumbria

• Lawson Mardon Buildings, Kettlestring Lane, York
• 53/55/57 Broadmead, Bristol
• Queens House, 19/29 St Vincent Place, Glasgow
• Longcross Court, Newport Road, Cardiff
• Scots Corner, High Street/Institute Road, Birmingham
• Trident House, 42/48 Victoria Street, St Albans, Herts.
• Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire
• 78-80 Briggate, Leeds
• Western Industrial Estate, Downmill Road, Bracknell, Berks.
• 800 Pavilion Drive, Northampton Business Park, Northampton
• Easter Court, Gemini Park, Warrington
• Strathmore Hotel, Arndale Centre, Luton, Beds.
• Atlas House, Third Avenue, Globe Park, Marlow, Bucks.

Properties valued under £5 million
• L’Avenir, Opladen Way, Westwick, Bracknell, Berks.
• Sentinel House, Ancells Business Park, Fleet, Hants.
• 17/19 Fishergate, Preston, Lancs.
• Merchants House, Crook Street, Chester
• Units 1-3, 18/28 Victoria Lane, Huddersfield, West Yorks.
• 72/78 Murraygate, Dundee
• Waterside Park, Longshot Lane, Bracknell, Berks.
• 2 Bath Street, Bath
• 7 & 9 Warren Street, Stockport
• Abbey Business Park, Mill Road, Newtownabbey, Belfast
• Waterside House, Kirkstall Road, Leeds
• Magnet Trade Centre, Winnersh, Reading
• 6/12 Parliament Row, Hanley, Staffs.
• Manchester Road/Drury Lane, Oldham, Lancs.
• Marshall Building,122-124 Donegall Street, Belfast
• 6 Argyle Street, Bath

24814.02 21 July 2016 10:15 AM Proof 2

103

www.picton.co.ukStock code: PCTNOther Information5 year
financial summary

Income Statements
Net property income
Management expenses
Other operating expenses
Exceptional costs

Net finance costs
Income profit before tax
Tax
Income profit
Property gains and losses
Financing gains and losses
Profit/loss after tax
Dividends paid

Balance Sheets
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.

2016

35.9
(2.9)
(1.5)
–
31.5
(11.4)
20.1
(0.2)
19.9
44.9
–
64.8
17.8

2016

646.0
(249.5)
20.6
417.1

77
77
12.0
3.3
112
69.8

2015

2014

2013

2012

30.3
(2.6)
(1.2)
–
26.5
(10.9)
15.6
(0.3)
15.3
53.6
–
68.9
13.1

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

2015

2014

2013

2012

532.9
(232.8)
69.9
370.0

69
69
15.4
3.0
117
71.8

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

Reporting dates are annual except 2012, which is a 15-month period to 31 March 2012.

104

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Glossary

AIC

AIFMD

Association of Investment Companies.

Alternative Investment Fund Managers Directive.

Annual Rental Income

Cash rents passing at the Balance Sheet date.

CIPS

Chartered Institute of Purchasing and Supply.

Contracted rent

The contracted gross rent receivable which becomes payable after all the occupier incentives in the letting have expired.

DTR

Disclosure and Transparency Rules, issued by the United Kingdom Listing Authority.

Dividend cover

Income profit after tax divided by dividends paid.

Earnings per share (EPS)

Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period.

EPC

EPRA

Energy performance certificate.

European Public Real Estate Association, the industry body representing listed companies in the real estate sector.

Estimated rental value
(ERV)

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.

Fair value

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.

Fair value movement

An accounting adjustment to change the book value of an asset or liability to its fair value.

FRI lease

Group

IASB

IFRS

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.

Picton Property Income Limited and its subsidiaries.

International Accounting Standards Board.

International Financial Reporting Standards.

Property Income return

The ungeared income return of the portfolio as calculated by MSCI IPD.

Initial yield

Lease incentives

MSCI IPD

NAV

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.

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.

MSCI Investment Property Databank. An organisation supplying independent market indices and portfolio benchmarks
to the property industry.

Net Asset Value is the equity attributable to shareholders calculated under IFRS.

Ongoing Charges ratio

Total operating expenses, excluding one-off costs, as a percentage of the average net asset value over the period,
as defined by the AIC.

Over-rented

PMI

Rack-rented

Space where the passing rent is above the ERV.

Purchasing Managers Indexes.

Space where the passing rent is the same as the ERV.

Reversionary yield

The estimated rental value as a percentage of the gross property value.

Total property return

Combined ungeared income and capital return from the property portfolio.

Total return

Measures the performance of the Group based on its published results.

Total shareholder return

Measures the change in share price over the year plus dividends paid.

Weighted average
debt maturity

Weighted average
interest rate

Weighted average
lease term

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.

ZDP

Zero dividend preference share.

ZDP share cover

The Group’s net asset value, including any accrued ZDP capital additions, divided by the final ZDP liability on their maturity.

24814.02 21 July 2016 10:15 AM Proof 2

105

www.picton.co.ukStock code: PCTNOther InformationFinancial calendar

Annual Results announced

Annual Results posted to shareholders

28 June 2016

29 July 2016

Annual General Meeting

10 November 2016 (provisional)

June 2016 NAV announcement

July 2016 (provisional)

2016 Half Year Results to be announced

November 2016 (provisional)

December 2016 NAV announcement

January 2017 (provisional)

Dividend Payment Dates

August/November/February/May

106

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 2016Shareholder
information

Directors
Nicholas Thompson (Chairman)
Trevor Ash (resigned 1 October 2015)
Vic Holmes
Roger Lewis
Michael Morris (appointed 1 October 2015)
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 745001
E: team_picton@ntrs.com

Investment Manager
Picton Capital Limited
28 Austin Friars
London
EC2N 2QQ

T: 020 7628 4800
E: enquiries@picton.co.uk

Registrar
Computershare Investor Services (Guernsey) Limited
NatWest House
Le Truchot
St Peter Port
Guernsey
GY1 1WD

Corporate brokers
JP Morgan Securities Limited
25 Bank Street
London
E14 5JP

Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET

Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR

Media
Tavistock Communications
131 Finsbury Pavement
London
EC2A 1NT

T: 020 7920 3150
E: jcarey@tavistock.co.uk

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

Property valuers
CBRE Limited
Henrietta House
Henrietta Place
London
W1G 0NB

Tax adviser
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR

24814.02 21 July 2016 10:15 AM Proof 2

107

www.picton.co.ukStock code: PCTNOther InformationShareholder
information

Shareholder enquiries
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.

Website
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.

The site can be found at:
www.picton.co.uk

108

24814.02 21 July 2016 10:15 AM Proof 2

Picton Property Income LimitedAnnual Report 201624814.02 20 July 2016 6:54 PM Proof 9

Picton property income limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL

T: 01481 745001
www.picton.co.uk

24814.02 20 July 2016 6:54 PM Proof 9