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Occupier focused,
Opportunity led.
Picton Property Income Limited
Annual Report 2020
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Business Overview
Welcome
Welcome to our
2020 Annual Report
Driven by our occupier focused, opportunity
led approach, we acquire, create and
manage buildings for a wide range of
commercial occupiers.
By applying insight, agility and a personalised
service, we provide attractive, well-located
spaces to help our occupiers succeed.
Contents
Business Overview
Welcome
2020 Highlights
Picton at a Glance
Chairman’s Statement
Strategic Report
Business Model
Our Marketplace
Our Strategy
Chief Executive’s Review
Key Performance Indicators
Portfolio Review
Financial Review
Principal Risks
Being Responsible
Section 172 Companies Act 2006
Statement
Governance
Chairman’s Introduction
Board of Directors
Our Team
Corporate Governance Report
Nomination Committee Report
Audit and Risk Committee Report
Remuneration Report
Property Valuation Committee Report
Directors’ Report
2
4
6
8
10
14
16
24
28
38
41
46
52
54
56
58
60
64
66
69
84
85
Financial Statements
Independent Auditor’s Report
Consolidated Statement of
Comprehensive Income
Consolidated Statement
ofChangesin Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to the Consolidated
Financial Statements
Additional Information
Supplementary Disclosures
Property Portfolio
Five Year Financial Summary
Glossary
Financial Calendar
Shareholder Information
88
91
92
93
94
95
112
116
117
118
119
120
Visit our website
www.picton.co.uk
Investment
Rationale
1
2
3
Opportunity for income
and capital growth.
Diversified exposure to the UK
commercial property market.
Established a track record of
outperformance.
As an asset class, UK commercial
property is known for its stable
income characteristics, which over
the long-term have been shown to
deliver over 70% of its total return.
Property is also considered cyclical,
correlated with economic growth,
and there is the potential for
capital appreciation as well as
income growth.
Ourdiversifiedpropertyportfolio
consists of 47 assets in the
industrial,office,retailandleisure
sectors, generating income from
around 350 occupiers across a
wide range of businesses.
We are total return driven
with an income bias and have
outperformed the MSCI UK
Quarterly Property Index delivering
upperquartilereturnsoverone,
three,fiveandtenyears.
4
5
6
Our occupier focused,
opportunity led approach
ensures we actively manage
our assets, maintain high
occupancy and create the
space our occupiers need.
Our asset management team has a
hands-on approach and maintains a
close relationship with our occupiers.
Our experience, knowledge and
personalised service ensures we
provide attractive, well-located
spaces to help our occupiers’
businesses succeed.
Our business model ensures
we have the flexibility to
adapt to changing market
conditions.
Our in-depth understanding of the
UK commercial property market
enables us to identify and source
value across different sectors and
geographies and reposition our
portfolio through the property
cycle. We operate a covered
dividend policy, allowing us to
invest back into the portfolio.
Our responsible approach to
business.
We have a responsible and
ethical approach to business and
sustainability is embedded in our
corporate strategy.
Visit our website for more
information on why to invest
www.picton.co.uk
1
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Business Overview
2020 Highlights
Highlights
Financial highlights
ӱ Profitaftertaxof£22.5million
ӱ Netassetsof£509million,or93ppershare
ӱ Total return of 4.5%
ӱ Earnings per share of 4.1p
ӱ Dividend cover of 105%
Strengthened balance sheet
ӱ 14% reduction in total debt outstanding
to£167.5million
ӱ Loan to value ratio reduced to 22%
ӱ Raised£7millionofnon-dilutiveequity
ӱ New£50millionrevolvingcreditfacility
completed post year end
Outperforming
property portfolio
ӱ Total property return of 5.3%, outperforming
MSCI UK Quarterly Property Index of -0.5%
ӱ Portfoliotopquartileoutperformance
againstMSCIoverone,three,fiveandtenyears
ӱ Like-for-like valuation increase of 1.4%
ӱ Like-for-like rental income increase of 1.2%
ӱ Like-for-like estimated rental value
increase of 1.3%
ӱ Occupancy at 89%
ӱ 104 asset management transactions
completed including:
– 20 rent reviews – 10% ahead of ERV
– 31 lease renewals or regears – 12% ahead
of ERV
ӱ Further tax savings as result of REIT regime
– 35 lettings or agreements to lease – 2%
ahead of ERV
ӱ Twoassetdisposalsfor£34.1million,15%
ahead of March 2019 valuations
ӱ £9millioninvestedintorefurbishmentprojects
Responsible stewardship
ӱ Embedded sustainability into corporate
strategy, completing materiality assessment
review
ӱ Improved portfolio EPC ratings
ӱ Incorporatedenergyefficiencymeasuresinto
building refurbishments
ӱ Further developed occupier and employee
engagement programmes
2
Picton Property Income Limited Annual Report 2020 93p
NAV per share
(2019: 93p)
(2018: 90p)
£23m
Profit after tax
(2019:£31m)
(2018:£64m)
£509m
Net assets
(2019:£499m)
(2018:£487m)
4.1p
3.5p
Earnings per share
(2019: 5.7p)
(2018: 11.9p)
Dividends per share
(2019: 3.5p)
(2018: 3.4p)
105%
Dividend cover
(2019: 122%)
(2018: 122%)
£665m
Property valuation
(2019:£685m)
(2018:£684m)
4.5%
Total return
(2019: 6.5%)
(2018: 14.9%)
3.6%
Total shareholder
return
(2019: 10.1%)
(2018: 4.8%)
EPRA measures
93p
EPRA NAV per share
(2019: 93p)
(2018: 90p)
4.8%
EPRA net initial yield
(2019: 4.9%)
(2018: 5.5%)
88p
EPRA NNNAV per
share
(2019: 88p)
(2018: 87p)
5.4%
EPRA ‘topped-up’ net
initial yield
(2019: 5.3%)
(2018: 5.9%)
£19.9m
3.7p
EPRA earnings
(2019:£22.9m)
(2018:£22.6m)
28.3%
EPRA cost ratio1
(2019: 22.9%)
(2018: 23.7%)
EPRA earnings
per share
(2019: 4.3p)
(2018: 4.2p)
20.2%
EPRA cost ratio2
(2019: 19.5%)
(2018: 19.2%)
11.5%
EPRA vacancy rate
(2019: 10.3%)
(2018: 4.2%)
1
Including direct vacancy costs
2 Excluding direct vacancy costs
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. We have also
highlightedotherspecificEPRA
metrics throughout the Report.
Read more on pages
112–114
Alternative
performance measures
We use a number of alternative
performance measures (APMs)
when reporting on the performance
ofthebusinessanditsfinancial
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, EPC ratings and
employeesatisfaction.Thedefinition
of these measures, and the rationale
for their use, is set out in the Key
Performance Indicators section.
3
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Business Overview
Picton at a Glance
Occupier focused,
Opportunity led.
We are an award winning Real Estate
Investment Trust (REIT) investing in UK
commercial property. Our diversified
property portfolio consists of 47 assets
with over 80% invested in the industrial
and office sectors.
Weacquire,createandmanage
buildings for around 350
commercial occupiers across
a wide range of businesses.
By applying insight, agility and a
personalised service, we provide
attractive, well-located spaces to
help our occupiers’ businesses
succeed and in turn enhance
value for our shareholders.
We have a long-term track record
and have outperformed the MSCI
UK Quarterly Property Index
producingupperquartilereturns
overone,three,fiveandtenyears.
Our purpose
Through our occupier focused,
opportunity led approach, we aim
to be one of the consistently best
performingdiversifiedUKREITs.
To us this means being a responsible
owner of commercial real estate,
helping our occupiers succeed and
being valued by all our stakeholders.
Our 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 proactivity.
Industrial
weighting
48%
South East
Rest of UK
Office
weighting
34%
35.4%
12.5%
South East
Rest of UK
City & West End
17.4%
12.2%
4.2%
Retail and Leisure
weighting
18%
Retail Warehouse
High Street South East
High Street Rest of UK
Leisure
7.3%
5.2%
4.1%
1.7%
Read more on pages
32-33
Read more on pages
34–35
Read more on pages
36–37
4
Picton Property Income Limited Annual Report 2020 Corporate statistics
Portfolio statistics
3.9%
Dividend yield
1.1%
Cost ratio
22%
Loan to value
£509m
Net assets
£485m
Market capitalisation
£168m
Borrowings
Top five occupiers
Occupier
Public sector
Belkin Limited
B&Q Plc
The Random House Group Limited
Snorkel Europe Limited
Top five assets
Assets
Parkbury Industrial Estate, Radlett, Herts.
River Way Industrial Estate, Harlow, Essex
Angel Gate, City Road, London EC1
Stanford Building, Long Acre, London WC2
Tower Wharf, Cheese Lane, Bristol
Awards
Citywire Investment
Trust Awards – Winner
2019, 2018, 2017
Moneywise Investment
Trust Awards – 2018
MSCI UK Property
Investment Awards – 2018
47
4.2m sq ft
Number of assets
Area
£665m
Value
89%
Occupancy
4.9%
Net initial yield
6.4%
Reversionary yield
Contracted
rent (£m)
% of total
contracted rent
1.7
1.7
1.2
1.2
1.1
6.9
Property type
Industrial
Industrial
Office
Retail
Office
4.3
4.2
3.1
3.0
2.8
17.4
Capital value
(£m)
>40
>40
30–40
30–40
20–30
Investment Company of the
Year Awards – Property
Winner 2018, 2017, 2016
Money Observer Trust
Awards – Best Property
Trust Winner 2018, 2017, 2016
EPRA Gold Awards –
Financial Reporting – 2019,
2018, 2017, 2016, 2015
Sustainability Reporting – 2019
5
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Business Overview
Chairman’s Statement
An
encouraging
year of
strategic
progress and
achievement.
I am pleased to report
another successful year,
delivering a profit after
tax of £23 million, despite
the uncertain political
and economic backdrop
created by Brexit and
the effects of the
Covid-19 pandemic.
Further to the actions taken last year,
we are in a strong position with low
gearing of 22%, a healthy balance
sheet and over 80% of the portfolio
investedintheindustrialandoffice
sectors which have been less
impacted by the lockdown.
Throughout the year we have been
operating in a UK property market
characterised by fewer investment
transactions and an occupational
market where activity has slowed.
Many companies were already in ‘wait
and see’ mode awaiting an outcome
on Brexit, and have now moved into
temporary lockdown as a result of
Covid-19, although Government
support has helped mitigate a very
difficultsituation.
Covid-19 impact and response
The defensive positioning of the
Company over the last 12 months has
meant that we are in a relatively strong
position and able to withstand the
unprecedented shock of the Covid-19
pandemic. We have the lowest loan to
value ratio since the inception of the
business, as well as fully undrawn loan
facilitiestotalling£50million.
Our short-term targets are focused
around reducing the impact on our
business and working with our
occupierstogetthroughthisdifficult
situation. We recognise both the short
and longer-term effects on the
business and the importance of
adaptingourstrategytoreflectthe
changing habits and needs of our
occupiers. We have achieved good
rentcollectionfigurescomparedto
the market and have been working
withoccupiersasrequiredtohelp
them through this crisis. Recognising
the two components of property
returns are not only income but
capital performance, we believe this is
also the best approach to achieving
long-term value for shareholders.
As the lockdown starts to gradually
ease, our attention is turning to the
reoccupation of our buildings, the
restartingofrefurbishmentprojects
and leasing space, ensuring all of
these activities are managed safely.
Performance
The property portfolio has again
deliveredupperquartileperformance
against the MSCI UK Quarterly
Property Index over the year. Likewise,
our shareholder total return for the
periodwasintheupperquartilerange
compared to our peers.
Our total return was 4.5% over the
year. Whilst this is relatively modest for
Picton, it compares favourably to the
negative market return, as measured
by MSCI.
EPRA earnings were lower for the year,
whichisinpartareflectionofthe
operating environment that has
hindered progress with our pipeline of
lettingsandrefurbishments.Equally,
debt reduction through asset sales to
protect the longer-term income
profilehasalsohadashort-term
impact on earnings.
We are cognisant of the discount to
net asset value that has emerged
since the year end and believe that
there is a clear disconnect between
the performance of the Group and the
share price. A focus of the Board will
be to ensure that we reduce this
discount over the coming year.
6
Picton Property Income Limited Annual Report 2020 Purpose and strategy
During the year, the Board has
reviewed the purpose and strategy
of the Group to ensure Picton, as
a UK REIT, continues to deliver
attractive income and capital
returns to its shareholders over
the long-term. As a result we
haveredefinedourpurposeas:
“Through our occupier focused,
opportunity led approach, we aim to
be one of the consistently best
performingdiversifiedUKREITs.Tous
this means being a responsible owner
of commercial real estate, helping our
occupiers succeed and being valued
by all our stakeholders.”
We have in place three distinct
strategic pillars: Portfolio Performance,
Operational Excellence and Acting
Responsibly. These will ensure we are
able to deliver on our purpose.
I think it is also important to highlight
the progress we have been making on
sustainability and we have this year
formally embedded this into our
corporate strategy.
Further details of this and our business
model are included on pages 8 to 9.
Property portfolio
The outperformance of our property
portfolio was driven by several factors.
It is well positioned with over 80% in
the better performing industrial and
officesectors.Thebestperforming
subsector according to MSCI was
South East industrial, which is where
over 35% of our portfolio is invested.
Key themes during the year were
reinvestment into the portfolio and
upgrading of assets. This activity has
delivered letting successes and
retained occupiers across the portfolio.
We have achieved considerable
success working with existing
occupiers to extend income. During
theyearwesawasignificantnumber
of transactions aimed at mitigating
income risk due to materialise in
2020/21. This included income with
four of our largest occupiers.
We made two disposals at a healthy
premium to the March 2019 valuation,
which enabled us to capture upside
that had been created through asset
management. There were no
acquisitionsduringtheyear.
While we have grown like-for-like
passing rent over the period, we would
have liked to make further progress
andhavetwokeyvoidstofill:one
in Rugby, where the refurbishment
completed in February, and another
at Stanford Building in Covent
Garden, where the refurbishment has
been delayed due to Government
lockdown restrictions. These, along
with other vacancies, provide
scope for us to increase occupancy
and income going forwards.
Capital structure
Our strategic approach in recent years
has meant that we have entered the
Covid-19 crisis in a position of strength.
We further reduced our loan to value
ratio over the course of the year
through a combination of asset sales,
debt repayment and a small non-
dilutiveequityraiselastJune.
Since the year end, we have
completed a new single revolving
credit facility for an initial three-
year term, replacing two existing
facilities that were due to expire
in 2021. This gives the Company
accesstoupto£50millionof
undrawn facilities, providing us
with a lower cost of debt and even
greaterheadroomandflexibility.
Dividends
We are acutely aware that the
provision of income is important to
investors, so our recent decision to
reduce the dividend, even if
temporary, was not taken lightly. While
Picton is in a much better place than
most of its peers, we are not immune
to the impact that Covid-19 is having
on our occupiers.
Theadditionalflexibilitythatthis
extra headroom provides will enable
us to support our occupiers where
appropriate, and will help us to protect
as far as possible both income and
capital over the longer-term. This was
a prudent decision taken in the long-
term interest of all of our stakeholders.
Governance and Board
composition
I had expected to write this report as
Chairman for the last time as I was
duetoretirefromtheBoardinJuneof
this year. Covid-19 has created all sorts
of unforeseen circumstances and my
proposed successor, Nicholas Wiles,
has had to step down from the Board
following his recent and unexpected
appointment as Chief Executive at
PayPoint Plc, having previously been
Chairman. We have recommenced
theprocesstofindasuitable
successor, but it is vitally important
in these times that continuity is
provided,soattherequestofthe
BoardIhaveagreedandconfirmed
my commitment to remain in
position until a new Chair is in place.
We have also started the process
to appoint a successor for Roger
Lewis, currently Chair of the Property
Valuation Committee, and we
hope to be able to make a further
announcement in that regard shortly.
Outlook
Whilst our focus remains very much
around short-term issues and
mitigating the impact of Covid-19,
we recognise that we must also
be thinking strategically about the
changing long-term trends and
demand for commercial property.
We think these recent events have
accelerated embedded trends
in several areas, including online
retail,flexibleworking,digitaland
technological disruption to name
but a few. In addition, a growing
sense of environmental impact and
the need for change has been self-
evident in lockdown. We had already
been considering disruptive trends
and whilst we believe the portfolio
is well positioned, this situation is
evolving and continues to be kept
under constant review. I believe
our purpose, strategy and business
model ensure we are well placed
to respond to both the challenges
and opportunities that lie ahead.
Nicholas Thompson
Chairman
22June2020
7
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Strategic Report
Business Model
Our Business
Model
Our business model creates
value through owning a
portfolio that generates a
diversified and stable income
stream. We have the flexibility
to adapt to changing market
conditions and so deliver value
to our stakeholders through
the property cycle.
Through our occupier focused, opportunity led
approach, we aim to be one of the consistently best
performingdiversifiedUKREITs.Tousthismeansbeing
a responsible owner of commercial real estate, helping
our occupiers succeed and being valued by all our
stakeholders.
In order to deliver on our purpose, we have in place
three distinct strategic pillars; Portfolio Performance,
Operational Excellence and Acting Responsibly. These
pillars include a range of strategic priorities which guide
the direction of our business and are regularly reviewed.
Read more on pages
14–15
Shareholders
Occupiers
Communities
Our people
Environment
For more detailed information
on our stakeholders, see our
Section 172 statement
Read more on pages
52–53
8
Picton Property Income Limited Annual Report 2020 Our business model is driven by knowledge, expertise
and research led decision making.
1
Stock
selection and
acquisition
3
Selling assets to
recycle into better
opportunities
2
Creating value -
buying into growth
assets, locations
or sectors
This is underpinned by:
Risk management
Our diverse portfolio and occupier
base spreads risk and generates a
stable income stream throughout the
property cycle. We will adapt our
capital structure and use debt
effectively to achieve enhanced
returns. We will maintain a covered
dividend policy, to generate surplus
cash and allow us to invest back into
the portfolio.
Responsibility
We have a responsible and ethical
approach to business and
sustainability is embedded in our
corporate strategy. We understand
the impact of our business on the
environment and are committed to
creating and delivering value for the
benefitofallourstakeholders.
1
Stock selection
and acquisition
Wehaveestablishedadiversified
UK property portfolio and while
income focused, we will consider
opportunities where we can
enhance value and/or income.
2
Creating value through
proactive asset management
- buying into growth assets,
locations or sectors
Our diverse occupier base generates
a stable income stream, which
we aim to grow through active
management and capturing
market rental uplifts. Our occupier
focused, opportunity led approach
ensures we create space that
meets our occupiers’ needs in
order to maintain high levels of
occupancy across the portfolio.
3
Selling assets to recycle
into better opportunities
We identify opportunities at the right
point in the property cycle to dispose
of assets to allow reinvestment.
Read more on pages
19–23
9
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview
Strategic Report
Our Marketplace
Our Marketplace
Economic backdrop
For much of the year Brexit weighed
heavily on the UK economy.
The lack of clarity surrounding the
nature and timing of the UK’s exit
from the European Union was
responsible for widespread political
and economic uncertainty. Weaker
productivity growth came as a result
of reduced business investment and
the redirection of resources to prepare
for possible Brexit outcomes.
Despite Brexit, economic indicators
remained reasonably robust. In
2019 Gross Domestic Product (GDP)
grew by 1.4%. To put this into an
internationalcontext,theG7Major
Advanced Economies had an average
GDP growth of 1.6% per annum
for the group, with the UK in third
place behind the USA and Canada.
For the three months leading up to
March 2020, the UK’s unemployment
rate was at a near record low of
3.9%, and annual growth in average
weekly earnings was 2.4%. In real
terms, annual pay growth has been
positive since February 2018. The
12-month Consumer Price Index
(CPI) was 1.3% in December 2019,
rising to 1.5% in March 2020.
Today, the Covid-19 global pandemic
has changed priorities and the
economic outlook dramatically.
Despite the UK easing the lockdown,
social distancing will change
habits for some months to come,
and uncertainty and volatility will
continue to impact the economy with
potentiallylong-lastingconsequences.
Recent data shows the dramatic
impact the lockdown is having
on the UK economy, with GDP
recording its weakest ever monthly
decline at -20.4% in April.
Although the UK will be in recession
inthesecondquarterof2020asthe
lockdown eases, the magnitude of
the economic impact and speed
of recovery are not easily gauged.
TheOfficeforBudgetResponsibility
has forecast an annual decline of
12.8% for 2020, with unemployment
rising from 4.0% to 7.3% in the
finalthreemonthsoftheyear.
In response to the pandemic, the
Bank of England dropped the bank
rate twice in March, from 0.75%
to 0.25% and then again to 0.1%.
The extent to which these low
interest rates can support consumer
spendingandjobsinthecoming
months is yet to be determined.
UK property market
According to the MSCI UK Quarterly
Property Index, commercial property
delivered a total return of -0.5% for
the year ended March 2020. The
negative total return is attributable to
thedownturnexperiencedinthefinal
quarterendingMarch2020.Untilthen,
quarterlytotalreturnswerepositive.
The reduction relative to last year was
driven by capital value falls of -4.8%
and an income return of 4.5%. Capital
growthwasnegativequarter-on-
quarterbutworsenedconsiderably
in the three months to March 2020.
By comparison, for the year to March
2019, capital growth was 0.1% and
the income return was 4.4%.
Industrial was the top performing
sector for the year to March 2020,
showing good signs of rental and
capital growth. The industrial sector
12-month total return was 5.7%,
comprising 1.3% capital growth
and 4.3% income return. Industrial
ERV growth for the period was
2.7%, with a range of 1.7% to 4.2%
within subsectors. Capital growth
ranged from -0.5% to 4.2% within
subsectors.Equivalentyieldsfor
industrial property now stand at 5.3%.
Theofficesectorproducedatotal
return of 3.3% for the year to March
2020, comprising -0.5% capital growth
and 3.8% income return. Whilst
capital values showed a decline in the
finalquarter,fortheninemonthsto
December 2019 MSCI capital growth
forAllOfficeswas0.4%.Fortheyearto
March 2020, central London and the
SouthEastofficemarketswerethe
only subsectors to produce positive
capitalgrowth.AllOfficeannualrental
growth was 1.4%, ranging from 0.5%
to 2.3% within subsectors. The range
of capital growth by subsector was
from-3.2%to1.8%.Equivalentyields
forofficepropertynowstandat5.6%.
Itwasaverydifficultyearforthe
retail sector, with challenging trading
conditions leading to a high number
of retail failures. The situation has been
significantlyimpactedbytheCovid-19
lockdown starting in March 2020. The
retail sector produced a total return of
-9.8% for the year to March 2020. This
comprised capital growth of -14.5%
and income return of 5.4%. Rental
values fell -5.7% over the period and
were negative across all subsectors,
ranging from -8.2% to -1.7%. Retail
subsector capital growth ranged from
-22.6%to-1.0%.Equivalentyieldsfor
retail property now stand at 6.4%.
The impact of the Covid-19
pandemicisnotfullyreflectedin
the above numbers. The MSCI UK
Monthly Property Index showed for
the two-month April – May 2020
period, that overall capital values
for All Property have declined
-2.9% and ERVs are down -0.6%.
For the same period, capital values
in the industrial sector saw a decline
of -1.6% and ERVs grew by 0.1%.
Intheofficesectorcapitalvalues
declined -2.1% and ERVs -0.1%. The
retail sector is the worst affected
with capital values showing a decline
of -5.0% and ERVs down -2.0%.
According to Property Data, the total
investment volume for the year to
March2020was£56.5billion,an8.3%
decrease from the year to March
2019. The volume of investment by
overseas investors in the year to March
2020was£30.5billion,accountingfor
53.9% of all transactions. Illustrating
theliquidityissueswithintheretail
sector, it had investment transactions
ofjust£5.0billion,accountingfor
only 8.9% of all transactions.
During the Covid-19 lockdown it
hasbeenextremelydifficulttobuy
or sell property and the impact on
investment volumes and pricing
is yet to be fully realised. Despite
lowering investment returns available
elsewhere, the risk premium
attached to property looks set
toincrease,reflectinggreater
income risk in the short-term.
10
Picton Property Income Limited Annual Report 2020 Market drivers and impacts
Market driver
Impact
Covid-19
The lockdown and social distancing measures
imposed by the UK Government to curb the spread
of Covid-19 have resulted in rapid deterioration of
the UK economic and property market outlook.
In the longer-term, the unwinding of the lockdown and
so called ‘new normal’ way in which we live will have
implications for property investors and occupiers.
Economy
The media spotlight is no longer on Brexit, but key issues
remain unresolved.
TheUKlefttheEuropeanUnionon31January2020andis
now in a transition period under the withdrawal agreement
until the end of the year.
Negotiations for a free trade agreement are underway.
Property cycles
The property market is cyclical, with performance
linked to economic growth. The balance of supply
and demand in the investment and occupier markets
impact pricing and rental growth respectively.
Historically, all property sectors have moved through
cycles broadly in unison, however more recently
there is a greater divergence between sectors.
Almost all subsectors in the MSCI UK Quarterly
Property Index are currently experiencing declining
capital values following Covid-19. The declines
are most strongly felt in the retail sector.
Technology
The continued rise of online retail, now including food,
challenges the conventional retail and leisure sectors.
Video conferencing is available to all and
is being fully utilised in lockdown.
Robotics and automation, smart devices and the
advancement of 5G technology are all key drivers
of change within society and the workplace.
Sustainability
There is heightened public awareness of
environmental and social issues.
Highprofilemediacoverageontopicsincludingtheclimate
emergency and plastic pollution has brought sustainability
and societal impact central to the corporate agenda.
ӱ A recession is imminent, resulting in sharp
deteriorationinconsumerandbusinessconfidence.
ӱ Deglobalisation of the travel industry, supply chains
and the movement of goods and services.
ӱ Occupierreassessmentofbuildingrequirementsand
expansion plans.
ӱ Increased reliance on e-commerce and logistics
operators to the detriment of bricks and mortar retail.
ӱ The retail sector is bolstered by the more positive
outlook for supermarkets.
ӱ Expect lasting impact on the leisure and restaurant
industries; a reduction in travel and increase in time
spent online.
ӱ The Centre for European Reform estimate the impact
on potential output to mid-2018 was a reduction of
2.5% as a result of the Brexit vote.
ӱ Clarityonthespecificsofthetradingagreementwill
begin to assuage this.
ӱ As well as cross sector problems such as workforce
shortages, business sectors each face their own
specificBrexitchallenges.
ӱ Eachpropertysectorissubjecttoitsowncycle,with
demand and supply affecting investor demand and
rental value growth.
ӱ The retail sector is operating within a very challenging
environment, with declining capital values and rental
decline pulling away from the other main sectors.
ӱ There is polarisation within sectors as the current
public health risks and economic headwinds have
different impacts on subsectors. For example, in retail,
supermarkets experienced boosted sales and footfall,
while all other non-essential stores were forced to
close.
ӱ The acceleration in the adoption of remote and
flexibleworkingduringthepandemicisunlikelytobe
fully reversed.
ӱ Officeoccupierswillbepromptedtoreassess
requirementsforsize,location,layoutanddensity.
ӱ A robotic workforce is unaffected by a public health
crisis.
ӱ BigData,ArtificialIntelligenceandMachineLearning
are shaping the future of the workforce and the
requirementsforbuildingsinwhichtheyoperate.
ӱ Declaration of ESG policies and progression to targets
is now the norm for UK businesses.
ӱ Occupiers are increasingly considering employee
wellbeing when selecting space. Natural light,
biophilia,fitnessfacilitiesandexcellentoccupier
amenities all provide a competitive edge.
11
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Our Marketplace continued
Industrial
market trends
Office
market trends
Retail and
Leisure market
trends
12
Standard industrial units, particularly in the supply constrained markets of
London and the South East, are expected to deliver the strongest sector
performance. Land constraints and change of use in these areas have limited
supply. Robust demand pushed rents to record highs.
Given rent affordability pressures and the current economic climate, rental
growth is forecast to fall back from an elevated level. It is anticipated that some
standard industrial occupiers, such as last mile logistics operators, will seek to
increasefloorspaceinordertoserviceheightenedconsumerdemandfrom
online retailing. As industrial property is arguably more able to accommodate
social distancing guidelines than other sectors, it appears well placed to
weather the storm.
The long-term outlook for standard industrial property is the most encouraging,
underpinned by tight supply and healthy demand. The outlook is less positive
for big box logistics, where a recent increase in speculative development is
expected to be met with downward pressure on rents. The fate of the logistics
sector is more closely tied to retailers, who are faced with extraordinary
challenges in the current climate.
Officevacancyratesaregenerallylowbyhistoricstandardsanddevelopment
activity is not at the level seen before the 2008 Global Financial Crisis. Under
more ordinary economic conditions, healthy rental growth would be expected.
However,withstrongtiestofinancialmarkets,officesectordemandis
expected to be subdued in the current climate. In addition, the Government’s
recommendation to work from home during the pandemic has forced
previouslyreluctantemployerstoadoptremoteandmoreflexibleworking
practices, a trend which is unlikely to revert entirely. This may prompt occupiers
toreassessrequirementsforofficefloorplatesize,capacityandlocation.
Expansion plans are likely to be put on hold.
Thereisparticularconcernthatflexibleofficeproviders,forwhomcustomer
demandcanbeturnedoffveryquickly,maystruggletosurvive.However,asthe
economybeginstoimproveitisperhapstheseflexibleleasingmodelsthatwill
be the most attractive in the future.
The retail sector was already suffering from structural issues before the
lockdown and social distancing measures were put in place. In March 2020, the
monthly retail sales volume suffered the largest fall since records began. All
non-essential retail outlets were ordered to close in an extraordinarily
unprecedented blow to the already ailing sector.
The likelihood is that the 2018/19 theme of retail failures and CVAs will continue
at an accelerated rate, especially for those that do not have well established
online offerings. Recent examples include Warehouse, Oasis and Laura Ashley.
Online sales, as a proportion of all retailing, reached a record high of 22.3% in
March 2020 as consumers switched to online purchasing during the pandemic.
Theleisuresectorfacesitsownuniquelong-termchallengesiftemporary
closures lead to behavioural changes in businesses and consumers. The extent
to which the recent adoption of online meeting platforms will curtail business
travel plans is yet to be realised. Virtual entertainment, media streaming
platforms and other online offerings, previously a threat to cinemas and other
leisure activities, will be strengthened by prolonged social distancing measures.
Food stores, on the other hand, saw the strongest monthly sales growth
on record in March 2020 as consumers sought to stockpile goods ahead
of the lockdown.
With rising vacancy leading to an oversupply of retail units, downward pressure
on rents looks set to continue in most retail markets.
Picton Property Income Limited Annual Report 2020 What this means for Picton
Our response to these trends
ӱ The portfolio is well positioned by being
ӱ Picton’s occupier focused approach has enabled us to capitalise
overweight to the industrial sector. We will
continuetoacquirecomplementaryassets
in this sector where possible.
ӱ We will seek to capture rental growth
through new lettings and occupier
transactions.
ӱ We envisage only limited and selective
disposals.
on strong demand for industrial property and grow ERVs
through new lettings, regears and rent reviews.
ӱ With a structural shift towards online retail, growth in delivery
apps and increased expectation for shorter delivery times, means
industrial property continues to remain in demand.
ӱ Picton will strategically maintain its overweight position in the
sector, applying an opportunity led approach to expand this
element of the portfolio when appropriate and would seek to
capitaliseonliquiditywhentheinvestmentmarketopensandif
there are suitable purchasing opportunities.
What this means for Picton
Our response to these trends
ӱ We will retain our balance of regional
officeswithreducedLondonexposure.
ӱ We will seek to capture rental growth
through new lettings and occupier
transactions.
ӱ We recognise that in the short-term we
mayneedtoprovidemoreflexibleleasing
arrangementsreflectingthecurrent
market.
ӱ We have been upgrading space, focusing on amenities and
makingimprovementsinenergyefficiency,ensuringour
buildings meet occupier expectations.
ӱ Pictonwillcontinuetoactivelymanagetheofficeportfolio,
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.
ӱ Whenstrategicallyconsideringthefutureoftheofficeportfolio,
due diligence and research will include a focus on UK wide
infrastructureimprovementprojects.Thiswillhelptoensurethat
theofficeportfolioispositionedinlocationslikelytoexperience
thehighestlevelsofgrowthandbenefitfromcontinuing
improvementsinthemostdesirablecitiesandleadingoffice
markets.
What this means for Picton
Our response to these trends
ӱ There is likely to be lower demand for retail
property in the short to medium-term.
ӱ We expect rental income in this element
of the portfolio to reduce in the medium-
term.
ӱ Picton remains very cautious on the outlook for the retail sector.
ӱ Picton is pursuing opportunities to convert retail property to
other higher value uses.
ӱ Through engaging with occupiers, we seek to create open
dialogue enabling opportunities to extend income and maintain
occupancy,butreflectinglowerrentallevels.
ӱ We have refurbished space to enhance the retail experience,
helping occupiers attract and retain customers.
ӱ We will seek to reduce our retail exposure over the next 12
months.
13
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Our Strategy
We have a
strategy focused
on delivering
our purpose
Purpose
Through our occupier focused,
opportunity led approach, we aim
to be one of the consistently best
performing diversified UK REITs. To us
this means being a responsible owner
of commercial real estate, helping our
occupiers succeed and being valued
by all our stakeholders.
Strategy
In order to deliver on our purpose, we
have in place three distinct strategic
pillars: Portfolio Performance,
Operational Excellence and Acting
Responsibly. These pillars include a
range of strategic priorities which
guide the direction of our business
and are regularly reviewed.
3
1
2
portfolio which provides
income and capital growth
Portfolio
Performance
1 Creating and owning a
2 Growing occupancy
3 Enhancing asset quality,
4 Outperforming the
MSCI UK Quarterly
Property Index
providing space that
meets occupier demand
and income profile
Associated Risks & Connected KPIs
2 5 6 7 8 A C D G
I
J
Read more on pages
19-23
14
Picton Property Income Limited Annual Report 2020 3
1
2
company values, positive
working culture and
alignment of the team
Acting
Responsibly
1 Ensuring we maintain our
2 Working closely with our
3 Ensuring sustainability is
occupiers, shareholders
and other stakeholders
integrated within our business
model and how we and our
occupiers operate
1
2
3
business model, adaptable to
market trends
operating platform, utilising
technology as appropriate
Operational
Excellence
1 Maintaining an efficient
2 Having an agile and flexible
3 Delivering earnings growth
4 Having an appropriate
5 Growing to deliver
capital structure for the
market cycle
economies of scale
Associated Risks & Connected KPIs
Associated Risks & Connected KPIs
1 3 4 10 11 E F H
4 9 B
K L
Read more on pages
19-23
Read more on pages
19-23
15
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Chief Executive’s Review
Continued upper quartile
performance
Alongside running the business in these extraordinary
market conditions, this year we have also focused
on reviewing our strategy to ensure it reflects
emerging trends.
The three key pillars of our strategy are
Portfolio Performance, Operational
Excellence and Acting Responsibly.
These do not dramatically change the
direction of the business, but better
defineourareasoffocusthrough
the more detailed priorities (listed on
pages 14 to 15) and ensure we are best
placed to deliver on our purpose.
The impact of Covid-19 has in the
short-term led to an almost complete
shutdown in both the commercial
leasing and investment markets.
This makes it harder than usual
for valuers to provide a valuation
or estimates of market price
when there is no market itself.
This uncertainty has led to the
suspension of open-ended property
funds,andsignificantvolatilitywithin
listed property company shares.
There is currently a clear arbitrage
between pricing listed and unlisted
property vehicles. We think there will
be renewed selling pressure from
these open-ended structures when
they reopen, which may in itself create
opportunistic buying opportunities
for those that are well capitalised.
Looking back, the primary concern last
year was about the impact of Brexit
on trade and occupational demand.
The uncertainty created by the
political process led many companies
to delay occupancy decisions and
whilst these risks have not yet gone
away,inJanuarywewerestartingto
see positive signals and an increase in
occupational and investment demand
following the General Election result
and the certainty that provided.
Lastyearwemadenoacquisitions
and where we made disposals we
used the proceeds to repay debt
and reduce our gearing. We are well
16
positioned, with a high exposure to
industrial, warehouse and logistics,
alongsidetheregionalofficemarket.
It is likely, however, that any prolonged
lockdown will change habits and
occupationalrequirements.Asthe
impact becomes clearer we will have
to ensure our portfolio approach
remains relevant to maintain our
track record of outperformance.
£22.5m
Total profit
£509m
Net assets
93p
NAV per share
3.7p
EPRA earnings per share
Covid-19 response
We continue to operate effectively
and all of our employees have been
working remotely since mid-March.
We have not needed to furlough any
members of our team or access any
form of Government support. The
health and safety of our employees,
our occupiers and service providers
is paramount and our actions to
date have been effective in ensuring
this. This shutdown has affected our
occupiers to varying degrees, but
it is encouraging to see buildings
being re-occupied, albeit in line
with social distancing measures,
and we are working to establish
proper protocols as the lockdown
is gradually eased. Central London,
with its reliance on public transport,
would appear less ready to return
to work than other parts of the UK,
but a safe and steady approach is
sensible under the circumstances
and this matches the feedback we
are receiving from our occupiers.
Whilst the March rent collection
number stands at 82%, which is lower
than last year, we recognise that
there will be a short-term impact as
a result of the lockdown. We think
it is appropriate to look at individual
circumstances and be creative
to protect value and also provide
supporttooccupiersasrequired.
Picton Property Income Limited Annual Report 2020 will always be outperforming and
underperforming elements, our
positioning against the retail and
leisure sector in favour of industrial
andregionalofficeshasbeen
advantageous for some time.
Wehavemadesignificantprogress
in enhancing our assets this year. Our
refurbishment programme totalled
£9million,whichisasubstantial
increase on preceding years. We
have also had considerable success
working with our occupiers, enabling
them to have space that meets their
needs. We have undertaken some
key transactions, extending income,
de-riskingourcashflow,andthese
aredetailedinthesubsequentcase
studies. Although we have grown the
passing rent on a like-for-like basis,
the strategy to keep gearing low does
have an impact on overall income, and
with debt costs generally lower than
property yields, there is still a trade-off
between capital and income returns.
It has been frustrating that we
have not grown occupancy over
the year, which currently stands at
89%. Ultimately these vacancies
provideasignificantelementofthe
future income upside potential.
Againstadifficultbackdrop,the
leasing markets have not been easy
and a number of refurbishment
projectstooklongertocomplete
andconsequentlydelayedletting
prospects. We also sold income
producing assets to de-risk the
balance sheet which has had a
negative impact on income and
occupancy,butequallyhave
protected our capital position
and crystallised gains.
Operational Excellence
We have undertaken and
implemented several measures
aimedatincreasingtheefficiency
within the business. During the year
we introduced an asset management
system, Coyote, to better manage
our assets, as well as a new IT system.
Both systems are working well as
we continue to work remotely.
We have recruited a Head of
Occupier Services to strengthen
our property management service
delivery, a further commitment to
our occupier focused approach.
We continue to have an agile and
flexiblebusinessandthespeedwith
which we were able to adapt to
remote working is testament to this.
17
We believe our assets,
our team and our strategy
will continue to drive
our success.
Michael Morris
Chief Executive
We do however have to strike the
right balance between occupier and
shareholder, recognising these are
difficultcircumstancesforall.Weare
fortunate to have already established
good relationships with our occupiers
well ahead of this crisis, so we have a
good understanding of their business
needs. We will look at circumstances
on a case-by-case basis and prioritise
needsacrosstheportfolio.Equally,
weneedtofindcreativesolutionsto
this problem and by offering short-
termcashflowassistancewemay
well be able to protect or enhance
capital values, by virtue of longer
lease commitments, stepped rents
or agreeing future rent increases.
The recently announced dividend
reduction will enable us to deliver
the best outcomes in this regard.
Portfolio Performance
We have again continued to
outperform the MSCI UK Quarterly
Property Index. Our track record
now means we have outperformed
that Index since inception and over
thelastone,three,fiveandten
years.Recognisingthediversified
nature of the portfolio, where there
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview There is significant
embedded upside in
the portfolio income
profile from the current
occupancy level.
Michael Morris
Chief Executive
Picton has low leverage and
significantoperationalheadroom
againstcovenants.Themajorityof
the portfolio is invested in sectors
that have been less impacted
through Covid-19, and likely to
reboundmorequickly.Itisclear
that the digital transformation will
continue apace, be that increased
home working or further spend
online and our portfolio will need to
continue to adapt to these changes.
Our focus is to control what we
can, manage risks and focus
on future opportunities.
Michael Morris
Chief Executive
22June2020
Strategic Report
Chief Executive’s Review continued
From an income perspective our
EPRAearningsarelower,reflecting
activity referred to in the Portfolio
Performance section above. We have
reduced our gearing over the year,
concerned about risks associated with
Brexit, but this has proved timely
recognising the adverse impact of
Covid-19.
We have maintained our company
values, positive working culture and
alignment of the team throughout
theyear.Wespecificallyundertook
an employee survey last year
and the results of this were fed
back to the Board via our Non-
Executive Director responsible
for employee engagement.
Outlook
Recognisingournewlydefined
purpose and that property returns
are driven by both income and
capital, our focus is currently two-
fold. In the short-term we need to
work through lockdown and help
our occupiers get their businesses
back up and running. Workplace
protocols, lease restructurings and
financialassistanceareallaspectsthat
will protect value for shareholders.
We are also focused on the future and
how this short-term disruption may
well change future occupational
requirementsandconsequently
create opportunities. We need to own
assets where there is continued
occupational demand, enabling a
growingincomeprofile,andinturn
capital appreciation.
Thereissignificantembedded
upside in the portfolio income
profilefromthecurrentoccupancy
level. Once markets reopen,
findingoccupiersforthisvacant
space is an absolute priority.
Our strategy, which offers a diverse
approachandallowsustheflexibility
toadjusttheportfoliotobetter
performing sectors, ensures we are
not constrained to a single sector
strategy, with limited ways to exit, as
has been the case for some of the
REIT specialists in recent years. We
continue to manage the business
through these events so we come out
the other side in a strong position. We
will continue to provide updates as we
make progress this year.
Our net asset growth has been more
muted than in previous years, but this
is not unexpected recognising market
conditions. We believe our assets, our
team and our strategy will continue to
drive our success. Growth, be that
organicorthroughacquisition,willbe
considered so long as it creates value
for shareholders.
Acting Responsibly
Wehavemadesignificantprogress
strengthening relationships with
occupiers this year and this is borne
out by the portfolio activity and
projectswehaveundertaken.
The work we have done this year
to promote and deliver our Picton
Promise – focused on Action,
Community, Technology, Support and
Sustainability - has many overlapping
features and we believe our occupiers,
and indeed future occupiers, will
want to work and engage with a
landlord that shares similar values on
not only reducing emissions but a
broader array of sustainability issues.
We provide regular shareholder
updates and through Edison provide
regular updates and video interviews.
ThroughourbrokersJPMorgan,
Stifelandspecificallyintheregional
wealth management community
with Kepler, we have regular
engagement with both existing
and prospective shareholders.
Whilst sustainability has been a
focus of ours for many years, the
introduction of a Responsibility
Committee in 2018 further integrated
this within our business model and
sustainability now forms part of our
corporate strategy. We have engaged
with occupiers and investors this year
to review and better understand
material issues in order to progress
our sustainability initiatives. We
were awarded EPRA Gold for our
separate Sustainability Report last
year and we are part of GRESB.
18
Picton Property Income Limited Annual Report 2020 Our strategy
in action
Acting Responsibly
Working closely with our occupiers,
shareholders and other stakeholders.
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.
1/
3
1
2
Shipton Way, Rushden
At our distribution unit in Rushden,
we worked with our largest occupier
ahead of their lease expiry in early
2020. We knew the space was too
largefortheircurrentrequirementsso
we worked to identify how we could
minimise any disruption to income.
We agreed to move the expiry date to
October 2020 to aid their relocation
and at the same time, working
closely with Whistl, the sub-tenant
of part, entered into an agreement
whereby Whistl agreed to take a
new lease on the whole unit. This
will make Whistl the single largest
occupier within our portfolio.
The new lease is for a minimum term
offiveyearsatarentof£1.6millionper
annum, in line with ERV.
Read more on pages
32–33
2/
3
1
2
Tower Wharf, Bristol
At Tower Wharf in Bristol, we further
upgraded the space through the
refurbishment of the reception, common
areas and installation of additional
shower facilities.
As a result of these improvements, we
worked with an existing occupier,
enabling them to expand within the
building,upsizingthemby73%to19,000
sqft.Wesecuredaminimumoften
yearsataninitialrentof£0.5million,5%
above ERV.
Elsewhere in the building, we moved an
occupier break option out by three years
to August 2023 and settled a rent review,
securing£0.4millionperannum,4%
ahead of ERV.
Read more on pages
34–35
19
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Chief Executive’s Review continued
Our strategy
in action
Acting Responsibly
Ensuring sustainability is integrated
within our business model and how
we and our occupiers operate.
As a responsible landlord, we are committed to assessing
the environmental performance of our portfolio to reduce
the impact of our buildings. We have a continuous
programme of monitoring EPCs in place throughout the
portfolio, and seek to improve a building’s environmental
efficiencywhencarryingoutrefurbishments.Wehave
introduced green lease clauses into our standard lease
agreementswhichaddressenergyandwaterefficiency,
wastemanagementandregulatoryrequirements.
1/
3
1
2
Swiftbox, Rugby
AtSwiftbox,our99,500sqft
distribution unit in Rugby,
we have carried out a
comprehensive refurbishment
including a new roof and
modernisation of the exterior.
The unit is rare, being cross
docked with a large self-
contained yard, and we expect
good occupational interest.
The refurbishment focused on
improving the unit’s energy
efficiencyaswellasenhancingits
specificationforanincoming
occupier. The EPC rating moved
from an E to a B, which is the
best possible rating for a unit
such as this and means it is
future-proofed.
Read more on pages
32-33
20
99,500 sq ft
Distribution unit
Picton Property Income Limited Annual Report 2020 55,500 sq ft
Multi-let industrial estate
2/
3
1
2
Datapoint, London E16
AtDatapoint,LondonE16,whereweowna55,500sqft
multi-letindustrialestate,wehaveseensignificant
rental growth in the area over the last year due to
scarcity of supply.
Two leases with short-term income and low rents were
surrendered,wherewereceivedapremiumof£0.2
million, in order that we could attract new occupiers
on longer leases at higher rents.
The units have been comprehensively refurbished, to
include external enhancements which modernise the
estate and environmental improvements, meaning the
EPC rating has increased from an E to a C.
One of the units has already been leased, two weeks
after completion of the works, for a minimum term of ten
yearsatarentof£0.2millionperannum,24%aheadof
ERV and 83% ahead of the previous passing rent.
Read more on pages
32–33
3/
3
1
2
Metro, Manchester
During the year, we refurbished the reception and common
areas at Metro, alongside the refurbishment of a recently
vacatedofficesuite.Theseworkswerefocusedonenhancing
the entrance, common areas and occupier amenities, with
break out space, showers and changing facilities.
The building already had a BREEAM excellent rating and
these works enhanced further its sustainability credentials,
including encouraging people to cycle to work.
Theseworkssuccessfullyallowedustoleasethevacantfloor
to a Government department on a new lease, securing a
minimumoftenyearsataninitialrentof£0.4millionper
annum, 2% above ERV.
The occupier feedback has been positive and the building is
now fully leased.
21
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Chief Executive’s Review continued
Our strategy
in action
Portfolio Performance
Enhancing asset quality, providing space
that meets occupier demand.
We believe it is important to continue to invest in our
assets, to mitigate the impact of depreciation, improve
their attractiveness in the marketplace and enhance
letting prospects.
1/
3
1
2
Stanford Building, London WC2
At Stanford Building in the heart of
Covent Garden, we are underway with
a comprehensive refurbishment
which, Covid-19 permitting, is due to
complete in the summer.
This makes the most of the features
of this Grade II listed building and
willprovidethreefloorsofretail
space with original features and a
landmark unit fronting Long Acre
with an additional entrance onto
therejuvenatedFloralStreet.
Threefloorsofofficeswillprovide
someofthebestqualityspace
availableinthesizerange,
complemented by a larger
reception with concierge and
occupier amenities including
bicycle storage and shower
facilities.Theupperfloorwillbe
high end residential, with stunning
views over the London skyline.
The building will be future-proofed
in respect of its environmental
credentials, with the works
includinghighlyefficientair-
conditioning, solar panels and low
energy lighting throughout.
Read more on pages
36-37
22
2/
3
1
2
Angouleme Retail Park, Bury
At Angouleme Retail Park in Bury, our focus has been on
repositioning the park through refurbishment, creating a modern
shopping environment which appeals to occupiers and shoppers.
TheschemeishelpingtorejuvenateBurytowncentre.
As part of the works, we were able to secure a new lease with
Argos,securingaten-yeartermataninitialrentof£0.2millionper
annum, which was 10% below the previous passing rent but 16%
ahead of ERV.
Having secured an anchor occupier and completed the
refurbishment, we are pursuing the second stage of our strategy
and focusing on letting the remaining two units once the Covid-19
lockdown ends.
Read more on pages
36–37
Picton Property Income Limited Annual Report 2020 Operational Excellence
Having an appropriate capital
structure for the market cycle.
In order to ensure an appropriate balance of risk
and return, we consider the overall level of debt, its
operationalflexibilityanditscost.Wewillmake
adjustmentsinthelightofexpectedfuturereturns.
1/
3
1
2
Citylink, Croydon and Magna Park, Lutterworth
During the year we completed two disposals in
CroydonandLutterworthforacombined£34.1million
and used the proceeds to reduce both our total debt
outstanding by 15% and our loan to value ratio, which
nowstandsat22%.Thishelpedtoreducefinancecosts
overtheyearandnowprovidesuswithsignificant
operationalflexibilityinthecurrentenvironment.
23
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Key Performance Indicators
Measuring the success of
the business
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. In this regard, we consider that the EPRA net
asset value per share, earnings per share and vacancy
rate are the most appropriate measures to use in assessing
our performance.
Thisyearwehaveaddedanewnon-financialkey
performance indicator, employee satisfaction, based on
the results of an employee survey carried out in the year.
Key performance indicators are also used to determine
variable remuneration rewards for the Executive Directors
and the rest of the Picton team. The indicators used are
total return, total shareholder return, total property return
and EPRA earnings per share. This is set out more fully in
the Remuneration Report.
Remuneration link
Linking our performance to EPRA Best Practices
Recommendations pages 112–114
Total return (%)
2020
4.5
2019
6.5
2018
14.9
A
Total shareholder return (%)
2020
3.6
2019
10.1
2018
4.8
B
24
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 aim to be one of the
consistentlybestperformingdiversified
UK REITs is being achieved, and is a
measure used to determine the
annual bonus.
Why we use this indicator
The total shareholder return measures the
change in our share price over the year
plus dividends paid. We use this indicator
because it 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 2020
Compared to our peer group, our total return
of 4.5% was one of the highest for the year,
and against a background of negative
market returns, as measured by MSCI.
3
1
2
Our performance in 2020
Our return of 3.6% was one of the few in our
peer group to be positive for the year.
3
1
2
Picton Property Income Limited Annual Report 2020
Total property return (%)
2020
5.3
2019
7.5
2018
13.0
C
Property income return (%)
2020
4.8
2019
5.6
2018
6.0
D
Loan to value ratio (%)
2020
21.7
2019
24.7
2018
26.7
E
Cost ratio (%)
2020
1.1
2019
2018
1.1
1.1
F
Our performance in 2020
We have delivered an upper quartile return
of 5.3% compared to the MSCI UK Quarterly
Property Index return of -0.5% for the year,
and we have also outperformed on a three,
five and ten-year basis.
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. We use this indicator
because it shows the success of the
portfolio strategy without the impact of
gearing and corporate costs.
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.
3
1
2
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 2020
The income return for the year of 4.8%
was ahead of the MSCI UK Quarterly
Property Index of 4.5%, and we have also
outperformed on a three, five and ten-
year basis.
3
1
2
Our performance in 2020
The loan to value ratio has reduced further
this year following the repayment of our
revolving credit facilities.
3
1
2
Our performance in 2020
The cost ratio has remained at 1.1% this year
with administrative expenses largely
unchanged from 2019.
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
financingrisk.SeetheSupplementary
Disclosures section for further details.
Why we use this indicator
The cost ratio, recurring administration
expenses as a proportion of the average
netassetvalue,showshowefficientlythe
business is being run, and the extent to
which economies of scale are being
achieved. See the Supplementary
Disclosures section for further details.
3
1
2
25
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview
Strategic Report
Key Performance Indicators continued
Why we use this indicator
The net asset value per share, calculated in
accordance with EPRA, measures the
valueofshareholders’equityinthe
business. We use this to measure the
growth of the business over time.
Our performance in 2020
The EPRA net asset value per share has
remained stable 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.
We use this because it measures
theoperationalprofitgeneratedby
the business from the core property
rental business.
The growth in EPRA earnings per share is
also a performance measure used for the
annual bonus and the Long-term
Incentive Plan.
3
1
2
Our performance in 2020
EPRA earnings per share is lower this year
largely due to the refurbishment of a number
of assets taking place, which has reduced
occupancy in the short-term.
3
1
2
Why we use this indicator
The vacancy rate measures the amount
of vacant space in the portfolio at the end
ofeachfinancialperiod,andoverthe
long-term, is an indication of the success of
asset management initiatives undertaken.
Our performance in 2020
The EPRA vacancy rate has increased over
the year as a result of lease events together
with a large proportion of the vacant space
under refurbishment, most notably at our
Covent Garden asset. The vacancy rate is
above the MSCI IRIS Benchmark vacancy rate
of 7.0%.
3
1
2
EPRA net asset value
per share (pence)
2020
93
2019
93
2018
90
G
EPRA earnings per share
(pence)
2020
3.7
2019
4.3
2018
4.2
H
EPRA vacancy rate (%)
2020
11.5
2019
10.3
2018
4.2
I
26
Picton Property Income Limited Annual Report 2020
Retention rate (%)
Why we use this indicator
This provides us with a measure of asset
suitability and satisfaction of our occupiers.
2020
53
2019
49
2018
63
J
EPC ratings (%)
2020
89
2019
82
2018
81
K
Employee satisfaction (%)
2020
83
2019
N/A
2018
N/A
L
Our performance in 2020
Retention was similar to 2019, reflecting that
we continue to regear leases early and ahead
of lease expiry, meaning a lot of income risk
was mitigated in prior years. A further £5.5
million of rental income was extended and
retained for lease expiries beyond March
2020. Including this income would increase
our retention rate to 78%.
3
1
2
Why we use this indicator
EnergyPerformanceCertificates(EPC)
indicatehowenergyefficientabuildingis
byassigningaratingfrom‘A’(veryefficient)
to‘G’(inefficient).AhigherEPCratingis
likely to lead to lower occupational costs
for occupiers.
Our performance in 2020
The proportion of EPC ratings between A to
D has increased on the prior year and now
makes up 89% of the total portfolio. Where
we have upgraded space we have sought to
enhance EPC ratings as appropriate.
3
1
2
Our performance in 2020
We will build on the results of this initial
survey and have considered all of the
issues raised.
Why we use this indicator
We have introduced this indicator to
assess our performance against one of our
strategic priorities, to nurture a positive
culturereflectingthevaluesand
alignment of the Picton team. The
indicator is based on the employee survey
carried out during the year.
3
1
2
27
GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2020Strategic ReportBusiness Overview Strategic Report
Portfolio Review
Proactively managing
the portfolio
We have had a number of
considerable successes
across the portfolio
despite it being such a
difficult year in which to
operate. We ended the
year with a like-for-like
increase in the portfolio
valuation, rental income
and Estimated Rental
Value (ERV). We have had
one of the busiest years
in terms of portfolio
transactions, up 30%
on the previous year.
We have invested heavily back into the
portfolioenhancingthequalityand
lettability of space, and we have been
able to de-risk and extend our income
profile.Wehavefurtherstrengthened
our relationships with occupiers and
our focus on our key commitments
of Action, Community, Technology,
Support and Sustainability, appears
increasingly helpful in light of the
Covid-19 impact.
Performance
Our portfolio now comprises 47 assets,
with around 350 occupiers, and is
valuedat£664.6millionwithanet
initial yield of 4.9% and reversionary
yield of 6.4%. Our asset allocation, with
48%inindustrial,34%inofficeand
18% in retail and leisure, combined
with investment disposals and
transactional activity, has enabled us
again to outperform the MSCI UK
Quarterly Property Index on a total
returnbasisoverone,three,fiveand
ten years.
Overall the like-for-like valuation was
up 1.4%, with the industrial sector up
6%,officesdeliveringgrowthof3%
and retail and leisure declining -12%.
This compares with the MSCI index
recording capital declines of -4.8%
over the period.
The industrial assets continue to
perform better than the other sectors,
primarily due to our allocation to
South East multi-let estates which
account for over 73% of our industrial
exposure. In addition we have
extended income with three of our
largest occupiers at three of our
distribution warehouses. Conversely,
and despite active management
to mitigate downside risk, our retail
assets have delivered negative
returns. Pleasingly, rental transactions
have been generally very close to
or higher than independent ERVs
ratherthansignificantlybelow,
which we understand is happening
elsewhere in the market.
Key facts
47
Portfolio assets
89%
Occupancy
£36.2m
Passing rent
28
Picton Property Income Limited Annual Report 2020 Theoverallpassingrentis£36.2million,
an increase from the prior year of 1.2%
on a like-for-like basis. This was a result
of the industrial portfolio rents
growingby6%,offsetbytheoffice
and retail rents decreasing by 2% and
3%respectively.Theregionaloffices
saw growth of 1%, which was offset by
declines in London and in particular at
Angel Gate, Islington which is being
adversely affected by the serviced
officesector.Wearecounteringthe
effectbyofferingfullyfittedsuitesand
flexibleleasingterms.
The March 2020 ERV of the portfolio is
£45.2million,withthepositivegrowth
in the industrial sector of 4.4% and
officesectorof3.5%offsetbythe
negative growth in the retail sector of
-8.0%. 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 assist us
in managing the portfolio during the
current business climate.
Theindustrialandregionaloffice
occupational markets have
remained resilient. Conversely, retail
demand has not improved, and
we expect it to worsen over the
next year, particularly recognising
the additional impact Covid-19 will
have on occupational demand.
Activity
We have had an exceptionally good
year in respect of active management
transactions. We completed 20 rent
reviews, 10% ahead of ERV, 31 lease
renewals or regears, 12% ahead of ERV
and 35 lettings or agreements to lease,
2% ahead of ERV.
Two assets were sold for gross
proceedsof£34.1million,15%aheadof
the March 2019 valuation. Citylink,
Croydon was sold following the early
surrender of two leases, generating
£0.6millionofadditionalincome.The
propertywassoldfor£18.2million
reflectinganetinitialyieldof4.8%.
We also sold 3220 Magna Park,
Lutterworth following active
management where we extended the
lease by a further three years to
December 2022 and settled a 2019
rentreviewsecuringan11%upliftto£1
million per annum, achieving one of
the highest rents at the Park. The
propertywassoldfor£15.9million
reflectinganetinitialyieldof5.8%.
Both sales crystallise the upside from
the active management activity and,
noting the age of the buildings and
oversupply in these locations, avoid
potential future capital expenditure
and extended void periods.
Overtheyearwehaveinvested£9
million into the portfolio across 20
separateprojects.Thesehaveall
been aimed at enhancing space to
attract occupiers and grow income.
Whilstanumberofkeyprojectsare
still to be completed, we are now well
placed to attract occupiers and our
refurbishment pipeline is substantially
reduced, having completed
themajorityoftheprojects.
Our largest void is Stanford Building
on Long Acre in Covent Garden,
accounting for over a third of the total
vacancy rate. Work on site paused
due to the lockdown and will now
complete in the summer. The building
willprovidebest-in-classretail,office
and residential accommodation.
29
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Portfolio Review continued
The retail and leisure sector will need
to evolve, especially following the
current lockdown, but with this sector
only making up 18% of our portfolio,
we will work with occupiers to ensure
we can assist them where appropriate
to maintain income.
The work done over the year to lease
space and extend income, together
with our portfolio weightings, has
put us in a strong position to weather
this storm. 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 value.
This investment across the portfolio
has enabled us to create high
qualityspaceandhelptofuture-
proof assets from a sustainability
perspective. We have also worked
with occupiers to achieve their
occupational aims and thereby
create value through additional
leasing or extending income.
Althoughnoacquisitionsweremade,
the net effect of the above is that the
averagelotsizeoftheportfoliowas
£14.1million,inlinewithlastyear.
Outlook
If activity for most of the year was
tempered by Brexit, towards the end
of the year it has been impacted by
the Covid-19 pandemic and
consequentiallockdownon23March
2020. This has led to a far more
uncertain business environment and
our focus has been on delivering our
Picton Promise, focusing particularly
on our commitments of Action,
Community and Support to help our
occupiers who need assistance.
Newrequirementsfrompotential
occupiers have slowed and
social distancing measures make
viewingsdifficulttoconduct.We
are, however, embracing new
technologies, creating virtual tours
and thinking more laterally as to
how we can market our buildings.
Our focus remains on working with
our occupiers during this period of
business uncertainty, whilst continuing
to proactively manage the existing
portfolio. At 31 March the portfolio has
£9millionofreversionaryupside,£5
millionfromlettingthevoid,£3million
fromexpiringrentfreeand£1million
from reversionary leases.
We are seeing better demand for
our industrial properties, which
account for 48% of the total portfolio
by value, and we believe this sector
will continue to outperform.
Businesses continue to seek best-
in-classspaceintheofficesector,
hence our investment over the year
intonineofficebuildings,andthis,
combinedwithourflexibleoffering,
makes our properties attractive
to current and new occupiers.
Top ten assets
The largest assets as at 31 March 2020, ranked by capital value, represent 54%
of the total portfolio valuation and are detailed below.
Assets
Parkbury Industrial Estate, Radlett, Herts.
River Way Industrial Estate, Harlow, Essex
Angel Gate, City Road, London EC1
Stanford Building, Long Acre, London WC2
Tower Wharf, Cheese Lane, Bristol
50 Farringdon Road, London EC1
Shipton Way, Rushden, Northants.
Datapoint, Cody Road, London E16
Lyon Business Park, Barking, Essex
Colchester Business Park, Colchester
Acquisition
date
Property
type
Tenure
Approximate
area (sq ft)
No. of
occupiers
Occupancy
rate (%)
03/2014 Industrial Freehold
12/2006 Industrial Freehold
Office Freehold
10/2005
Retail Freehold
05/2010
Office Freehold
08/2017
10/2005
Office Leasehold
07/2014 Industrial Leasehold
05/2010 Industrial Leasehold
09/2013 Industrial Freehold
Office Leasehold
10/2005
336,700
454,800
64,500
19,700
70,800
31,000
312,900
55,500
99,400
150,700
21
10
22
0
5
5
1
5
9
22
100
98
74
0
83
100
100
88
100
99
30
Picton Property Income Limited Annual Report 2020 Top ten occupiers
The largest occupiers, based as a percentage of
contracted rent, as at 31 March 2020, are as follows:
Occupier
Public sector
Belkin Limited
B&Q Plc
The Random House Group Limited
Snorkel Europe Limited
XMA Limited
Portal Chatham LLP
TK Maxx
Canterbury Christ Church University
DHL Supply Chain Limited
Contracted
rent
(£m)
1.7
1.7
1.2
1.2
1.1
1.0
0.8
0.7
0.7
0.6
%
4.3
4.2
3.1
3.0
2.8
2.4
2.0
1.8
1.7
1.5
Total
10.7
26.8
Longevity of income
As at 31 March 2020, expressed as a percentage of
contracted rent, the average length of the leases to the
firstterminationwasincreasedto5.5years(2019:5.1
years). This is summarised as follows:
0 to 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5 to 10 years
10 to 15 years
15 to 25 years
25 years and over
Total
%
8.8
14.1
11.0
12.6
12.3
31.6
8.2
0.1
1.3
100.0
Retention rates and
occupancy
Over the year, total ERV at risk due to
lease expiries or break options totalled
£6.6million,comparedto£6.9million
for the year to March 2019.
Excluding asset disposals, we retained
53% of total ERV at risk in the year to
March 2020. This comprised 32% on
lease expiries and 21% on break options.
In addition to units at risk due to lease
expiries or break options during the
year,afurther£5.5millionofERVwas
retained by either removing future
breaks or extending future lease
expiries ahead of the lease event.
Occupancy has reduced slightly
duringtheyear,primarilyreflectingthe
timing of lease events, ongoing
challenges in the retail sector and
somespecificassetmanagement
surrenders we have initiated. At the
year end 62% of our vacant buildings
were being refurbished, so only 38%
were available to lease immediately.
Occupancy has decreased from 90%
to 89%, which is behind the MSCI IRIS
Benchmark of 93% at March 2020. On
a look-through basis we have 57% of
ourtotalvoidinoffices,28%inretail,
primarilyataflagshipstoreinCovent
Garden, and only 15% of our void is in
industrial,reflectingthestronger
occupational market.
31
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Portfolio Review continued
Industrial
The industrial portfolio,
which accounts for 48%
of the portfolio, again
delivered the strongest
sector performance of the
year. This was the result
of active management
extending income on
our distribution assets,
combined with continued
occupational demand for
the smaller units, resulting
in further rental growth,
especially in London and
the South East.
Through asset management activity
we have been able to capture
rental growth and extend income.
This, combined with continued
strength in the investment market,
has resulted in another strong year
for this element of the portfolio.
On a like-for-like basis, our industrial
portfoliovalueincreasedby£18.1
millionor6.0%to£318.3million,and
the annual rental income increased
by£0.9millionor6.0%to£16.0
million. The portfolio has an average
weighted lease length of 5.1 years and
£2.6millionofreversionarypotential.
We have seen rental growth of
4.4% across the portfolio and are
experiencing demand across all of
our estates. Occupancy is 96%, with
the key void being our unit in Rugby
which has recently been refurbished.
In respect of the multi-let estates
we only have three vacant units out
of 127, one of which is under offer.
32
We extended income on three of our
distribution units, one of which we
subsequentlysold,andwecompleted
the refurbishment of our unit in
Rugby, which is now being marketed.
Portfolio activity
At Shipton Way, Rushden, in what
would have been our largest single
income risk in 2020, we extended a
lease with the existing occupier,
Belkin, to facilitate a pre-letting of the
entire building to Whistl UK Limited.
Whistl will take a new ten-year lease,
subjecttobreakin2025,atanannual
rentof£1.6million,inlinewithERV,
and become our largest single
occupier from October 2020, when
Belkin vacates.
At Parkbury, Radlett, we extended
a lease with the largest occupier on
the estate which was due to expire in
November 2020. This secures a new
ten-yearreversionarylease,subject
to break in 2025, with stepped rental
increasesto£1.0millionperannum,
42% ahead of ERV. In addition, we
letfourunitsforacombined£0.4
million per annum, 8% ahead of ERV,
renewedoneleasefor£0.2million
per annum, 5% ahead of ERV, and
settled four rent reviews achieving a
£0.3millionupliftinrentto£1million
per annum, 19% ahead of ERV.
At Trent Road, Grantham, we
extended the lease that was due to
expirein2023until2029,subjectto
breakin2026,at£1.2millionper
annum, in line with ERV.
At 3220 Magna Park in Lutterworth,
we restructured the lease and secured
a further three years term certain until
an occupier break option in
December 2022. As part of the same
transaction, the December 2019 rent
review was settled, securing an 11%
upliftto£1millionperannum,6%
ahead of ERV, achieving one of the
highest rents at the Park. The unit was
subsequentlysoldfor£15.9million.
At Datapoint in London E16, following
the completion of a rent review, we
achieveda98%upliftinrentto£0.1
million per annum, 15% ahead of ERV.
Two leases were surrendered on the
estate,securingapremiumof£0.2
million,andweresubsequently
refurbished by March.
One has been let, two weeks after
completion, for a minimum term of
tenyearsatarentof£0.2millionper
annum, 24% ahead of ERV and 82%
ahead of the previous passing rent. We
have good interest in the other unit.
At Nonsuch Industrial Estate in Epsom,
the active management strategy to
combine units resulted in a letting to
Topps Tiles and we also completed
three further lettings during the
period,foracombined£0.2million
per annum, 2% ahead of ERV. Two
leases were renewed, the passing rent
increasingby22%toacombined£0.1
million per annum, 5% ahead of ERV.
Our largest void in the industrial
portfolioisSwiftbox,the99,500sqft
unit in Rugby, where we completed
a comprehensive refurbishment in
February. This is one of the few cross-
docked units available in the ‘Golden
Triangle’ and we expect good interest.
Outlook
The full impact of the Covid-19
pandemic remains to be seen, but
Brexit concerns have had a limited
impact to date.
Demand remains strong for sub-
100,000sqftunits,withoccupiers
being more discerning about the age
andspecificationofthelarger
distribution units. We see continued
rental growth, albeit at a slower rate, in
respect of the smaller units especially
in Greater London and the South East,
where there remains a lack of supply
and a limited development pipeline.
We do not expect rental growth to
come through on the larger units, due
to a strong development pipeline,
although there is a short-term
demand spike due to Covid-19 from
supermarkets and other retailers with
increasedstoragerequirements.
The focus going forward is the leasing
of Rugby and both capturing the
rental growth on the smaller units
and working proactively with our
occupiers to facilitate their business
needs. We have 16 lease events in
the coming year, the overall ERV
for these units is 16.5% higher than
thecurrentpassingrentof£0.7
million. This provides us with the
opportunity to grow income further.
Picton Property Income Limited Annual Report 2020 Key metrics
£318.3m
2020 value
(2019:£312.8m)
2.6m sq ft
Internal area
(2019:2.7msqft)
£16.0m
Annual rental income
(2019:£16.0m)
£18.6m
Estimated rental value
(2019:£18.7m)
96%
Occupancy
(2019: 98%)
16
Number of assets
(2019: 17)
Locations
15
10
11
12
6
7
3
14
16
8
13
2
4
5
1
9
1
7
13
Parkbury Industrial Estate
Radlett
336,700sqft–Freehold
Sundon Business Park
Luton
127,800sqft–Leasehold
Western Industrial Estate
Bracknell
41,200sqft–Freehold
2
8
14
River Way Industrial Estate
Harlow
454,800sqft–Freehold
The Business Centre
Wokingham
100,800sqft–Freehold
Swiftbox
Rugby
99,500sqft–Freehold
3
9
15
Shipton Way
Rushden
312,900sqft–Leasehold
Nonsuch Industrial Estate
Epsom
41,700sqft–Leasehold
Abbey Business Park
Belfast
61,700sqft–Freehold
4
10
16
Datapoint
London E16
55,500sqft–Leasehold
Vigo 250
Washington
246,800sqft–Freehold
Magnet Trade Centre
Reading
13,700sqft–Freehold
5
11
Lyon Business Park
Barking
99,400sqft–Freehold
Units 1 & 2
Kettlestring Lane, York
157,800sqft–Freehold
6
12
Grantham Book Services
Grantham
336,100sqft–Leasehold
Easter Court
Warrington
81,500sqft–Freehold
Parkbury Industrial Estate
Radlett
33
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Strategic Report
Portfolio Review continued
Portfolio Review continued
Office
The office portfolio,
which accounts for 34%
of the portfolio, delivered
the second strongest
performance of the year.
This was a result of our
investment into the
buildings to make them
more attractive to existing
and new occupiers,
combined with continued
occupational demand,
especially in the regions.
Through working with our occupiers
and actively managing our
properties, we have been able to
retain and attract occupiers, which
in turn enables us to capture rental
growth, particularly in markets with
a shortage of Grade A space, such
as Bristol and Milton Keynes.
Onalike-for-likebasis,ouroffice
portfoliovalueincreasedby£6.6
millionor3.0%to£224.6million,
and the annual rental income
decreasedmarginallyby£0.3
millionor2.2%to£12.9million.The
portfolio has an average weighted
leaselengthof4.0yearsand£4.5
million of reversionary potential.
Occupational demand has been
stronger in the regions than in
London. We have seen rental growth
of 3.5% across the portfolio and
occupancy is 88%, primarily due
to key voids at Angel Gate, London
and Pembroke Court, Chatham.
Weinvested£2.7millionintoour
officeassetsduringtheperiodand
disposed of one asset, detailed below.
Portfolio activity
At Tower Wharf, Bristol, following
completion of works to upgrade
the reception and the installation of
additional shower facilities, we agreed
toupsizeanexistingoccupierand
extended their lease which was due
to expire in May 2020. This increased
theirfloorspaceby73%andsecured
anew15-yearlease,subjecttobreak
in2030,atarentof£0.5millionper
annum, which was 5% ahead of the
ERVand£0.3millionaheadofthe
previous passing rent. In addition, we
moved out an occupier’s break option
by three years and settled a rent
review,achievinga29%upliftto£0.4
million per annum, 4% ahead of ERV.
At Grafton Gate, Milton Keynes, we
comprehensively refurbished the
common areas and, working with
anoccupier,upgradedtheiroffice,
installingenergyefficientLEDlighting
and creating an up-to-date working
environment. These works meant
the building’s EPC rating improved
fromanEtoaC,future-proofingit
in respect of the Minimum Energy
EfficiencyStandards.Aspartofthe
officeupgradeworks,wesettledarent
review,securinga52%upliftto£0.6
million per annum, 30% ahead of ERV.
At Metro, Salford Quays, where a
leaseeventcreatedavacantfloor,
we comprehensively refurbished the
commonareasforthebenefitofour
occupiers and to make the building
moreattractive.Thefloorwasletto
HM Government within six months
of the refurbishment completing
ona20-yearleasesubjecttobreak
in2030,at£0.4millionperannum,
which was 2% ahead of ERV.
At Waterside House, Leeds, following
upgradeworks,weupsizedour
existing occupier, HM Government,
into the whole building on a ten-year
leaseatarentof£0.3millionper
annum, which was 16% ahead of ERV.
At Citylink, Croydon, we restructured
two leases after occupiers actioned
break clauses. This resulted in an
early surrender for a premium
and a simultaneous new short-
term letting. The property was
subsequentlysoldfor£18.2million.
Ourlargestofficevoidistheoffice
element at Stanford Building WC2
which is classed as a retail property
and is detailed in the retail section.
34
Theofficeswillprovidefibre-
enabled Grade A accommodation
with original warehouse features,
commissionaire, occupier amenities
and environmental improvements.
We expect good interest due to
thequalityoftheaccommodation
onofferandsizeofthesuites.
Occupancy remained stable over
the period at 88%, with the letting
activity offset by space coming
back in Chatham and London.
Outlook
Generally, the regions continue to
outperform London with occupiers
lookingforhighspecification
buildings, which is why we have
carriedoutsignificantrefurbishments
at eight of our regional buildings,
investing£2.5milliontoimprove
common areas, adding occupier
amenityspaceandfuture-proofing
them in respect of sustainability.
The longer-term impact of the
Covid-19 pandemic may well
lead to more remote working
which is likely to change the way
physicalofficespaceisused.
We have countered the impact
ofservicedofficesbyoffering
flexibilitythroughour‘rightsizing’
approachaswellasourhighquality
contemporary space and occupier
amenities, meaning our buildings
remain attractive to businesses who
want control of their own space.
Looking forward, we will build
on the upgrade work completed
acrosstheofficeportfoliotoactively
manage it to attract occupiers.
We have 33 lease events in the
coming year, the current ERV for these
units is 13.2% higher than the current
passingrentof£2.0millionanda
12% void. This provides us with the
opportunity to grow income further.
Picton Property Income Limited Annual Report 2020 Key metrics
£224.6m
2020 value
(2019:£235.0m)
0.8m sq ft
Internal area
(2019:0.9msqft)
£12.9m
Annual rental income
(2019:£14.2m)
£17.4m
Estimated rental value
(2019:£18.1m)
88%
Occupancy
(2019: 88%)
14
Number of assets
(2019: 15)
Locations
7
9
14
6
13
2
8
10
4
11
1
3
12
5
1
7
13
Angel Gate
London EC1
64,500sqft–Freehold
180 West George Street
Glasgow
52,100sqft–Freehold
Longcross Court
Cardiff
72,100sqft–Freehold
2
8
14
Tower Wharf
Bristol
70,800sqft–Freehold
401 Grafton Gate East
Milton Keynes
57,100sqft–Freehold
Waterside House
Leeds
25,200sqft–Freehold
3
9
50 Farringdon Road
London EC1
31,000sqft–Leasehold
Queens House
Glasgow
49,400sqft–Freehold
4
10
Colchester Business Park
Colchester
150,700sqft–Leasehold
Trident House
St Albans
19,000sqft–Freehold
5
11
30 & 50 Pembroke Court
Chatham
86,300sqft–Leasehold
Atlas House
Marlow
25,400sqft–Freehold
6
12
Metro
Manchester
71,000sqft–Freehold
Sentinel House
Fleet
33,500sqft–Freehold
Tower Wharf, Bristol
Refurbished reception area
35
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Portfolio Review continued
Retail and
Leisure
The retail and leisure
portfolio, which accounts
for 18% of the portfolio,
delivered the weakest
performance of the year.
This was a result of
ongoing changes in
shopping patterns and
weak occupational
demand resulting in
negative rental growth
in a lot of markets.
Stanford Building in Covent Garden,
whichhasbothretailandofficeuse,is
our largest element of the retail
portfolio at 28%, of the balance, 40%
is in the retail warehouse sector, 22%
in high street retail and 10% in hotel
and leisure assets.
Our investment into the retail parks in
Bury and Swansea has enabled us to
retain and attract new occupiers.
By working with our occupiers and
through active management, we have
been able to temper the declines in
value over the period by extending
income, letting space and achieving
rents overall very close to the ERV.
On a like-for-like basis, our retail and
leisure portfolio value decreased by
£15.8millionor11.5%to£121.7million,
and the annual rental income
decreasedmarginallyby£0.2million
or2.6%to£7.3million.Theportfolio
has an average weighted lease length
of8.9yearsand£1.9millionof
reversionarypotentialto£9.2million
per annum.
Occupational demand has been
weaker in the retail warehouse and
restaurant sector, with high street
36
At Scots Corner, Birmingham we
renewed HM Government’s lease for a
furthertenyears,subjecttobreakin
2024,atarentof£0.1millionper
annum, in line with ERV. Towards the
endoftheyear,wegottwoadjoining
shop units back due to insolvencies,
securing a payment on one of them.
Thesearecurrentlybeingreconfigured
and one of the units is under offer.
Our largest retail void is the unit at
Stanford Building WC2 where the
refurbishment of the whole building is
currently underway and is due to
complete in the summer. The unit is in
aprimelocationandprovidesunique
spacearrangedoverthreefloors.Itis
thefirsttimetheunithasbeen
available to lease in over 100 years and
we expect good interest in due course.
Outlook
The retail and leisure sector continues
to undergo structural change due
to evolving shopping habits, which
have resulted in an oversupply
in most markets with occupiers
being able to negotiate lower
rents and higher incentives. The
Covid-19 pandemic has considerably
worsened the outlook, and it is
likely that a number of less resilient
businesses will not survive, further
increasingthesupplyoffloorspace.
We are working on a number
of schemes where we envisage
changing the use from retail or
leisure to other uses and we will
resume with progressing these
plans once restrictions are lifted.
We are working with our occupiers
to assist them where we can, by for
example, postponing rental payments
or providing upfront incentives to
remove future break options and/
or extend leases. The lockdown has
causedsignificantcashflowissues
to a lot of businesses in this sector
and until shops, gyms, hotels and
restaurants are allowed to open,
we cannot see an improvement
outside of the supermarket sector.
The full impact of the Covid-19
pandemic remains to be seen and this
reinforces our portfolio positioning.
shops and London seeing slightly
better demand. We have seen
negative rental growth of 8.0% across
the portfolio and occupancy is 75%,
primarily due to key voids at Stanford
Building, London and Angouleme
RetailPark,Bury.Weinvested£3.3
million into the retail portfolio during
the period.
Portfolio activity
At Parc Tawe Retail Park, Swansea
we carried out a comprehensive
refurbishment of the park to include
new signage, modernisation of
the units and environmental
improvements, for example changing
to LED lighting. This has created an
improved shopping environment for
customers and enabled us to attract
new occupiers. Once we completed
enabling works, Lidl relocated to the
former Homebase unit and, following
practical completion of refurbishment
works, we completed a new 15-year
lease at their former unit to Farmfoods
atasteppedrentto£0.1millionper
annum, 14% below ERV. We also
agreed to extend Pets at Home’s
lease,expiringin2022,byafurtherfive
yearsandrebasedtheirrentto£0.1
million per annum from completion,
a reduction of 18%, but 10% ahead
of the preceding ERV. We have one
unit available to lease, accounting
for13%oftheparkbyfloorarea.
At Angouleme Way Retail Park, Bury
we carried out a comprehensive
refurbishment to update the park for
customers and to enable us to attract
new occupiers and retain existing
ones. Argos renewed on a ten-year
leaseatarentof£0.2millionper
annum, which was 16% ahead of ERV.
Another unit was let to a regional
occupieronafive-yearlease,subject
to a break in three years, at a stepped
rentto£0.1millionperannum,inline
with ERV. We have two units available
to lease, accounting for 40% of the
parkbyfloorarea.
At the Crown & Mitre complex in
Carlisle, we settled the hotel rent
review,securinga42%upliftto£0.2
million per annum, 8% ahead of
ERV.Thereisahistoriclaneadjacent
to the property, with small shops
and local occupiers. Working with
our occupiers, we refurbished the
lanetocreateasignificantlybetter
environment in keeping with the
Grade II property and attracting
higher footfall for our occupiers.
Picton Property Income Limited Annual Report 2020 Key metrics
£121.7m
2020 value
(2019:£137.5m)
0.8m sq ft
Internal area
(2019:0.8msqft)
£7.3m
Annual rental income
(2019:£7.5m)
£9.2m
Estimated rental value
(2019:£10.0m)
75%
Occupancy
(2019: 77%)
17
Number of assets
(2019: 17)
Locations
14
8
13
17
12
2
5
15
16
7
9
3
4
10
11
1
6
1
7
13
Stanford Building
London WC2
19,600sqft–Freehold
Regency Wharf
Birmingham
44,300sqft–Leasehold
17-19 Fishergate
Preston
59,900sqft–Freehold
2
8
14
Queens Road
Sheffield
105,600sqft–Freehold
Crown & Mitre Complex
Carlisle
23,800sqft–Freehold
72-78 Murraygate
Dundee
9,700sqft–Freehold
3
9
15
Parc Tawe North Retail Park
Swansea
116,700sqft–Leasehold
Scots Corner
Birmingham
30,000sqft–Freehold
7-9 Warren Street
Stockport
8,700sqft–Freehold
4
10
16
Gloucester Retail Park
Gloucester
113,900sqft–Freehold
53-57 Broadmead
Bristol
10,400sqft–Leasehold
6-12 Parliament Row
Hanley
17,300sqft–Freehold
5
11
17
Angouleme Retail Park
Bury
76,200sqft–Free/Leasehold
62-68 Bridge Street
Peterborough
88,700sqft–Freehold
18-28 Victoria Lane
Huddersfield
14,600sqft–Leasehold
6
12
Thistle Express
Luton
81,600sqft–Leasehold
78–80 Briggate
Leeds
7,700sqft–Freehold
Long Acre, Covent Garden
London, WC2
37
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Financial Review
The total
profit for the
year was
£22.5 million.
Inthecontextofuncertainanddifficultmarketconditions,
ourresultsfortheyearwerepositive.Thetotalprofit
recordedwas£22.5million,comparedto£31.0million
for 2019, reduced due to lower valuation movements,
particularlyinthefinalquarteroftheyear.OurEPRA
earningsdeclinedto£19.9million,andwemaintained
a covered dividend. Earnings per share were 4.1 pence
overall (3.7 pence on an EPRA basis), and the total
return based on these results was 4.5% for the year.
TheCovid-19pandemicishavingasignificantimpacton
businesses throughout the UK. For Picton, like many
commerciallandlords,thefirsttangibleconsequencewas
on the March rent collection date. We received 82% of the
rent due, and this is discussed more fully below, along with
the actions being taken. We also experienced a decline in
the portfolio valuation at the end of March, principally on
the retail assets. We expect these themes to continue
through the course of the pandemic.
Net asset value
ThenetassetsoftheGroupincreasedto£509.3million,
largelyfollowingtheequityraiseintheyear.Thechart
below shows the components of this increase over the year.
The EPRA net asset value remained at 93 pence.
March 2019 net asset value
Incomeprofit
Valuation movement
Profitonassetdisposals
Issue of ordinary shares
Share-based awards
Purchase of shares
Dividends paid
March 2020 net asset value
£m
499.4
19.9
(0.9)
3.5
7.0
0.3
(0.9)
(19.0)
509.3
38
Picton Property Income Limited Annual Report 2020 The following table reconciles the net asset value
calculated in accordance with International Financial
Reporting Standards (IFRS) with that of the European
Public Real Estate Association (EPRA).
Net asset value – EPRA and
IFRS
Fair value of debt
EPRA triple net asset value
Net asset value per share
(pence)
EPRA net asset value per
share (pence)
EPRA triple net asset value
per share (pence)
2020
£m
2019
£m
2018
£m
509.3
(29.6)
479.7
499.4
487.4
(24.8)
(21.1)
474.6
466.3
93
93
88
93
93
88
90
90
87
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 EPRA Disclosures section which starts on page 112.
Income statement
Total revenue from the property portfolio for the year was
£45.7million.Onalike-for-likebasis,rentalincomeonan
EPRA basis has reduced compared to the previous year.
Throughout the year we have been carrying out a number
ofrefurbishmentprojectsaimedatimprovingthequalityof
space at those assets and so improving letting prospects.
This is discussed further in the Portfolio Review, but the
impact on this year’s results is lower net property income.
The table below sets out the rent collection statistics for the
Marchquarter,analysedbysector.Thegreatestimpact,not
unexpectedly, is in the retail sector.
Rent due
25 March to 1 April
Industrial
(%)
Collected
Moved to
monthly
Deferred
Concessions
agreed
Active
management
Outstanding
84
1
6
–
–
9
Office
(%)
89
Retail and
Leisure
(%)
67
1
5
1
–
4
8
8
–
4
13
Total
(%)
82
2
6
–
1
9
TherentdemandedontheMarchquarterdayisin
advance,uptotheJune2020quarterday.Wehave,
however, made increased provisions against our tenant
debtorsinthisfinancialyear,andthishasimpactedour
rentalincomeby£0.5million.
Administrativeexpensesfortheyearwere£5.6million,so
slightlylowerthanthe£5.8millionin2019.Theseinclude
the one-off costs of REIT conversion.
Realised and unrealised valuation gains on the portfolio
were£2.6millionfortheyear,lowerthanthegainsof£11.3
millionreportedlastyear.Thisisverymuchareflectionof
the commercial property market, and particularly the
sentiment in the retail sector, where there have been well
publicised issues of retail failures.
Interest payable is lower this year compared to 2019, at
£8.3million.Thisreflectsafullyear’ssavingfollowingthe
Canada Life repayment in 2018, and also the repayment
of the current revolving credit facilities.
ThisisthefirstfullyearthatwehavereportedasaUKREIT.
Alloftheprofitsfromthepropertyrentalbusinessare
exempt from UK tax. We must, as a REIT, distribute at least
90%oftheseprofitstoshareholdersasPropertyIncome
Distributions. Based on our initial submitted tax returns to
date,wehavefullycompliedwiththisrequirement.This
year we have received a small tax repayment, an
adjustmentarisingfrompreviousyears.
EPRAearningsfortheyearwere£19.9million,lowerthan
the£22.9millionstatedin2019,principallyforthereasons
stated above.
Dividends
The annual dividend rate has remained at 3.5 pence, with
totaldividendspaidoutof£19.0million.Dividendcoverfor
the full year was lower than last year at 105%.
Following the year end we have announced a 29%
reduction in the dividend rate, which was applied to the
dividend paid in May, due to the uncertainty caused by the
Covid-19 pandemic.
Investment properties
The appraised value of our investment property portfolio
was£664.6millionat31March2020,downfrom£685.3
million a year previously. This year we have disposed
oftwobuildings,fornetproceedsof£33.1million,
realisingacombinedgainof£3.5millioncomparedto
lastyear’svaluation.£8.9millionofcapitalexpenditure
was invested back into the existing portfolio. The overall
revaluationmovementwasasmalllossof£0.9million,
principallyarisinginthefinalquarteroftheyear,as
the impact of the Covid-19 pandemic was felt. With
the reduction in investment market activity and less
evidence available, the independent valuers included
a ‘material uncertainty’ clause in the March valuation.
At 31 March 2020 the portfolio comprised 47 assets, with an
averagelotsizeof£14.1million.
A further analysis of capital expenditure, in accordance with
EPRA Best Practices Recommendations, is set out in the
EPRA Disclosures section.
39
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Share capital
During the year the Company issued 7,551,936 new
ordinarysharesofnoparvalue,forgrossproceedsof£7.1
million, bringing the total shares in issue to 547,605,596.
TheCompany’sEmployeeBenefitTrustacquiredafurther
954,000shares,atacostof£0.8million,duringtheyearto
satisfy the future vesting of awards made under the Long-
term Incentive Plan, and now holds a total of 2,103,683
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
22June2020
Strategic Report
Financial Review continued
Borrowings
Totalborrowingswere£167.5millionat31March2020,
with the loan to value ratio having reduced to 21.7%. The
weighted average interest rate on our borrowings has
increased slightly to 4.2%, while the average loan duration
is now 9.9 years.
Our senior loan facility with Aviva reduced by the regular
amortisationof£1.2millionintheyear.
The Group remained fully compliant with the loan
covenants throughout the year.
During the year we repaid all the outstanding amounts
drawnunderourrevolvingcreditfacilities,leaving£49
million undrawn at the year end. The year-end interest rate
payable on these loans was around 2.7%.
Subsequenttotheyearend,wehavecompletedanew
single revolving credit facility, replacing the two existing
ones.Thenew£50millionfacilityisforaninitialtermof
three years, until May 2023, with two one-year extensions
available. Interest is payable at 150 basis points over LIBOR,
which is at a lower rate than the facilities it replaces.
Loan arrangement costs are capitalised and are amortised
over the terms of the respective loans. At 31 March 2020,
the unamortised balance of these costs across all facilities
was£2.3million.
The fair value of our borrowings at 31 March 2020 was
£197.0million,higherthanthebookamount.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:
Fixedrateloans(£m)
Drawn revolving facilities
(£m)
Totalborrowings(£m)
Borrowings net of cash
(£m)
Undrawnfacilities(£m)
Loan to value ratio (%)
Weighted average interest
rate (%)
Average duration (years)
2020
167.5
–
167.5
143.9
49.0
21.7
4.2
9.9
2019
2018
168.7
203.5
26.0
194.7
10.5
214.0
169.5
182.5
25.0
24.7
4.0
9.8
40.5
26.7
4.1
10.3
Cash flow and liquidity
Thecashflowfromouroperatingactivitieswas£13.5
millionthisyear,downfromthe2019figure.Proceeds
fromassetsaleswereusedtofinancethenetreduction
inborrowings.Dividendpaymentsof£19.0millionwere
made in the year. Our cash balance at the year end stood
at£23.6million.
40
Picton Property Income Limited Annual Report 2020 Strategic Report
Principal Risks
Managing Risk
Principal risk
Trend
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
identifiedriskscanbeidentified,
measured, managed, mitigated
and reported 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
andrelativelyflatmanagement
structureallowriskstobequickly
identifiedandassessed.
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 UK Corporate Governance
CoderequirestheBoardtomakea
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.
1
Political and economic
2 Market cycle
3 Regulatory and tax
4 Climate change
5 Portfolio strategy
6
Investment
7 Asset management
8 Valuation
9 People
10 Finance strategy
11 Capital structure
Covid-19
The current global Covid-19 pandemic
is causing an unprecedented level of
disruption to the global economy.
Many governments, including the UK,
have imposed lockdowns, giving rise
to the closure of some businesses. It is
not clear how long the restrictions will
last nor what the impact on the UK
economy will be. Some of our
occupiersarefacingfinancial
difficultiesandweareworkingwith
themtofindsolutionsthatbothhelp
them and mitigates any impact on our
capitalvaluesandcashflow.
The risks associated with this
pandemic fall across many of the
principal risks set out here, and in
many cases increase the potential
impactsignificantly.Therehasalready
been an impact on the Group’s cash
flow,anditisconsideredlikelythatthis
will continue in at least the short-term.
Picton has a diverse portfolio
spread across the UK, with around
350 occupiers in a wide range of
businesses.Thecashflowarising
from our occupiers underpins our
business model. We are continuing
to let space, although a number
of transactions have been put on
hold since the pandemic began
to affect the UK economy. There
are few investment transactions
taking place to provide comparable
evidence for valuations, and as a
result our external valuers have added
a material valuation uncertainty
clause to their report as at 31 March
2020, in line with market practice.
We have considered in our Viability
Statement the potential impact of
various scenarios resulting from
Covid-19 on the business.
41
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview
Strategic Report
Principal Risks continued
Brexit
Although the UK has now left the EU
and is in the transition period, there is
still uncertainty regarding a future
trading relationship. The transition
period ends on 31 December 2020
and in the absence of any agreement
being reached there could be further
disruption to the UK economy.
We have considered the potential
impact from a disruptive Brexit in a
number of scenarios included in our
Viability Statement.
Emerging risks
During the year the Board has
considered themes where emerging
risks or disrupting events may impact
the business. These may arise from
behavioural changes, political or
regulatory changes, advances in
technology, environmental factors,
economic conditions or demographic
changes. As noted above Covid-19 may
also have an impact on a number of
these themes. Some are already
considered to be principal risks in their
own right such as the impact of climate
change, others are reviewed as part of
the ongoing risk management process.
Risk management framework
Board
• Has overall responsibility for risk management including
approval of the risk management framework, risk policies
and risk appetite
• Determines business model
Executive Committee
•
•
• Carries out risk management, mitigation
Implements strategy and risk policy
Identifiesandassessesrisks
and reporting
Audit and Risk Committee
• Reviews and recommends risk management
framework including risk policies
• Reviews detailed risk matrix and principal risks
• Reviews internal controls and the testing of
those controls
Management Committees
• Reviewspecifictransactionrisks
• Consider impact of forthcoming legislation on the
Group’s risks
• Review operational risk
The matrix below illustrates the assessment of the impact and likelihood of each of the principal risks.
Likelihood
after mitigation
2
11
5
8
7
10
1
4
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
6
3
9
Read more on pages
43–45
Low
Medium
High
Likelihood after mitigation
42
Picton Property Income Limited Annual Report 2020
Corporate Strategy
1
Political and economic
Risk
Uncertainty in the UK economy,
whether arising from political
events or otherwise, brings risks
to the property market and to
occupiers’ businesses. This can
result in lower shareholder returns,
lower asset liquidity and increased
occupier failure.
2
Market cycle
Risk
The property market is cyclical and
returns can be volatile. There is an
ongoing risk that the Company
fails to react appropriately to
changing market conditions,
resulting in an adverse impact on
shareholder returns.
3
Regulatory and tax
Risk
The Group could fail to comply
with legal, fiscal, health and safety
or regulatory matters which could
lead to financial loss, reputational
damage or loss of REIT status.
4
Climate change
Risk
Failure to react to climate change
could lead to the Group’s assets
becoming obsolete and unable to
attract occupiers.
Mitigation
The Board considers economic
conditions and market uncertainty
when setting strategy, considering
thefinancialstrategyofthebusiness
and in making investment decisions.
Commentary
The risks around the UK economy
have increased with the Covid-19
pandemic. Although there is more
certainty regarding Brexit, no future
deal with the EU has yet been agreed
and this may lead to further
uncertainty later in 2020.
Mitigation
The Board reviews the Group’s
strategyandbusinessobjectives
on a regular basis and considers
whether any change is needed,
in light of current and forecast
market conditions.
Commentary
There may be increased volatility in
the property market as a result of the
currenteconomicrestrictions.Official
forecasts indicate a substantial fall in
UK GDP this year. The impact of
Covid-19 may also cause businesses to
review their existing operating models
(e.g.futureneedforofficespace).
Mitigation
The Board and senior management
receive regular updates on relevant
laws and regulations.
The Group is a member of the BPF
and EPRA, and management attend
industrybriefings.
Commentary
Therearenosignificantchanges
expected to the regulatory
environment in which the
Group operates.
Mitigation
Sustainability is embedded
within the Group’s business
model and strategy.
Allrefurbishmentprojectsinclude
environmental considerations to
ensure buildings are maintained to
current standards.
Commentary
Climate change is now considered to
be a principal risk given its increasing
importance and the impact of real
estate on the environment.
Risk trend
Connected KPIs
Strategic
Pillar
A
C
G
H
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
C
D
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
A
F
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
A
C
J
K
3
1
2
43
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Principal Risks continued
Property
5
Portfolio strategy
Risk
The Group has an inappropriate
portfolio strategy, as a result of
poor sector or geographical
allocations, or holding obsolete
assets, leading to lower
shareholder returns.
6
Investment
Risk
Investment decisions may be
flawed as a result of incorrect
assumptions, poor research or
incomplete due diligence, leading
to financial loss.
7
Asset management
Risk
Failure to properly execute asset
business plans or poor asset
management could lead to longer
void periods, higher occupier
defaults, higher arrears and low
occupier retention, all having an
adverse impact on earnings and
cash flow.
8
Valuation
Risk
A fall in the valuation of the Group’s
property assets could lead to lower
investment returns and a breach of
loan covenants.
44
Mitigation
TheGroupmaintainsadiversified
portfolio in order to minimise
exposure to any one geographical
area or market sector.
Commentary
Continued divergence of returns
across sectors, coupled with the
impact of Covid-19 particularly on
retail and leisure assets, have
increased this risk.
Risk trend
Connected KPIs
Strategic
Pillar
A
C
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
A
C
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
C
J
K
3
1
2
Commentary
There is no change to this risk.
Commentary
The importance of effective asset
management has been heightened
by the Covid-19 pandemic and its
impact on occupiers’ businesses.
Mitigation
The Executive Committee must
approve all investment transactions
overathresholdlevel,andsignificant
transactionsrequireBoardapproval.
A formal appraisal and due
diligence process is carried out
for all potential purchases.
Areviewofeachacquisitionis
performed within two years
of completion.
Mitigation
Management prepare business
plans for each asset which are
reviewed regularly.
The Executive Committee must
approve all investment transactions
overathresholdlevel,andsignificant
transactionsrequireBoardapproval.
Management maintain close contact
with occupiers and have oversight of
the Group’s Property Manager.
Mitigation
The Group’s property assets are
valuedquarterlybyanindependent
valuer with oversight by the Property
Valuation Committee. Market
commentary is provided regularly
by the independent valuer.
TheBoardreviewsfinancialforecasts
for the Group on a regular basis,
including sensitivity against
financialcovenants.
Commentary
The current economic situation could
lead to negative sentiment and see
further falls in asset values.
Risk trend
Connected KPIs
Strategic
Pillar
A
C
3
1
2
Picton Property Income Limited Annual Report 2020 Operational
9
People
Risk
The Group relies on a small team to
implement the strategy and run
the day-to-day operations. Failure
to retain or recruit key individuals
with the right blend of skills and
experience may result in poor
decision making and
underperformance.
Financial
10
Finance strategy
Risk
The Group has a number of loan
facilities to finance its activities.
Failure to comply with covenants
or to manage re-financing events
could lead to a funding shortfall for
operational activities.
11
Capital structure
Risk
The Group operates a geared
capital structure, which magnifies
returns from the portfolio, both
positive and negative. An
inappropriate level of gearing
relative to the property cycle could
lead to lower investment returns.
Mitigation
The Board has a remuneration
policy in place which incentivises
performance and is aligned with
shareholders’ interests.
There is a Non-Executive Director
responsible for employee
engagement who provides regular
feedback to the Board.
Commentary
The Group has a stable and aligned
team in place.
Significanteffortshavebeen,andwill
continue to be made to ensure the
safety and well-being of the Group’s
employees through the course of the
Covid-19 pandemic.
Risk trend
Connected KPIs
Strategic
Pillar
H
L
3
1
2
Commentary
Although the Group has headroom
againstitsloancovenants,significant
falls in valuations or income during
the current Covid-19 crisis could lead
to pressure on covenants. However, a
number of stress tests have been
conducted to assess the potential risk,
which the Board continue to monitor.
Risk trend
Connected KPIs
Strategic
Pillar
C
D
E
Mitigation
The Group’s property assets are
valuedquarterlybyanindependent
valuer with oversight by the Property
Valuation Committee. Market
commentary is provided regularly
by the independent valuer.
TheBoardreviewsfinancialforecasts
for the Group on a regular basis,
including sensitivity against
financialcovenants.
The Audit and Risk Committee
considers the going concern status
of the Group biannually.
Mitigation
The Board regularly reviews its
gearing strategy and debt maturity
profile,atleastannually,inlightof
changing market conditions.
Commentary
Although the Group has a modest
level of gearing, falls in capital values
willbemagnifiedbytheimpact
of gearing.
3
1
2
Risk trend
Connected KPIs
Strategic
Pillar
A
C
E
G
H
3
1
2
45
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Being Responsible
Our responsible
and ethical approach
At Picton we believe that sustainability has to be fully embedded into all of our
activities. A responsible and ethical approach to business is essential for the benefit
of all our stakeholders, and understanding the long-term impact of our decisions
will help us to manage risk and continue to generate value.
This report looks at the components of sustainability – environmental, social and
governance – how we approach each of these, and our progress in each area.
Corporate strategy
In determining our new corporate
strategy, we have established three
new strategic pillars: Portfolio
Performance, Operational Excellence
and Acting Responsibly. Within each
of these pillars, we have determined
anumberofspecificstrategic
priorities, which are measured by
our key performance indicators.
Theidentifiedmaterialissuesare
all incorporated within these new
strategic priorities, and this year
we will be setting clear targets
against each of these so that we can
effectively measure our sustainability
performance. For more information
please see our Sustainability Report.
Highlights of the year
ӱ Carried out materiality
assessment of relevant
sustainability issues
ӱ Incorporated sustainability
into our corporate strategy
ӱ Improved portfolio
EPC ratings
ӱ Incorporated energy
efficiencymeasuresinto
building refurbishments
ӱ Further developed our
occupier and employee
engagement programmes
ӱ Achieved EPRA Gold for
2019 Sustainability Report
Visit our website
www.picton.co.uk
Materiality assessment
During the year we re-visited our
approach to sustainability with
a view to integrating it within
our strategy. Previously we had
considered sustainability in terms
of the environmental impact of the
portfolio, and how we could minimise
this. We set a number of targets
in 2016 and with many of these
having been met, considered that
it was the right time to re-evaluate
sustainability issues important
to us and all our stakeholders.
We carried out a materiality
assessment in order to identify those
sustainability issues that were most
relevanttoPicton.Thefindingswill
help us to determine our sustainability
priorities in the light of our overall
business strategy. The assessment
wascarriedoutinconjunction
with Emperor, an independent
consultant. The process included a
robust analysis of potential material
issues, both internal and external,
and stakeholder interviews.
At the end of the assessment there
were 12 material sustainability issues
identified.Thesewerealignedwithin
a sustainability framework and our
overall corporate strategy.
46
Picton Property Income Limited Annual Report 2020 Environmental
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 across the portfolio.
What we have done this year
ӱ Progressed our EPC
management programme
ӱ Achieved a 7% increase in our A
to D EPC ratings
ӱ Incorporatedenergyefficiency
measuresintoallmajor
refurbishmentprojects
ӱ Developed refurbishment
checklisttoassessprojects
against industry standards and
best practice
ӱ Continued to implement green
clauses in all our new leases, and
developed a tracker to monitor
this
ӱ Carried out ESG audits on four
energy intensive properties
within the portfolio
ӱ Installed a green wall as part of
officerefurbishment
What we will do next year
ӱ Carry out further ESG audits
ӱ Further increase our proportion
of A to D EPC ratings
ӱ Investigate carbon offsetting
and biodiversity opportunities
EPC management
We have a continuous programme
of monitoring EPCs in place
throughout the portfolio. During
the year we completed 19 EPCs at
higher ratings than previously and
achieved a 7% increase in A to D
ratings compared to last year. All EPCs
expiring within the next 12 months
will be reviewed to assess where
environmental measures can be
put in place to improve the rating.
Environmental initiatives
This year there have been a number
ofbuildingrefurbishmentprojects
commenced, and we have ensured
environmental issues have been
fully incorporated into these. We
have considered where energy
efficiencymeasurescouldbeincluded
within the refurbishments, such
as new lighting, improved plant
andequipment,solarpanels,new
building management systems,
insulation and new water systems.
We have also introduced more
occupier amenities where possible,
such as cycle storage facilities,
changing rooms and showers.
Moredetailontheseprojectsis
included within this year’s Sustainability
Report, including case studies.
We have installed two beehives at our
Queens House property in Glasgow.
The bee population at these hives
has more than doubled since they
were installed in 2018, helping the
pollination of surrounding plant life.
These hives have also been successful
in engaging with our occupiers
at the building, with workshops
and presentations taking place.
This year we completed scoping
exercises at several buildings to locate
viable sites for further beehives and an
installation at our Metro building in
Salford is underway.
Transportationisamajorsourceof
greenhouse gas emissions worldwide.
We recognise our role in supporting
our occupiers’ transition to a more
sustainable solution and have been
working to identify buildings where
electric charging points can be
installed. We are pleased to have
installed charging points at two of
our properties – 180 West George
Street and Easter Court, Warrington.
In addition, we will be installing 20
charging points at Metro in Salford
this year. We are investigating
where else we can install charging
points across the portfolio.
AtTowerWharf,ourmulti-letoffice
building in Bristol, we carried out
a refurbishment of the reception
area. As part of this we installed a
green wall, which comprises moss
from sustainable sources. The moss
improvestheairqualityandreduces
the carbon within the building. We
expect energy bills to be reduced as
the moss cools the area in summer
and helps insulate it in winter.
47
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Being Responsible continued
Green leases
We have now introduced new
sustainability clauses into our
standard lease agreements – so-
called ‘green lease clauses’. These
clauses set out the responsibilities
of both Picton and the occupier
with regard to sustainability issues.
We have developed three levels
of clauses, from basic through to
leader, where there are greater
expectations on sustainability issues
andrequireamorecollaborative
approach between Picton and the
occupier. The increasing importance
of sustainability to many businesses
has led them to re-evaluate how they
use space and these clauses help
to provide the right framework.
We have also implemented a
‘green lease tracker’ this year. The
tracker allows us to keep a record
of all green leases we have in place,
with a scoring system so that we
can measure and improve on the
number of green clauses we have.
ESG audits
We have carried out ESG audits at four
ofourmulti-letofficepropertiesinthe
portfolio. These were at Tower Wharf in
Bristol, Metro in Salford, 50 Farringdon
Road in London and Queens House
in Glasgow. The audits were carried
outbyqualifiedengineersfromour
sustainability advisers CBRE. The
audits focused on the key areas
ofenergyusageandefficiency,
water and waste management,
and provided a summary of
recommendations of energy saving
measures, and the associated costs.
We have developed an action plan
for each property to implement the
recommendationsasrequired.
We will carry out more ESG audits at
ourothermulti-letofficesinthis
coming year.
Social
Our people
We aim to attract and retain
employees who can thrive at Picton
and realise their full potential.
We valuethecontributionsmadeby
the whole Picton team, with a strong
and open company culture that
was co-created by our employees.
We aim to have a positive business
environment consistent with our
values,withequalopportunitiesforall.
What we have done this year
ӱ Carried out an employee
engagement survey across the
whole team
ӱ Held a forum for employees to
raise matters with the
designated Non-Executive
Director responsible for
employee engagement
ӱ Maintained alignment with
further LTIP awards to the whole
team
ӱ Held an offsite meeting for the
whole team, including a tour of
local Picton properties
What we will do next year
ӱ Build on the employee survey
and engagement carried out
this year
ӱ Increase training and personal
development opportunities for
employees
Employee engagement
Last year we appointed one of our
Non-Executive Directors, Maria
Bentley, to be responsible for
employee engagement. This year we
carried out a survey across the whole
team, and the results of this were
then discussed at a team meeting
attended by Maria. There were a
rangeofquestionsputtotheteam,
and the results were positive. Of the
questionsasked,93%wereanswered
either Strongly Agree or Agree. We
have used the results to prepare an
Employee Satisfaction score, and
have introduced this as a new key
performance indicator this year. We
intend to repeat the survey this year.
One of the issues raised through
the surveywasthelevelofemployee
training. As a result we have
increased this, as set out below,
and haveencouragedemployeesto
identify training needs and courses
thattheywouldbenefitfrom.
Wellbeing
We believe that having a happy
and healthyteamisimportanttothe
success of the business. In this year’s
employee survey the whole team
were positive about their work/life
balance.
Our commitment to providing a safe
and healthy working environment for
our employees is achieved by:
ӱ Adhering to the appropriate health
and safety standards
ӱ Providing a working environment
that enables employees to work
effectively and free from
unnecessary anxiety, stress and
fear
ӱ Offeringprivatehealthbenefitsto
all employees
ӱ Ensuring employees can report
inappropriate behaviour or
concerns through the
whistleblowing policy Having
appropriate family friendly policies
Diversity and inclusion
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.
Werecognisethebenefitsofdiversity
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
Rest of team
Total
Men
Women
5
4
9
1
3
4
48
Picton Property Income Limited Annual Report 2020 Charity and local communities
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.
What we have done this year
ӱ Made charitable donations of
£6,600
ӱ Developed a partnership with
Coram, a children’s charity
ӱ Increased the opportunities for
employees to volunteer their
time with Coram
What we will do next year
ӱ Increase our donations to
charitable causes, especially as
the Covid-19 situation continues
ӱ Build on our partnership with
Coram
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
tojointogethertosupportsocial
changeprojectsandhaveraisedover
£13millionforover2,000diverselocal,
nationalandinternationalprojects.
Our Responsibility Committee
encourages our employees to play a
positive role in community activities
and works with Coram, a charity
that supports vulnerable children,
to provide team volunteering
opportunities. This year employees
have volunteered at an adoption
day and helped at the annual
Coram Christmas carol concert.
One of the Picton team has agreed
to run the London marathon to
raise funds for Coram, which is now
due to take place in October.
As well as our occupier matched
giving policy, we also offer matched
giving for employees who are raising
money for charity.
49
PictonteamhelpingatjunglethemedCoramadoptionday
Training and development
We want to encourage our employees
to realise their full potential by giving
them access to development and
training opportunities.
This year the amount of training carried
out by employees has increased from
1.2% to 1.5%, on a time spent basis.
Employee development is based on
the following key principles:
ӱ Development should be
continuous; employees should
always be actively seeking to
improve performance
ӱ Regular investment of time in
learning is seen as an essential part
of working life
ӱ Development needs are met by
a mixofactivities,whichinclude
internal and external training
courses,structured‘onthejob’
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
objectivessetatthestartoftheyear.
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Being Responsible continued
Our occupiers
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.Weuseourexpertise
in asset management to provide
modernflexiblespacethatissafe,
cleanandenergyefficient.Webelieve
that it is important to engage with
our occupiers on sustainability. In
this way we can constantly strive to
reduce our environmental impact.
What we have done this year
ӱ Implemented sustainability
workshops at a number of
properties
ӱ Carried out an occupier survey
ӱ Included new occupier
amenities when carrying out
refurbishments, such as showers
and cycle racks
ӱ Continued with our policy of
occupier matched giving for
charitable donations. Eight
occupiers took advantage of this
policy over the year
What we will do next year
ӱ Work with our occupiers to
prepare our buildings for
re-occupation
ӱ Carry out more sustainability
workshops
ӱ Continue with providing
occupier amenities when
carrying out building
improvements
Responsibility Committee
We have a Responsibility Committee
in place which is chaired by Andrew
Dewhirst, and also comprises Tim
Hamlin, our Senior Asset Manager,
and Louisa McAleenan, our Research
Analyst. The Committee normally
meets monthly and its remit
covers all aspects of sustainability
and environmental initiatives, ESG
reporting, health and safety, employee
engagement and wellbeing, and
relevant regulatory issues. The
Committee also meets regularly
with CBRE, who are consultants
to the Group and carry out all
necessary ESG data collection.
Our suppliers
We have in place a framework
for conducting business across
the Group, in a way that makes
a positive contribution to society,
while minimising any negative
impact on people and the
environment. We expect high
standards within our business and
similarly from our suppliers.
Governance
The Board is responsible for the long-
term success of the business, and for
establishing its culture and values,
including leading on sustainability.
We have in place a framework of
corporate governance and report
against the 2018 UK Corporate
Governance Code. The Governance
section of this Report sets this out in
more detail. We will act in a fair and
responsible manner. This section sets
out how sustainability is included
within our business principles.
What we have done this year
ӱ Included responsible business
principles in our corporate
strategy
ӱ Carried out a materiality
assessment of relevant issues
ӱ Published our 2019 Modern
Slavery Statement
What we will do next year
ӱ Develop and further
communicate our supplier code
of conduct
ӱ Joinrelevantindustryleadership
schemes
50
Picton Property Income Limited Annual Report 2020 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 2020 Sustainability Report we
detail our GHG emissions for the last
six years, showing how our reporting
has evolved since 2014. For this
Report, we have revised our reporting
periodtofiscalyearreportingto
matchourfinancialreports.
Scope 1
Scope 1 emissions account for 1,137
tCO2e of our total emissions, which is
a decrease of 7% from previous year.
This is due to the implementation
ofenergyefficiencymeasures,an
increaseindataqualityandthe
disposal of sites in 2018 and 2019.
Excludingtheimpactofacquisitions
and disposals and void units, like-
for-like Scope 1 emissions have
decreasedby11%duetoproject
works at various sites which includes
building management system
upgrades, control optimisation
projectsandboilerreplacements.
Scope 2
Scope 2 emissions account for
2,295 tCO2e, which is a decrease of
approximately 13% from previous
year. 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 4% decrease in
like-for-like emissions. This is largely
thankstoenergyefficiencyprojects
at Atlas House, Marlow, 180 West
George Street, Glasgow and Metro,
Manchester, where various lighting,
and air conditioning related works
have been completed. We hope to
see further improvements in 2020/21
whentheprojectswillhavehadafull
reportingyeartorealisetheirbenefits.
Scope 3
Scope 3 emissions account for 3,628
tCO2e, which is a 32% decrease
from previous year due to Covid-19
impacting occupier data accessibility.
Due to the variance in occupier data
thatwereceiveitisdifficulttoread
too much into the large decrease
in Scope 3 emissions, with Scope
1 and 2 emissions remaining our
priority for improvement measures.
We hope to continue to gather
occupier data throughout this year
to ensure we have a more complete
data set for better comparison.
Methodology
We have reported on all the emission
sourcesrequiredunderthecore
requirementsofEPRA’s‘BestPractices
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),regardlessofthespecific
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
largefloorareastypicallyassociated
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.
Reporting against EPRA
sustainability best practice
Our overall energy, greenhouse gas,
water and waste usage by sector is
reported within our 2020
Sustainability Report.
The EPRA sustainability measures are
reported in the 2020 Sustainability
Report.
Emission source
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased
for own use
Business travel
Occupier data
Officepremises
Landlord water and treatment
Landlord waste
Total
2020
2019
2018
Absolute
GHG
emissions
(tCO2e)
GHG
intensity
(tCO2e/m2)
Absolute
GHG
emissions
(tCO2e)
GHG
intensity
(tCO2e/m2)
Absolute
GHG
emissions
(tCO2e)
GHG
intensity
(tCO2e/m2)
GHG
Scope
1
2
3
3
3
3
3
1,137
0.005
1,220
0.006
1,260
0.006
2,295
4
3,534
17
53
20
7,060
0.014
N/A
0.004
N/A
0.001
0.000
0.024
2,648
8
5,274
10
55
21
9,236
0.015
N/A
0.003
N/A
0.001
0.000
3,316
7
9,566
13
53
21
0.025
14,236
0.015
N/A
0.005
N/A
0.001
0.000
0.027
51
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Strategic Report
Section 172 Companies Act 2006 Statement
Section 172
As the Company is registered in Guernsey, the UK Companies Act
2006 has no legal effect. However, in accordance with the UK
Corporate Governance Code 2018 and as a matter of good
governance, the Directors, individually and collectively as the Board,
act as they consider most likely to promote the success of the
Company for the benefit of our shareholders as a whole. In doing so,
the Directors have regard for the likely long-term consequences of
decisions, maintaining a reputation for high standards of business
conduct, and the need to act fairly between stakeholders. This year,
to illustrate this, we have explained the Board’s decision-making
process in relation to Covid-19.
The Directors also have regard
for our employees’ interests,
business relationships with our
wider stakeholders, the impact of
our operations on communities
and the environment in which we
operate. Consideration of these
factors and other relevant matters is
embedded into all Board decision-
making, strategy development and
risk assessment throughout the
year. Our key stakeholders and the
primary ways in which the Board
engages directly or delegates
responsibility for engagement to
management is set out below.
Engagement with
stakeholders
Our shareholders
As owners of Picton we rely on the
support of our shareholders and their
views are important to us. The long-
term success of the business will
deliver value for shareholders. Senior
management hold regular meetings
with shareholders and feedback from
these meetings is reported back to
the Board. This feedback may be on
operationalmatters,financingstrategy
or dividend policy, as examples. The
Directors normally attend the Annual
General Meeting to meet with
shareholders and to answer any
questionstheymayhave.
Our occupiers
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
futurerequirements.TheBoard
has delegated responsibility for
engaging with occupiers to the
asset management team, who
have ongoing communication
with occupiers, and use this
information when making proposals
to the Board on investment
transactions, such as refurbishment
projectsorleasingevents.
Our people
Our people are key to our business
and we want them to succeed
both as individuals and as a team.
One of our Non-Executive Directors,
Maria Bentley, has responsibility for
employee engagement. During the
year we undertook an employee
survey. The results of this survey were
discussed at a forum attended by
Maria and the employees, without
the Executive Directors present.
The views of the employees on
a number of issues, including
theofficeaccommodationand
training, were reported directly
back to the rest of the Board.
Local communities and the
environment
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. The Board
has established a Responsibility
Committee, which is chaired by
one of the Executive Directors,
to deal with sustainability policy
and initiatives on its behalf. The
Board receives regular reports of
progress on sustainability matters.
Suppliers
We have in place a framework
for conducting business across
the Group in a way that makes a
positive contribution to society,
while minimising any negative
impact on people and the
environment. The Board has agreed
the overall business framework
and delegated its implementation
to the management team.
52
Picton Property Income Limited Annual Report 2020 Considering stakeholders in
key Board decision-making
The impact of Covid-19
Themostsignificantissuethatthe
Board has given due consideration to
in the past 12 months has been
around the impact of Covid-19 on the
business and our response to it. The
Board considered what would be in
the long-term interests of all of our
stakeholders in the business before
coming to a decision.
Restrictions due to Covid-19 were
introduced by the UK Government in
March 2020, with the lockdown
coming into effect from 23 March
2020. Many businesses were shut from
that time, particularly in the retail and
leisure sectors. The Government
introduced a number of measures
designed to help businesses and
individualswhowouldsufferfinancial
hardship as a result of the restrictions.
While the Government restrictions are
still in place it is uncertain the extent
to which there will be a loss of income
to the business for the foreseeable
future. The Board had to consider
therefore what mitigating actions
wouldberequiredtoprotectthe
long-term viability of the business.
The options and potential
consequencesforstakeholderswere
considered to be:
Suspension or reduction
of dividend
Increase in borrowings to
fund cash shortfall
Rent concessions
Other cost reduction measures
including employee costs
Reduction or delay of capital
expenditure programme
Actions
The Board recognised the value to shareholders of regular dividend payments. A
suspension of dividends, even on a temporary basis, would have an adverse impact
on investors.
The Board reviewed forecast cash scenarios and considered that the use of
borrowingswouldbeappropriateinlimitedcircumstancesbutthatanysignificant
increase in borrowings would potentially put pressure on lending covenants which
would not be in the long-term interests of the Company.
TheBoardrecognisedthatsomeoccupierswereexperiencingfinancialdifficulties
asaresultoftherestrictions,andconsequentlytheirabilitytomakerentpayments.
WestartedtoopendialogueswithoccupiersastheMarch2020rentquarterday
approached.Requestsfromoccupiersexperiencingfinancialdifficultieswere
considered on a case-by-case basis, with the aim of assisting occupiers while
minimisingtheimpacttobothPicton’scapitalvaluesandcashflow.Ourrent
collectionfortheMarchquarteriscurrently82%,althoughtheextenttowhich
uncollected rent is a deferral or a permanent loss of revenue was, and still is, unclear.
We have looked to reduce the service charge as much as possible in the short-term,
especiallyinrelationtotheofficeportfoliowhereweareseeingloweroccupancy
levelscurrently.Thisistoassistouroccupierswithcashflow,acknowledgingthe
current business climate. We continue to monitor the position to ensure the
services provided match reoccupation plans in place at each property.
The Board decided that it would not be in the interests of the business to furlough
employees or seek other Government assistance. Picton has a small and highly
motivated team who are aligned to the success of the business.
The capital expenditure programme was reviewed on a case-by-case basis.
Ongoingprojectswouldbecompleted,whilenon-essentialworkswouldbe
delayed.However,wherecapitalexpenditurewasrequiredtoeitherfacilitatefuture
lettings or protect the capital values of properties, the Board determined that these
projectsshouldgoaheadonanappropriatetimescale.
The Board has concluded it is
appropriate to reduce the level of
dividend during this period and until
market conditions become clearer.
This change provides the Company
withflexibilityinmanagingthe
property portfolio and the ability to
support our occupiers, with a view to
creating longer-term value for
shareholders, while maintaining
balance sheet strength. Borrowings
will be utilised to a limited extent to
fund essential capital expenditure.
53
Picton Property Income Limited Annual Report 2020GovernanceFinancial StatementsAdditional InformationStrategic ReportBusiness Overview Governance
Chairman’s Introduction
Introduction to the Corporate
Governance Report
Nicholas Thompson, Chairman
This has been the
Company’s first full year
as a UK REIT.
Dear Shareholder
I am pleased to introduce
our 2020 Corporate
Governance Report.
Board composition
In last year’s report I stated that I
intended to step down as Chairman
once a suitable successor had been
appointed, and that the search
process for that successor had
begun. To that end we appointed
NickWilestotheBoardon1January
this year, and it was my intention to
retire after the publication of these
annual results. Unfortunately, after
only a short time on the Board, Nick
has been appointed unexpectedly as
the Chief Executive of another listed
company and is unable to take on the
Picton Chairman role as well. Hence
he has resigned from the Board with
effect from 20 May 2020. I would
like to thank him for his contribution
during his tenure on the Board and
wish him well in his new role.
The Board has asked me to remain as
Chairman until a new appointment
has been made, and I was very
pleased to accept that.
We have therefore started the search
process again for a replacement,
and I hope we will be making an
announcement on this in due
course. Maria Bentley has again
agreed to become Chair of the
Nomination Committee to lead the
search for suitable candidates.
Succession
We have also commenced the search
process for a new Director to replace
Roger Lewis, who has now served on
the Board for ten years, and will step
down once his successor has been
appointed. We expect that the new
appointee will take over as Chair of the
Property Valuation Committee.
The selection process for a new
appointment is described in
more detail in the Nomination
Committee Report.
Governance
This year we are reporting against the
2018 Corporate Governance Code
forthefirsttime.TheCodecontains
updated Principles of good corporate
governance. The application of these
new Principles is described within
the following Corporate Governance
Report, and also within the various
Committee reports. We have set
out how we have engaged with
all of our stakeholders within the
new Section 172 Statement and
also within Acting Responsibly.
Our Compliance Statement is set out
within the Directors’ Report.
ThishasbeenthefirstfullyearasaUK
REIT, with management established in
the UK. We have maintained the same
structure of Board and management
committees, and I believe these are
working well, and provide an
appropriate framework for the
governance and decision-making
within the Company.
54
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Board evaluation
This year we carried out an internal
evaluation of the Board, based on
adetailedquestionnaireprepared
by the Company’s Administrator.
All of the Directors completed the
questionnaire,andtheanonymised
results were then discussed by the
Board at their next meeting.
As part of the evaluation this year we
considered the committee structure,
particularly the need for a separate
Property Valuation Committee, and
concluded that we would retain the
existing structure.
It was concluded that the Board was
working effectively, as were the Board
Committees.Anumberofspecific
actionswereidentified,andthese
have been addressed.
Nicholas Thompson
Chairman
22June2020
Our people and culture
We have further developed
our programme of employee
engagement this year. Previously
we had appointed Maria Bentley
as our Non-Executive Director
with responsibility for employee
engagement. This year we have
carried out an employee survey,
and this was followed up with a
discussion forum attended by Maria
and the team, but without the
Executive Directors. The issues raised
through the survey were covered
and as a result a number of actions
were agreed and implemented.
Our team is key to the success of the
business and underpins our occupier
focused approach. This year there
have been some changes made to the
team, including the appointment of a
new Head of Occupier Services. This
new role is focused on ensuring that
our occupiers receive excellent
property management, in line with
our Picton Promise.
The Responsibility Committee
has extended the Company’s
relationship with Coram, a charity
helping and supporting vulnerable
children and young people. Some
team members have volunteered
at Coram events, and we hope this
will be maintained despite these
currentdifficultcircumstances.This
relationship is in keeping with the
Company’s culture and values, where
we encourage employees to take part
in community and charitable activities.
The wellbeing of our team is
uppermost in these extraordinary
circumstances and the Board fully
supports the efforts being made to
maintain team activities and morale
while working remotely.
55
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Governance
Board of Directors
We have the relevant skills and
We have the relevant skills and
experience for future gro
experience for future growth
The Board is responsible for the long-term success of the business,
providing leadership and direction with due regard and
consideration to all stakeholders in the business.
Diversity of experience
83%
Real Estate
67%
Strategy and
Governance
67%
Corporate finance and
public companies
33%
Finance and
Accounting
Nicholas Thompson
Chairman
Key strengths and skills
– Chartered Surveyor with 44 years’
experience, 36 of which are in property
investment management
– Clearvisionandstronginfluencing
skills
Appointed
to the Board
September 2005
Responsibilities
Ensuring the Board is
effective in setting and
implementing the
Company’s direction
and strategy, including
reviewing and evaluating
the performance of the
Chief Executive.
Principal external commitments
– Director of the Lend Lease Retail
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.
Appointed
to the Board
October 2015
Responsibilities
Overall strategic direction
and execution of the Group’s
business model.
Michael Morris
Chief Executive
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
equitycapitalmarkets
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
– Member of the Investment Property
Forum
56
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Andrew Dewhirst
Finance Director
Key strengths and skills
– Chartered Accountant with extensive
experienceinfinancialplanningand
reporting
– In-depthknowledgeoffinancial
services, capital markets and real
estate funds
– Expertiseindebtandequityfinancing
Appointed
to the Board
October 2018
Responsibilities
Strategicfinancialplanning
and reporting for the Group.
Principal external commitments
None
Previous experience
and appointments
– Director of Client Accounting at ING
Real Estate Investment Management
– Director at Hermes Administration
Services
– Associate member of the Institute of
Chartered Accountants in England
and Wales
Appointed
to the Board
October 2018
Responsibilities
Leading on the
recommendation of
remuneration policies
and levels, for effective
succession planning and
employee engagement.
Maria Bentley
Chair of Remuneration
Committee,
Chair of Nomination Committee
Key strengths and skills
– Business head leading change across
global teams
– Expertise in human resources
– Extensiveexperienceinfinancial
services
Principal external commitments
– Non-Executive Director of BlueBay
Asset Management LLP and Chair of
Remuneration Committee
Previous experience
and appointments
– Senior Managing Director & Global
Head of HR, Wholesale & Head of HR
EMEA at Nomura International plc
– Group Managing Director & Global
Head of HR, UBS Investment Bank
– Managing Director, Global Head of HR
forEquitiesandFixedIncome,
Goldman Sachs International
Mark Batten
Chair of Audit and Risk
Committee, Senior Independent
Director
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
BromptonandHarefieldFoundation
Trust
– Senior adviser to UK Government
Investments
Previous experience
and appointments
– Partner, PricewaterhouseCoopers LLP
(restructuring and corporate valuation
practices)
– Non-Executive Director, L&F Indemnity
Roger Lewis
Chair of the Property
Valuation Committee
Key strengths and skills
– Over 40 years’ experience in residential
and commercial property
– Public Company experience
– Corporatefinanceexperience
Principal external commitments
None
Previous experience
and appointments
– Chairman and Director, Berkeley
Group Holdings PLC
– GroupChiefExecutiveOfficer,Crest
Nicholson Group PLC
Appointed
to the Board
October 2017
Responsibilities
Financial reporting and
accounting policies, audit
strategy and the evaluation
of internal controls and risk
management systems.
Appointed
to the Board
March 2010
Responsibilities
Overseeing the review of
thequarterlyvaluation
process and making
recommendations to the
Board as appropriate.
57
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview
Governance
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.
01 Andrew Dewhirst
Finance Director
03 Michael Morris
Chief Executive
Responsibleforthefinancialstrategyand
reporting for the Group, Andrew has over 30
years’experiencewithinfinancialservicesand
real estate sectors.
Michael has over 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.
02 James Forman
Financial Controller
04 Mark Alder
Head of Occupier Services
JameshasworkedwiththeGroupsinceits
launch in 2005 and has 20 years’ experience in
the real estate sector. He is responsible for all
theaccountingandfinancialreportingforthe
Group and is a member of the Transaction and
Finance Committee.
Mark is a Chartered Surveyor with over 35 years
of property management experience. He is
responsible for delivering effective property
management and strengthening our
relationship with our occupiers.
01
02
03
04
58
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
05 Lucy Stearman
Assistant Accountant
07 Melissa Ricardo
OfficeManager
09 Louisa McAleenan
Research Analyst
Lucy has over eight years’ experience within
financialservicesandjoinedtheGroupin
April 2019 to assist with the accounting and
financialreporting.
Melissajoinedin2017andisresponsibleforthe
day-to-daymanagementoftheofficeand
oversees administrative aspects of the Company.
06 Jay Cable
Head of Asset Management
A Chartered Surveyor with over 19 years of real
estateexperience,Jayhasworkedwiththe
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.
08 Tim Hamlin
Senior Asset Manager
Tim is a Chartered Surveyor with 12 years of real
estate experience and is responsible for creating
and implementing asset level business plans in
line with the portfolio’s strategic direction. He is a
member of the Responsibility Committee.
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.
05
06
07
08
09
59
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Governance
Corporate Governance Report
Leadership structure
The Board
Chairman: Nicholas Thompson
Comprises: 2 Executive Directors and 4 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
– Promotes wider stakeholder relationships
Board Committees
Audit and Risk
Chair:
Mark Batten
Remuneration
Chair:
Maria Bentley
Property Valuation
Chair:
Roger Lewis
Nomination
Chair:
Maria Bentley
Comprises:
3 Non-Executive Directors
Comprises:
4 Non-Executive Directors
Comprises:
4 Non-Executive Directors
Comprises:
4 Non-Executive Directors
Responsibilities:
– Overseesfinancial
reporting
Responsibilities:
– Determines remuneration
policy
– Monitors risk management
– Reviews system of internal
controls
– Sets remuneration of
Executive Directors
– Reviews remuneration of
– Evaluates external auditor
whole workforce
– Approves bonus and LTIP
awards
Responsibilities:
– Oversees the independent
valuation process
– Recommends the
appointment and
remuneration of the valuer
– Ensures compliance with
applicable standards
Responsibilities:
– Recommends Board
appointments
– Considers succession
planning
– Board evaluation
– Board composition and
diversity
Management Committees
Executive Committee
Chair: Michael Morris
Comprises: 2 Executive Directors and 1 senior executive
Implementation of strategy
Responsibilities:
–
– Manages operations
– Day-to-day management of the business
– Employee remuneration and development
Transaction and Finance
Chair: Michael Morris
Comprises: 2 Executive Directors and 2 team members
Responsibility
Chair: Andrew Dewhirst
Comprises: 1 Executive Director and 2 team members
Responsibilities:
– Reviews and recommends portfolio transactions
– Monitors portfolio costs
– Reviews compliance with lending covenants
Responsibilities:
– Determines sustainability policy and strategy
– Monitors compliance with relevant standards and legislation
– Approves ESG reporting
– Employee wellbeing
60
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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
– Build 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
Senior Independent Director
Mark Batten
– Leads the evaluation of the Chairman
– Available for communication with shareholders when other channels are not
appropriate
– BringindependentjudgementandscrutinytothedecisionsoftheBoard
– Bring a range of skills and experience to the deliberations of the Board
– Monitor business progress against agreed strategy
– Reviewtheriskmanagementframeworkandtheintegrityoffinancialinformation
– Determine the remuneration policy for the Group and approve performance
targets in line with strategy
– Supports the Chief Executive in the formulation of strategy
– ManagesthefinancialoperationsoftheGroup
– DevelopsandmaintainsthesystemoffinancialcontrolswithintheGroup
– Recommends the risk management framework to the Board
Non-Executive Directors
Roger Lewis
Mark Batten
Maria Bentley
Executive Director
Andrew Dewhirst
Composition of Board
Role
Diversity
Tenure
Number
%
Number
%
Number
%
Non-Executive
Chairman
Executive
Directors
Independent
Non-Executive
Directors
1
2
17%
33%
3
50%
Male
Female
5
1
83%
17%
0 to 3 years
3 to 6 years
Over 9 years
3
1
2
50%
17%
33%
61
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Governance
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.Thisincludesallacquisitionsandsignificant
disposals,significantleasingtransactions,dividendpolicy,
gearingandmajorexpenditure.
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 to 57.
Board meetings
The Board has a regular schedule of meetings. The Board
hastwomeetingseachquarter;thefirstofwhichfocuses
on operational matters, and the second covers strategic
issues and longer-term planning. External advisers are
invitedtoattendBoardmeetingson a regularbasis.
Board changes
On1January2020NicholasWileswasappointedtothe
Board as a Non-Executive Director and resigned on 20 May
2020. Nicholas Thompson will remain on the Board as
Chairman until a successor has been appointed.
Roger Lewis, having served on the Board since 2010,
intends to step down from the Board this year, once a
suitable successor has been appointed.
Composition
The Board currently 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.
As at 31 March 2020 the Board comprised 50%
independent Non-Executive Directors.
Board Committees
The Board has established four Committees: Audit and Risk, Remuneration, Property Valuation and Nomination. These
arecomprisedentirelyofNon-ExecutiveDirectorsandoperatewithindefinedtermsofreference.Thetermsofreference
are available on the Company’s website.
Attendance at Board and Committee meetings
Nicholas Thompson
Michael Morris
Andrew Dewhirst
Mark Batten
Maria Bentley
Roger Lewis
Nicholas Wiles
Total number of meetings
Date appointed
Board
and Risk Remuneration
Audit
Property
Valuation Nomination
15.09.2005
01.10.2015
01.10.2018
01.10.2017
01.10.2018
31.03.2010
01.01.2020
8/9
8/9
9/9
9/9
8/9
9/9
2/2
9
–
–
–
4/4
4/4
4/4
1/1
4
7/7
–
–
6/7
7/7
7/7
1/1
7
4/4
–
–
4/4
4/4
4/4
1/1
4
5/5
–
–
5/5
5/5
4/5
2/2
5
The above meetings were the scheduled Board and Committee meetings. Additional meetings were held to deal with
othermattersasrequiredandarenotincludedabove.
62
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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
theBoard.Theirroleistobringindependentjudgement
and scrutiny to the recommendations of the Executive.
Each of the Non-Executive Directors are considered to be
independentincharacterandjudgement.
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
failuretoachievebusinessobjectivesandcanonlyprovide
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
throughoutthefullfinancialyear,anduptothedateofthe
approvalofthefinancialstatements,andtheBoardis
satisfiedwiththeireffectiveness.
This process involves a review by the Board of the control
environment within the Group’s service providers to ensure
thattheGroup’srequirementsaremet.
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
theexternalauditorinconjunctionwiththeauditofthe
Group’saccountswillprovidetheBoardwithsufficient
assurance regarding the internal control systems in place.
These systems are designed to ensure effective and
efficientoperations,internalcontrolandcompliancewith
laws and regulations. In establishing the systems of internal
control, regard is paid to the materiality of relevant risks, the
likelihood of costs being incurred and costs of control. It
follows, therefore, that the systems of internal control can
only provide reasonable, but not absolute, assurance
against the risk of material misstatement or loss.
The effectiveness of the internal control systems is reviewed
annually by the Board and the Audit and Risk Committee.
The Audit and Risk Committee has a discussion annually
with the auditor to ensure that there are no issues of
concerninrelationtotheauditopiniononthefinancial
statements and, if necessary, representatives of senior
management would be excluded from that discussion.
Shareholder engagement
InconjunctionwiththeBoard,theAdministratorkeeps
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
questionsanddiscussmatterswiththeDirectorsand
senior management. Investors are able to direct any
questionsfortheBoardviatheSecretary.
The Chairman regularly attends analyst meetings and is
availabletomeetinvestorsifrequested.Theoutcomeof
these meetings is communicated to the rest of the Board.
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 internal review was carried
outbytheDirectors,basedonaquestionnaireprepared
by the Company’s Administrator. The anonymised results
of the evaluation were debated by the Board at the
next scheduled meeting. The main conclusions of the
evaluation were as follows:
ӱ The Property Valuation Committee should continue in
its present form
ӱ The search for a new Non-Executive Director is a focus
for the Nomination Committee
ӱ Board meetings should continue to take place twice a
quarter
ӱ Asset visits would be arranged for the Board over the
next year
ӱ The Board should periodically review key assets in
depth
ӱ Sustainabilityobjectiveswouldbeincludedinstrategic
priorities
ӱ There would be a mid-year review by the Board of
progress against strategic priorities
Conflicts of interest
DirectorsarerequiredtonotifytheCompanyofany
potentialconflictsofinterestthattheymayhave.Any
conflictsarerecordedandreviewedbytheBoardateach
meeting.Noconflictshavebeenrecordedduringtheyear.
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 reach their potential. Last year we
appointed Maria Bentley as the designated Non-Executive
Director with responsibility for employee engagement.
During the year we have carried out an employee survey,
covering all of the Picton team with the exception of the
Directors. The results of the survey were then discussed
at an informal meeting attended by Maria and the
employees. The feedback from the team was positive.
63
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Governance
Nomination Committee Report
Nomination Committee
Terms of reference
The Committee’s terms of reference
include consideration of the
following issues:
ӱ Review and make
recommendations regarding the
sizeandcompositionofthe
Board;
ӱ Consider and make
recommendations regarding
succession planning for the Board
and senior management;
ӱ Identify and nominate candidates
tofillBoardvacanciesasthey
arise;
The members of the Nomination
Committee are Nicholas Thompson,
Roger Lewis, Mark Batten and
Maria Bentley.
Maria Bentley was Chair of the
Committee during the year until
31January2020,whilethesearch
for a new Chairman took place.
Subsequently,NicholasThompson
was reappointed as Chair of the
Committee. As the search for a
new Chairman has re-commenced,
Maria Bentley has again taken
over as Chair of the Committee,
with effect from 20 May 2020.
The role of the Committee is to
considerthesize,structureand
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
thatwillberelevanttothespecificrole
and that will complement the existing
Board members.
ӱ Review the results of the Board
evaluation relating to
composition;
ӱ Reviewthetimerequirementsfor
Directors; and
ӱ Recommend the membership of
Board Committees.
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The Committee ensures that the
appointment process is formal,
rigorous and transparent.
Activity
TheCommitteemetfivetimesduring
the year ended 31 March 2020 and
considered the following matters:
ӱ The selection process for the
appointment of a new Director to
replace Nicholas Thompson;
ӱ The appointment of external
consultants to compile a list of
candidates;
ӱ The formation of a working group
of the Committee to manage the
recruitment process and work with
the consultants;
ӱ Considerationofthefinalshortlist
ofcandidatesandafinal
recommendation;
ӱ Future composition of the Board;
and
ӱ Succession planning.
The Nomination Committee
is chaired by Maria Bentley
The Committee ensures
that the appointment
process is formal, rigorous
and transparent.
64
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Appointment of
new Chairman
During the year the Committee
focused on the selection and
appointment of a successor to
Nicholas Thompson, who stated his
intention to retire from the Board in
the previous Report. Independent
executive search consultants Heidrick
JCAGroupwereprovidedwitha
detailed description of the role and
thecapabilitiesrequiredforit.The
consultants prepared a list of potential
candidates, which was assessed by
the Committee for suitability to the
role. The shortlist of candidates were
interviewed initially by the Chair of
theCommitteeandsubsequently
by two other Directors. The whole
Committee then considered the
feedback from this process before
recommending to the Board that
Nicholas Wiles be appointed.
Board composition
and succession
At the date of this Report, the Board
comprises the Chairman, two
Executive Directors and three further
independent Non-Executive Directors.
The Committee has commenced the
search for a replacement for Roger
Lewis, who has now served on the
Board since 2010. Roger has brought
extensive property experience to the
Board, and has served as Chair of the
Property Valuation Committee. The
search is focused on identifying
someone with suitable experience to
take over this role.
As noted above, the Committee has
also re-commenced the search for a
new Chair of the Company, following
Nick Wiles’ recent departure.
Tenure and re-election
The Board considers that the length
of time each Director, including the
Chairman, serves on the Board should
not be limited and therefore has not
setafinitetenurepolicy.
The provisions of the 2018 Corporate
Governance Code recommend
thatallDirectorsbesubjectto
annual re-election at the Annual
General Meeting. The Board will
follow this recommendation at this
year’s Annual General Meeting.
Diversity policy
The Company is committed to
treatingallemployeesequally
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 Nicholas
Wiles was led by the Chairman and
supported by the other Directors. The
process commenced shortly after
theappointmentwasconfirmed,
and comprised a number of one-
to-one meetings with the other
Non-Executive Directors, the Chief
Executive and the Finance Director.
Additionally, reading and reference
material was provided that was
specifictotheGroupanditsbusiness.
Maria Bentley
Chair of the Nomination Committee
22June2020
65
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Audit and Risk Committee Report
Audit and Risk Committee
Terms of reference
The Committee’s terms of reference
include consideration of the
following issues:
ӱ Financial reporting, including
significantaccounting
judgementsandaccounting
policies;
ӱ Adoption of the Group’s Risk
Management Policy;
ӱ Monitoring and evaluating the
risks relating to the Group;
ӱ Evaluation of the Group’s risk
profileandriskappetite,and
whether these are aligned with its
business model and strategy;
ӱ Internal controls and risk
management systems;
ӱ Ensuring that key risks are
identifiedandeffectively
measured, managed, mitigated
and reported;
ӱ The Group’s relationship with the
external auditor, including
effectiveness and independence;
ӱ Internal audit arrangement;
ӱ The programme of controls
testing; and
ӱ Reporting responsibilities.
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The Audit and Risk Committee is
chaired by Mark Batten. The other
members of the Committee are Roger
Lewis and Maria Bentley. Meetings of
the Audit and Risk Committee are
attended by the Group’s Finance
Director, other members of the
financeteamandtheexternalauditor,
KPMG Channel Islands Limited. The
external auditor is given the
opportunity to discuss matters
without management present.
Activity
The Audit and Risk Committee met
four times during the year ended
31 March 2020 and considered the
following matters:
ӱ External audit strategy and plan;
ӱ Audit tender process;
ӱ Audit and accounting issues of
significance;
ӱ The Annual and Interim Reports of
the Group;
ӱ Reports from the external auditor;
ӱ The effectiveness of the audit
process and the independence of
KPMG Channel Islands Limited;
ӱ Review of the Risk Matrix and
mitigating controls;
ӱ Review of controls testing
undertaken; and
ӱ Stock Exchange announcements.
The Audit and Risk Committee
is chaired by Mark Batten
66
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Financial reporting and
significant reporting matters
TheCommitteeconsidersallfinancial
information published in the annual
andhalf-yearfinancialstatementsand
considers accounting policies adopted
by the Group, presentation and
disclosureofthefinancialinformation
andthekeyjudgementsmadeby
management in preparing the
financialstatements.
The Directors are responsible for
preparing the Annual Report.
AttherequestoftheBoard,the
Committee considered whether
the 2020 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.
Thekeyareaofjudgementthat
the Committee considered in
reviewingthefinancialstatements
was the valuation of the Group’s
investment properties.
The valuation is conducted on a
quarterlybasisbyindependent
valuers,andissubjecttooversightby
the Property Valuation Committee.
It is a key component of the annual
andhalf-yearfinancialstatements
andisinherentlysubjective,requiring
significantjudgement.Membersof
the Property Valuation Committee,
together with Picton employees,
meet with the independent valuer
onaquarterlybasistoreview
the valuations and underlying
assumptions, including the
year-end valuation process. The
Chairman of the Property Valuation
Committee reported to the Audit
and Risk Committee at its meeting
inJune2020andconfirmed
that the following matters had
been considered in discussions
with the independent valuers:
ӱ Property market conditions;
ӱ Yields on properties within the
portfolio;
ӱ Letting activity and vacant
properties;
ӱ Covenant strength and lease
lengths;
ӱ Estimated rental values; and
ӱ 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
topreviousquarters.TheCommittee
noted that the independent valuer
had included a ‘material valuation
uncertainty’ statement in their
report as at the valuation date due
to the current unprecedented
circumstances and that less certainty
can be attached to the valuation as
a result. The Committee considered
the valuation and agreed that this
wasappropriateforthefinancial
statements. The Committee was
satisfiedthatthe2020AnnualReport
is fair, balanced and understandable
and included the necessary
information as set out above, and
ithasconfirmedthistotheBoard.
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 ensure risks are accepted in
accordance with the Group’s risk
appetite and further to ensure the
effective management of all risks
throughproactiveidentification,
measurement, management and
reporting of risk pertaining to all
activities undertaken by the Group.
The Risk Management Policy is
intended to:
ӱ Ensurethatmajorrisksare
reported to the Board for review
and acceptance;
ӱ Result in the management of
thoserisksthatmaysignificantly
affect the pursuit of the stated
strategicgoalsandobjectives;
ӱ Embed a culture of evaluation and
identify risks at multiple levels
within the Group; and
ӱ Meet legal and regulatory
requirements.
Internal controls
The Board is responsible for the
Group’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
hasbeenpreparedthatidentifies
the Company’s key functions and
the individual activities undertaken
within those functions. From this, the
BoardhasidentifiedtheCompany’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 for the reasons set
out below, in order to provide the
Board with independent assurance
that the controls are operating as
intended and that they 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
2019, 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
auditorinconjunctionwiththeaudit
of the Group’s accounts will provide
theBoardwithsufficientindependent
assurance regarding the internal
control systems in place.
67
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Audit and Risk Committee Report continued
Audit tender
As stated in last year’s Annual Report,
during the year the Committee
carried out a tender process for the
external audit as KPMG Channel
Islands Limited had been in place
as the Group’s auditor for ten years.
A tender was not mandatory, but
was considered best practice at this
time. The Committee determined
that any new appointment would
be in respect of the audit for the year
ended 31 March 2021, with a suitable
handover period following completion
of the audit for 31 March 2020.
The tender process was as follows:
ӱ Aninitiallistoffivefirmswas
invited to take place in the tender,
includingtheincumbentfirmand
twonon-BigFourfirms.Ofthese,
onefirmdeclinedtotakepart;
ӱ ARequestforProposalwassentto
thefourparticipatingfirms.This
contained key information about
the Group, the timetable for the
process and contact details;
ӱ Eachparticipatingfirmhad
meetings and/or calls with the
Chair of the Committee and the
Finance Director to answer any
specificquestionsabouttheGroup
and the audit;
ӱ The Committee considered the
four proposals received and
decided to invite all four
participatingfirmstomakea
presentation to the Committee;
ӱ The most recent FRC Audit Quality
Review reports for each of the
participatingfirmswerereviewed
by the Committee;
ӱ Following the presentations the
Committee Chair spoke to
independent referees for two of
theparticipatingfirmsandfed
back to the rest of the Committee;
ӱ The Committee had a further
meeting, at which it agreed to put
forwardtotheBoardtwofirms,
with a recommendation that
KPMG Channel Islands Limited be
reappointed as external auditor.
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
that their independence may be
conflicted.TheCommitteemonitors
the level of fees incurred for non-audit
services to ensure that this is not
material,andobtainsconfirmation,
where appropriate, that personnel
involved in any non-audit services
provided to the Group are not involved
in the Group’s audit. 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
auditoranditsmemberfirmsare
as follows:
Audit fees
Interim review
fees
Non-audit fees
2020
£000
159
16
16
191
2019
£000
115
15
27
157
Thenon-auditfeesinclude£16,000for
additional controls testing carried out
by KPMG Channel Islands Limited.
Annual auditor assessment
On an annual basis, the Committee
assessesthequalifications,expertise
and independence of the Group’s
external auditor, as well as the
effectiveness of the audit process.
It does this through discussion and
enquirywithseniormanagement,
review of a detailed assessment
questionnaireandconfirmation
from the external auditor. The
Committee also considers the
external audit plan, which sets out
the auditor’s assessment of the
key audit risk areas, and reporting
received from the external auditor
in respect of both the half-year and
year-end reports and accounts.
As part of the review of auditor
independence and effectiveness,
KPMG Channel Islands Limited has
confirmedthat:
ӱ They have internal procedures in
place to identify any aspects of
non-audit work which could
compromise their role as auditor
andtoensuretheobjectivityofthe
audit report;
ӱ The total fees paid by the Group
during the year do not represent a
material part of their total fee
income; and
ӱ They consider that they have
maintained their independence
throughout the year.
In evaluating KPMG Channel
Islands Limited, the Committee
completed its assessment of the
externalauditorforthefinancial
periodunderreview.Ithassatisfied
itselfastotheirqualificationsand
expertiseandremainsconfidentthat
theirobjectivityandindependence
are not in any way impaired by
reason of the non-audit services
which they provide to the Group.
KPMG Channel Islands Limited have
been auditor to the Group since the
year ended 31 December 2009
followingatenderprocessinJuly
2009. The current audit engagement
partner, Deborah Smith, has served
three years as audit partner.
The Committee recommends that
KPMG Channel Islands Limited are
recommended for reappointment at
the next Annual General Meeting.
Mark Batten
Chair of the Audit and Risk Committee
22June2020
68
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Governance
Remuneration Report
Remuneration Committee
The Remuneration Committee
is chaired by Maria Bentley
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:
ӱ Review the ongoing
appropriateness and relevance of
the Directors’ Remuneration
Policy;
ӱ Determine the remuneration of
the Chairman, Executive Directors
and such members of the
executive management as it is
designated to consider;
The Remuneration Committee is
chaired by Maria Bentley. The other
members of the Committee are
Nicholas Thompson, Mark Batten
and Roger Lewis.
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
£34,800(calculatedonatimespent
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
adviceandissatisfiedthatitdoesnot
compromise the independence of the
advice that it has received.
Other attendees at Committee
meetings during the year were
Michael Morris and Andrew Dewhirst.
Neither participated in discussions
relating to their own remuneration.
ӱ Review the design of all share
incentive plans for approval by
the Board; and
ӱ Appoint and set the terms of
reference for any remuneration
consultants.
Visit our website
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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 2020.
This report comprises three sections:
ӱ This annual statement;
ӱ Summary of the Directors’
Remuneration Policy; and
ӱ The Annual Report on
Remuneration for the year ended
31 March 2020.
The Committee met seven times
during the year and set out below is a
summary of its activity.
Our current Remuneration Policy was
approved by shareholders in 2018, so
this is the second year of application.
TheCommitteeissatisfiedthatthe
Policy has operated as intended so
there are no changes to the Policy
being proposed this year.
69
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
Covid-19 impact
This year’s remuneration review
takes place against the backdrop
of the Covid-19 pandemic, which
is causing unprecedented levels of
uncertainty and volatility in the UK
economy. Many businesses are facing
financialhardshipfromasevere
drop in earnings, giving rise to cost
cutting measures and even closure
in some cases. We are working with
ouroccupiersthroughthisdifficult
periodtofindworkablesolutionsthat
help them but also maintain value
for all our stakeholders. We have also
takenthedifficultdecisiontoreduce
our dividend and our share price is
now at a substantial discount to the
net asset value, although this is in
common with many other property
companies. It is in this context that
the Committee has considered this
year’s salary review, bonus and LTIP
awards. Picton has a small team and
is unusual in having a high degree
of alignment for all employees,
notjusttheExecutiveDirectors.
We have recognised previously,
when our current Remuneration
Policy was set, that the base salaries
of our Executive Directors are low
relative to the market, and that a
greater emphasis would be placed
on the performance related variable
elements of remuneration. Although
we have concluded that there will
be no increase in base salary for
the Executive Directors, we have
decided that the formulaic outcome
for both the annual bonus and
LTIPawardsareafairreflectionof
the Group’s performance for the
respective performance periods
andthatnofurtheradjustmentis
required.Inparticularwetookinto
accounttheupperquartilerelative
performance achieved for the total
return, total property return and
total shareholder return metrics. For
the forthcoming LTIP awards we
recognise that the current share price
discount to net asset value potentially
could lead to an unusually high
share award and windfall gains on
vesting. As a result, we have scaled
back the LTIP awards by 30% this
year. Taken together, we believe this
is an appropriately balanced set
of decisions by the Committee.
As in prior years, a proportion of
2020/21 annual bonus and LTIP awards
will be based on EPS targets. In these
highly unusual circumstances we have
decided to delay setting these targets
until later in the year when the
economic outlook will hopefully be
more certain to enable us to set
appropriate target ranges.
Group performance
and alignment
We have set out on pages 24 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
2019/20 and 2020/21 the KPIs that we
are using to determine variable
remuneration are:
ӱ Total return
ӱ Total property return
ӱ Total shareholder return
ӱ 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 2019/20
The Executive Directors were set a
number of challenging targets for this
year, comprising a combination of
financialmeasuresandcorporateand
personalobjectives.
Thethreefinancialmeasureswere
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 67% of the
maximum award available under
thesefinancialmeasures.
Thecorporateandpersonalobjectives
weresettoensurethatspecifickey
strategic targets were reached. The
mainobjectiverelatedtoleading
the business and making progress
against its strategic priorities. Other
corporateobjectivessetwere
targets for dividend cover and loan
to value ratio. This year there were
personalobjectivessetindividually
for the Executive Directors, relating
to occupancy, IT, sustainability
and borrowings. The Committee
considered that the Executive
Directorshadmadesignificant
progress in many areas. More detail is
provided later in this Remuneration
Report, but overall the Committee
70
considered that outcomes of 74%
and 83% of the maximum award
for the two Executive Directors
was merited against the corporate
andpersonalobjectives.
In aggregate, annual bonus awards for
the two Executive Directors are 70%
and 73% of the maximum award
(2018/19 – 79% of maximum).
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:
ӱ The return from the property
portfoliowasupperquartile
compared to the MSCI UK
Quarterly Property Index for the
year, and our long-term record of
outperformance has been
maintainedoverthree,fiveandten
years;
ӱ TheGroup’sprofitfortheyearwas
£23million,givingatotalreturnof
4.5%. Although this is lower than
the previous year, it was achieved
underdifficultmarketconditions
and when many other companies
havereportedsignificantlosses.
Compared to the peer group, our
returnwasagainupperquartile;
ӱ EPRA earnings for the year were
lower, but largely due to the active
managementprojectstakingplace
at a number of properties;
ӱ The loan to value ratio has fallen
following the repayment of
borrowings.
The Committee concluded that it was
satisfiedtheformulaicbonusoutcome
wasafairreflectionofoverallGroup
performance during the past
financialyear.
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Long-term Incentive Plan
awards (performance period
to 31 March 2020)
The awards made under the Long-term
IncentivePlan(LTIP)inJune2017were
based on three performance conditions
measured over the three-year period
ending on 31 March 2020. 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.
Thethreeequallyweighted
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 Report on Remuneration,
and give rise to an overall award of
67% of the maximum granted. The
Committee agreed that the formulaic
outcomewasafairreflection
of overall Group performance
over the performance period.
Salary review for 2020/21
In considering the salary review for
2020/21, the Committee took into
account a number of factors. They
received an independent
benchmarking report covering each of
the roles within the Picton team and
considered publicly available 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 2.6%
in base salaries with effect from 1 April
2020. However, the Committee agreed
that there would be no salary increases
this year for the Executive Directors.
Corporate Governance Code
2018
This year we are reporting against the
provisions of the 2018 Code for the
firsttime.
We have reviewed the provisions of the
2018 Code in respect of remuneration
and believe that our approach is
compliant. In particular, we operate a
consistent level of pension provision
across our workforce; LTIP awards are
onlyreleasedfiveyearsafteraward;and
malus and clawback provisions apply to
all incentive awards. We have provisions
in the rules of our remuneration share
plans that prevent, other than in
exceptional circumstances, accelerated
vesting of awards when an employee
leaves Picton. However, in light of
evolving market practice, we will
consider the introduction of a more
formal post-employment shareholding
guideline when the Remuneration
Policy is reviewed next year.
The remuneration arrangements
provide alignment with shareholders
throughtheuseoffinancialmetrics
andcorporateobjectives.Allmembers
of the team participate in the annual
bonusandLTIP,notjusttheExecutive
Directors. The Remuneration Policy
and its components are clearly set
out in this Report and the rules of the
variable remuneration schemes are
available to the whole team. We use
standard performance metrics, which
are also Key Performance Indicators
for the business, to determine
awards. There are clear target and
maximum levels for each condition.
The Committee believes that the
variable remuneration schemes in
place are fair and proportionate, and
align the remuneration of the team
with the Group’s performance. We are
alsosatisfiedthattheremuneration
structure does not encourage
inappropriate risk-taking. The
Committee does retain discretion over
formulaic outcomes if it considers that
thesearenotafairreflectionofthe
Group’s performance.
Implementation of policy
Our remuneration structure will remain
unchanged for the year to 31 March
2021 although this year we have
reduced the LTIP awards for the
ExecutiveDirectorsby30%toreflect
the lower share price and discount to
net asset value, and to avoid any
windfall gains arising on vesting.
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.
Wehavesetshort-termobjectivesfor
the business while we navigate through
the current Covid-19 pandemic. We will
review and update these as appropriate
at the mid-year stage to form the
corporate targets for the Executive
Directors. At this stage we will also
confirmthepersonaltargetsforthe
Executive Directors and the LTIP
performance targets.
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
22June2020
71
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
Remuneration at a glance
Total remuneration for 2019/20
Fixed Pay
Base
salary
Pension
contributions
Benefits
Read more on pages
77–83
Variable pay
The annual bonus for
2019/20 is determined by:
orate o bje c ti v
s
e
5%
7.5%
20%
7.5%
p
r
o
c
d
n
a
20%
F
i
n
a
n
c
i
a
l
c
o
n
ditions
Annual
bonus
Up to 50% of the
annual bonus is
deferre d into shares
which will vest in
two years’ time.
20%
l
a
n
o
s
r
e
P
20%
Personal and
corporate objectives
Progress against
strategic priorities
Corporate objectives
Personal objectives
Enhance stakeholder
reputation
Financial conditions
Total return
Total property return
Growth in EPRA
earnings per share
The LTIP is based on three financial
metrics, each measured over three years:
Total shareholder
return
Total property return
Growth in EPRA
earnings per share
33%
33%
33%
Long-term
incentive plan
(LTIP)
72
Picton Property Income Limited Annual Report 2020
Annual Report and Accounts 2018
The single figure of remuneration for
the Directors for the year 2019/20 (in £ thousands) is:
2
9
0
Chief Executive
Finance Director
Non-Executive Directors
229
250
290
135
824
x
x
x
x
2
38
305
534
Key:
551
353
218
170
198
x
x
x
x
2
26
198
250
x
x
x
x
Salary
Benefits
Pension
Annual bonus
Long-term incentive plan
Total fixed
Total variable
The potential remuneration of the Executive
Directors for the year to 31 March 2021 is:
The following charts show the composition
of the Executive Directors’ remuneration at
three performance levels:
Chief Executive
Finance Director
– Fixed pay – this comprises base salary from 1 April
2020,benefitsandpensionsalarysupplementof
15% of base salary
Chief Executive (£)
100%
100%
£290K
£290K
Finance Director (£)
100%
100%
£198K
£198K
£198K
£380K
£380K
£394K
– On target –thisisfixedpayplustargetvestingfor
the annual bonus (at 50% of maximum opportunity
for illustrative purposes) and threshold vesting for
the LTIP (at 25% of maximum award)
– Maximum –fixedpayplusmaximumvestingfor
both the annual bonus (175% of base salary) and
the LTIP (87.5% (Chief Executive) and 77% (Finance
Director) of base salary
– Maximum with share price growth – maximum
scenario incorporating assumption of 50% share
price growth during LTIP vesting period
100%
51%
51%
39%
39%
10%
10%
£290K
£564K
£564K
100%
52%
52%
39%
39%
9%
9%
50%
37%
13%
31%
31%
46%
46%
23%
23%
£587K
£947K
£947K
50%
37%
13%
32%
32%
47%
47%
21%
21%
£627K
£627K
28%
42%
30%
£1,040K
29%
43%
28%
£683K
27%
27%
24%
42%
42%
37%
21%
21%
26%
10% £1,056K
10% £1,056K
13% £1,196K
29%
29%
25%
43%
43%
37%
19% 9% £692K
19% 9% £692K
13% £777K
25%
Other than where stated, the charts do not incorporate
sharepricegrowthordividendequivalentawards.
Key:
Key:
Key:
Total fixed
Total fixed
Total fixed
Annual Bonus
Annual Bonus
Annual bonus
LTIP
LTIP
LTIP
Share growth
Share growth
Share growth
Remuneration in context
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 2019 and 31 March 2020 compared to
the average remuneration of all other employees of
the Group.
Relative importance of spend on pay
The table below shows the expenditure and percentage
change on employee costs compared to other key
financialindicators.
Chief Executive
Average of all employees
Change from previous year
Base
salary
4.2%
7.2%
Benefits
4.4%
6.9%
Annual
bonus
-8.7%
6.9%
Employee costs
Dividends
EPRA earnings
31 March
2020
£000
3,273
19,039
19,912
31 March
2019
£000
3,672
18,860
22,912
%
change
-11%
1%
-13%
73
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020
Governance
Remuneration Report continued
Summary of Directors’ Remuneration Policy
TheobjectiveoftheGroup’sRemunerationPolicyistohaveasimpleandtransparentremunerationstructurealignedwith
the Group’s strategy.
The Group aims to provide a remuneration package which will attract and 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.
A summary of the Remuneration Policy approved by shareholders at the 2018 Annual General Meeting is set out below.
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
Base salary
Purpose
Operation
AbasesalarytoattractandretainexecutivesofappropriatequalitytodelivertheGroup’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:
ӱ Salaries would typically be increased at a rate consistent with the average employee salary
increase;
ӱ Larger increases may be considered appropriate in certain circumstances (including, but not
limitedto,achangeinanindividual’sresponsibilitiesorinthescaleoftheirroleorinthesize
and complexity of the Group);
ӱ Larger increases may also be considered appropriate if a Director has been initially appointed
to the Board at a lower than typical salary.
None
None
To provide a competitive remuneration package.
TheCompanyhasestablisheddefinedcontributionpensionarrangementsforallemployees.
For Executive Directors, the Company pays a monthly salary supplement in lieu of Company
pension contributions.
Performance measures
Clawback
Pension
Purpose
Operation
Maximum
The salary supplement is set at 15% of base salary.
Performance measures
Clawback
Benefits
Purpose
Operation
None
None
To provide a competitive remuneration package.
This principally comprises:
ӱ Private medical insurance
ӱ Life assurance
ӱ Permanent health insurance
TheCommitteemayagreetoprovideotherbenefitsasitconsidersappropriate.
Maximum
Benefitsareprovidedatmarketrates.
Performance measures
Clawback
None
None
74
Picton Property Income Limited Annual Report 2020
Annual Report and Accounts 2018
Annual bonus
Purpose
Operation
A short-term incentive to reward Executive Directors on meeting the Company’s annual
financialandstrategictargetsandontheirpersonalperformance.
The Committee may determine that up to 50% of the annual bonus will be paid in the
Company’ssharesanddeferredfortwoyears.Dividendequivalentsmaybeawardedandpaid
at the end of the deferral period in cash.
Maximum
The maximum bonus will be 175% of base salary.
Performance measures
Theannualbonusisbasedonarangeofone-yearfinancial,strategicandindividualtargetsset
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
theawardwillbeassessedoncorporatefinancialmeasures.
Forcorporatefinancialmeasures,50%ofthemaximumbonusopportunitywillbepayablefor
on target performance and, if applicable, up to 25% for threshold performance.
Clawback
Malus and clawback provisions apply.
Long-term incentive plan
Purpose
Operation
Maximum
Performance measures
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.
Awardswillnormallyvestattheendofathree-yearperiodsubjecttomeetingtheperformance
conditions and continuing employment.
TheRemunerationCommitteemayawarddividendequivalentsonawardsthatvest.
The Committee may apply a holding period of a further two years to awards that vest.
Annual awards with a maximum value of up to 150% of base salary may be made.
There will initially be three performance conditions, each measured over a three-year
performanceperiod.Eachconditionwillbeequallyweighted,buttheCommitteehasthe
flexibilitytovarythis.
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
Performance measures
Clawback
To align Executive Directors with the interests of shareholders.
Executive Directors are expected to build up and thereafter maintain a minimum shareholding
equivalentto200%ofbasesalary.
Not applicable
Not applicable
Not applicable
75
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
Non-Executive Directors’ Remuneration Policy
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.
Allfeeswillbepayablequarterlyinarrearsincash.
Fees will usually be reviewed independently every three years.
The independent Non-Executive Directors are not eligible to receive share options or other
performance-relatedelements,orreceiveanyotherbenefitsotherthanwheretraveltothe
Company’sregisteredofficeisrecognisedastaxablebenefit,inwhichcaseaNon-Executive
Directormayreceivethegrossed-upcostsoftravelasabenefit.Non-ExecutiveDirectorsare
entitled to reimbursement of reasonable expenses.
Maximum
The Company’s Articles set an annual limit for the total of Non-Executive Directors’
remunerationof£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
conditionwouldbemoreappropriate,providedthatanysuchamendedorsubstitutedperformanceconditionwouldnotbemateriallylessdifficulttosatisfythantheoriginal
condition(initsopinion).TheCommitteemayadjustthecalculationofperformancetargetsandvestingoutcomes(forinstanceformaterialacquisitions,disposalsor
investmentsandeventsnotforeseenatthetimethetargetswereset)toensuretheyremainafairreflectionofperformanceovertherelevantperiod.TheCommitteealso
retainsdiscretiontomakedownwardorupwardadjustmentsresultingfromtheapplicationoftheperformancemeasuresifitconsidersthattheoutcomesarenotafairand
accuratereflectionofbusinessperformance.IntheeventthattheCommitteeweretomakeanadjustmentofthissort,afullexplanationwouldbeprovidedinthenext
Remuneration Report.
2. Performancemeasures–annualbonus.Theannualbonusmeasuresarereviewedannuallyandchosentofocusexecutiverewardsondeliveryofkeyfinancialtargetsforthe
forthcomingyearaswellaskeystrategicoroperationalgoalsrelevanttoanindividual.SpecifictargetsforbonusmeasuresaresetatthestartofeachyearbytheRemuneration
Committeebasedonarangeofrelevantreferencepointsincluding,forGroupfinancialtargets,theCompany’sbusinessplanandaredesignedtobeappropriatelystretching.
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. TheCommitteereservestherighttomakeanyremunerationpaymentsand/orpaymentsforlossofoffice(includingexercisinganydiscretionsavailabletoitinconnectionwith
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
RemunerationforotheremployeesbroadlyfollowsthesameprinciplesasforExecutiveDirectors.Asignificantelementof
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.
76
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Annual Report on Remuneration
Total remuneration for the year
ThetablebelowsetsoutthetotalremunerationreceivablebyeachoftheDirectorswhoheldofficeduringtheyearto
31March2020,withacomparisontothepreviousfinancialyear:
Executive
Michael Morris
Andrew Dewhirst
Non-Executive
Nicholas Thompson
Roger Lewis
Mark Batten
Maria Bentley
Nicholas Wiles
Robert Sinclair
Vic Holmes
Salary/fees
£000
Benefits
£000
Pension
salary
supplement
£000
Annual
bonus
£000
Deferred
bonus
£000
Long-term
incentive
plan
£000
250
240
170
80
98
98
45
45
48
46
49
23
10
–
–
24
–
23
2
2
2
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38
36
26
12
153
167
109
56
152
167
109
56
229
308
135
181
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
824
920
551
386
98
98
45
45
48
46
49
23
10
–
–
24
–
23
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Benefitscompriseprivatemedicalinsuranceandlifeassurance.
Executive Directors receive a salary supplement of 15% of base salary in lieu of company pension contributions.
Theabovefiguresfor2019fortheExecutiveDirectorsforannualbonusandLTIPawardshavebeenre-stated.The
estimatedfiguresforannualbonusincludedinlastyear’sreportwere£313,500(MichaelMorris)and£104,500(Andrew
Dewhirst).Theestimatesincludedanoutcomeof50%fortherelativetotalreturnmetric.Thefinaloutcomewas
determinedtobe77%,andtheawardswereadjustedto£333,500(MichaelMorris)and£111,200(AndrewDewhirst).The
aboveLTIPawardsfor2019fortheExecutiveDirectorshavebeenre-statedtoreflectthesharepriceatvesting(95.0p)
ratherthantheaverageforthequarter(87.56p)andtoincludedividendequivalentsof£25,700(MichaelMorris)and
£15,100(AndrewDewhirst).
AndrewDewhirstandMariaBentleyjoinedtheBoardon1October2018.
Robert Sinclair and Vic Holmes retired from the Board on 30 September 2018.
NicholasWilesjoinedtheBoardon1January2020andresignedon20May2020.
The value of LTIP awards are based on the number of shares to be awarded to the Executive Directors and the average
sharepriceoverthequarterended31March2020of92.64pence,andtheestimatedvalueofdividendequivalents.
MariaBentleyreceivedadditionalfeesattherateof£5,000perannumwhileservingasChairoftheNominationCommittee.
Annual bonus for 2019/20
Theannualbonusfortheyearended31March2020fortheExecutiveDirectorswasbasedonacombinationoffinancial
metrics(60%)andcorporateandpersonalobjectives(40%).
Thefinancialmetricscomprisedthreeequallyweightedcomponents:totalreturnrelativetoacomparatorgroupofsimilar
companies, set out later in this report; total property return compared to the MSCI UK Quarterly Property Index; and
growthinEPRAearningspershareoverthefinancialyear.
77
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
The targets set for the year ended 31 March 2020 and the assessment of actual performance achieved are set out in the
table below.
Performance condition
Basis of calculation
Total return versus
comparator group
Bonus weighting: 20%
Total property return
versus MSCI Index
Bonus weighting: 20%
Growth in EPRA EPS
Bonus weighting: 20%
Less than median – 0%
Equaltomedian–50%
Equaltoupperquartile–100%
Less than median – 0%
Equaltomedian–50%
Equaltoupperquartile–100%
Less than 1% – 0%
Equalto1%–25%
Equalorgreaterthan9%–100%
Range
Median -2.3%
Upperquartile2.4%
Median 0.6%
Upperquartile2.9%
Actual
4.5%
Awarded
(% of maximum)
100%
Awarded
(% of salary)
35%
5.3%
100%
35%
1% – 4.29p
9% – 4.63p
3.66p
0%
0%
ThecorporateandpersonalobjectivesfortheExecutiveDirectorsfortheyearto31March2020weredeterminedbythe
Remuneration Committee and accounted for 40% of the maximum award.
Thecorporateobjectivesapplyingtobothexecutives,andtheassessmentofperformanceagainstthese,areasfollows:
Performance condition
Assessment
Dividend cover for the year to be in
excess of 110%
Dividend cover is 105% for the year, so this target has not
been met.
Awarded
(% of maximum)
Awarded
(% of salary)
0%
0%
Bonus weighting: 3.75%
The Group’s overall loan to value ratio
to be below 25% at the end of the
financialyear
Bonus weighting: 3.75%
Lead the business and make
progress against the strategic pillars:
ӱ Property Performance
ӱ Operational Excellence
ӱ Acting Responsibly
Bonus weighting: 20%
The LTV at 31 March 2020 is 21.7%, so this target has been
met.
100%
6.6%
90%
31.5%
The Committee assessed the progress made against
each of the strategic pillars. They noted particularly the
following factors:
ӱ Significantcapitalexpenditureprogrammeacross
multiple assets;
ӱ Two disposals in Croydon and Lutterworth made
capturingsignificantupsideagainstMarch2019
valuation;
ӱ During the year both revolving credit facilities have
beenfullyrepaidaheadofre-financing.Thenew
facilitywillprovidefinancialflexibilityforfiveyears
mitigating cash drag and with no repayment fees;
ӱ Team repositioned and appointment of Head of
Occupier Services, with lower cost base;
ӱ Efficiencyhasbeenimprovedthroughthe
introduction of new asset management and
operational software;
ӱ Working with occupiers to undertake letting and
regear transactions in Bristol, Rushden, Grantham and
Radlett;
ӱ Continued use of LTIP and deferred bonus; share
awards hedged through purchases at discount to net
asset value during the year;
Enhance reputation with
stakeholders
Bonus weighting: 5%
ӱ Consistently positive investor feedback from Kepler,
90%
7.9%
JPMorganandStifel
ӱ Enhanced activity with Edison
ӱ Increased digital led engagement with investors and
occupiers
45.9%
78
Picton Property Income Limited Annual Report 2020
Annual Report and Accounts 2018
ThepersonalobjectivesfortheindividualDirectorsandtheassessmentofperformanceareasfollows:
Performance condition
Assessment
Awarded
(% of maximum)
Awarded
(% of salary)
Michael Morris
The EPRA vacancy rate to be at or
less than 7% at the end of the
financialyear
Bonus weighting: 3.75%
Further develop Picton Promise
Initiative – Focus on Action,
Community, Technology,
Sustainability and Support
Bonus weighting: 3.75%
Andrew Dewhirst
Manage IT transition effectively
Bonus weighting: 3.75%
Combine and extend the existing
revolving credit facilities to a maturity
date in 2024
Bonus weighting: 3.75%
Vacancy rate at 31 March 2020 was 11%, so this target was
not met.
0%
0%
Contentandbrandingfinalised,occupierpacksissued
and with messaging displayed in vacant
accommodation and reception areas.
90%
5.9%
The IT transition comprised initially an upgrade to the
main accounting system, followed by migration to a new
hosting platform. This was completed successfully within
the agreed timescale.
Anew£50millionrevolvingcreditfacilityhasbeen
completedsubsequenttotheyearend.Thenewfacility
is for an initial three-year term with two one-year
extensions available.
5.9%
100%
6.6%
90%
5.9%
12.5%
As discussed in the Committee Chair’s statement on pages 69 to 71, the Committee considered the formulaic bonus
outcomeinthecontextoftheGroup’soverallperformancefortheyearandconcludedthatitwassatisfiedtheformulaic
bonusoutcomewasafairreflectionofoverallGroupperformanceduringtheyear.TheCommitteewasalsosatisfiedthat
theaboveperformancewasachievedwithinanacceptableriskprofile.
The overall annual bonus outcome for the Executive Directors is, therefore, as follows.
Michael Morris
Andrew Dewhirst
Financial
metrics
(out of
maximum
60%)
Corporate
objectives
(out of
maximum
32.5%)
Personal
objectives
(out of
maximum
7.5%)
Overall
bonus % of
maximum
Bonus % of
salary
Total bonus
£
40.0
40.0
26.3
26.3
3.4
7.1
69.6
73.4
121.8 304,600
128.4 218,300
In accordance with the Directors’ Remuneration Policy, the Committee has determined that 50% of the annual bonuses
awardedtotheExecutiveDirectorsshouldbedeferredandpayableinsharesintwoyears’time.Dividendequivalentswill
accrue on the shares and these will be paid when the awards vest.
79
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
Long-term Incentive Plan
TheLTIPawardsgrantedon16June2017weresubjecttoperformanceconditionsforthethreeyearsended31March
2020. The performance conditions and the actual performance for these were as follows:
Performance condition
Basis of calculation
Range
Total shareholder
return versus
comparator group
Less than median – 0%
Equaltomedian–25%
Equaltoupperquartile–100%
Median -5.4%
Upperquartile5.8%
Total property return
versus MSCI Index
Less than median – 0%
Equaltomedian–25%
Equaltoupperquartile–100%
Median 5.5%
Upperquartile7.1%
Actual
7.3%
8.5%
Weighting
(% of award)
Awarded
(% of
maximum)
33.3%
100%
33.3%
100%
Growth in EPRA EPS Less than 3% per annum – 0%
Equalto3%perannum–25%
Equalorgreaterthan9%per
annum – 100%
3% – 4.16p
9% – 4.93p
3.66p
33.3%
0%
TheCommitteewassatisfiedthattheaboveperformancewasachievedwithinanacceptableriskprofile.TheCommittee
wassatisfiedtheformulaicoutcomewasafairreflectionofoverallGroupperformanceduringtheperiod.Basedonthe
vesting percentage above, the shares awarded and their estimated values, using an average share price of 92.64 pence for
thequarterended31March2020,are:
Director
Michael Morris
Andrew Dewhirst
Maximum
number of
shares at
grant
Number of
shares
vesting
Number of
lapsed
shares
Estimated
value1,2
£
334,150 222,767 111,383 229,092
196,898 131,265
65,633 134,993
1. TheestimatedvalueincludesdividendequivalentawardswhichwillbemadeinrelationtovestedLTIPawardsatthepointofvesting.Thevalueofthedividendequivalent
awardsis£22,722(MichaelMorris)and£13.389(AndrewDewhirst).
2. £17,204(MichaelMorris)and£10,138(AndrewDewhirst)ofthisvaluerelatestosharepricegrowthsincethedateofgrant.
ThefollowingawardsintheLong-termIncentivePlanweregrantedtotheExecutiveDirectorson19June2019:
Number of
shares
Basis
(% of salary)
Face value
per share
(£)
Award face
value
(£)
Performance period
Michael Morris
Andrew Dewhirst
328,153
125%
0.9523 312,500
1 April 2019 to 31 March 2022
214,218
120%
0.9523 204,000
1 April 2019 to 31 March 2022
Threshold
vesting
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
businessdaysimmediatelyprecedingtheawarddate.Awardswillvestafterthreeyearssubjecttocontinuedserviceand
theachievementofthesameperformanceconditionsasappliedtotheJune2017LTIPawardsetoutabove.Vested
awardswillbesubjecttoatwo-yearholdingperiod.AnyLTIPvestingwillalsobesubjecttotheRemunerationCommittee
confirmingthat,initsassessment,thevestingoutturnwasachievedwithinanacceptableriskprofile.
The Executive Directors have the following outstanding share awards under the Long-term Incentive Plan and Deferred
Bonus Plan:
Date of grant
Performance period
Market value
on date of
grant
At 1 April
2019
Granted in
year
Exercised in
year
Lapsed in
year
As at
31 March
2020
Michael Morris
2016 LTIP
27January2017
2017 LTIP
16June2017
2018 LTIP
8June2018
2019 LTIP
19June2019
2019 DBP
19June2019
1 April 2016 to
31 March 2019
1 April 2017 to
31 March 2020
1 April 2018 to
31 March 2021
1 April 2019 to
31 March 2022
1 April 2018 to
31 March 2019
79.085p
358,791
84.917p 334,150
90.80p 330,396
–
–
–
95.23p
– 328,153
95.23p
–
175,137
1,023,337 503,290
–
–
–
–
–
–
(61,976) 296,815
– 334,150
– 330,396
– 328,153
– 175,137
(61,976) 1,464,651
80
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Date of grant
Performance period
Market value
on date of
grant
At 1 April
2019
Granted in
year
Exercised in
year
Lapsed in
year
As at
31 March
2020
Andrew Dewhirst
2016 LTIP
27January2017
2017 LTIP
16June2017
2018 LTIP
8June2018
2019 LTIP
19June2019
2019 DBP 1
19June2019
1 April 2016 to
31 March 2019
1 April 2017 to
31 March 2020
1 April 2018 to
31 March 2021
1 April 2019 to
31 March 2022
1 April 2018 to
31 March 2019
79.085p
211,418
84.917p 196,898
90.80p 193,833
–
–
–
95.23p
– 214,218
95.23p
–
116,758
602,149 330,976
–
–
–
–
–
–
(36,519) 174,899
– 196,898
– 193,833
– 214,218
– 116,758
(36,519) 896,606
1. The number of shares awarded to Andrew Dewhirst in 2019 under the Deferred Bonus Plan is the total awarded. This differs from the Single Figure Remuneration table where
50% of this award is included, as he was a Director from 1 October 2018 only.
Awards under the Long-term Incentive Plan normally vest three years after the grant date. Awards from 2019 onwards are
subjecttoafurthertwo-yearholdingperiod.AwardsundertheDeferredBonusPlannormallyvesttwoyearsafterthe
grant date.
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:
ӱ Listed companies paying an above average dividend yield, principally directly investing in the UK in one or more of the
maincommercialpropertysectorsandwithamarketcapitalisationoflessthan£2billion.
Total
shareholder
return
Total return
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
LondonMetric Property PLC
McKay Securities 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
Warehouse REIT plc
BothHansteenHoldingsplcandMucklow(A.&J.)PLChavebeenremovedfromthecomparatorgroupfollowing
corporate events in the year and will not be included in the performance metrics of any current or future awards.
Supermarket Income REIT and Warehouse REIT were added to the group for awards made from 2019 onwards.
Tritax Big Box REIT was included in the group for awards made in 2017 only.
81
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Remuneration Report continued
Statement of Directors’ shareholdings
Directors and employees are encouraged to maintain a shareholding in the Company’s shares to provide alignment with
investors.
ThenumbersofsharesbeneficiallyheldbyeachDirector(includingconnectedpersons)asat31March2020,wereasfollows:
Michael Morris
Andrew Dewhirst
Nicholas Thompson
Roger Lewis
Mark Batten
Maria Bentley
Nicholas Wiles
Beneficial
holding
2020
Beneficial
holding
2019
Holding as a
% of salary
Outstanding
LTIP awards1
Outstanding
DBP awards
53,596
53,596
19% 1,289,514 175,137
28,500
28,500
15% 779,848
116,758
215,000 215,000
600,000 600,000
–
74,436
–
–
–
–
1. The outstanding number of LTIP shares includes 296,815 shares (Michael Morris) and 174,899 shares (Andrew Dewhirst) that have vested but not yet been exercised.
The percentage holding for the Executive Directors is based on base salaries as at 31 March 2020 and a share price of
£0.89.Thebeneficialholdingsofsharesincludeanyheldbyconnectedpersons.
ExecutiveDirectorsarenowrequiredtomaintainashareholdingof200%ofbasesalaryandbothDirectorsarecurrently
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
TherewerenopaymentstopastDirectorsorpaymentsforlossofofficetoDirectorsduringtheyearended31March2020.
Historical total shareholder return performance
The graph below shows the Company’s total shareholder return (TSR) since 31 March 2010 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.
400
350
300
250
200
150
100
50
M ar 2 010
S e p 2 010
Key:
M ar 2 011
S e p 2 011
M ar 2 012
S e p 2 012
M ar 2 013
S e p 2 013
M ar 2 014
S e p 2 014
M ar 2 015
S e p 2 015
M ar 2 016
S e p 2 016
M ar 2 017
S e p 2 010 7
M ar 2 018
S e p 2 018
M ar 2 019
S e p 2 019
M ar 2 0 2 0
Picton
FTSE EPRA NAREIT UK
FTSE All-share
The table below shows the remuneration of the Chief Executive for the past two years, together with the annual bonus
percentage and LTIP vesting level. The Company has only had a Chief Executive since 1 October 2018 and therefore the
table below shows his remuneration for the past two years.
2020
2019
82
Total
remuneration
(£000)
Annual
bonus (% of
maximum)
LTIP vesting
(% of
maximum
award)
824
920
70%
79%
67%
83%
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Implementation of Remuneration Policy in 2020/21
Executive Directors
Base salaries MichaelMorris(ChiefExecutive)–£250,000
AndrewDewhirst(FinanceDirector)–£170,000
Pension and
benefits
15%salarysupplementinlieuofpensionplusstandardotherbenefits.
Change from prior year
There are no salary increases
for the Chief Executive and
Finance Director this year. The
average increase for the rest of
the workforce is 4.6%.
No change. All employees
may receive 15% salary
pension provision.
Annual bonus1 Maximum bonus of 175% of salary with 50% of any bonus deferred in shares for
No change
two years.
60%ofbonustobedeterminedbycorporatefinancialmetricsofrelativetotal
return, relative total property return and growth in EPRA earnings per share,
with the remaining 40% determined by strategic and personal measures.
LTIP1
Award of shares worth:
ӱ Michael Morris (Chief Executive) 87.5% of salary
ӱ Andrew Dewhirst (Finance Director) 77% of salary
Shares released after three-year performance and two-year holding period.
Vestingofsharesbasedequallyonrelativetotalshareholderreturn,relative
total property return and growth in EPRA earnings per share measures. Target
ranges for the relative measures are set out on page 78. Targets for the EPS
measure will be set and disclosed later in the year.
Non-Executive Directors
Fees
Chairman–£98,000
Director–£40,000
Supplementary fee for Chair of the Property Valuation or Remuneration
Committee–£5,000
SupplementaryfeeforChairoftheAuditandRiskCommittee–£7,500
Awards to the Executive
Directors have been reduced
by 30% this year to avoid the
potential for windfall gains
on vesting.
No change
1. The Remuneration Committee has discretion to override the formulaic outcomes in both the annual bonus and LTIP.
TheCommitteealsoconfirmsthatperformancehasbeenachievedwithinanacceptableriskprofilebeforepayoutsare
made.Incentivepayoutsaresubjecttomalusandclawbackprovisions.
Statement of voting at the last Annual General Meeting
The following table sets out the voting for the Remuneration Report, which was approved by shareholders at the Annual
General Meeting held on 14 November 2019, representing 51% of the issued share capital of the Company, and also for the
Remuneration Policy, which was approved by shareholders at the Annual General Meeting held on 13 September 2018,
representing 31% of the issued share capital of the Company.
For
Against
Votes cast
Withheld
Maria Bentley
Chair of the Remuneration Committee
22June2020
Remuneration Report
Remuneration Policy
Votes cast
%
Votes cast
%
270,048,780
96.88
148,636,904
94.98
8,700,568
3.12
7,853,028
5.02
278,749,348
100.0
156,489,932
100.0
337,816
10,100,551
83
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Property Valuation Committee Report
Property Valuation Committee
Terms of reference
The Committee shall review the
quarterlyvaluationreportsproduced
by the independent valuers before
their submission to the Board,
looking in particular at:
ӱ Significantadjustmentsfrom
previousquarters;
ӱ Individual property valuations;
ӱ Commentary from management;
ӱ Compliance with applicable
standards and guidelines;
ӱ Reviewingfindingsor
recommendations of the valuers;
and
ӱ The appointment, remuneration
and removal of the Company’s
valuers, making such
recommendations to the Board
as appropriate.
The Property Valuation Committee
is chaired by Roger Lewis
ӱ Significantissuesthatshouldbe
raised with management;
ӱ Material and unexplained
movements in the Company’s net
asset value;
The Property Valuation Committee is
chaired by Roger Lewis. The other
members of the Committee are
Nicholas Thompson, Mark Batten
and Maria Bentley.
Activity
The Property Valuation Committee
met four times during the year ended
31 March 2020 and considered the
following matters:
ӱ Property market conditions and
trends;
ӱ Movements compared to previous
quarters;
ӱ Yields on properties within the
portfolio;
ӱ Letting activity and vacant
properties;
ӱ Covenant strength and lease
lengths;
ӱ Estimated rental values; and
ӱ Comparable market evidence.
TheCommitteewassatisfiedwiththe
valuation process throughout the year.
Visit our website
www.picton.co.uk
Material uncertainty
The Committee noted that the external
valuer had included a ‘material
valuation uncertainty’ statement in
their report as at 31 March 2020. This
was the result of the impact of the
Covid-19 pandemic on market activity
as the valuers had an unprecedented
set of circumstances on which to base
theirjudgement.Inlinewithmarket
practice therefore, the valuers have
stated that less certainty can be
attached to the valuations than
would otherwise have been the case.
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
propertyassetseachquarter,the
results of which are incorporated
into the Group’s half-year and
annualfinancialstatements,and
thequarterlynetassetstatements.
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
22June2020
84
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Governance
Directors’ Report
Directors’ Report
At the 2019 Annual General Meeting
shareholders gave the Directors
authority to issue up to 54,760,558
shares (being 10% of the Company’s
issued share capital as at 10 October
2019)withouthavingtofirstoffer
those shares to existing shareholders.
On21June2019theCompany
issued 7,551,936 new ordinary shares
at 94.5 pence per share under the
authority granted to the Directors at
the 2018 Annual General Meeting.
No ordinary shares have been issued
subsequentlyunderthisauthority,
which expires at this year’s Annual
General Meeting and resolutions
will be proposed for its renewal.
Shares held in the Employee
Benefit Trust
The Trustee of the Picton Property
Income Limited Long-term Incentive
Plan holds 2,103,683 ordinary shares
in the Company to satisfy awards
made under the Long-term Incentive
Plan. During the year the Trustee
acquired954,000ordinarysharesat
88.26 pence per share. The Trustee
has waived its right to receive
dividends on the shares it holds.
The Directors of Picton Property
Income Limited present the Annual
Reportandauditedfinancial
statements for the year ended
31 March 2020.
The Company is registered under the
provisions of the Companies
(Guernsey) Law, 2008.
Code Compliance Statement
TheBoardconfirmsthatfortheyear
ended 31 March 2020 the Principles of
good corporate governance contained
in the 2018 UK Corporate Governance
Code have been consistently applied,
with the exception of the matter
described below.
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.
The Company is a UK Real Estate
Investment Trust (REIT) and must
distribute to its shareholders at least
90%oftheprofitsonitsproperty
rental business for each accounting
period as a Property Income
Distribution (PID).
As set out in Note 10 to the
consolidatedfinancialstatements,
the Company has paid four interim
dividends of 0.875 pence per share,
making a total dividend for the year
ended 31 March 2020 of 3.5 pence per
share (2019: 3.5 pence). All four interim
dividends were paid as PIDs.
Directors
The Directors of the Company who
served throughout the year are set
out on pages 56 to 57, together with
Nicholas Wiles, who was appointed
on1January2020andresignedon
20 May 2020.
The Directors’ interests in the shares of
the Company as at 31 March 2020 are
set out in the Remuneration Report.
All of the Directors will offer
themselves for re-election at the
forthcoming Annual General Meeting.
As both Nicholas Thompson and
Roger Lewis have served for more
than nine years on the Board, the
Company has not complied with
those provisions within the Code
relating to tenure. Both Directors
intend to step down from the Board
once suitable replacements have
been appointed. More information
is provided in the Nomination
Committee Report.
Listing
The Company is listed on the main
market of the London Stock Exchange.
Share capital
The issued share capital of the
Company as at 31 March 2020 was
547,605,596 (2019: 540,053,660)
ordinary shares of no par value,
including 2,103,683 ordinary shares
which are held by the Trustee of the
Company’sEmployeeBenefitTrust
(2019: 1,542,000 ordinary shares).
The Directors have authority to buy
back up to 14.99% of the Company’s
ordinarysharesinissue,subjecttothe
renewal of this authority from
shareholders at each Annual General
Meeting. Any buy-back of ordinary
sharesis,andwillbe,madesubjectto
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.
85
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Governance
Directors’ Report continued
Statement of going concern
Given the impact of the current
Covid-19 pandemic on the UK
economy, the Directors have
focused on assessing whether
the going concern basis remains
appropriate for the preparation of
thefinancialstatementsfortheyear
ended 31 March 2020. In making
their assessment, the Directors
have considered the principal risks
relating the Group, its loan covenants,
accesstofundingandliquidity
position. They have also considered
a number of scenarios, in particular
as regards the impact of different
levels of rent collection across the
portfolio and over varying timescales,
andthepotentialconsequences
onfinancialperformance,asset
values,capitalprojectsandloan
covenants. Leasing and investment
transactions have been assumed
to be severely curtailed throughout
the assessment period. Future lease
events over the assessment period
have been considered on a case-by-
case basis to determine the range of
most likely outcomes. More details
regarding the Group’s business
activities, together with the factors
affecting performance, investment
activities and future development,
are set out in the Strategic Report.
Furtherinformationonthefinancial
position of the Group, including its
liquidityposition,borrowingfacilities
anddebtmaturityprofile,issetout
in the Financial Review and in the
consolidatedfinancialstatements.
Under all of these scenarios the
Grouphassufficientcashresourcesto
continue its operations, and remain
within its loan covenants, for a period
of at least 12 months from the date
ofthesefinancialstatements.
Based on their assessment
and knowledge of the portfolio
and market, the Directors have
therefore continued to adopt the
going concern basis in preparing
thefinancialstatements.
Viability assessment
and statement
The UK Corporate Governance
CoderequirestheBoardtomakea
‘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
afive-yeartimescale,consideredtobe
the most appropriate for long-term
investment in commercial property.
The assessment has been undertaken
taking into account the principal risks
and uncertainties faced by the Group
which could impact its investment
strategy, future performance,
loancovenantsandliquidity.
Themajorrisksidentifiedwerethose
relating to the current Covid-19
pandemic and a disruptive Brexit
and their potential impact on the
UK economy and commercial
property market over the period
of the assessment. In the ordinary
course of business the Board reviews
adetailedfinancialmodelona
quarterlybasis,includingforecast
market returns. This model allows
for different assumptions regarding
lease expiries, breaks and incentives.
For the purposes of the viability
assessment of the Group, the model
coversafive-yearperiodandisstress
tested under various scenarios.
In the context of both the current
Covid-19 pandemic and a disruptive
Brexit, the Board considered a
number of scenarios around their
impact on the Group’s property
portfolioandfinancialposition.
These scenarios included different
levels of rent collection, occupier
defaults, void periods and incentives
within the portfolio, and the
consequentialimpactonproperty
costs and loan covenants. All lease
events and assumptions were
reviewed over the period under
the different scenarios and their
impactonrevenueandcashflow.
Future letting activity was assumed
to be severely curtailed during the
initial period of the assessment.
Significantfallsincapitalvalues
were included in these scenarios,
including the potential impact on
the Group’s loan covenants. The
Group’s long-term loan facilities are
in place throughout the assessment
period, while the Board assumed
that the Group would continue to
have access to its short-term facilities.
The Board considered the impact
of these scenarios on its ability to
continue to pay dividends at different
rates over the assessment period.
These matters were assessed over
the period to 31 March 2025 and will
continuetobeassessedoverfive-year
rolling periods.
The Directors consider that the
stress testing performed was
sufficientlyrobustthateven
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
theyfalldueoverthefive-yearperiod
to 31 March 2025.
86
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Substantial shareholdings
Basedonnotificationsreceived
and on information provided
by the Company’s brokers, the
Company understands the following
shareholdersheldabeneficialinterest
of 3% or more of the Company’s
issued share capital as at 27 May 2020.
% of issued
share capital
Investec Wealth &
Investment Limited
Brewin Dolphin Limited
Mattioli Woods Plc
BlackRock Inc.
Thames River Capital LLP
Interactive Investor Services
Limited
Smith & Williamson
Investment Management
Canaccord Genuity Wealth
Management
The Vanguard Group Inc.
14.0
6.6
5.9
5.0
4.6
4.3
4.2
3.7
3.4
Disclosure of information
to auditor
TheDirectorswhoheldofficeatthe
date of approval of this Directors’
Reportconfirmthat,sofarastheyare
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 or she
ought to have taken as a Director to
make themselves 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
tocontinueinofficeastheCompany’s
auditor and a resolution proposing its
reappointment will be submitted at
the Annual General Meeting.
Statement of Directors’
responsibilities
The Directors are responsible for
preparing the Annual Report and the
financialstatementsinaccordance
with applicable law and regulations.
CompanylawrequirestheDirectorsto
preparefinancialstatementsforeach
financialyear.Underthatlawthey
haveelectedtopreparethefinancial
statements in accordance with
International Financial Reporting
Standards, as issued by the IASB, and
applicable law.
Under company law the Directors
mustnotapprovethefinancial
statementsunlesstheyaresatisfied
that they give a true and fair view of
the state of affairs of the Company
andofitsprofitorlossforthatperiod.
Inpreparingthesefinancialstatements,
theDirectorsarerequiredto:
ӱ select suitable accounting policies
and then apply them consistently;
ӱ makejudgementsandestimates
that are reasonable, relevant and
reliable;
ӱ state whether applicable
accounting standards have been
followed,subjecttoanymaterial
departures disclosed and
explainedinthefinancial
statements;
ӱ assess the Group’s ability to
continue as a going concern,
disclosing, as applicable, matters
related to going concern; and
ӱ use the going concern basis of
accounting unless they either
intendtoliquidatetheGroupor
to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for
keeping proper accounting records
thataresufficienttoshowandexplain
the Company’s transactions and
disclose with reasonable accuracy at
anytimethefinancialpositionofthe
Company and enable them to ensure
thatitsfinancialstatementscomply
with the Companies (Guernsey) Law,
2008. They are responsible for such
internal controls as they determine are
necessary to enable the preparation
ofthefinancialstatementsthatare
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
corporateandfinancialinformation
included on the Company’s website,
and for the preparation and
disseminationoffinancialstatements.
Legislation in Guernsey governing the
preparation and dissemination of
financialstatementsmaydifferfrom
legislationinotherjurisdictions.
Directors’ responsibility
statement in respect of the
Annual Report and financial
statements
Weconfirmthattothebestofour
knowledge:
ӱ thefinancialstatements,prepared
in accordance with the applicable
set of accounting standards, give a
true and fair view of the assets,
liabilities,financialpositionand
profitorlossoftheGroup;and
ӱ 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, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the Group’s
position and performance, business
model and strategy.
By Order of the Board
Andrew Dewhirst
Director
22June2020
87
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Independent Auditor’s Report to the Members of Picton Property Income Limited
Our opinion is unmodified
Wehaveauditedtheconsolidatedfinancialstatementsof
Picton Property Income Limited (the “Company”) and its
subsidiaries (together, the “Group”), which comprise the
consolidated balance sheet as at 31 March 2020, the
consolidated statements of comprehensive income,
changesinequityandcashflowsfortheyearthenended,
andnotes,comprisingsignificantaccountingpoliciesand
other explanatory information.
Inouropinion,theaccompanyingconsolidatedfinancial
statements:
ӱ giveatrueandfairviewofthefinancialpositionofthe
Groupasat31March2020,andoftheGroup’sfinancial
performanceandcashflowsfortheyearthenended;
ӱ are prepared in accordance with International Financial
Reporting Standards; and
Key audit matters: our assessment of the risks
of material misstatement
Key audit matters are those matters that, in our
professionaljudgement,wereofmostsignificanceinthe
auditoftheconsolidatedfinancialstatementsandinclude
themostsignificantassessedrisksofmaterial
misstatement(whetherornotduetofraud)identifiedby
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
oftheconsolidatedfinancialstatementsasawhole,andin
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 2019):
Valuation of investment properties
ӱ comply with the Companies (Guernsey) Law, 2008.
£654.5million;(2019£676.1million)
Refer to page 67 of the Audit and Risk Committee Report,
Note2significantaccountingpolicyandNote13investment
properties disclosures
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Ourresponsibilitiesaredescribedbelow.Wehavefulfilled
our ethical responsibilities under, and are independent of
the Company and Group in accordance with, UK ethical
requirementsincludingFRCEthicalStandards,asapplied
to listed entities. We believe that the audit evidence we
haveobtainedisasufficientandappropriatebasisfor
our opinion.
The risk
Our response
Basis:
The Group’s investment properties
accounted for 94% (2019: 94%) of the
Group’s total assets as at 31 March 2020. The
fair value of investment properties at 31
March 2020 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’sinvestmentpropertiesisasignificant
area of our audit given that it represents the
majorityofthetotalassetsoftheGroupand
requirestheuseofsignificantjudgements
andsubjectiveassumptions.
The outbreak of Covid-19 has impacted
market activity in many sectors. As at the
valuation date, the Valuer’s consider that
they can attach less weight to previous
market evidence for comparison purposes,
to inform opinions of value. Accordingly, the
valuations across the investment property
portfolio have been reported on the basis of
“material valuation uncertainty”. The Valuers
haveclarifiedthatthe“materialvaluation
uncertainty” does not mean that the
valuation cannot be relied upon rather, less
certainty can be attached to the valuation
than would otherwise be the case.
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:
Weassessedthecompetence,capabilitiesandobjectivityoftheValuer.Wealso
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:
ӱ evaluating the appropriateness of the valuation methodologies and
assumptions used
ӱ undertakingdiscussionsonkeyfindingswiththeValuerandchallengingthe
valuations based on market information and knowledge
ӱ assessing the assumptions applied by the Valuer in relation to rental
collections and void periods resulting from Covid-19
We also compared a sample of the key inputs used to calculate the valuations
such as annual rent and tenancy contracts for consistency with other audit
findings.
Assessing disclosures:
We also considered the Group’s investment property valuation policies and their
applicationasdescribedinthenotestotheconsolidatedfinancialstatements
forcompliancewithIFRSinadditiontotheadequacyofdisclosuresinNote13in
relation to fair value of the investment properties including the impact of
Covid- 19.
88
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Other information
The Directors are responsible for the other information. The
other information comprises the information included in
the Annual Report but does not include the consolidated
financialstatementsandourauditor’sreportthereon.Our
opinionontheconsolidatedfinancialstatementsdoesnot
cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
Inconnectionwithourauditoftheconsolidatedfinancial
statements, our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financialstatementsorourknowledgeobtainedinthe
audit, or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that
there is a material misstatement of this other information,
wearerequiredtoreportthatfact.Wehavenothingto
report in this regard.
Disclosures of emerging and principal risks
and longer term viability
Basedontheknowledgeweacquiredduringourfinancial
statements audit, we have nothing material to add or draw
attention to in relation to:
ӱ theDirectors’confirmationwithintheviability
assessment and statement (page 86) that they have
carried out a robust assessment of the emerging and
principal risks facing the Group, including those that
would threaten its business model, future performance,
solvencyorliquidity;
ӱ the Principal Risks disclosures describing these risks and
explaining how they are being managed or mitigated;
ӱ the Directors’ explanation in the viability assessment
and statement (page 86) 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
anynecessaryqualificationsorassumptions.
Our application of materiality and an overview
of the scope of our audit
Materialityfortheconsolidatedfinancialstatementsasa
wholewassetat£6.96million,determinedwithreference
toabenchmarkofGrouptotalassetsof£695.6million,of
which it represents approximately 1.0% (2019: 1%).
We reported to the Audit and Risk Committee any corrected
oruncorrectedidentifiedmisstatementsexceeding
£348,000,inadditiontootheridentifiedmisstatements
thatwarrantedreportingonqualitativegrounds.
Our audit of the Group was undertaken to the materiality
levelspecifiedabove,whichhasinformedouridentification
ofsignificantrisksofmaterialmisstatementandthe
associated audit procedures performed in those areas as
detailed above.
The group team performed the audit of the Group as if it
wasasingleaggregatedsetoffinancialinformation.The
audit was performed using the materiality level set out
above and covered 100% of total group revenue, total
groupprofitbeforetax,andtotalgroupassetsandliabilities.
We have nothing to report on going concern
TheDirectorshavepreparedtheconsolidatedfinancial
statements on the going concern basis as they do not
intendtoliquidatetheGrouportoceasetheiroperations,
andastheyhaveconcludedthatGroup’sfinancialposition
means that this is realistic. They have also concluded that
there are no material uncertainties that could have cast
significantdoubtoveritsabilitytocontinueasagoing
concern for at least a year from the date of approval of the
financialstatements(‘thegoingconcernperiod’).
In our evaluation of the Directors’ conclusions, we considered
the inherent risks to the Group’s activities including where
relevant the impact of the Covid-19 pandemic and the
requirementsoftheapplicablefinancialreporting
framework. We analysed how those risks might affect the
Group’sfinancialresourcesorabilitytocontinueoperations
over the going concern period, including challenging the
underlying data and key assumptions used to make the
assessment, and evaluated the Director’s plans for future
actions in relation to their going concern assessment.
Basedonthiswork,wearerequiredtoreporttoyouifwe
have anything material to add or draw attention to in
relation to the Directors’ statement in Note 2 to the
consolidatedfinancialstatementsontheuseofthegoing
concern basis of accounting with no material uncertainties
thatmaycastsignificantdoubtoverGroup’suseofthat
basis for a period of at least twelve months from the date
ofapprovaloftheconsolidatedfinancialstatements.We
have nothing to report in these respects.
89
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Independent Auditor’s Report to the Members of Picton Property Income Limited
continued
Auditor’s responsibilities
Ourobjectivesaretoobtainreasonableassuranceabout
whethertheconsolidatedfinancialstatementsasawhole
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
couldreasonablybeexpectedtoinfluencetheeconomic
decisions of users taken on the basis of the consolidated
financialstatements.
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
matterswearerequiredtostatetotheminanauditor’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
22June2020
Corporate governance disclosures
Wearerequiredtoreporttoyouif:
ӱ wehaveidentifiedmaterialinconsistenciesbetween
theknowledgeweacquiredduringourfinancial
statements audit and the Directors’ statement that they
consider that the Annual Report and consolidated
financialstatementstakenasawholeisfair,balanced
and understandable and provides the information
necessary for shareholders to assess the Group’s
position and performance, business model and
strategy; or
ӱ 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.
WearerequiredtoreporttoyouiftheCorporate
Governance Statement does not properly disclose a
departure from the provisions of the UK Corporate
GovernanceCodespecifiedbytheListingRulesfor
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
requiresustoreporttoyouif,inouropinion:
ӱ the Company has not kept proper accounting records;
or
ӱ theconsolidatedfinancialstatementsarenotin
agreement with the accounting records; or
ӱ 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 87, the
Directors are responsible for: the preparation of the
consolidatedfinancialstatementsincludingbeingsatisfied
that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of
consolidatedfinancialstatementsthatarefreefrom
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
theyeitherintendtoliquidatetheGrouportocease
operations, or have no realistic alternative but to do so.
90
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 March 2020
Income
Revenue from properties
Property expenses
Net property income
Expenses
Administrative expenses
Total operating expenses
Operating profit before movement on investments
Investments
Profitondisposalofinvestmentproperties
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
2020
Total
£000
2019
Total
£000
Notes
3
4
45,664
(12,027)
47,733
(9,433)
33,637
38,300
6
(5,563)
(5,842)
(5,563)
(5,842)
28,074
32,458
13
13
3,478
(882)
379
10,909
2,596
11,288
30,670
43,746
8
9
9
(8,295)
–
38
(9,126)
(3,245)
(8,286)
(12,333)
22,384
124
31,413
(458)
22,508
30,955
11
11
4.1p
4.1p
5.7p
5.7p
All items in the above statement derive from continuing operations.
AlloftheprofitandtotalcomprehensiveincomefortheyearisattributabletotheequityholdersoftheCompany.
Notes1to26formpartoftheseconsolidatedfinancialstatements.
91
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Consolidated statement of changes in equity
for the year ended 31 March 2020
Balance as at 31 March 2018
Profitfortheyear
Dividends paid
Share-based awards
Purchase of shares held in trust
Balance as at 31 March 2019
Profitfortheyear
Dividends paid
Issue of ordinary shares
Issue costs of shares
Vesting of shares held in trust
Share-based awards
Purchase of shares held in trust
Balance as at 31 March 2020
Notes1to26formpartoftheseconsolidatedfinancialstatements.
Share
capital
£000
Retained
earnings
£000
Other
reserves
£000
Total
£000
Notes
157,449 330,157
30,955
(18,860)
–
–
–
–
–
–
157,449 342,252
22,508
(19,039)
–
–
(54)
–
–
–
–
7,137
(186)
–
–
–
10
7
7
10
19
7
7
(251) 487,355
30,955
(18,860)
363
(398)
–
–
363
(398)
(286) 499,415
22,508
(19,039)
7,137
(186)
–
292
(844)
–
–
–
–
54
292
(844)
164,400 345,667
(784) 509,283
92
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Financial Statements
Consolidated balance sheet
as at 31 March 2020
Non-current assets
Investment properties
Tangible assets
Total non-current assets
Current assets
Accounts receivable
Cashandcashequivalents
Total current assets
Total assets
Current liabilities
Accounts payable and accruals
Loans and borrowings
Obligations under leases
Total current liabilities
Non-current liabilities
Loans and borrowings
Obligations under leases
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Other reserves
Total equity
Net asset value per share
Notes
2020
£000
2019
£000
13 654,486 676,102
25
20
654,506 676,127
14
15
17,601
23,567
14,309
25,168
41,168
39,477
695,674 715,604
16
17
21
(19,438)
(888)
(108)
(22,400)
(833)
(109)
(20,434)
(23,342)
17 (164,248)
21
(1,709)
(191,136)
(1,711)
(165,957)
(192,847)
(186,391)
(216,189)
509,283
499,415
19 164,400
157,449
345,667 342,252
(286)
(784)
509,283
499,415
22
93p
93p
TheseconsolidatedfinancialstatementswereapprovedbytheBoardofDirectorson22June2020andsignedonits
behalf by:
Andrew Dewhirst
Director
22June2020
Notes1to26formpartoftheseconsolidatedfinancialstatements.
93
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Consolidated statement of cash flows
for the year ended 31 March 2020
Operating activities
Operatingprofit
Adjustmentsfornon-cashitems
Interest received
Interest paid
Tax received/(paid)
(Increase)/decrease in accounts receivable
(Decrease)/increase in accounts payable and accruals
Cash inflows from operating activities
Investing activities
Capital expenditure on investment properties
Disposal of investment properties
Purchase of tangible assets
Cash inflows from investing activities
Financing activities
Borrowings repaid
Borrowings drawn
Debt prepayment fees
Issue of ordinary shares
Issue costs of ordinary shares
Purchase of shares held in trust
Dividends paid
Cash outflows from financing activities
Net decrease in cash and cash equivalents
Cashandcashequivalentsatbeginningofyear
Notes
2020
£000
2019
£000
20
30,670
(2,295)
9
(7,952)
123
(4,078)
(2,936)
43,746
(10,918)
38
(8,668)
(845)
396
1,532
13,541
25,281
13
(8,861)
33,859
(4)
(1,559)
11,837
(27)
24,994
10,251
17
17
19
7
10
(33,204)
6,000
–
7,137
(186)
(844)
(19,039)
(34,871)
15,500
(3,245)
–
–
(398)
(18,860)
(40,136)
(41,874)
(1,601)
25,168
(6,342)
31,510
Cash and cash equivalents at end of year
15
23,567
25,168
Notes1to26formpartoftheseconsolidatedfinancialstatements.
94
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated financial statements
for the year ended 31 March 2020
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.Theconsolidatedfinancialstatementsarepreparedfortheyearended31March2020withcomparativesforthe
year ended 31 March 2019.
2. Significant accounting policies
Basis of accounting
Thefinancialstatementshavebeenpreparedonagoingconcernbasisandadoptthehistoricalcostbasis,exceptforthe
revaluation of investment properties. Historical cost is generally based on the fair value of the consideration given in
exchangefortheassets.Thefinancialstatements,whichgiveatrueandfairview,arepreparedinaccordancewith
International Financial Reporting Standards (IFRS) as issued by the IASB and are in compliance with the Companies
(Guernsey) Law, 2008.
Given the impact of the current Covid-19 pandemic on the UK economy, the Directors have focused on assessing whether
thegoingconcernbasisremainsappropriateforthepreparationofthefinancialstatements.Theyhavereviewedthe
Group’sprincipalrisks,itsloanfacilities,accesstofundingandliquiditypositionandthenconsideredanumberof
scenariosincludingdifferentlevelsofrentcollectionovervaryingtimescales,andthepotentialconsequencesonfinancial
performance,assetvalues,capitalprojectsandloancovenants.UnderallofthesescenariostheGrouphassufficient
resources to continue its operations, and remain within its loan covenants, for a period of at least 12 months from the date
ofthesefinancialstatements.
Based on their assessment and knowledge of the portfolio and market, the Directors have therefore continued to adopt
thegoingconcernbasisinpreparingthefinancialstatements.
Thefinancialstatementsarepresentedinpoundssterling,whichistheCompany’sfunctionalcurrency.Allfinancial
information presented in pounds sterling has been rounded to the nearest thousand, except when otherwise indicated.
New or amended standards issued
Theaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialperiod,asamendedtoreflectthe
adoption of new standards, amendments and interpretations which became effective in the year as shown below.
ӱ IFRS 16 Leases
TheadoptionofthisstandardhashadnomaterialeffectontheconsolidatedfinancialstatementsoftheGroup.
Atthedateofapprovalofthesefinancialstatementsthereareanumberofnewandamendedstandardsinissuebutnot
yeteffectiveforthefinancialyearended31March2020andthushavenotbeenappliedbytheGroup.
ӱ AmendmentstoIFRS3(BusinessCombinations)iseffectiveforfinancialyearscommencingonorafter1January2020.
Theamendmentrelatestochangesinthecriteriafordeterminingwhetheranacquisitionisabusinesscombinationor
anassetacquisition.Theseamendmentswillbeappliedtoanyfuturebusinesscombinations.
ӱ AmendmentstoIFRS9(FinancialInstruments)iseffectiveforfinancialyearscommencingonorafter1January2020.
The amendments offer relief in meeting the criteria for hedge accounting on the transition from LIBOR to IBOR. The
adoptionoftheseamendmentsisnotconsideredtohaveamaterialimpactonthefinancialstatementsoftheGroup.
ӱ AmendmentstoReferencestotheConceptualFrameworkareeffectforfinancialyearscommencingonorafter
1January2020.Theadoptionoftheseamendmentsisnotconsideredtohaveamaterialimpactonthefinancial
statements of the Group.
ӱ Amendments to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) are also effective for
financialyearscommencingonorafter1January2020.Theamendmentwillbeappliedtoanyfuturechangesin
Accounting Policy, Accounting Estimates or Errors.
Use of estimates and judgements
ThepreparationoffinancialstatementsinconformitywithIFRSrequiresmanagementtomakejudgements,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.
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Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
2. Significant accounting policies continued
Significant judgements
Criticaljudgements,wheremade,aredisclosedwithintherelevantsectionofthefinancialstatementsinwhichsuch
judgementshavebeenapplied.Keyjudgementsrelatetothetreatmentofbusinesscombinations,leaseclassifications,or
employeebenefitswheredifferentaccountingpoliciescouldbeapplied.Thesearedescribedinmoredetailinthe
accountingpolicynotesbelow,orintherelevantnotestothefinancialstatements.
Basis of consolidation
TheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandentitiescontrolledbythe
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
thedateonwhichcontrolistransferredoutoftheGroup.Thesefinancialstatementsincludetheresultsofthesubsidiaries
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
basedontheinputstovaluationtechniquesused.Thedifferentlevelshavebeendefinedasfollows:
Level1:quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilitiesthattheGroupcanaccessatthe
measurement date.
Level2:inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly
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
FreeholdpropertyheldbytheGrouptoearnincomeorforcapitalappreciation,orboth,isclassifiedasinvestment
property in accordance with IAS 40 ‘Investment Property’. Property held under head leases for similar purposes is also
classifiedasinvestmentproperty.Investmentpropertyisinitiallyrecognisedatpurchasecostplusdirectlyattributable
acquisitionexpensesandsubsequentlymeasuredatfairvalue.Thefairvalueofinvestmentpropertyisbasedona
valuationbyanindependentvaluerwhoholdsarecognisedandrelevantprofessionalqualificationandwhohasrecent
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
andfinanciallyfeasible.
The fair value of investment property generally involves consideration of:
ӱ Market evidence on comparable transactions for similar properties;
ӱ The actual current market for that type of property in that type of location at the reporting date and current market
expectations;
ӱ Rental income from leases and market expectations regarding possible future lease terms;
ӱ 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
ӱ 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
unconditionallyexchangedandthesignificantrisksandrewardsofownershiphavebeentransferred.
Aninvestmentpropertyisderecognisedforaccountingpurposesupondisposalorwhennofutureeconomicbenefitsare
expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated
Statement of Comprehensive Income in the year the asset is derecognised. Investment properties are not depreciated.
Themajorityoftheinvestmentpropertiesarechargedbywayofafirstrankingmortgageassecurityfortheloansmadeto
the Group; see Note 17.
Leases
Headleases,whichtransfertotheGroupsubstantiallyalltherisksandbenefitsincidentaltoownershipoftheleasedasset,
are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the
minimumleasepayments.Leasepaymentsareapportionedbetweenfinancechargesandareductionofthelease
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.
96
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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. 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
Cashincludescashinhandandcashwithbanks.Cashequivalentsareshort-term,highlyliquidinvestmentsthatare
readilyconvertibletoknownamountsofcashwithoriginalmaturitiesinthreemonthsorlessandthataresubjecttoan
insignificantriskofchangeinvalue.
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.
RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitwillflowtotheGroupandtherevenue
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
leaseend.Uponreceiptofasurrenderpremiumfortheearlyterminationofalease,theprofit,netofdilapidationsand
non-recoverableoutgoingsrelatingtotheleaseconcerned,isimmediatelyreflectedinrevenuefromproperties.
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
shownseparatelyinNotes3and4toreflectthat,notwithstandingthismoneyisheldonbehalfofoccupiers,theultimate
risk for paying and recovering these costs rests with the property owner.
Employee benefits
Defined contribution plans
Adefinedcontributionplanisapost-employmentbenefitplanunderwhichtheCompanypaysfixedcontributionsintoa
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
definedcontributionpensionplansarerecognisedasanexpenseintheConsolidatedStatementofComprehensive
Income in the periods during which services are rendered by employees.
Short-term benefits
Short-termemployeebenefitobligationsaremeasuredonanundiscountedbasisandareexpensedastherelatedservice
isprovided.Aliabilityisrecognisedfortheamountexpectedtobepaidundershort-termcashbonusorprofit-sharing
plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided
by the employee and the obligation can be estimated reliably.
Share-based payments
The fair value of the amounts payable to employees in respect of the Deferred Bonus Plan, when settled in cash, is
recognised as an expense with a corresponding increase in liabilities, over the period that the employees become
unconditionallyentitledtopayment.Wheretheawardsareequitysettled,thefairvalueisrecognisedasanexpense,with
acorrespondingincreaseinequity.Theliabilityisremeasuredateachreportingdateandatsettlementdate.Anychanges
in the fair value of the liability are recognised under the category staff costs in the Consolidated Statement of
Comprehensive Income.
The grant date fair value of awards to employees made under the Long-term Incentive Plan is recognised as an expense,
withacorrespondingincreaseinequity,overthevestingperiodoftheawards.Theamountrecognisedasanexpenseis
adjustedtoreflectthenumberofawardsforwhichtherelatednon-marketperformanceconditionsareexpectedtobe
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
valueoftheshare-basedawardsismeasuredtoreflectsuchconditionsandthereisnoadjustmentbetweenexpected
and actual outcomes.
ThecostoftheCompany’ssharesheldbytheEmployeeBenefitTrustisdeductedfromequityintheGroupBalance
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.TheGroupappliestheIFRS9simplifiedapproachtomeasuringexpectedcreditlosses,whichusesalifetime
expectedimpairmentprovisionforallapplicableaccountsreceivable.Baddebtsarewrittenoffwhenidentified.
97
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
2. Significant accounting policies continued
Loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs
associatedwiththeborrowing.Afterinitialrecognition,loansandborrowingsaresubsequentlymeasuredatamortisedcost
using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or
premiumonsettlement.GainsandlossesarerecognisedinprofitorlossintheConsolidatedStatementofComprehensive
Income when the liabilities are derecognised for accounting purposes, as well as through the amortisation process.
Assets classified as held for sale
Any investment properties on which contracts for sale have been exchanged but which had not completed at the period
end are disclosed as properties held for sale. 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
Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofordinarysharesare
recognisedasadeductionfromequity.
Taxation
TheGroupelectedtobetreatedasaUKREITwitheffectfrom1October2018.TheUKREITrulesexempttheprofitsofthe
Group’s UK property rental business from UK corporation and income tax. Gains on UK properties are also exempt from
tax,providedtheyarenotheldfortrading.TheGroupisotherwisesubjecttoUKcorporationtax.
AsaREIT,theCompanyisrequiredtopayPropertyIncomeDistributionsequaltoatleast90%oftheGroup’sexempted
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,theGroup’squalifyingactivityanditsbalanceofbusiness.TheGroupcontinuestomeettheseconditions.
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
flowsfromoperatingactivities,investingactivitiesandfinancingactivities.Thenetresulthasbeenadjustedforamountsin
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.
3. Revenue from properties
Rentsreceivable(adjustedforleaseincentives)
Surrender premiums
Dilapidation receipts
Other income
Service charge income
Rentsreceivableincludesleaseincentivesrecognisedof£1.3million(2019:£0.8million).
4. Property expenses
Property operating costs
Property void costs
Recoverable service charge costs
2020
£000
2019
£000
37,780
603
471
81
6,729
45,664
40,942
682
269
122
5,718
47,733
2020
£000
2,293
3,005
6,729
12,027
2019
£000
2,342
1,373
5,718
9,433
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
requiredbetweenthemeasureofprofitorlossusedbytheBoardandthatcontainedinthefinancialstatements.
TheBoardhasconsideredtherequirementsofIFRS8‘OperatingSegments’.TheBoardisoftheopinionthattheGroup,
through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and
acrossoneprimarygeographicalarea,namelytheUnitedKingdom,andthereforenosegmentalreportingisrequired.
Theportfolioconsistsof47commercialproperties,whichareintheindustrial,office,retailandleisuresectors.
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Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
6. Administrative expenses
Director and staff costs
Auditor’s remuneration
Other administrative expenses
2020
£000
3,273
191
2,099
5,563
2019
£000
3,672
157
2,013
5,842
One-offREITconversioncostsof£215,000wereincurredduringtheyearended31March2019,whichareincludedwithin
other administrative expenses.
Auditor’s remuneration comprises:
Audit fees:
AuditofGroupfinancialstatements
Auditofsubsidiaries’financialstatements
Audit-related fees:
Reviewofhalf-yearfinancialstatements
Non-audit fees:
Additional controls testing
Liquidators’fees
Tax compliance
7. Director and staff costs
Wages and salaries
Non-Executive Directors’ fees
Social security costs
Other pension costs
Share-based payments – cash settled
Share-basedpayments–equitysettled
2020
£000
2019
£000
92
67
16
175
16
–
–
16
72
43
15
130
15
7
5
27
191
157
2020
£000
1,688
250
394
45
473
423
3,273
2019
£000
1,654
257
623
48
727
363
3,672
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
theexceptionofExecutiveDirectors,awardsarecashsettledandvestaftertwoyears.Thefinalvalueofawardsare
determined by the movement in the Company’s share price and dividends paid over the vesting period. For Executive
Directors,awardsareequitysettledandalsovestaftertwoyears.On19June2019awardsof441,322unitsweremade
whichvestinJune2021(2019:572,389units).ThenextawardsareduetobemadeinJune2020forvestinginJune2022.
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 2020, and were not
deferred,werepaidoutsubsequenttotheyearendatacostof£210,000(2019:£925,000).
Vesting date
31 March 2016
31 March 2017
31 March 2018
31 March 2019
31 March 2020
31 March 2021
Units
at31 March
2018
Units
granted in
the year
Units
cancelled in
the year
Units
redeemed in
the year
Units
at31 March
2019
Units
granted in
the year
Units
cancelled in
the year
Units
redeemed
in the year
Units
at 31 March
2020
65,198
127,916
127,234
950,890
–
–
–
–
– 572,389
–
–
–
–
–
(14,331)
(7,785)
–
(65,198)
(127,916)
(127,234)
(936,559)
–
–
–
–
– 564,604
–
–
–
–
–
–
– 441,322
–
–
–
–
(2,616)
(2,415)
–
–
–
–
–
–
–
–
(319,479) 242,509
– 438,907
1,271,238 572,389
(22,116)
(1,256,907) 564,604 441,322
(5,031)
(319,479) 681,416
99
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
7. Director and staff costs continued
TheGroupalsohasaLong-termIncentivePlanforallemployeeswhichisequitysettled.Awardsaremadeannuallyand
vest three years from the grant date. Vesting is conditional on three performance metrics measured over each three-year
period.AwardstoExecutiveDirectorsarealsosubjecttoafurthertwo-yearholdingperiod.On19June2019awardsfora
maximum of 878,164 shares were granted to employees in respect of the three-year period ending on 31 March 2022. In
thepreviousyear,awardsof1,006,938sharesweremadeon8June2018fortheperiodending31March2021.
The three performance metrics are:
ӱ Total shareholder return (TSR) of Picton Property Income Limited, compared to a comparator group of similar listed
companies;
ӱ Total property return (TPR) of the property assets held within the Group, compared to the MSCI UK Quarterly Property
Index; and
ӱ Growth in EPRA earnings per share (EPS) of the Group.
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)
19June2019
95.0p
Nil
3 years
0.84%
18.7%
18.1%
27.1%
7.5%
3.0%
51.5p
95.0p
95.0p
8June2018
90.9p
Nil
3 years
0.83%
18.4%
18.1%
33.2%
7.6%
3.1%
42.9p
90.9p
90.9p
TheTrusteeoftheCompany’sEmployeeBenefitTrustacquired954,000ordinarysharesduringtheyearfor£844,000
(2019:472,000sharesfor£398,000).
The Group employed nine members of staff at 31 March 2020 (2019: ten). The average number of people employed by the
Group for the year ended 31 March 2020 was ten (2019: 11).
8. Interest paid
Interest payable on loans at amortised cost
Interestonobligationsunderfinanceleases
Non-utilisation fees
Amortisationoffinancecosts
2020
£000
7,562
114
248
371
8,295
2019
£000
8,117
114
220
675
9,126
Theloanarrangementcostsincurredto31March2020are£4,534,000(2019:£4,534,000).Theseareamortisedoverthe
durationoftheloanswith£371,000amortisedintheyearended31March2020(2019:£675,000).
9. Tax
The charge for the year is:
Current UK income tax
Incometaxadjustmenttoprovisionforprioryear
Current UK corporation tax
UKcorporationtaxadjustmenttoprovisionforprioryear
Total tax (credit)/charge
100
2020
£000
–
(68)
(68)
–
(56)
(56)
(124)
2019
£000
324
25
349
121
(12)
109
458
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
A reconciliation of the tax charge applicable to the results at the statutory tax rate to the charge for the year is as follows:
Profitbeforetaxation
Expected tax charge on ordinary activities at the standard rate of taxation of 19% (2019: 20%)
Less:
UK REIT exemption on net income
Revaluation movement not taxable
Gains on disposal not taxable
Income not taxable, including interest receivable
Expenditure not allowed for tax purposes
Losses utilised
Capital allowances and other allowable deductions
Losses carried forward to future years
Total tax charge
2020
£000
22,384
4,253
2019
£000
31,413
6,283
(3,760)
168
(661)
–
–
–
–
–
–
(2,315)
(2,182)
(76)
(163)
985
(2)
(2,291)
85
324
Fortheyearended31March2020therewasanincometaxcreditof£68,000inrespectoftheGroup(2019:£349,000
charge)andacorporationtaxcreditof£56,000(2019:£109,000charge).
AsaUKREIT,theincomeprofitsoftheGroup’sUKpropertyrentalbusinessareexemptfromcorporationtax,asareany
gainsitmakesfromthedisposalofitsproperties,providedtheyarenotheldfortrading.TheGroupisotherwisesubjectto
UK corporation tax at the prevailing rate.
AstheprincipalcompanyoftheREIT,theCompanyisrequiredtodistributeatleast90%oftheincomeprofitsofthe
Group’sUKpropertyrentalbusiness.Thereareanumberofotherconditionsthatarealsorequiredtobemetbythe
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 timing differences relating to the property rental business.
The Group is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989.
10. Dividends
Declared and paid:
Interim dividend for the period ended 31 March 2018: 0.875 pence
Interimdividendfortheperiodended30June2018:0.875pence
Interim dividend for the period ended 30 September 2018: 0.875 pence
Interim dividend for the period ended 31 December 2018: 0.875 pence
Interim dividend for the period ended 31 March 2019: 0.875 pence
Interimdividendfortheperiodended30June2019:0.875pence
Interim dividend for the period ended 30 September 2019: 0.875 pence
Interim dividend for the period ended 31 December 2019: 0.875 pence
2020
£000
2019
£000
–
–
–
–
4,712
4,781
4,773
4,773
4,716
4,716
4,716
4,712
–
–
–
–
19,039
18,860
The interim dividend of 0.625 pence per ordinary share in respect of the period ended 31 March 2020 has not been
recognisedasaliabilityasitwasdeclaredaftertheyearend.Thisdividendof£3,409,000waspaidon29May2020.
11. Earnings per share
Basicanddilutedearningspershareiscalculatedbydividingthenetprofitfortheyearattributabletoordinary
shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding the
averagenumberofsharesheldbytheEmployeeBenefitTrustfortheyear.Thedilutednumberofsharesalsoreflectsthe
contingent shares to be issued under the Long-term Incentive Plan.
Thefollowingreflectstheprofitandsharedatausedinthebasicanddilutedprofitpersharecalculation:
NetprofitattributabletoordinaryshareholdersoftheCompany
fromcontinuingoperations(£000)
Weightedaveragenumberofordinarysharesforbasicprofitpershare
Weightedaveragenumberofordinarysharesfordilutedprofitpershare
2020
2019
22,508
544,192,866
546,227,914
30,955
538,815,550
541,035,348
101
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
12. Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2020 and 31 March 2019:
Name
Picton UK Real Estate Trust (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 Financing UK Limited (established on 14 February 2020)
Picton Property No 3 Limited
Place of
incorporation
Ownership
proportion
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
England & Wales
Guernsey
Guernsey
England & Wales
England & Wales
England & Wales
Guernsey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
TheresultsoftheaboveentitiesareconsolidatedwithintheGroupfinancialstatements.
Picton UK Real Estate Trust (Property) Limited and Picton (UK) REIT (SPV) Limited own 100% of the units in Picton (UK)
Listed Real Estate, a Guernsey Unit Trust (the ‘GPUT’). The GPUT holds a 99.9% interest in both Picton No 2 Limited
Partnership and Picton No 3 Limited Partnership, the remaining balances are held by Picton (General Partner) No 2
Limited and Picton (General Partner) No 3 Limited respectively.
13. Investment properties
Thefollowingtableprovidesareconciliationoftheopeningandclosingamountsofinvestmentpropertiesclassifiedas
Level 3 recorded at fair value.
Fair value at start of year
Capital expenditure on investment properties
Disposals
Realised gains on disposal
Unrealised movement on investment properties
Fair value at the end of the year
Historic cost at the end of the year
The fair value of investment properties reconciles to the appraised value as follows:
Appraised value
Valuation of assets held under head leases
Lease incentives held as debtors
Fair value at the end of the year
2020
£000
2019
£000
676,102 674,524
1,559
(11,269)
379
10,909
8,861
(33,073)
3,478
(882)
654,486 676,102
629,932 648,044
2020
£000
2019
£000
664,615 685,335
1,565
(10,798)
1,489
(11,618)
654,486 676,102
The investment properties were valued by independent valuers, CBRE Limited, Chartered Surveyors, as at 31 March 2020
and 31 March 2019 on the basis of fair value in accordance with the version of the RICS Valuation – Global Standards
(incorporating the International Valuation Standards) and the UK national supplement (the Red Book) current as at the
valuation date. The total fees earned by CBRE Limited from the Group are less than 5% of their total UK revenue.
ThefairvalueoftheGroup’sinvestmentpropertieshasbeendeterminedusinganincomecapitalisationtechnique,
whereby contracted and market rental values are capitalised with a market capitalisation rate. The resulting valuations are
cross-checkedagainsttheequivalentyieldsandthefairmarketvaluespersquarefootderivedfromcomparablemarket
transactions on an arm’s length basis.
Inaddition,theGroup’sinvestmentpropertiesarevaluedquarterlybyCBRELimited.Thevaluationsarebasedon:
ӱ Information provided by the Group including rents, lease terms, revenue and capital expenditure. Such information is
derivedfromtheGroup’sfinancialandpropertysystemsandissubjecttotheGroup’soverallcontrolenvironment.
ӱ Valuationmodelsusedbythevaluers,includingmarket-relatedassumptionsbasedontheirprofessionaljudgement
and market observation.
102
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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,
togetherwithseniormanagement,meetwiththeindependentvalueronaquarterlybasistoreviewthevaluationsand
underlying assumptions, including considering current market trends and conditions, and changes from previous
quarters.TheBoardwillalsoconsiderwherecircumstancesatspecificinvestmentproperties,suchasalternativeusesand
issueswithoccupationaltenants,areappropriatelyreflectedinthevaluations.Thefairvalueofinvestmentpropertiesis
measured based on each property’s highest and best use from a market participant’s perspective and considers the
potentialusesofthepropertythatarephysicallypossible,legallypermissibleandfinanciallyfeasible.
TheoutbreakofCovid-19,declaredbytheWorldHealthOrganizationasa‘GlobalPandemic’on11March2020,has
impactedglobalfinancialmarkets.Travelrestrictionshavebeenimplementedbymanycountries.Marketactivityisbeing
impacted in many sectors. As at the valuation date, the external valuers consider that they can attach less weight to
previous market evidence for comparison purposes, to inform opinions of value. The current response to Covid-19 means
thatexternalvaluersarefacedwithanunprecedentedsetofcircumstancesonwhichtobaseajudgement.The
valuations across all asset classes are therefore reported on the basis of ‘material valuation uncertainty’ as per VPS 3 and
VPGA 10 of the RICS Red Book Global.
Consequently,lesscertainty–andahigherdegreeofcaution–shouldbeattachedtothevaluationsprovidedthanwould
normallybethecase.Theexternalvaluershaveconfirmedthattheinclusionofthe‘materialvaluationuncertainty’
declaration does not mean that valuations cannot be relied upon. Rather, the phrase is used in order to be clear and
transparent with all parties, in a professional manner, that – in the current extraordinary circumstances – less certainty can
be attached to valuations than would otherwise be the case.
As at 31 March 2020 and 31 March 2019 all of the Group’s properties are Level 3 in the fair value hierarchy as it involves use
ofsignificantinputs.Therewerenotransfersbetweenlevelsduringtheyearandtheprioryear.Level3inputsusedin
valuingthepropertiesarethosewhichareunobservable,asopposedtoLevel1(inputsfromquotedprices)andLevel2
(observable inputs either directly, i.e. as prices, or indirectly, i.e. derived from prices).
Informationonthesesignificantunobservableinputspersectorofinvestmentpropertiesisdisclosedasfollows:
Appraisedvalue(£000)
Area(sqft,000s)
Range of unobservable inputs:
Gross ERV (sq ft per annum)
– range
– weighted average
Net initial yield
– range
– weighted average
Reversionary yield
– range
– weighted average
True equivalent yield
– range
– weighted average
2020
2019
Office
Industrial
224,620
808
318,330
2,570
Retail and
Leisure
121,665
829
Office
Industrial
235,035
856
312,790
2,731
Retail and
Leisure
137,510
829
£11.00 to
£53.59
£27.92
£3.54 to
£19.58
£9.79
£3.46 to
£81.77
£32.13
£9.52to
£51.78
£27.33
£3.54to
£17.70
£8.91
£3.88to
£84.11
£31.50
0.00% to
7.59%
4.89%
–2.54% to
8.16%
4.63%
–0.18% to
25.27%
5.25%
2.48% to
8.59%
5.15%
0.00% to
8.25%
4.78%
–0.17% to
15.36%
5.11%
5.47% to
10.80%
7.04%
4.46% to
10.17%
5.40%
4.36% to
11.97%
6.63%
5.32% to
10.70%
7.01%
4.60% to
9.99%
5.55%
4.63% to
12.11%
6.37%
5.33% to
9.80%
6.97%
4.39% to
9.65%
5.40%
3.97% to
11.95%
7.17%
5.24% to
9.49%
6.88%
4.63% to
9.48%
5.59%
4.09% to
10.86%
6.75%
Thepropertyvaluationsreflecttheexternalvaluers’assessmentoftheimpactofCovid-19atthevaluationdate.An
increase/decrease in ERV will increase/decrease valuations, while an increase/decrease to yield decreases/increases
valuations. In light of this material valuation uncertainty we have reviewed the ranges used in assessing the impact of
changes in unobservable inputs on the fair value of the Group’s property portfolio and concluded these were still
reasonable. The table below sets out the sensitivity of the valuation to changes of 50 basis points in yield.
Sector
Industrial
Office
Retail and Leisure
Movement
Increase of 50 basis points
Decrease of 50 basis points
Increase of 50 basis points
Decrease of 50 basis points
Increase of 50 basis points
Decrease of 50 basis points
2020
Impact on valuation
Decrease of £29.3m
Increase of £36.1m
Decrease of £17.5m
Increase of £20.5m
Decrease of £10.9m
Increase of £13.9m
2019
Impact on valuation
Decreaseof£28.7m
Increaseof£34.7m
Decreaseof£18.7m
Increaseof£21.3m
Decreaseof£12.6m
Increaseof£15.8m
103
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
14. Accounts receivable
Tenant debtors (net of provisions for bad debts)
Lease incentives
Other debtors
2020
£000
2019
£000
5,197
11,618
786
17,601
2,594
10,798
917
14,309
Theestimatedfairvaluesofreceivablesarethediscountedamountoftheestimatedfuturecashflowsexpectedtobe
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 2020, tenant
debtorsof£1,676,000(2019:£918,000)wereconsideredimpairedandprovidedfor.
15. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2020
£000
23,564
3
23,567
2019
£000
24,454
714
25,168
Cashatbankandinhandearnsinterestatfloatingratesbasedondailybankdepositrates.Short-termdepositsaremadefor
varyingperiodsofbetweenonedayandonemonthdependingontheimmediatecashrequirementsoftheGroup,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
17. Loans and borrowings
Current
Aviva facility
Capitalisedfinancecosts
Non-current
Santander revolving credit facility
Santander revolving credit facility
Canada Life facility
Aviva facility
Capitalisedfinancecosts
104
2020
£000
5,263
7,817
1,685
–
1,058
3,615
2019
£000
6,596
8,381
1,994
57
230
5,142
19,438
22,400
Maturity
2020
£000
2019
£000
–
–
1,258
(370)
888
1,204
(371)
833
18June2021
20June2021
24July2027
24July2032
–
–
–
80,000
86,207
(1,959)
11,500
14,500
80,000
87,465
(2,329)
164,248 191,136
165,136 191,969
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Thefollowingtableprovidesareconciliationofthemovementinloansandborrowingstocashflowsarisingfrom
financingactivities.
Balance as at 1 April
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of loans and borrowings
Other changes
Amortisationoffinancingcosts
Balance as at 31 March
2020
£000
2019
£000
191,969 210,664
6,000
(33,204)
15,500
(34,871)
(27,204)
(19,371)
371
371
676
676
165,136 191,969
TheGrouphasan£80milliontermloanfacilitywithCanadaLifeLimitedwhichmaturesinJuly2027.Interestisfixedat
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)No2Limited,valuedat£307.5million(2019:£292.4million).
Additionally,theGrouphasa£95.3milliontermloanfacilitywithAvivaCommercialFinanceLimitedwhichmaturesinJuly
2032.Theloanisforatermof20yearsandwasfullydrawnon24July2012withapproximatelyone-thirdrepayableover
thelifeoftheloaninaccordancewithascheduledamortisationprofile.TheGrouphasrepaid£1.2millionintheyear(2019:
£1.2million).Interestontheloanisfixedat4.38%overthelifeoftheloan.Thefacilityhasaloantovaluecovenantof65%
and a debt service cover ratio of 1.4. The facility is secured over the Group’s properties held by Picton No 3 Limited
PartnershipandPictonPropertyNo3Limited,valuedat£189.0million(2019:£230.3million).
As at 31 March 2020 the Group had two revolving credit facilities (‘RCFs’) with Santander Corporate & Commercial Banking
whichexpiredinJune2021.IntotaltheGrouphad£49.0million(2019:£51.0million)availableunderbothfacilities;thereis
nothing drawn down under these facilities at the year end. Interest was payable on drawn balances at LIBOR plus margins
of 175 or 190 basis points. The facilities were secured on properties held by Picton (UK) REIT (SPV No 2) Limited and Picton
(UK)ListedRealEstate,valuedat£131.8million(2019:£133.7million).Postyearend,bothRCFswerecancelledandreplaced
withanew£50.0millionRCF.
Thefairvalueofthedrawnloanfacilitiesat31March2020,estimatedasthepresentvalueoffuturecashflowsdiscounted
atthemarketrateofinterestatthatdate,was£197.0million(2019:£219.5million).Thefairvalueofthesecuredloan
facilitiesisclassifiedasLevel2underthehierarchyoffairvaluemeasurements.
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 2020 was 4.2% (2018: 4.0%).
18. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of 11 properties with commitments outstanding at 31 March
2020ofapproximately£4.5million(2019:£1.4million).Nofurtherobligationstoconstructordevelopinvestmentproperty
orforrepairs,maintenanceorenhancementswereinplaceasat31March2020(2019:£nil).
19. Share capital and other reserves
Authorised:
Unlimited number of ordinary shares of no par value
Issued and fully paid:
547,605,596 ordinary shares of no par value
(31 March 2019: 540,053,660)
Share premium
2020
£000
2019
£000
–
–
–
–
164,400
157,449
On21June2019theCompanyraised£7.1millionthroughtheissueof7,551,936newordinarysharesofnoparvalueat94.5
pence per share. The Company now has 547,605,596 ordinary shares in issue of no par value (31 March 2019: 540,053,660).
105
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
19. Share capital and other reserves continued
ThebalanceoftheCompany’ssharepremiumaccountasat31March2020was£164,400,000(31March2019:£157,449,000).
Ordinary share capital
NumberofsharesheldinEmployeeBenefitTrust
Number of ordinary shares
2020
Number of shares
2019
Number of shares
547,605,596
(2,103,683)
540,053,660
(1,542,000)
545,501,913
538,511,660
The fair value of awards made under the Long-term Incentive Plan is recognised in other reserves.
SubjecttothesolvencytestcontainedintheCompanies(Guernsey)Law,2008beingsatisfied,ordinaryshareholdersare
entitled to all dividends declared by the Company and to all of the Company’s assets after repayment of its borrowings
andordinarycreditors.TheTrusteeoftheCompany’sEmployeeBenefitTrusthaswaiveditsrighttoreceivedividendson
the 2,103,683 shares it holds but continues to hold the right to vote. Ordinary shareholders have the right to vote at
meetingsoftheCompany.Allordinarysharescarryequalvotingrights.
TheDirectorshaveauthoritytobuybackupto14.99%oftheCompany’sordinarysharesinissue,subjecttotheannual
renewaloftheauthorityfromshareholders.AnybuybackofordinaryshareswillbemadesubjecttoGuernseylaw,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
Profitondisposalofinvestmentproperties
Movement in investment property valuation
Share-based provisions
Depreciation of tangible assets
2020
£000
(3,478)
882
292
9
2019
£000
(379)
(10,909)
363
7
(2,295)
(10,918)
21. Obligations under leases
TheGrouphasenteredintoanumberofheadleasesinrelationtoitsinvestmentproperties.Theseleasesareforfixed
termsandsubjecttoregularrentreviews.Theycontainnomaterialprovisionsforcontingentrents,renewalorpurchase
options nor any restrictions outside of the normal lease terms.
Lease liabilities in respect of rents payable on leasehold properties were payable as follows:
Future minimum payments due:
Within one year
Inthesecondtofifthyearsinclusive
Afterfiveyears
Less:financechargesallocatedtofutureperiods
Present value of minimum lease payments
The present value of minimum lease payments is analysed as follows:
Current
Within one year
Non-current
Inthesecondtofifthyearsinclusive
Afterfiveyears
106
2020
£000
2019
£000
117
466
7,266
7,849
(6,032)
1,817
117
466
7,383
7,966
(6,146)
1,820
2020
£000
2019
£000
108
108
109
109
388
1,321
1,709
1,817
392
1,319
1,711
1,820
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Operating leases where the Group is lessor
The Group leases its investment properties under commercial property leases which are held as operating leases.
At the reporting date, the Group’s future income based on the unexpired lessor lease length was as follows (based on
annual rentals):
Within one year
Inthesecondtofifthyearsinclusive
Afterfiveyears
2020
£000
2019
£000
38,296
37,497
124,942 113,403
88,902
111,711
274,949 239,802
Thesepropertiesaremeasuredunderthefairvaluemodelasthepropertiesareheldtoearnrentals.Themajorityofthese
non-cancellableleaseshaveremainingleasetermsofmorethanfiveyears.
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
numberofsharesheldbytheEmployeeBenefitTrustattheyearend;seeNote19.
23. Financial instruments
TheGroup’sfinancialinstrumentscomprisecashandcashequivalents,accountsreceivable,securedloans,obligations
under head leases and accounts payable that arise from its operations. The Group does not have exposure to any
derivativefinancialinstruments.Apartfromthesecuredloans,asdisclosedinNote17,thefairvalueofthefinancialassets
andliabilitiesisnotmateriallydifferentfromtheircarryingvalueinthefinancialstatements.
Categories of financial instruments
31 March 2020
Financial assets
Debtors
Cashandcashequivalents
Financial liabilities
Loans and borrowings
Obligations under head leases
Creditors and accruals
31 March 2019
Financial assets
Debtors
Cashandcashequivalents
Financial liabilities
Loans and borrowings
Obligations under head leases
Creditors and accruals
Held at
fair value
through
profit or
loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
5,983
23,567
5,983
23,567
29,550
29,550
– 165,136 165,136
1,817
–
9,936
–
1,817
9,936
– 176,889 176,889
Held at
fair value
through
profitorloss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
3,511
25,168
3,511
25,168
28,679
28,679
– 191,969 191,969
1,820
–
11,968
–
1,820
11,968
– 205,757 205,757
Note
14
15
17
21
16
Note
14
15
17
21
16
107
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
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
whilemaximisingthereturntostakeholdersthroughtheoptimisationofthedebtandequitybalance.TheBoard’spolicy
istomaintainastrongcapitalbasesoastomaintaininvestor,creditorandmarketconfidenceandtosustainfuture
development of the business.
ThecapitalstructureoftheGroupconsistsofdebt,asdisclosedinNote17,cashandcashequivalentsandequity
attributabletoequityholdersoftheCompany,comprisingissuedcapital,reservesandretainedearnings.TheGroupisnot
subjecttoanyexternalcapitalrequirements.
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%)
2020
£000
2019
£000
167,465 194,669
695,674 715,604
24.1%
27.2%
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
flexibilityinmanagingthelevelofborrowings.
TheGroup’snetdebttoequityratioatthereportingdatewasasfollows:
Total liabilities
Less:cashandcashequivalents
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:
2020
£000
2019
£000
186,391 216,189
(25,168)
(23,567)
162,824
191,021
509,283
499,415
0.32
0.38
31 March 2020
Financial assets
Tenant debtors
Cashandcashequivalents
31 March 2019
Financial assets
Tenant debtors
Cashandcashequivalents
108
Held at
fair value
through
profit or
loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
5,197
23,567
5,197
23,567
28,764
28,764
Held at
fair value
through
profitor
loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
2,594
25,168
2,594
25,168
27,762
27,762
Note
14
15
Note
14
15
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Creditriskreferstotheriskthatacounterpartywilldefaultonitscontractualobligationsresultinginfinanciallosstothe
Group.TheGrouphasadoptedapolicyofonlydealingwithcreditworthycounterpartiesandobtainingsufficientcollateral
whereappropriate,asameansofmitigatingtheriskoffinanciallossfromdefaults.TheGroup’sexposureandcredit
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.
Tenant debtors consist of a large number of occupiers, spread across diverse industries and geographical areas. Ongoing
creditevaluationsareperformedonthefinancialconditionoftenantdebtorsand,whereappropriate,creditguarantees
areacquired.Rentcollectionisoutsourcedtomanagingagentswhoreportregularlyonpaymentperformanceand
providetheGroupwithintelligenceonthecontinuingfinancialviabilityofoccupiers.TheGroupdoesnothaveany
significantcreditriskexposuretoanysinglecounterpartyoranygroupofcounterpartieshavingsimilarcharacteristics.The
creditriskonliquidfundsislimitedbecausethecounterpartiesarebankswithhighcreditratingsassignedby
international credit rating agencies.
Thecarryingamountoffinancialassetsrecordedinthefinancialstatements,netofanyallowancesforlosses,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
managesitsriskbymonitoringthecreditqualityofitsbankersonanongoingbasis.NatWest,Santander,Nationwideand
RBSareratedbyallthemajorratingagencies.Ifthecreditqualityofthesebanksdeteriorates,theGroupwouldlookto
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 2020 and at 31 March 2019 Standard & Poor’s credit rating for the Group’s
bankers was A-1.
There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior
periods, due to the actions taken to mitigate this risk, as stated above.
Liquidity risk
UltimateresponsibilityforliquidityriskmanagementrestswiththeBoard,whichhasbuiltanappropriateliquidityrisk
managementframeworkforthemanagementoftheGroup’sshort,mediumandlong-termfundingandliquidity
managementrequirements.TheGroup’sliquidityriskismanagedonanongoingbasisbyseniormanagementand
monitoredonaquarterlybasisbytheBoardbymaintainingadequatereservesandloanfacilities,continuously
monitoringforecastsandactualcashflowsandmatchingthematurityprofilesoffinancialassetsandliabilitiesfora
period of at least 12 months.
Thetablebelowhasbeendrawnupbasedontheundiscountedcontractualmaturitiesofthefinancialassets/(liabilities),
including interest that will accrue to maturity.
31 March 2020
Cashandcashequivalents
Debtors
Capitalisedfinancecosts
Obligations under head leases
Fixed interest rate loans
Creditors and accruals
31 March 2019
Cashandcashequivalents
Debtors
Capitalisedfinancecosts
Obligations under head leases
Fixed interest rate loans
Floating interest rate loans
Creditors and accruals
Less than
1 year
£000
23,567
5,983
370
(117)
(8,332)
(9,936)
1 to 5
years
£000
More than
5 years
£000
Total
£000
–
–
912
(466)
23,567
–
5,983
–
2,329
1,047
(7,849)
(7,266)
(33,329) (193,259) (234,920)
(9,936)
–
–
11,535
(32,883) (199,478) (220,826)
Less than
1 year
£000
25,177
3,511
371
(117)
(8,332)
(360)
(11,968)
1 to 5
years
£000
More than
5 years
£000
Total
£000
–
–
1,062
(466)
(33,329)
(26,869)
–
–
–
1,267
(7,383)
(201,591)
–
–
25,177
3,511
2,700
(7,966)
(243,252)
(27,229)
(11,968)
8,282
(59,602)
(207,707)
(259,027)
109
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Financial Statements
Notes to the consolidated financial statements continued
for the year ended 31 March 2020
24. Risk management continued
Market risk
TheGroup’sactivitiesareprimarilywithintherealestatemarket,exposingittoveryspecificindustryrisks.
The yields available from investments in real estate depend primarily on the amount of revenue earned and capital
appreciationgeneratedbytherelevantpropertiesaswellasexpensesincurred.Ifpropertiesdonotgeneratesufficient
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
propertiestooccupiers,thequalityofthemanagement,competitionfromotheravailablepropertiesandincreased
operating costs (including real estate taxes).
Inaddition,theGroup’srevenuewouldbeadverselyaffectedifasignificantnumberofoccupierswereunabletopayrent
or its properties could not be rented on favourable terms. This has increased given the Covid-19 pandemic and the
resultanteffectontenants’abilitytopayrent.Certainsignificantexpenditureassociatedwitheachequityinvestmentin
realestate(suchasexternalfinancingcosts,realestatetaxesandmaintenancecosts)isgenerallynotreducedwhen
circumstances cause a reduction in revenue from properties. By diversifying in regions, sectors, risk categories and
occupiers,seniormanagementexpectstolowertheriskprofileoftheportfolio.TheBoardcontinuestooverseetheprofile
of the portfolio to ensure risks are managed.
ThevaluationoftheGroup’spropertyassetsissubjecttochangesinmarketconditions.Suchchangesaretakentothe
Consolidated Statement of Comprehensive Income and thus impact on the Group’s net result. A 5% increase or decrease
inpropertyvalueswouldincreaseordecreasetheGroup’snetresultby£33.2million(2019:£34.3million).
Interest rate risk management
Interestrateriskarisesoninterestpayableontherevolvingcreditfacilitiesonly.TheGroup’sseniordebtfacilitieshavefixed
interestratesoverthetermsoftheloansandthustheGrouphaslimitedexposuretointerestrateriskonthemajorityofits
borrowings and no sensitivity is presented.
Interest rate risk
Thefollowingtablesetsoutthecarryingamount,bymaturity,oftheGroup’sfinancialassets/(liabilities).
31 March 2020
Floating
Cashandcashequivalents
Fixed
Secured loan facilities
Obligations under leases
31 March 2019
Floating
Cashandcashequivalents
Secured loan facilities
Fixed
Secured loan facilities
Obligations under leases
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
23,567
–
–
23,567
(1,258)
(108)
(5,616) (160,591)
(1,321)
(388)
(167,465)
(1,817)
22,201
(6,004)
(161,912) (145,715)
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)
(392)
(160,884)
(1,319)
(167,465)
(1,820)
23,855
(31,769)
(162,203)
(170,117)
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 has around 350 occupiers so does not place 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.
110
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
25. Related party transactions
ThetotalfeesearnedduringtheyearbytheNon-ExecutiveDirectorsoftheCompanyamountedto£250,000(2019:
£257,000).Asat31March2020theGroupowed£niltotheNon-ExecutiveDirectors(2019:£nil).Theemolumentsofthe
Executive Directors are set out in the Remuneration Report.
Picton Property Income Limited has no controlling parties.
26. Events after the balance sheet date
Adividendof£3,409,000(0.625pencepershare)wasapprovedbytheBoardon27April2020andwaspaidon29May2020.
On27May2020theGroupenteredintoanew£50millionrevolvingcreditfacility;thisreplacestheexistingfacilitiesheld
with Santander Corporate & Commercial Banking which have been cancelled.
Post Balance Sheet event disclosure
TheglobaloutbreakofCovid-19in2020hasresultedinsignificantlossoflife,adverselyimpactedcommercialactivityand
contributedtosignificantvolatilityincertainequityanddebtmarkets.Theglobalimpactoftheoutbreakevolvedrapidly
and,on11March2020,theWorldHealthOrganizationdeclaredapandemic.Manycountrieshavereactedbyinstituting
quarantines,prohibitionsontravelandtheclosureofoffices,businesses,schools,retailstoresandotherpublicvenues.
Businesses are also implementing similar precautionary measures.
Such measures, as well as the general uncertainty surrounding the dangers and impact of Covid-19, are creating
significantdisruptioninsupplychainsandeconomicactivityandarehavingaparticularlyadverseimpacton
transportation,hospitality,tourism,entertainmentandotherindustries.TheimpactofCovid-19hasledtosignificant
volatilityanddeclinesintheglobalpublicequitymarketsanditisuncertainhowlongthisvolatilitywillcontinue.As
Covid-19 continues to spread, the potential impacts, including a global, regional or other economic recession, are
increasinglyuncertainanddifficulttoassess.
TheoutbreakofCovid-19andtheresultingfinancialandeconomicmarketuncertaintycouldhaveasignificantadverse
impact on the Group. Any future impact on the Group is likely to be in connection with the assessment of the fair value of
investmentsandstabilityofrentalincomeatfuturedates.Atthedateofreportingitisnotpossibletoquantifythefuture
financialimpactofCovid-19ontheCompany’sinvestmentpropertiesorrentalincomewithadegreeofcertainty.The
Board will continue to closely analyse and review the impact of Covid-19 on the Company and will take appropriate action
asrequired.
111
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Additional Information
Supplementary disclosures (unaudited)
for the year ended 31 March 2020
The European Public Real Estate Association (EPRA) is the industry body representing listed companies in the real estate
sector. EPRA publishes Best Practices 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.
Profitfortheyearaftertaxation
Exclude:
Investment property valuation movement
Gains on disposal of investment properties
Debt prepayment fees
EPRA earnings
Weighted average number of shares in issue (000s)
EPRA earnings per share
2020
£000
2019
£000
2018
£000
22,508
30,955
64,168
882
(3,478)
–
(10,909)
(379)
3,245
(38,920)
(2,623)
–
19,912
22,912
22,625
544,193 538,816 539,734
3.7p
4.3p
4.2p
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
liabilitiesthatarenotexpectedtocrystalliseinnormalcircumstances,suchasthefairvalueoffinancialderivativesand
deferred taxes on property valuation surpluses.
Balance Sheet net assets
Fairvalueoffinancialinstruments
Deferred tax
EPRA NAV
Shares in issue (000s)
EPRA NAV per share
2020
£000
2019
£000
2018
£000
509,283
–
–
499,415 487,355
–
–
–
–
509,283
499,415 487,355
545,502 538,512 538,984
93p
93p
90p
EPRA NNNAV per share
TheEPRAtriplenetassetvalueincludesthefairvalueadjustmentsinrespectofallmaterialbalancesheetitems.
EPRA NAV
Fair value of debt
Deferred tax
EPRA NNNAV
Shares in issue (000s)
EPRA NNNAV per share
2020
£000
2019
£000
2018
£000
509,283
(29,569)
–
499,415 487,355
(21,106)
(24,811)
–
–
479,714
474,604 466,249
545,502 538,512 538,984
88p
88p
87p
112
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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
2020
£000
2019
£000
2018
£000
664,615 685,335 683,800
46,197
46,771
44,847
709,462 732,106 729,997
36,236
(2,017)
34,219
4.8%
37,699
(1,896)
41,360
(1,327)
35,803
40,033
4.9%
5.5%
EPRA ‘topped-up’ net initial yield
TheEPRA‘topped-up’NIYiscalculatedbymakinganadjustmenttotheEPRANIYinrespectoftheexpirationofrent-free
periods (or other unexpired lease incentives such as discounted rent periods and step rents).
EPRA NIY annualised net rents
Annualised cash rent that will apply at expiry of lease incentives
Topped-up annualised net rents
EPRA ‘topped-up’ NIY
2020
£000
34,219
3,910
38,129
5.4%
2019
£000
2018
£000
35,803
2,739
40,033
3,160
38,542
43,193
5.3%
5.9%
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
2020
£000
5,179
45,224
11.5%
2019
£000
2018
£000
4,828
46,839
10.3%
1,995
47,854
4.2%
113
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Additional Information
Supplementary disclosures (unaudited) continued
EPRA cost ratio
EPRAcostratioreflectstheoverheadsandoperatingcostsasapercentageofthegrossrentalincome.
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)
2020
£000
2,293
3,005
5,563
(259)
10,602
(3,005)
7,597
37,780
(259)
37,521
28.3%
20.2%
2019
£000
2,342
1,373
5,842
2018
£000
2,578
1,830
5,566
(256)
(217)
9,301
(1,373)
9,757
(1,830)
7,928
7,927
40,942
(256)
41,412
(217)
40,686
41,195
22.9%
19.5%
23.7%
19.2%
Capital expenditure
Thetablebelowsetsoutthecapitalexpenditureincurredoverthefinancialyear,inaccordancewithEPRABestPractices
Recommendations.
Acquisitions
Development
Like-for-like portfolio
Other
Total capital expenditure
2020
£000
–
–
8,861
–
8,861
2019
£000
–
–
1,559
–
1,559
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.
Like-for-like rental income
Propertiesacquired
Properties sold
Offices
Industrial
Retail and Leisure
Total
2020
£000
2019
£000
2020
£000
2019
£000
12,925
–
534
13,459
13,657
–
1,160
14,817
15,738
–
625
16,363
15,953
–
774
16,727
2020
£000
7,958
–
–
7,958
2019
£000
9,398
–
–
9,398
2020
£000
2019
£000
36,621
–
1,159
37,780
39,008
–
1,934
40,942
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Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
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:
Cashandcashequivalents
Total net borrowings
Investment property valuation
Loan to value
2020
£000
2019
£000
2018
£000
167,465 194,669 214,040
(23,567)
(25,168)
(31,510)
143,898
169,501 182,530
664,615 685,335 683,800
21.7%
24.7%
26.7%
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
Recurring administrative expenses
Average net asset value over the year
Cost ratio
2020
£000
2019
£000
2018
£000
5,563
5,842
5,566
–
(215)
(307)
5,563
5,627
5,259
511,868 497,304 470,252
1.1%
1.1%
1.1%
115
Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2020 Additional Information
Property portfolio
Properties valued in excess of £40 million
ӱ Parkbury Industrial Estate, Radlett, Herts.
Properties valued between £5 million and £10 million
ӱ Units 1 & 2, Kettlestring Lane, York
ӱ River Way Industrial Estate, River Way, Harlow, Essex
ӱ Queens House, St Vincent Place, Glasgow
Properties valued between £30 million and £40 million
ӱ Angel Gate, City Road, London EC1
ӱ Easter Court, Europa Boulevard, Warrington
ӱ Trident House, Victoria Street, St Albans, Herts.
ӱ Stanford Building, Long Acre, London WC2
Properties valued between £20 million and £30 million
ӱ Tower Wharf, Cheese Lane, Bristol
ӱ 50 Farringdon Road, London EC1
ӱ Units 1 & 2, Western Industrial Estate, Downmill Road,
Bracknell, Berks.
ӱ Swiftbox, Haynes Way, Rugby, Warwickshire
ӱ Angouleme Retail Park, George Street, Bury, Greater
ӱ Express Business Park, Shipton Way, Rushden,
Manchester
Northants.
ӱ Datapoint, Cody Road, London E16
ӱ Lyon Business Park, Barking, Essex
ӱ Colchester Business Park, The Crescent, Colchester,
Essex
ӱ 30 & 50 Pembroke Court, Chatham, Kent
Properties valued between £10 million and £20 million
ӱ Metro, Salford Quays, Manchester
ӱ Grantham Book Services, Trent Road, Grantham, Lincs.
ӱ Sundon Business Park, Dencora Way, Luton, Beds.
ӱ The Business Centre, Molly Millars Lane, Wokingham,
Berks.
ӱ Thistle Express, The Mall, Luton, Beds.
ӱ Atlas House, Third Avenue, Marlow, Bucks.
ӱ Sentinel House, Harvest Crescent, Fleet, Hants.
ӱ Longcross Court, Newport Road, Cardiff
ӱ Regency Wharf, Broad Street, Birmingham
ӱ Crown & Mitre Complex, English Street, Carlisle, Cumbria
Properties valued under £5 million
ӱ Scots Corner, High Street, Kings Heath, Birmingham
ӱ 53-57 Broadmead, Bristol
ӱ Waterside House, Kirkstall Road, Leeds
ӱ 62-68 Bridge Street, Peterborough
ӱ 180 West George Street, Glasgow
ӱ 78-80 Briggate, Leeds
ӱ B&Q,QueensRoad,Sheffield
ӱ Abbey Business Park, Mill Road, Newtownabbey, Belfast
ӱ Nonsuch Industrial Estate, Kiln Lane, Epsom, Surrey
ӱ 17-19 Fishergate, Preston, Lancs.
ӱ 401 Grafton Gate East, Milton Keynes, Bucks.
ӱ 72-78 Murraygate, Dundee
ӱ Gloucester Retail Park, Eastern Avenue, Gloucester
ӱ Magnet Trade Centre, 6 Kingstreet Lane, Winnersh,
ӱ Parc Tawe North Retail Park, Link Road, Swansea
ӱ Vigo 250, Birtley Road, Washington, Tyne and Wear
Reading
ӱ 7-9 Warren Street, Stockport
ӱ 6-12 Parliament Row, Hanley, Staffs.
ӱ 18-28VictoriaLane,Huddersfield,WestYorks.
116
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Five year financial summary
Income statements
Net property income
Administrative expenses
Exceptional costs
Netfinancecosts
Income profit before tax
Tax
Income profit
Property gains and losses
Debt prepayment fee
Profit after tax
Dividends paid
Balance sheets
Investment properties
Borrowings
Other assets and liabilities
Net assets
Net asset value per share (pence)
EPRA net asset value per share (pence)
Earnings per share (pence)
Dividends per share (pence)
Dividend cover (%)
Share price (pence)
Allfiguresarein£millionunlessotherwisestated.
2020
2019
2018
2017
2016
33.6
(5.6)
–
28.0
(8.2)
19.8
0.1
19.9
2.6
–
22.5
19.0
2020
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
2019
2018
2017
2016
654.5
(167.5)
22.3
676.1
(194.7)
18.0
670.7
(214.0)
30.7
615.2
(204.6)
31.3
646.0
(249.5)
20.6
509.3
499.4
487.4
441.9
417.1
93
93
4.1
3.5
105
89.0
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
117
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Additional Information
Glossary
Annual rental income
Contracted rent
Cost ratio
DTR
Dividend cover
Cash rents passing at the Balance Sheet date.
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.
EPRA earnings divided by dividends paid.
Earnings per share (EPS)
Profitfortheperiodattributabletoequityshareholdersdividedbytheaverage
number of shares in issue during the period.
EPC
EPRA
Estimated rental value (ERV)
Fair value
Fair value movement
FRI lease
Group
IASB
IFRS
LIBOR
Initial yield
Lease incentives
MSCI
NAV
EnergyPerformanceCertificate.
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.
Anaccountingadjustmenttochangethebookvalueofanassetorliabilitytoitsfair
value.
A lease which imposes full repairing and insuring obligations on the tenant, relieving
the landlord from all liability for the cost of insurance and repairs.
Picton Property Income Limited and its subsidiaries.
International Accounting Standards Board.
International Financial Reporting Standards.
London Interbank Offered Rate is a benchmark interest rate that indicates borrowing
costs between banks.
Annual cash rents receivable (net of head rents and the cost of vacancy), as a
percentage of gross property value, as provided by the Group’s external valuers.
Rents receivable following the expiry of rent-free periods are not included.
Incentives offered to occupiers to enter into a lease. Typically this will be an initial
rent-freeperiod,oracashcontributiontofit-out.Underaccountingrulesthevalueof
the lease incentives is amortised through the Income Statement on a straight-line
basis until the lease expiry.
An organisation supplying independent market indices and portfolio benchmarks to
the property industry.
NetassetvalueistheequityattributabletoshareholderscalculatedunderIFRS.
Over-rented
Space where the passing rent is above the ERV.
Property income return
The ungeared income return of the portfolio as calculated by MSCI.
Rack-rented
Reversionary yield
Total property return
Total return
Space where the passing rent is the same as the ERV.
The estimated rental value as a percentage of the gross property value.
Combined ungeared income and capital return from the property portfolio.
Measures the performance of the Group based on its published results.
Total shareholder return
Measures the change in share price over the year plus dividends paid.
Weighted average debt maturity
Weighted average interest rate
Each tranche of Group debt is multiplied by the remaining period to its maturity and
the result is divided by total Group debt in issue at the period end.
The Group loan interest per annum at the period end, divided by total Group debt in
issue at the period end.
Weighted average lease term
Theaverageleasetermremainingtofirstbreak,orexpiry,acrosstheportfolio
weighted by contracted rental income.
118
Picton Property Income Limited Annual Report 2020 Annual Report and Accounts 2018
Financial calendar
Annual results announced
Annual results posted to shareholders
June 2020 NAV announcement
Annual General Meeting
2020 half-year results to be announced
December 2020 NAV announcement
Dividend payment dates
23June2020
July2020
July2020(provisional)
November 2020 (provisional)
November 2020 (provisional)
January2021(provisional)
August/November/February/May
119
Picton Property Income Limited Annual Report 2020Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Overview Additional Information
Shareholder information
Directors
Nicholas Thompson (Chairman)
Mark Batten
Maria Bentley
Andrew Dewhirst
Roger Lewis
Michael Morris
NicholasWiles(appointed1January2020,
resigned 20 May 2020)
Registered office
PO Box 255
Trafalgar Court
LesBanques
St Peter Port
Guernsey GY1 3QL
Registered Number: 43673
UK office
28 Austin Friars
London EC2N 2QQ
T: 020 7011 9978
E:enquiries@picton.co.uk
Administrator and Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255, Trafalgar Court
LesBanques
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
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
LesBanques
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
AllenquiriesrelatingtoholdingsinPictonPropertyIncome
Limited,includingnotificationofchangeofaddress,queries
regarding dividend/interest payments or the loss of a
certificate,shouldbeaddressedtotheCompany’sregistrars.
Website
The Company has a corporate website which contains more
detailed information about the Group www.picton.co.uk
Corporate brokers
JPMorganSecuritiesLimited
25 Bank Street
LondonE145JP
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
120
Picton Property Income Limited Annual Report 2020 Picton Property Income Limited
28 Austin Friars
London
EC2N 2QQ
+44 (0) 207 011 9978
www.picton.co.uk
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