Annual Report 2019
Leisure 1.8%
High Street -
South East 5.1%
H i g h S t r e e t -
R e s t o f U K 5 . 0 %
e t a il W a r e
8 . 2 %
R
h
u
o
S outh East 32.4 %
Rest of UK 13.2%
Industrial
45.6%
Retail
and Leisure
20.1%
e
s
Office
34.3%
City & West End
%
0.8
K 1
st of U
4.2%
e
R
S
o
u
t
h
E
a
s
t
1
9
.
3
%
4 Picton at a Glance
6 Chairman’s Statement
Creating a
diverse portfolio
occupie
occupier focused
focused
er fo
Depth of
expertise
Proactive asset
management
opportunity led
opport
ity led
rtunit
Stable
recurring
income
(cid:173)
Shareholders
Occupiers
Communities
14 Our Business Model
Occupier focused, Opportunity led
28 Portfolio Review
Contents
Business Overview
Welcome ––––––––––––––––––––– 1
2019 Highlights –––––––––––––––– 2
Picton at a Glance ––––––––––––– 4
Chairman’s Statement –––––––––– 6
Strategic Report
Our Marketplace –––––––––––––– 10
Our Business Model ––––––––––– 14
Our Strategy in Action ––––––––– 16
Enhancing Value and Income ––– 18
Investing in our Properties –––––– 20
Working with our Occupiers ––––– 22
Chief Executive’s Review ––––––– 24
Key Performance Indicators –––– 26
Portfolio Review ––––––––––––––– 28
Financial Review –––––––––––––– 40
Managing Risk ––––––––––––––– 43
Being Responsible –––––––––––– 46
Governance
Chairman’s Introduction –––––––– 54
Board of Directors –––––––––––– 56
Our Team –––––––––––––––––––– 58
Corporate Governance Report –– 62
Audit and Risk
Committee Report –––––––––––– 67
Nomination Committee Report –– 70
Property Valuation
Committee Report ––––––––––––– 72
Remuneration Report –––––––––– 74
Directors’ Report ––––––––––––– 92
Financial Statements
Independent Auditor’s Report ––– 98
Consolidated Statement
of Comprehensive Income –––– 102
Consolidated Statement
of Changes in Equity ––––––––– 103
Consolidated Balance Sheet ––– 104
Consolidated Statement
of Cash Flows ––––––––––––––– 105
Notes to the Consolidated
Financial Statements ––––––––– 106
Additional Information
Supplementary Disclosures –––– 130
Property Portfolio –––––––––––– 134
Five Year Financial Summary –– 135
Glossary –––––––––––––––––––– 136
Financial Calendar ––––––––––– 138
Shareholder Information –––––– 139
Our values
Picton seeks to always demonstrate
its Principled, Perceptive and
Progressive company values.
Principled
We are professional, diligent
and strategic.
Demonstrated through our
transparent reporting, occupier
focused approach, alignment
with shareholders, delivery
of our Picton Promise and
commitment to sustainability
and positive environmental
initiatives.
Perceptive
We are insightful,
thoughtful and intuitive.
Demonstrated through our
long-term track record, our
gearing strategy, diverse sector
allocation and engagement
with our occupiers.
Progressive
We are forward-thinking,
enterprising, and continually
advancing.
Demonstrated through our
culture, work ethic and proactive
asset management.
Occupier focused
Opportunity led
£685.3m
PORTFOLIO VALUE
£37.7m
ANNUAL RENTAL
INCOME
90%
49
OCCUPANCY
ASSETS
350
15 OFFICE
ASSETS
OCCUPIERS
17 INDUSTRIAL
ASSETS
4.4m
AREA SQUARE FEET
17 RETAIL AND
LEISURE ASSETS
10.1%
TOTAL SHAREHOLDER
RETURN
Welcome
to our 2019
annual report
Our vision
Through our occupier focused,
opportunity led approach, we aim
to be one of the consistently best
performing diversified UK focused
property companies listed on the
London Stock Exchange.
What makes us
different
We are an award winning Real Estate
Investment Trust investing in UK
commercial property. Our diversified
property portfolio consists of 49
assets invested in the industrial,
office, retail and leisure sectors,
generating rental income from around
350 occupiers across a wide range
of businesses.
We have outperformed the MSCI UK
Quarterly Property Index over one,
three, five and ten years, and, through
growth, we have been able to achieve
economies of scale, which have
enhanced shareholder returns.
Why invest
1 We offer diversified exposure to
the UK commercial property market
p28 Read more in our Portfolio Review
2 We are total return driven with an
income bias and have established
a track record of outperformance
p2 Read more in our Highlights pages
3 We actively manage our assets
with an occupier focused,
opportunity led approach
p18 Read more in our Strategy in Action Case Studies
4 We operate a covered dividend
policy, allowing us to invest back
into the portfolio
p28 Read more in our Portfolio Review
5 We are an internally managed
business, aligned with
shareholders’ interests and
focused entirely on Picton
and its success
p53 Read more in our Governance Report
2019 highlights
NAV per share
Total return
93p
82
90
93
2017 2018 2019
Positive financial
results despite
economic
uncertainty
Profit after tax of
£31 million
Increase in net assets
of 2.5%, to £499 million,
or 93p per share
Total return of 6.5%
Net assets
£499m
442m
487m
499m
2017 2018 2019
Conversion to
UK REIT
Entered UK REIT regime
on 1 October 2018
Tax savings for six-
month period following
conversion
6.5%
14.9
6.5
10.4
2017 2018 2019
Profit after tax
£31m
64m
43m
31m
2017 2018 2019
Strong dividend
cover supported
by earnings
Earnings per share
of 5.7p
Increased EPRA earnings
to £22.9 million, or 4.3p
per share
Paid dividends of £18.9
million, or 3.5p per share
Dividend cover of 122%
Dividends per share
3.5p
3.3
3.4
3.5
2017 2018 2019
2
Improved balance
sheet and
operational flexibility
9% reduction in total
debt outstanding to
£194.7 million
Net saving of £1.1 million
in annual finance costs
Further reduction in
loan to value ratio to
below 25%
Debt restructured to
provide operational
flexibility
Dividend cover
122%
115
122
122
2017 2018 2019
Property valuation
£685m
624m
684m
685m
2017 2018 2019
Total shareholder
return
10.1%
25.6
4.8
10.1
2017 2018 2019
Outperforming
property portfolio
Total property return of
7.5%, outperforming
MSCI UK Quarterly
Property Index of 4.6%
Portfolio outperformance
against MSCI over one,
three, five and ten years
Like-for-like valuation
increase of 1.8%
Like-for-like rental value
change of -0.2%
Occupancy of 90%
Two asset disposals
for £12.0 million, 9.7%
ahead of March 2018
valuations
£1.6 million invested in
refurbishment projects
Earnings per share
5.7p
11.9
7.9
5.7
2017 2018 2019
BUSINESS OVERVIEW
Epra measures
The European Public Real Estate Association’s (EPRA) mission
is to promote, develop and represent the European public
real estate sector. As an EPRA member, Picton fully supports
the EPRA Best Practices Recommendations which recognise
the key performance measures, as detailed above. Further
disclosures and supporting calculations can be found on
pages 130 to 132. We have also highlighted other specific
EPRA metrics throughout the Report.
Alternative performance measures
We use a number of alternative performance measures
(APMs) when reporting on the performance of the business
and its financial position. These do not always have a standard
meaning and may not be comparable to those used by other
entities. However, we will use industry standard measures
and terminology where possible.
In common with many other listed property companies we
report the EPRA performance measures, as stated above.
We have reported these for a number of years in order to
provide a consistent comparison with similar companies. In
the Additional Information section of this Report we provide
more detailed information and reconciliations to IFRS where
appropriate.
Our key performance indicators include three of the key EPRA
measures but also total return, total property return, property
income return, total shareholder return, loan to value ratio, cost
ratio, occupier retention rate and EPC ratings. The definition of
these measures, and the rationale for their use, is set out in the
Key Performance Indicators section.
EPRA NAV
per share
EPRA earnings
EPRA earnings
per share
93p
2018 90p
£22.9m
2018 £22.6m
4.3p
2018 4.2p
EPRA NNNAV
per share
EPRA cost ratio1
EPRA cost ratio2
88p
2018 87p
22.9%
2018 23.7%
19.5%
2018 19.2%
EPRA net
initial yield
EPRA ‘topped-up’
net initial yield
EPRA
vacancy rate
4.9%
2018 5.5%
5.3%
2018 5.9%
10.3%
2018 4.2%
1 Including direct vacancy costs
2 Excluding direct vacancy costs
3
Picton at a glance
Corporate statistics
As at 31 March 2019
£499m
£480m
£195m
NET ASSETS
MARKET CAPITALISATION
BORROWINGS
3.9%
1.1%
25%
DIVIDEND YIELD
COST RATIO
LOAN TO VALUE
Portfolio statistics
As at 31 March 2019
49
4.4m
90%
NUMBER OF ASSETS
AREA SQUARE FEET
OCCUPANCY
£685m
5.0%
6.3%
PROPERTY VALUE
NET INITIAL YIELD
REVERSIONARY YIELD
4
BUSINESS OVERVIEW
(cid:79)(cid:3) Industrial
(cid:79)(cid:3) Office
(cid:79)(cid:3) Retail and Leisure
Portfolio allocation
Leisure 1.8%
High Street -
South East 5.1%
H i g h S t r e e t -
R e s t o f
U K 5 . 0 %
u
o
e t a il W a r e
8 . 2 %
h
R
S outh East 32.4 %
Rest of UK 13.2%
Industrial
45.6%
Retail
and Leisure
20.1%
e
s
Office
34.3%
City & West End
%
0.8
K 1
st of U
4.2%
e
R
S
o
u
t
h
E
a
s
t
1
9
.
3
%
Our evolving
portfolio
28.1%
38.9%
33.0%
20.1%
34.3%
45.6%
2014
2019
17 Industrial assets
Our top ten occupiers
15 Office assets
The largest occupiers, based as a percentage
of contracted rent, as at 31 March 2019,
are as follows:
17 Retail and Leisure assets
)
0
0
0
£
(
t
n
e
R
d
e
t
c
a
r
t
n
o
C
1,691
4.2%
Belkin
Limited
1,665
4.0%
Public
Sector
1,243
3.1%
B&Q PLC
1,505
3.7%
DHL Supply
Chain
Limited
1,190
2.9%
1,123
2.8%
883
2.2%
The Random
House Group
Limited
Snorkel
Europe
Limited
Portal
Chatham
LLP
716
1.8%
TK Maxx
675
1.7%
XMA
Limited
Total
11,301
27.9%
610
1.5%
Canterbury
Christ
Church
University
5
Chairman’s statement
Nicholas thompson
For the year ended 31 March 2019, I am
pleased to report Picton delivered a profit
after tax of £31 million, demonstrating
further progress despite a more challenging
economic backdrop. Our net assets rose
by 2.5% to £499 million, equating to 93 pence
per share. EPRA earnings were £23 million
or 4.3 pence per share, reflecting a modest
improvement against last year.
This has been a significant year for the
Company as Picton became a UK REIT and
changed its listing status from an investment
to a commercial company.
Performance
We delivered a total return of 6.5% and, while
lower than last year, this reflects weaker growth
in the commercial property market generally.
At the portfolio level, we continued our long-term
track record of outperformance against the MSCI
UK Quarterly Property Index over one, three,
five and ten years. The ungeared return from the
property portfolio was 7.5% compared to the
Index of 4.6%.
Strategy
Our vison remains to be one of the consistently
best performing diversified UK focused property
companies listed on the London Stock Exchange.
Our strategic aims, as set out further in the
Report, are in place to help us meet this ambition.
We continue to favour an unconstrained
approach to our portfolio, enabling us to enter
or exit sectors, subsectors or assets as market
conditions change. We also recognise the
benefit of having a diverse occupier base and
corresponding diversity of income.
Further recognition of our achievements this
year were award wins from MSCI/IPF - Best
Listed Fund and at the Investment Company of
the Year Awards and Investment Trust Awards,
amongst others. While the investment company
structure has many advantages, particularly for
real estate, our decision to be a commercial
company, reflecting our internalised structure, has
delivered several benefits. We have been able to
streamline the way we operate and put in place
new reporting lines to increase accountability and
improve efficiency.
Property portfolio
Our property portfolio continues to remain biased
towards the industrial, warehouse and logistics
sector and this undoubtedly drove performance
during the year. Conversely, while our retail
exposure is limited, with no exposure to shopping
centres, it has been a drag on performance and
difficult to remain insulated from the disruption
that is happening in the wider market. In many
instances, retail business models are stretched
and the continued growth of online retailing is
leading to a re-evaluation of physical property
needs and is adversely affecting pricing.
We had a number of key lease events during the
year, which meant our occupancy at the year end
was lower than 12 months ago. This was not
unexpected and remains a key area of focus in
the forthcoming year. The fact that we were able
to deliver positive growth in net assets despite
this reflects the defensive nature of the portfolio.
6
BUSINESS OVERVIEW
£31m
TOTAL PROFIT
£499m
NET ASSETS
93p
NAV PER SHARE
4.3p
EPRA EARNINGS
PER SHARE
We have exciting projects planned over the
coming year which will further improve the
quality of the portfolio. These asset management
initiatives include upgrading and repositioning
space, conversion to higher value uses and
enhancing the external fabric to help maintain
and attract new occupiers. Whilst the capital
outlay for these initiatives is approximately
£15 million, they are expected to deliver higher
occupancy, rental income and capital values.
REIT conversion
Our transition to a UK REIT in October 2018
was successfully completed and in February
2019 the Company paid its first dividend in the
form of a Property Income Distribution, or PID.
One of the reasons we became a REIT was
the forthcoming changes to the tax treatment
of offshore companies and our results show
the benefit of lower taxation since October. This
will have a further positive impact in next year’s
results when over a full year. Over the longer
term we expect that, as a UK REIT, we will
have a more diversified and potentially greater
international representation in our shareholder
register. This, in turn, should be positive for both
liquidity and share price rating.
Dividends
Dividends paid during the year were 2% higher
than in the preceding year, with dividend cover
of 122%. Given market conditions, the Board
believes it is sensible to maintain the current
dividend rate until we have crystalised a further
increase in earnings.
Governance and Board composition
As part of our transition to a REIT and change
in listing status, there have been a number of
changes at Board level. Michael Morris has
become Chief Executive and Andrew Dewhirst
has joined the Board as Finance Director.
Maria Bentley joined the Board in October
as a non-executive director and Chair of the
Remuneration Committee.
We are now focused on the next stage of Board
succession planning, as both Roger Lewis and
I intend to stand down, now that REIT conversion
is complete. We expect this will be achieved
within the next 12 months, ensuring a seamless
transfer and maintaining corporate knowledge
at Board level. Maria Bentley has additionally
become Chair of the Nomination Committee and
Mark Batten has become the Senior Independent
Director. We have appointed external consultants
to undertake a thorough search process which
we intend to conclude during the course of
the year.
Additionally, we have also undertaken an external
evaluation of the Board, which has been a helpful
exercise in defining the qualities that we are
looking for and have been able to incorporate
this feedback into the process.
Capital structure
Our strategy over preceding years to reduce
our gearing has proved to be prescient. We are
cognisant that in the short-term we need to
remain cautious with our use of debt, while at
the same time ensuring that we are able to take
advantage of opportunities should they arise.
We were able to reduce our loan to value ratio
(LTV) over the year from 27% to below 25%.
In July, we reduced our overall borrowings
through the early repayment of some of our
more expensive debt, due for maturity in 2022.
This was principally funded from the proceeds of
asset sales but also through the use of our lower
cost revolving credit facilities, which has had a
positive effect on earnings and contributed to
the lower LTV.
With regard to our planned expenditure, the
Company is likely to commit to many of these
initiatives over the next 12 months with funding
provided from a combination of existing debt
facilities, selective asset sales or new equity,
dependent upon market conditions.
Outlook
The uncertainty around Brexit looks set to
continue for some time and parts of the property
market are likely to remain challenging until there
is clarity. By its very nature uncertainty leads to
delayed decision making; the reduced investment
transaction volumes and lower returns are a
reflection of this.
We believe the current portfolio and modest
gearing means that Picton is in a good position.
With the potential rental value of the portfolio
some £9 million ahead of the current passing
rent, there is significant upside to be captured
through leasing our vacant space, lease
restructuring and proactive asset management.
We also continue to seek new investment
opportunities which will further enhance
our portfolio.
Now we are a UK REIT, we need to take
advantage of this structure. With our
opportunistic approach we will continue to look
at ways to grow Picton, though always with a
focus on performance and the economies of
scale that can be achieved through growth.
Our desire is to continue to build on our long-
term track record and to ensure that Picton,
with its new Board, is best placed to achieve this.
Nicholas Thompson
Chairman
7
Strategic report
Our Marketplace
Our Business Model
Our Strategy in Action
Enhancing Value and Income
Investing in our Properties
Working with our Occupiers
Chief Executive’s Review
Key Performance Indicators
Portfolio Review
Financial Review
Managing Risk
Being Responsible
10
14
16
18
20
22
24
26
28
40
43
46
Our marketplace
Economic backdrop
The UK economy grew by 1.4% in 2018, the lowest annual growth since
2012. This slowdown in economic activity reflects the continued uncertainty
surrounding Brexit, a theme which was prevalent throughout 2018. With the
UK Government extending Article 50 beyond the original 29 March 2019 Brexit
date, this is likely to continue in the short-term.
Putting the UK in context of the G7 Major
Advanced Economies, this compares to an
average GDP growth of 2.1% per annum for the
group, ranking the UK in fifth place behind the
United States, Canada, Germany and France.
In the 2019 Spring Statement, the Office of
Budget Responsibility downgraded the forecast
for 2019 GDP growth to 1.2% per annum.
However UK GDP growth for the first quarter
of 2019 is estimated at 0.5%, an increase on
the 0.2% recorded for the fourth quarter of 2018.
Aside from Brexit, 2018 was a year notable
for retailer woes and Company Voluntary
Arrangements (CVAs). The growing proportion
of consumers choosing to shop online, coupled
with the impact of business rates and the rising
UK Living Wage, left profit margins squeezed for
retailers operating from physical stores.
“ There has been a complete
reversal in the hierarchy of
equivalent yields. ”
Critically, all these market averages do not
illustrate the polarisation between sectors and
subsectors. In the last 18 months there has been
a complete reversal in the hierarchy of equivalent
yields for the office, industrial and retail sectors,
reflecting underlying occupational conditions.
Industrial was the top performing sector for the
year to March 2019, achieving a total return of
13.8%, comprising 9.1% capital growth and
4.3% income return. Industrial ERV growth for the
period was 4.2%, with a range of 2.7% to 7.0%
within subsectors. Capital growth ranged from
6.5% to 14.1% within subsectors. Equivalent
yields for industrial property now stand at 5.3%.
The office sector produced a total return of
5.9% for the year to March 2019, comprising
2.0% capital growth and 3.8% income return,
with the South East and regional office market
total returns outperforming central and outer
London. All office annual ERV growth was 1.0%,
ranging from -0.8% to 3.2% within subsectors.
The range of capital growth by subsector was
from 0.0% to 6.0%. Equivalent yields for office
property now stand at 5.6%.
On a more positive note, in March 2019 the
unemployment rate stood at 3.8%, the lowest
level since 1974. In nominal terms, average total
weekly earnings increased by 3.3% in the year to
March 2019. Significantly, this is above inflation
for the first time since 2015. In March 2019
RPI and CPI inflation stood at 2.4% and 1.9%
respectively, having slowed since the end of
last year.
The retail sector produced a negative total
return of -2.6% for the year to March 2019. This
comprised capital growth of -7.3% an income
return of 5.0%. Rental values fell -3.2% over the
period and were negative across all subsectors,
ranging from -8.3% to -0.1%. Retail subsector
capital growth ranged from -16.5% to 0.5%.
Equivalent yields for retail property now stand
at 5.8%.
This, coupled with low interest rates, is helpful
to the economy and in particular consumer
spending. The Office for National Statistics
reported an uptick in retail sales in March,
with a quarter-on-quarter increase of 1.6%
in the first quarter of 2019.
UK property market
According to the MSCI UK Quarterly Property
Index, commercial property delivered a total
return of 4.6% for the year ended March 2019.
The reduction relative to last year was driven by
capital growth of only 0.1% and an income return
of 4.4%. This compares to 5.3% capital growth
and 4.6% income return for the year to
March 2018.
10
It is unsurprising that there has been a reduction
in investment activity in this time of political
uncertainty. According to Property Data, the
total investment volume for the year to March
2019 was £59.5 billion, a 9.6% decrease on
the £65.8 billion recorded in the year to March
2018. The volume of investment by overseas
investors in the year to March 2019 was
£27.3 billion, accounting for 46.0% of all
transactions. Illustrating the liquidity issues
within the retail sector, the volume of investment
transactions in this sector was just £5.3 billion,
down 34.3% on the year to March 2018.
4.6%
MSCI TOTAL
PROPERTY RETURN
5.9%
MSCI OFFICE
TOTAL RETURN
-2.6%
MSCI RETAIL
TOTAL RETURN
13.8%
MSCI INDUSTRIAL
TOTAL RETURN
STRATEGIC REPORT
Market drivers and impacts
Market driver
Impact
Political uncertainty and
the outcome of Brexit
With the withdrawal agreement unsupported
post the original Brexit date, there is prolonged
uncertainty as to the shape of the future
relationship the UK will have with the
European Union.
The impact of Brexit and surrounding uncertainty varies from
sector to sector, for example:
• Offices, particularly in central London, are exposed to EU
(cid:173)
migration and financial sector relocations.
• Logistics operators, supermarkets, restaurants and
other food retailers are vulnerable to border delays and
associated operational costs.
• EU migration resulting in workforce shortages has the
potential to impact most sectors, particularly construction,
agriculture, healthcare, retail and leisure.
• Political and economic uncertainty has the propensity to
delay decision making and affects both consumer and
business confidence.
Property cycles and real estate
market fundamentals
In theory, periods of high occupier demand
coupled with a supply shortage lead to sustained
higher rental growth and the reverse applies when
the demand supply balance shifts in the opposite
direction; when the market reacts with speculative
development and supply increases, rental growth
begins to slow.
(cid:173)
Technological advances
These have the potential to impact the demand,
use, construction and operation of UK commercial
property. This may include online purchasing
and delivery, cloud storage, co-working, smart
buildings, augmented reality, 5G, drones,
autonomous vehicles, and 3D printing.
(cid:173)
• With each sector at a different phase of the cycle,
diversified real estate portfolios are subjected to a range
of risk and return profiles.
• At subsector level, individual markets are affected
by differing supply and demand levels. For example,
consensus forecasts currently predict outperformance of
regional offices over London offices, which have stronger
ties to the EU and global markets.
• Now a decade on from the Global Financial Crisis (GFC),
following a period of sustained growth, the UK commercial
real estate market has entered a period of lower returns,
with the oversupply and low demand for retail property
offsetting office and industrial sector growth.
• Industrial property is an increasing contributor to
economic growth, housing data centres and enabling
logistics operators to reach consumers with heightened
expectations for shorter delivery times. Supply chains
are evolving, with industrial property a crucial element of
omnichannel retail delivery.
• Office occupiers are seeking flexibility and the ability to
adapt space to meet changing requirements.
• A building’s connectivity and technology credentials are
ever more critical.
• The impact of remote or co-working may reduce office
floor space requirements.
Ethical consumerism and environmental
and social responsibility have entered
the mainstream
The environmental impact of developing, running
and occupying buildings is shaping decision
making. Corporations are held accountable for
their impact. Employee wellbeing is becoming
increasingly important.
(cid:173)
• Advances in legislation and regulation surrounding carbon
emissions, building refurbishment, waste management and
energy performance affect the market at large.
• Increasing popularity of eco-installations on buildings; solar
panels, living walls, green roofs, electric car charge points.
• Provisions for employee wellbeing are often included in
company location decision making. Buildings fitted with
bike racks and changing facilities, with good natural light
and other amenities have a competitive edge.
11
Industrial market trends
The industrial sector has benefited from the structural shift
in consumer behaviour in some retail categories away
from physical stores to online retailing, increasing demand
for warehouse space from both traditional and ‘pure-
play’ online retailers like Amazon and third party logistics
operators.
There has been limited speculative development in recent
years, a trend which has only recently started to abate
within larger lot sizes.
Even with the recent increase in speculative development,
continued robust demand is readily absorbing new supply,
keeping availability levels below the long-term average.
This has pushed industrial rents up to record high levels.
What this means for Picton
The Picton portfolio is overweight in industrial property
versus MSCI, with 32.4% of the portfolio invested in London
and South East industrial and 13.2% invested in rest of UK
industrial versus the index at 15.8% and 8.7% respectively.
These relative high weightings have contributed significantly to
the portfolio’s overall outperformance.
Capital growth of the Picton industrial portfolio was 11.0%,
above MSCI industrial capital growth of 9.1% and significantly
above the MSCI All Property average capital growth of 0.1%.
ERV growth on the Picton industrial portfolio was 4.3%,
marginally above MSCI industrial ERV growth of 4.2%.
Our response to these trends
Picton’s occupier focused approach has enabled us to
capitalise on strong demand for industrial property and grow
ERVs through new lettings, regears and rent reviews.
With a structural shift towards online retail and the increasing
importance of industrial property to economic growth, Picton
will strategically maintain its overweight position in the sector,
applying an opportunity led approach to expand this element
of the portfolio when appropriate.
Picton is in a favourable position to take advantage of strong
investor sentiment and high liquidity within the industrial sector,
with the potential ability to capitalise on recent high returns
whilst maintaining an overweight position.
17.1%
INDUSTRIAL PORTFOLIO
TOTAL RETURN
12
STRATEGIC REPORT
Office market trends
Retail and leisure
market trends
Regional office markets, which are typically less affected
by international factors, such as Brexit uncertainty and EU
migration, than London, have recently seen an increase in
occupier take up and investment activity.
Office occupiers are continuing to seek increased flexibility
when taking new office space and agreeing lease terms.
The rise of co-working and flexible office space has spread
from central London into the regions, which recorded an
increase in take up from serviced office providers during
2018. Occupier needs are evolving to include facilities
for cycling to work; bike storage, showers and changing
rooms.
Improvements in infrastructure are being made; the nearing
completion of Crossrail is already benefiting selected office
markets across London and the South East, a trend which
is set to continue as the new rail link opens. Looking further
into the future, the first phase of HS2 will provide a fast link
between London and Birmingham by 2026, extending to
Manchester by 2032.
What this means for Picton
Picton is underweight in central London offices and overweight
in South East and regional offices versus the MCSI UK
Commercial Property Index, a position which is favourable
during this time of political and economic uncertainty.
Capital growth on the Picton office portfolio was 0.1% for
the year to March 2019, which was below MSCI at 2.0%. ERV
growth on the Picton office portfolio was -0.4%, below MSCI
office ERV growth of 1.0%.
In many retail categories, consumers are increasingly
choosing to shop online in favour of visiting physical stores.
The rise of restaurant food delivery companies has the
potential to affect leisure occupiers’ requirements. Retailers
with profit margins hit by falling sales, rising wages and
business rates are seeking to reduce costs through rent
negotiations, store closures and CVAs.
Rising vacancy in the retail sector is leading to an oversupply
of retail units, putting downward pressure on rents.
What this means for Picton
Capital growth within the Picton retail portfolio was -12.8%
and leisure -7.9% for the year to March 2019. High street
retail properties within the portfolio were particularly hard hit by
current market conditions, recording negative capital growth.
MSCI retail capital growth was -7.3% for the year
to March 2019.
ERV growth on the Picton retail and leisure portfolio was -7.4%,
also below MSCI retail ERV growth, which was recorded at
-3.2%. Again, high street retail properties particularly impacted
the return from the portfolio.
The Picton retail portfolio saw an increase in vacancy over the
year, rising from 3% in March 2018 to 23% in March 2019.
Three quarters of this retail vacancy is due to Stanford House
in London, which is currently undergoing full refurbishment
following lease expiries during the year.
This underperformance is partly attributable to a number
of regional offices with vacant space, where refurbishment
projects will provide improvements in yield and rental growth
upon completion.
Our response to these trends
Picton is occupier focused, always striving to engage with
occupiers to provide support and create open dialogue within
its occupier community.
Our response to these trends
With our occupier focused approach, Picton will continue
to actively manage the office portfolio, aiming to capitalise
on rental growth, particularly within the regions, and engage
with existing and potential occupiers to grow occupancy and
income in the portfolio.
With corporate appetite continuing to grow for serviced and
flexible office space, Picton has introduced a ‘plug and play’
offering to the portfolio, initially at Angel Gate in Islington, which
provides occupiers with a fully fitted and furnished option
without some of the disadvantages that traditionally come
with the co-working concept.
When undertaking refurbishments, Picton will provide quality
space which meets occupier needs. When strategically
considering the future of the office portfolio, due diligence
and research will include a focus on UK wide infrastructure
improvement projects, to ensure that the office portfolio is
positioned in locations likely to see best growth and benefit
from continuing improvements, in the most desirable cities
and leading office markets.
Active asset management has enabled Picton to quickly
address issues within the retail portfolio, offer solutions and
capitalise on opportunities to maximise portfolio income in this
challenging time for the sector. For example at Parc Tawe in
Swansea, where we upsized Lidl into the former Homebase
unit.
Picton is underweight in retail versus MSCI and will strategically
maintain this position, with the portfolio weighted 11.1% to high
street retail, 8.2% to retail warehouses and 0.0% to shopping
centres versus MSCI at 14.9%, 13.1% and 6.9% respectively.
5.7%
-7.4%
OFFICE PORTFOLIO
TOTAL RETURN
RETAIL PORTFOLIO
TOTAL RETURN
13
Our business model
We invest in a diversified UK commercial property portfolio in order to generate
attractive returns for our shareholders. We take a proactive approach to asset
management and invest in assets where we believe there are opportunities to
enhance income and/or value.
Our vision
Through our occupier focused, opportunity led approach,
we aim to be one of the consistently best performing
diversified UK focused property companies listed on the
London Stock Exchange.
Our strategy
To achieve our vision, we aim to own and manage a portfolio
of properties that outperforms the MSCI UK Quarterly Property
Index and provides a stable income stream. We seek to adapt
our capital structure as necessary to achieve enhanced returns
including the effective use of debt.
Creating a
diverse portfolio
We have established a diversified UK property portfolio and
while income focused, we will consider opportunities where
we can enhance either value or income.
occupie
occupier focused
focused
er fo
Our dedicated team have a breadth of experience across
the UK commercial property market.
Depth of
expertise
Proactive asset
management
opportunity led
opport
ity led
rtunit
Stable recurring
income
Our occupier focused, opportunity led approach to asset
management ensures we create space that meets our
occupiers’ needs in order to maintain high levels of occupancy
across the portfolio.
Our diverse occupier base generates a stable income stream,
which we aim to grow through active management and
capturing market rental uplifts. We maintain a covered dividend
policy, which generates surplus cash, allowing us to reinvest
back into the portfolio.
(cid:173)
Delivering value
Our business model and strategic approach ensures we
are able to deliver value to shareholders, occupiers and
other stakeholders.
Shareholders
Occupiers
Communities
14
Our conversion to a REIT structure has improved our
operational efficiency as we benefit from an established
tax exempt regime which enhances shareholder returns.
We engage regularly with our occupiers to ensure we
understand and meet their needs. As a responsible landlord
we are committed to working with our occupiers to reduce
the overall environmental impact of our properties.
Through investing in our properties and ensuring high
occupancy rates we aim to have a positive impact on the
local communities where we own assets. We seek to make
a difference through our charitable giving policy and support
local communities through our occupier matched funding
initiative.
STRATEGIC REPORT
Picton as a reit
As a UK REIT we are part of an internationally
recognised structure, helping to attract a wider
investor base and benefit from increased liquidity
in shares. We also benefit from an established tax
exempt regime which will enable us to enhance
shareholder returns.
We have a consistent track record of
outperformance and although we are now a
UK REIT, our approach to commercial property
investment remains the same.
“ Our business model gives us
the flexibility to adapt to changing
market conditions and so deliver
value to our shareholders through
the property cycle and over the
long-term.”
Our strategic objectives
The following strategic objectives are designed to meet
our strategy and vision:
Experienced people
Our team have in depth knowledge of the
UK real estate market and are all aligned with
shareholders’ interests and focused entirely
on Picton and its success.
Be occupier focused and opportunity
led in the way we approach the proactive
management of our portfolio
Buy, manage and sell effectively to
enhance value and income over the short,
medium and long-term
Focus on both income and total return
and look at ways to reduce and manage risk
Work with our occupiers to create the
space they need, provide a service they value
and so deliver high occupancy
Have a flexible and efficient capital
structure and manage our debt profile
through the property cycle
Ensure we run an effective and efficient
operational model
Have the right culture that enables Picton
to achieve its strategic aims
Align all staff with shareholders’
interests through an appropriately structured
remuneration policy
p16 Read more in our Strategy in Action pages
(cid:79)(cid:3) Industrial
(cid:79)(cid:3) Office
45.6%
(cid:79)(cid:3) Retail and Leisure
20.1%
34.3%
Balanced diverse portfolio
Our unconstrained approach ensures diversified
exposure to the UK market, both by geography
and sector.
Efficient capital structure
Our efficient capital structure, with relatively low
gearing and immediate access to funds through
our revolving credit facilities, enables us to be
proactive when the right opportunities arise.
15
Our strategy in action
Picton aims to be one of the consistently best performing diversified UK
focused property companies listed on the London Stock Exchange. To
achieve this we will own and manage a portfolio of properties in order to
outperform the MSCI UK Quarterly Property Index and provide a stable
income stream. We will adapt our capital structure as necessary, including
the effective use of debt, to achieve enhanced returns.
Be occupier
focused and
opportunity led
Buy, manage and
sell effectively
Progress this year
• During the year we have
undertaken many asset
management initiatives including
short-term lease extensions,
surrenders and re-gears.
• We have progressed a number
of refurbishment projects to
undertake in 2019/20, aimed at
attracting and retaining occupiers
and providing space they need.
• We have redefined our Picton
Promise focusing on the key
themes of Action, Support,
Sustainability, Technology and
Community.
Progress this year
• We completed the sale of two
office properties, to local authority
purchasers, capturing the value
created through our asset
management and achieving sale
prices ahead of valuation.
Focus on both
income and
total return
Progress this year
• We have delivered a total return
for the year of 6.5%, and our
portfolio has outperformed the
MSCI UK Quarterly Property
Index over one, three, five and
ten years, on both an income
and total return basis.
• We have reduced risk through
the repayment of debt and by
removing restrictive conditions
around sector exposure in one
of our debt facilities.
p26 Read more on KPIs
p43 Read more on Risks
16
Priorities for
the upcoming year
Our priority is to continue with
this approach and look to extend
income and enhance occupancy.
We will be communicating our
Picton Promise with existing and
potential occupiers, providing a
further point of difference in the
market place.
Connected KPIs
I
C
J
D
K
Associated risks
2
3
5
Priorities for
the upcoming year
Transaction volumes are currently
lower than previous years, but
there are still potential opportunities
and mispricing in the market.
While we continue to favour the
industrial sector, there are likely to
be opportunities in other sectors.
We will remain disciplined in our
allocation of capital in light of current
sector risks.
Connected KPIs
C
D G
Associated risks
2
3
4
Priorities for
the upcoming year
We are focused on our lease expiry
profile and are already discussing
extensions on significant lease
expiries over the coming 12 to
24 months. We have a number
of transactions in the pipeline that
will enhance income or value.
Connected KPIs
A
C
D
F
Associated risks
3
1
4
2
5
STRATEGIC REPORT
Work with
our occupiers
Progress this year
• We have completed major
refurbishment projects at 180
West George Street, Glasgow
and at Marlow.
• We have been working with
Priorities for
the upcoming year
Our priorities for the year include:
• a number of key refurbishment
projects which will enhance
occupancy
occupiers in financial difficulties
to mitigate void costs and achieve
an enhanced income position in
the medium term.
• continuing to improve service
delivery with our managing
agents and other partners
• rolling out our Picton Promise
initiatives
Connected KPIs
I
J
K
Associated risks
5
Have a flexible
and efficient
capital structure
Progress this year
• We made an early repayment
of £33 million under one of our
long-term loan facilities, utilising
sale proceeds, and thereby
reducing our loan to value ratio
to below 25%.
• We also increased the flexibility of
the facility by removing conditions
specifying sector and geographic
weightings.
Priorities for
the upcoming year
We will continue to review our
capital structure so that it is
appropriate for changing market
conditions and that we can take
advantage of opportunities which
may arise. In particular we will review
our revolving credit facilities which
mature in 2021.
Connected KPIs
A
F
Associated risks
1
8
9
10
Ensure we run
an effective and
efficient operational
model
Progress this year
• Conversion to a REIT has
provided the main efficiencies
this year, reducing our current
and future tax liabilities and our
offshore administration costs.
Priorities for
the upcoming year
Continued focus on cost base,
supplier performance and effective
operation of the new management
committees.
Progress this year
• We have established new
management committees with
other members of the team to
provide more engagement below
director level.
• We have in place Teamship
guidelines and values setting
out how the team should work
together and conduct themselves.
• The new Responsibility
Committee is working with a local
charity to provide volunteering
opportunities.
Progress this year
• All staff remain aligned with
shareholders through the deferred
element of the annual bonus and
through their participation in the
Long-term Incentive Plan.
Have the
right culture
Align all staff
with shareholders’
interests
Connected KPIs
A
E
Associated risks
6
7
Connected KPIs
–
Associated risks
4
5
6
3
7
Priorities for
the upcoming year
Ensure effective running of
committees, onboarding of new staff
and improving communication and
collaboration through the team.
Priorities for
the upcoming year
Continued focus on KPIs.
Connected KPIs
B
C
H
Associated risks
6
17
STRATEGY IN ACTION
Radlett
Parkbury Industrial Estate
comprises modern units
of varying sizes between
4,000 sq ft and 74,000
sq ft, strategically located
alongside the M25 and
close to the M1.
STRATEGY IN ACTION
Northampton
800 Pavilion Drive is a
51,000 sq ft office building
located on Northampton
Business Park with 223
car parking spaces on a
site of two acres.
(cid:79)(cid:3)Industrial
(cid:79)(cid:3)Office
(cid:79)(cid:3)Retail
Enhancing value and income
We continually look to capture rental growth, thereby enhancing income,
and where possible look to create value through restructuring leases.
In some instances, if we believe a position has been maximised, we will
look to recycle capital for better uses.
Radlett
We have seen good demand for units on the
estate over the year, with continued rental growth
and units letting on average within two months of
becoming vacant.
Northampton
During the year we surrendered a lease of a unit
securing a full dilapidations payment from the
outgoing occupier. We then re-let the unit in its
existing condition securing a minimum five-year
term at an initial rent of £0.1 million per annum,
34% ahead of the previous passing rent and
13% ahead of ERV. The adjoining unit, which
became vacant on a lease expiry, was pre-let on
an Agreement to Lease prior to being refurbished,
securing a minimum five-year term at an initial
rent of £0.1 million per annum, 43% ahead of
the previous passing rent and 9% ahead of ERV.
The refurbishment was fully covered by
the dilapidations claim.
Furthermore, two leases were renewed, one for
ten years and the other for five, at a combined
rent of £0.3 million per annum, 39% ahead of
the previous passing rent and 10% ahead of
ERV. One rent review was settled, increasing the
passing rent by 42% to £0.1 million per annum,
10% ahead of ERV.
The property is currently 93% let with the ERV
8% higher than at 31 March 2018, and the
valuation having increased by 16% over the
same period.
SOUTH EAST MULTI-LET
INDUSTRIAL ESTATE
NUMBER OF OCCUPIERS
20
SQUARE FEET
336,700
INCREASE IN ERV
8.0%
INCREASE IN VALUE
16%
In 2013 we put in place a ten-year lease at
800 Pavilion Drive with a break option in 2018.
Recognising our ongoing relationship with the
occupier we were confident that they would not
action the break clause in 2018. We held the
asset during this period capturing the upside as
the regional office market recovered.
By waiting for the break to pass and securing a
five-year term certain, we were able to capture a
54% valuation uplift relative to the valuation prior
to the break notice. The sale, to a local authority
purchaser, was completed at a 13% premium to
the preceding valuation.
EAST MIDLANDS
OFFICE
NUMBER OF OCCUPIERS
1
SQUARE FEET
51,000
PREMIUM
TO VALUATION
13%
STRATEGIC REPORT
Portfolio value
£414m
2012
£685m
2019
19
STRATEGY IN ACTION
Marlow
Atlas House is a
25,400 sq ft office building
located on the established
Globe Business Park,
with good access to
both the M4 and M40.
STRATEGY IN ACTION
Glasgow
180 West George Street is
a Grade A headquarters
building, located in the
heart of Glasgow’s central
business district.
(cid:79)(cid:3)Industrial
(cid:79)(cid:3)Office
(cid:79)(cid:3)Retail
STRATEGIC REPORT
Investing in our properties
We believe it is important to continue to invest in our assets, to mitigate the
impact of depreciation, improve their attractiveness in the market place and
enhance letting prospects.
Capital
investment
Glasgow
Marlow
At Atlas House in Marlow, we have been able
to substantially reposition the building through
refurbishment, following an occupier downsizing
last summer. High quality space has been
created, which we expect to let approximately
40% ahead of the previous passing rent. In
addition, we have comprehensively refurbished
the common areas to include occupier amenity
space, showers and an enclosed garden for the
sole use of the building’s occupiers.
The refurbishment has just completed and is
available to lease. The space presents very well
against the competition and we believe will attract
an occupier quickly.
£4.3m
2012
£1.6m
2019
THAMES
VALLEY OFFICE
NUMBER OF OCCUPIERS
3
SQUARE FEET
25,400
180 West George Street offers contemporary,
open plan office space with occupier amenities
including bicycle storage, electric car charging
and shower facilities.
Following a comprehensive refurbishment, which
completed just before the start of the year, the
building provides some of the best quality space
available in Glasgow’s central business district.
Working with our occupiers, further works were
completed during the period, including new office
entrances and the installation of a building system
monitoring platform, Asset IQ. This ensures we
are running all of the systems optimally to save
electricity and gas in line with our sustainability
aims, and this will also result in reduced running
costs for the building, to the benefit of our
occupiers.
We let the fourth floor to Peninsula Business
Services, securing a minimum five-year term
at an initial rent of £0.2 million per annum, which
is 15% ahead of the previous passing rent and
1% ahead of ERV. In another transaction, we
moved an occupier’s break option out by a year,
securing £0.2 million of income.
CENTRAL GLASGOW
OFFICE
NUMBER OF OCCUPIERS
5
SQUARE FEET
52,100
21
STRATEGY IN ACTION
Farringdon
50 Farringdon Road is a
31,000 sq ft office building
located in the heart of EC1
adjacent to Farringdon
Crossrail station.
STRATEGY IN ACTION
Swansea
Parc Tawe North comprises
eight units of a combined
116,700 sq ft retail
warehouse park. The
property is located on the
edge of the city centre in
an established retail area.
22
(cid:79)(cid:3)Industrial
(cid:79)(cid:3)Office
(cid:79)(cid:3)Retail
Working with our occupiers
Working with our occupiers is fundamental to what we do and assists us in
identifying asset management opportunities, especially when occupiers need
to expand and contract. Knowing what our occupiers’ business needs are
allows us to work with them to restructure leases, increase lease lengths,
and potentially enhance rents by, for example, surrendering leases where the
passing rent is below the market level.
Swansea
Homebase, which entered into a Company
Voluntary Arrangement (CVA) in August 2018,
had proposed to reduce the passing rent on
their unit by 90%. Recognising that better terms
could be agreed elsewhere, we chose to serve
notice to secure vacant possession of the unit.
At the same time, we negotiated the release of
a restrictive covenant to allow additional food
retailing on the park.
Working with another one of our occupiers, Lidl,
who occupied a 10,000 sq ft unit on a lease
expiring in 2023, we entered into an agreement
whereby Lidl agreed to take the entire 35,500 sq
ft previously occupied by Homebase. Following
enabling works by us, Lidl will take a 20-year
lease, with a break after 15 years, at an annual
rent of £0.4 million, in line with ERV. The lease
is subject to five yearly RPI based rent reviews
capped at 2% per annum.
Having secured an anchor occupier for the
largest unit on the park, we are pursuing the
second stage of our strategy by improving
the external areas and focusing on letting the
remaining space.
Through this approach we have significantly
mitigated the negative impact of the
Homebase CVA.
London
At 50 Farringdon Road, we engaged with our
largest occupier who occupied a 7,800 sq ft suite
on a lease with a break in December 2021. They
required additional space to facilitate business
expansion and we agreed to upsize them by
50% into the final available suite in the building,
resulting in their occupation of the entire first floor.
We entered into a coterminous lease of the new
suite, generating income of £0.2 million per
annum, 5% ahead of ERV and, at the same time,
we varied their existing lease securing five-year
income on the whole floor.
This transaction was a good example of our
‘rightsizing’ promise in action and the building
is now fully leased.
CENTRAL
LONDON OFFICE
NUMBER OF OCCUPIERS
5
SQUARE FEET
31,000
STRATEGIC REPORT
Occupancy
91%
2012
90%
2019
WELSH RETAIL
WAREHOUSE PARK
NUMBER OF OCCUPIERS
6
SQUARE FEET
116,700
23
Chief executive’s review
Michael morris
The economic uncertainty as a result of
the Brexit process has been increasingly
apparent over the last 12 months. It has
not been helpful to the real estate sector,
nor more widely to the occupational markets.
Despite this, overall the property market held
up well, with the MSCI UK Quarterly Property
Index showing a total return of 4.6%.
The industrial sector has been the most resilient
and the retail sector the least, suffering a marked
deterioration as retailers struggle with rising costs
and the impact of online competition. The CVA
and pre-pack administration processes have
become more widespread, enabling retailers to
relinquish lease obligations, which have, in turn,
accelerated the downward movement in rental
and capital values.
Against this backdrop our portfolio performed
well, as we continued to manage our assets
effectively. We remain cautious in our use of debt,
and with more limited transactional activity, we
continue to evaluate ways in which we can invest
in our assets, enhance the accommodation and
in turn the income and valuation potential.
Occupier focused
and opportunity led
Our occupier focused approach remains at the
forefront of what we do. Enhancing occupancy
and retention, thereby mitigating void risk, is key.
Through this process we are continually looking
at options to improve our income profile and
extend it where possible.
We have also spent time redefining our
Picton Promise for occupiers, focused on
key commitments including Action, Support,
Sustainability, Technology and Community, all of
which we believe have relevance and importance
to our occupiers in this evolving working
environment. We look forward to seeing the
impact of this as it is rolled out during 2019.
Buy, manage and sell effectively
Transactional activity during the year was muted,
reflecting the slowdown in investment activity and
the availability of suitable opportunities. With a
desire to maintain a prudent approach to gearing,
no acquisitions were made during the period. In
the wider market, it has been clear that a number
of open ended funds had selling pressure and
in the retail sector, in particular, there has been
limited investor appetite.
We were opportunistic in making two disposals,
coincidentally both to local authority purchasers,
which reflected a combined 10% premium to
their valuation at March 2018 and more than 45%
to their valuation at March 2017, capturing the
upside from earlier asset management initiatives.
While no acquisitions were made in the year,
we think there may well be greater buying
opportunities as we move through 2019 and into
2020. As ever stock selection remains key and
identifying intrinsic value is paramount.
Focus on income and total return
We delivered a positive income return and
capital growth from the portfolio during the
year. Our conservative use of debt also had
a positive impact.
24
STRATEGIC REPORT
7.5%
TOTAL PROPERTY
RETURN
5.6%
PROPERTY INCOME
RETURN
5.7p
EARNINGS PER
SHARE
Cash flow remains hugely important and this
is reflected in our income focus. An additional
£1.1 million of other income was secured in the
year in addition to rental income. This primarily
came through asset management events where
we chose to surrender leases ahead of expiry,
in most instances to enable refurbishment and
upgrading of space.
Despite our diversified occupier base and low
exposure to the retail sector we were not immune
to occupier failures. In one notable example
the Homebase unit in Swansea has been
successfully re-let and is further detailed in
this report.
Creating space occupiers need
We continue to invest in our assets, improving
the quality of space and ensuring that it meets
occupier demand. The timing of lease events
was such that there were only a handful of key
refurbishment projects undertaken during the
year. Additional work was done to plan schemes
for this coming year and beyond. In this market,
it is more important than ever to have the right
space that will attract high-quality occupiers
and minimise vacancies.
The last 12 months have seen the marked
deterioration of trading conditions for retailers
and the well documented difficulties for long-
established companies such as Debenhams,
Homebase, New Look and House of Fraser to
name but a few. These have impacted either
directly or indirectly on all owners of commercial
real estate operating in this sector.
Our occupancy has reduced during the year
and now stands at 90%. This is, we expect, a
short-term position and is driven by the timing
of lease events. The major void, accounting for
over a third of total portfolio vacancy, is a property
in Covent Garden, a well known and busy
location. This became vacant during the year
ahead of a planned refurbishment and re-leasing
programme. We are fortunate that because this
is a Grade II listed asset, there is no empty rates
liability. We are actively managing this to achieve
an optimum outcome and already have leasing
interest.
Managing our capital structure
through the cycle
Debt was repaid during the year, partly using
asset sale proceeds, which reduced overall
borrowings by some £19 million. We have drawn
down from our revolving credit facilities during
“We continue to evaluate ways in
which we can invest in our assets,
enhance the accommodation and
in turn the income and valuation
potential.”
the year, which proved a useful way of managing
our cash flow position, ensuring an efficient use
of the balance sheet and allowing us to adopt a
more flexible approach to debt levels as market
conditions change.
Effective and efficient
operational model
We were able to have a positive impact on
earnings through corporate efficiencies, such as
our REIT conversion, which is expected to save
more than £0.7 million in tax per annum relative
to last year. This also needs to be viewed in the
context of future tax changes which will impact
offshore companies – if we had not converted,
our tax liabilities would have been much greater.
The full benefit of this change will be fully reflected
in next year’s results.
Culture and alignment
We are fortunate to have a strong team at
Picton and our culture is key in ensuring the team
works well. We are guided by our shared vision
and values and all of our staff are aligned with
shareholders through our deferred bonus scheme
and also our Long-term Incentive Plan. The
2016 LTIP awards will vest this year and staff will
benefit from the success that we have delivered
for shareholders over the preceding three years.
Outlook
Our focus will be on growing occupancy and
income. We are aiming to create further value
through investing in our assets and restructuring
leases, either to capture higher rents or to
provide greater income security. We expect this
to underpin our progressive dividend policy and
ensure we continue to be well placed to deliver
on our vision of consistent outperformance.
Michael Morris
Chief Executive
25
Key
performance
indicators
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, are appropriate to use alongside
certain EPRA measures and others
that are relevant to our Company. This
year we have added two new non-
financial key performance indicators,
retention rate and EPC ratings, with
comparatives for the previous year.
Key performance indicators are also
used to determine remuneration as
set out in the Remuneration Report.
(cid:79) Remuneration link
Epra
Linking our performance to EPRA
best practices recommendations.
Total return (%)
Total shareholder return (%)
A
B
2019
6.5
2018
14.9
2017
10.4
2019
10.1
2018
4.8
2017
25.6
Why we use this indicator
The total return is the key measure of the
overall performance of the Group. It is the
change in the Group’s net asset value,
calculated in accordance with IFRS, over
the year, plus dividends paid.
The Group’s total return is used to
assess whether our vision to be one
of the consistently best performing UK
focused property companies listed on
the London Stock Exchange is being
achieved, and is a measure used to
determine the annual bonus.
Our performance in 2019
Modest valuation gains resulted in
a positive return for the year.
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.
Our total shareholder return relative to a
comparator group is a performance metric
used in the Long-term Incentive Plan.
Our performance in 2019
The total shareholder return for 2019
is one of the highest in our peer group.
Loan to value ratio (%)
EPRA net asset value
per share (pence)
EPRA earnings per share
(pence)
F
G
H
2019
24.7
2018
26.7
2017
27.4
2019
93
2018
90
2017
82
2019
4.3
2018
4.2
2017
3.8
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. This is a
recognised measure of the Company’s
level of borrowings and is a measure of
financing risk. See the Supplementary
Disclosures section for further details.
Our performance in 2019
The loan to value ratio has continued
to reduce following the repayment of
debt over the year.
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 2019
The EPRA NAV per share has grown
by 2.5% over the year.
Why we use this indicator
The earnings per share, calculated in
accordance with EPRA, represents the
earnings from core operational activities and
excludes investment property revaluations,
gains/losses on asset disposals and any
exceptional items. It measures the operational
profit generated by the business that is
attributable to our shareholders.
The growth in EPRA earnings per share is also
a performance measure used for the annual
bonus and the Long-term Incentive Plan.
Our performance in 2019
EPRA earnings per share has marginally
increased this year due to the reduction in our
finance costs following the repayment of debt
and tax savings following conversion to a REIT.
2626
Our strategic objectives
(cid:79)
Be occupier focused and opportunity led
(cid:79)
Buy, manage and sell effectively (cid:79)
Focus on both income and total return
(cid:79)
Work with our occupiers
STRATEGIC REPORT
Total property return (%)
Property income return (%)
Cost ratio (%)
C
D
E
2019
7.5
2018
13.0
2017
9.9
2019
5.6
2018
6.0
2017
6.7
2019
1.1
2018
1.1
2017
1.2
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.
Our total property return relative to the
MSCI UK Quarterly Property Index is a
performance condition for both the annual
bonus and the Long-term Incentive Plan.
Our performance in 2019
We have outperformed the MSCI UK
Quarterly Property Index, delivering a
return of 7.5% compared to the MSCI UK
Quarterly Property Index return of 4.6% for
the year, and we have also outperformed
on a three, five and ten year basis.
Why we use this indicator
The property income return, as calculated
by MSCI, is the ungeared income return
of the portfolio. With our portfolio biased
towards income generation, this is an
important indicator.
Our performance in 2019
The income return for the year of 5.6%
was ahead of the MSCI UK Quarterly
Property Index of 4.4%, and we have
also outperformed on a three, five and
ten year basis.
Why we use this indicator
The cost ratio, recurring administration
expenses as a proportion of the average
net asset value, shows how efficiently
the business is being run, and the
extent to which economies of scale are
being achieved. See the Supplementary
Disclosures section for further details.
Our performance in 2019
The cost ratio has remained at 1.1%
this year with administrative expenses
largely unchanged from 2018.
EPRA vacancy rate (%)
Retention rate (%)
EPC ratings (%)
I
J
K
2019
10.3
2018
4.2
2017
5.8
2019
49
2018
63
2019
82
2018
81
Why we use this indicator
The vacancy rate measures the amount of
vacant space in the portfolio at the end of
each financial period, and over the long-
term, is an indication of the success of
asset management initiatives undertaken.
Our performance in 2019
The EPRA vacancy rate has increased
over the year as a result of lease expiries,
most notably at our Covent Garden asset.
The vacancy rate is above the MSCI IRIS
Benchmark vacancy rate of 7.1%.
Why we use this indicator
This provides us with a measure of asset
suitability and occupier satisfaction over
the year.
Our performance in 2019
Retention was lower in 2019, reflecting
the timing of lease expiries. We continue
to regear leases early and ahead of lease
expiry and in a portfolio like this retention
rates will vary from year to year.
Why we use this indicator
Energy Performance Certificates (EPC)
indicate how energy efficient a building is
by assigning a rating from ‘A’ (very efficient)
to ‘G’ (inefficient). A higher EPC rating is
likely to lead to lower occupational costs
for occupiers.
Our performance in 2019
The proportion of EPC ratings between
A to D have increased on the prior year
and now make up 82% of the total
portfolio. Where we have upgraded space
we have sought to enhance EPC ratings
as appropriate.
(cid:79) Have a flexible and efficient capital structure
(cid:79) Ensure we run an effective
and efficient operational model
(cid:79) Have the right culture
(cid:79) Align all staff with shareholders’ interests
27
27
Portfolio review
Our asset allocation, with 46% in industrial, 34% in office and 20% in retail
and leisure, combined with proactive active management, has enabled us
to again outperform the MSCI UK Quarterly Property Index on a total return
basis over one, three, five and ten years.
Our portfolio now comprises 49 assets,
with around 350 occupiers and is valued at
£685.3 million with a net initial yield of 5.0% and
reversionary yield of 6.3%. Overall the like-for-like
valuation was up 1.8%, with the industrial sector
up 11%, offices delivering growth of 0.2% and
retail and leisure declining 12%.
Our portfolio has become increasingly polarised
with our industrial assets performing better, in
“ We have completed 24 lettings,
securing over £1.3 million of income,
1.7% ahead of the March 2018 ERV.”
part reflecting our allocation to South East
multi-let estates which account for over 70%
of our industrial exposure. Conversely, our retail
assets have underperformed, primarily due to the
specific timing of lease events and the impact of
certain retailer failures.
The overall passing rent is £37.7 million, a
decrease from the prior year of 6.8% on a like-
for-like basis. Part of this however was due to
the surrender of 11 leases, where we received a
combined premium in excess of £0.7 million, and
where the previous passing rent was on average
13% below the estimated rental value (ERV).
The ERV of the portfolio remains at £46.8 million,
with the positive growth in the industrial sector
of 4.3% to £18.7 million being offset by negative
growth in the retail sector of 7.4% to
£10.0 million and the office portfolio ERV
remaining constant at £18.1 million. We have set
out the principal activity in each of the sectors in
which we are invested and believe our strategy
and proactive occupier engagement will continue
to unlock further value.
The industrial and office sector occupational
markets have remained resilient, conversely retail
demand has weakened considerably resulting in
oversupply and significant decreases in ERVs.
We have completed 24 lettings, securing over
£1.3 million of income, 1.7% ahead of the March
2018 ERV. We completed 17 lease renewals and
re-gears retaining over £1.9 million of income,
£47m
ESTIMATED
RENTAL VALUE
90%
OCCUPANCY
£14m
AVERAGE LOT SIZE
28
STRATEGIC REPORT
1.6% ahead of the March 2018 ERV.
No acquisitions were made during the year
and two assets were sold for £12.0 million,
9.7% ahead of the March 2018 valuation. Both
buildings were sold to local authorities. The
Merchants House, Chester, sale was due to
concerns of a potential Compulsory Purchase
Order being put in place and at 800 Pavilion
Drive, Northampton, the occupier had not
actioned their break, giving us the opportunity
to sell the building for a premium to valuation
and de-risk a future potential void in a weak
occupational market. The net effect of these
transactions is that the average lot size of the
portfolio has increased by 4.3% to £14 million.
Our focus remains on proactively managing
the existing portfolio, where there are numerous
opportunities to create further value through
extending income, refurbishing buildings and
leasing vacant space, helping us to capture the
£9.1 million of reversionary potential.
The reinvestment into the portfolio has been
ongoing through the year and will continue into
next year, with value accretive refurbishment
of vacant space and modernisation schemes
identified at ten properties, with smaller
refurbishment projects happening elsewhere.
All of the projects have the simple aim of creating
best in class space to attract or retain occupiers
and increase ERVs.
The industrial portfolio, accounting for 46% of
the total portfolio by value, continues to perform
strongly, and with a number of large lease events
over the next 12 to 24 months, we are actively
engaged with occupiers discussing regears. We
do not see any signs of the rental growth slowing
and this will be a key driver of performance,
alongside extending income over the next year.
The office sector continues to evolve with
businesses wanting best in class space for their
staff with flexibility to expand and contract.
“Our focus remains on proactively
managing the existing portfolio,
where there are numerous
opportunities to create further
value.”
29
Portfolio review continued
46%
INDUSTRIAL ASSET
ALLOCATION
34%
OFFICE ASSET
ALLOCATION
20%
RETAIL AND LEISURE
ASSET ALLOCATION
30
We continue to invest into our offices, and
recently completed the refurbishment of Atlas
House in Marlow, creating high quality office and
amenity space and an enclosed garden for our
occupiers.
Occupancy has reduced by 6% over the year
to 90%, which is a result of active management
surrenders, lease events towards the end of
the year and occupier failures. Our largest void
is Stanford House on Long Acre in Covent
Garden, accounting for over a third of the total
vacancy rate. This is a flagship store and it will be
comprehensively refurbished during the year to
provide best in class retail, office and residential
accommodation. We already have occupational
interest in the retail space.
While occupancy has reduced, particularly over
the last quarter, we have a strong refurbishment
pipeline and have good occupier interest. We
anticipate occupancy remaining around 90%
during the year and then increasing from the
end of the year into 2020.
“ We have a strong refurbishment
pipeline and have good occupier
interest.”
Occupier failures, while in the short-term will
decrease occupancy and increase void costs,
can unlock opportunities to add value. There
were eight failures across the portfolio with a
combined passing rent and ERV of £1.2 million.
Three of the properties have been re-let, two
are under offer, two properties remain with the
administrator to mitigate void costs and we have
occupational interest in the remaining property.
In line with our occupier focused opportunity led
approach, we continue to proactively engage with
our occupiers which we believe assists occupier
retention and adds demonstrable value.
Top ten assets
Our largest assets as at 31 March 2019, ranked by capital
value, represent 50% of the total portfolio valuation.
1
3
5
7
9
2
4
6
8
10
Parkbury Industrial Estate
Radlett, Herts.
Acquisition date 03/2014
Property type Industrial
Tenure Freehold
Approx area (sq. ft) 336,700
No of occupiers 20
Occupancy rate (%) 93
Angel Gate, City Road,
London EC1
Acquisition date 10/2005
Property type Office
Tenure Freehold
Approx area (sq. ft) 64,500
No of occupiers 30
Occupancy rate (%) 93
50 Farringdon Road,
London EC1
Acquisition date 10/2005
Property type Office
Tenure Leasehold
Approx area (sq. ft) 31,000
No of occupiers 5
Occupancy rate (%) 100
Belkin Unit, Shipton Way,
Rushden, Northants.
Acquisition date 07/2014
Property type Industrial
Tenure Leasehold
Approx area (sq. ft) 312,900
No of occupiers 1
Occupancy rate (%) 100
Colchester Business Park,
Colchester
Acquisition date 10/2005
Property type Office
Tenure Leasehold
Approx area (sq. ft) 150,700
No of occupiers 24
Occupancy rate (%) 99
STRATEGIC REPORT
(cid:79)(cid:3)Industrial
(cid:79)(cid:3)Office
(cid:79)(cid:3)Retail and Leisure
River Way Industrial Estate
Harlow, Essex
Acquisition date 12/2006
Property type Industrial
Tenure Freehold
Approx area (sq. ft) 454,800
No of occupiers 11
Occupancy rate (%) 100
Stanford House,
Long Acre, London WC2
Acquisition date 05/2010
Property type Retail
Tenure Freehold
Approx area (sq. ft) 19,700
No of occupiers 0
Occupancy rate (%) 0
Tower Wharf,
Cheese Lane, Bristol
Acquisition date 08/2017
Property type Office
Tenure Freehold
Approx area (sq. ft) 70,800
No of occupiers 5
Occupancy rate (%) 72
30 & 50 Pembroke Court,
Chatham, Kent
Acquisition date 06/2015
Property type Office
Tenure Leasehold
Approx area (sq. ft) 86,300
No of occupiers 3
Occupancy rate (%) 100
Lyon Business Park,
Barking, Essex
Acquisition date 09/2013
Property type Industrial
Tenure Freehold
Approx area (sq. ft) 99,400
No of occupiers 8
Occupancy rate (%) 96
31
Portfolio review continued
Our top ten occupiers
The largest occupiers, based as a percentage of contracted
rent, as at 31 March 2019, are summarised as follows:
(cid:79)(cid:3)Industrial
(cid:79)(cid:3)Office
(cid:79)(cid:3)Retail
£40.4m
£11.3m
27.9%
£1.7m
4.2%
TOTAL
CONTRACTED RENT
TOP 10 OCCUPIERS
BELKIN LIMITED
£1.7m
4.0%
£1.5m
3.7%
£1.2m
3.1%
PUBLIC SECTOR
DHL SUPPLY
CHAIN LIMITED
B&Q PLC
£1.2m
2.9%
£1.1m
2.8%
£0.9m
2.2%
THE RANDOM HOUSE
GROUP LIMITED
SNORKEL EUROPE
LIMITED
PORTAL CHATHAM LLP
£0.7m
1.8%
£0.7m
1.7%
£0.6m
1.5%
TK MAXX
XMA LIMITED
CANTERBURY
CHRIST CHURCH
UNIVERSITY
32
STRATEGIC REPORT
Longevity of income
25.2
As at 31 March 2019, expressed as a percentage of
contracted rent, the average length of the leases to the
first termination was 5.1 years. This is summarised as:
5.1
years
The average length
of the leases to
first termination.
16.8
14.8
%
13.6
11.3
9.7
5.2
Number of years
0-1
1-2
2-3
3-4
4-5
5-10
10-15
1.3
2.1
15-20 25+
Retention rates and occupancy
Over the year total ERV at risk due to lease expiries
or break options totalled £6.9 million, compared to
£3.1 million for the year to March 2018.
Excluding asset disposals, we retained 49% of
total ERV at risk in the year to March 2019. This
comprised 27% on lease expiries and 22% on
break options. It is worth noting that despite a total
of £3.5 million of ERV vacating during the year,
half relates to Stanford House in London’s Covent
Garden, a property which is currently undergoing
full refurbishment.
Occupancy has reduced during the year, primarily
reflecting the timing of lease events, some
challenges in the retail sector and some specific
asset management surrenders we have initiated.
Occupancy has decreased from 96% to 90%,
which is behind the MSCI IRIS Benchmark of
92.9% at March 2019. On a look through basis we
have 60% of our total void in offices, 32% in retail,
primarily at a flagship store in Covent Garden, and
only 8% of our void is in industrial, reflecting the
stronger occupational market.
In addition to units at risk due to lease expiries
or break options during the year, a further
£1.8 million of ERV was retained by either
removing future breaks or extending future
lease expiries ahead of the lease event.
OCCUPANCY 2018
96%
2019
90%
Income concentration
34.0
%
28.3
24.9
There is a wide diversity of occupiers within the
portfolio, as set out below, which are compared
to the MSCI Quarterly Index by contracted rent,
as at 31 March 2019.
Picton
Index
16.1
13.6
13.6
13.7
7.0
9.8
8.7
6.0
5.6
3.4
1.0
3.3
4.7
Services
Retail trade
Manufacturing Financial
services
Transportation,
communications
Wholesale trade
Construction
Other
Source: MSCI IRIS Report March 2019
3.2
3.1
Public
administration
33
Portfolio review continued
Industrial portfolio review
The industrial portfolio again delivered the strongest sector performance of
the year. This was a result of tight supply, limited development and continued
occupational demand resulting in further rental growth, especially in smaller
units in the South East.
Through asset management activity we have
been able to capture rental growth in this market.
This, combined with continued strength in the
investment market, has resulted in another strong
year for our portfolio.
the period, for a combined £71,000 per annum,
in line with ERV. Four rent reviews were settled,
the passing rent increasing to a combined
£0.1 million per annum, 5% ahead of ERV. We
currently have two vacant units, one of which is
under offer.
On a like-for-like basis, our industrial portfolio
value increased by £30.9 million or 11%
to £312.8 million, and the annual rental
income increased by £0.4 million or 2.6%
to £16.0 million. The portfolio has an average
weighted lease length of 4.5 years and
£2.7 million of reversionary potential to
£18.7 million per annum.
Occupational demand remains strong, especially
in London and the South East. We have seen
rental growth of 4.3% across the portfolio and are
experiencing demand across all of our estates.
Occupancy is 98% with only seven vacant units
out of 133, four of which are under offer. Our
six distribution units, totalling 1.3 million sq ft,
remained fully let during the period.
Portfolio activity
Our largest single uplift on a rent review was
on the distribution unit in Grantham, where we
achieved a 19% uplift or £0.2 million per annum,
9% ahead of ERV, the new passing rent being
£1.2 million per annum.
At Parkbury in Radlett, our largest estate, we
surrendered a lease of a unit securing a full
dilapidations payment. We then re-let the unit
in less than two months in its existing condition
securing a minimum five-year term at an initial
rent of £0.1 million per annum. The adjoining unit
became vacant on lease expiry and was pre-let
securing a minimum five-year term at an initial
rent of £0.1 million per annum. We currently have
three vacant units, one of which is under offer.
At Datapoint in London E16, following the
completion of two rent reviews, we achieved a
57% uplift in rent. The uplift was £65,000 per
annum. We have agreed to surrender a lease on
the estate later in the year, as there is very strong
demand and we believe we can move the rental
tone on considerably with a new letting.
At Nonsuch Industrial Estate in Epsom, working
with our occupiers, we chose to surrender two
leases so we can move occupiers around on the
estate and satisfy demand from occupiers who
require double units. This active management
strategy is ongoing. Three units were let during
At units in Bracknell and York, both of which
had lease events in 2020, we put in place
two reversionary leases for a further eight and
ten years respectively, extending income and
securing a combined £0.3 million rent per annum,
which is subject to review next year.
At Dencora Way in Luton, we renewed three
leases for a further five years, subject to break,
at a combined rent of £0.2 million per annum,
37% ahead of the previous passing rent and in
line with ERV.
We extended the lease of Haynes Way, Rugby
until the summer, due to Brexit related storage
requirements, securing a one off payment of
£0.4 million. This is one of the few cross-docked
100,000 sq ft units available in the ‘Golden
Triangle’ and we expect to secure an occupier
quickly post refurbishment.
As part of our office campus at Colchester
Business Park, we own a 30,000 sq ft industrial
unit. We achieved a 32% uplift in rent following
completion of a rent review. The uplift was
£47,000 per annum, 36% ahead of ERV, the
new passing rent being £0.2 million per annum.
Our outlook
Demand remains strong across the country,
which is translating into strong rental growth
especially in Greater London and the South East
where we have 95% of our multi-let estates by
value. We believe this demand will be maintained
in the short-term, especially on the multi-let
estates, where there is a lack of supply and
a limited development pipeline.
Looking forward, active management will facilitate
the capturing of rental growth as we continue to
work proactively with our occupiers to facilitate
their business needs. Occupancy will reduce
slightly through the middle of the year, primarily
due to the Rugby unit mentioned above.
We have 25 lease events in the coming year,
the overall ERV for these units is higher than the
current passing rent of £1.9 million. This provides
us with the opportunity to grow income further.
2019
£312.8m
2018
VALUE
£281.9m
2,731,000
SQUARE
FEET
2,731,000
£16.0m
ANNUAL
RENT
£15.6m
£18.7m
ESTIMATED
RENTAL
VALUE
£18.0m
98%
OCCUPANCY
99%
34
STRATEGIC REPORT
Belkin Limited
1
DHL Supply Chain Limited
2
The Random House Group Limited
3
Snorkel Europe Limited
4
XMA Limited
5
4.2% 3.7% 2.9% 2.8% 1.7%
NUMBER OF ASSETS
17
2019
17
2018
LARGEST
OCCUPIERS
% of total portfolio
BELKIN, RUSHDEN
TASTE OF SICILY,
RADLETT
FRANKE COFFEE,
RADLETT
RIVER WAY,
HARLOW
(cid:79)(cid:3) Parkbury Industrial Estate
Radlett, Herts.
336,700 sq ft Freehold
(cid:79)(cid:3) Swiftbox
Haynes Way, Rugby, Warwickshire
101,800 sq ft Freehold
(cid:79)(cid:3) Easter Court
Europa Boulevard, Warrington
81,500 sq ft Freehold
(cid:79)(cid:3) Abbey Business Park
Mill Road, Newtonabbey, Belfast
61,700 sq ft Freehold
(cid:79)(cid:3) Vigo 250
Birtley Road, Washington,
Tyne and Wear
246,800 sq ft Freehold
(cid:79)(cid:3) Units 1 & 2, Kettlestring Lane
York
157,800 sq ft Freehold
(cid:79)(cid:3) Unit 3220, Magna Park
Lutterworth, Leics.
160,900 sq ft Leasehold
(cid:79)(cid:3) Grantham Book Services
Trent Road, Grantham, Lincs.
336,100 sq ft Leasehold
(cid:79)(cid:3) Belkin Unit
Express Business Park,
Shipton Way, Rushden, Northants.
312,900 sq ft Leasehold
(cid:79)(cid:3) Sundon Business Park
Dencora Way, Luton, Beds.
127,800 sq ft Leasehold
(cid:79)(cid:3) River Way Industrial Estate
River Way, Harlow, Essex
454,800 sq ft Freehold
(cid:79)(cid:3) Lyon Business Park
Barking, Essex
99,400 sq ft Freehold
(cid:79)(cid:3) Units 1 & 2, Western
Industrial Estate
Downmill Road, Bracknell, Berks.
41,200 sq ft Freehold
(cid:79)(cid:3) The Business Centre
Molly Millars Lane,
Wokingham, Berks.
100,800 sq ft Freehold
(cid:79)(cid:3) Nonsuch Industrial Estate
Kiln Lane, Epsom, Surrey
41,700 sq ft Leasehold
(cid:79)(cid:3) Magnet Trade Centre
6 Kingstreet Lane, Winnersh, Reading
13,700 sq ft Freehold
(cid:79)(cid:3) Datapoint
Cody Road, London E16
54,900 sq ft Leasehold
35
Portfolio review continued
Office portfolio review
On a like-for-like basis, our office portfolio value increased by £0.4 million
or 0.2% to £235.0 million, and the annual rental income on a like-for-like basis
remained constant at £14.2 million. The portfolio has an average weighted
lease length of 3.4 years and £3.9 million of reversionary potential to
£18.1 million per annum.
2019
Occupational demand has been stronger in the
regions than in London where rental growth was
slightly negative. The ERV has remained constant
over the year and occupancy is at 88% with key
voids at Tower Wharf in Bristol, 180 West George
Street in Glasgow and Metro in Salford. There
were six active management surrenders over
the year with a combined ERV of £0.9 million
per annum, which is 28% ahead of the previous
passing rent.
At Colchester Business Park, we surrendered
three leases, upsizing one occupier into a larger
unit to satisfy their business requirements, which
demonstrates our commitment to working with
our occupiers. Four units were let during the
period, for a combined £76,000 per annum,
3% ahead of ERV. One rent review was settled,
increasing the annual rent roll by £0.1 million
per annum, 5% ahead of ERV. The property is
currently 99% let.
Portfolio activity
Our most significant letting was at 180 West
George Street, Glasgow, where we let a floor
generating income of £0.2 million per annum,
1% ahead of ERV. During the period we received
a floor back on lease expiry, which is being
refurbished. Working with an occupier, we
moved their break option out by a year, securing
£0.2 million per annum, to allow them to finalise
their business strategy which may mean they
remain in the building as opposed to having
vacated on the earlier break. We currently have
two floors available, providing grade A space in
Glasgow’s central business district.
We have had success in London and the final
suite was let at 50 Farringdon Road to an existing
occupier for £0.2 million per annum, 5% ahead of
ERV and the building is now fully let. We agreed
with the same occupier to move the break option
in their existing lease, securing five-year term
certain on both suites. The transaction is a good
example of our occupier focused approach,
which enabled us to work with our existing
occupier and retain them in the building.
In a back-to-back transaction, we surrendered
a lease at Trident House in St. Albans that had
a break in September 2019, whilst securing a
new occupier on a five-year lease at a rent of
£0.1 million per annum in line with ERV. We
renewed a lease for a further five years at a
rent of £45,000 per annum, 40% ahead of the
previous passing rent and 12% ahead of ERV.
We chose to accept an early surrender of a
suite at Tower Wharf in Bristol, which expired in
September 2019, to enable early refurbishment.
The occupier paid Picton 50% of all outgoings
to the expiry date plus 100% of our dilapidations
claim. The suite is now being marketed and we
expect to secure a 40% uplift on the previous
passing rent.
Our outlook
The position is largely unchanged from last
year, with a slightly weaker occupational market
in London and good demand in the regions,
although this is micro-location specific with
occupiers looking for high specification buildings.
While we have seen some impact and business
caution from Brexit, this has been to date limited
in the occupational market.
While we see the continued rise of co-working
providers within the traditional office sector,
by offering flexibility through our ‘rightsizing’
approach, good quality contemporary space
and occupier amenities, our buildings remain
attractive to businesses who want control of
their own space.
Looking forward, we will continue to upgrade
our buildings through the installation of occupier
amenity space, good connectivity, healthy living
ideas such as cycle provision and showers and
with a committed focus to continually improve the
sustainability credentials of our properties, which
is important to us and our occupiers. The office
accommodation at our retail property in Covent
Garden accounts for the largest office void, which
will be comprehensively refurbished this year
to offer best in class space over three floors of
this listed building. The second largest void is at
Tower Wharf in Bristol, where we surrendered a
floor, and already have interest.
We have significant reversionary potential from
enhancing occupancy, with the majority of the
void in Grade A buildings. Additionally, we have
35 lease events in the coming year, the overall
ERV for these units is higher than the current
passing rent of £2.7 million.
£235.0m
2018
VALUE
£245.5m
856,000
SQUARE
FEET
928,000
£14.2m
ANNUAL
RENT
£15.0m
£18.1m
ESTIMATED
RENTAL
VALUE
£19.1m
88%
OCCUPANCY
92%
36
Public Sector
1
Portal Chatham
2
Canterbury Christ Church University
Volker Wessels UK Ltd
3
4
BPP Holdings Ltd
5
2.9% 2.2% 1.5% 1.5% 1.3%
% of total portfolio
(cid:79)(cid:3) Tower Wharf
Cheese Lane, Bristol
70,800 sq ft Freehold
(cid:79)(cid:3) Longcross Court
Newport Road, Cardiff
72,100 sq ft Freehold
LARGEST
OCCUPIERS
ANGEL GATE,
LONDON
50 FARRINGDON
ROAD, LONDON
METRO,
MANCHESTER
180 WEST GEORGE
STREET, GLASGOW
STRATEGIC REPORT
NUMBER OF ASSETS
15
2019
17
2018
(cid:79)(cid:3) 180 West George Street
Glasgow
52,100 sq ft Freehold
(cid:79)(cid:3) Queen’s House
St Vincent Place, Glasgow
49,400 sq ft Freehold
(cid:79)(cid:3) Metro
Salford Quays, Manchester
71,000 sq ft Freehold
(cid:79)(cid:3) Waterside House
Kirkstall Road, Leeds
25,200 sq ft Freehold
(cid:79)(cid:3) Sentinel House
Harvest Crescent, Fleet, Hants.
33,500 sq ft Freehold
(cid:79)(cid:3) Atlas House
Third Avenue, Marlow, Bucks.
25,400 sq ft Freehold
(cid:79)(cid:3) 401 Grafton Gate East
Milton Keynes, Bucks.
57,100 sq ft Freehold
(cid:79)(cid:3) Colchester Business Park
The Crescent, Colchester, Essex
150,700 sq ft Leasehold
(cid:79)(cid:3) 50 Farringdon Road
London EC1
31,000 sq ft Leasehold
(cid:79)(cid:3) 30 & 50 Pembroke Court
Chatham, Kent
86,300 sq ft Leasehold
(cid:79)(cid:3) Angel Gate
City Road, London EC1
64,500 sq ft Freehold
(cid:79)(cid:3) Citylink
Addiscombe Road, Croydon
48,200 sq ft Freehold
(cid:79)(cid:3) Trident House
Victoria Street, St Albans, Herts.
19,000 sq ft Freehold
37
Portfolio review continued
Retail and leisure portfolio review
The retail and leisure portfolio is the smallest component by value accounting
for 20% of our portfolio. It delivered the weakest sector performance, which
was a result of ongoing challenges in this sector, adverse sentiment and
weakening rental levels.
Our retail and leisure portfolio value decreased by
£18.9 million or 12.1% to £137.5 million, and the
annual rental income decreased by £3.2 million
or 30% to £7.5 million. 39% of the decrease in
annual rental income relates to Stanford House
in Covent Garden which will be comprehensively
refurbished this year as detailed below. The
portfolio has an average weighted lease length
of 9.2 years and £2.5 million of reversionary
potential to £10.0 million per annum.
Occupational demand is weak, especially
outside London and the South East. We have
seen negative rental growth of 7.4% across the
portfolio and increasing incentives. Occupancy
is 77% with 74% of the void at Stanford House,
12% retail warehouse and 14% high street shops
and leisure. Excluding the office element at
Stanford House, occupancy is 85%.
Portfolio activity
It has been a difficult year in the retail sector. We
have had some success, but we also had retail
failures with six properties being affected either
through a Company Voluntary Arrangement (CVA)
or administration / liquidation. This has provided
opportunity in some cases, as outlined below,
but in others it means we have a letting void with
associated costs which has meant our overall
occupancy is lower than expected.
At our property in Fishergate, Preston we pre-let
the ground floor to JD Sports on a new ten-year
lease, subject to a break, at a rent of £0.2 million.
We intend on putting the property back into
repair using the dilapidations monies and already
have strong interest in the first floor from another
retailer.
At Angouleme Retail Park in Bury, we agreed to
remove TK Maxx’s 2020 break option in return
for six months rent free, securing £0.3 million
per annum, 13% ahead of ERV, for a further four
years. We have two available units on the park
following the expiry of long leases, one of which is
under offer, and we are planning a refurbishment
this year to reposition the park and help re-lease
the remaining unit.
A good example of our proactive asset
management resulting in a positive outcome after
a retail failure is Homebase, which entered into a
CVA in August 2018. Homebase had proposed to
reduce the passing rent by 90% if they remained
in occupation at Parc Tawe in Swansea. Rather
38
than agree, we chose to serve a notice to
secure vacant possession. At the same time, we
negotiated the release of a restrictive covenant to
allow additional food retailing on the park.
This allowed us to enter into an Agreement to
Lease with one of our existing occupiers Lidl,
to take the entire unit, previously occupied by
Homebase. Following enabling works by Picton,
Lidl will take a 20-year lease, with a break after
15 years, at an annual rent of £0.4 million, in line
with ERV. The lease is subject to five yearly RPI
based rent reviews capped at 2% per annum.
Lidl will continue to trade from its existing unit,
paying £0.1 million per annum, until the enabling
works and fit out have been completed towards
the end of the year.
During the year we secured vacant possession
of Stanford House and will be undertaking a
comprehensive refurbishment of both the retail
and offices elements, the project is due to
complete in December.
At Regency Wharf in Birmingham, which is
currently a leisure scheme, we are exploring the
option to convert the vacant accommodation
to office use, where we expect to significantly
increase both the income and current ERV.
This project will be ongoing throughout the
coming year.
Our outlook
The retail and leisure market is undergoing
a structural change impacted by online
competition, with a number of retailers struggling
in this evolving market. This has resulted in
oversupply in most markets, with occupiers
requiring space being able to demand lower
rents and higher incentives.
As demonstrated above, we have been proactive
in attracting new retailers, retaining existing ones
and finding opportunities through change of use.
2019
£137.5m
2018
VALUE
£156.4m
829,000
SQUARE
FEET
829,000
£7.5m
ANNUAL
RENT
£10.7m
£10.0m
ESTIMATED
RENTAL
VALUE
£10.8m
We are also undertaking repositioning exercises
at retail warehouse parks in Bury and Swansea in
order to attract new occupiers to the two vacant
retail warehouse units; one of these is under offer.
77%
Looking ahead, we have seven lease events
in the coming year, the overall ERV for these
units is higher than the current passing rent
of £0.5 million. The biggest short-term
opportunity is the refurbishment and re-letting
of Stanford House.
OCCUPANCY
97%
STRATEGIC REPORT
B&Q plc
1
TK
Maxx
2
Lidl UK
GmbH
3
GLH
Hotels
4
Co-operative Limited
5
3.1% 1.8% 1.3% 1.3% 1.0%
NUMBER OF ASSETS
17
2019
17
2018
LARGEST
OCCUPIERS
% of total portfolio
STANFORD HOUSE,
LONDON
BRIGGATE, LEEDS
PARC TAWE,
SWANSEA
GLOUCESTER
RETAIL PARK
(cid:79)(cid:3) 53-57 Broadmead
Bristol
10,400 sq ft Leasehold
(cid:79)(cid:3) Parc Tawe
North Retail Park
Link Road, Swansea
116,700 sq ft Leasehold
(cid:79)(cid:3) Gloucester Retail Park
Eastern Avenue, Gloucester
113,900 sq ft Freehold
(cid:79)(cid:3) 72-78 Murraygate
Dundee
9,700 sq ft Freehold
(cid:79)(cid:3) Crown & Mitre Complex
English Street, Carlisle, Cumbria
23,800 sq ft Freehold
(cid:79)(cid:3) 17-19 Fishergate
Preston, Lancs.
59,900 sq ft Freehold
(cid:79)(cid:3) Angouleme Retail Park
George Street, Bury,
Greater Manchester
76,200 sq ft Freehold/Leasehold
(cid:79)(cid:3) 78-80 Briggate
Leeds
7,700 sq ft Freehold
(cid:79)(cid:3) 18-28 Victoria Lane
Huddersfield, West Yorks.
14,600 sq ft Leasehold
(cid:79)(cid:3) Queens Road
Sheffield
105,600 sq ft Freehold
(cid:79)(cid:3) 7-9 Warren Street
Stockport
8,700 sq ft Freehold
(cid:79)(cid:3) 6-12 Parliament Row
Hanley, Staffs.
17,300 sq ft Freehold
(cid:79)(cid:3) 62-68 Bridge Street
Peterborough
88,700 sq ft Freehold
(cid:79)(cid:3) Stanford House
Long Acre, London WC2
19,600 sq ft Freehold
(cid:79)(cid:3) Thistle Express
The Mall, Luton, Beds.
81,600 sq ft Leasehold
(cid:79)(cid:3) Regency Wharf
Broad Street, Birmingham
44,300 sq ft Leasehold
(cid:79)(cid:3) Scots Corner
High Street, Kings Heath, Birmingham
30,000 sq ft Freehold
39
Financial review
Andrew dewhirst
22.9
£31m
TOTAL PROFIT
5.7p
£m
487.3
In the context of more difficult market
conditions, our results for the year were
positive. The total profit recorded was
£31.0 million, compared to £64.2 million for
2018, but this is largely due to lower valuation
movements over the year. Our EPRA earnings
increased to £22.9 million from £22.6 million,
and we maintained a high dividend cover.
Earnings per share were 5.7 pence overall
(4.3 pence on an EPRA basis), and the total
return based on these results was 6.5%
for the year.
Net asset value
The net assets of the Group increased to £499.4 million,
which was a rise of 2.5% over the year. The chart below
shows the components of this increase over the year.
The EPRA net asset value rose from 90 pence to 93 pence.
0.4
10.9
(3.2)
0.4
(0.4)
(18.9)
499.4
EARNINGS
PER SHARE
Net asset
value
March
2018
Income
profit
Valuation
movement
Profit
on asset
disposals
Debt pre-
payment
fees
Share
based
awards
Purchase
of shares
Dividends
paid
Net asset
value
March
2019
40
STRATEGIC REPORT
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 (£m)
Fair value of debt (£m)
EPRA triple net asset value (£m)
Net asset value per share (pence)
EPRA net asset value per share (pence)
EPRA triple net asset value per share (pence)
2019
2018
2017
499.4
(24.8)
474.6
93
93
88
487.3
(21.1)
466.2
90
90
87
441.9
(24.5)
417.4
82
82
77
EPRA best practices
recommendations
The EPRA key performance measures for the
year are set out on page 3 of the Report, with
more detail provided in the Supplementary
Disclosures section which starts on page 130.
Income statement
Total revenue from the property portfolio for the
year was £47.7 million. On a like-for-like basis,
rental income decreased by 0.4% compared to
the previous year, on an EPRA basis. The reasons
for the small decline have been discussed
within the portfolio review section, but is mainly
due to the timing of lease expiries and asset
management surrender activity.
Administrative expenses for the year were
£5.8 million, broadly in line with the £5.6 million
in 2018, and include the one-off costs of REIT
conversion. This year we have re-presented
such operating costs of the business, previously,
as an investment company, we distinguished
management expenses (incurred through Picton
Capital, the investment management subsidiary)
and other operating costs.
As discussed below, during the year we made
an early repayment of a tranche of one of our
fixed rate loan facilities. As a result, interest
payable has reduced this year, to £9.1 million,
and there will be ongoing annual savings of
around £1 million.
Realised and unrealised gains on the portfolio
were £11.3 million for the year, significantly lower
than the overall gains of £41.5 million reported
last year. This is very much a reflection of the
commercial property market, and particularly the
sentiment in the retail sector, where there have
been well publicised issues of retail failures.
£48m
TOTAL REVENUE
3.5p
ANNUAL DIVIDEND
PER SHARE
£685m
PROPERTY VALUE
The Company converted to a UK REIT on
1 October 2018. From that date profits from
our property rental business are exempt from UK
tax. For the first half of the year however Picton
was still subject to UK taxation as a non-resident
landlord, and we have included a tax provision
of £0.5 million for that period. This gives an
indication of the likely savings that the Group will
benefit from now it has joined the REIT regime.
Dividends
Dividends paid during the year were £18.9 million,
2% higher than the preceding year. Dividend
cover for the full year was in line with last year
at 122%.
Investment properties
The appraised value of our investment property
portfolio was £685.3 million at 31 March 2019,
up from £683.8 million a year previously. This
year we have not made any acquisitions, but
have disposed of two regional office buildings,
for net proceeds of £11.3 million, realising a
combined gain of £0.4 million compared to last
year’s valuation. A further £1.6 million of capital
expenditure was invested back into the existing
portfolio. The overall revaluation gain was
£10.9 million, representing a 1.8% like-for-like
increase in the valuation of the portfolio.
At 31 March 2019 the portfolio comprised 49
assets, with an average lot size of £14.0 million.
Further analysis of capital expenditure,
in accordance with EPRA Best Practice
Recommendations, is set out in the
Supplementary Disclosures section.
41
24.7%
LOAN TO VALUE
£194.7m
TOTAL
BORROWINGS
9.8
years
AVERAGE LOAN
DURATION
Financial review continued
“ Dividends paid during the year
were £18.9 million, 2% higher than
the preceding year. ”
Borrowings
During the year we repaid a £33.7 million tranche
of our Canada Life facility, originally due for
repayment in 2022. This was financed partly
through proceeds from asset sales and also
from drawing down under one of our lower cost
revolving credit facilities. In the short-term we
expect this will save over £1 million per annum
in finance costs, but we have also removed a
number of restrictive covenants from the facility,
which has increased the flexibility we have under
this loan. This refinancing included a prepayment
fee of £3.2 million.
Total borrowings are now £194.7 million at
31 March 2019, with the loan to value ratio
having reduced to 24.7% from 26.7%. The
weighted average interest rate on our borrowings
has reduced slightly to 4.0% from 4.1%, while
the average loan duration is now 9.8 years.
Our other senior loan facility with Aviva reduced
by the regular amortisation of £1.2 million in
the year.
The Group remained fully compliant with its loan
covenants throughout the year.
Our two revolving credit facilities remain in place
until 2021. During the year we made a drawdown
of £15.5 million so now have drawn £26 million
in total, leaving £25 million undrawn. The current
interest rate payable on these loans is around
2.6%.
Loan arrangement costs are capitalised and are
amortised over the terms of the respective loans.
At 31 March 2019, the unamortised balance of
these costs across all facilities were £2.7 million.
The fair value of our borrowings at 31 March
2019 was £219.5 million, higher than the book
amount. Lending margins have remained broadly
in line with the previous year, but gilt rates have
fallen in comparison.
A summary of our borrowings is set out below:
Fixed rate loans (£m)
Drawn revolving facilities (£m)
Total borrowings (£m)
Borrowings net of cash (£m)
Undrawn facilities (£m)
Loan to value ratio (%)
Weighted average interest rate (%)
Average duration (years)
2019
2018
168.7
26.0
194.7
169.5
25.0
24.7
4.0
9.8
203.5
10.5
214.0
182.5
40.5
26.7
4.1
10.3
2017
204.6
-
204.6
170.8
53.0
27.4
4.2
11.7
Cash flow and liquidity
The cash flow from our operating activities was
£25.3 million this year, closely in line with the
2018 figure. Proceeds from asset sales were
used to finance the net reduction in borrowings.
Dividend payments of £18.9 million were made in
the year. Our cash balance at the year end stood
at £25.2 million.
Share capital
There were no changes in share capital during
the year.
The Company’s Employee Benefit Trust acquired
a further 472,000 shares during the year, at
a cost of £0.4 million, to satisfy the potential
future vesting of awards made under the Long-
term Incentive Plan, and now holds a total of
1,542,000 shares. As the Trust is consolidated
into the Group’s results these shares are
effectively held in treasury and therefore have
been excluded from the net asset value and
earnings per share calculations, from the date
of purchase.
Andrew Dewhirst
Finance Director
42
STRATEGIC REPORT
Managing risk
The Board recognises that there are risks and uncertainties
that could have a material impact on the Group’s results.
Risk management provides a structured
approach to the decision making process such
that the identified risks can be mitigated and the
uncertainty surrounding expected outcomes can
be reduced. The Board has developed a risk
management policy which it reviews on a regular
basis. The Audit and Risk Committee carries
out a detailed assessment of all risks, whether
investment or operational, and considers the
effectiveness of the risk management and internal
control processes. The Executive Committee
is responsible for implementing strategy within
the agreed risk management policy, as well
as identifying and assessing risk in day-to-
day operational matters. The management
committees support the Executive Committee
in these matters. The small number of employees
and relatively flat management structure allow
risks to be quickly identified and assessed. The
Group’s risk appetite will vary over time and
during the course of the property cycle. The
principal risks – those with potential to have a
material impact on performance and results –
are set out on the following pages, together with
mitigating controls. The matrix below illustrates
the assessment of the impact and likelihood of
each of the principal risks.
The UK Corporate Governance Code requires
the Board to make a viability statement. This
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 statement is set out in the Directors’ Report.
Principal risk
Trend
3
4
5
2
1
(cid:79) Macroeconomic
(cid:79)
(cid:163)
(cid:79) Property market
(cid:79)
(cid:163)
(cid:79) Portfolio strategy
(cid:79)
(cid:163)
(cid:79) Property investment
(cid:79)
(cid:163)
(cid:79) Asset management
(cid:79)
(cid:163)
(cid:79) Operational failure
(cid:79)
(cid:163)
(cid:79) Regulatory and legal changes (cid:79)
(cid:163)
(cid:79) Loan covenants
(cid:79)
(cid:163)
(cid:79) Interest rates
(cid:79)
(cid:79) Gearing
(cid:79)
(cid:163)
(cid:163)
10
9
8
6
7
Risk management framework
Board
• Has overall responsibility
for risk management
• Determines business model
• Considers risk appetite
Executive Committee
• Implements strategy and risk policy
• Identifies and assesses risks
• Carries out risk mitigation
Audit and Risk Committee
• Recommends risk
management policy
• Considers principal risks
• Reviews detailed risk matrix
• Reviews internal controls
and oversees testing of
such controls
Management Committees
• Reviews specific transaction risks
• Considers impact of forthcoming
legislation
h
g
H
i
i
m
u
d
e
M
w
o
L
t
c
a
p
m
i
l
a
i
t
n
e
t
o
P
8
10
6
2
1
3
9
7
5
4
Low
Medium
Likelihood after mitigation
High
43
Managing risk continued
Corporate strategy
Risk and impact
Mitigation
Risk trend
Strategic
objectives
Connected
KPIs
1
Macroeconomic
2
Property
market
Economic uncertainty, arising
from political events or
otherwise, brings risks to the
property market generally and
to occupiers’ businesses. This
can result in lower shareholder
returns, lower asset liquidity and
increased occupier failure.
The property market is cyclical
and returns can be volatile.
There is an ongoing risk that
the Company fails to react
appropriately to changing
market conditions, resulting in an
adverse impact on shareholder
returns.
The Board considers economic
conditions and market
uncertainty when setting strategy
and in making investment
decisions.
The Board reviews the Group’s
strategy and business objectives
on a regular basis and considers
whether any change is needed,
in the light of current and forecast
market conditions.
(cid:163)(cid:3)
(cid:163)(cid:3)
A
C
A
C
B
D
B
D
Property
Risk and impact
Mitigation
Risk trend
Strategic
objectives
Connected
KPIs
3
Portfolio
strategy
Running an inappropriate
portfolio strategy, as a result
of poor sector or geographical
allocations, or holding obsolete
assets, leading to lower
shareholder returns.
The Group maintains a
diversified portfolio in order to
minimise exposure to any one
geographical area or market
sector.
4
Property
investment
Investment decisions may be
flawed as a result of incorrect
assumptions, poor research or
incomplete due diligence, leading
to financial loss.
5
Asset
management
Failure to properly execute asset
business plans or poor asset
management could lead to longer
void periods, higher occupier
defaults, higher arrears and low
occupier retention, all having an
adverse impact on earnings and
cash flow.
The Executive Committee
must approve all investment
transactions over a threshold
level, and significant transactions
require Board approval. A formal
appraisal and due diligence
process is carried out for all
potential purchases.
Management prepare business
plans for each asset which are
reviewed regularly. The Executive
Committee must approve all
investment transactions over a
threshold level, and significant
transactions require Board
approval. Management maintain
close contact with occupiers and
have oversight of the Group’s
Property Manager.
(cid:163)(cid:3)
(cid:163)(cid:3)
(cid:163)(cid:3)
C
D
I
C
D
C
D
H
I
Brexit
Since the result of the referendum in June 2016 to leave
the EU there has been increased economic and political
uncertainty. This has been heightened in the last few months
as the original leaving date of 29 March 2019 has passed
and there is now an extension to 31 October 2019 in which
to agree the terms of withdrawal.
We have considered in our Viability Statement the potential
impact of various scenarios on the business including the
impact of Brexit.
Picton has a diverse portfolio spread across the UK,
with around 350 occupiers in a wide range of businesses.
The cash flow arising from our occupiers underpins our
business model. Although there are geographical and
sectoral variations, we are continuing to see demand for
our properties and are continuing to let space on average
at ERV. We have limited exposure to financial services
occupiers, or central London offices, both potentially
adversely impacted by a disruptive Brexit. To date we
have not seen a significant impact from Brexit on our
operational activity.
44
Operational
Risk and impact
Mitigation
Risk trend
Strategic
objectives
Connected
KPIs
STRATEGIC REPORT
6
Operational
failure
Damage to reputation as a result
of potential operational failures,
such as a breach of regulations,
losing key personnel, incorrect
financial reports or health and
safety breaches.
7
Regulatory and
legal changes
Failure to properly anticipate
legal, fiscal or regulatory changes
which could lead to financial loss
or loss of REIT status.
The Board has a remuneration
policy in place which incentivises
performance and is aligned with
shareholders’ interests. The
Group’s Property Manager is
required to ensure compliance
with current health and safety
legislation, with oversight by
management. All financial
reports are subject to senior
management and Board review
prior to release.
The Board and senior
management receive regular
updates in relevant laws and
regulations. The Group is a
member of the BPF and EPRA,
and management attend industry
briefings.
(cid:163)(cid:3)
(cid:163)(cid:3)
A
B
H
H
E
Financial
Risk and impact
Mitigation
Risk trend
Strategic
objectives
Connected
KPIs
8
Loan
covenants
A significant fall in property
valuations or rental income could
lead to a breach of financial
covenants, leaving insufficient
long-term funding.
9
Interest rates
An adverse movement in interest
rates could lead to increased
costs and a greater likelihood of
occupier default.
10
Gearing
The Group operates a geared
capital structure, which magnifies
returns from the portfolio. An
inappropriate level of gearing
relative to the property cycle
could lead to lower investment
returns.
The Group’s property assets
are valued quarterly by an
independent valuer with oversight
by the Property Valuation
Committee. Market commentary
is provided regularly by the
independent valuer. The Board
reviews financial forecasts for
the Group on a regular basis,
including sensitivity against
financial covenants. The Audit
and Risk Committee consider
the Going Concern status of the
Group bi-annually.
The Group has fixed rates of
interest on the majority of its
long-term borrowings. The
credit quality of new and existing
occupiers is continually reviewed.
The Board regularly reviews
its gearing strategy and debt
maturity profile, at least annually,
in the light of changing market
conditions.
(cid:163)(cid:3)
(cid:3)
(cid:163)
(cid:163)(cid:3)
B
C
F
G
H
A
H
Uncertainty, potentially arising from Brexit, is leading to lower investment
volumes generally. However the value of the Picton portfolio has
continued to rise consistently since the referendum result, albeit that
there are significant variations between sectors. We have considered the
impact of any future decline in property values. We have considerable
headroom within our lending covenants, with values having to fall by on
average more than 40% before these are reached.
p15 Read about our Strategic objectives
p26 Read about our KPIs
45
Being responsible
The Board is responsible for setting the guiding principles of the Group
including leading on environmental, social and corporate governance.
We aim to be transparent in our approach to performance reporting,
to ensure stakeholder engagement, and seek to embed sustainability
within our day-to-day business activities.
Stakeholder engagement
We value the contributions made
by the whole Picton team. We
have a strong and open company
culture, with values that were
co-created by our employees. We
aim to have a positive business
environment consistent with our
values, with equal opportunities
for all. Unlike many similar
businesses, all of our employees
share in the success of Picton
through participation in the Long-
term Incentive Plan and Deferred
Bonus Plan.
OUR STAKEHOLDERS
We run a regular programme of
communication and shareholder
engagement including one-to-one
meetings with large shareholders
as well as group meetings at the
time of results announcements.
All directors normally attend
the Annual General Meeting
and are available to meet with
shareholders.
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 use our
expertise in asset management to
provide modern flexible space that
is safe, clean and energy efficient.
We believe that it is important to
engage with our occupiers on
sustainability. In this way we can
constantly strive to reduce our
environmental impact.
We are committed to improving
the impact of our buildings on
local communities, whether
providing space to local
businesses, improvement of
local areas or minimising the
environmental impact of buildings
themselves. We also support local
communities through our occupier
led charitable matched giving
initiative.
Our people
Our
shareholders
Our occupiers
Local
communities
The picton promise
At Picton, we are always seeking to improve our
occupiers’ experience, which is why we created the
Picton Promise: five key commitments that underpin
every aspect of the occupier experience we provide.
ACTION
Our personal, hands on approach and attention to detail
ensures you experience excellent customer service. You
can always speak to a dedicated Picton team member and
be assured we respond promptly to your enquiries and act
on feedback as quickly and effectively as possible.
TECHNOLOGY
COMMUNITY
We are committed to improving the digital infrastructure
of our portfolio and work with all our occupiers to enable
transparency and informed decision making, ensuring your
connectivity requirements are met.
We want you to feel part of something. We run regular
occupier meetings and facilitate introductions across our
occupier community. We also support different regional
charities to help drive social change at a local level and we
offer each of our occupiers charitable matched giving for
their community fundraising efforts.
SUSTAINABILITY
SUPPORT
We believe strongly in sustainability as an integral part
of our business model and strategy. We have in place a
framework for conducting business in a way that makes a
positive contribution to society and our stakeholders, whilst
minimising the negative impact on the environment.
We are committed to providing flexible business focused
solutions to enable you to run your business. We are
proactive in helping you to ‘rightsize’ your business space,
helping support your changing needs.
46
STRATEGIC REPORT
STRATEGIC REPORT
Our people
Our people
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 within the Board and the Picton team.
At the date of this Report, the number of men
and women employed by the Group were:
BOARD
PICTON
TEAM
(cid:81)(cid:3)5 women
(cid:81)(cid:3)10 men
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:
• Ensuring equal opportunities in the
recruitment process
• Having fair and competitive salaries
and benefits
• Having appropriate 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.
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
All of the Group’s employees have a formal
performance appraisal on an annual basis,
together with a mid-year-review of their progress
against objectives set at the start of the year.
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 our 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
47
Being responsible continued
Charity, local communities and the environment
Local
communities
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 and
have raised over £12 million for over 1,900
diverse local, national and international projects.
For the year ended 31 March 2019 the Group
made charitable donations totalling £10,000.
Our new Responsibility Committee encourages
our employees to play a positive role in
community activities and is working with a local
children’s charity to provide team volunteering
opportunities. As well as offering our employees
individual charitable fundraising through the
process of matched giving, we additionally now
offer our occupiers charitable matched giving, to
support charitable activities undertaken in their
local communities.
The environment
It is recognised that commercial buildings in the
UK are a key source of emissions and that as a
responsible landlord we have a duty to control
and reduce the environmental impact of our
assets. We continue to assess the environmental
performance of our portfolio through our
consultants at CBRE who engage with
property managers and occupiers to implement
sustainability improvements.
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
Our sustainability reporting is for the year ended
31 December 2018, with comparatives for the
year ended 31 December 2017. This year we
will prepare a separate report setting out a full
breakdown of our ESG strategy and performance
during the year. The 2019 Sustainability Report
will be available on our website during June
2019. Here we report on the key environmental
initiatives that we have undertaken during
the year.
This year we can report a further reduction
of our carbon footprint. Our Scope 1 and 2
GHG emissions for 2018 were 3,971 tCO2e,
a reduction of 12.9% compared to 2017 in
absolute terms. We have continued our work
to obtain more reliable Scope 3 emissions
by working with our occupiers to collect non
landlord-controlled data. There have been two
disposals during 2018 with no new acquisitions;
Tower Wharf, Bristol, acquired in 2017, now has
a full reporting year’s worth of data.
!
Read more in our Sustainability Report
48
STRATEGIC REPORT
Targets
We have set a number of targets, both short and
long-term, across a range of ESG measures, so
that we are able to track our progress in these
areas. These are set out fully, together with our
progress against them, in the 2019 Sustainability
Report.
Energy and GHG Emissions
2018 saw an 8.2% reduction in tCO2/m2
compared to 2017 which has increased our total
reduction to 28.4% against our 2016 baseline.
The decarbonisation of the national grid has
assisted in these large reduction figures although
we have also seen a 6.8% reduction in kWh/
m2 since 2016. While our performance against
our waste target has seen a 20.6% reduction
against our 2016 baseline, 2018 saw an increase
in landfill waste. We are looking to correct this
in 2019 by switching to a waste provider with
greater recycling options, and that will be able
to provide more accurate data.
We are targeting high energy intensity sites
through a series of energy audits and occupier
engagement campaigns. We are developing
a refurbishment checklist to ensure all
refurbishments are carried out to the same high
standard dependent on the property’s ambition
level. Due to the nature of our business a limited
amount of the energy use is within our control,
which means occupier engagement is key. To
address this issue, we will be holding occupier
workshops to assess how we can assist our
occupiers in reducing their energy consumption.
The workshops will be a targeted approach on
the highest consuming sites, but to ensure we are
assisting all our occupiers, we have developed
an occupier satisfaction survey. The survey will
look at general satisfaction, as well as energy
performance of the property and energy efficiency
measures, where we can work with our occupiers
in joint ventures.
Environmental initiatives
We have now installed Asset IQ at two high end
office locations. Asset IQ is a tool which analyses
each meter’s usage to identify inefficiencies in
plant and equipment run hours. 50 Farringdon
Road has seen an increase in absolute
consumption during 2018 due to increased
occupancy rates. 180 West George Street, where
Asset IQ has been newly installed, has seen a
22% reduction in its energy use. We continue to
look for more opportunities were Asset IQ can be
installed. We have conducted energy reduction
projects at Atlas House, including upgrades to
the building management system. Accuracy
of data is key to our reporting and in line with
improving this area of reporting, we have reduced
our estimated consumption to 1.4%. During 2019
we plan to roll out a series of ESG audits at key
large consuming sites to assist with our energy
reduction targets and occupier engagement.
Our 50kWp solar panel array at 401 Grafton Gate
has been operational for three years. Each year
the panels have increased their output with 2018
seeing a 5.2% increase by generating 46,340
kWh. The energy production continues to be fed
back to the occupiers, providing them with lower
electricity costs. The panels have produced a
total of 132,465 kWh, which has saved 59.60
tCO2e; the equivalent of 3,585 incandescent
lamps switched to LEDs.
We have installed two bee hives with a population
of 20,000 bees at Queen’s House in Scotland.
Honeybees are essential for pollinating trees,
plants and flowers with one third of UK’s food
being pollinated by bees. With Scotland seeing
a decline in honeybees, urban roof tops can
provide bountiful foraging opportunities for bee
colonies. Picton worked with Plan Bee who are
a bee hive management company to organise
the necessary pre-assessment checks required
for installing the bee hives. Plan Bee presented
to the occupiers in Queen’s House on the life of
the bees, including a hands-on experience to
learn more about the important role bees play in
our environment. Occupiers were able to sample
some honey and take away a jar. Due to the
success of the project we have already started
risk assessments at a further site.
Our EPC risk project has mitigated the risk
posed under the Minimum Energy Efficiency
Standards (MEES) that came into force from
April 2018. During 2018 we began updating
our expiring EPCs with a majority of 2019 EPCs
already addressed. This process has highlighted
properties where potential improvements could
be made, and these sites will have strategies put
in place during 2019. We have 98% of units with
a valid EPC, with action plans in place for the
remaining assets.
Picton recognises the importance of being
transparent on ESG issues with our stakeholders,
so they can make informed decisions. We
continue to report in line with EPRA, expanding
the scope of our reporting and improving our
score year-on-year. We now have also reported
to GRESB for the second year running, seeing
a 53% increase in our score. We believe that
through initiatives implemented during 2018 that
we should see further improvements in both our
GRESB and EPRA scores.
Working with the CBRE Energy and Sustainability
team, we are developing a programme to provide
a greater level of data collection, engagement
with occupiers and protection against future
market risks.
49
Being responsible continued
Reporting against EPRA sustainability best practice
The following EPRA sustainability measures are reported in the 2019 Sustainability Report:
Energy
Greenhouse
gas
emissions
Sustainability performance
measures
Total electricity consumption
Like-for-like total electricity
consumption
Total fuel consumption
Like-for-like total fuel consumption
Building energy intensity
Sustainability performance
measures
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
Water
Waste
Business
travel
Sustainability performance
measures
Total water consumption
Like-for-like total water consumption
Building water intensity
Sustainability performance
measures
Total weight of waste
by disposal route
Like-for-like total weight of waste
by disposal route
Sustainability performance
measures
Total business travel emissions
Governance
Social
Sustainability performance
measures
Composition of highest
governing body
Process for nominating and
selecting the highest governing body
Process for managing conflicts
of interest
Sustainability performance
measures
Employee gender diversity
Employee training and development
Employee performance appraisals
New hires and turnover
Employee health and safety
Asset health and safety
assessments
Asset health and safety compliance
!
Read more in our Sustainability Report
STRATEGIC REPORT
Greenhouse gas emissions
The table below provides our GHG emissions covering the last three years. Where it states “N/A”,
this is because data was not previously collected, calculated or available. In our 2019 Sustainability Report
we detail our GHG emissions for the last five years, showing how our reporting has evolved since 2014.
Emission source
GHG Scope
Combustion of fuel and
operation of facilities
Electricity, heat, steam
and cooling purchased
for own use
Business travel
Occupier data
Office premises
Landlord water
and treatment
Landlord waste
Total
1
2
3
3
3
3
3
Scope 1
Scope 1 emissions account for 1,219
tCO2e of our total emissions, which is
a decrease of 3% from 2017. This is
due to the implementation of energy
efficiency measures, an increase in
data quality and the disposal of sites in
2017 and 2018. Excluding the impact of
acquisitions and disposals, like-for-like
scope 1 emissions have decreased by
7% due to building management system
upgrades implemented at Atlas House
during late 2017.
2018
Absolute
GHG emissions
(tCO2e)
2017
Absolute
GHG emissions
(tCO2e)
2016
Absolute
GHG emissions
(tCO2e)
GHG Intensity
(tCO2e/m²)
GHG Intensity
(tCO2e/m²)
GHG Intensity
(tCO2e/m²)
1,219
0.006
1,251
0.006
1,503
0.007
2,752
0.015
3,305
0.015
4,655
0.022
7
5,274
10
55
21
9,337
N/A
0.003
N/A
0.001
0.000
0.021
7
9,566
13
53
21
14,216
N/A
0.005
N/A
0.001
0.000
0.032
8
9,536
12
61
24
15,799
N/A
N/A
N/A
0.000
0.001
0.036
Scope 2
Scope 2 emissions account for 2,752
tCO2e, which is a decrease of 17%
from 2017. Scope 2 emissions have
seen the greatest impact from the
decarbonisation of the national grid.
With Scope 2 emissions being the
largest contributor to our emissions
which we can directly control, it is
positive to also see a 19.7% decrease
in like-for-like emissions. This is
largely thanks to energy efficiency
projects at Atlas House and 180 West
George Street. We hope to see further
improvements in 2019 when the projects
will have had a full reporting year to
realise their benefits.
Scope 3
Scope 3 emissions account for 5,523
tCO2e, which is a 42.8% decrease from
2017. For 2018, we have collected
44.5% of our occupier-controlled spaces
by area which is a small decrease on
2017. Due to the variance in occupier
data that we receive it is difficult to read
too much into the large decrease in
Scope 3 emissions, with Scope 1 and
2 emissions remaining our priority for
improvement measures. We have seen
increases in water and waste figures
which we will look at improving on during
2019 as we switch to single suppliers to
improve reliability of data.
Methodology
We have reported on all the emission
sources required under the core
requirements of EPRA’s ‘Best Practices
Recommendations on Sustainability
Reporting’ 2017, and have voluntarily
disclosed business travel, occupier and
own premises consumption (Scope
3) emissions. An operational control
approach has been adopted and all
of our properties are included. Figures
presented are absolute for utility and
waste consumption and relate only
to landlord-obtained utilities and
waste removal. Occupier-obtained
consumption is included where possible.
We have calculated and reported our
emissions in line with the GHG Protocol
Corporate Accounting and Reporting
Standard (revised edition) and used
emission factors from UK Government’s
GHG Conversion Factors for Company
Reporting 2017. Where data was
unavailable in kg or tonnes for waste,
we used average volumes to convert
to tonnes.
Intensity measurements are based on
the individual property’s Gross Internal
Area (GIA), regardless of the specific
area served by the supply. This is an
accurate way of covering 95% of our
consumption but will be less useful for
our industrial vacant units; due to the
comparatively low consumption and
large floor areas typically associated
with vacant industrial units. We are
continually improving the reporting
process so that we can continue
producing increasingly useful
normalisation and intensity metrics.
Picton has continued to voluntarily
report on Scope 3 vehicle emissions.
Vehicle emissions were calculated
using Picton’s vehicle expenses reports
and the vehicle emission factors from
the UK Government GHG Conversion
Factors for Company Reporting 2017.
We have included occupier and own
premises consumption within the Scope
3 emissions, using emission factors
from UK Government’s GHG Conversion
Factors for Company Reporting 2017.
51
Governance
Chairman’s Introduction
Board of Directors
Our Team
Corporate Governance Report
Audit and Risk Committee Report
Nomination Committee Report
Property Valuation Committee Report
Remuneration Report
Directors’ Report
54
56
58
62
67
70
72
74
92
Chairman’s introduction
Nicholas thompson
Dear Shareholder
I am pleased to introduce our 2019
Corporate Governance Report. This
year we are reporting against the UK
Corporate Governance Code 2016.
Board composition
Both Robert Sinclair and Vic Holmes retired from
the Board on 30 September 2018, following the
Company moving its management and control to
the UK. I would like to express my sincere thanks
for their important contributions to the success of
the business over many years.
I am very pleased that Maria Bentley agreed to
join the Board as a non-executive director, from
1 October. Maria has taken over from Vic as Chair
of the Remuneration Committee, and, with her
previous experience, will bring a fresh perspective
to the Board.
As I set out last year, in line with our change
from an investment company to a commercial
company, we have moved to a more traditional
board structure with both executive and non-
executive directors. From 1 October therefore,
Michael Morris has become the Chief Executive
of Picton, and has been joined on the Board by
Andrew Dewhirst, who has assumed the role of
the Group’s Finance Director.
In line with the UK Corporate Governance Code
2018, the Board comprises 50% independent
non-executive directors.
“ With the conversion to a UK REIT
now complete, it is my intention to
step down from the Board.”
Succession planning
The Board has been focused on succession
planning to ensure both refreshment and
sustainable corporate performance, while mindful
of the conversion to a UK REIT and the need to
maintain continuity and knowledge at Board level
throughout that transition.
I have now served on the Board, and as
Chairman, since 2005. With the conversion
to a UK REIT now complete, it is my intention
to step down from the Board once a suitable
54
GOVERNANCE
successor has been identified and is in post. We
have commenced the process of seeking a new
Chairman, and this is discussed further in the
Nomination Committee Report. Maria has taken
over as Chair of the Nomination Committee while
this process is taking place.
Roger Lewis has now served on the Board for
nine years. Roger will also step down from the
Board in the near future, once my successor has
been appointed, so that the changes can take
place in an orderly and coordinated manner.
Governance
Following our conversion to a UK REIT and a
commercial company, we have established a new
internal governance structure more in keeping
with our status as a UK managed business. The
Board committees are unchanged, but we have
set up a new Executive Committee, headed
by Michael Morris and also comprising other
members of senior management. The Executive
Committee is responsible for the day-to-day
running of the business within the strategy
agreed by the Board.
As support to the Executive Committee, we have
established two further management committees
– the Transaction and Finance Committee,
and the Responsibility Committee, to assist in
running the business. These committees include
other members of staff so that there is greater
engagement and wider experience below the
senior management level. The remit of these two
committees is set out later in this Governance
section, and I would highlight that the new
Responsibility Committee has as part of its
remit to consider employee wellbeing.
Our people and culture
The Board seeks to maintain and promote an
environment consistent with the culture and
values of the business, where our employees
are able to maximise their potential. We are
proud to have in place a strong company
culture, guided by our vision as a company and
our values, co-created by our employees. We
promote an inclusive working environment with
equal opportunities for all. We encourage our
employees to take part in community activities,
and are working with a local charity to provide
volunteering opportunities for the team.
The Board works in an open and transparent
manner with constructive discussion and
challenge. This open and approachable culture
is encouraged throughout the business. The
Company holds regular team meetings and
activities throughout the year. The Picton
team is professional in its dealings with other
stakeholders and third parties and have a code
of business conduct that we expect our suppliers
to follow. We have in place the Picton Teamship
rules which all employees are expected to abide
by, and these set out how employees should
conduct themselves in the workplace.
We have agreed that Maria Bentley will be
our designated non-executive director with
responsibility for engagement with employees.
Her role will be to feed back to the Board on
the views of all employees.
“ I am pleased to report that
we have appointed Mark Batten
as Senior Independent Director.”
Board evaluation
During the year we had an external evaluation
of the Board carried out by BoardAlpha. An
external evaluation is carried out every three
years alongside our own internal review annually.
The review made a number of recommendations,
and these have been considered by the Board.
One outcome that I am pleased to report is
that we have appointed Mark Batten as Senior
Independent Director. Another important issue
raised was that of succession planning, which
I have discussed above and is detailed further
in the Nomination Committee Report.
Finally, I hold regular one-to-one meetings
with each of the non-executive directors and
conduct the annual and half-year reviews with
the Chief Executive.
Nicholas Thompson
Chairman
55
Board of directors
Nicholas Thompson
CHAIRMAN
Appointed to the Board
September 2005
Responsible for ensuring the
Board is effective in setting and
implementing the Company’s
direction and strategy including
reviewing and evaluating the
performance of the CEO.
Roger Lewis
CHAIR OF THE PROPERTY
VALUATION COMMITTEE
Appointed to the Board
March 2010
Mark Batten
CHAIR OF AUDIT AND RISK COMMITTEE
SENIOR INDEPENDENT DIRECTOR
Appointed to the Board
October 2017
Responsible for overseeing
the review of the quarterly
valuation process and making
recommendations to the Board as
appropriate.
Responsible for financial reporting
and accounting policies, audit
strategy and the evaluation
of internal controls and risk
management systems.
Key strengths and skills
• Chartered Surveyor with 44 years’
experience, 36 of which are in
property investment management
• Clear vision and strong
influencing skills
Principal external
commitments
• Chairman of MSCI Real Estate UK
Advisory Group
Key strengths and skills
• Over 40 years’ experience in
residential and commercial property
• Public company experience
• Corporate finance experience
Principal external
commitments
• Non-executive Director of two
Jersey based subsidiaries of the
Berkeley Group
• Director of the Lend Lease Retail
• Director, Cambian Global
Partnership
• Independent Director of the
Association of Real Estate Funds
Previous experience
and appointments
• Director and Head of Fund and
Investment Management, Prudential
Property Investment Management
• Fellow of the Royal Institution of
Chartered Surveyors.
Timberland Limited
Previous experience
and appointments
• Chairman and Director,
Berkeley Group Holdings PLC
• Group Chief Executive Office,
Crest Nicholson Group PLC
Key strengths and skills
• Chartered Accountant and
restructuring specialist
• Extensive experience in banking,
insurance, real estate, debt
structuring and restructuring
• Broad real estate knowledge,
covering most subsectors
Principal external
commitments
• Board member and Chairman
of the Audit Committee,
Assured Guaranty Europe
• Board member, Armour re (UK)
• Board member and Chairman
of the Finance Committee,
The Royal Brompton and
Harefield Foundation Trust
• Senior adviser to UK Government
Investments
Previous experience
and appointments
• Partner,
PricewaterhouseCoopers LLP
• Non-executive Director,
L&F Indemnity
56
GOVERNANCE
Maria Bentley
CHAIR OF REMUNERATION COMMITTEE
CHAIR OF NOMINATION COMMITTEE
Michael Morris
CHIEF EXECUTIVE
Andrew Dewhirst
FINANCE DIRECTOR
Appointed to the Board
October 2018
Appointed to the Board
October 2015
Appointed to the Board
October 2018
Responsible for overall strategic
direction and execution of the
Group’s business model.
Responsible for strategic financial
planning and reporting for
the Group.
Key strengths and skills
• Successful track record of driving
investment strategy and delivering
results for shareholders
• Proven leadership skills
• In depth understanding of real
estate equity capital markets
Principal external
commitments
None
Previous experience
and appointments
• 25 years wide ranging commercial
real estate market experience
• Senior Director and Fund Manager
at ING Real Estate Investment
Management
Key strengths and skills
• Chartered accountant with extensive
experience in financial planning
and reporting
• In depth knowledge of financial
services, capital markets and real
estate funds
• Expertise in debt and equity
financing
Principal external
commitments
None
Previous experience and
appointments
• Director of Client Accounting
at ING Real Estate Investment
Management
• Member of the Investment Property
• Director at Hermes Administration
Forum
Services
• Associate member of the Institute
of Chartered Accountants in
England and Wales
Responsible for leading on the
recommendation of remuneration
policies and levels, for effective
succession planning and employee
engagement.
Key strengths and skills
• Business head leading change
across global teams
• Expertise in human resources
• Extensive experience in financial
services
Principal external
commitments
• Non-executive Director, Nomura
Europe Holdings plc and Nomura
International plc
• Member of Audit, Remuneration,
Nomination & Governance and
Financial Conduct Committees,
Nomura International plc
• Non-executive Director of BlueBay
Asset Management LLP and Chair
of Remuneration Committee
Previous experience
and appointments
• Senior Managing Director and
Global Head of HR, Wholesale
and Head of HR EMEA at Nomura
International plc
• Group Managing Director
and Global Head of HR,
UBS Investment Bank
• Managing Director, Global Head of
HR for Equities and Fixed Income,
Goldman Sachs International
57
Our team
With extensive experience across
real estate management and financial
services, our team have an in depth
knowledge and understanding of the
UK commercial property market.
GOVERNANCE
Fraser D’Arcy
INVESTMENT
DIRECTOR
Fraser has 19 years’ of
investment experience
and is responsible
for delivering the
investment strategy
and all transactional
activity within the
portfolio to enable the
effective recycling of
capital. He is a member
of the Executive
Committee and the
Transaction and
Finance Committee.
Sarah Newland
OFFICE MANAGER
Sarah joined in 2014
and is responsible
for the day–to-day
management of the
office and oversees
administrative aspects
of the Company.
Jay Cable
HEAD OF ASSET
MANAGEMENT
A Chartered Surveyor
with over 18 years’ of
real estate experience,
Jay has worked with
the Group since
its launch in 2005.
He is responsible
for the proactive
asset management
of the portfolio and
overseeing its strategic
direction, and is
a member of the
Executive Committee
and the Transaction
and Finance
Committee.
Michael Morris
CHIEF EXECUTIVE
Michael has 25 years’
experience within
the UK commercial
property sector and
is responsible for the
strategic direction and
effective execution of
the Group’s business
model.
Louisa
McAleenan
RESEARCH ANALYST
Louisa has over ten
years’ experience of
real estate research
and is responsible
for all aspects of
research and analysis,
contributing to the
direction of the Group’s
investment strategy
and is a member of
the Responsibility
Committee.
GOVERNANCE
Lucy Stearman
ASSISTANT
ACCOUNTANT
Lucy has over seven
years’ experience
within financial services
and joined the Group
in April 2019 to assist
with the accounting
and financial reporting.
Melissa Ricardo
TEAM SECRETARY
Melissa joined in
2017 and provides
administrative and
communications
support to the team.
Matthew Barker
ASSET MANAGER
Matthew is a
Chartered Surveyor
with over seven years’
experience within the
real estate sector and
is responsible for the
asset management
and performance of the
property portfolio.
Andrew Dewhirst
FINANCE DIRECTOR
Responsible for the
financial strategy and
reporting for the Group,
Andrew has over 30
years’ experience
within financial services
and real estate sectors.
James Forman
FINANCIAL
CONTROLLER
James has worked
with the Group since its
launch in 2005 and has
19 years’ experience in
the real estate sector.
He is responsible for
all the accounting
and financial reporting
for the Group and
is a member of the
Transaction and
Finance Committee.
Tim Hamlin
SENIOR ASSET
MANAGER
Tim is a Chartered
Surveyor with over
ten years’ of real
estate experience
and is responsible
for creating and
implementing asset
level business plans in
line with the portfolio’s
strategic direction
and is a member of
the Responsibility
Committee.
Corporate governance report
Leadership
THE BOARD
CHAIRMAN
Nicholas Thompson
Comprises
Chairman, 2 executive directors
and 3 non-executive directors
Responsibilities
• Direction and control of the business
• Overall long-term success
• Sets and implements strategy
• Establishes the culture and values
of the business
• Considers succession planning
• Promotes wider stakeholder
relationships
MANAGEMENT COMMITTEES
Executive Committee
CHAIR
Michael Morris
Comprises
2 executive directors
and 2 senior executives
Responsibilities
• Implementation of strategy
• Manages operations
• Day-to-day management
of the business
• Employee remuneration
and development
62
Audit and Risk
BOARD COMMITTEES
Nomination
CHAIR
Mark Batten
CHAIR
Maria Bentley
Comprises
3 non-executive directors
Comprises
4 non-executive directors
Responsibilities
• Oversees financial reporting
• Monitors risk management
• Reviews system of internal
controls
• Evaluates external auditor
Responsibilities
• Recommends Board
appointments
• Considers succession
planning
• Board evaluation
• Board composition
and diversity
Property Valuation
Remuneration
CHAIR
Roger Lewis
CHAIR
Maria Bentley
Comprises
4 non-executive directors
Comprises
4 non-executive directors
Responsibilities
• Oversees the independent
valuation process
• Recommends the
appointment and
remuneration of the valuer
• Ensures compliance with
applicable standards
Responsibilities
• Determines remuneration
policy
• Sets remuneration
of executive directors
• Reviews remuneration
of whole workforce
• Approves bonus and
LTIP awards
Transaction
and Finance
Responsibility
CHAIR
Michael Morris
CHAIR
Andrew Dewhirst
Comprises
2 executive directors and
senior management
Comprises
1 executive director and
senior management
Responsibilities
• Reviews and recommends
investment transactions
• Monitors portfolio costs
• Reviews compliance with
lending covenants
Responsibilities
• Determines CSR policy
• Monitors compliance
with relevant standards
and legislation
• Approves CSR reporting
• Employee wellbeing
GOVERNANCE
Division of responsibilities
Role
Responsibilities
CHAIRMAN
Nicholas Thompson
CHIEF EXECUTIVE
Michael Morris
• Leads the Board
• Responsible for overall Board effectiveness
• Promotes Company culture and values
• Sets the agenda and tone of Board discussions
• Ensures that all directors receive full and timely information to enable
effective decision making
• Promotes open debate at meetings
• Ensures effective communication with stakeholders
• Builds relationships between executive and non-executive directors
• Develops and recommends strategy to the Board
• Responsible for the implementation of strategy set by the Board
• Manages the business on a day-to-day basis
• Manages communication with shareholders and ensures that
their views are represented to the Board
FINANCE DIRECTOR
Andrew Dewhirst
• Supports the Chief Executive in the formulation of strategy
• Manages the financial operations of the Group
• Develops and maintains the system of financial controls within the Group
• Recommends the risk management framework to the Board
NON-EXECUTIVE DIRECTORS
Roger Lewis
Maria Bentley
Mark Batten
(SENIOR INDEPENDENT DIRECTOR)
• Bring independent judgement and scrutiny to the decisions of the Board
• Bring a range of skills and experience to the deliberations of the Board
• Monitor business progress against agreed strategy
• Review the risk management framework and the integrity of financial information
• Determines the remuneration policy for the Group and approves performance
targets in line with strategy
Composition of board
17%
17%
17%
50%
1 Non-executive
chairman
2 Executive
directors
3 Independent
non-executive
directors
33%
1 woman
5 men
17%
3 0-3 years
1 3-6 years
1 6-9 years
1 over 9 years
50%
83%
17%
ROLE
DIVERSITY
TENURE
63
Corporate governance report continued
The role of the Board
The Board is responsible for the long-term
success of the business. It provides leadership
and direction, with due regard to the views
of all of the stakeholders in the business. The
Board operates in an open and transparent
way, and seeks to engage with its shareholders,
employees, occupiers and local communities.
The Board has full responsibility for the direction
and control of the business, and sets and
implements strategy, within a framework of
strong internal controls and risk management.
It establishes the culture and values of the Group.
The Board has a schedule of matters reserved
for its attention. This includes all acquisitions
and significant disposals, significant leasing
transactions, dividend policy, gearing and
major expenditure.
The Board has collectively a range of skills
and experience that are complementary and
relevant to the business. These are set out in the
biographies of the individual directors on pages
56 and 57.
Board changes
During the year there have been a number
of changes in the composition of the Board,
which were anticipated and set out in last year’s
Annual Report.
On 30 September 2018 both Robert Sinclair and
Vic Holmes stepped down from the Board, ahead
of the Company’s transfer of its management
and control to the UK. On 1 October 2018
Maria Bentley was appointed to the Board as
a non-executive director, and on the same day
Andrew Dewhirst was also appointed. Michael
Morris and Andrew Dewhirst are the executive
directors, completing the transition from an
investment company to a commercial company
with a traditional board structure comprising both
executive and non-executive directors.
The Nomination Committee report sets out
the recruitment and selection process that
was followed for Maria’s appointment.
Composition
The Board comprises the Chairman, two
executive directors and three independent
non-executive directors.
All of the Directors will stand for re-election
at the forthcoming Annual General Meeting.
Board meetings
The Board has a regular schedule of meetings.
Until 31 December 2018 the Board met quarterly.
After that date the Board has moved to having
two meetings each quarter; the first of which will
focus on operational matters, and the second will
principally cover strategic issues and longer-term
planning. External advisers are invited to attend
Board meetings on a regular basis. The Board
also meet on an adhoc basis when required
outside the regular scheduled meetings.
Attendance at board and committee meetings
As at 31 March 2019 the Board comprised
50% independent non-executive directors.
Date
appointed
Board
Audit
and Risk
Remuneration
Property
Valuation
Nomination
Nicholas Thompson
15.09.2005
Michael Morris
01.10.2015
Andrew Dewhirst
01.10.2018
Mark Batten
01.10.2017
Maria Bentley
01.10.2018
Roger Lewis
31.03.2010
Robert Sinclair
Vic Holmes
-
-
Total number
of meetings
5/5
5/5
3/3
5/5
3/3
5/5
1/2
2/2
5
1/1
-
-
2/2
1/1
1/1
2/2
1/1
2
5/5
-
-
5/5
2/2
5/5
2/3
3/3
5
3/4
-
-
3/4
2/2
4/4
1/2
2/2
4
4/4
-
-
4/4
2/2
4/4
1/2
2/2
4
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.
64
GOVERNANCE
Board Committees
The Board has established four Committees:
Audit and Risk, Remuneration, Property
Valuation and Nomination. These are comprised
entirely of non-executive directors and operate
within defined terms of reference. The terms
of reference are available on the Company’s
website.
Non-executive directors
Excluding the Chairman, the Board includes
three independent non-executive directors. The
non-executive directors bring a variety of skills
and business experience to the Board. Their role
is to bring independent judgement and scrutiny to
the recommendations of the Executive. Each of
the non-executive directors are considered to be
independent in character and judgement.
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. 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.
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.
65
Corporate governance report continued
Board evaluation
The Board has a policy of undertaking an
external evaluation every three years, with internal
evaluations in the other years. This year an
external review was carried out by BoardAlpha,
and the key findings of their evaluation are as
follows:
• Whilst in a period of transition, the Board
appears to have all of the necessary skills,
expertise and commitment to be effective in
overseeing the management of the Company
and safeguarding shareholders’ interests.
• The Board has addressed and effectively dealt
with several major strategic issues since 2014.
• A key issue for the Board is succession
planning, given the tenure of the Chairman
and one of the other non-executive directors.
• Consideration should be given to the
appointment of a Senior Independent Director.
• The Board should review its company
secretarial arrangements.
• In accordance with the new Corporate
Governance code, the Chairman should seek
regular engagement with shareholders to
understand their views on governance and
strategy.
The Board has reviewed the findings of the
evaluation, and has addressed the majority of the
recommendations as appropriate. In respect of
succession planning and a Senior Independent
Director, these matters are discussed further in
the Nomination Committee Report.
BoardAlpha have no other connection with the
Group.
Conflicts of interest
Directors are required to notify the Company of
any potential conflicts of interest that they may
have. Any conflicts are recorded and reviewed
by the Board at each meeting. No conflicts have
been recorded during the year.
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 senior management would
be excluded from that discussion.
Shareholder engagement
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. Through the Chief Executive, a
regular programme of shareholder engagement is
undertaken during the year. As well as one-to-one
meetings with large shareholders the Company
offers group meetings at the annual and half-
year stage. The outcome of these meetings is
communicated to the rest of the Board.
Employee engagement
We recognise that our employees are integral to
the business, and we aim to provide a working
environment where they are able to maximise
their potential. Under its previous structure, with
a distinct Investment Manager, the Board would
meet in Guernsey with the result that engagement
with the rest of the Picton team would be limited,
although informal contact did take place on
occasion. Now that Picton is entirely managed
in the UK, the Board wishes to strengthen the
relationship with all of the employees, and in
this regard has agreed that Maria Bentley will
be the designated non-executive director with
responsibility for engagement with employees.
Her role will be to ensure that they have a forum
in which to air their views and that these are fed
back to the Board.
66
GOVERNANCE
Audit and risk committee report
Mark batten
The Audit and Risk Committee is chaired
by Mark Batten. The other members of the
Committee are Roger Lewis and Maria Bentley.
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;
• Monitoring and evaluating the risks relating to the Group;
• Evaluation of the Group’s risk profile and risk appetite,
and whether these are aligned with its investment objectives;
• 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, independence and non-audit services;
• Internal audit and the programme of controls testing; and
• Reporting responsibilities.
Nicholas Thompson has stepped down from
the Committee in accordance with the UK
Corporate Governance Code 2018. Meetings of
the Audit and Risk Committee are attended by
the Group’s Finance Director and other members
of the finance team, and the external auditor.
The external auditor is given the opportunity to
discuss matters without management presence.
Activity
The Audit and Risk Committee met twice during
the year ended 31 March 2019 and considered
the following matters:
• External audit strategy and plan;
• Audit and accounting issues of significance;
• Changes to accounting standards and their
impact;
• The Annual and Interim Reports of the Group;
• Reports from the external auditor;
• Review of internal controls testing;
• The effectiveness of the audit process and
the independence of KPMG Channel Islands
Limited;
• Review of the Risk Matrix and mitigating
controls; and
• Stock Exchange announcements.
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
2019 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
Picton staff, meet with the independent valuer on
a quarterly basis to review the valuations and
67
Audit and risk committee report continued
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 2019 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 2019 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
performance of the Company against its strategy
and receives regular reports from management
covering all business 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 2018, prepared in accordance
with International Standard on Assurance
Engagements 3402, in respect of property
management accounting services provided
to Picton Property Income 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.
68
GOVERNANCE
As part of the review of auditor independence
and effectiveness, KPMG Channel Islands Limited
has confirmed that:
• They have internal procedures in place to
identify any aspects of non-audit work which
could compromise their role as auditor and to
ensure the objectivity of the audit report;
• The total fees paid by the Group during the
year do not represent a material part of their
total fee income; and
• They consider that they have maintained their
independence throughout the year.
In evaluating KPMG Channel Islands Limited
the Committee completed its assessment of
the external auditor for the financial period
under review. It has satisfied itself as to their
qualifications and expertise and remains confident
that their objectivity and independence are not
in any way impaired by reason of the non-audit
services which they provide to the Group.
Audit tenure
KPMG Channel Islands Limited has been
appointed as the Company’s external auditor
since 2009. Following professional guidelines,
the audit partner rotates after five years. The
current audit partner is in her second year of
appointment. The Audit and Risk Committee
is aware that the tenure of the auditor is
approaching ten years. Therefore the Audit and
Risk Committee intends to undertake an audit
tender process in the coming year, in line with
best practice.
Mark Batten
Chair of the Audit and Risk Committee
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.
The fees payable to the Group’s auditor and its
member firms are as follows:
Audit fees
Interim review fees
Non-audit fees
2019
£000
115
15
27
157
2018
£000
108
14
27
149
The non-audit fees include £15,000 for additional
controls testing, £7,000 for liquidation fees and
£5,000 for taxation services, carried out by
KPMG Channel Islands Limited.
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 annual reports
and accounts.
69
Nomination committee report
Maria bentley
The Nomination Committee is chaired by
Maria Bentley. The other members of the
Committee are Roger Lewis, Mark Batten
and Nicholas Thompson.
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.
Nicholas Thompson stood down as Chair of the
Committee in March 2019 so that the process
to find a new Chair would be led by one of the
other members of the Committee. Maria Bentley
agreed to take over as Chair of the Committee
from that date. This report covers the work
of the Committee over the year including the
appointment and induction of Maria Bentley as a
non-executive director, and these sections of the
report were prepared by the previous Chair.
The role of the Committee is to consider the size,
structure and composition of the Board to ensure
that it has the right balance of skills, knowledge,
experience and diversity to carry out its duties
and provide effective leadership. 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.
Activity
The Committee met four times during the year
ended 31 March 2019 and considered the
following matters:
• Future composition of the Board;
• Succession planning;
• The selection process for the appointment
of a new director to replace Vic Holmes;
• The appointment of external consultants
to compile a list of candidates;
• The formation of a working group of the
Committee to manage the recruitment process
and work with the consultants; and
• Consideration of the final shortlist of candidates
and a final recommendation.
“ The Committee ensures that
the appointment process is formal,
rigorous and transparent.”
70
Re-election of directors
The provisions of the UK Corporate Governance
Code 2018 recommend that all directors be
subject to annual re-election at the Annual
General Meeting. The Board intends to follow
this recommendation at this year’s Annual
General Meeting.
Diversity policy
The Company is committed to treating all
employees equally and considers all aspects
of diversity, including gender, when considering
recruitment at any level of the business. All
candidates are considered on merit but having
regard to the right blend of skills, experience and
knowledge at Board and executive level, and
amongst our employees generally.
Induction
The induction process for Maria Bentley was led
by the Chairman and supported by the other
directors and members of senior management.
The process commenced shortly after the
appointment was confirmed, and comprised
a number of one-to-one meetings with the
other non-executive directors (including Vic
Holmes, the previous Chair of the Remuneration
Committee), the Chief Executive, the Finance
Director and the Head of Asset Management,
and also attendance, as an observer, at the
Board meeting held in September 2018 and at
relevant industry events. Additionally, reading and
reference material was provided that was specific
to the Group and its business.
Maria Bentley
Chair of the Nomination Committee
Appointment of new
non-executive director
During the year the Committee focused on
the selection and appointment of a new non-
executive director to replace Vic Holmes, who
retired from the Board on 30 September 2018.
The Committee appointed independent executive
search consultants JCA Group and provided
them with a detailed description of the role and
the capabilities required for it. The consultants
prepared a list of potential candidates, which
was assessed by the Committee for suitability
to the role. A short list of three candidates
were interviewed initially by the Chairman, and
subsequently by two other directors. The whole
Committee then considered the feedback from
this process before recommending to the Board
that Maria Bentley be appointed.
JCA Group have no other connection with
the Group.
Board composition and succession
Following the change to a commercial company
which took place on 1 October 2018, Andrew
Dewhirst was appointed to the Board as an
executive director. Following this appointment the
Board comprises the Chairman, two executive
directors and three further independent non-
executive directors.
The Committee has further considered
succession planning for the Board, particularly
following the publication of the new Corporate
Governance Code. Nicholas Thompson has
served as Chairman since 2005, and intends
to step down from the Board once a suitable
successor has been appointed. This process has
commenced, with the appointment of JCA Group
as external search consultants.
Roger Lewis joined the Board on 31 March 2010
and has now served for nine years. He will also
step down from the Board within the next 12
months, but the Committee wishes to ensure
that a new appointment takes place after
reflecting on the skills of the new Chairman,
and with an appropriate handover period.
GOVERNANCE
71
Property valuation committee report
Roger lewis
The Property Valuation Committee is
chaired by Roger Lewis. The other members
of the Committee are Nicholas Thompson,
Mark Batten and Maria Bentley.
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 management;
• Significant issues that should be raised with management;
• Material and unexplained movements in the valuation;
• Compliance with applicable standards and 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.
Activity
The Committee met four times during the year
ended 31 March 2019. Members of the Property
Valuation Committee, together with management,
met with the independent valuer each quarter
to review the valuations and considered the
following matters:
• Property market conditions and trends;
• Movements compared to previous quarters;
• Yields on properties within the portfolio;
• Letting activity and vacant properties;
• Covenant strength and lease lengths;
• Estimated rental values; and
• Comparable market evidence.
The Committee was satisfied with the valuation
process throughout the year.
External valuer
CBRE Limited was appointed as the 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 net asset
statements.
The Committee reviewed the performance of the
valuer and recommended that the appointment
be continued for a further 12 months.
Roger Lewis
Chair of the Property Valuation Committee
72
GOVERNANCE
73
Remuneration report
Maria bentley
The Remuneration Committee is chaired
by Maria Bentley. The other members of
the Committee are Nicholas Thompson,
Mark Batten and Roger Lewis.
Terms of reference
The Committee’s terms of reference are available on the
Company’s website. The principal functions of the Committee
as set out in the terms of reference include the following
matters:
• Review the ongoing appropriateness and relevance of the
Directors’ Remuneration Policy;
• Determine the remuneration of the Chairman, executive
directors and such members of the executive management
as it is designated to consider;
• Review the design of all share incentive plans for approval
by the Board; and
• Appoint and set the terms of reference for any remuneration
consultants.
Annual statement
Dear Shareholders
Introduction
On behalf of the Board, I am pleased to introduce
the Remuneration Committee report for the year
ended 31 March 2019.
This is my first report as Chair of the
Remuneration Committee, having taken over the
role from Vic Holmes, who retired from the Board
at the end of September 2018. This has been
a period of considerable change for Picton, in
particular the appointment of executive directors
to the Board for the first time in October 2018,
with a number of ramifications for remuneration
which have required careful consideration by the
Committee. Our new Remuneration Policy was
approved by shareholders last year, with 95%
of votes in favour, and we are now reporting
on its application for the first time. I should
highlight that whilst Picton has only had executive
directors since October 2018 and the new Policy
has therefore only technically applied to these
individuals’ remuneration for part of this financial
year, we have applied it in respect of their variable
remuneration awards for the full financial year.
This report comprises three sections:
• This annual statement;
• Summary of the Directors’ Remuneration
policy; and
• The Annual Report on Remuneration for the
year ended 31 March 2019.
The Committee met five times during the year
and set out below is a summary of its activity.
Group performance and alignment
We have set out on pages 26 to 27 the key
performance indicators (KPIs) that we currently
use to monitor the success of the business.
In order to appropriately align executive
remuneration with business performance we
incorporate KPIs within our incentive schemes.
In both 2018/19 and 2019/20 the KPIs that we
are using to determine variable remuneration are:
• Total return
• Total property return
• Total shareholder return
• Growth in EPRA earnings per share
The precise application of these measures
to both the annual bonus and the Long-term
Incentive Plan is set out later in the Report.
Annual bonus awards for 2018/19
The executive directors were set a number of
challenging targets for this year, comprising a
combination of financial measures and corporate
objectives. This is the first year that such targets
have been formally linked to remuneration in a
transparent manner.
The three financial measures were total return,
total property return, and growth in EPRA
earnings per share. The actual outcomes are set
out in the Annual Remuneration report, but the
overall result was that the directors earned an
estimated 60% of the maximum award available
under these financial measures.
Other attendees at
Committee meetings
during the year were
Michael Morris and
Andrew Dewhirst.
Neither participated
in discussions
relating to their own
remuneration.
74
GOVERNANCE
The corporate objectives were set to ensure that
specific key strategic targets were reached. The
most significant of these were the conversion
to a UK REIT and at the same time the change
in listing status. The other objectives set related
to leading the business and making progress
against the new strategic aims which were set
out in last year’s Annual Report. The Committee
considered that the executive directors had made
significant progress in many areas, including
successfully concluding both the REIT conversion
and listing change projects. More detail is
provided later in this Report, but overall the
Committee considered that an outcome of 92%
of the maximum award was merited.
The Committee considered the formulaic bonus
outcome in the context of the Group’s overall
performance for the year. Performance has been
discussed earlier in the Report but particular
points considered by the Committee included:
• The return from the property portfolio has
exceeded the MSCI UK Quarterly Property
Index for the year, and our long-term record
of outperformance has been maintained over
three, five and ten years.
• The Group’s profit for the year was £31 million,
giving a total return of 6.5%. Although this is
lower than the previous year, compared to
the MSCI UK Quarterly Property Index return
of 4.6%, this represents a very creditable
outcome.
• We have experienced reduced returns from an
uncertain property market but our total return
exceeds the average of our peer group.
• EPRA earnings per share have increased again
and over the last three years have risen by
nearly 5% per annum on average.
The Committee concluded that it was satisfied
the formulaic bonus outcome was a fair reflection
of overall Group performance during the past
financial year.
Long-term Incentive Plan awards
(performance period to 31 March 2019)
The first awards made under the Long-term
Incentive Plan (LTIP), in early 2017 when the
Plan was established, were based on three
performance conditions measured over the
three year period ending on 31 March 2019.
The LTIP provides the link between the long-term
success of the Company and the remuneration
of the whole team. The Committee has assessed
the extent to which these three performance
conditions have been met.
The three equally weighted performance
conditions were total shareholder return, total
property return and growth in EPRA earnings per
share. The actual outcomes for these conditions
are set out in the Annual Remuneration Report,
and give rise to an overall award of 83% of the
maximum granted.
Salary increases for 2019/20
In considering salary increases for 2019/20,
the Committee received an independent
benchmarking report covering each of the roles
within the Picton team. The Committee also
considered publically available comparative data,
and other market intelligence. As a result and
in order to maintain a competitive package the
Committee determined that there would be an
overall average rise for the workforce as a whole
of 6.3% in base salaries with effect from 1 April
2019. Rises for the two executive directors were
in line with or below the average for the rest of
the workforce.
Remuneration policy
The Remuneration Policy was approved by
shareholders in 2018 and we are not proposing
any changes to the policy this year.
Implementation of policy
Broadly our remuneration structure will remain
unchanged for the year to 31 March 2020
although there are some minor developments:
• In respect of the LTIP we intend to introduce
a further two-year holding period for future
awards made to the executive directors. The
total vesting and holding period will therefore
be five years, which is in accordance with the
new 2018 Corporate Governance Code.
• We have agreed an increased LTIP award for
the Finance Director for this year of 120%,
from 110%, as a result of the additional duties
carried out in respect of REIT conversion.
• Ahead of our first full year as a commercial
company, we have reviewed the performance
conditions for both the annual bonus and
the LTIP. For the annual bonus we intend to
increase the proportion determined by financial
metrics from 54% to 60%.
The bonus deferral policy for executive directors
will continue, with 50% of any annual bonus
award being deferred into Picton shares for a
period of two years before vesting. The executive
directors are expected to build up a shareholding
of 200% of base salary under our shareholding
guidelines.
We intend to maintain our current pension
arrangements for the executive directors, as
these are consistent with those of the rest of
the workforce.
As a Committee, we are committed to ongoing
dialogue with our shareholders. We look forward
to receiving your continued support at the
forthcoming Annual General Meeting.
Maria Bentley
Chair of the Remuneration Committee
75
Remuneration report continued
Remuneration at a glance
The components of remuneration are:
Total Remuneration
Fixed Pay
Variable Pay
Base salary
Annual
(and deferred)
bonus
+
Pension
contributions
Benefits
Long-term
incentive plan
(LTIP)
The annual bonus for
2018/19 was determined by:
The LTIP is based on three
financial metrics, each
measured over three years.
bjective s
6%
10%
18%
e o
t
a
r
o
p
r
o
c
10%
18%
d
n
a
l
a
n
o
20%
s
r
e
P
c
o
n
18%
ditions
F
i
n
a
n
c
i
a
l
33%
33%
33%
(cid:81)(cid:3) Total shareholder return
(cid:81)(cid:3) Total property return
(cid:81)(cid:3) Growth in EPRA earnings per share
Personal and corporate
objectives
(cid:81)(cid:3) Progress against strategic
objectives
(cid:81)(cid:3) Conversion to a REIT
(cid:81)(cid:3) Change to a commercial
company
(cid:81)(cid:3) Enhance reputation
with stakeholders
Financial conditions
(cid:81)(cid:3) Total return
(cid:81)(cid:3) Total property return
(cid:81)(cid:3) Growth in EPRA
earnings per share
Up to 50% of the annual bonus
is deferred into shares which
will vest in two years time.
76
GOVERNANCE
Group performance
Annual
6.5%
7.5%
Above MSCI
upper quartile
2.5%
25%
Down from 27%
in 2018
4.3p
Increase of 1.4%
from 2018
TOTAL RETURN
TOTAL PROPERTY
RETURN
INCREASE IN
NET ASSETS
LOAN TO VALUE
RATIO
EPRA EARNINGS
PER SHARE
Over three years
10.1%
Above MSCI
upper quartile
43.7%
5%
per annum
increase
TOTAL PROPERTY
RETURN
TOTAL SHAREHOLDER
RETURN
INCREASE IN
EPRA EARNINGS
PER SHARE
The total remuneration for the directors
for the year to 31 March 2019 (in £000) is:
Chief Executive
Finance Director*
Non-executive directors
260
TOTAL
£851
278
240
2
36
573
313
(cid:81)(cid:3)Total fixed
(cid:81)(cid:3)Salary/fees
(cid:81)(cid:3)Benefits
(cid:81)(cid:3)Pension salary supplement
(cid:81)(cid:3)Total variable
(cid:81)(cid:3)Annual bonus
(cid:81)(cid:3)Long-term incentive plan
93
80
153
TOTAL
£350
1
12
257
104
*Figures from 1 October 2018
£259
p82 Read more in Annual Report on Remuneration
77
Remuneration report continued
Summary of directors’ 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 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 directors by rewarding performance
through enhanced shareholder value.
The following charts show the composition
of the executive directors’ remuneration at
four performance levels:
Basic
On target
This is fixed pay only,
comprising base salary from
1 April 2019, benefits and
pension salary supplement of
15% of base salary.
This is fixed pay plus target
vesting for the annual bonus (at
50% of maximum opportunity
for illustrative purposes) and
the LTIP (at 25% of maximum
award).
Maximum Fixed pay plus maximum
vesting for both the annual
bonus (175% of base salary)
and the LTIP (125% (Chief
Executive) and 120% (Finance
Director) of base salary).
Maximum
with
share
price
growth
Maximum scenario
incorporating assumption
of 50% share price growth
during LTIP vesting period.
Chief Executive
£1,196K
13%
26%
£1,040K
30%
£587K
42%
37%
13%
37%
50%
£290K
100%
28%
24%
Basic
On target
Maximum
Maximum
with share
price growth
Finance Director
£700K
28%
43%
£802K
13%
25%
37%
29%
25%
£398K
13%
37%
50%
£198K
100%
Basic
On target
Maximum
Maximum
with share
price growth
Other than where stated, the charts do not
incorporate share price growth or dividend
equivalent awards.
Advisers
During the year, Deloitte LLP has provided
independent advice in relation to market data,
share valuations, share plan administration and
content of the Remuneration Report. Total fees
for the year were £23,900 (calculated on a time
spent basis). Deloitte LLP is a founding member
of the Remuneration Consultants Group and, as
such, voluntarily operates under the code of
conduct in relation to executive remuneration
consulting in the UK. In addition Deloitte also
provided taxation services and advice to the
Company during the year. The Committee has
reviewed the nature of this additional advice
and is satisfied that it does not compromise the
independence of the advice that it has received.
78
(cid:81)(cid:3) Total Fixed
(cid:81)(cid:3) Annual Bonus
(cid:81)(cid:3) LTIP
(cid:81)(cid:3) 50% share price
growth on 2019 LTIP
GOVERNANCE
A summary of the Remuneration Policy approved by shareholders at the 2018
Annual General Meeting is set out to the right. The full Policy is contained in our
2018 Annual Report which is available on our website at www.picton.co.uk
Executive directors’ remuneration policy table
Base salary
Purpose
Operation
A base salary to attract and retain executives of appropriate quality to deliver the
Group’s strategy.
Base salaries are normally reviewed annually with changes effective on 1 April.
When setting base salaries the Committee will consider relevant market data,
as well as the scope of the role and the individual’s skills and experience.
Maximum
No absolute maximum has been set for executive director base salaries.
Any annual increase in salaries is set at the discretion of the Remuneration Committee
taking into account the factors stated in this table and the following principles:
• Salaries would typically be increased at a rate consistent with the average employee
salary increase.
• Larger increases may be considered appropriate in certain circumstances (including,
but not limited to, a change in an individual’s responsibilities or in the scale of their
role or in the size and complexity of the Group).
• Larger increases may also be considered appropriate if a director has been initially
appointed to the Board at a lower than typical salary.
Performance measures
Clawback
None
None
Pension
Purpose
Operation
To provide a competitive remuneration package.
The Company has established defined contribution pension arrangements for all
employees. For executive directors the Company pays a monthly salary supplement
in lieu of Company pension contributions.
Maximum
The salary supplement is set at 15% of base salary.
Performance measures
Clawback
None
None
Benefits
Purpose
Operation
To provide a competitive remuneration package.
This principally comprises:
• Private medical insurance
• Life assurance
• Permanent health insurance
The Committee may agree to provide other benefits as it considers appropriate.
Maximum
Benefits are provided at market rates.
Performance measures
Clawback
None
None
79
Remuneration report continued
Annual bonus
Purpose
Operation
A short-term incentive to reward executive directors on meeting the Company’s
annual financial and strategic targets and on their personal performance.
The Committee may determine that up to 50% of the annual bonus will be paid in the
Company’s shares and deferred for two years. Dividend equivalents may be awarded
and paid at the end of the deferral period in cash.
Maximum
The maximum bonus will be 175% of base salary.
Performance measures
The annual bonus is based on a range of one-year financial, strategic and individual
targets set by the Committee at the beginning of each year. The weightings will also
be determined annually to ensure alignment with the Company’s strategic priorities
although at least 50% of the award will be assessed on corporate financial measures.
For corporate financial measures, 50% of the maximum bonus opportunity will
be payable for on target performance and, if applicable, up to 25% for threshold
performance.
Clawback
Malus and clawback provisions apply.
Long-term incentive plan
Purpose
Operation
A long-term incentive plan to align executives’ interests with those of shareholders
and to promote the long term success of the Company.
Awards are granted annually in the form of a conditional share award or nil cost
option.
Awards will normally vest at the end of a three year period subject to meeting the
performance conditions and continuing employment.
The Remuneration Committee may award dividend equivalents on awards that vest.
The Committee may apply a holding period of a further two years to awards that vest.
Maximum
Annual awards with a maximum value of up to 150% of base salary may be made.
Performance measures
There will initially be three performance conditions each measured over a three year
performance period. Each condition will be equally weighted, but the Committee has
the flexibility to vary this.
For threshold levels of performance 25% of the award vests, rising to 100% for
maximum performance.
Clawback
Malus and clawback provisions apply.
Shareholding guidelines
Purpose
Operation
Maximum
To align executive directors with the interests of shareholders.
Executive directors are expected to build up and thereafter maintain a minimum
shareholding equivalent to 200% of basic salary.
Not applicable.
Performance measures
Not applicable.
Clawback
Not applicable.
80
GOVERNANCE
Non-executive directors policy table
Fees
Purpose
Operation
To provide competitive director fees.
Annual fee for the Chairman, and annual base fees for other independent
non-executive directors.
Additional fees for those directors with additional responsibilities chairing
a Board Committee. All fees will be payable quarterly in arrears in cash.
Fees will usually be reviewed independently every three years.
The independent non-executive directors are not eligible to receive share options
or other performance related elements, or receive any other benefits other than where
travel to the Company’s registered office is recognised as taxable benefit in which
case a non-executive may receive the grossed-up costs of travel as a benefit.
Non-executive directors are entitled to reimbursement of reasonable expenses.
Maximum
The Company’s Articles set an annual limit for the total of non-executive directors’
remuneration of £300,000.
Performance measures
Clawback
None
None
Notes to table:
1 The Committee may amend or substitute any performance
condition(s) if one or more events occur which cause it to
determine that an amended or substituted performance condition
would be more appropriate, provided that any such amended or
substituted performance condition would not be materially less
difficult to satisfy than the original condition (in its opinion). The
Committee may adjust the calculation of performance targets and
vesting outcomes (for instance for material acquisitions, disposals
or investments and events not foreseen at the time the targets
were set) to ensure they remain a fair reflection of performance over
the relevant period. The Committee also retains discretion to make
downward or upward adjustments resulting from the application of
the performance measures if it considers that the outcomes are not
a fair and accurate reflection of business performance. In the event
that the Committee were to make an adjustment of this sort, a full
explanation would be provided in the next Remuneration Report.
2 Performance measures – annual bonus. The annual bonus
measures are reviewed annually and chosen to focus executive
rewards on delivery of key financial targets for the forthcoming
year as well as key strategic or operational goals relevant to an
individual. Specific targets for bonus measures are set at the start
of each year by the Remuneration Committee based on a range
of relevant reference points including, for Group financial targets,
the Company’s business plan and are designed to be appropriately
stretching.
3 The Committee may amend the terms of awards granted under the
share schemes referred to above in accordance with the rules of
the relevant plans.
4 Performance measures – LTIP. The LTIP performance measures
will be chosen to provide alignment with our longer-term strategy
of growing the business in a sustainable manner that will be in
the best interests of shareholders and other key stakeholders
in the Company. Targets are considered ahead of each grant of
LTIP awards by the Remuneration Committee taking into account
relevant external and internal reference points and are designed to
be appropriately stretching.
5 The Committee reserves the right to make any remuneration
payments and/or payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the policy set out
above where the terms of the payment were agreed (i) before the
policy set out above came into effect or (ii) at a time when the
relevant individual was not a director of the Company and, in the
opinion of the Committee, the payment was not in consideration
for the individual becoming a director of the Company. For these
purposes “payments” includes the Committee satisfying awards
of variable remuneration and, in relation to an award over shares,
the terms of the payment are “agreed” at the time the award is
granted.
6 The Committee may make minor amendments to the
Remuneration Policy for regulatory, exchange control, tax
or administrative purposes or to take account of a change
in legislation, without obtaining shareholder approval for that
amendment.
Policy for other employees
Remuneration for other employees broadly follows the same principles as for executive directors.
A significant element of remuneration is linked to performance measures. All employees currently
participate in the Long-term Incentive Plan and in the annual bonus. The weighting of individual and
corporate measures are dependent on an individual’s role.
The Committee does not formally consult with employees when determining executive director pay.
However, the Committee is kept informed of general management decisions made in relation to
employee pay and is conscious of the importance of ensuring that its pay decisions for executive
directors are regarded as fair and reasonable within the business.
81
Remuneration report continued
Annual report on remuneration
Total remuneration for the year
The table below sets out the total remuneration receivable by each of the directors who held office
during the year to 31 March 2019, with a comparison to the previous financial year:
Salary/fees
£000
Benefits
£000
Pension
salary
supplement
£000
Annual
bonus
£000
Deferred
bonus
£000
Long-term
incentive
plan
£000
Executive
Michael Morris
Andrew Dewhirst
2019
2018
2019
2018
Non-executive
Nicholas Thompson
2019
Roger Lewis
Mark Batten
Maria Bentley
Robert Sinclair
Vic Holmes
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
240
227
80
-
98
86
45
41
46
19
23
-
24
44
23
41
2
2
1
-
-
-
-
-
-
-
-
-
-
-
-
-
36
34
12
-
-
-
-
-
-
-
-
-
-
-
-
-
157
135
52
-
156
165
52
-
260
-
153
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£000
851
563
350
-
98
86
45
41
46
19
23
-
24
44
23
41
Benefits comprise private medical insurance and life assurance.
Executive directors receive a salary supplement of 15% of basic salary in lieu of company pension
contributions.
Andrew Dewhirst joined the Board on 1 October 2018. The above figures for his salary, benefits,
annual and deferred bonus have been pro-rated to reflect his time served as a director. The LTIP
value has not been pro-rated and reflects the full estimated value of the award that will vest.
Michael Morris became an executive director on 1 October 2018. However the above table also
includes, in relation to the prior period that he was a non-executive director of the Company,
remuneration received in his capacity as Chief Executive of Picton Capital Limited. He did not
receive a separate fee as a non-executive director.
Robert Sinclair and Vic Holmes retired from the Board on 30 September 2018. Maria Bentley
joined the Board on 1 October 2018.
The value of LTIP awards are based on the number of shares to be awarded to the executive
directors and the average share price over the quarter ended 31 March 2019 of 87.56 pence.
82
GOVERNANCE
Annual bonus for 2018/19
The annual bonus for the year ended 31 March 2019 for the executive directors was based
on a combination of financial metrics (54%) and corporate and personal objectives (46%).
The targets set for the year ended 31 March 2019 and the assessment of actual performance
achieved are set out in the tables below.
The financial metrics comprised three equally weighted components: Total Return relative to a
comparator group of similar companies, set out later in this report; Total Property Return compared to
the MSCI UK Quarterly Property Index; and growth in EPRA earnings per share over the financial year.
At the date of this report a number of companies in the Total Return comparator group had not
announced their results to 31 March 2019, and so the Committee has estimated that this condition
will be met at the median level, resulting in an award of 50%. The Committee will determine the actual
outcome of this condition once all companies have reported, and any adjustment required between
the estimate and actual will be made in next year’s Remuneration Report. There will be no payout
of the bonus until a finalised result can be confirmed.
Performance condition
Basis of calculation
Range
Actual
Weighting
(% of bonus)
Awarded (%
of maximum)
Total Return versus
comparator group
Total Property Return
versus MSCI Index
Less than median – 0%
Not yet available
6.5% 18%
50%
Equal to median – 50%
Equal to upper quartile – 100%
(estimated)
Less than median – 0%
Median – 5.6%
7.3% 18%
100%
Equal to median – 50%
Upper quartile – 7.0%
Equal to upper quartile – 100%
Growth in EPRA EPS
Less than 1% – 0%
Equal to 1% – 25%
Equal or greater than 9% – 100%
1% – 4.23p
9% – 4.57p
4.25p
18%
29%
The corporate and personal objectives for the executive directors for the year to 31 March 2019
were determined by the Remuneration Committee and accounted for 46% of the maximum award.
The objectives and the assessment of performance against these are as follows.
83
Remuneration report continued
Performance condition
Assessment
Conversion to a UK REIT
Successful transition to a commercial company
The project to convert to a REIT was initiated when there was clarity on UK
Government proposals to bring offshore companies into the scope of corporation
tax. The potential increase in the Group’s tax liability was significant and therefore the
importance of this project to the future profitability of the Group was considered to be
high. The two objectives of REIT conversion and transition to a commercial company
were assessed together due to the many interrelated issues involved.
The Committee considered that this critical project was both successfully planned
and executed by the executive directors. Key dates over the course of the project
were met allowing final completion to be achieved on time. The project was
completed within budget and tax savings of around £0.7 million are expected to be
realised within the first year after conversion.
Lead the business and make progress against the
strategic aims:
• Be occupier focused and opportunity led in the
way that we approach the proactive management
of the portfolio
• Buy, manage and sell effectively to enhance value
and income over the short, medium and long-
term
• Focus on both income and total return and look at
ways to reduce and manage risk
• Work with our occupiers to create space that they
need, provide a service they value and so deliver
high occupancy
• Have a flexible and efficient capital structure and
manage our debt profile through the property
cycle
The Committee assessed the progress made against the new strategic aims. They
considered that good progress had been made and particularly noted the following
achievements:
• The proactive management of the portfolio was demonstrated by 26 transactions
completed directly with occupiers without the use of third party agents
• Seven leases were regeared or breaks removed to manage the lease expiry
profile securing £1.4 million of income
• 16 rent reviews were settled securing a £0.5 million increase in annual income
• 14 leases were renewed securing £1.5 million of annual income
• The Total Property Return has exceeded the MSCI UK Quarterly Property Index
over one, three, five and ten years
• Two asset disposals were completed which crystallised value achieved through
active management, and ahead of previous valuation
• The Canada Life loan facility was restructured during the year, removing a number
of operational constraints and providing greater flexibility
• The loan to value ratio was further reduced over the year by making an early loan
• Ensure we run an effective and efficient
repayment
operational model
• The EPRA cost ratio, including direct vacancy costs, has reduced compared to
• Have the right culture that enables Picton to
the previous year
achieve its strategic aims
• A new management system was implemented improving the quality of property
• Align all staff with shareholders’ interests through
an appropriately structured remuneration policy
Enhance reputation with stakeholders
data available to the team
• Developed the Picton Promise with Action, Sustainability, Support, Technology
and Community initiatives
• Developed sustainability objectives and management policy
The Committee also noted the following where less progress had been made than
had been expected:
• The disposal of a retail asset did not take place as originally planned
• Occupancy reduced over the year
Picton achieved recognition through a number of awards over the year, including
from MSCI, Investment Week, Citywire, Moneywise and Money Observer. The 2018
Annual Report achieved an EPRA Gold award for the fourth year running, and our
sustainability reporting earned a Silver award.
The share price discount has narrowed over the year indicating a stronger demand
for shares, and is less than the sector average.
Meetings with shareholders took place throughout the year, and analyst
presentations were carried out after the annual and interim results. Shareholder
feedback received was consistently positive.
84
GOVERNANCE
The Committee agreed the following actual awards in respect of the corporate and personal
objectives for the executive directors.
Performance condition
Conversion to a UK REIT
Successful transition to a
commercial company
Lead the business and
make progress against the
strategic aims
Enhance reputation with
stakeholders
Actual level achieved
(% of maximum)
Weighting
(% of bonus)
Awarded
(% of maximum)
100%
100%
85%
90%
10%
10%
20%
6%
17.5%
17.5%
29.75%
9.45%
As discussed in the Committee Chair’s statement on pages 74 and 75, the Committee considered
the formulaic bonus outcome in the context of the Group’s overall performance for the year and
concluded that it was satisfied the formulaic bonus outcome was a fair reflection of overall Group
performance during the year.
Subject to the estimated Total Return component noted above, the overall annual bonus outcome
for the executive directors is, therefore, as follows.
Financial
metrics
(out of
maximum 54%)
Corporate
objectives
(out of
maximum 46%)
Overall bonus
% of maximum
Bonus
% of salary
Total bonus
£
Michael Morris
32.2%
Andrew Dewhirst
32.2%
42.4%
42.4%
74.6%
74.6%
130.6%
130.6%
313,500
104,500
The total bonus above for Andrew Dewhirst represents that portion relating to the period as a director
of the Company.
In accordance with the Directors’ Remuneration Policy the Committee has determined that 50%
of the annual bonuses awarded to the executive directors should be deferred and payable in shares
in two years’ time. Dividend equivalents will accrue on the shares and these will be paid when the
awards vest.
85
Remuneration report continued
Long-term Incentive Plan
The LTIP awards granted on 27 January 2017 were subject to performance conditions for the three
years ended 31 March 2019. The performance conditions and the actual performance for these were
as follows:
Performance
condition
Total Shareholder
Return versus
comparator group
Total Property Return
versus MSCI UK
Quarterly Property
Index
Basis of calculation
Range
Actual
Weighting
(% of
award)
Awarded
(% of
maximum)
Less than median – 0%
Median – 16.5%
43.7%
33.3%
100%
Equal to median – 25%
Upper quartile – 20.5%
Equal to upper quartile – 100%
Less than median – 0%
Median – 7.2%
10.1%
33.3%
100%
Equal to median – 25%
Upper quartile – 8.3%
Equal to upper quartile – 100%
Growth in EPRA EPS
Less than 3% per annum – 0%
3% – 4.02p
4.25p
33.3%
48%
Equal to 3% per annum – 25%
9% – 4.77p
Equal or greater than 9%
per annum – 100%
The Committee was satisfied that the above performance was achieved within an acceptable risk
profile. Based on the vesting percentage above, the shares awarded and their estimated values,
based on an average share price of 87.56 pence for the quarter ended 31 March 2019, are:
Director
Michael Morris
Andrew Dewhirst
Maximum number
of shares at grant
Number of shares
vesting
Number of lapsed
shares
Estimated value 1,2
£
358,791
211,418
296,815
174,899
61,976
36,519
259,900
153,100
1 The estimated value excludes dividend equivalent awards which will be made
in relation to vested LTIP awards at the point of vesting. The value of these
dividend equivalent awards will be included in a restated LTIP value in next year’s
Remuneration Report.
2 £25,157 (Michael Morris) and £14,824 (Andrew Dewhirst) of this value relates to
share price growth since the date of grant.
86
GOVERNANCE
The following awards in the Long-term Incentive Plan were granted to the executive directors
on 8 June 2018.
Number of
shares
Basis
(% of salary)
Face value
per share (£)
Award face
value (£)
Performance
period
Threshold
vesting
Michael Morris
330,396
125%
0.9080
300,000
Andrew Dewhirst
193,833
110%
0.9080
176,000
1 April 2018 to
31 March 2021
1 April 2018 to
31 March 2021
25%
25%
The face value is based on a weighted average price per share, being the average of the closing share
prices over the three business days immediately preceding the award date. Awards will vest after
three years subject to continued service and the achievement of the same performance conditions
as applied to the January 2017 LTIP award set out above.
Any LTIP vesting will also be subject to the Remuneration Committee confirming that,
in its assessment, the vesting outturn was achieved within an acceptable risk profile.
The executive directors have the following outstanding awards under the Long-term Incentive Plan.
Date of
grant
Performance
period
Market
value on
date of
grant
At
1 April
2018
Granted
in year
Vested
in year
Lapsed
in year
At
31 March
2019
Michael Morris
2016 LTIP
2017 LTIP
2018 LTIP
Andrew Dewhirst
2016 LTIP
2017 LTIP
2018 LTIP
27 January
2017
1 April 2016 to
31 March 2019
79.085p
358,791
84.917p
334,150
-
-
16 June
2017
1 April 2017 to
31 March 2020
8 June
2018
1 April 2018 to
31 March 2021
90.80p
-
330,396
692,941
330,396
27 January
2017
1 April 2016 to
31 March 2019
79.085p
211,418
84.917p
196,898
-
-
16 June
2017
1 April 2017 to
31 March 2020
8 June
2018
1 April 2018 to
31 March 2021
90.80p
-
193,833
408,316
193,833
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
358,791
334,150
330,396
1,023,337
211,418
196,898
193,833
602,149
87
Remuneration report continued
Comparator group
The Committee has agreed that the following companies are used as a comparator group for the Total
Shareholder Return and Total Return metrics in determining variable remuneration. A smaller group is
used for the Total Return metric due to the different reporting periods of some companies. The criteria
for inclusion in the groups are:
Listed companies paying an above average dividend yield, principally directly
investing in the UK in one or more of the main commercial property sectors
and with a market capitalisation of less than £2 billion.
Total Shareholder Return
Total Return
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
Company
AEW UK REIT plc
BMO Commercial Property Trust Limited
BMO UK Real Estate Investments Limited
Capital & Regional plc
Custodian REIT plc
Ediston Property Investment Company PLC
Hansteen Holdings plc
LondonMetric Property PLC
McKay Securities PLC
Mucklow (A.&J.) Group PLC
NewRiver REIT PLC
RDI REIT PLC
Regional REIT Limited
Schroder Real Estate Investment Trust Limited
Standard Life Investments Property Income
Trust Limited
Supermarket Income REIT PLC
UK Commercial Property REIT Limited
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
Warehouse REIT plc
(cid:51)(cid:3)
For awards made after 1 April 2018 the Committee determined that Tritax Big Box REIT plc would be
removed from the comparator groups as its market capitalisation now exceeded the criteria, and that
Supermarket Income REIT PLC and Warehouse REIT plc would be added following their listing.
88
Statement of directors’ shareholdings
Directors and employees are encouraged to maintain a shareholding in the Company’s shares
to provide alignment with investors.
The numbers of shares beneficially held by each director (including connected persons),
as at 31 March 2019, were as follows:
Beneficial
holding 2019
Beneficial
holding 2018
Holding
as a
% of salary
Outstanding
LTIP awards
20%
16%
1,023,337
602,149
Michael Morris
Andrew Dewhirst
Nicholas Thompson
Roger Lewis
Mark Batten
Maria Bentley
Robert Sinclair
Vic Holmes
53,596
28,500
215,000
600,000
-
-
15,000
27,214
53,596
28,500
215,000
600,000
-
-
15,000
27,214
The percentage holding for the executive directors is based on base salaries as at 31 March 2019 and
a share price of £0.88. The beneficial holdings of shares include any held by connected persons.
Robert Sinclair and Vic Holmes retired from the Board during the year ended 31 March 2019.
Their 2019 shareholding above is as at the date of their retirement.
Executive directors are now required to maintain a shareholding of 200% of base salary and both
directors are currently in the process of building up to that level. The executive directors intend to
retain at least 50% of any share awards (post tax) until the guidelines are met.
There have been no changes in these shareholdings between the year-end and the date of this report.
Payments to past directors or payments for loss of office
There were no payments to past directors or payments for loss of office to directors during the year
ended 31 March 2019.
GOVERNANCE
89
Remuneration report continued
Historical total shareholder return performance
The graph below shows the Company’s Total Shareholder Return (TSR) since 31 March 2009 as
represented by share price growth with dividends reinvested, against the FTSE All Share Index and the
FTSE EPRA NAREIT UK Index. These indices have been chosen as they provide comparison against
relevant sectoral and pan-sectoral benchmarks.
900
850
800
750
700
650
600
550
500
450
400
350
300
250
200
150
100
50
Mar-2009 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Mar-2014 Sep-2014 Mar-2015 Sep-2016 Mar-2015 Mar-2016 Sep-2016 Mar-2017 Sep-2017 Mar-2018 Sep-2018
Picton FTSE EPRA NAREIT UK FTSE All Share
The table below shows the remuneration of the Chief Executive for the past year, together with the
annual bonus percentage and LTIP vesting level. Although the Company only appointed a Chief
Executive on 1 October 2018 the table shows his remuneration for the full financial year.
Total remuneration
(£000)
Annual bonus
(% of maximum)
LTIP vesting (% of
maximum award)
2019
851
75%
83%
Percentage change in remuneration of the Chief Executive
The table below shows the percentage change in the Chief Executive’s total remuneration between
the years ended 31 March 2018 and 31 March 2019 compared to the average remuneration of all
other employees of the Group.
Change from previous year
Base salary
Benefits
Annual bonus
5.7%
12.8%
5.2%
10.4%
4.4%
5.2%
Chief Executive
Average of all
employees
Relative importance of spend on pay
The table below shows the expenditure and percentage change on staff costs compared to other key
financial indicators.
31 March 2019
£
31 March 2018
£
% change
Staff costs
Dividends
EPRA earnings
3,672
18,860
22,912
3,311
18,487
22,625
11%
2%
1%
90
GOVERNANCE
Implementation of Remuneration Policy in 2019/20
2019/20
Change from prior year
Executive directors
Base salaries
Michael Morris (Chief Executive) – £250,000
Andrew Dewhirst (Finance Director) – £170,000
Salaries have increased by 4.2% (Chief
Executive) and 6.3% (Finance Director)
compared to a 6.3% average increase for
the rest of the workforce.
Pension and benefits
15% salary supplement in lieu of pension plus
standard other benefits.
No change. All employees may receive
15% salary pension provision.
Annual bonus*
Maximum bonus of 175% of salary with 50%
of any bonus deferred in shares for two years.
Increase in proportion of bonus based on
corporate financial metrics.
60% of bonus to be determined by corporate
financial metrics of Total Return, Total Property
Return and growth in EPRA earnings per share
with the remaining 40% determined by strategic
and personal measures.
LTIP*
Award of shares worth:
• Michael Morris (Chief Executive) 125% of salary
• Andrew Dewhirst (Finance Director) 120% of
Increase in Finance Director award from 110%
of salary as a result of additional duties carried
out in respect of REIT conversion.
salary.
Shares released after three year performance
and two-year holding period. Vesting of shares
based equally on Total Shareholder Return, Total
Property Return and growth in EPRA earnings
per share measures, with the same target ranges
as set out on page 86.
Introduction of two-year holding period.
Non-executive directors
Fees
Chairman – £98,000
Director – £40,000
Supplementary fee for Chair of the Property
Valuation or Remuneration Committee – £5,000
Supplementary fee for Chair of the Audit and
Risk Committee – £7,500
No change
*The Remuneration Committee has discretion to override the formulaic outcomes in both the annual bonus and LTIP.
The Committee also confirms that performance has been achieved within an acceptable risk profile
before payouts are made. Incentive payouts are subject to malus and clawback provisions.
Statement of voting at the last Annual General Meeting
At the Annual General Meeting held on 13 September 2018 the Remuneration Report resolutions
were approved by shareholders representing 31% of the issued share capital of the Company.
Remuneration Policy Remuneration Report
For
Against
Votes cast
Withheld
Votes cast
148,636,904
7,853,028
156,489,932
10,100,551
%
94.98
5.02
100.0
Votes cast
163,191,904
3,268,028
166,459,932
130,551
%
98.04
1.96
100.0
Maria Bentley
Chair of the Remuneration Committee
91
Directors’ report
The directors of Picton Property Income Limited present the Annual Report
and audited financial statements for the year ended 31 March 2019. The
Company is registered under the provisions of the Companies (Guernsey)
Law, 2008.
Share capital
The issued share capital of the Company as
at 31 March 2019 was 540,053,660 (2018:
540,053,660) ordinary shares of no par value,
including 1,542,000 ordinary shares which are
held by the Trustee of the Company’s Employee
Benefit Trust (2018: 1,070,000 ordinary shares).
The directors have authority to buy back up to
14.99% of the Company’s ordinary shares in
issue, subject to the renewal of this authority from
shareholders at each Annual General Meeting.
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. No ordinary shares were
purchased under this authority during the year.
At the 2018 Annual General Meeting shareholders
gave the directors authority to issue up to
54,005,366 shares (being 10% of the Company’s
issued share capital as at 6 August 2018) without
having to first offer those shares to existing
shareholders. No ordinary shares have been
issued under this authority during the year. This
authority expires at this year’s Annual General
Meeting and resolutions will be proposed for its
renewal.
Principal activity
The principal activity of the Group is commercial
property investment in the United Kingdom.
Results and dividends
The results for the year are set out in the
Consolidated Statement of Comprehensive
Income.
On 1 October 2018 the Company converted
to a UK Real Estate Investment Trust (REIT).
As a REIT the Company must distribute to its
shareholders at least 90% of the profits of its
property rental business for each accounting
period as a Property Income Distribution (PID).
As set out in Note 10 to the consolidated
financial statements, the Company has paid
four interim dividends of 0.875 pence per share,
making a total dividend for the year ended 31
March 2019 of 3.5 pence per share (2018: 3.425
pence). The fourth interim dividend paid on 28
February 2019 was paid as a PID. The other
three interim dividends paid in the year relate
to the period before REIT conversion and were
therefore paid as ordinary dividends.
Directors
The directors of the Company who served
throughout the year are set out on pages 56 and
57.
The directors’ interests in the shares of the
Company as at 31 March 2019 are set out in the
Remuneration Report.
All of the directors will offer themselves for
re-election at the forthcoming Annual General
Meeting.
Listing
The Company is listed on the main market of the
London Stock Exchange.
92
GOVERNANCE
Shares held in the Employee
Benefit Trust
The Trustee of the Picton Property Income
Limited Long-term Incentive Plan holds
1,542,000 ordinary shares in the Company in
trust to satisfy awards made under the Long-
term Incentive Plan. During the year the Trustee
acquired 472,000 ordinary shares at 84.2 pence
per share. The Trustee has waived its right to
receive dividends on the shares it holds.
Statement of going concern
The Group’s business activities, together with
the factors affecting performance, investment
activities and future development are set out in
the Strategic Report. The financial position of the
Group, including its liquidity position, borrowing
facilities and debt maturity profile, is set out in the
Financial Review and in the consolidated financial
statements.
The directors have a reasonable expectation that
the Group has adequate resources to continue
in operational existence for the foreseeable
future. Therefore, they continue to adopt the
going concern basis in preparing the financial
statements.
Viability assessment and statement
The 2016 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. The Board considered this timescale
to be the most appropriate having regard to the
Group’s unexpired lease profile and the duration
of its external loan facilities. 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. This
assessment included the potential impact of Brexit
on the Group’s operations.
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 2024, and will continue to be
assessed over five-year rolling periods.
93
Directors’ report continued
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 occupier defaults.
The directors 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 2024.
Alternative Investment Fund
Managers Directive
As a result of the Company changing its listing
status to that of a commercial company from
1 October 2018 it is no longer subject to this
legislation.
Non-mainstream pooled
investments
As the Company is now a UK REIT, it is exempt
from these rules.
Substantial shareholdings
Based 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
3 May 2019.
Investec Wealth & Investment
Limited
Alliance Trust Savings Limited
Mattioli Woods Plc
Canaccord Genuity Wealth
Management
Brewin Dolphin Limited
BlackRock Inc.
Smith & Williamson Investment
Management
The Vanguard Group Inc.
Brooks MacDonald Asset
Management
% of issued
share capital
14.0
7.6
5.1
4.9
4.7
4.1
3.8
3.4
3.2
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.
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, subject to a tender process,
will be submitted at the Annual General Meeting.
94
GOVERNANCE
Statement of directors’
responsibilities
The directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare
financial statements for each financial year. Under
that law they have elected to prepare the financial
statements in accordance with International
Financial Reporting Standards, as issued by the
IASB, and applicable law.
Under company law the directors must not
approve the financial statements unless they are
satisfied that they give a true and fair view of the
state of affairs of the Company and of its profit or
loss for that period.
In preparing these financial statements, the
directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether applicable accounting standards
have been followed, subject to any material
departures disclosed and explained in the
financial statements;
• assess the Group’s ability to continue as a
going concern, disclosing, as applicable,
matters related to going concern; and
• use the going concern basis of accounting
unless they either intend to liquidate the Group
or to cease operations, or have no realistic
alternative but to do so.
The directors are responsible for keeping proper
accounting records that are sufficient to show
and explain the Company’s transactions and
disclose with reasonable accuracy at any time
the financial position of the Company and enable
them to ensure that its financial statements
comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal
controls as they determine are necessary to
enable the preparation of the financial statements
that are free from material misstatement,
whether due to fraud or error, and have a general
responsibility for taking such steps as are
reasonably open to them to safeguard the assets
of the Company and to prevent and detect fraud
and other irregularities.
The directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website,
and for the preparation and dissemination of
financial statements. Legislation in Guernsey
governing the preparation and dissemination of
financial statements may differ from legislation in
other jurisdictions.
Directors’ responsibility statement
in respect of the Annual Report and
financial statements
We confirm that to the best of our knowledge:
• the financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair view
of the assets, liabilities, financial position and
profit or loss of the Group; and
• the Strategic Report includes a fair review
of the development and performance of
the business and the position of the Group,
together with a description of the principal risks
and uncertainties that it faces.
We consider the annual report and accounts,
taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Group’s position and performance, business
model and strategy.
By Order of the Board
Andrew Dewhirst
21 May 2019
95
Independent auditor’s report
To the members of picton property
income limited
Key Audit Matters: our assessment
of the risks of material misstatement
Key audit matters are those matters that,
in our professional judgment, were of most
significance in the audit of the Financial
Statements and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) identified by us,
including those which had the greatest effect
on: the overall audit strategy; the allocation
of resources in the audit; and directing the
efforts of the engagement team. These
matters were addressed in the context of
our audit of the Financial Statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters. In arriving at our audit opinion
above, the key audit matter was as follows
(unchanged from 2018):
Valuation of investment properties
£676.1 million (2018: £670.7 million)
Refer to pages 67 to 69 of the Audit and
Risk Committee Report, Note 2 Significant
Accounting Policies and Note 13 Investment
Properties.
Our opinion is unmodified
We have audited the consolidated financial
statements (the “Financial Statements”)
of Picton Property Income Limited (the
“Company”) and its subsidiaries (together, the
“Group”), which comprise the consolidated
balance sheet as at 31 March 2019, the
consolidated statements of comprehensive
income, changes in equity and cash flows for
the year then ended, and notes, comprising
significant accounting policies and other
explanatory information.
In our opinion, the accompanying Financial
Statements:
− give a true and fair view of the financial
position of the Group as at 31 March
2019, and of the Group’s financial
performance and the Group’s cash flows
for the year then ended;
− are prepared in accordance with
International Financial Reporting Standards
(IFRS); and
− comply with the Companies (Guernsey)
Law, 2008.
Basis for Opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have
fulfilled our ethical responsibilities under, and
are independent of the Company and Group
in accordance with, UK ethical requirements
including FRC Ethical Standards as applied
to listed entities. We believe that the audit
evidence we have obtained is a sufficient and
appropriate basis for our opinion.
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FINANCIAL STATEMENTS
The risk
Basis:
The Group’s investment properties
accounted for 94% (2018: 93%) of the
Group’s total assets as at 31 March 2019.
The fair value of investment properties at 31
March 2019 was assessed by the Board of
Directors based on independent valuations
prepared by the Group’s external property
valuer (the “Valuer”).
Risk:
As highlighted in the Audit and Risk
Committee Report, the valuation of the
Group’s investment properties is a significant
area of our audit given that it represents the
majority of the total assets of the Group and
requires the use of significant judgements
and subjective assumptions.
Our response
Our audit procedures included:
Control evaluation:
We assessed the design, implementation
and operating effectiveness of certain
controls over the valuation of investment
properties including the review and approval
by the Board of Directors of the valuations
and the capture and recording of information
contained in the lease database for
investment properties.
Evaluating experts engaged by
management:
We assessed the competence, capabilities
and objectivity of the Valuer. We also
assessed the independence of the Valuer by
considering the scope of their work and the
terms of their engagement.
Evaluating assumptions and inputs
used in the valuation:
With the assistance of our own Real
Estate valuation specialist we assessed
the valuations prepared by the Valuer
by evaluating the appropriateness of the
valuation methodologies and assumptions
used, including undertaking discussions on
key findings with the Valuer and challenging
the valuations based on market information
and knowledge.
We also compared a sample of the key
inputs used to calculate the valuations such
as annual rent, occupancy and tenancy
contracts for consistency with other audit
findings.
Assessing disclosures:
We also considered the Group’s investment
property valuation policies and their
application as described in the notes to
the Financial Statements for compliance
with IFRS in addition to the adequacy of
disclosures in Note 13 in relation to fair
value of the investment properties.
Our application of materiality and an
overview of the scope of our audit
Materiality for the Financial Statements as
a whole was set at £7.1 million, determined
with reference to a benchmark of Group
Total Assets of £715.6 million of which it
represents approximately 1% (2018: 1%).
We reported to the Audit and Risk
Committee any corrected or uncorrected
identified misstatements exceeding
£355,000, in addition to other identified
misstatements that warranted reporting on
qualitative grounds.
Our audit of the Group was undertaken to
the materiality level specified above, which
has informed our identification of significant
risks of material misstatement and the
associated audit procedures performed in
those areas as detailed above.
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Independent auditor’s report continued
The Group team performed the audit of
the Group as if it was a single aggregated
set of financial information. The audit was
performed using the materiality level set out
above and covered 100% of total Group
revenue, total Group profit before tax, and
total Group assets and liabilities.
We have nothing to report on
going concern
We are required to report to you if we have
anything material to add or draw attention
to in relation to the directors’ statement in
Note 2 to the Financial Statements on the
use of the going concern basis of accounting
with no material uncertainties that may cast
significant doubt over the Group’s use of that
basis for a period of at least twelve months
from the date of approval of the Financial
Statements. We have nothing to report in this
respect.
We have nothing to report
on the other information in the
Annual Report
The directors are responsible for the other
information presented in the Annual Report
together with the Financial Statements. Our
opinion on the Financial Statements does
not cover the other information and we do
not express an audit opinion or any form of
assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether, based on our Financial Statements
audit work, the information therein is
materially misstated or inconsistent with the
Financial Statements or our audit knowledge.
Based solely on that work we have not
identified material misstatements in the other
information.
Disclosures of principal risks and
longer-term viability
Based on the knowledge we acquired during
our financial statements audit, we have
nothing material to add or draw attention to
in relation to:
• the directors’ confirmation within the
viability assessment and statement (pages
93 and 94) that they have carried out a
robust assessment of the principal risks
facing the Group, including those that
would threaten its business model, future
performance, solvency or liquidity;
• the Principal Risks disclosures describing
these risks and explaining how they are
being managed or mitigated; and
• the directors’ explanation in the viability
assessment and statement (pages 93
and 94) as to how they have assessed
the prospects of the Group, over what
period they have done so and why they
consider that period to be appropriate, and
their statement as to whether they have a
reasonable expectation that the Group will
be able to continue in operation and meet
its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies
between the knowledge we acquired
during our financial statements 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 shareholders to assess the Group’s
position and performance, business model
and strategy; or
100
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FINANCIAL STATEMENTS
• the section of the annual report describing
the work of the Audit and Risk Committee
does not appropriately address matters
communicated by us to the Audit and Risk
Committee.
We are required to report to you if the
Corporate Governance Statement does
not properly disclose a departure from the
eleven provisions of the 2016 UK Corporate
Governance Code specified by the Listing
Rules for our review.
We have nothing to report to you in these
respects.
We have nothing to report on other
matters on which we are required to
report by exception
We have nothing to report in respect of the
following matters where the Companies
(Guernsey) Law, 2008 requires us 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.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set
out on page 95, the directors are responsible
for: the preparation of the Financial
Statements including being satisfied that they
give a true and fair view; such internal control
as they determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether due
to fraud or error; assessing the Group’s ability
to continue as a going concern, disclosing,
as applicable, matters related to going
concern; and using the going concern basis
of accounting unless they either intend to
liquidate the Group or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of
assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK)
will always detect a material misstatement
when it exists. Misstatements can arise from
fraud or error and are considered material
if, individually or in aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of the Financial Statements.
A fuller description of our responsibilities
is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
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. 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.
Deborah Smith
For and on behalf of KPMG
Channel Islands Limited
Chartered Accountants and
Recognised Auditors, Guernsey
21 May 2019
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Consolidated statement
of comprehensive income
For the year ended 31 March 2019
Income
Revenue from properties
Property expenses
Net property income
Expenses
Administrative 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
Debt prepayment fees
Total finance costs
Profit before tax
Tax
Profit and total comprehensive income for the period
Earnings per share
Basic
Diluted
Notes
2019
£000
2018
£000
3
4
6
13
13
8
9
11
11
47,733
(9,433)
38,300
48,782
(10,335)
38,447
(5,842)
(5,842)
(5,566)
(5,566)
32,458
32,881
379
10,909
11,288
2,623
38,920
41,543
43,746
74,424
38
(9,126)
(3,245)
35
(9,782)
–
(12,333)
(9,747)
31,413
64,677
(458)
(509)
30,955
64,168
5.7p
5.7p
11.9p
11.9p
All items in the above statement derive from continuing operations.
All of the profit and total comprehensive income for the year is attributable to the equity holders of the
Company.
Notes 1 to 26 form part of these consolidated financial statements.
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FINANCIAL STATEMENTS
Consolidated statement
of changes in equity
For the year ended 31 March 2019
Share
Capital
£000
Retained
Earnings
£000
Other
Reserves
£000
Notes
Balance as at 31 March 2017
157,449
284,476
Profit for the year
Dividends paid
Share-based awards
Purchase of shares held in trust
Balance as at 31 March 2018
Profit for the year
Dividends paid
Share-based awards
Purchase of shares held in trust
10
7
7
10
7
7
Total
£000
441,925
64,168
(18,487)
642
(893)
–
–
–
642
(893)
–
–
–
–
64,168
(18,487)
–
–
157,449
330,157
(251)
487,355
–
–
–
–
30,955
(18,860)
–
–
–
–
363
(398)
30,955
(18,860)
363
(398)
Balance as at 31 March 2019
157,449
342,252
(286)
499,415
Notes 1 to 26 form part of these consolidated financial statements.
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Consolidated balance sheet
As at 31 March 2019
Non-current assets
Investment properties
Tangible assets
Total non-current assets
Current assets
Investment properties held for sale
Accounts receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Accounts payable and accruals
Loans and borrowings
Obligations under finance leases
Total current liabilities
Non-current liabilities
Loans and borrowings
Obligations under finance leases
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Other reserves
Total equity
Notes
2019
£000
2018
£000
13
676,102
670,674
25
5
676,127
670,679
13
14
15
16
17
21
17
21
19
–
14,309
25,168
39,477
3,850
15,273
31,510
50,633
715,604
721,312
(22,400)
(21,471)
(833)
(109)
(712)
(109)
(23,342)
(22,292)
(191,136)
(209,952)
(1,711)
(1,713)
(192,847)
(211,665)
(216,189)
(233,957)
499,415
487,355
157,449
342,252
157,449
330,157
(286)
(251)
499,415
487,355
Net asset value per share
22
93p
90p
These consolidated financial statements were approved by the Board of Directors on 21 May 2019 and signed
on its behalf by:
Andrew Dewhirst
Director
21 May 2019
Notes 1 to 26 form part of these consolidated financial statements.
104
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FINANCIAL STATEMENTS
Consolidated statement of cash flows
For the year ended 31 March 2019
Operating activities
Operating profit
Adjustments for non-cash items
Interest received
Interest paid
Tax paid
Decrease in accounts receivable
Increase in accounts payable and accruals
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 inflows/(outflows) from investing activities
Financing activities
Borrowings repaid
Borrowings drawn
Debt prepayment fees
Financing costs
Purchase of shares held in trust
Dividends paid
Cash outflows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Notes
20
2019
£000
2018
£000
43,746
(10,918)
38
74,424
(40,889)
35
(8,668)
(9,160)
(845)
396
1,532
25,281
(1,559)
–
11,837
(27)
(328)
267
1,286
25,635
(3,553)
(24,543)
10,285
–
10,251
(17,811)
(34,871)
15,500
(3,245)
–
(398)
(18,860)
(41,874)
(3,104)
12,500
–
(213)
(893)
(18,487)
(10,197)
(6,342)
(2,373)
31,510
33,883
13
13
17
17
7
10
Cash and cash equivalents at end of year
15
25,168
31,510
Notes 1 to 26 form part of these consolidated financial statements.
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Notes to the consolidated
financial statements
For the year ended 31 March 2019
1. General information
Picton Property Income Limited (the “Company” and together with its subsidiaries the “Group”) was established
on 15 September 2005 as a closed ended Guernsey investment company and entered the UK REIT regime on
1 October 2018. The consolidated financial statements are prepared for the year ended 31 March 2019 with
comparatives for the year ended 31 March 2018.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared on a going concern basis and adopt the historical cost basis,
except for the revaluation of investment properties. Historical cost is generally based on the fair value of the
consideration given in exchange for the assets. The financial statements, which give a true and fair view, are
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB and
are in compliance with the Companies (Guernsey) Law, 2008.
The directors 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.
• IFRS 15 Revenue from Contracts with Customers
• IFRS 9 Financial Instruments
• Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
• Amendment to IAS 40: Transfer of Investment Property
• Annual improvements to IFRSs 2014-2016 cycle – amendments to IFRS 1 and IAS 28
The adoption of these standards has had no material effect on the consolidated financial statements of the
Group.
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. It makes
changes to classification and measurement of financial assets and introduces an “expected credit loss” model
for impairment of financial assets.
At the date of approval of these financial statements there are a number of new and amended standards in
issue but not yet effective for the financial year ended 31 March 2019 and thus have not been applied by the
Group. None of these are expected to have an effect on the consolidated financial statements of the Group,
except the following set out below:
• IFRS 16 ‘Leases’ will result in almost all leases being recognised on the Balance Sheet, as the distinction
between operating and finance leases will be removed. Under the new standard, an asset (the right to use
the leased item) and a financial liability to pay rentals are recognised. Lessors will continue to classify leases
as finance and operating leases. The Group is in the process of assessing the full impact of IFRS 16. Once
IFRS 16 is adopted, the Group will be required to account for its current operating lease in a similar way to
current finance lease accounting. The application of the new accounting model is expected to lead to an
increase in both assets and liabilities and impact on the timing of the expense recognition in the consolidated
statement of comprehensive income after the period of the lease. Upon the initial adoption of IFRS 16, the
opening balance of the lease liability and corresponding right of use asset will be adjusted as at 1 April 2019.
There are a number of other changes to Accounting Standards effective from 1 January 2019 onwards but no
material impact is expected on the Group.
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FINANCIAL STATEMENTS
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.
Significant estimates
The critical estimates and assumptions relate to the investment property valuations applied by the Group’s
independent valuer and this is described in more detail in Note 13. 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.
Significant judgements
Critical judgements, where made, are disclosed within the relevant section of the financial statements in which
such judgements have been applied. Key judgements relate to the treatment of business combinations, lease
classifications, or employee benefits where different accounting policies could be applied. These are described
in more detail in the accounting policy notes below, or in the relevant notes to the financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company at the reporting date. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect these returns through
its power over the entity.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group. These financial statements
include the results of the subsidiaries disclosed in Note 12. All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
Fair value hierarchy
The fair value measurement for the 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 and subsequently measured at fair value. The fair value of
investment property is based on a valuation by an independent valuer who holds a recognised and relevant
professional qualification and who has recent experience in the location and category of the investment
property being valued.
The fair value of investment properties is measured based on each property’s highest and best use from a
market participant’s perspective and considers the potential uses of the property that are physically possible,
legally permissible and financially feasible. The Group ensures the use of suitable qualified external valuers
valuing the investment properties held by the Group.
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Notes to the consolidated financial statements continued
2. Significant accounting policies (continued)
The fair value of investment property generally involves consideration of:
• Market evidence on comparable transactions for similar properties;
• The actual current market for that type of property in that type of location at the reporting date and current
market expectations;
• Rental income from leases and market expectations regarding possible future lease terms;
• Hypothetical sellers and buyers, who are reasonably informed about the current market and who are
motivated, but not compelled, to transact in that market on an arm’s length basis; and
• Investor expectations on matters such as future enhancement of rental income or market conditions.
Gains and losses arising from changes in fair value are included in the Consolidated Statement of
Comprehensive Income in the year in which they arise. Purchases and sales of investment property are
recognised when contracts have been unconditionally exchanged and the significant risks and rewards of
ownership have been transferred.
An 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.
The loans have a first ranking mortgage over the majority of properties; see Note 17.
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.
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FINANCIAL STATEMENTS
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.
Share-based payments
The fair value of the amounts payable to employees in respect of the Deferred Bonus Plan, which are settled
in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the
employees become unconditionally entitled to payment. The liability is 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.
The grant date fair value of awards to employees made under the Long-term Incentive Plan is recognised
as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount
recognised as an expense is adjusted to reflect the number of awards for which the related non-market
performance conditions are expected to be met, such that the amount ultimately recognised is based on
the number of awards that meet the related non-market performance conditions at the vesting date. For
share-based payment awards with market conditions, the grant date fair value of the share-based awards is
measured to reflect such conditions and there is no adjustment between expected and actual outcomes.
The cost of the Company’s shares held by the Employee Benefit Trust is deducted from equity in the
Consolidated Balance Sheet. Any shares held by the Trust are not included in the calculation of earnings or net
assets per share.
Dividends
Dividends are recognised in the period in which they are declared.
Accounts receivable
Accounts receivable are stated at their nominal amount as reduced by appropriate allowances for estimated
irrecoverable amounts. The Group applies the IFRS 9 simplified approach to measuring expected credit losses,
which uses a lifetime expected impairment provision for all applicable accounts receivable. Bad debts are
written off when identified.
Loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net
of issue costs associated with the borrowing. After initial recognition, loans and borrowings are subsequently
measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit
or loss in the Consolidated Statement of Comprehensive Income when the liabilities are derecognised, as well
as through the amortisation process.
Assets classified as held for sale
Any investment properties on which contracts for sale have been exchanged but which had not completed
at the period end are disclosed as properties held for sale. Investment properties included in the held for sale
category continue to be measured in accordance with the accounting policy for investment properties.
Other assets and liabilities
Other assets and liabilities, including trade creditors and accruals, trade and other debtors and creditors, and
deferred rental income, which are not interest bearing 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.
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Notes to the consolidated financial statements continued
2. Significant accounting policies (continued)
Taxation
The Group elected to be treated as a UK REIT with effect from 1 October 2018. The UK REIT rules exempt
the profits of the Group’s UK property rental business from UK corporation and income tax. Gains on UK
properties are also exempt from tax, provided they are not held for trading. The Group is otherwise subject to
UK corporation tax.
As a REIT, the Company is required to pay Property Income Distributions equal to at least 90% of the Group’s
exempted net income. To remain a UK REIT there are a number of conditions to be met in respect of the
principal company of the Group, the Group’s qualifying activity and its balance of business. The Group
continues to meet these conditions.
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.
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 £0.8 million (2018: £0.2 million).
2019
£000
2018
£000
40,942
41,412
682
269
122
5,718
47,733
200
1,111
132
5,927
48,782
110
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4. Property expenses
Property operating costs
Property void costs
Recoverable service charge costs
5. Operating segments
The Board is responsible for setting the Group’s business model and strategy. The key measure of
performance used by the Board to assess the Group’s performance is the total return on the Group’s net asset
value. As the total return on the Group’s net asset value is calculated based on the net asset value per share
calculated under IFRS as shown at the foot of the Balance Sheet, assuming dividends are reinvested, the
key performance measure is that prepared under IFRS. Therefore, no reconciliation is required between the
measure of profit or loss used by the Board and that contained in the financial statements.
The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the opinion
that the Group, through its subsidiary undertakings, operates in one reportable industry segment, namely real
estate investment, and across one primary geographical area, namely the United Kingdom, and therefore no
segmental reporting is required. The portfolio consists of 49 commercial properties, which are in the industrial,
office, retail and leisure sectors.
6. Administrative expenses
Director and staff costs
Auditor’s remuneration
Other administrative expenses
One off REIT conversion costs of £215,000 were incurred during the year ended 31 March 2019, which are
included within other administrative expenses (2018: £307,000).
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
Liquidators’ fees
Tax compliance
Liquidators’ fees incurred to 31 March 2019 were in connection with the members’ voluntary liquidation of
Picton (UK) Listed Real Estate Limited.
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FINANCIAL STATEMENTS
2019
£000
2,342
1,373
5,718
9,433
2018
£000
2,578
1,830
5,927
10,335
2019
£000
3,672
157
2,013
5,842
2018
£000
3,311
149
2,106
5,566
2019
£000
2018
£000
72
43
15
130
15
–
7
5
27
157
65
43
14
122
14
6
7
–
27
149
111
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Notes to the consolidated financial statements continued
7. Director and staff costs
Wages and salaries
Non-executive directors’ fees
Social security costs
Other pension costs
Share-based payments – cash settled
Share-based payments – equity settled
2019
£000
1,654
257
623
48
727
363
2018
£000
1,667
232
276
50
620
466
3,672
3,311
The emoluments of the directors are set out in detail within the Remuneration Committee report.
Employees participate in two share-based remuneration arrangements: the Deferred Bonus Plan and the
Long-term Incentive Plan (the “LTIP”).
For all employees a proportion of any discretionary annual bonus will be an award under the Deferred Bonus
Plan. With the exception of executive directors, awards are cash settled and vest after two years. The final
value of awards are determined by the movement in the Company’s share price and dividends paid over the
vesting period. For executive directors awards made after 1 April 2019 are equity settled and also vest after
two years. On 1 April 2018 awards of 572,389 units were made which vest on 31 March 2020 (2018: 662,149
units). The next awards will be made in June 2019 for vesting on 31 March 2021.
The table below summarises the awards made under the Deferred Bonus Plan. Employees have the option
to defer the vesting date of their awards for a maximum of seven years. The units which vested at 31 March
2019, and were not deferred, were paid out subsequent to the year end at a cost of £925,000 (2018:
£508,000).
Units at
31 March
2017
Units
granted in
the year
Units
cancelled
in the year
Units
redeemed
in the year
Units at
31 March
2018
Units
granted in
the year
Units
cancelled
in the year
Units
redeemed
in the year
Units at
31 March
2019
Vesting Date
31 March 2016
31 March 2017
31 March 2018
65,198
127,916
725,980
–
–
–
–
–
–
–
65,198
127,916
(56,549)
(542,197)
127,234
–
–
–
–
–
–
–
(65,198)
(127,916)
(127,234)
(14,331)
(936,559)
–
–
–
–
31 March 2019
369,534
662,149
(80,793)
31 March 2020
–
–
–
–
–
950,890
–
572,389
(7,785)
–
564,604
1,288,628
662,149
(137,342)
(542,197) 1,271,238
572,389
(22,116)
(1,256,907)
564,604
The Group also has a Long-term Incentive Plan for all employees which is equity settled. Awards are made
annually and vest three years from the grant date. Vesting is conditional on three performance metrics
measured over each three-year period. Awards to executive directors are also subject to a further two-year
holding period. On 8 June 2018 awards for a maximum of 1,006,938 shares were granted to employees in
respect of the three-year period ending on 31 March 2021. In the previous year awards of 1,036,938 shares
were made on 16 June 2017 for the period ending 31 March 2020.
The three performance metrics are:
• Total Shareholder Return (TSR) of Picton Property Income Limited, compared to a comparator group of
similar listed companies;
• Total Property Return (TPR) of the property assets held within the Group, compared to the MSCI UK
Quarterly Property Index; and
• Growth in EPRA earnings per share (EPS) of the Group.
112
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FINANCIAL STATEMENTS
8 June 2018 16 June 2017
90.9p
Nil
84.25p
Nil
3 years
3 years
0.83%
18.4%
18.1%
33.2%
7.6%
3.1%
42.9p
90.9p
90.9p
0.21%
18.3%
16.1%
35.0%
3.3%
7.0%
31.98p
84.25p
84.25p
2019
£000
8,117
114
220
675
2018
£000
8,780
114
311
577
9,126
9,782
The fair value of option grants is measured using a combination of a Monte Carlo model for the market
conditions (TSR) and a Black-Scholes model for the non-market conditions (TPR and EPS). The fair value is
recognised over the expected vesting period. For the awards made during this year and the previous year the
main inputs and assumptions of the models, and the resulting fair values, are:
Assumptions
Grant date
Share price at date of grant
Exercise price
Expected term
Risk free rate – TSR condition
Share price volatility – TSR condition
Median volatility of comparator group – TSR condition
Correlation – TSR condition
TSR performance at grant date – TSR condition
Median TSR performance of comparator group at grant date – TSR condition
Fair value – TSR condition (Monte Carlo method)
Fair value – TPR condition (Black-Scholes model)
Fair value – EPS condition (Black-Scholes model)
The Trustee of the Company’s Employee Benefit Trust acquired 472,000 ordinary shares during the year for
£398,000 (2018: 1,070,000 shares for £893,000).
The Group employed ten members of staff at 31 March 2019 (2018: ten). The average number of people
employed by the Group for the year ended 31 March 2019 was 11 (2018: 12).
8. Interest paid
Interest payable on loans at amortised cost
Interest on obligations under finance leases
Non-utilisation fees
Amortisation of finance costs
The loan arrangement costs incurred to 31 March 2019 are £4,534,000 (2018: £5,244,000). These are
amortised over the duration of the loans with £675,000 amortised in the year ended 31 March 2019
(2018: £577,000).
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Notes to the consolidated financial statements continued
2019
£000
324
25
349
121
(12)
109
458
2019
£000
31,413
6,283
(2,315)
(2,182)
(76)
(163)
985
(2)
2018
£000
510
(203)
307
195
7
202
509
2018
£000
64,677
12,935
–
(7,784)
(525)
(152)
404
(33)
(2,291)
(4,498)
85
25
349
163
(203)
307
9. Tax
The charge for the year is:
Current UK income tax
Income tax adjustment to provision for prior year
Current UK corporation tax
UK corporation tax adjustment to provision for prior year
Total tax charge
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:
UK REIT exemption on net income and gains
Revaluation gains not taxable
Gains on disposal 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
For the year ended 31 March 2019 there was an income tax liability of £349,000 in respect of the Group
(2018: £307,000) and corporation tax of £109,000 (2018: £202,000).
The Group migrated tax residence to the UK and elected to be treated as a UK Real Estate Investment Trust
(REIT) with effect from 1 October 2018. As a UK REIT, the income profits of the Group’s UK property rental
business are exempt from corporation tax as are any gains it makes from the disposal of its properties,
provided they are not held for trading. The Group is otherwise subject to UK corporation tax at the prevailing
rate.
As the principal company of the REIT, the Company is required to distribute at least 90% of the income profits
of the Group’s UK property rental business. There are a number of other conditions that also require to be met
by the Company and the Group to maintain REIT tax status. These conditions were met in the year and the
Board intends to conduct the Group’s affairs such that these conditions continue to be met for the foreseeable
future. Accordingly, deferred tax is no longer recognised on temporary differences relating to the property rental
business.
The Group is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989.
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FINANCIAL STATEMENTS
2019
£000
–
–
–
–
4,716
4,716
4,716
4,712
2018
£000
4,590
4,590
4,591
4,716
–
–
–
–
18,860
18,487
10. Dividends
Declared and paid:
Interim dividend for the period ended 31 March 2017: 0.85 pence
Interim dividend for the period ended 30 June 2017: 0.85 pence
Interim dividend for the period ended 30 September 2017: 0.85 pence
Interim dividend for the period ended 31 December 2017: 0.875 pence
Interim dividend for the period ended 31 March 2018: 0.875 pence
Interim dividend for the period ended 30 June 2018: 0.875 pence
Interim dividend for the period ended 30 September 2018: 0.875 pence
Interim dividend for the period ended 31 December 2018: 0.875 pence
The interim dividend of 0.875 pence per ordinary share in respect of the period ended 31 March 2019 has not
been recognised as a liability as it was declared after the year end. A dividend of £4,712,000 will be paid on 31
May 2019.
11. Earnings per share
Basic and diluted 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,
excluding the average number of shares held by the Employee Benefit Trust for the year. The diluted number of
shares also reflects the contingent shares to be issued under the Long-term Incentive Plan.
The following reflects the 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 profit per share
Weighted average number of ordinary shares for diluted profit per share
12. Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2019 and 31 March 2018:
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 Capital 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
2019
30,955
2018
64,168
538,815,550 539,734,126
541,035,348 539,738,613
Place of
incorporation
Ownership
proportion
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
England & Wales
Guernsey
Guernsey
England & Wales
England & Wales
Guernsey
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, the remaining balances are held by Picton (General
Partner) No.2 Limited and Picton (General Partner) No.3 Limited respectively.
During the year Picton Finance Limited was wound up as a solvent liquidation.
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Notes to the consolidated financial statements continued
2019
£000
2018
£000
674,524*
615,170
–
1,559
24,543
3,553
(11,269)
(10,285)
406
(27)
35,178
(24,269)
–
2,655
(32)
49,664
(10,744)
(3,850)
676,102
670,674
648,044
660,263
2019
£000
2018
£000
685,335
683,800
1,565
(10,798)
–
1,657
(10,933)
(3,850)
676,102
670,674
13. Investment properties
The following table provides a reconciliation of the opening and closing amounts of investment properties
classified as Level 3 recorded at fair value.
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
Transfer to assets classified as held for sale
Fair value at the end of the year
Historic cost at the end of the year
* Includes assets classified as held for sale at year end.
The fair value of investment properties reconciles to the appraised value as follows:
Appraised value
Valuation of assets held under finance leases
Lease incentives held as debtors
Assets classified as held for sale
Fair value at the end of the year
The investment properties were valued by CBRE Limited, Chartered Surveyors, as at 31 March 2019 and
31 March 2018 on the basis of fair value in accordance with the RICS Valuation – Global Standards 2017
which incorporate the International Valuation Standards and the UK national supplement 2018. 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, CBRE Limited. The valuations
are based on:
• Information provided by the Group including rents, lease terms, revenue and capital expenditure.
Such information is derived from the Group’s financial and property systems and is subject to the Group’s
overall control environment.
• Valuation models used by the valuers, including market related assumptions based on their professional
judgement and market observation.
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FINANCIAL STATEMENTS
The assumptions and valuation models used by the valuers, and supporting information, are reviewed by senior
management and the Board through the Property Valuation Committee. Members of the Property Valuation
Committee, together with senior management, meet with the independent valuer on a quarterly basis to review
the valuations and underlying assumptions, including considering current market trends and conditions, and
changes from previous quarters. The 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 2019 and 31 March 2018 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 and the prior year.
Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to Level 1 (inputs
from quoted prices) and Level 2 (observable inputs either directly, i.e. as prices, or indirectly, i.e. derived from
prices).
Information on these significant unobservable inputs per sector of investment properties is disclosed as follows:
Appraised value (£000)
Area (sq ft, 000s)
Range of unobservable inputs:
Gross ERV (sq ft per annum)
— range
— weighted average
Net initial yield
— range
2019
Office
Industrial
Retail and
Leisure
Office
235,035
312,790
137,510
245,500
856
2,731
829
928
2018
Industrial
281,855
2,731
Retail and
Leisure
156,445
829
£9.52 to
£51.78
£27.33
£3.54 to
£17.70
£3.88 to
£84.11
£9.52 to
£52.65
£3.25 to
£17.21
£5.19 to
£91.14
£8.91
£31.50
£26.96
£8.24
£32.73
2.48% to
8.59%
0.00% to
8.25%
–0.17% to
15.36%
2.32% to
11.46%
1.29% to
9.08%
3.01% to
19.90%
— weighted average
5.15%
4.78%
5.11%
5.29%
5.19%
6.32%
Reversionary yield
— range
5.32% to
10.70%
4.60% to
9.99%
4.63% to
12.11%
5.52% to
13.70%
4.93% to
10.12%
4.55% to
10.95%
— weighted average
7.01%
5.55%
6.37%
7.14%
5.94%
6.52%
True equivalent yield
— range
5.24% to
9.49%
4.63% to
9.48%
4.09% to
10.86%
5.46% to
11.71%
5.00% to
9.48%
4.37% to
10.35%
— weighted average
6.88%
5.59%
6.75%
7.05%
5.98%
6.60%
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.
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Notes to the consolidated financial statements continued
13. Investment properties (continued)
Sector
Industrial
Office
Movement
2019
Impact on valuation
2018
Impact on valuation
Increase of 50 basis points
Decrease of £28.7m
Decrease of £24.2m
Decrease of 50 basis points
Increase of £34.7m
Increase of £29.0m
Increase of 50 basis points
Decrease of £18.7m
Decrease of £18.8m
Decrease of 50 basis points
Increase of £21.3m
Increase of £21.8m
Retail and Leisure
Increase of 50 basis points
Decrease of £12.6m
Decrease of £13.2m
Decrease of 50 basis points
Increase of £15.8m
Increase of £17.0m
14. Accounts receivable
Tenant debtors (net of provisions for bad debts)
Lease incentives
Other debtors
The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected
to be received and the approximate of their carrying amounts.
Amounts are considered impaired using the lifetime expected credit loss method. Movement in the balance
considered to be impaired has been included in the Consolidated Statement of Comprehensive Income. As at
31 March 2019, Trade debtors of £918,000 (2018: £384,000) were considered impaired and provided for.
15. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
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.
16. Accounts payable and accruals
Accruals
Deferred rental income
VAT liability
Income tax liability
Trade creditors
Other creditors
118
2019
£000
2,594
10,798
917
14,309
2018
£000
4,011
10,933
329
15,273
2019
£000
24,454
714
25,168
2018
£000
30,986
524
31,510
2019
£000
6,596
8,381
1,994
57
230
5,142
22,400
2018
£000
5,355
9,104
2,243
444
236
4,089
21,471
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17. Loans and borrowings
Current
Aviva facility
Capitalised finance costs
Non-current
Santander revolving credit facility
Santander revolving credit facility
Canada Life facility
Canada Life facility
Aviva facility
Capitalised finance costs
Maturity
–
–
18 June 2021
20 June 2021
–
24 July 2027
24 July 2032
–
The following table provides a reconciliation of the movement in loans and borrowings to cash flows arising
from financing activities.
Balance as at 1 April
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of loans and borrowings
Financing costs
Other changes
Amortisation of financing costs
Balance as at 31 March
FINANCIAL STATEMENTS
2019
£000
1,204
(371)
833
11,500
14,500
–
80,000
87,465
(2,329)
2018
£000
1,153
(441)
712
10,500
–
33,718
80,000
88,669
(2,935)
191,136
191,969
209,952
210,664
2019
£000
2018
£000
210,664
200,904
15,500
(34,871)
–
(19,371)
676
676
12,500
(3,104)
(213)
9,183
577
577
191,969
210,664
The Group has a loan with Canada Life Limited for £80 million which matures in July 2027. 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 £292.4 million (2018: £289.8 million).
On 20 July 2018 the Group repaid £33.7 million of debt under the Canada Life facility incurring an early
repayment charge of £3.2 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 £1.2 million in the year (2018: £1.1 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 and Picton Property No 3 Limited, valued
at £230.3 million (2018: £232.4 million).
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Notes to the consolidated financial statements continued
17. Loans and borrowings (continued)
The Group has two revolving credit facilities (“RCFs”) with Santander Corporate & Commercial Banking which
expire in June 2021. In total the Group has £51.0 million available under both facilities, of which £26.0 million
has been drawn down at year end. Interest is payable on drawn balances at LIBOR plus margins of 175 or 190
basis points. The facilities are secured on properties held by Picton (UK) REIT (SPV No 2) Limited and Picton
(UK) Listed Real Estate, valued at £133.7 million (2018: £132.7 million).
The fair value of the drawn loan facilities at 31 March 2019, estimated as the present value of future cash flows
discounted at the market rate of interest at that date, was £219.5 million (2018: £235.1 million). The fair value
of the secured loan facilities is classified as Level 2 under the hierarchy of fair value measurements.
There were no transfers between levels of the fair value hierarchy during the current or prior years.
The weighted average interest rate on the Group’s borrowings as at 31 March 2019 was 4.0% (2018: 4.1%).
18. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of five properties with commitments outstanding
at 31 March 2019 of approximately £1.4 million (2018: £nil). No further obligations to construct or develop
investment property or for repairs, maintenance or enhancements were in place as at 31 March 2019 (2018:
£nil).
19. Share capital and other reserves
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 2018: 540,053,660)
Share premium
Ordinary share capital
Number of shares held in Employee Benefit Trust
Number of ordinary shares
2019
£000
2018
£000
–
–
–
–
157,449
157,449
2019
Number
of shares
2018
Number
of shares
540,053,660 540,053,660
(1,542,000)
(1,070,000)
538,511,660 538,983,660
The fair value of awards made under the Long-term Incentive Plan is recognised in other reserves.
Subject to the solvency test contained in the Companies (Guernsey) Law, 2008 being satisfied, ordinary
shareholders are entitled to all dividends declared by the Company and to all of the Company’s assets after
repayment of its borrowings and ordinary creditors. The Trustee of the Company’s Employee Benefit Trust has
waived its right to receive dividends on the 1,542,000 shares it holds but continues to hold the right to vote.
Ordinary shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting
rights.
The directors have authority to buy back up to 14.99% of the Company’s ordinary shares in issue, subject to
the annual renewal of the authority from shareholders. Any buy-back of ordinary shares will be made subject to
Guernsey law, and the making and timing of any buy-backs will be at the absolute discretion of the Board.
20. Adjustment for non-cash movements in the cash flow
statement
Profit on disposal of investment properties
Movement in investment property valuation
Share-based provisions
Depreciation of tangible assets
120
2019
£000
(379)
(10,909)
363
7
2018
£000
(2,623)
(38,920)
642
12
(10,918)
(40,889)
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FINANCIAL STATEMENTS
21. 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
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
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.
22. Net asset value
The net asset value per share calculation uses the number of shares in issue at the year end and excludes the
actual number of shares held by the Employee Benefit Trust at the year end; see Note 19.
2019
£000
117
466
7,383
7,966
(6,146)
1,820
2019
£000
109
109
392
1,319
1,711
1,820
2018
£000
117
466
7,499
8,082
(6,260)
1,822
2018
£000
109
109
395
1,318
1,713
1,822
2019
£000
37,497
113,403
88,902
239,802
2018
£000
41,083
125,186
100,087
266,356
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Notes to the consolidated financial statements continued
23. Financial instruments
The Group’s financial instruments comprise cash and cash equivalents, accounts receivable, secured loans,
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, as disclosed in Note 17, 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 2019
Financial assets
Debtors
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Obligations under finance leases
Creditors and accruals
31 March 2018
Financial assets
Debtors
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Obligations under finance leases
Creditors and accruals
Held at fair value
through profit
or loss
£000
Financial assets
and liabilities at
amortised cost
£000
Note
Total
£000
3,511
25,168
28,679
Total
£000
4,340
31,510
35,850
191,969
191,969
1,820
11,968
1,820
11,968
205,757
205,757
3,511
25,168
28,679
4,340
31,510
35,850
210,664
210,664
1,822
9,680
1,822
9,680
222,166
222,166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Held at fair value
through profit
or loss
£000
Financial assets
and liabilities at
amortised cost
£000
14
15
17
21
16
Note
14
15
17
21
16
122
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FINANCIAL STATEMENTS
24. Risk management
The Group invests in commercial properties in the United Kingdom. The following describes the risks involved
and the applied risk management. Senior management reports regularly both verbally and formally to the
Board, and its relevant committees, to allow them to monitor and review all the risks noted below.
Capital risk management
The Group aims to manage its capital to ensure that the entities in the Group will be able to continue as a
going concern while maximising the return to stakeholders through 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 17, cash and cash equivalents and
equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings.
The Group is not subject to any external capital requirements.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as the principal borrowings
outstanding, as detailed under Note 17, divided by the gross assets. There is a limit of 65% as set out in the
Articles of Association of the Company. Gross assets are calculated as non-current and current assets, as
shown in the Consolidated Balance Sheet.
At the reporting date the gearing ratios were as follows:
Total borrowings
Gross assets
Gearing ratio (must not exceed 65%)
The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.
The Group has managed its capital risk by entering into long-term loan arrangements which will enable the
Group to manage its borrowings in an orderly manner over the long-term. The Group has two revolving credit
facilities which provide 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
Credit risk
The following tables detail the balances held at the reporting date that may be affected by credit risk:
2019
£000
194,669
715,604
27.2%
2018
£000
214,040
721,312
29.7%
2019
£000
2018
£000
216,189
233,957
(25,168)
(31,510)
191,021
499,415
0.38
202,447
487,355
0.42
31 March 2019
Financial assets
Tenant debtors
Cash and cash equivalents
Note
14
15
Held at fair
value through
profit or loss
£000
Financial assets
and liabilities at
amortised cost
£000
–
–
–
2,594
25,168
27,762
Total
£000
2,594
25,168
27,762
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Notes to the consolidated financial statements continued
24. Risk management (continued)
31 March 2018
Financial assets
Tenant debtors
Cash and cash equivalents
Note
14
15
Held at fair
value through
profit or loss
£000
Financial assets
and liabilities at
amortised cost
£000
–
–
–
4,011
31,510
35,521
Total
£000
4,011
31,510
35,521
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.
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”).
Insolvency or resolution of the bank holding cash balances may cause the Group’s recovery of cash held by
them to be delayed or limited. The Group manages its risk by monitoring the credit quality of its bankers on
an ongoing basis. NatWest, 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 2019 and at 31 March 2018 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’s liquidity risk is managed on an ongoing basis by senior
management and monitored on a quarterly basis by the Board by maintaining adequate reserves and loan
facilities, continuously monitoring forecasts and actual cash flows and matching the maturity profiles of financial
assets and liabilities for a period of at least 12 months.
124
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FINANCIAL STATEMENTS
The table below has been drawn up based on the undiscounted contractual maturities of the financial assets/
(liabilities), including interest that will accrue to maturity.
31 March 2019
Cash and cash equivalents
Debtors
Capitalised finance costs
Obligations under finance leases
Fixed interest rate loans
Floating interest rate loans
Creditors and accruals
31 March 2018
Cash and cash equivalents
Debtors
Capitalised finance costs
Obligations under finance leases
Fixed interest rate loans
Floating interest rate loans
Creditors and accruals
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
–
–
1,062
(466)
–
–
1,267
(1,237)
(33,329)
(201,591)
(243,252)
(26,869)
–
–
–
(27,229)
(11,968)
8,282
(59,602)
(201,561)
(252,881)
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
25,177
3,511
2,700
(1,820)
Total
£000
31,522
4,340
3,376
(1,822)
–
–
1,487
(1,239)
–
–
1,448
(466)
(71,862)
(11,065)
–
(209,924)
(291,494)
–
–
(11,319)
(9,680)
(81,945)
(209,676)
(275,077)
25,177
3,511
371
(117)
(8,332)
(360)
(11,968)
31,522
4,340
441
(117)
(9,708)
(254)
(9,680)
16,544
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) is generally not reduced when circumstances cause a reduction in revenue from properties. By
diversifying in regions, sectors, risk categories and occupiers, senior management expects to 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 £34.3 million
(2018: £34.2 million).
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Notes to the consolidated financial statements continued
24. Risk management (continued)
Interest rate risk management
Interest rate risk arises on interest payable on the revolving credit facilities 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 2019
Floating
Cash and cash equivalents
Secured loan facilities
Fixed
Secured loan facilities
Obligations under finance leases
31 March 2018
Floating
Cash and cash equivalents
Secured loan facilities
Fixed
Secured loan facilities
Obligations under finance leases
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
25,168
–
–
(26,000)
–
–
25,168
(26,000)
(1,204)
(109)
(5,377)
(160,884)
(167,465)
(392)
(1,319)
(1,820)
23,855
(31,769)
(162,203)
(170,117)
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
31,510
–
–
(10,500)
–
–
31,510
(10,500)
(1,153)
(109)
(38,866)
(163,521)
(203,540)
(395)
(1,318)
(1,822)
30,248
(49,761)
(164,839)
(184,352)
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 the single largest occupier accounting for 4.2% of the Group’s annual contracted rental
income.
Currency risk
The Group has no exposure to foreign currency risk.
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FINANCIAL STATEMENTS
25. Related party transactions
The total fees earned during the year by the non-executive directors of the Company amounted to £257,000
(2018: £232,000). As at 31 March 2019 the Group owed £nil to the non-executive directors (2018: £nil). The
emoluments of the executive directors are set out in the Remuneration Report.
Picton Property Income Limited has no controlling parties.
26. Events after the balance sheet date
A dividend of £4,712,000 (0.875 pence per share) was approved by the Board on 25 April 2019 and will be
paid on 31 May 2019.
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Additional information
Additional information
Supplementary Disclosures
Property Portfolio
Five Year Financial Summary
Glossary
Financial Calendar
Shareholder Information
130
134
135
136
138
139
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11/06/2019 10:35
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Additional information
Additional information
Supplementary Disclosures
Property Portfolio
Five Year Financial Summary
Glossary
Financial Calendar
Shareholder Information
130
134
135
136
138
139
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11/06/2019 10:35
Supplementary 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 for the year after taxation
Exclude:
Investment property valuation movement
Gains on disposal of investment properties
Debt prepayment fees
Exceptional income
EPRA earnings
Weighted average number of shares in issue (000s)
EPRA earnings per share
2019
£000
2018
£000
2017
£000
30,955
64,168
42,750
(10,909)
(379)
3,245
–
22,912
538,816
4.3p
(38,920)
(2,623)
–
–
22,625
(15,087)
(1,847)
–
(5,250)
20,566
539,734
540,054
4.2p
3.8p
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
2019
£000
2018
£000
2017
£000
499,415
487,355
441,925
–
–
499,415
538,512
93p
–
–
487,355
538,984
90p
–
–
441,925
540,054
82p
EPRA NNNAV per share
The EPRA Triple Net Asset Value includes the fair value adjustments in respect of all material balance sheet
items.
2019
£000
2018
£000
2017
£000
499,415
487,355
441,925
(24,811)
(21,106)
(24,475)
–
474,604
538,512
88p
–
466,249
538,984
87p
–
417,450
540,054
77p
EPRA NAV
Fair value of debt
Deferred tax
EPRA NNNAV
Shares in issue (000s)
EPRA NNNAV per share
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ADDITIONAL INFORMATION
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
Grossed up property portfolio valuation
Annualised cash passing rental income
Property outgoings
Annualised net rents
EPRA net initial yield
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 stepped 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
2019
£000
35,803
2,739
38,542
5.3%
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
2019
£000
4,828
46,839
10.3%
2019
£000
685,335
46,771
2018
£000
2017
£000
683,800
624,410
46,197
42,362
732,106
729,997
666,772
37,699
(1,896)
35,803
4.9%
41,360
(1,327)
40,033
5.5%
2018
£000
40,033
3,160
43,193
5.9%
2018
£000
1,995
47,854
4.2%
39,998
(911)
39,087
5.9%
2017
£000
39,087
2,633
41,720
6.3%
2017
£000
2,647
45,887
5.8%
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supplementary disclosures (unaudited) continued
EPRA cost ratio
EPRA cost ratio reflects the overheads and operating costs as a percentage of the gross rental income.
Property operating costs
Property void costs
Administrative 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)
2019
£000
2,342
1,373
5,842
(256)
9,301
(1,373)
7,928
40,942
(256)
40,686
22.9%
19.5%
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
2018
£000
2,578
1,830
5,566
(217)
9,757
(1,830)
7,927
41,412
(217)
41,195
23.7%
19.2%
2019
£000
–
–
1,559
–
1,559
2017
£000
3,501
2,023
5,249
(239)
10,534
(2,023)
8,511
40,555
(239)
40,316
26.1%
21.1%
2018
£000
–
–
3,553
–
3,553
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.
Offices
Industrial
Retail and Leisure
Total
2019
£000
2018
£000
2019
£000
2018
£000
Like-for-like rental income
13,378
12,910
16,727
15,990
Properties acquired
Properties sold
1,285
154
691
1,063
–
–
–
–
2019
£000
9,401
–
(3)
2018
£000
2019
£000
2018
£000
10,758
39,506
39,658
–
–
1,285
151
691
1,063
14,817
14,664
16,727
15,990
9,398
10,758
40,942
41,412
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ADDITIONAL INFORMATION
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
2019
£000
2018
£000
2017
£000
194,669
214,040
204,644
(25,168)
(31,510)
(33,883)
169,501
685,335
24.7%
182,530
683,800
26.7%
170,761
624,410
27.4%
Cost ratio
The cost ratio is based on historical information and provides shareholders with an indication of the likely
level of cost of managing the Group. The cost ratio uses the annual recurring administrative expenses as a
percentage of the average net asset value over the period.
Administrative expenses
Less:
REIT conversion and restructuring costs
Restructuring costs
Recurring administrative expenses
Average Net Asset Value over the year
Cost ratio
2019
£000
5,842
(215)
–
5,627
2018
£000
5,566
(307)
–
5,259
2017
£000
5,249
–
(167)
5,082
497,304
470,252
429,546
1.1%
1.1%
1.2%
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Property portfolio
Five year financial summary
ADDITIONAL INFORMATION
Properties valued in
excess of £40 million
Properties valued between
£30 and £40 million
Properties valued between
£20 and £30 million
• Parkbury Industrial
Estate, Radlett, Herts.
• River Way Industrial
Estate, River Way,
Harlow, Essex
• Angel Gate, City Road,
• 50 Farringdon Road,
London EC1
• Stanford House,
London EC1
• Tower Wharf,
Long Acre, London WC2
Cheese Lane, Bristol
• Belkin Unit, Express Business
Park, Shipton Way,
Rushden, Northants.
• 30 & 50 Pembroke Court,
Chatham, Kent
• Colchester Business Park,
The Crescent, Colchester, Essex
• Lyon Business Park,
Barking, Essex
Properties valued between
£10 and £20 million
• B&Q, Queens Road, Sheffield
• Parc Tawe North Retail Park,
Link Road, Swansea
• Metro, Salford Quays,
Manchester
• Citylink,
Properties valued between
£5 and £10 million
• Angouleme Retail Park, George
Street, Bury, Greater Manchester
• Regency Wharf, Broad Street,
Birmingham
Properties valued
under £5 million
• 62-68 Bridge Street,
Peterborough
• 78-80 Briggate, Leeds
• 17-19 Fishergate,
• Trident House, Victoria Street,
Preston, Lancs.
St Albans, Herts.
• 18-28 Victoria Lane,
Huddersfield, West Yorks.
• 72-78 Murraygate, Dundee
• 7-9 Warren Street, Stockport
• Abbey Business Park,
Mill Road, Newtownabbey,
Belfast
• Magnet Trade Centre,
6 Kingstreet Lane,
Winnersh, Reading
• Waterside House,
Kirkstall Road, Leeds
• 6-12 Parliament Row,
Hanley, Staffs.
Addiscombe Road, Croydon
• Units 1 & 2, Kettlestring Lane,
• Gloucester Retail Park,
Eastern Avenue, Gloucester
• Datapoint, Cody Road,
London E16
• Grantham Book Services,
Trent Road, Grantham, Lincs.
• Sundon Business Park,
Dencora Way, Luton, Beds.
• The Business Centre,
York
• Crown & Mitre Complex,
English Street, Carlisle, Cumbria
• Queen’s House,
St Vincent Place, Glasgow
• Longcross Court,
Newport Road, Cardiff
• Easter Court,
Europa Boulevard, Warrington
Molly Millars Lane, Wokingham,
Berks.
• 53-57 Broadmead, Bristol
• Units 1 & 2, Western Industrial
• Unit 3220, Magna Park,
Lutterworth, Leics.
Estate, Downmill Road,
Bracknell, Berks.
• 180 West George Street,
• Swiftbox, Haynes Way, Rugby,
Glasgow
Warwickshire
• 401 Grafton Gate East,
Milton Keynes, Bucks.
• Scots Corner, High Street, Kings
Heath, Birmingham
• Nonsuch Industrial Estate,
• Thistle Express, The Mall, Luton,
Kiln Lane, Epsom, Surrey
• Vigo 250, Birtley Road,
Beds.
• Atlas House,
Washington, Tyne and Wear
Third Avenue, Marlow, Bucks.
• Sentinel House,
Harvest Crescent, Fleet, Hants.
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Income Statements
Net property income
Administrative expenses
Exceptional costs
Net finance costs
Income profit before tax
Tax
Income profit
Property gains and losses
Debt prepayment fee
Profit after tax
Dividends paid
2019
2018
2017
2016
2015
42.3
(5.0)
(0.2)
37.1
(10.8)
26.3
(0.5)
25.8
17.0
-
42.8
18.0
35.9
(4.4)
-
31.5
(11.4)
20.1
(0.2)
19.9
44.9
-
64.8
17.8
30.3
(3.8)
-
26.5
(10.9)
15.6
(0.3)
15.3
53.6
-
68.9
13.1
2019
2018
2017
2016
2015
Balance Sheets
Investment properties
676.1
670.7
615.2
646.0
532.9
Borrowings
(194.7)
(214.0)
(204.6)
(249.5)
(232.8)
Other assets and liabilities
Net assets
18.0
499.4
30.7
487.4
31.3
441.9
20.6
417.1
69.9
370.0
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.
82
82
7.9
3.3
144
83.8
77
77
12.0
3.3
112
69.8
69
69
15.4
3.0
117
71.8
38.3
(5.6)
(0.2)
32.5
(9.1)
23.4
(0.5)
22.9
11.3
(3.2)
31.0
18.9
93
93
5.7
3.5
122
89.2
38.5
(5.3)
(0.3)
32.9
(9.7)
23.2
(0.5)
22.7
41.5
-
64.2
18.5
90
90
11.9
3.4
122
84.3
135
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Property portfolio
Five year financial summary
ADDITIONAL INFORMATION
Properties valued in
excess of £40 million
Properties valued between
Properties valued between
£30 and £40 million
£20 and £30 million
• Parkbury Industrial
Estate, Radlett, Herts.
• River Way Industrial
Estate, River Way,
Harlow, Essex
• Angel Gate, City Road,
• 50 Farringdon Road,
London EC1
• Stanford House,
London EC1
• Tower Wharf,
Long Acre, London WC2
Cheese Lane, Bristol
• Belkin Unit, Express Business
Park, Shipton Way,
Rushden, Northants.
• 30 & 50 Pembroke Court,
Chatham, Kent
• Colchester Business Park,
The Crescent, Colchester, Essex
• Lyon Business Park,
Barking, Essex
Properties valued between
Properties valued between
Properties valued
£10 and £20 million
£5 and £10 million
under £5 million
• B&Q, Queens Road, Sheffield
• Angouleme Retail Park, George
• 62-68 Bridge Street,
• Parc Tawe North Retail Park,
Street, Bury, Greater Manchester
Peterborough
Link Road, Swansea
• Metro, Salford Quays,
Manchester
• Citylink,
• Regency Wharf, Broad Street,
• 78-80 Briggate, Leeds
Birmingham
• 17-19 Fishergate,
• Trident House, Victoria Street,
Preston, Lancs.
St Albans, Herts.
• 18-28 Victoria Lane,
Addiscombe Road, Croydon
• Units 1 & 2, Kettlestring Lane,
Huddersfield, West Yorks.
• Gloucester Retail Park,
York
Eastern Avenue, Gloucester
• Crown & Mitre Complex,
• 72-78 Murraygate, Dundee
• 7-9 Warren Street, Stockport
• Datapoint, Cody Road,
English Street, Carlisle, Cumbria
• Abbey Business Park,
London E16
• Queen’s House,
Mill Road, Newtownabbey,
• Grantham Book Services,
St Vincent Place, Glasgow
Belfast
Trent Road, Grantham, Lincs.
• Longcross Court,
• Magnet Trade Centre,
• Sundon Business Park,
Dencora Way, Luton, Beds.
• The Business Centre,
Newport Road, Cardiff
• Easter Court,
6 Kingstreet Lane,
Winnersh, Reading
Europa Boulevard, Warrington
• Waterside House,
Molly Millars Lane, Wokingham,
• 53-57 Broadmead, Bristol
Kirkstall Road, Leeds
Berks.
• Unit 3220, Magna Park,
Lutterworth, Leics.
• Units 1 & 2, Western Industrial
• 6-12 Parliament Row,
Estate, Downmill Road,
Bracknell, Berks.
Hanley, Staffs.
• 180 West George Street,
• Swiftbox, Haynes Way, Rugby,
Glasgow
Warwickshire
• 401 Grafton Gate East,
• Scots Corner, High Street, Kings
Milton Keynes, Bucks.
Heath, Birmingham
• Nonsuch Industrial Estate,
• Thistle Express, The Mall, Luton,
Kiln Lane, Epsom, Surrey
• Vigo 250, Birtley Road,
Beds.
• Atlas House,
Washington, Tyne and Wear
Third Avenue, Marlow, Bucks.
• Sentinel House,
Harvest Crescent, Fleet, Hants.
Income Statements
Net property income
Administrative expenses
Exceptional costs
Net finance costs
Income profit before tax
Tax
Income profit
Property gains and losses
Debt prepayment fee
Profit after tax
Dividends paid
2019
2018
2017
2016
2015
38.3
(5.6)
(0.2)
32.5
(9.1)
23.4
(0.5)
22.9
11.3
(3.2)
31.0
18.9
38.5
(5.3)
(0.3)
32.9
(9.7)
23.2
(0.5)
22.7
41.5
-
64.2
18.5
42.3
(5.0)
(0.2)
37.1
(10.8)
26.3
(0.5)
25.8
17.0
-
42.8
18.0
35.9
(4.4)
-
31.5
(11.4)
20.1
(0.2)
19.9
44.9
-
64.8
17.8
30.3
(3.8)
-
26.5
(10.9)
15.6
(0.3)
15.3
53.6
-
68.9
13.1
2019
2018
2017
2016
2015
Balance Sheets
Investment properties
676.1
670.7
615.2
646.0
532.9
Borrowings
(194.7)
(214.0)
(204.6)
(249.5)
(232.8)
Other assets and liabilities
Net assets
18.0
499.4
30.7
487.4
31.3
441.9
20.6
417.1
69.9
370.0
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)
93
93
5.7
3.5
122
89.2
90
90
11.9
3.4
122
84.3
82
82
7.9
3.3
144
83.8
77
77
12.0
3.3
112
69.8
69
69
15.4
3.0
117
71.8
All figures are in £ million unless otherwise stated.
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Glossary
ADDITIONAL INFORMATION
Annual rental income
Cash rents passing at the Balance Sheet date.
Property income return
Property income return
The ungeared income return of the portfolio as calculated
The ungeared income return of the portfolio as calculated
Contracted rent
Cost ratio
DTR
The contracted gross rent receivable which becomes
payable after all the occupier incentives in the letting have
expired.
Total operating expenses, excluding one-off costs, as a
percentage of the average net asset value over the period.
Disclosure and Transparency Rules, issued by the United
Kingdom Listing Authority.
Dividend cover
EPRA earnings divided by dividends paid.
Earnings per share (EPS)
EPC
EPRA
Estimated rental value (ERV)
Fair value
Profit for the period attributable to equity shareholders
divided by the average number of shares in issue during the
period.
Energy performance certificate.
European Public Real Estate Association, the industry body
representing listed companies in the real estate sector.
The external valuers’ opinion as to the open market rent
which, on the date of the valuation, could reasonably be
expected to be obtained on a new letting or rent review of a
property.
The estimated amount for which a property should
exchange on the valuation date between a willing buyer
and a willing seller in an arm’s length transaction after
the proper marketing and where parties had each acted
knowledgeably, prudently and without compulsion.
Fair value movement
An accounting adjustment to change the book value of an
asset or liability to its fair value.
A lease which imposes full repairing and insuring obligations
on the occupier, 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.
FRI lease
Group
IASB
IFRS
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Final Current pages.indd 103
Initial yield
Initial yield
Lease incentives
Lease incentives
MSCI
MSCI
NAV
NAV
Over-rented
Over-rented
Rack-rented
Rack-rented
by MSCI.
by MSCI.
Annual cash rents receivable (net of head rents and the cost
Annual cash rents receivable (net of head rents and the cost
of vacancy), as a percentage of gross property value, as
of vacancy), as a percentage of gross property value, as
provided by the Group’s external valuers. Rents receivable
provided by the Group’s external valuers. Rents receivable
following the expiry of rent-free periods are not included.
following the expiry of rent-free periods are not included.
Incentives offered to occupiers to enter into a lease.
Incentives offered to occupiers to enter into a lease.
Typically this will be an initial rent-free period, or a cash
Typically this will be an initial rent-free period, or a cash
contribution to fit-out. Under accounting rules the value
contribution to fit-out. Under accounting rules the value
of the lease incentives is amortised through the Income
of the lease incentives is amortised through the Income
Statement on a straight-line basis until the lease expiry.
Statement on a straight-line basis until the lease expiry.
An organisation supplying independent market indices and
An organisation supplying independent market indices and
portfolio benchmarks to the property industry.
portfolio benchmarks to the property industry.
Net Asset Value is the equity attributable to shareholders
Net Asset Value is the equity attributable to shareholders
calculated under IFRS.
calculated under IFRS.
Space where the passing rent is above the ERV.
Space where the passing rent is above the ERV.
Space where the passing rent is the same as the ERV.
Space where the passing rent is the same as the ERV.
Reversionary yield
Reversionary yield
The estimated rental value as a percentage of the gross
The estimated rental value as a percentage of the gross
Total property return
Total property return
Combined ungeared income and capital return from the
Combined ungeared income and capital return from the
Total return
Total return
Measures the performance of the Group based on its
Measures the performance of the Group based on its
Total shareholder return
Total shareholder return
Measures the change in share price over the year plus
Measures the change in share price over the year plus
property value.
property value.
property portfolio.
property portfolio.
published results.
published results.
dividends paid.
dividends paid.
Weighted average debt maturity
Weighted average debt maturity
Each tranche of Group debt is multiplied by the remaining
Each tranche of Group debt is multiplied by the remaining
period to its maturity and the result is divided by total Group
period to its maturity and the result is divided by total Group
debt in issue at the period end.
debt in issue at the period end.
Weighted average interest rate
Weighted average interest rate
The Group loan interest per annum 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.
divided by total Group debt in issue at the period end.
Weighted average lease term
Weighted average lease term
The average lease term remaining to first break, or expiry,
The average lease term remaining to first break, or expiry,
across the portfolio weighted by contracted rental income.
across the portfolio weighted by contracted rental income.
137
11/06/2019 10:56
ADDITIONAL INFORMATION
Annual rental income
Cash rents passing at the Balance Sheet date.
Property income return
Property income return
The ungeared income return of the portfolio as calculated
The ungeared income return of the portfolio as calculated
Initial yield
Initial yield
Lease incentives
Lease incentives
MSCI
MSCI
NAV
NAV
Over-rented
Over-rented
Rack-rented
Rack-rented
by MSCI.
by MSCI.
Annual cash rents receivable (net of head rents and the cost
Annual cash rents receivable (net of head rents and the cost
of vacancy), as a percentage of gross property value, as
of vacancy), as a percentage of gross property value, as
provided by the Group’s external valuers. Rents receivable
provided by the Group’s external valuers. Rents receivable
following the expiry of rent-free periods are not included.
following the expiry of rent-free periods are not included.
Incentives offered to occupiers to enter into a lease.
Incentives offered to occupiers to enter into a lease.
Typically this will be an initial rent-free period, or a cash
Typically this will be an initial rent-free period, or a cash
contribution to fit-out. Under accounting rules the value
contribution to fit-out. Under accounting rules the value
of the lease incentives is amortised through the Income
of the lease incentives is amortised through the Income
Statement on a straight-line basis until the lease expiry.
Statement on a straight-line basis until the lease expiry.
An organisation supplying independent market indices and
An organisation supplying independent market indices and
portfolio benchmarks to the property industry.
portfolio benchmarks to the property industry.
Net Asset Value is the equity attributable to shareholders
Net Asset Value is the equity attributable to shareholders
calculated under IFRS.
calculated under IFRS.
Space where the passing rent is above the ERV.
Space where the passing rent is above the ERV.
Space where the passing rent is the same as the ERV.
Space where the passing rent is the same as the ERV.
Reversionary yield
Reversionary yield
The estimated rental value as a percentage of the gross
The estimated rental value as a percentage of the gross
property value.
property value.
Total property return
Total property return
Combined ungeared income and capital return from the
Combined ungeared income and capital return from the
property portfolio.
property portfolio.
Total return
Total return
Measures the performance of the Group based on its
Measures the performance of the Group based on its
published results.
published results.
Total shareholder return
Total shareholder return
Measures the change in share price over the year plus
Measures the change in share price over the year plus
dividends paid.
dividends paid.
Weighted average debt maturity
Weighted average debt maturity
Each tranche of Group debt is multiplied by the remaining
Each tranche of Group debt is multiplied by the remaining
period to its maturity and the result is divided by total Group
period to its maturity and the result is divided by total Group
debt in issue at the period end.
debt in issue at the period end.
Weighted average interest rate
Weighted average interest rate
The Group loan interest per annum 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.
divided by total Group debt in issue at the period end.
Weighted average lease term
Weighted average lease term
The average lease term remaining to first break, or expiry,
The average lease term remaining to first break, or expiry,
across the portfolio weighted by contracted rental income.
across the portfolio weighted by contracted rental income.
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Glossary
Contracted rent
Cost ratio
DTR
The contracted gross rent receivable which becomes
payable after all the occupier incentives in the letting have
expired.
Total operating expenses, excluding one-off costs, as a
percentage of the average net asset value over the period.
Disclosure and Transparency Rules, issued by the United
Kingdom Listing Authority.
Dividend cover
EPRA earnings 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
Estimated rental value (ERV)
The external valuers’ opinion as to the open market rent
period.
Energy performance certificate.
European Public Real Estate Association, the industry body
representing listed companies in the real estate sector.
which, on the date of the valuation, could reasonably be
expected to be obtained on a new letting or rent review of a
property.
The estimated amount for which a property should
exchange on the valuation date between a willing buyer
and a willing seller in an arm’s length transaction after
the proper marketing and where parties had each acted
knowledgeably, prudently and without compulsion.
asset or liability to its fair value.
A lease which imposes full repairing and insuring obligations
on the occupier, 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.
Fair value movement
An accounting adjustment to change the book value of an
EPC
EPRA
Fair value
FRI lease
Group
IASB
IFRS
136
Final Current pages.indd 102
Financial calendar
Shareholder information
ADDITIONAL INFORMATION
Annual Results
announced
22 May 2019
Annual Results
posted to
shareholders
June 2019
June 2019
NAV announcement
July 2019
(provisional)
Annual General
Meeting
November 2019
(provisional)
2019 Half Year
Results to be
announced
November 2019
(provisional)
December 2019
NAV announcement
January 2020
(provisional)
Dividend
Payment Dates
August/ November/
February/May
Directors
Mark Batten
Nicholas Thompson (Chairman)
Maria Bentley (appointed 1 October 2018)
Andrew Dewhirst (appointed 1 October 2018)
Vic Holmes (resigned 30 September 2018)
Roger Lewis
Michael Morris
Robert Sinclair (resigned 30 September 2018)
Registered office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Registered Number: 43673
UK office
1st Floor
28 Austin Friars
London
EC2N 2QQ
T: 020 7628 4800
E: enquiries@picton.co.uk
Administrator
and Secretary
Corporate brokers
JP Morgan Securities Limited
Northern Trust International
25 Bank Street
Fund Administration
Services (Guernsey) Limited
London
E14 5JP
PO Box 255,
Trafalgar Court
Les Banques,
St Peter Port
Guernsey
GY1 3QL
T: 01481 745001
E: team_picton@ntrs.com
Registrar
Computershare Investor
Services (Guernsey) Limited
NatWest House
Le Truchot
St Peter Port
Guernsey
GY1 1WD
T: 0370 707 4040
E: info@computershare.co.je
Independent Auditor
KPMG Channel Islands Limited
London
EC4A 3TR
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
Tavistock Communications
Media
1 Cornhill
London
EC3V 3ND
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
Walker House
Exchange Flags
Liverpool
L2 3YL
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
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 contains more
detailed information about the
Group. www.picton.co.uk
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Financial calendar
Shareholder information
ADDITIONAL INFORMATION
Annual Results
announced
22 May 2019
Annual Results
posted to
shareholders
June 2019
June 2019
NAV announcement
July 2019
(provisional)
Annual General
Meeting
November 2019
(provisional)
2019 Half Year
Results to be
announced
November 2019
(provisional)
December 2019
NAV announcement
January 2020
(provisional)
Dividend
Payment Dates
August/ November/
February/May
Directors
Nicholas Thompson (Chairman)
Mark Batten
Maria Bentley (appointed 1 October 2018)
Andrew Dewhirst (appointed 1 October 2018)
Vic Holmes (resigned 30 September 2018)
Roger Lewis
Michael Morris
Robert Sinclair (resigned 30 September 2018)
Registered office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Registered Number: 43673
UK office
1st Floor
28 Austin Friars
London
EC2N 2QQ
T: 020 7628 4800
E: enquiries@picton.co.uk
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
Registrar
Computershare Investor
Services (Guernsey) Limited
NatWest House
Le Truchot
St Peter Port
Guernsey
GY1 1WD
T: 0370 707 4040
E: info@computershare.co.je
Corporate brokers
JP Morgan Securities Limited
25 Bank Street
London
E14 5JP
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
Media
Tavistock Communications
1 Cornhill
London
EC3V 3ND
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
Walker House
Exchange Flags
Liverpool
L2 3YL
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
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 contains more
detailed information about the
Group. www.picton.co.uk
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Picton AR2019 Financials.indd 139
Final Current pages.indd 105
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139
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11/06/2019 10:56
140
Picton AR2019 Financials.indd 140
Final Current pages.indd 106
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11/06/2019 10:56
Picton Property Income Limited
1st Floor,
28 Austin Friars
London,
EC2N 2QQ
0207 628 4800
www.picton.co.uk