Picton Property Income Limited Annual Report 2021

Plain-text annual report

Occupier focused, Opportunity led. Picton Property Income Limited Annual Report 2021 Business Overview Welcome Welcome to our 2021 Annual Report 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. Contents Business Overview Welcome 2021 Highlights Picton at a Glance Chair’s Statement Strategic Report Business Model Our Marketplace Our Strategy Chief Executive’s Review Key Performance Indicators Portfolio Review Financial Review Principal Risks TCFD Statement Being Responsible Section 172 Statement Governance Chair’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 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 2 4 8 12 14 20 22 30 34 44 47 52 54 62 64 66 68 70 74 76 79 98 99 102 106 107 108 109 110 127 131 132 133 134 135 Visit our website www.picton.co.uk Picton Property Income Limited Annual Report 2021What makes us different? Visit our website for more information on why to invest www.picton.co.uk 1 Our long-term track record of upper quartile outperformance We have outperformed the MSCI UK Quarterly PropertyIndexoverone,three,fiveandtenyears, and since inception. Parkbury Industrial Estate Radlett Read more on pages 6–7 2 Diversified exposure to the UK commercial property market with flexibility to adapt to changing market conditions Ourdiversifiedpropertyportfoliogeneratesincome from around 350 occupiers across a wide range of businesses, providing the opportunity for income and capital growth. Read more on pages 34–43 Stanford Building London 3 Our occupier focused and responsible approach to business Our occupier focused approach ensures we actively manageourassets,maintainhighoccupancy and create space for our occupiers to succeed. Sustainability is integrated within our business model and corporate strategy and in the way we and our occupiers operate. 50 Farringdon Road London Read more on pages 54–61 A d d i t i o n a l I n f o r m a t i o n 01 Strategic ReportGovernanceFinancial StatementsBusiness OverviewPicton Property Income Limited Annual Report 2021 Business Overview 2021 Highlights Highlights Positive results underlining the resilience of the business and our continued long-term track record of outperformance. Resilient financial performance ӱ Profitaftertaxof£33.8million,anincrease of over50%ontheprioryearresults ӱ Netassetsof£528million,or97ppershare, an increaseof3.7% ӱ Earnings per share of 6.2p ӱ Totalreturnof6.6% ӱ Received92%ofrentalincomeoverthe financialyear,withafurther1%deferred ӱ Combinedreductionof6%inproperty, operatingandfinancecostsovertheyear ӱ Totaldividendspaidof£15.0million,with dividendcoverof134% ӱ Loantovalueratioreducedto21%with significantheadroomagainstloancovenants ӱ New£50millionrevolvingcreditfacility completed Improving occupancy through asset management ӱ Increasedoccupancyto91% ӱ Occupierretentionof88% ӱ 90 asset management transactions completed including: – 17rentreviews,7%aheadofERV – 30leaserenewalsorregears,10% ahead of ERV – 25 lettings or agreements to lease, 3% ahead ofERV ӱ £5millioninvestedintoassetrefurbishment and repositioning projects Outperforming property portfolio Supporting our stakeholders ӱ Totalpropertyreturnof7.3%,outperforming MSCIUKQuarterlyPropertyIndexof1.2% ӱ Provided assistance to over 90 occupiers during the Covid-19 pandemic ӱ Upperquartileoutperformanceagainst ӱ Increased dividends twice during the year, MSCI overone,three,fiveandtenyears,and since inception with payments almost back to pre-pandemic levels ӱ Well-positioned portfolio comprising: Industrial53%,Office36%,Retailand Leisure 11% ӱ Like-for-likevaluationincreaseof3.2% ӱ Like-for-likeincreaseinpassingrentof1.9% ӱ Like-for-like estimated rental value increase of 1.1% ӱ Oneretailassetdisposalfor£4.0million, 30% aheadofMarch2020valuation ӱ Reduction in property running costs to assist our occupiers ӱ ImprovementinannualGRESB score achieving two Green star status ӱ Pathway to net zero carbon to be in place by March2022 See Financial Review for more highlights on pages 44–46 02 Picton Property Income Limited Annual Report 2021Financial highlights £34m Profit after tax (2020:£23m) (2019:£31m) £528m £682m Net assets (2020:£509m) (2019:£499m) Property valuation (2020:£665m) (2019:£685m) 6.6% Total return (2020:4.5%) (2019:6.5%) 0.0% Total shareholder return (2020:3.6%) (2019:10.1%) 97p NAV per share (2020: 93p) (2019: 93p) 6.2p 2.8p Earnings per share (2020: 4.1p) (2019: 5.7p) Dividends per share (2020: 3.5p) (2019: 3.5p) 134% Dividend cover (2020:105%) (2019:122%) EPRA measures 97p EPRA NTA per share (2020: 93p) (2019: 93p) 93p EPRA NDV per share (2020: 88p) (2019: 88p) 4.8% EPRA net initial yield (2020:4.8%) (2019:4.9%) 5.5% EPRA ‘topped-up’ net initial yield (2020:5.4%) (2019:5.3%) 105p EPRA NRV per share (2020: 102p) (2019: 101p) 8.8% EPRA vacancy rate (2020:11.5%) (2019:10.3%) £20.1m 3.7p EPRA earnings (2020:£19.9m) (2019:£22.9m) EPRA earnings per share (2020: 3.7p) (2019: 4.3p) 26.9% EPRA cost ratio1 (2020:28.3%) (2019:22.9%) 20.8% EPRA cost ratio2 (2020:20.2%) (2019:19.5%) The European Public Real Estate Association’s (EPRA) mission is to promote, develop and represent the European public real estate sector. As anEPRAmember,wefully support theEPRABestPractices Recommendations which recognise the key performance measures, as detailedabove.SpecificEPRAmetrics can be found within the KPIs and Financial Review sections of this Report with further disclosures and supporting calculations on pages 127 to 129. We use a number of Alternative Performance Measures and these are discussed in more detail in the Financial Review on page 45. Read more on pages 30-33 and 44-51 1 Including direct vacancy costs 2 Excluding direct vacancy costs Covid-19 The effects of the Covid-19 pandemic have been widespread, impacting theUKeconomy,businessesandpeople’severydaylives. Our response to the pandemic is set out throughout this Report. In the Marketplacesectionwelookatitsimpactonthecommercial property market and how we are responding. In Managing Risks we havedescribedtheimpactonourprincipalandemergingrisks. We havealsodescribedhowwehaveengagedandsupportedour occupiers and other stakeholders, in the Portfolio Review and Being Responsible sections. Our Covid-19 response 03 Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2021Business 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 46 assets with over 50% invested in the industrial sector. Our business 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, producing upperquartilereturnsoverone,three, fiveandtenyears,andsinceinception. 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. Read more on pages 12–13 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, commitment to sustainability and positive environmental initiatives. Perceptive We are insightful, thoughtful and intuitive. Demonstrated through our long-term track record, our gearing strategy, diverse sector allocation and engagement with our occupiers. Progressive We are forward-thinking, enterprising, and continually advancing. Demonstrated through our culture, work ethic and proactive asset management. Corporate summary £528m Net assets £468m Market capitalisation £166m Borrowings 3.7% Dividend yield 1.0% Cost ratio 21% Loan to value Portfolio summary 46 Number of assets £682m Value 4.8% Net initial yield 6.3% Reversionary yield 91% Occupancy 4.1m sq ft Area 04 Picton Property Income Limited Annual Report 2021Industrial weighting 53% South East Rest of UK 40% 13% Read more on pages 38–39 Office weighting 36% South East Rest of UK City and West End 16% 11% 9% Read more on pages 40–41 Retail and Leisure weighting 11% Retail Warehouse High Street Rest of UK Leisure 7% 3% 1% Read more on pages 42–43 Top five occupiers Occupier Public sector Whistl UK Limited B&Q Plc The Random House Group Limited Snorkel Europe Limited Total Top five assets Assets Contracted rent (£m) % of total contracted rent 2.1 1.6 1.2 1.2 1.2 7.3 5.0 3.9 3.0 2.8 2.8 17.5 Property type Capital value (£m) Parkbury Industrial Estate, Radlett, Herts. River Way Industrial Estate, Harlow, Essex Angel Gate, City Road, London EC1 Stanford Building, Long Acre, London WC2 Industrial Industrial Office Office Datapoint, Cody Road, London E16 Industrial >60 50-60 30-40 30-40 20-30 Outperformance track record Total property return (%) (Picton vs MSCI) Picton All Property MSCI UK Quarterly Property Index 15.0 10.0 5.0 0.0 (5.0) (10.0) (15.0) 6 0 0 2 r a M 7 0 0 2 r a M 8 0 0 2 r a M 9 0 0 2 r a M 0 1 0 2 r a M 1 1 0 2 r a M 2 1 0 2 r a M 3 1 0 2 r a M 4 1 0 2 r a M 5 1 0 2 r a M 6 1 0 2 r a M 7 1 0 2 r a M 8 1 0 2 r a M 9 1 0 2 r a M 0 2 0 2 r a M 1 2 0 2 r a M Indexed total property returns (Picton vs MSCI) 300.0 Picton All Property MSCI UK Quarterly Property Index 250.0 200.0 150.0 100.0 50.0 0.0 7 0 0 2 r a M 8 0 0 2 r a M 9 0 0 2 r a M 0 1 0 2 r a M 1 1 0 2 r a M 2 1 0 2 r a M 3 1 0 2 r a M 4 1 0 2 r a M 5 1 0 2 r a M 6 1 0 2 r a M 7 1 0 2 r a M 8 1 0 2 r a M 9 1 0 2 r a M 0 2 0 2 r a M 1 2 0 2 r a M Annualised total property return (%) 10.0  Picton  MSCI 8.0 6.0 4.0 2.0 0 1 Year 3 Year annualised 5 Year annualised 10 Year annualised Since inception 05 Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2021 Business Overview Picton at a Glance continued 15 years of outperformance Our occupier focused, opportunity led approach continues to deliver long-term shareholder value. 2008 2010 • Used the IPD (now MSCI) Environmental Code for the collection, measurement and analysis of environmental informationonouroffice properties to implement improvements 2009 • During the global financialcrisis,successful renegotiation of loan covenants for nil cost 2005 • The Company was successfully launched as INGUKRealEstate Income Trust Limited on theLondonStock Exchange 2006 • Acquisitionof£125million portfolio, increasing the Company’s property assets 06 2012 • Internalisation is effective from 1 January, with significantsavingincosts • Company’s debt facilities refinanced • Introduction of covered • AcquisitionofRugby Estates Investment Trust plc • Decision taken to dividend policy internalise the Company’s management 2013 2011 • Newequityraisedtofund propertyacquisitions Name changed to Picton Property Income Limited 2014 • Placing Programme initiatedtoraise£100 millionofnewequity • £81millionofnew propertyassetsacquired • AcquiredParkbury Industrial Estate, Radlett, our largest industrial asset, through property swap Picton Property Income Limited Annual Report 20212018 2020 • Entered UK REIT regime • Changed from investment company to a commercial company 2019 • Relaunched the Picton Promisewithfivekey commitments to our occupiers: Action, Community, Technology, Support and Sustainability • Raisednewequityand repaid debt, reducing LTV • Major refurbishment and upgradeofofficeassets instructed • Supported occupiers in face of Covid-19 global pandemic • Dividend reduced but subsequentlyincreasedas a result of rent collection performance • LTVreducedto22%, downfrom54%in2013 • Fully integrated sustainability into corporate strategy, completing materiality assessment 2021 • Retail exposure reduced to11%,downfrom30% in 2012 • Sixth consecutive year of upperquartile performance against MSCI UK Quarterly Property Index 2015 2017 • Highestreportedprofit • Fifth anniversary since and total return since 2006 internalisation • New revolving credit facility established 2016 • Established further revolving credit facility • Reduced central London officeexposureand repaid debt • Reduced borrowings through repayment of zero dividend preference shares • Outperformed MSCI UK Quarterly Property Index over 1, 3, 5 and 10 years • Increase in market capitalisationfrom£129 millionto£408million overthefiveyearssince internalisation • Alignment of team with shareholders through Long-term Incentive Plan Awards Citywire Investment Trust Awards – Winner 2019, 2018, 2017 Money Observer Trust Awards – Best Property Trust Winner 2018, 2017, 2016 Moneywise Investment Trust Awards – Winner 2018 Investment Company of the Year Awards – Property Winner 2018, 2017, 2016 MSCI UK Property Investment Awards – Winner 2018 EPRA Gold Awards Financial Reporting – 2020, 2019, 2018, 2017, 2016, 2015 Sustainability Reporting – 2020, 2019 07 Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2021Business Overview Chair’s Statement In my first year as Chair of Picton, I am pleased to be able to share with you the results for the 12-month period to 31 March 2021. 08 These results show an improvement on the preceding year and underline the resilience of the business. Lena Wilson CBE Chair This has been an unprecedented year, withsignificantdisruptionto businesses, livelihoods, family and day-to-day life. During the year, we have remained focused on our three strategic pillars of Portfolio Performance, Operational Excellence and Acting Responsibly. As such, it gives me pleasure to be able to report that the business is in good shape,deliveringaprofitfortheyear of£34million,anincreaseofover50% compared with the preceding year. This has been achieved during a period where we have also provided significantassistanceandsupportto help our occupiers cope with the disruption caused by the Covid-19 pandemic. This demonstrates the strength of our business model, our position entering the pandemic and our hands-on approach which has even led to growing occupancy over the year. Performance Wedeliveredatotalreturnof6.6% over the year driven by portfolio growth in the latter half of the year. We have maintained our EPRA earnings despite being impacted by lower rent collection during the year, and have offset this with additional income generated through asset management transactions andareductioninfinance, property and operating costs. At a property level, the portfolio has again outperformed the MSCI UK Quarterly Property Index continuing ourtrackrecordofupperquartile outperformance which spans the period since inception. Our share price has been more volatile over the period but has responded well to the increases in dividend that we have announced through the year. The share price still does not fully reflectthenetassetvalueofthe business, but is currently in a better position than for many of our real estate peers. Property portfolio The outperformance at a property level has been driven by our exposure to the industrial sector, which now accountsfor53%oftheportfolio.Also, our retail and leisure exposure has reduced,nowaccountingforonly11%. The combination of these two factors has been helpful alongside some key lettings and retaining many occupiers at or prior to lease-end. Broadly, rent collection for the year standsat92%ofincomedemanded, and we expect this to continue to rise, but have made appropriate provisions toreflectthelikelihoodofnotmaking a full recovery. Picton Property Income Limited Annual Report 2021Sustainability We continue to make good progress on multiple fronts in respect of sustainability issues and during the year we joined the Better Buildings Partnership, a collaboration of the UK’s leading commercial property owners. Our focus for the coming year will be on establishing our pathway to achieving net zero carbon. We are mindful of the need to do this in a waythatbenefitsallourstakeholders. During the year we celebrated our fifteenthanniversarybysupporting grassroots charities, helping support the work they do in this particularly difficultperiod. Outlook It is clear that we are well positioned and have built up an impressive track record over the years. What is more important is that this is maintained, and that we can innovate and position the business to ensure that we capture the positive opportunities that are likely to arise following this long period of disruption. Thankfully there is now light at the endofthetunnel,butweare mindful of the changing landscape and longer-term impacts that the pandemic might have on both the economy and how real estate is used. AlongwithmyfellowBoard members, I am excited about the potential ahead. Lena Wilson CBE Chair 26 May 2021 Capital structure We are conservatively positioned with a Group loan to value ratio of 21%.Wehave£50millionavailable through our revolving credit facility and assuming the economic recovery strengthens we will be seeking to deploy this, at least in part during the forthcoming year. We recognise that the current market cost of debt is lower than our own and where opportunities arise to reduce this on attractive terms, they will be pursued. Governance We continue to maintain strong corporate governance and during the year several changes to the Board have been made including my own appointment as Chair and that of Richard Jones as Chair of the Property Valuation Committee. I would like to thankmypredecessor,Nicholas Thompson, for his years of service and similarly Roger Lewis who also stood down in the year. Despite not being able to meet physically due to the constraints of lockdown, I am pleased to have been able to spend time virtually with the Picton team and a number of larger shareholders. I look forward to continuing open and constructive engagement as we return to some degree of normality. Dividends Our initial response to the pandemic was to introduce a more conservative distribution policy, recognising the uncertainty around the severity and impactofthepandemicon our cashflow. Since then, and based on robust performance, we have been able to increasethedividendinboth November and February such that the currentdistributionis91% of pre-pandemiclevels.Wewill continue to work hard to further improve occupancy and income in order to get back to pre-pandemic levels, hopefully during the forthcoming year. 09 Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2021Business Overview Chair’s Statement continued Q&A with Lena Wilson CBE The Picton team had the opportunity to conduct a virtual Q&A with Lena Wilson, our new Chair. Q What attracted you to Picton? A As I carried out my research for the role it was clear to me that Picton was an understated jewel in the crown as far as the sector is concerned. I was impressed with Picton’s track record and how the Company has dealt with the challenges of the past year. I believe in the business and it is a sector that is important to the economy. In particular, I also think I can add value given my experience. Q What are your first impressions of the Company? A I’m pleased to say that I am very glad I joined!IthinkPictonisataninflection point in terms of opportunity, building on its long-term performance. I am looking forward to being part of the team and the journey. Q&A 10 Picton Property Income Limited Annual Report 2021 Q Q Q What do you do when you are not at work? A I try to really enjoy life and that includes work. I am very fortunate to have worked in so many countries and I still love to travel. Friendships and family are also very important to me. I am a big consumer of broad culture, live music, theatre and art andIreadwidely.Iliketokeepfit andusedtobequiteacompetitive runner, but now walk a lot, do some high intensity workouts and try to make time for daily yoga practice and meditation. I realised a while back that overall wellness means more thanjustphysicalfitnessandIbelieve that approach has served me well across a range of high-pressure roles. What in your view is the biggest challenge facing the business and the real estate sector? A The biggest challenge facing all businesses at the moment is economic uncertainty and the real estate sector is no exception. The economy has been described as a tightly wound spring that is ready to bounce back post vaccine, but therearesignificantchallenges too. The slower vaccine rollout across Europe will have an effect across a range of sectors, as will how we return to workplaces and what the future of work, leisure, hospitality and retail look like. Having good networks, insights and market knowledge will be key for the real estate sector and those who can access capital, be adaptiveandhavetheconfidence to seize opportunities will prosper. What do you think are Picton’s core strengths? A As part of my due diligence before joining the team I reached out to a range of stakeholders, and they all told me what Picton’s core strengths are - and it’s the team and the culture.Withaterrifictrackrecord to be proud of, Picton has made a series of very sound decisions, controlled its costs and pursued the right opportunities. For the business to be in the position it is in after the last 12 months is remarkable, a view shared by stakeholders. Q What are the key priorities for the business next year? A In the short-term, planning and preparing for an end of lockdown recovery and working closely with all stakeholders, as companies start to reoccupy their buildings, but also to assess longer-term opportunities for growth. While good progress has been made against a number of sustainability priorities over the course of this year, a key focus will also be developing our net zero carbon pathway. 11 Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness OverviewPicton Property Income Limited Annual Report 2021 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 performing diversifiedUKREITs.Tousthismeansbeingaresponsible 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 20-21 12 How we create value 1 Our business model is driven by knowledge, expertise and research led decision making Our in-depth understanding of the UK commercial property market enables us to identify and source value across different sectors and reposition the portfolio through the property cycle. 2 Stock selection and acquisition – buying into growth assets, locations or sectors WehaveestablishedadiversifiedUKproperty portfolio and while income focused, we will consider opportunities where we can enhance value and/or income. 3 Creating value through proactive asset management 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. 4 Selling assets to recycle into better opportunities We identify assets for disposal to maximise value creation. Proceeds are invested into new opportunities, or used elsewhere within the Group. Picton Property Income Limited Annual Report 2021 etter g assets to cycle into b nities ortu ellin re S p p o 4 2 S a t n o c d k a s c e q l e u 1 i c s t i i t o i o n n Our business model is driven by knowledge, expertise and research led decision making 3 Creating value through proactive asset management 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. Responsible stewardship We have a responsible and ethical approach to business and sustainability is embedded within our corporate strategy. We understand the impact of our business on the environment and are committed to creating and delivering value for thebenefitofallourstakeholders. Creating and delivering value for our stakeholders: Shareholders £34m Profitaftertax Occupiers 88% Retention rate Communities £29,000 Charitable donations Our people 85% Employee satisfaction score The environment 92% EPC ratings A-D For more detailed information on our stakeholders, see our Section 172 statement on pages 62-63 13 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness Overview Strategic Report Our Marketplace Our Marketplace Since the Covid-19 pandemic took hold its effects have been far reaching and dramatic; however, the UK Government’s comprehensive stimulus package has helped to protect livelihoods and provided much-needed support for households and businesses. Stanford Building London Swiftbox Rugby 14 Economic backdrop The UK’s vaccination programme has been one of the most well- executed globally. We are close to restrictions being fully lifted and there is a much-anticipated economic recovery starting to emerge. During the year the UK left the European Union, however there remain several matters to be resolved, such as financialpassportingrights.Pending any major Brexit-related disruption or problematic new coronavirus variants, the outlook for the UK economy looks considerably brighter than it did this time last year. During 2020, GDP contracted by -9.8%,markingthelargestannual fall in UK GDP on record. The largestquarterlyfallwasduringthe secondquarterof2020following thefirstandstrictestperiodof lockdown. Thankfully, a double dip recession was avoided. To mitigate the impact of the pandemic and stimulate the economy, there has been a large response both in terms of UK Government policy and measures introduced by the Bank of England, including the furlough scheme, business rates relief, a ban on commercial evictions, record ultra- lowinterestrates(0.1%sinceMarch 2020) and Quantitative Easing. In stark contrast to previous periods of recession, average house prices intheUKrose7.7%during2020, largely thanks to the stamp duty holiday, which has been extended in part until September 2021. The UK unemployment rate hit a five-yearpeakof5.1%inNovember 2020,1.3%higherthanayearearlier. The furlough and self-employed support schemes were extended to September 2021 and this plus the easing of restrictions is hoped will keep a lid on rising unemployment. Picton Property Income Limited Annual Report 2021The annual percentage change in the consumer price index has been atorbelow1%sinceApril2020 andinMarch2021stoodat0.7%. In March 2021 retail sales rose higher than pre-pandemic levels, even before non-essential shops reopened. Online retail reached a record proportion of total retail sales in January2021of36.4%,asconsumers were restricted from using physical stores. Of course, whilst some retail sectors have struggled, others have thrived.Aspeoplewereconfined to their local area, businesses still abletotradebenefittedfromthis additional footfall at the expense of retailers situated at transport hubs or in central business districts. Many companies with an established online offering had a strong year. Many households were fortunate to see income levels maintained and outgoings reduced, contributing to a record increase in the household savings ratio, which reached a peak of25.9%inthesecondquarter of 2020. As restrictions are eased and retail and leisure businesses reopen, it is expected that this elevated savings ratio will contribute to an economic recovery. The recovery has begun to gather pace. It is anticipated that healthy consumer spending and interest rates staying lower for longer will contribute to a rapid rebound in the second halfof2021.TheOfficeforBudget Responsibility has forecast GDP growthof4.0%for2021andarecovery to pre-pandemic levels by mid-2022. UK property market According to the MSCI UK Quarterly Property Index, commercial property deliveredatotalreturnof1.2%for the year ended March 2021, which comparesto-0.4%fortheyearending March 2020. The increase on last year was a result of a smaller decline in capital values; capital growth was -3.2%intheyeartoMarch2021,better thanthe-4.7%recordedforthe previous year. The income return was 4.5%,thesameastheprecedingyear. The industrial sector had a strong year and was the top performing sectorforthefifthconsecutiveyear. The industrial total return for the yearendingMarch2021was14.3%, with capital growth at a three-year highat9.6%andanincomereturn of4.3%.IndustrialERVgrowthfor theperiodwas2.8%,withasub- sectorrangeof2.2%to3.8%.Capital growthrangedfrom6.1%to13.0% withinsub-sectors.Equivalent yields for industrial property now standat5.0%(March2020:5.3%). Theofficesectorfacedadegreeof uncertainty this year, as the success of working from home has provoked thoughtoverfutureofficespace requirementsformanyoccupiers. Theofficesectorproducedatotal returnof-0.8%fortheyeartoMarch 2021,comprising-4.5%capital growthand3.8%incomereturn. AllOfficeannualrentalgrowthwas -1.0%rangingfrom-2.1%to1.2% withinsub-sectors.Officecapital growth was negative across all sub- sectors,rangingfrom-6.7%to-1.7%. Equivalentyieldsforofficeproperty nowstandat5.8%(March2020:5.6%). It was an extraordinarily challenging time for the retail sector, with three national lockdowns resulting in the closure of all non-essential shops for much of the year. Months of lost trading and dramatically reduced footfall due to Covid-19 exacerbated an already tough environment for retailers, which has led to a high number of CVAs and administrations during the year. The retail sector producedatotalreturnof-8.1% for the year to March 2021. This comprisedcapitalgrowthof-12.9% andincomereturnof5.5%.Rental valuesfell-9.0%overtheperiodand were negative across all sub-sectors, rangingfrom-20.1%to-1.4%.Retail sub-sector capital growth ranged from-27.4%to3.6%.Supermarkets were the only retail sub-sector to record positive capital growth. Equivalentyieldsforretailproperty nowstandat6.7%(March2020:6.4%). According to Property Data, the total investment volume for the year toMarch2021was£41.5billion,a -28%decreaseontheyeartoMarch 2020. The volume of investment by overseas investors in the year toMarch2021was£19.5billion, accountingfor47%ofalltransactions. When looking at average returns at the All Property level, the year to March 2021 was disappointing but not surprising given the plight some sectors faced during the pandemic. However as always, the devil is in the detail as there was a marked range of returns across sectors. At the March 2021 year end the difference between the highest and lowest performing sectors has never been more polarised. There are risks and heightened uncertainty to navigate but also opportunity and optimism regarding the speed and strength of recovery in the latter half of 2021. Low interest rates and low returns from Government bond yields make investment into well-let commercial property with a secure income stream an attractive proposition. 15 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Our Marketplace continued Market drivers and impacts Market driver Covid-19 TheCovid-19pandemichasbeenasignificant disruptortomanyaspectsoflifesincethefirst lockdown began in March 2020. The legacy of the pandemic will be far reaching and is yet to be fully realised. The impact of the pandemic affects the economic, property, technology and environmental market drivers described below and is referenced throughout this Report. The vaccine rollout is now well underway and we are following the UK Government’s roadmap to post-Covid normality. Our Covid-19 response Economy SinceMarch2020andthefirstnationallockdown, the UK has been on a pathway of increased understanding, adaptation and coping with the Covid-19pandemic.Subsequentlockdownswere less severe on the economy, allowing the UK to avoid a double dip recession. There has been extensive Government stimulus to protect businesses and livelihoods. Not all parts of theeconomyhavebeenequallyaffected.The success of the UK’s vaccination programme is expected to allow a strong and rapid recovery duringthesecondhalfof 2021. There are some elements of the Brexit transition process still underway. Amongst issues still to be determinedarepassportingrightsfor financial services. 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. The declines in property values as result of Covid-19 were more strongly felt in retail and leisure; periods of forced closure, increased online spending, retail failures and CVAs all blighted the sector. Industrial property rallied during 2020 as demand for warehousing grew, helped by an acceleration in online spending. 16 Impact ӱ Economic, social, environmental and health ramificationswillbefeltthroughouttheworldfor many years to come. ӱ For the property sector, the accelerated changes in the way we live, work, socialise and shop are likely to have a lasting impact on the built environment. ӱ The Government reportedly plans to invest in infrastructure,the greeneconomyandsupportailing towns in order to stimulate economic growth. ӱ Interest rates are expected to stay lower for longer. ӱ The household savings ratio has remained at an elevated level, with the potential to boost consumer spending when restrictions are lifted. ӱ Due to the stimulus package, UK Government borrowing has reached the highest levels since World WarII.Necessarytaxincreaseswillimpact UK businessesandhouseholdsinthemedium-term. Thereisanincreasedriskofinflationarypressure. ӱ The retail sector has been operating within a very challenging environment, with declining rents and capital values. There has been a recent improvement in retail capital value growth, particularly for retail warehouses and supermarkets, however it is yet to be known if all sub-sectors have reached a nadir. ӱ The impact of working from home during the pandemiconofficeshascauseduncertainty within thesectorandledtoadeclineincapital values. There is increasedpolarisationbetween Grade A andotheroffices,withmanyoccupiers pursuing aflighttoquality. ӱ There is high demand from both occupiers and investors within the industrial sector leading to further price rises. Picton Property Income Limited Annual Report 2021Market drivers and impacts Market driver Technology The technology trends set to directly impact the property sector in the short to medium-term are wide ranging, from smart building technology, the 5Gnetwork,increasedadoptionofelectric vehicles,ArtificialIntelligence,robotics,BigData and CloudComputing. Competitiveness in a post-pandemic world will depend on a company’s ability to thrive in the digital environment. The use of analytics to make data-backed decisions providesconfidencetoinvestors. Propertysectorsarealluniquelyimpactedby technological advances in multiple areas, with each facingitsownbenefitsandchallenges. Environmental and social responsibility During lockdown there has been increased reflectionandenvironmentalawareness,with particular focus on climate change. The year could be seen as the tipping point for organisations embedding climate risk into corporate strategy and consideringtheimpactsofclimatechange on investments. The Government has declared a target of bringing all UK greenhouse gas emissions to net zero by 2050. With the pandemic amplifying social injustices and inequalities,societalvaluehasalsomovedupthe corporate agenda. There is recognition that we need to transition to a fairer and greener economy. Impact ӱ Remoteworking,flexibleworkingandreduced business travel are facilitated by the advancement of onlinecommunicationsplatforms.Although accelerated by the pandemic, these working patterns will continue in some form of hybrid model. ӱ The Government’s agenda to ban sales of new combustion engines by 2030 will shape requirementsforelectricvehiclechargingwherewe live, work and shop, with implications for buildings, power supply and parking arrangements. A longer- term consideration is the rollout of the 5G network, enabling driverless vehicles. ӱ There is a heightened need for data storage and datacentres.BigData,ArtificialIntelligence,Machine Learning and Cloud Computing are shaping the futureoftheworkforceandtherequirements for buildingsinwhichtheyoperate.Bolstering cyber securityandsecuredatastorageishighon corporate agendas. ӱ For retailers, investment in online platforms and fulfilmentisparamount.Theproportionofonline spending is unlikely to revert to pre-pandemic levels. Longer-term, the increased use of robotics, electric industrial vehicles and drones has the potential to impactthewayonlineordersarefulfilledand industrial property is occupied. ӱ Sustainability is becoming widely and fully embedded into Government and corporate agendas. ӱ TCFD is promoting the improvement and increased reportingofclimate-relatedfinancialinformationand enabling progress to be measured against science- based targets. ӱ The social and human cost of achieving success is increasingly considered. Society is holding Government and corporations accountable for the wider impact of investment decisions. ӱ It is fully recognised that there are heightened costs associated with owning and occupying non-energy efficientbuildingsandthereisapricepremiumon thosewhichmeetmodernrequirements. ӱ Occupiers are increasingly considering employee wellbeing when selecting work space. Natural light, biophilia,fitnessfacilitiesandotheroccupier amenities all provide a competitive edge. 17 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Our Marketplace continued Throughout the year the acceleration in structural changes within the main property sectors has contributed to increased polarisation of performance. Theindustrialsectorhasbenefittedfromtheincreasein online consumer spending to the detriment of bricks and mortar retail, whilst enforced working from home is likely to lead to a longer-term shift towards a more hybrid model of homeandoffice-basedworking. Our Covid-19 response Industrial market trends 2020 was a strong year for the industrial sector, which saw high levels of occupational demand, particularly for logistics units, as retailers and third- partylogisticscompaniesinvestedinfulfilmentof online orders in response to the pandemic. The proportion of retail spend online reached a record high and is not expected to revert to pre-pandemic levels.Lastmilelogisticsrequirementshave sustained upward pressure on rents, particularly in urban locations. The sector is also experiencing strong investor demand,withcapitalvaluesincreasing9.6%inthe year to March 2021. The industrial sector accounted for29%oftotalinvestmentvolumesatavalueof £12 billion.Thereisstrongcompetitiontoinvestin industrial assets which has driven yields down. The outlook for the industrial sector is a continuation of these trends. Standard industrial units in London and the South East are forecast to be amongst the topperformingsub-sectorsintheshortto medium-term. What this means for Picton ӱ The accelerated structural shift towards online retail, growth in delivery apps and increased expectation for shorter delivery times mean industrial property continues to remain in demand. Theportfolioiswellpositionedby being overweighttotheindustrialsector. ӱ Our occupier focused approach has enabled us to capitalise on strong demand for industrial property and grow ERVs through new lettings, renewals and rent reviews. Our response to these trends ӱ We will continue to capture rental growth through new lettings and proactive portfolio management. ӱ We will strategically maintain our overweight position to the sector. ӱ Wewillcontinuetoacquirecomplementary assets where possible, whilst remaining selective given the recent increase in pricing. ӱ We envisage only limited and selective disposals. 18 Picton Property Income Limited Annual Report 2021Office market trends Retail and Leisure market trends Withofficeworkersprovingduringthepandemicthat working from home is a viable option, many companies arelikelytoincorporateanelementofflexibleand home working post-pandemic in a hybrid model, but theofficeisbynomeansredundant. Both the retail and leisure sectors have been severely affected by the pandemic and occupier failures. The retail sector has experienced a price correction, with capitalvaluesfalling-12.9%andrentsdown-9.0%in the yeartoMarch2021. Reflectinguncertaintysurroundingthesector,during theyeartoMarch2021,capitalvaluesdecreased-4.5% and yields moved out 20 basis points. Rental values declined-1.0%. Theroleoftheofficeisevolvingintoahubforface-to- face interaction, collaboration and team building, and plays an important part in attracting talent, showcasing company culture, training and mentoring. The layout is likely to change, with the ratio of desk to collaborative meeting space switching, leading to less densely populatedofficesratherthanadramaticreduction in floorspace.Occupiersareseekinghigherquality, digitally capable, sustainable spaces with a greater emphasis on employee wellbeing. Vacancy rates have risen but remain low by historic standards, and with limited new supply in the pipeline it is not expected that rental values will suffer more than a short-term dip. London and large city centre officemarketsareforecasttoperformbetterthanthe All Property average. Even as restrictions ease and trade improves, it looks unlikelythattherewillbesufficientdemandtofill the highnumbersofvacantunits.Thesectorfaced oversupply and legacy issues prior to the pandemic which have only been exacerbated. The UK Government’s change in use class restrictions will gradually allow repurposing of retail space and tackle the demand/supply balance in the longer-term. Until the oversupply is addressed in town centres, we donotexpecttoseeanysignificantrecoveryincapital or rental values. However, it is increasingly apparent that there is not a ‘onesizefitsall’outlookforretailandleisureproperty. Retail warehouses are starting to plateau and are forecast to strongly outperform shopping centres and high street retail. What this means for Picton What this means for Picton ӱ Theofficesectornowbringsaheightenedlevelof risk, as long-term working from home continues to impact the sector. ӱ With weaker occupier demand, the focus is on qualityofofficespace.Ourofficesmustcontinueto go above and beyond occupiers’ expectations. ӱ Wewillneedtoprovidemoreflexibleleasing arrangementsreflectingthecurrentmarket. ӱ There is a greater emphasis on wellbeing within theofficeenvironment. ӱ We will continue to maintain an underweight position to the retail and leisure sectors. ӱ We have had to provide rent holidays and assistance on a bespoke basis to help our occupiers through the crisis. ӱ We expect rental income in this element of the portfolio to remain reduced in the short to medium-term. Our response to these trends Our response to these trends ӱ Wewillcontinuetoactivelymanagetheoffice portfolio and engage with existing and potential occupiers to grow occupancy and income. ӱ We have been upgrading space, focusing on amenities, and making improvements in energy efficiency. ӱ Due diligence and research will ensure that the officeportfolioispositionedinthemost accessible and desirable locations. ӱ We will be increasingly selective when consideringofficeacquisitions. ӱ We will seek to maintain occupancy, even if this means having to accept lower rental levels. ӱ We will continue to reposition retail assets and reduce our weighting through disposals, seeking opportunities to sell to special purchasers and owner-occupiers where appropriate. ӱ With revised pricing, we will look cautiously at potentialacquisitionswithinselectiveretail sub-sectors. 19 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic 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 diversifiedUKREITs.Tousthismeansbeingaresponsible 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. Integrating sustainability into our corporate strategy We believe that sustainability has to be fully embedded into all of our activities. A responsible and ethical approach tobusinessisessentialforthebenefitofallourstakeholders and understanding the long-term impact of our decisions will help us to manage risk and continue to generate value. Read more on pages 54–61 Su s b uil t a i n d a i n b l g e s O ur e m p loyees t a l n e viron m foc u s n E Sustainability governance S t e a n k g e a h g e old m er e nt 20 3 1 2 portfolio which provides income and capital growth Portfolio Performance 1 Creating and owning a 2 Growing occupancy 3 Enhancing asset quality, and income profile providing space that exceeds occupier expectations Sustainable buildings See pages 54-61 4 Outperforming the MSCI UK Quarterly Property Index Associated Risks 2 4 5 6 7 8 Connected KPIs A C D G I J Picton Property Income Limited Annual Report 2021 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 3 1 2 Acting Responsibly 1 Ensuring we maintain our company values, positive working culture and alignment of the team Our employees See pages 54-61 2 Working closely with our occupiers, shareholders and other stakeholders Stakeholder engagement See pages 54-61 3 Ensuring sustainability is integrated within our business model and how we and our occupiers operate Environmental focus See pages 54-61 Associated Risks 1 3 4 10 11 Connected KPIs E F H Associated Risks 4 9 Connected KPIs B K L Read more on pages 30-33 and pages 49-51 21 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness Overview Strategic Report Chief Executive’s Review Despite the challenges of this year, we have been able to successfully navigate the disruption caused by the Covid-19 pandemic and deliver positive results which highlight the strength and resilience of the business. £34m Profit after tax £528m Net assets 97p NAV per share 6.6% Total return 22 We have increased occupancy and continued to deliver upper quartile returns, whilst supporting our occupiers through an incredibly difficult period. Michael Morris Chief Executive It has probably been one of the hardest 12-month periods in which to operate, and few could have foreseen the scale and extent of the disruption caused by lockdown rules. As a team, we have worked remotely for the whole year and have only all been able to meet in person on one socially distanced occasion. The team has pulled together incredibly well and we have been able to run the business effectively, helped to some extent by our small size and nimble approach. We have not made redundancies, furloughed any employees or needed any form of Government support. We have supported our occupiers this year and provided help where needed.Thishasrequiredadelicate balance, but to have achieved the financialresultswehave,whilst simultaneously supporting so many of our occupiers throughout the year, is an accomplishment we are particularly proud of. Set out below is a summary of our performance against our strategic priorities. Almost all our KPIs show progress against the previous year and further details are provided in that section of the Report. Portfolio Performance We have continued to outperform the MSCI UK Quarterly Property Index andhavedeliveredupperquartile performance for the sixth consecutive year. Over the year we ranked 24 out of the 232 portfolios in the MSCI benchmark and over the longer-term have ranked 15 out of 99 portfolios over the 15 years since inception. Despite the impact of lower rent collection, we have been able to grow income across the portfolio on a like-for-like basis through letting and asset management activity, which has generated additional income. We have had to think creatively around some of the occupier assistance that we have given this year. Despite having a short-term impact on income, this has delivered longer- term value for our investors. Examples of this are where leases have been extended, rent reviews have been agreed in advance or longer-term payment plans have been put in place. Pleasingly, the contractual passing rent and ERV of the portfolio have both grown during the year. Picton Property Income Limited Annual Report 2021We have continued to improve the portfolio and reposition assets. As we upgrade space we are also thinking aboutthequalityofaccommodation from a wellbeing and environmental perspective. These are both themes that have become increasingly relevant during lockdown. We have convertedretailtoofficepremises and have obtained planning consent toconvertleisureintooffices,fora project that is due to complete this year. This will further help to reduce our overall retail and leisure exposure, whichnowstandsatonly11%. Operational Excellence Our portfolio positioning and conservative gearing mean that we were in a strong position entering this crisis. At an early stage, we took theprudentbutdifficultdecision to reduce the dividend, because at that time it was not clear how damaging the impact of lockdown restrictions would prove to be across our occupiers’ businesses andtoourfinancialperformance. Over the year, we have received 92%oftherentsdueandthisled us to partially restore the dividend in November 2020 and then in February 2021, such that the current dividendis91%ofthepre-pandemic level. We maintained a covered dividend throughout the year with our EPRA earnings remaining stable relative to last year, an outcome that was less certain 12 months ago. We have been able to reduce costs, both our own operating costs and also for our occupiers, particularly in officeswhichwerenotfullyoccupied. As we have grown occupancy during the year, this has further helped to reduce costs. Finance costs are lower, following the repayment of our revolving credit facilities at the end of last year, and further debt amortisation this year. Administrative expenses are also lower and by relocating to a former retail void within the portfolio there will be further savings in the future. We are mindful that growth willdeliverbenefitsthroughthe economies of scale embedded within our internalised model. Whilstwehavesoughttoacquire assets this year, the investment market has been disrupted with lower investment volumes. We made one disposal during the yearandnoacquisitions,despite considering a number of opportunities as investment markets opened up in the latter part of 2020. Acting Responsibly This is at the heart of what we do, but there has never been a year when our occupiers have needed more support. In many instances, they have not been able to fully utilise our buildings. Our occupier focused approach and commitment through the Picton Promise of - Action, Community, Technology, Support and Sustainability, has never resonated so loudly. In total over the year we have provided some form of support to nearly one third of our occupiers. The team has dealt with all occupiers personally, agreeing bespoke solutions depending on the occupier, the type of asset and lease terms. A very small proportion of our occupiers have not paid and refused to engage, but until the Government moratorium on recovery of rent arrears ends, these discussions will be postponed until a later date. Our Covid-19 response Read more on pages 26–27 23 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Chief Executive’s Review continued We will continue to create opportunities from our existing portfolio. Michael Morris Chief Executive Outlook Our portfolio structure, conservative gearing and potential to grow income and value through leasing activity put us in a strong position looking forward. We have invested in the portfolio in recent years, upgrading thequalityofaccommodation,giving usconfidenceinourabilitytoletit. The pandemic and its impact are sadly not completely behind us, and there are likely to be more hurdles to overcome. The impacts of the unwinding of Government support,thecontinuedefficacyof the vaccine and speed in which we return to normal, including tourism, travel and even the daily commute totheoffice,arestillnotclear. We will continue to create opportunities from our existing portfolio and more widely as the UK gradually returns to life as normal and lockdown conditions ease. Michael Morris Chief Executive 26 May 2021 Fortheyearwewroteoff£1.6million of debts, and increased the provision againstoccupierdebtorsby£0.2 million, with the total provision at 31March2021standingat£1.6million. Of the occupiers we have helped, the level of assistance has varied, from allowingamoreflexiblepayment plan, generally in the form of monthly ratherthanquarterlypayments,to instances where we have agreed some form of short-term rent write- off. In some cases, these reductions have been tied into future events, e.g. future rent reviews, lease breaks and extensions or, where there has been no conditionality, based on need. We have tried to be fair in our approach and would hope that our longer-term view will be recognised in future relationships. Our Responsibility Committee has made good progress on sustainability matters and has identifiedcleartargetsformaterial issues. During the year we joined the Better Buildings Partnership and our focus now is on our commitment to becoming net zero carbon. This is detailed in the Being Responsible section of this Report. As mentioned previously, the team has worked incredibly hard this yearunderdifficultcircumstances. I would hope that despite our physical remoteness we have been able to maintain the culture and values that underpin our business. We have been there for employees when needed and our employee engagement feedback supports this. Our recent move to Stanford Buildingsignificantlyimprovesthe qualityofourworkspaceandwe willseethefullbenefitofthisonce lockdown restrictions ease. Similarly we have engaged with shareholders virtually and have discussed activity and progress throughout the year in conjunction with our brokers and corporate advisers. We continue to maintain an ‘open door’ policy and aim to be as transparent as possible in the way we communicate. 24 Picton Property Income Limited Annual Report 2021Our strategy in action Operational Excellence Our proactive approach to asset management alongsideouroperationalflexibilityprovides opportunities to restructure the portfolio as we see appropriate. 3 1 2 Having an agile and flexible business model, adaptable to market trends We have restructured the portfolio over the year to reduce our retail and leisure exposure further, through a disposal and repositioning of an asset.Wenowhave53%ofthe portfolioinindustrial,36%inoffices andonly11%inretailandleisure. Bridge Street, Peterborough, a high street retail asset, was sold for£4.0millioninDecember.The property comprises two retail units, with one let to TK Maxx who are vacating in June 2021 and the other vacant and previously occupied by New Look. The asset was sold to Peterborough City Council who intend to convert the building into a new city library and community hub.Thesalepricewas30%ahead of the March 2020 valuation. We completed the refurbishment of Stanford Building and enhanced the value by obtaining planning consent toconvertthefirstfloorfromancillary retailtoofficespace.Thechange of use makes the remaining retail space more appealing to potential occupiers who are seeking smaller stores,whilstthefirstfloorofficeERVis nearly double the previous retail ERV. We have now been able to reclassify thisassetasaWestEndoffice, being the predominant value use. Regency Wharf in Birmingham is a two-building leisure scheme located adjacent to the iconic Gas Street Basin in central Birmingham. Stanford Building Break-out space We have obtained planning consent forachangeofusetoofficesin respect of the vacant rear building. The building will be fully refurbished this year and will provide self- contained warehouse style space overlookingthecanal.TheofficeERVis nearly double the previous leisure ERV. Regency Wharf Proposed refurbishment 25 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Chief Executive’s Review continued Our strategy in action Acting Responsibly Working with our occupiers is fundamental to what we do and this year our long-standing relationships with our occupiers has enabled us to provide support effectively where needed. Our Covid-19 response 3 1 2 Working closely with our occupiers, shareholders and other stakeholders during the pandemic The year has been dominated by the Covid-19 pandemic and one of the reasons we have been able to navigate the crisis is due to our close working relationships with our occupiers. Some of these relationships have been in place for over 15 years, built up through our stable team and occupier focus, which means all our occupiers can contact us directly for support. We have had a long relationship with the London Ambulance Service, who occupy a unit at our estate in Bromley- by-Bow. We were delighted to have been able to assist them at the start of the pandemic, when they needed urgent additional storage for Covid-19 related supplies. Within 24 hours of receivingtheirrequestforhelp,we leased to them, rent-free, a vacant unit which they occupied for four months. 26 Sarah’s Coffee Shop Colchester Business Park Opening my first business during a pandemic was a daunting task, but with the support of my landlord Picton and loyal customers I am delighted I took the opportunity! Owner and founder Sarah’s Coffee Shop Picton Property Income Limited Annual Report 2021 I just want to say a big thank you to Picton for your support with this unit. These are difficult and challenging times for all of us but we have managed to navigate through it in a short space of time. Programme Manager London Ambulance Service NHS Trust We have on a case-by-case basis helped occupiers, especially small independent retailers, caterers, leisure occupiers and businesses severely affected by the lockdown restrictions, whereby we have agreed deferred rents, reduced rents and rent holidays dependent on circumstance. We have also been able to help our occupiers by providing upfront incentivestoassistcashflowduring the lockdown but improving the incomeprofileinreturn.Thistype of transaction helps an occupier now and secures us a longer-term income stream, which creates value. At 50 Farringdon Road, London we removed an occupier’s 2022 break optionsecuring£0.2millionper annum, which is subject to review until 2027 and in return provided the occupier with a rent-free incentive. In another transaction, we surrendered a lease in return for a small premium and immediately re-let the suite to anexistingoccupierwhorequired expansion space. The building remains fully leased. We are currently replacing the air-conditioning system which will improve the EPC rating from a D to a B and reduce running costs. The replacement will also remove the natural gas supply from the building in line with our environmental targets. The restaurant at Queens House, Glasgow, was closed due to the lockdown restrictions. We let the space to the family-run business in 2006 and have a good working relationship with them. By providing a rent-free holiday, the occupier was able to invest in a complete refurbishment of the 180-seat restaurant. We continue to work with our occupier as lockdown restrictions end and have put in place a stepped rent arrangement to assist the launch of their new concept. During the year we have upgraded ourownofficeaccommodationby relocating to Stanford Building and ending our lease in the City. This will improve the working environment for our employees and provide us with flexibilityforgrowthgoingforward. London Ambulance Service Ralph & Finns Queen’s House, Glasgow 27 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness Overview Strategic Report Chief Executive’s Review continued Our strategy in action Portfolio Performance We believe it is important to continue to invest in our assets,tomitigatetheimpactofdepreciation, improve their attractiveness in the marketplace and enhance letting prospects. 50 Pembroke Court Chatham 28 401 Grafton Gate Milton Keynes 3 1 2 Enhancing asset quality, and providing space that exceeds occupier expectations At 50 Pembroke Court, Chatham, we comprehensively refurbished the groundfloorofficesuiteimprovingthe EPC from a D to a B. The majority of the refurbishment cost was covered by the dilapidations claim from the outgoing occupier. The building provides some of the best space available in the local market and we were pleased to secure the Government on a ten-year lease, subject to a break, at a rent in line with ERV, for a third of the space. We have interest in the remaining space. The common areas at 401 Grafton Gate, Milton Keynes were fully refurbished including LED lighting, break-outspace,andnewoffice entrances. The works, combined with installing LED lighting for our occupiers, has improved the EPC from an E to a C. Four lease renewals were agreedsecuringa41%increaseonthe previouspassingrentto£0.6million per annum and maintaining full occupancy of the building. Picton Property Income Limited Annual Report 2021Parkbury Industrial Estate Radlett 3 1 2 Growing occupancy and income By working closely with our occupiers and investing in our assets, we have been able to grow occupancy and income over the period resulting in significantoutperformanceagainst the MSCI UK Quarterly Property Index. At Parkbury Industrial Estate in Radlett, which is well located alongside the M25 and close to the M1, we have been able to maintain full occupancy throughout the year and drive income through active management. Two rent reviews were agreed, increasing the passing rent by 25%,oneleasewasrenewedfor a further15years,subjecttobreak, at a rent35%aheadoftheprevious passing rent and we extended a lease byfiveyearsto2031securingfuture incomeof£0.3millionperannum. Following completion of the refurbishment of Swiftbox, Rugby, in March 2020, which improved its EPC rating from an E to a B, we leased the entire99,500sqftdistributionunit to UPS, on a 12-month lease, with the option to extend for up to a further six months. UPS has taken up the option, so the lease now expires in March 2022. The letting immediately generatedanannualincomeof£0.6 million,whichwas4%aheadofERV. We completed the refurbishment of Stanford Building in Covent Garden, London, providing Grade A space with excellent occupier amenities including showers and changing facilities. We were pleased towelcomeourfirstoccupiertothe secondfloorona five-yearlease, subjecttobreak,5%aheadofERV. At River Way, Harlow, we refurbished two units and agreed two rent reviews increasing the passing rent by11%.Twooccupiersexpanded ontheestatebothtakingfive- yearleasesinlinewith ERV,witha further lease extended to March 2023,increasingrentby 27%. Swiftbox Rugby 29 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic 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 us. This year we have adopted the new EPRA net asset value metrics in this Report, replacing EPRA net asset value per share with EPRA net tangible assets (NTA) per share. In this regard, we consider that the EPRA NTA per share, earningspershareandvacancyratearethe most appropriatemeasurestouseinassessing our performance. 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 For more information on EPRA Best Practices Recommendations see pages 127-129 30 Total return (%) A 2021 6.6 2020 4.5 2019 6.5 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 consistently best performing diversifiedUKREITsisbeingachieved,andisa measure used to determine the annual bonus. Our performance in 2021 Our industrial assets helped deliver strong valuation gains over the year, together with an increase in occupancy and cost reductions helping to improve EPRA earnings, which has led to a 50% increase in profit compared to the previous year. 3 1 2 Total shareholder return (%) B 2021 0.0 2020 3.6 2019 10.1 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 theLong-termIncentivePlan. Our performance in 2021 Despite a strong recovery in the share price in the latter half of the year our total shareholder return was flat over the year, reflecting the discount to net asset value. 3 1 2 Picton Property Income Limited Annual Report 2021Total property return (%) C Loan to value ratio (%) E 2021 7.3 2020 5.3 2019 7.5 Why we use this indicator The total property return is the combined 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. 2021 20.9 2020 21.7 2019 24.7 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 offinancingrisk.SeetheSupplementary Disclosures section for further details. Our performance in 2021 We have outperformed the MSCI UK Quarterly Property Index, delivering an upper quartile return of 7.3% compared to the Index return of 1.2% for the year, and we have also outperformed on a three, five and ten year, and since inception basis. 3 1 2 Our performance in 2021 The loan to value ratio has reduced further this year as the portfolio value has risen and there has been continued amortisation of the debt. No new borrowings were taken out in the year. 3 1 2 Property income return (%) D Cost ratio (%) F 2021 4.7 2020 4.8 2019 5.6 2021 1.0 2020 1.1 2019 1.1 Why we use this indicator The property income return, as calculated by MSCI, is the income return of the portfolio. Income is an important component of total return and our portfolio is biased towards income generation. Why we use this indicator The cost ratio, recurring administration expenses as a proportion of the average net asset value, shows howefficientlythebusinessisbeingrun,andthe extent to which economies of scale are being achieved. See the Supplementary Disclosures section for further details. Our performance in 2021 The income return for the year of 4.7% was ahead of the MSCI UK Quarterly Property Index of 4.5%, and we have also outperformed on a three, five and ten year, and since inception basis. 3 1 2 Our performance in 2021 The cost ratio has reduced to 1.0% this year as savings in administrative expenses have been made, together with the increase in net asset value. 3 1 2 A d d i t i o n a l I n f o r m a t i o n 31 GovernanceFinancial StatementsPicton Property Income Limited Annual Report 2021Strategic ReportBusiness Overview Strategic Report Key Performance Indicators continued EPRA NTA per share (pence) G EPRA vacancy rate (%) I 2021 97 2020 93 2019 93 2021 8.8 2020 11.5 2019 10.3 Why we use this indicator The EPRA net tangible assets (NTA) per share, calculated in accordance with EPRA, measures thevalueofshareholders’equityinthebusiness. We use this to measure the growth of the business over time and regard this as the most relevant net asset metric for the business. Why we use this indicator The vacancy rate measures the amount of vacant space in the portfolio at the end of each financialperiod,andoverthelong-term,isan indication of the success of asset management initiatives undertaken. Our performance in 2021 The EPRA NTA per share has increased by 3.7% this year, due to valuation gains, particularly in the industrial portfolio, and the high dividend cover achieved. 3 1 2 Our performance in 2021 In what has been a very difficult year for the leasing market the fall in our EPRA vacancy rate highlights the success of our occupier focused approach. 3 1 2 EPRA earnings per share (pence) H 2021 3.7 2020 3.7 2019 4.3 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 becauseitmeasurestheoperatingprofit generated by 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. Our performance in 2021 EPRA earnings per share has remained at 3.7 pence, with the positive impact of higher occupancy and lower costs being offset by increased provisions against income receivable. 3 1 2 32 Picton Property Income Limited Annual Report 2021Retention rate (%) J Employee satisfaction (%) L 2021 88 2020 53 2019 49 Why we use this indicator This provides us with a measure of asset suitability and occupier satisfaction over the year. 2021 85 2020 83 2019 N/A Why we use this indicator We use this indicator to assess our performance against one of our strategic objectives, to nurture a positiveculturereflectingthevaluesandalignment of the Picton team. The indicator is based on the employee survey carried out during the year. Our performance in 2021 This figure was significantly higher than in 2020, reflecting retention of some of our key occupiers. Total ERV at risk due to lease expiries or break options totalled £6.6 million, identical to last year. In addition a further £4.2 million of ERV was retained by either removing future breaks or extending future lease expiries ahead of the lease event. 3 1 2 Our performance in 2021 We are pleased that there has been a small improvement in the employee satisfaction score, despite the added difficulties of the whole team working remotely throughout the year. 3 1 2 EPC ratings (%) K 2021 92 2020 89 2019 82 Why we use this indicator EnergyPerformanceCertificates(EPC)indicate howenergyefficientabuildingisbyassigninga ratingfrom‘A’(veryefficient)to‘G’(very inefficient).AhigherEPCratingislikelytoleadto lower occupational costs for occupiers. Our performance in 2021 The proportion of EPC ratings between A to D has increased on the prior year and now makes up 92% of the total portfolio. We improved the ratings of 20 EPCs during the year. 3 1 2 33 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Portfolio Review Proactive management Through engaging proactively with our occupiers, we have had success in managing the portfolio despite the many challenges caused by the Covid-19 pandemic. Key facts 46 Portfolio assets 91% Occupancy £37m Passing rent £45m Estimated rental value We ended the year with like-for-like increases in the portfolio valuation, passing rent and estimated rental value (ERV). It has been another busy year in terms of portfolio transactions, despite the national lockdowns, with the number completed close to that of the previous year. We have continued to invest in the portfolio, repositioning assets and enhancingthequalityandlettability of space, resulting in an increase in occupancyovertheperiodto91%, upfrom89%intheprioryear. Our relationships with our occupiers have been fundamental during the year, and we have been able to help whererequired. 34 We are guided by our Picton Promise of Action, Community, Technology, Support and Sustainability, all key commitments which have assisted our occupiers during the pandemic. Performance Our portfolio now comprises 46 assets, with around 350 occupiers, and is valuedat£682millionwithanetinitial yieldof4.8%andareversionaryyield of6.3%.Ourassetallocation,with53% inindustrial,36%inofficeand11%in retail and leisure, combined with an investment disposal and transactional activity, has enabled us to deliver upperquartileperformanceand outperform the MSCI UK Quarterly Property Index over the year. Overall, the like-for-like valuation was up3.2%,withtheindustrialsector up13%,officesdecliningby-5%and retailandleisuredecliningby-9%.This compares with the MSCI UK Quarterly Property Index recording capital value declinesof-3.2%overtheperiod. The overall portfolio passing rent is £36.5million,anincreasefromthe prioryearof2%onalike-for-likebasis. This was a result of the industrial portfoliorentsgrowingby6%,office rentsgrowingby2%,beingoffsetby retail and leisure rents decreasing by-7%.Regionalofficessawrental growthof3%,offsetbydeclinesin Londonof-2%,whichwasmore severely affected by the working from home guidance and a reluctance to travel on public transport. Picton Property Income Limited Annual Report 2021effective,withthenumberofenquiries and lettings going under offer steadily increasing, albeit from a low base. Against this background, we have had letting success and we have succeeded in retaining occupiers. The retail and leisure sector has been hit hard by the forced closures, resulting in a number of well-known businesses disappearing from the high street. Government measures halting action to pursue arrears have exacerbated the problem, with some occupiers purposefully not paying. Occupier demand has been muted, with retail vacancies, especially on the high street and in shopping centres, increasing substantially. Despite this, we have been able to work with our occupiers and have fortunately not had many insolvencies, and in the majority of cases, we have been able to mitigate these. We believe the portfolio is well placed in respect of our sector allocations and,combinedwiththequalityofour assets, we will be able to continue to drive performance going forward. Activity We have had another good year in respect of active management transactions. We completed 17 rentreviews,7%aheadofERV, 30leaserenewalsorregears,10% ahead of ERV and 25 lettings or agreementstolease,3%aheadof ERV. One retail asset was sold for grossproceedsof£4.0million,30% ahead of the March 2020 valuation. Overtheyearwehaveinvested£5.0 million into the portfolio across ten key projects. These have all been aimed at enhancing space to attract occupiers, improve sustainability credentials and grow income. Major projects are currently underway at Regency Wharf, Birmingham, where we are converting leisure spacetooffices,andatLongcross, Cardiff, where we are carrying out a comprehensive refurbishment toupdatetheofficebuilding. The March 2021 ERV of the portfolio is£45.4million,anincreasefrom theprioryearof1%onalike-for-like basis. Positive growth in the industrial sectorof4%wasoffsetbythe negative growth in the retail sector of-3%,whiletheofficeportfoliowas static over the period with increases in the regions offset by London. 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. The industrial sector has been the least affected by the Covid-19 pandemic, with strong occupational demand outstripping supply, especially in London and the South Eastwhere75%ofourportfoliois located. Investment demand has been strong with multiple buyers for well- located assets, which combined with a lack of stock has driven up pricing. Theofficesectorwassignificantly affected by the working from home guidance and although all our officesremainedopenandCovid-19 compliant, building occupancy was significantlyreduced.Thechange in working patterns has made businessesreflectontheirfutureoffice strategy and during the year demand was subdued. We are however, now seeing some encouraging signs that the market is improving following the news that vaccination is proving 35 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Portfolio Review continued Our largest void is Stanford Building on Long Acre in Covent Garden, London,accountingforoveraquarter of the total. The refurbishment was completed during the period. We werepleasedtowelcomeourfirst occupiertothesecondfloorand wehavemovedintothefirstfloor, following an expiry of our lease in the City. This move has allowed us to reduce costs and provided us withflexibilitygoingforward. We are continually focused on futureproofingassetsfroma sustainability perspective, which has resultedinanimprovementin our EPCswith92%nowratedD and above. The average lot size of the portfolio is £14.8million,5%aheadoflastyear. Longevity of income As at 31 March 2021, expressed as a percentage of contracted rent, the average length of the leases to the first terminationwas4.9years (2020:5.5years).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 % 11.9 13.8 13.5 13.6 18.9 20.0 6.9 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,consistentwiththeyearto March 2020. Excluding asset disposals, we retained 88%oftotalERVatriskintheyear to March2021.Ofleasesthatwere due toexpireduringtheyear,93%of ERV was retained. Of leases that had a breakclauseintheyear,67%ofERV was retained. Inaddition,afurther£4.2millionof ERV was retained by either removing future breaks or extending future lease expiries ahead of the lease event. Occupancy has increased during the yearfrom89%to91%,whichisslightly behind the MSCI UK Quarterly PropertyIndexof92%atMarch2021. Theincreaseprimarilyreflectsthe success of the refurbishment programme in 2020, meaning we were able to attract new occupiers and that occupancy increased in all sectors of the portfolio. At the year- end, over half of our vacant buildings were being refurbished and with the restavailabletoletandbeing actively marketed. Ofourtotalvoidof£4.0millionbyERV, 85%isinoffices,14%isinretailand only1%isinindustrial. Top ten assets Thelargestassetsasat31March2021,rankedbycapitalvalue,represent55%ofthetotalportfoliovaluationandare 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 Datapoint, Cody Road, London E16 Tower Wharf, Cheese Lane, Bristol Shipton Way, Rushden, Northants. 50 Farringdon Road, London EC1 Lyon Business Park, Barking, Essex Colchester Business Park, Colchester *Denotes leasehold interest in excess of 950 years. Acquisition date Property type 03/2014 Industrial 12/2006 Industrial Office 10/2005 05/2010 Office 05/2010 Industrial 08/2017 Office 07/2014 Industrial 10/2005 Office 09/2013 Industrial Office 10/2005 Tenure Approximate area (sq ft) No. of occupiers Occupancy rate (%) Freehold Freehold Freehold Freehold Leasehold Freehold Leasehold* Leasehold* Freehold Leasehold 343,800 454,800 64,600 20,100 55,100 70,600 312,900 31,300 99,400 150,700 21 10 20 2 6 5 1 4 9 22 100 100 68 33 100 83 100 100 100 97 36 Picton Property Income Limited Annual Report 2021Outlook The impact of the pandemic and consequentlockdownshasledtoa very uncertain operating environment. We have been able to adapt to the ‘new normal’ and although occupationalrequirementshave, outside the industrial sector, been far more muted, we have secured new occupiers. We have achieved this through embracing new technologies, creating virtual tours, and thinking more laterally as to how we can market our buildings with social distancing measures in place. Our focus remains on working with our occupiers and this year has shown more than any the importance of our long-standing relationships and the benefitofourapproach.Thishas enabled us to navigate through these uncertain times and to end the year in a positive position. As at 31 March 2021 theportfoliohad£9millionof reversionary income potential, £4millionfromlettingthevacant space,£3millionfromexpiringrent- freeperiodsand£2millionwherethe passing rent is below market level. Demand for our industrial properties remains robust as proven by our high occupancy and growing ERVs. With thissectoraccountingfor53%ofthe total portfolio by value, we believe it will continue to contribute strongly to our outperformance. Business activity is beginning to pick upintheofficesectorwhere36%of our portfolio is allocated, and we have attractive refurbished space in which we have increasing interest. We believe there is pent-up demand, especially in the regions, and this will come through as the year progresses withdemandfocusingonflexible Grade A space. In addition, we are nowofferingfittedspace,readyto occupy, which we believe is where the market is heading in respect of smaller suites, especially in London. The retail and leisure sector has been severely affected by the Covid-19 pandemic; however, we are more positive about retail warehousing whichmakesup60%ofourretail allocation. We have succeeded in letting retail warehouse units during the year at our two parks which were refurbished in 2020 and have strong interest in our last remaining retail warehouse void. Our high street portfolioisover90%leasedandwe have no shopping centre exposure. We remain in a strong position with advantageous portfolio weightings, goodqualityassetsandaproven occupier focused approach. Looking forward, we remain focused on continuing to grow occupancy and income, engaging with our occupiers and investing further into our assets. Jay Cable Senior Director and Head of Asset Management 26 May 2021 Top ten occupiers The largest occupiers, based as a percentage of contracted rent, as at 31 March 2021, are as follows: Occupier Public sector Whistl UK Limited B&Q Plc The Random House Group Limited Snorkel Europe Limited XMA Limited Portal Chatham LLP DHL Supply Chain Limited Canterbury Christ Church University PA Consulting Services Limited Total Contracted rent (£m) 2.1 1.6 1.2 1.2 1.2 1.0 0.8 0.8 0.7 0.6 11.2 % 5.0 3.9 3.0 2.8 2.8 2.3 1.9 1.9 1.6 1.5 26.7 37 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewOutlook The Covid-19 pandemic has had a limited impact on the industrial sector, with strong demand, low vacancy rates and increasing rents, especially in respect of the smaller multi-let estates. Where occupiers have been affected by the pandemic, we have been able to work with most of them to resolve the position, and if needed, usually these units are easily re-let. We do not anticipate a slowdown in demand, and combined with limited stock availability we expect continued rental growth, especially in respect of the smaller units 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 to the same extent, due to the development pipeline, and the ability for occupiers to build bespoke space. The focus going forward is to maintain high occupancy, continue to capture rental growth, and work proactively with our occupiers to unlock asset management transactions. We have 24 lease events forecast for the coming year, and the overall ERV for theseunitsis23%higherthanthe currentpassingrentof£2.2million. This provides us with the opportunity to grow income and value further. Strategic Report Portfolio Review continued Industrial The industrial sector, which accounts for 53% of the portfolio, again had the strongest sector performance of the year producing double digit returns. This was a result of the portfolio being almost fully let, active management extending income, securing rental uplifts and continued strong occupational demand for the smaller units, which resulted in further rental growth, especially in London and the South East. 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£42.4 millionor13.3%to£360.7million,and the annual rental income increased by£0.9millionor5.6%to£16.9million. The portfolio has an average weighted leaselengthof4.3yearsand£2.4 million of reversionary potential. We have seen ERV growth of 3.9%acrosstheportfolioandare experiencing demand across all of ourestates.Occupancyis99.8%, with the only void being one small unit in Wokingham which has recently been refurbished. Portfolio activity Swiftbox, Rugby, was our largest void at the beginning of the year. Following completion of the refurbishment, weleasedtheentire99,500sq ft distribution unit to UPS, on a 12-month lease, with the option to extend for up to a further six months. UPS has taken up the option, so the lease now expires in March 2022. The letting immediately generated anannualincomeof£0.6million, whichwas4%aheadofERV. At Parkbury, Radlett, we have driven income though active management. Two rent reviews were agreed, increasing the passing rent by 25%,oneleasewasrenewedfora further 15 years, subject to break, at arent35%aheadoftheprevious passing rent and we extended a leasebyfiveyearsto2031,securing £0.3millionperannum. At Vigo 250, Washington, we were pleased to be able to provide cash flowassistanceasanincentiveand settle the June 2021 rent review, securinga5%upliftto£1.2million perannum,12%aheadofERV. At River Way, Harlow, we restructured a lease and secured longer income until March 2023. As part of the same transaction, the August 2021 rent review was brought forward to January 2021 and settled, securing a 27%upliftto£0.8millionperannum, 27%aheadofERV.Twofurtherrent reviews were agreed, increasing the passingrentby11%,oneleasewas renewedforafurtherfiveyears,at arent15%aheadoftheprevious passing rent, and two units were leasedforacombined£0.2million per annum, in line with ERV. At Datapoint in London E16, following the completion of a rent review, we achieveda68%upliftinrentto£0.4 millionperannum,24%aheadofERV. One unit was leased for a minimum termoffiveyearsatarentof£0.1 millionperannum,7%aheadofERV. At Sundon Business Park, Luton, following the completion of a rent review,weachieveda57%upliftin rentto£0.1millionperannum,11% ahead of ERV. Three leases were renewed, the passing rent increasing by47%toacombined£0.3million perannum,10%aheadofERV. 38 Picton Property Income Limited Annual Report 2021Swiftbox Rugby Key metrics £360.7m Valuation (2020:£318.3m) 2.6m sq ft Internal area (2020:2.6msqft) £16.9m Annual rental income (2020:£16.0m) £19.3m Estimated rental value (2020:£18.6m) 100% Occupancy (2020:96%) 16 Number of assets (2020: 16) Locations 15 10 12 11 4 13 7 6 1 2 3 5 8 16 14 9 1 7 13 Parkbury Industrial Estate Radlett 343,800sqft–Freehold Grantham Book Services Grantham 336,100sqft–Leasehold Swiftbox Rugby 99,500sqft–Freehold 2 8 14 River Way Industrial Estate Harlow 454,800sqft–Freehold The Business Centre Wokingham 101,000sqft–Freehold Western Industrial Estate Bracknell 41,200sqft–Freehold 3 9 15 Datapoint London E16 55,100sqft–Leasehold Nonsuch Industrial Estate Epsom 41,400sqft–Leasehold Abbey Business Park Belfast 61,700sqft–Freehold 4 10 16 Shipton Way Rushden 312,900sqft–Leasehold Vigo 250 Washington 246,800sqft–Freehold Magnet Trade Centre Reading 13,700sqft–Freehold 5 11 Lyon Business Park Barking 99,400sqft–Freehold Easter Court Warrington 81,800sqft–Freehold 6 12 Sundon Business Park Luton 127,800sqft–Leasehold 1 & 2 Kettlestring Lane York 157,800sqft–Freehold 39 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Portfolio Review continued Office The office sector, which accounts for 36% of the portfolio, delivered the second strongest performance of the year, with the regions outperforming London. With limited occupational demand due to the Covid-19 pandemic, our focus has been occupier retention and marketing our vacant properties using virtual tours and socially distanced viewings. We have been able to lease space inadifficultmarket,securing£1.1 million of income, and have worked with our occupiers to extend income and surrender leases where we can secure a premium and immediately re-lease the space. Onalike-for-likebasis,ouroffice portfoliovaluedeclinedby£13.8 millionor-5.3%to£245.4million; however, the annual rental income increasedmarginallyby£0.3 millionor2.0%to£13.1million.The portfolio has an average weighted leaselengthof3.5yearsand£5.9 million of reversionary potential. Although occupational demand has been muted, it has been stronger in the regions than in London. The ERV of the portfolio has remained static over the year, with declines inLondonof-2.9%beingoffsetby increasesintheregionsof0.9%. Weinvested£4.1millionintoour officeassetsduringtheperiodand completed key projects, including at Tower Wharf, Bristol, 50 Pembroke Court, Chatham, and Stanford Building, London. We have had letting success at all three buildings. 40 On a like-for-like basis, occupancy has increasedovertheperiodto82%. tothesecondflooronafive-yearlease, subjecttobreak,5%aheadofERV. Portfolio activity At Grafton Gate, Milton Keynes, which was comprehensively refurbished last year, we retained two occupiers on lease expiry. Four leases were renewed, enabling us to increase the passing rentby29%toacombined£0.6 millionperannum,11%aheadofERV. Outlook Working from home as a result of the Covid-19 pandemic has caused a huge amount of business uncertainty; however, this is beginning to ease and the initial reaction of businesses thinking of disposing space is now being reconsidered. Webelievetheflighttoqualityhas been accelerated by the pandemic, with businesses wanting to provide best-in-class space to attract their staffbacktotheoffice.Sustainability is also now a key factor in choosing a building and older stock, where thecapitalexpenditurerequired to upgrade is prohibitive, will be converted to other uses. The regions have outperformed London, primarily we believe due to people not wanting to commute on public transport. We can see a push to get people back to the officelaterthisyear,withcompanies embracingamoreflexiblepolicy in respect of working from home. Wehaveinvested£9.7millioninto ourofficeportfoliooverthelast threeyears,creatinghighquality contemporary space and occupier amenities, meaning our buildings remain attractive to occupiers. We have 36 lease events forecast for the coming year, with the current ERVfortheseunitsbeing1.8% higher than the current passing rentof£2.5millionandan18% void,withanERVof£3.4million, providing us with the opportunity to significantlygrowincomeandvalue. At Tower Wharf, Bristol, we were pleased to welcome a new occupier topartofthefirstflooronaten-year lease subject to break, at a rent of £0.2millionperannum,marginally below ERV. We also agreed the letting ofthewholefourthfloortoanew occupier, with the vacating occupier payingapremiumof£0.2millionto facilitate the transaction. We currently have two suites available, which are being refurbished. The common areas were comprehensively refurbished last year, and we believe there is occupational demand which will come through as the year progresses. At 50 Pembroke Court, Chatham, we comprehensively refurbished a vacantfloorwiththemajorityofthe cost being covered by the outgoing occupier’sdilapidations.Thefloor has been split with a third let to the Government on a ten-year lease, subjecttobreak,at£0.1millionper annum, which is in line with ERV. At 50 Farringdon Road, London we surrendered a suite and immediately re-let it to an existing occupier whorequiredexpansionspaceat arentof£0.2millionperannum,in line with ERV. The transaction met bothoccupiers’requirementsand potentially will allow us to enter into a longer lease in due course. In another transaction, we removed an occupier’s 2022 break option securing£0.2millionperannum, which is subject to review, until 2027 and in return provided the occupier with a rent-free incentive, whichassistedtheircashflow during the Covid-19 pandemic. OurlargestofficevoidisStanford Building, London. We completed the refurbishment and enhanced the valueoftheofficefloorsandobtained planningtoconvertthefirstfloorfrom ancillaryretailtoofficespace.Wehave relocatedtothisfloor,whichprovides a great working environment. We were pleased to welcome a new occupier Picton Property Income Limited Annual Report 2021Tower Wharf, Bristol Refurbished reception area Key metrics £245.4m Valuation (2020:£259.1m) 0.8m sq ft Internal area (2020:0.8msqft) £13.1m Annual rental income (2020:£12.9m) £19.0m Estimated rental value (2020:£19.0m) 82% Occupancy (2020:81%) 15 Number of assets (2020: 15) *The2020figureshavebeenrestatedtoreflect StanfordBuildingnowreclassifiedasanoffice Locations 8 11 15 7 13 3 9 10 12 2 14 1 4 5 6 1 7 13 Angel Gate London EC1 64,600sqft–Freehold Metro Manchester 71,000sqft–Freehold Longcross Cardiff 72,100sqft–Freehold 2 8 14 Stanford Building London WC2 20,100sqft–Freehold 180 West George Street Glasgow 52,100sqft–Freehold Sentinel House Fleet 33,500sqft–Freehold 3 9 15 Tower Wharf Bristol 70,600sqft–Freehold 401 Grafton Gate East Milton Keynes 57,200sqft–Freehold Waterside House Leeds 25,200sqft–Freehold 4 10 50 Farringdon Road London EC1 31,300sqft–Leasehold Trident House St Albans 19,000sqft–Freehold 5 11 Colchester Business Park Colchester 150,700sqft–Leasehold Queens House Glasgow 49,400sqft–Freehold 6 12 30 & 50 Pembroke Court Chatham 86,100sqft–Leasehold Atlas House Marlow 24,800sqft–Freehold 41 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Portfolio Review continued Retail and Leisure The retail and leisure sector, which accounts for 11% of the portfolio, delivered the weakest performance of the year. The Covid-19 pandemic and subsequentlockdownshave had a severe effect on an already weak bricks and mortar retail and leisure market, with changing shopping habits accelerating the demand for warehouse space. Against this tough backdrop, we had success at our retail warehouse parkswhichaccountfor60%of our retail and leisure portfolio. Retail warehousing has been more resilient due to the ability of shoppers to be able to park and the size of the units being better suited to social distancing. On a like-for-like basis, our retail and leisure portfolio value decreased by£7.8millionor-9.3%to£76.3 million, and the annual rental income decreasedby£0.5millionor-7.0% to£6.4million.Theportfoliohasan average weighted lease length of 9.0 yearsand£0.6millionofreversionary potentialto£7.1millionperannum. The retail parks in Bury and Swansea were comprehensively refurbished in 2020 and this has helped us to attract new occupiers and grow the passing rent on the retail warehouseportfolioby1.3%,with only one vacant unit at year end in which we already have interest. We have also worked with a number of our occupiers to extend leases in exchange for upfront incentives. 42 Smaller independent retailers have been supported over the year to ensure they are ready to reopen, and we avoid the costs associated with vacant units. extended both leases in return for a reduced rent securing income until 2026. The combined rent was reduced by38%to£0.2millionperannum, whichisstill33%aheadofERV. Occupational demand was very weak over the year, with vacancy rates increasing as retailers exited leases on expiries and breaks and multi-national retailers such as Debenhams and Arcadia Group disappeared from the high street, further increasing the number of vacant shops. Correspondingly, rental values have declined and retailers with requirementshavemorechoiceand can negotiate substantial incentives. We have seen negative ERV growth of-2.8%acrosstheportfolio;however, pleasingly we have been able to increase occupancy, on a like-for-like basis,duringthisdifficultperiodto 92%.Weinvested£0.6millionintothe retail portfolio during the period to improve space and facilitate lettings. Portfolio activity At Parc Tawe Retail Park, Swansea, over half of our retailers remained open during the lockdowns as they were classed as essential retailers. Both Xercise4Less and Poundstretcher were subject to insolvency proceedings; however, we were able to mitigate the effect by securing JD Gyms and Deichmann Shoesasnewoccupiers,witha13% reduction in the passing rent and both of whom have refurbished the units. The one vacant unit, at the end of a terrace, has been put under offer via an Agreement for Lease to the Government, subject to planning, whoaretakinganewfive-yearlease, subject to a break in three years, at a rentof£0.1millionperannum,inline with ERV. This means the park is fully letwith70%oftheincomesecured foroverfiveyearsandthreeleases benefittingfromfixedrentalincreases. At Angouleme Way Retail Park, Bury, we assisted an occupier by removing a 2022 break option in return for a rent-free incentive, securing income until 2024. Another unit was let to JYSK on a ten-year lease, subject to abreakinfiveyears,atarentof£0.1 million per annum, in line with ERV. We have one unit available to lease, accountingfor21%oftheparkby floorareainwhichwehaveinterest. At Briggate, Leeds, where we have two high street retail properties, we At Fishergate, Preston, following a comprehensive refurbishment we lettheentirefirstfloortoSlaters Menswear on a new ten-year lease, subjecttoabreakatyearfive,at £0.1millionperannumwhichis in-line with ERV. The property is now fully leased with JD Sports andTessutionthegroundfloor. Bridge Street, Peterborough, was sold in December. The property comprises two retail units, with one let to TK Maxx who are vacating in June 2021 and the other vacant and previously occupied by New Look.Theassetwassoldfor£4.0 million,30%aheadofvaluation. Our largest retail void is the unit within Stanford Building, London, (nowreclassifiedasanoffice), which has been refurbished and is being marketed. The unit is in a prime Covent Garden location and providesuniquespacearranged overtwofloors.Wehavehad some interest, but expect better terms as the lockdown eases. Outlook The retail and leisure sector has undergone a severe structural change, which has been accelerated by the Covid-19 pandemic. There is an oversupplyoffloorspace,especially in the shopping centre and high street sub-sectors. Demand will bethereforprimewell-configured space, with secondary units being unable to attract occupiers. This stock will have to be repurposed and planning law has changed to make this easier; however, with such a severe oversupply we cannot see the position changing in the short-term. We are however more positive about the retail warehouse sector, wherewehave60%ofourretailand leisure weighting. We have been successful in securing new occupiers over the year and our parks have remained busy. Valuations, which have moved down over the past few years, are now stabilising. With the lockdown ending and most retail and leisure having re- opened, improving consumer confidencewillgivebusinessesthe help they need to start recovering. Picton Property Income Limited Annual Report 2021Parc Tawe North Retail Park Swansea Key metrics £76.3m Valuation (2020:£87.2m) 0.7m sq ft Internal area (2020:0.8msqft) £6.4m Annual rental income (2020:£7.3m) £7.1m Estimated rental value (2020:£7.6m) 92% Occupancy (2020:91%) 15 Number of assets (2020: 16) *The2020figureshavebeenrestatedtoreflect StanfordBuildingnowreclassifiedasanoffice Locations 12 7 11 15 10 1 4 13 14 6 8 2 3 9 5 1 7 13 Queens Road Sheffield 105,600sqft–Freehold Crown & Mitre Complex Carlisle 25,200sqft–Freehold 7-9 Warren Street Stockport 8,700sqft–Freehold 2 8 14 Parc Tawe North Retail Park Swansea 116,700sqft–Leasehold Scots Corner Birmingham 30,000sqft–Freehold 6-12 Parliament Row Hanley 17,300sqft–Freehold 3 9 15 Gloucester Retail Park Gloucester 113,900sqft–Freehold 53-57 Broadmead Bristol 13,200sqft–Leasehold 18-28 Victoria Lane Huddersfield 14,600sqft–Leasehold 4 10 Angouleme Retail Park Bury 76,200sqft–Free/Leasehold 78-80 Briggate Leeds 7,700sqft–Freehold 5 11 Thistle Express Luton 81,600sqft–Leasehold 17-19 Fishergate Preston 59,900sqft–Freehold 6 12 Regency Wharf Birmingham 42,500sqft–Leasehold 72-78 Murraygate Dundee 9,700sqft–Freehold 43 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Financial Review The total profit for the year was £33.8 million, up over 50% compared with 2020. Andrew Dewhirst Finance Director This financial year has been unparalleled as a result of the Covid-19 pandemic, with UK GDP declining by -9.8% in 2020, the largest fall on record. Many sectors of the economy have been badly disrupted by the lockdowns and other restrictions, particularly retail, leisure and travel. We have not been immune to this, but have been fortunate in having limited exposure to the more badly hit retail and leisure sectors. Our results for the year are very positive in the context of the backdrop in which we have been operating. Thetotalprofitfortheyearwas£33.8million,whichis higher than both 2020 and 2019. Our EPRA earnings increasedto£20.1million.Earningspersharewere 6.2 penceoverall(3.7penceonanEPRAbasis),andthe totalreturnbasedontheseresultswas6.6%fortheyear. £33.8m Profit after tax £20.1m EPRA earnings 6.2p Earnings per share 44 Net asset value ThenetassetsoftheGroupincreasedto£528.2million,or 97pencepershare,whichwasariseof3.7%overtheyear. The chart below shows the components of this increase. March 2020 net asset value Incomeprofit Valuation movement Profitonassetdisposals Share-based awards Purchase of shares Dividends paid March 2021 net asset value £m 509.3 20.1 12.8 0.9 0.7 (0.6) (15.0) 528.2 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 – IFRS and EPRA NTA Fair value of debt EPRA NDV asset value Net asset value per share (pence) EPRA net tangible asset value per share (pence) EPRA net disposal value per share (pence) 2021 £m 2020 £m 2019 £m 528.2 (21.0) 507.2 509.3 499.4 (29.6) 479.7 (24.8) 474.6 97 97 93 93 93 88 93 93 88 Picton Property Income Limited Annual Report 2021Dividends At the start of the pandemic, in common with many other property companies, we reviewed the level of our dividend and concluded that a prudent approach was appropriate, reducingtheMay2020dividendby29%.Wemaintained thislowerratefortwoquartersandhavesubsequently increasedittwice,initiallyby12%andthenbyafurther14%, sothatthedividendisnowat91%ofthepre-pandemic level, as rent collection rates have remained robust. The dividend for the year was 2.75 pence per share, with total dividendspaidoutof£15.0million.Dividendcoverforthe fullyearwas134%. EPRA Best Practices Recommendations The EPRA key performance measures for the year are set out on page 3 of the Report, with more detail provided in the Supplementary Disclosures section which starts on page 127. EPRA introduced updated Best Practices Recommendations effective for accounting periods starting after 1 January 2020, including new measures of net asset value. These are net tangible asset value, net disposal value and net reinstatement value. We have included these measures in this Report, and in the Supplementary Disclosures section we set out the calculations in more detail. Alternative performance measures We use a number of alternative performance measures (APMs) when reporting on the performance ofthebusinessanditsfinancialposition.Thesedonot 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. 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, occupierretentionrateandEPCratings.Thedefinition of these measures, and the rationale for their use, is set out in the Key Performance Indicators section. Income statement As noted above our EPRA earnings for the year have increasedcomparedto2020,rising0.6%to£20.1million. Within that, property revenue has reduced as expected during the pandemic, but there have been savings in both propertycostsandadministrativeexpenses,andfinance costs are also lower. Total revenue from the property portfolio for the year was £43.3million.Rentalincome,at£36.6million,waslowerby 3.2%comparedto2020,whichwasduetoassetdisposals and additional provisions made against income as a result of the pandemic despite an increase in occupancy. On a like-for-like basis, rental income increased marginally by 0.2%comparedtothepreviousyear,onanEPRAbasis. Rent collection over the year has held up well, but the variations between different business sectors have been quiteapparent.Ourpolicyofengagingwithoccupiersfrom anearlystagehasbeenbeneficial,andtheamountofrent concessions that we have granted has been limited, at only 4%ofrentdueovertheyear.Thetablebelowsetsouta summary of our rent collection over the last year. Our Covid-19 response Rent due 25 March 2020to 24 March2021 Collected Deferred Concessions agreed Outstanding Industrial (%) 91 1 4 4 Office (%) 97 – 2 1 Retail and Leisure (%) 85 4 8 3 Total (%) 92 1 4 3 Fortheyearwewroteoff£1.6millionofdebts,and increasedtheprovisionagainstoccupierdebtorsby£0.2 million, with the total provision at 31 March 2021 standing at £1.6million.Wecontinuetoengagewithoccupiersto resolve all amounts outstanding. Propertyvoidcostsreducedby27%to£2.2million, reflectingboththeincreaseinoccupancyovertheyearand the lower service charge costs attributable to vacant units. Administrativeexpensesfortheyearwere£5.4million, againlowerthanthepreviousyear,by3%.Savingswere made against a number of corporate level costs. Interestcostsarealsolowerthisyearat£8.0million,dueto the loan repayments that we made towards the end of the lastfinancialyear.Therewerenodrawdownsmadeunder the new revolving credit facility. Capitalgainsontheportfoliowere£13.7millionfortheyear, withpositivevaluationmovementsduringthe year.There wasdivergenceacrossthesectors,withthe industrialassets showingsignificantgains,whileretailand leisureassets were more adversely impacted by the pandemic. One disposalwasmadeduringtheyear,realisinga30% gain compared to the March 2020 valuation. Thetotalprofitfortheyearwas£33.8million,upover50% compared with 2020. 45 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewCash flow and liquidity Thecashflowfromouroperatingactivitieswas £18.6 millionthisyear,aheadof2020.Weinvested £5.0 millionintotheportfolio,largelyoffsetby£3.9million raised from the asset disposal. The lower dividends paid also helped to maintain cash. Our cash balance at the year-endstoodat£23.4million,veryclosetothebalance at 2020. Share capital No new ordinary shares were issued during the year. TheCompany’sEmployeeBenefitTrustacquiredafurther 958,000shares,atacostof£0.6million,or67penceper share,duringtheyear.Thiswasto satisfythefuturevesting of awards made under the Long-term Incentive Plan and DeferredBonusPlan,and nowholdsatotalof2,052,269 shares.AstheTrustis consolidatedintotheGroup’sresults these shares are effectively held in treasury and therefore have been excluded from the net asset value and earnings pershare calculations,fromthedateofpurchase. Andrew Dewhirst Finance Director 26 May 2021 Strategic Report Financial Review continued Investment properties The appraised value of our investment property portfolio was£682.4millionat31March2021,upfrom£664.6million a year previously. This year we have disposed of one small retailproperty,fornetproceedsof£3.9million,realisinga gainof£0.9millioncomparedtolastyear’svaluation.Our programme of capital expenditure has continued, with £5.0millioninvestedbackintotheportfolio.Themain project undertaken was at Stanford Building in London WC2, where a full refurbishment has now completed. The overallrevaluationmovementacrosstheportfolio was againof£12.8million. At 31 March 2021 the portfolio comprised 46 assets, with an averagelotsizeof£14.8million. A further analysis of capital expenditure, in accordance with EPRA Best Practices Recommendations, is set out in the Supplementary Disclosures section. Borrowings Totalborrowingsarenow£166.2millionat31March2021, with the loan to value ratio having reduced further to 20.9%.Theweightedaverageinterestrateonour borrowingsis4.2%,whiletheaverageloanduration is now 8.9years. Our senior loan facility with Aviva reduced by the regular amortisation,£1.3millionintheyear. The Group remained fully compliant with the loan covenants throughout the year. During the year we completed a new single revolving credit facility with NatWest, replacing the two existing ones. The new£50millionfacilityisforaninitialtermofthreeyears, until May 2023, with two one-year extensions available. Interest is currently payable at 150 basis points over LIBOR. We are currently undrawn under this facility. The fair value of our borrowings at 31 March 2021 was £187.2 million,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) 2021 166.2 2020 167.5 – – Totalborrowings(£m) 166.2 167.5 2019 168.7 26.0 194.7 Borrowings net of cash (£m) Undrawnfacilities(£m) Loantovalueratio(%) Weighted average interest rate(%) Average duration (years) 142.8 50.0 20.9 4.2 8.9 143.9 169.5 49.0 21.7 4.2 9.9 25.0 24.7 4.0 9.8 46 Picton Property Income Limited Annual Report 2021Strategic Report Principal Risks Managing Risk The Board recognises that there are risks and uncertainties that could have a material impact on the Group’s results. Risk management provides a structured approach to the decision making process such that the identifiedriskscanbemitigatedand 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 ofemployeesandrelativelyflat management structure allow risks to bequicklyidentifiedandassessed. 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 and emerging risks and uncertainties combined with an assessment of the future prospects for the Company, in order that the Board can state that the Company will be able to continue its operations over the period of their assessment. The statement is set out in the Directors’ Report. Principal risk Trend 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 Our Covid-19 response The global Covid-19 pandemic has caused an unprecedented level of disruption to economies globally. Restrictions have been in place to varying extents since the start of the pandemic in March 2020. Some sectors of the economy have been more severely impacted, particularly retail, leisure and tourism. However, since the start of the year the vaccine programme has gathered pace and there is a planned route to easing restrictions and opening up the economy. The risks associated with the pandemic have impacted many of the principal and emerging risks set out here. There has been an impact on the Group’s rent collection and cashflow, althoughthishasbeen lesssignificantthanoriginally envisaged. We have 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 the number of transactionshasreducedsince the pandemicbegan.Thematerial uncertainty clause, introduced by our valuersinMarch2020,was subsequentlyremoved. We have considered in our Viability Statement the potential impact of various scenarios resulting from Covid-19 on the business. G o v e r n a n c e 47 Financial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Principal Risks continued Brexit A new trading agreement was put in place with the EU at the end of 2020, ahead of the end of the transition arrangement, removing much of the uncertainty around this event. Emerging risks During the year the Board has considered themes where emerging risks or disrupting events may impact the business. These may rise from behavioural changes, political or regulatory changes, advances in technology, environmental factors, economic conditions or demographic changes. Some are already considered to be principal risks in their own right such as the impact of climate change, while others are reviewed as part of the ongoing risk management process. The principal emerging risks have beenidentifiedtobe: ӱ the impact of climate change; ӱ the ongoing effects of the Covid-19 pandemic on the economy and the property market, and potential legacy impacts on unemployment, inflationandGovernment borrowing; ӱ potentialchangesintheoffice market as businesses re-assess theirneedsinthelightofflexible working; ӱ structural changes in the retail market, with the increasing prevalence of online retailing and the oversupply of physical space; ӱ the impact of technology giving rise to rapid changes in occupiers’ businesses,andconsequentlyon theirspacerequirements; ӱ legislative and regulatory changes can bring risks to the commercial property market, such as changes to planning regulations or in the application of business rates. These emerging risks are covered in more detail in the Marketplace section of the Report. Read more on pages 16-17 Risk management framework Board • Has overall responsibility for risk management • Determines business model • Considers risk appetite Executive Committee • Implements strategy and risk policy Identifiesandassessesrisks • • Carries out risk mitigation Audit and Risk Committee • Recommends risk management policy • Reviews internal controls • Reviews detailed risk matrix • Considers principal and emerging risks Management Committees • Reviewspecifictransactionrisks • Consider forthcoming legislation • Review operational risk The matrix below illustrates the assessment of the impact and likelihood of each of the principal risks. h g H i i m u d e M t c a p m i l a i t n e t o P w o L 0 Low 2 11 6 8 1 7 5 4 3 9 10 Medium High Likelihood after mitigation Read more on pages 49-51 48 Picton Property Income Limited Annual Report 2021 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 Mitigation The Board considers economic conditions and market uncertainty when setting strategy, considering thefinancialstrategyofthebusiness and in making investment decisions. Commentary The impact of the pandemic in 2020 saw the largest ever contraction in UK GDP. A further decline occurred inthefirstquarterof2021,withGDP contracting-1.5%tostandat-8.7% below the pre-pandemic level. With the rollout of the vaccine continuing, a rebound is forecast during the latter part of 2021, although with the riskofinflationarypressure. Mitigation The Board reviews the Group’s strategy and business objectives on aregularbasisandconsiders whether any change is needed, in lightofcurrentandforecast market conditions. Commentary It is likely that uncertainty in the property market will decline as restrictions ease. 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. 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. 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 Sustainability is embedded within the Group’s business model and strategy. Commentary There is an increasing momentum to the issue of addressing climate change. We are committed to developing our pathway to carbon net zero over the course of the coming year. All refurbishment projects consider environmental impact and where possible seek improvements. Investors are putting a greater emphasis on ESG credentials and occupiers are seeking more sustainable buildings. Risk trend Connected KPIs Strategic Pillar 3 1 2 A B C G H 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 3 1 2 A C J K 4949 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic 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. Mitigation TheGroupmaintainsadiversified portfolio in order to minimise exposure to any one geographical area or market sector. Commentary The pandemic continues to impact many occupiers’ businesses, particularly in the retail and leisure sectors. The longer-term impact of homeworkingontheofficesector is also unclear. The divergence of returnsseenpreviouslyacross sectors is expected to continue. Risk trend Connected KPIs Strategic Pillar A C 3 1 2 Risk trend Commentary There is no change to this risk. Connected KPIs Strategic Pillar A C 3 1 2 Commentary Effective asset management continues to be key, engaging with occupiers to provide appropriate solutions while maintaining cash flowandoccupancy. Risk trend Connected KPIs Strategic Pillar 3 1 2 C I J K Commentary Although there is still some economic uncertainty, valuations are more stable with improved market evidence. Valuers have removed the material uncertainty clause that was introduced at the start of the pandemic. Risk trend Connected KPIs Strategic Pillar 3 1 2 A C E 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, includingsensitivityandadequate headroomagainstfinancial covenants. 50 Picton Property Income Limited Annual Report 2021Operational 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. 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 No employees were furloughed during the pandemic. The team has continued to work effectively from home, although a gradual return to theofficeisenvisaged.Feedback from the employee engagement survey was positive. 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 refinancing events could lead to a funding shortfall for operational activities. 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. Commentary TheGrouphassignificantheadroom against its loan covenants. No additional borrowing has been incurred during the pandemic, and the Group’s revolving credit facility remains undrawn. TheBoardreviewsfinancialforecasts for the Group on a regular basis, includingsensitivityagainstfinancial covenants. The Audit and Risk Committee considers the going concern status of the Group biannually. 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 regularly reviews its gearing strategy and debt maturity profile,atleastannually,inlightof changing market conditions. Commentary The Group’s gearing level has remained relatively low during the pandemic, and property values have been stable, reducing this risk. Risk trend Connected KPIs Strategic Pillar F H L 3 1 2 Risk trend Connected KPIs Strategic Pillar C D E 3 1 2 Risk trend Connected KPIs Strategic Pillar 3 1 2 A C E G H 5151 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report TCFD Statement TCFD Disclosure This year we have completed the review of our sustainability priorities and material issues. A key recommendation regarding one of those material issues, Climate Change Adaptation and Mitigation, was to start the journey towards net zero carbon and assess its feasibility. A related issue is to develop our reporting under the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Thisisourfirstyearinmaking disclosures in line with the TCFD recommendations.We expectthese disclosures to evolve as we start to defineourpathwaytonetzerocarbon and furtherassesstherisksrelatingto climate change. Governance Recommendation The Board’s oversight of climate- related risks and opportunities Management’s role in assessing and managing climate-related risks and opportunities Read more on pages 76-78 Strategy Recommendation Climate-related risks and opportunities identified over the short, medium and long-term Commentary The Board has overall responsibility for risk management, including the consideration of climate-related risks, and for setting the Group’s risk appetite. The Audit and Risk Committee is responsible for overseeing the development, implementation and maintenance of the Group’s Risk Management Policy and its risk appetite. The Responsibility Committee meets regularly to consider all aspects of sustainability including risks and opportunities. Updates are provided to the Executive Committee which is responsible for implementing strategy within the agreed Risk Management Policy. Commentary An initial assessment of the climate-related risks over the short, medium and long-termhasbeensetoutbelow.Furtheridentificationofrisksandopportunities will take place over the coming year. Short-term (0-5 years): Stricter legislation including the implementation of new Minimum Energy EfficiencyStandardsforcommercialpropertyandtighteningofregulationswhich will increase property costs. Medium-term (5-10 years): Occupierdemandforbuildingswithhigherlevelsofefficiency,climateresilience and lower carbon footprints will increase. Long-term (15+ years): Climate change in the UK will bring more extreme weather conditions which may impact the portfolio. 52 Picton Property Income Limited Annual Report 2021Impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning Resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario Read more on pages 48–51 Risk Management Recommendation How processes for identifying, assessing, and managing climate- related risks are integrated into the organisation’s overall risk management Read more on pages 48–51 Metrics and Targets Recommendation Metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process Disclosure of Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks TheBoardhasidentifiedthatclimate-relatedriskscouldimpactontheCompany by reducing: ӱ the desirability of its assets to occupiers where buildings are considered to be unsuitable for their purpose; ӱ the ability to sell assets as a result of a greater focus on climate-related risks; and ӱ its access to capital and impact on reputation due to concerns over how well the portfolio is adapted for climate change. We are improving and adapting our assets through maintenance and energy efficiencyupgrades.Wewillconsidertheclimate-relatedrisksandenergyefficiency ofpotentialacquisitionsaspartofduediligence. The Board has recognised that climate change will have an impact on the business, and we have started to develop our plan to become a net zero carbon businessandatthesametimedevelopouridentificationanddisclosureof climate-related risks. As part of this we will consider the impact of physical and transitional risks under different scenarios, including a scenario limiting global warming to 2°C or lower. Commentary The Board, Audit and Risk Committee and Executive Committee formally review the Group’s principal risks. This includes climate-related risks, including their likelihood, impact and mitigating controls. The Board recognises that climate change is an increasingly important priority. Our risk matrix is regularly reviewed and updated to keep track of the changing nature of these risks. Commentary We report in line with EPRA Sustainability Best Practices Recommendations for sustainability reporting and include EPRA tables within our Sustainability Report. We disclose Scope 1, 2 and 3 greenhouse gas (GHG) emissions in our Annual Report and Sustainability Report. Targets used by the organisation to manage climate-related risks and opportunities and performance against targets As we continue our assessment of climate-related risks and opportunities over the coming year we will develop appropriate metrics and targets against which to measure our performance. Read more on pages 54–57 53 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Being Responsible Our responsible and ethical approach We believe that sustainability has to be fully embedded into all of our activities. Aresponsibleandethicalapproachtobusinessisessentialforthebenefit of allourstakeholdersandunderstandingthelong-termimpactofour decisions will help us to manage risk and continue to generate value. Our journey so far 2005 Sustainability governance Since inception and upon listing in 2005, we have been committed to conducting business responsibly, and in a way that makes a positive contribution. Our Board provides governance oversight 2008 Focusing on the environment Initial collection, measurement and analysis of environmental information to help identify and implement energy improvements across our buildings More detail on how we approach sustainability and our progress this year can be found in our Sustainability Report, available on our website. 2012 Operational excellence Internalisation of Company’s management Our approach to sustainability This year we developed our sustainability priorities. We will continue to fully integrate sustainability into our corporate strategy, while ensuring our sustainability priorities align with global and national expectations. When necessary,wewillreviewtheseprioritiestomakesuretheyarefitforpurpose and that we measure our progress appropriately. See how each pillar is fully aligned to our corporate strategy on pages 20–21 Su s b uil t a i n d a i b n l g e s O ur e m p loyees a l t n e viron m foc u s n E Sustainability governance S t e a n k g e a h g e m older nt e 54 2013 Helping our occupiers succeed Introduced our Picton Promise commitments and occupier focused approach 2014 EPRA Sustainability Best Practice Started reporting against EPRA Sustainability Best Practices Recommendations 2016 Sustainability strategy established Setfive-yeartargetsforreducingScope1 and2carbonemissionsby20% 2017 Focusing on employees Alignment of team with shareholders through Long-term Incentive Plan Transparent and accountable reporting – GRESB reporting starts – Started collecting occupier consumption data and introduced smart building technologies 2018 Conversion to a REIT Established Responsibility Committee Commitment to sustainable buildings Introduced green lease clauses 2019 Sustainability reporting AwardedfirstEPRAGoldforsustainability reporting 2020 Integrated sustainability into our corporate strategy – Joined Better Buildings Partnership – Awarded GRESB two Green star status Looking ahead Having met our 2016 targets, we are working towards developing ambitious new targets as we establish our pathway to net zero carbon. Picton Property Income Limited Annual Report 2021 Environmental focus What we have done this year ӱ Carried out ESG audits at four officeproperties ӱ Improved our GRESB score and achieved two Green stars ӱ Maintained EPRA Gold award for sustainability reporting ӱ Exceeded2016five-yeartarget with57%reductioninScope1 and 2 GHG emissions ӱ Embarked on developing our net zero carbon pathway ӱ Undertaken biodiversity surveys at a number of properties ӱ Joined the Better Buildings Partnership What we will do next year ӱ Aim to improve GRESB score further ӱ Defineourpathwaytonetzero carbon ӱ Carry out a further four ESG audits ӱ Continue to build on our approach to biodiversity ӱ Continue to improve data capture and increase coverage across our portfolio Net zero carbon pathway This year we have completed the review of our sustainability priorities and material issues. A key recommendation regarding one of those material issues, Climate Change Adaptation and Mitigation, was to start the journey towards net zero carbon and assess its feasibility. This is a key challenge facing the real estate sector, with many companies beginning to publish their own net zero carbon pathways. A related issue is to develop our reporting under the Task Force on Climate-related Financial Disclosures recommendations. We have recognised that developing our net zero carbon pathway will requireustopartnerwithathirdparty specialist, and are currently working through the selection process. Weintendtodefineournetzero carbon pathway and targets in line with the Better Buildings Partnership framework during the course of this year, ESG audits During 2020 four ESG audits were undertaken at Queens House, Glasgow, Metro, Manchester, 50 Farringdon Road, London and Tower Wharf, Bristol. A number of recommendations were made at each site for improvements which would result in energy and cost savings. The majority of these have now been actioned with the resulting payback starting in some cases from as soon as three months from completionoftheworksrequiredand anoverallannualsavingof£60,000. A further four surveys at 50 Pembroke Court, Chatham, Atlas House, Marlow, Longcross, Cardiff and 401 Grafton Gate, Milton Keynes have been commissioned for 2021 and we intend to review the recommendations of these and undertake further improvements where appropriate. Biodiversity During 2020 we have undertaken biodiversity surveys across our portfolio at properties with landscaped areas and as a result measures such as the installation of bug hotels, bird boxes and changes to planting regimes have been put into effect at several sites including Parkbury Industrial Estate, Radlett, Colchester Business Park, 50 Pembroke Court, Chatham, Tower Wharf, Bristol and Nonsuch Industrial Estate, Epsom. We will be undertaking further surveys across our sites during 2021 and have begun to engage with local wildlife trusts – for example Essex Wildlife Trust in Colchester – to obtain their recommendations on biodiversity measures which could be put into place. Reporting We recognise that it is important to be transparent on sustainability issues, so that our stakeholders can make informed decisions. We continue to report to GRESB and EPRA. For 2020 GRESB introduced a new scoring methodology, which made comparisons with earlier years more difficult.Ourscorefor2020was65, and we achieved two Green Stars, up from one Green Star in 2019. Our overall score was four points ahead of 2019. We were also ahead of our peer group average. We haveidentifiedareaswherewecan improve our score further in future. For the second year running we achieved a Gold award under the EPRA Sustainability Best Practices Recommendations. 55 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Being Responsible continued 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 2021 Sustainability Report we detail our GHG emissions for the last fiveyears.In2016wesetafive-year target to reduce our Scope 1 and Scope2GHGemissionsby20%. Ouroverallreductionwas57%. Scope 1 Our absolute Scope 1 emissions fell by 31%comparedtothepreviousyear to 799 tCO2e. Similarly our Scope 1 intensityalsofellby30%.Thiswas largely due to the impact of the lockdown restrictions on the occupancy of buildings during the year. Scope 2 Our absolute Scope 2 emissions have decreasedby35%thisyear,to1,479 tCO2e, and our Scope 2 intensity also fell. As with Scope 1, the emissions reduced because of lockdown restrictions. We are also seeing the benefitofenergyefficiencyprojects completed in the previous year, such as at Atlas House in Marlow. This year some major refurbishment projects have been carried out incorporating further environmental initiatives, including at Stanford Building, and we expect to see the impact of these on our Scope 2 emissions in future. Scope 3 Scope 3 emissions include those of our occupiers, and this is the largest Scope 3 element. Data collection this year has been severely hampered by the pandemic, as occupiers have been unable to access buildings, and so the reportedfiguresareheavilybasedon estimates. We will update these when we have received more accurate data. As expected, other Scope 3 emissions have also declined this year, with water consumption and waste disposal fallingby47%,andbusinesstravel by 76%. Methodology We have reported on all the emission sourcesrequiredunderthecore requirementsofEPRA’s‘BestPractices Recommendations on Sustainability Reporting’ 2020, 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 2020. Where data was unavailable in kilogrammes 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 accuratewayofcovering95%ofour consumption but will be less useful for our industrial vacant units; due to the comparatively low consumption andlargefloorareastypically associated with vacant industrial units. We are continually improving the reporting process so that we can produce increasingly useful normalisation and intensity metrics. We have continued to voluntarily report on Scope 3 vehicle emissions. Vehicle emissions were calculated using our 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 2020. Year-on-year, we will continue to update previous reportedfiguresifapplicableto remove estimates and ensure actual data is captured and reported. Emission source Combustion of fuel and operation of facilities Electricity, heat, steam and cooling purchased for own use Total Scope 1 and 2 Business travel Occupier data Officepremises Landlord water and treatment Landlord waste Total Scope 3 Total all Scopes 56 2021 2020 2019 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 3 799 0.004 1,166 0.005 1,242 0.006 1,479 2,278 1 2,570 13 28 7 2,619 4,897 0.007 0.011 N/A 0.002 N/A 0.000 0.000 0.002 0.013 2,282 3,448 4 3,672 17 53 13 3,759 7,207 0.010 0.015 N/A 0.004 N/A 0.001 0.000 0.005 0.020 2,679 3,921 8 5,425 10 55 26 5,524 9,445 0.015 0.021 N/A 0.003 N/A 0.001 0.000 0.004 0.025 Picton Property Income Limited Annual Report 2021Sustainable buildings We are committed to monitoring and enhancing the environmental performance of our buildings and aim to ensure refurbishments are carried out to the highest sustainability standards. As we look to develop our pathway to net zero carbon over the course of next year, we will be furtherestablishingtherequirements at a portfolio level to enhance the risk and resilience of our buildings. What we have done this year ӱ Improved 20 EPC ratings ӱ Developed refurbishment checklist ӱ Provided Covid-19 compliant guidanceforofficere- occupation ӱ Created a new Health and Safety Committee ӱ Increased number of green leasesby75% What we will do next year ӱ Further improve the portfolio EPC ratings ӱ Maintain high level of health and safety compliance ӱ Consider further integration of wellbeing initiatives for our occupiers within our refurbishment checklist EPC management Over the year we have reassessed 23 EPCs. The average newly assessed EPCratingimprovedtoaC(reflecting an average score of 64), from the previousaverageratingofD(reflecting an average score of 90). Overall we have 387 EPC units across the portfolio,ofwhich92%areratedA-D. We have one unit with an F rated EPC where we are liaising with the occupier to undertake the necessary works to improve the rating. We continue to use lease events, common area works and EPC renewals to implement improvement works with the overall aim of continually improving our EPC score and ensuring compliance with MEES. Refurbishment checklist We have, in partnership with our building advisers, implemented an ESG-focused refurbishment checklist. This provides a set of guidelines to ensure our refurbishment process and refurbished buildings meet the appropriate environmental, social and governance standards based on the scope and type of refurbishment works being undertaken. Health and safety Our health and safety record remained strong over the year with no reported accidents or health and safety related incidents. Despite the restrictions caused by the pandemic wewere99%compliantincritical and secondary documentation. In order to continue maintaining these high standards, we have created a new Health and Safety Committee to ensure that compliance and performance is measured appropriately for all our stakeholders; our employees, occupiers, contractors and other visitors to our buildings. We provided Covid-19 safe plans complying with the relevant health and safety regulations and guidance forallofourmulti-letofficeswhich ensured they remained safely open throughout the pandemic. Green leases We have continued to incorporate sustainability clauses into our leases during the year. Wehaveidentifiedthreelevels of green lease clauses - basic, intermediate and leader. Atthestartofthisfinancialyear we had 60 green leases in place. By 31 March 2021 this had risen to105,soanincreaseof75%over the year. Of this total, nearly half are at the highest leader level. 3 1 2 See how this aligns with our strategic pillars on page 20–21 57 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness Overview Strategic Report Being Responsible continued Our employees We have a strong and open company culture with shared values co-created by our employees. We value the contributions made by the whole team and aim to nurture a positive working environment. What we have done this year ӱ Carried out a further employee survey ӱ Established regular virtual team meetings to maintain morale during lockdowns ӱ Held virtual meetings between the team and Non-Executive Directors ӱ Held a socially distanced team offsite when restrictions allowed ӱ Movedoffices,upgraded workplace amenities and IT What we will do next year ӱ Returntotheofficewitha flexibleworkingmodel ӱ Continue to build on the employee engagement survey to identify areas important to the team ӱ Focus on upskilling the team on sustainability Employee engagement This year we again carried out an employee survey, which focused on the issues arising from remote working.Atthestartofthefirst lockdown in March 2020 we introduced daily virtual team meetings, so that we were able to maintain communication across the whole team. The feedback from the survey was positive and that this contact was appreciated by the team and helped to maintain morale throughout the periods of lockdown. When restrictions permitted, we held a socially distanced team offsite. This included relevant training sessions with an external speaker. 58 Stanford Building London Office move One of the key themes from last year’s employee survey and forum was the qualityofofficeaccommodation.By movingofficewenowbenefitfrom excellentofficespaceandamenities. As part of the move we upgraded our IT infrastructure and connectivity. 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 4 4 8 2 4 6 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 was 1.6%onatimespentbasis, upfrom1.5%lastyear. 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 mix of activities, which include internal and external training courses, structured ‘on the job’ experience and through interaction with professional colleagues All of the Group’s employees have a formal performance appraisal on an annual basis, together with a mid- year review of their progress against objectives set at the start of the year. Picton Property Income Limited Annual Report 2021Stakeholder engagement We have in place a framework for conducting business in a way that makes a positive contribution to society while minimising the impact on people and the environment. We are committed to engaging with our occupiers, shareholders, suppliers and wider community and the Board acts to promote the long-term success of the business for thebenefitofallourstakeholders. What we have done this year ӱ Maintained regular communication with shareholders, including virtual meetings ӱ Engaged with our occupiers throughout the year to help navigate the pandemic ӱ Developed our occupier engagement programme to improve occupier satisfaction ӱ Carried out occupier satisfaction survey ӱ Markedfifteenthanniversaryby holding community initiative offering£15,000tolocal charities ӱ Made further charitable donationsof£14,000 What we will do next year ӱ Roll out occupier engagement plan ӱ Act on the results of our latest occupier survey ӱ Useourinfluencetodrive environmental performance and increase adoption of green lease clauses Our occupiers We are always seeking to improve our occupiers’ experience, which is why wecreatedthePictonPromise:five key commitments including Action, Community, Technology, Support and Sustainability. Each commitment underpins every aspect of the occupier experience we provide. We have continued our occupier engagement programme during the pandemic, maintaining regular contact and communication with our occupiers. We have held regular virtual building management meetingswithourofficeoccupiers and ensured buildings were accessible and Covid-compliant. This year we will aim to further develop our engagement with occupiers and act upon the results of the recent occupier survey that we have carried out. We are also preparing buildingspecificre-occupation plans to assist our occupiers when they are ready to return. 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 from our suppliers. Lastyearwepreparedourfirst Supplier Code of Conduct. The Code is designed to promote safe and fair working conditions and the responsible management of social, ethical and environmental issues in our supply chain. Over the last year we have been rolling this out to all of our principal suppliers, and to new suppliers as appropriate. Our communities We are committed to supporting the local communities where we own buildings. We aim to continually improve the impact of our buildings within local communities through not only providing space to local businesses, but also through the improvement of local areas and minimising the environmental impact of buildings themselves. We have this year developed our community and social value, and charitable giving policies to provide greater focus on our initiatives. Aspartofourfifteenthyear anniversary celebrations, we created a fundingawardof£15,000tosupport not-for-profitcommunityorganisations where we own buildings. We invited applications from organisations committed to creating, delivering or expanding projects which improve community engagement. Parkbury Industrial Estate Radlett We received many applications nominated by our occupiers and selectedfiveworthwhileprojectsto each receive an award. These were: ӱ The Link Visiting Scheme, Wokingham ӱ Capel Community Trust, Capel ӱ Your Sanctuary, Surrey ӱ I CAN, London ӱ Strathcarron Hospice, central Scotland We continue to support a variety of charities, and this year made donationsofover£14,000.With the impact of the pandemic curtailing many charities’ fundraising activities we felt it was appropriate to increase our support. The principal charities that we have supported this year are The Funding Network, Coram and LandAid. We have maintained our occupier matched giving policy, and also offer matched giving for employees who are raising money for charity. 59 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Being Responsible continued Understanding our stakeholders We believe that taking into account the views of our key stakeholders is critical to the long-term success of the business. We engage with all of our stakeholders to understand what is important to them. The following table sets out our key stakeholders and how we effectively engage with them. Our section 172 statement for the year ended 31 March 2021 is on pages 62 to 63 and sets out how some of the key decisions made by the Board during the year were guided by stakeholder engagement. Stakeholder What is important to our stakeholders How we engage What we have done this year Our people – Fairandequaltreatment – Career progression – Fair pay and conditions – Good work/life balance – Positive work culture and values We have a small team and engage regularly with them. We have an appraisal process where each member of the team will discuss their performance and objectives with their line manager twice a year. We carry out an annual employee survey, and the results of this are discussed at a meeting held with our designated Non-Executive Director for employee engagement, Maria Bentley. We have maintained contact with the team by holding regular virtual meetings and have held a socially distanced team offsite when restrictions allowed. The results of the employee survey showed the team remained positive and morale was good. Local communities and charities – Local employment opportunities – Positive contribution to local economy – Safe and clean environment We are committed to improving local communities where we own buildings, whether providing space to local businesses, improvement of local areas or minimising the environmental impact of buildings themselves. We engage through our charity and community initiatives and through our occupier engagement programme. Thisyear,tomarkourfifteenth anniversary, we created a funding awardof£15,000tosupportlocal community organisations or charities where we own buildings. We received manyapplicationsandselectedfive worthwhile projects to receive an award. Our occupiers – Space suited to their needs – Fair lease terms – Well-managed,efficientlyrun and sustainable buildings – Good relationships Our engagement with occupiers has been very important this year. We have proactively liaised with many occupiers overthecourseoftheyear,tryingtofind mutuallybeneficialsolutionstothe issues caused by the pandemic. One of our key priorities is to work with our occupiers, so that we can understand their needs and aim to meet theircurrentandfuturerequirements. Our asset managers maintain regular contact with occupiers and discuss with them any issues regarding the buildings and any future plans we have. Our Head of Occupier Services has developed an occupier engagement programme, and will attend occupier meetings and other events. We send out an occupier newsletter regularly with relevant and helpful information. 60 Picton Property Income Limited Annual Report 2021Stakeholder What is important to our stakeholders How we engage What we have done this year Our investors – Clear strategy – Regular dividends – Financial performance – Clear and transparent reporting We value the views of all our shareholders and senior management hold regular meetings to update shareholders on progress and activity. We issue regular investor updates with keyfinancialhighlightsandupdateson the portfolio. Our website has been enhanced and provides investors with up-to-date information about the Group. We encourage shareholders, in normal circumstances, to attend our Annual General Meeting where they are able to askquestionsoftheDirectorsdirectly. Atthestartofthisfinancialyearwetook thedifficultdecisiontoreducethelevel of dividend, taking a conservative approach to the potential impact of the pandemic on the business. As the year has progressed and our rent collection has been maintained at a robust level we have increased the dividend on two occasions, albeit not yet back to the pre-pandemic level. After the initial fall, this has helped our share price to rise by37%overthesecondhalfoftheyear. Suppliers – Prompt payment – Fair terms of business – Long-term relationships We seek to maintain productive and long-term relationships with our business partners. 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 have continued to ensure that our suppliers are paid promptly and within payment terms. 61 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewStrategic Report Section 172 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. The Directors have regard to: The likely long-term consequences of decisions Read more on pages 70-73 The interests of its employees Read more on page 58 The Company’s relationships with its suppliers, customers and others Read more on pages 59-61 The impact of the Company’s operations on the community and the environment Read more on pages 54-61 Read more on pages 64-73 The Company’s reputation and maintaining a reputation for high standards of business conduct The need to act fairly between shareholders Read more on pages 64-73 Consideration of these factors and other relevant matters is embedded into all Board decision making, strategy development and risk assessment throughout the year. We consider our key stakeholders to be our occupiers, our people, our communities, our suppliers and our shareholders. Working closely with our stakeholders falls within one of our three strategic pillars set out within our business model and strategy. The primary ways in which the Board engages directly or delegates responsibility for engagement to management is set out below. Board engagement with stakeholders Our shareholders As owners of the business 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 operational matters, financingstrategyordividendpolicy, as examples. This year, our new Chair, Lena Wilson, held virtual meetings with some of our larger shareholders to understand their views on relevant issues. The Directors normally attend the Annual General Meeting to meet with shareholders and to answer anyquestionstheymayhave. 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 projects or leasing events. Our people Our people are key to our success 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. This year we again undertook an employee survey. The results of this survey were discussed at a virtual meeting attended by Maria, Richard Jones and the employees, without the Executive Directors present. The views of the employees on a number of issues, particularly the impact of remote working, were reported directly back to the rest of the Board. Local communities and Environment We are committed to improving the impact of our buildings on local communities, whether providing space to local businesses, improving 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 reviews progress on sustainability matters and has attended relevant workshops during the year. 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. 62 Picton Property Income Limited Annual Report 2021 Considering stakeholders in key Board decision making Set out below are examples of important decisions taken during the year. These are decisions that are material to the Group but alsosignificanttoanyofourkey stakeholders. In its decision making the Board considered the feedback from stakeholder engagement as well as the need to act fairly between shareholders and to maintain high standards of business conduct. Support given to occupiers during the pandemic Review and increase of dividend Development of net zero carbon pathway Office move Consultation on Remuneration Policy Actions TheBoardrecognisedthatsomeoccupierswereexperiencingfinancial difficultiesasaresultoftherestrictionsimposedduringthepandemic,and consequentlytheirabilitytomeettheirrentcommitments.Requestsfrom occupiers were considered on a case-by-case basis, with the aim of providing assistancewhileminimisingtheimpacttocapitalvaluesandcashflow. The Board is aware of the value of regular dividend payments to shareholders andreviewsthelevelofdividendeachquarter.Atthestartofthepandemic theBoardtookthedifficultbutprudentdecisiontoreducethelevelof dividend.Subsequently,theBoardapprovedtwoincreasesindividend, restoring much of the original reduction, as soon as it was considered appropriate. The Board is aware of the increasing risk of climate change to the environment and over the last year we have developed our sustainability action plan. The Board has decided that the next step is to set out our pathwaytobecominganetzerocarbonbusiness,whichwillbenefitallofour stakeholders. During the year the Board agreed that the business should move and upgradeitspremises.Wehavetakenafloorinoneofourownbuildings, whichwaspreviouslyretailspace,andconvertedtooffice.Thishasremoved theexternalleasecostsassociatedwiththeformerofficeandhadthebenefit of reducing the Group’s retail exposure. One of the issues raised in the employeesurveyinthepreviousyearwasthequalityofoccupiedspace,and themovetonewlyrefurbishedofficeswaspositivelyreceivedbytheteam. As described more fully in the Remuneration Report, we have carried out a consultation exercise with our largest shareholders regarding changes to our Directors’ Remuneration Policy, and this will be put to shareholders at this year’s Annual General Meeting. 63 GovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Strategic ReportBusiness OverviewGovernance Chair’s Introduction Introduction to the Corporate Governance Report Dear Shareholder This year the Board and leadership team have had to adapt their way of working to comply with the restrictions imposed as a result of the Covid-19 pandemic. All of the regular Board and Committee meetings have been held virtually for the whole year, and our Annual General Meeting was unfortunately a closed event for shareholders. I very much hope that we will soon be able to meet again in person and return to our previous routines. Visit our website www.picton.co.uk This year we have completed the succession process and made some changes to the Board. Lena Wilson CBE Chair Lena Wilson CBE Chair I am pleased to introduce our 2021 Corporate Governance Report. 64 Picton Property Income Limited Annual Report 2021Reporting This year we have decided to use the authority in our Articles to reduce the number of printed versions of our Annual Report and instead for shareholders to view the Report online at our website. As well as the environmentalbenefitofreducing the amount of paper used in issuing the Report to all shareholders, there willalsobethefinancialbenefit to the Company from reducing costs. Shareholders who still wish to receive a hard copy will be able to do so, but I hope that most will take up the electronic option. We aim to always produce reports that are transparent and informative, and I am pleased to report that last year’s Annual Report and Sustainability Report both received an EPRA Gold award. Board evaluation This year the Board carried out an internal evaluation, the results of which are discussed in the following Corporate Governance Report. The conclusions reached from the evaluation will be followed up over the forthcoming year. The next Board evaluation will be carried out externally, in accordance with our policy of undertaking an external evaluation every three years. Lena Wilson CBE Chair 26 May 2021 Board composition This year we have completed the succession process that has been a main focus of our governance activities since the Company became resident and managed in the UK in 2018. My predecessor, Nick Thompson, stepped down from the Board at the end of January this year. I would like to extend my thanks to him for his help in making my transition to Chair so smooth. On behalf of all my new colleagues at Picton I would like to thank him for all his hard work and contribution to Picton since he joined in 2005. We have also welcomed Richard Jones to the Board, who joined on 1 September 2020 and has replaced Roger Lewis. Roger served on the Board from 2010 and again I would like to thank him for his contribution to the business over many years. Richard has also taken over as Chair of the Property Valuation Committee, bringing his wealth of previous property experience to that role. The selection process for the Board appointments that have taken place this year is set out in the Nomination Committee report. Governance Our Statement of Compliance with the Corporate Governance Code is set out within the Directors’ Report. I am pleased to report that we have fully complied with the Code, except for the tenure of two long-serving Directors, and this exception has now been resolved. The following reports describe the activities of each of the Board Committees in more detail, and I believe that our current Committee structure remains appropriate for the good governance of the Company. Remuneration Our current Directors’ Remuneration Policy was put in place in 2018 and so is due to be reviewed this year to ensure it remains appropriate and in accordance with best practice. We have carried out a consultation exercise with our largest shareholders in respect of potential changes to the policy, and this is described in more detail in the Remuneration Report. Purpose In2019weredefinedourpurposeto include ‘being a responsible owner of commercial real estate, helping our occupiers succeed and being valued by all our stakeholders’. The events of the last year have very much emphasised the importance of this statement, and how our engagement with occupiers has not only helped them but also has beentothelong-termbenefitof Picton, and all of its stakeholders. Our people and culture We have maintained our programme of employee engagement this year, despitethedifficultiesofworking remotely. Maria Bentley is our Non- Executive Director with responsibility for employee engagement. This year we have again carried out an employee survey, and I am pleased thattheresultswereequallyas positive as last year. The survey was followed up with a virtual meeting with the team and both Maria and Richard, but not the Executive Directors. The issues associated with home working were the main focus of discussion, and it was good to hear that the team had taken this in their stride, and that morale has remained high. Our stakeholders Our occupier focused approach is a key part of our business culture. This year our engagement with occupiers has been critical to the business, helping us to give the right support to our occupiers while maintaining income and values. 2020markedthefifteenthanniversary of the launch of the Company. In order to mark this anniversary we created a fundingawardof£15,000tosupport local community organisations or charities where we own buildings. We received many applications andselectedfiveworthwhile projects to receive an award. With charity activities and volunteering opportunities severely curtailed this year I am very pleased that we were able to provide support in this way. 65 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Board of Directors We have the relevant skills and 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 allstakeholdersinthebusiness. Diversity of experience 67% Real estate 83% Corporate finance and public companies 83% Strategy and governance 33% Finance and accounting 66 Lena Wilson CBE Chair Chair of the Nomination Committee Appointed to the Board January 2021 Responsible for ensuring the Board is effective in setting and implementing the Company’s direction and strategy including reviewing and evaluating the performance of the CEO. Key strengths and skills – Over a decade of Non-Executive, Senior Independent Director and Chair experience including FTSE 100 companies across the financialandindustrialsectors – Multi-disciplinary global career across private and public sector – Experienced CEO leading organisations with an international footprint Principal external commitments – Chair of Chiene + Tait LLP – Non-Executive Director NatWest Group plc – Non-Executive Director and Senior Independent Director Argentex Group PLC – Chair of AGS Group Previous experience and appointments – Chief Executive of Scottish Enterprise – Senior Investment Advisor at the World Bank – Non-Executive Director Intertek PLC – Non-Executive Director Scottish Power Renewables Richard Jones Chair of the Property Valuation Committee Appointed to the Board September 2020 Responsible for overseeing the review of the quarterlyvaluationprocessandmaking recommendations to the Board as appropriate. Key strengths and skills – Significantrealestateinvestmentexperience – Broad experience of property asset management – Extensive experience of property valuation Principal external commitments – Investment Committee of Henley Secure Income Property Unit Trust – Transport for London’s Commercial Property Advisory Group – Special Advisor to Clearbell UK Strategic Trust Previous experience and appointments – UK Managing Director on Aviva’s Investors’ Global Real Estate Board – Special Director of Ribston UK Industrial Property Unit Trust – Non-Executive Director of Royal Brompton and HarefieldHospitalNHSFoundationTrust Picton Property Income Limited Annual Report 2021Mark Batten Chair of the Audit and Risk Committee Senior IndependentDirector Maria Bentley Chair of the Remuneration Committee Appointed to the Board October 2017 Appointed to the Board October 2018 Responsibleforfinancialreportingand accounting policies, audit strategy and the evaluation of internal controls and risk management systems. Responsible for leading on the recommendation of remuneration policies and levels, for effective succession planning and employee engagement. Key strengths and skills – Chartered Accountant and restructuring Key strengths and skills – Business head leading change across global specialist teams – Extensive experience in banking, insurance, real estate, debt structuring and restructuring – Broad real estate knowledge, covering most sub-sectors Principal external commitments – Chair, Assured Guaranty UK – Non-Executive Director and Chair of the Audit and Risk Committee – Reliance National Insurance Company (Europe) – Non-Executive adviser and Chair of the Finance Committee,RoyalBromptonandHarefield NHS Clinical Group – Chair, Governing Body, Westminster School Previous experience and appointments – Partner, PricewaterhouseCoopers LLP (restructuring and corporate valuation practices) – Non-Executive Director, L&F Indemnity – Senior adviser to UK Government Investments – Expertise in human resources – Extensiveexperienceinfinancialservices Principal external commitments – Non-Executive Director of BlueBay Asset Management LLP and Chair of the Remuneration Committee – Non-Executive Director of Daiwa Capital Markets Europe Limited 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 for EquitiesandFixedIncome,GoldmanSachs International Michael Morris Chief Executive Andrew Dewhirst Finance Director Appointed to the Board October 2015 Appointed to the Board October 2018 Responsible for overall strategic direction and execution of the Group’s business model. Responsibleforstrategicfinancialplanningand reporting for the Group. Key strengths and skills – Successful track record of driving investment Key strengths and skills – Chartered accountant with extensive strategy and delivering results for shareholders experienceinfinancialplanningandreporting – Proven leadership skills – In-depthunderstandingofrealestateequity capital markets – In-depthknowledgeoffinancialservices, capital markets and real estate funds – Expertiseindebtandequityfinancing Principal external commitments None Principal external commitments None Previous experience and appointments – 25 years’ wide-ranging commercial real estate Previous experience and appointments – Director of Client Accounting at ING Real market experience Estate Investment Management – Senior Director and Fund Manager at ING Real – Director at Hermes Administration Services Estate Investment Management Changes to the Board Appointed to the Board Lena Wilson CBE Chair Chair of the Nomination Committee 1 January 2021 Richard Jones Chair of the Property Valuation Committee 1 September 2020 Retired from the Board Nicholas Thompson Chair 31 January 2021 Roger Lewis Chair of the Property Valuation Committee 30 September 2020 Nicholas Wiles Non-Executive Director 20 May 2020 B u s i n e s s O v e r v i e w 67 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business 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. Meet our team 01 Melissa Ricardo OfficeManager 04 Michael Morris Chief Executive Melissa joined in 2017 and is responsible for the day-to-daymanagementoftheoffice and overseestheadministrativeaspectsof the Company. Michael has over 25 years experience within the UKcommercialpropertysectorandis responsible for the strategic direction and effective execution of the Group’s business model. 02 James Forman Director of Accounting 05 Louisa McAleenan Research Analyst JamesisaCertifiedAccountantandhasworked with the Group since its launch in 2005 and has over 20 years experience in the real estate sector. He is responsible for all the accounting and financialreportingfortheGroupandisa member of the Transaction and Finance Committee. Louisa has over 14 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. 03 Mark Alder Head of Occupier Services 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. 06 Tim Hamlin Director of Asset Management Tim is a Chartered Surveyor with over 13 years of realestateexperienceandisresponsible for creatingandimplementingassetlevel business plans in line with the portfolio’s strategic direction and is a member of the Responsibility Committee. 07 Andrew Dewhirst Finance Director Responsibleforthefinancialstrategyand reporting for the Group, Andrew has over 30 years’experiencewithinthefinancialservices and realestatesectors. 08 Jay Cable Senior Director and Head of Asset Management A Chartered Surveyor with over 20 years of real estate experience, Jay has worked with the Group since its launch in 2005. He is responsible for the proactive asset management of the portfolio and overseeing its strategic direction, and is a member of the Executive Committee and the Transaction and Finance Committee. 09 Lucy Stearman Assistant Accountant Lucy has over nine years experience within financialservicesandjoinedtheGroupin April 2019toassistwiththeaccountingand financialreporting. 68 Picton Property Income Limited Annual Report 20212 5 8 1 4 7 3 6 9 69 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Corporate Governance Report Leadership structure The Board Chair: Lena Wilson CBE 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: Richard Jones Nomination Chair: Lena Wilson CBE Comprises: 3 Non-Executive Directors Comprises: 4 Non-Executive Directors Comprises: 4 Non-Executive Directors Comprises: 4 Non-Executive Directors Responsibilities: • Overseesfinancial reporting • Monitors risk management • Reviews system of internal controls Responsibilities: • Determines remuneration policy • 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 senior management Responsibility Chair: Andrew Dewhirst Comprises: 1 Executive Director and senior management 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 • Oversees Health and Safety Committee • Approves ESG reporting • Employee wellbeing 70 Picton Property Income Limited Annual Report 2021Division of responsibilities Role Chair Lena Wilson CBE Chief Executive Michael Morris Responsibilities – Leads the Board – Responsible for overall Board effectiveness – Promotes Company culture and values – Sets the agenda and tone of Board discussions – Ensures that all Directors receive full and timely information to enable effective decision making – Promotes open debate at meetings – Ensures effective communication with stakeholders – Builds relationships between Executive and Non-Executive Directors – Develops and recommends strategy to the Board – Responsible for the implementation of strategy set by the Board – Manages the business on a day-to-day basis – Manages communication with shareholders and ensures that their views are represented to the Board Senior Independent Director Mark Batten – Leads the evaluation of the Chair – Available for communication with shareholders when other channels are not appropriate – Bring independent judgement and scrutiny to the decisions of the Board – Bring a range of skills and experience to the deliberations of the Board – Monitor business progress against agreed strategy – Reviewtheriskmanagementframeworkandtheintegrityoffinancialinformation – Determines the remuneration policy for the Group and approves 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 Mark Batten Maria Bentley Richard Jones Executive Director Andrew Dewhirst Composition of the Board Function Diversity Tenure Number % Number % Number % Non-Executive Chair Executive Directors Independent Non-Executive Directors 1 2 17% 33% 3 50% Male Female 4 2 67% 33% 0 to 3 years 3 to 6 years 4 2 67% 33% 71 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Corporate Governance Report continued The role of the Board The Board is responsible for the long-term success of the business.Itprovidesleadershipanddirection,with due regardtotheviewsofallofthestakeholdersinthe 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, gearing and major expenditure. The Board has collectively a range of skills and experience that are complementary and relevant to the business. These are set out in the biographies of the individual Directors on pages 66 and 67. Board meetings The Board has a regular schedule of meetings. The Board hasatleasttwomeetingseachquarter;thefirstofwhich focuses on operational matters, and the second covers strategic issues and longer-term planning. External advisers are invited to attend Board meetings on a regular basis. All meetings this year have been held remotely. Board changes On 1 September 2020 Richard Jones was appointed to the Board as a Non-Executive Director. Richard became Chair of the Property Valuation Committee on 1 October 2020, replacing Roger Lewis, who stepped down from the Board on 30 September 2020. Lena Wilson was appointed to the Board on 1 January 2021, and took over as Chair of the Company on 1 February 2021. Nicholas Thompson, the previous Chair, retired from the Board on 31 January 2021. Nicholas Wiles resigned from the Board on 20 May 2020. Composition The Board currently comprises the Chair, two Executive Directors and three independent Non-Executive Directors. All of the Directors will stand for re-election at the forthcoming Annual General Meeting. Asat31March2021theBoardcomprised50% 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 Lena Wilson Michael Morris Andrew Dewhirst Mark Batten Maria Bentley Roger Lewis Richard Jones Nicholas Wiles Total number of meetings Date appointed Board and Risk Remuneration Audit Property Valuation Nomination 15.09.2005 01.01.2021 01.10.2015 01.10.2018 01.10.2017 01.10.2018 31.03.2010 01.09.2020 01.01.2020 8/8 2/2 9/9 9/9 9/9 9/9 5/5 5/5 2/2 9 – – – – 3/3 3/3 1/1 2/2 – 3 7/7 2/2 – – 8/8 8/8 3/3 5/5 2/2 8 4/4 1/1 – – 4/4 4/4 2/2 2/2 1/1 4 3/3 – – – 3/3 3/3 2/3 0/1 1/1 3 The above meetings were the scheduled Board and Committee meetings. Additional meetings were held to deal with othermattersasrequiredandarenotincludedabove. 72 Picton Property Income Limited Annual Report 2021Non-Executive Directors Excluding the Chair, the Board includes three independent Non-Executive Directors. The Non-Executive Directors bring a variety of skills and business experience to the Board. Their role is to bring independent judgement and scrutinytotherecommendationsoftheExecutive Directors. Each of the Non-Executive Directors is consideredtobeindependentincharacter and judgement. Internal control and risk management The Directors acknowledge that they are responsible for establishing and maintaining the Group’s system of internal controls and reviewing its effectiveness. Internal control systems are designed to manage the achievement of business objectives, rather than eliminate the failure to achieve them and can only provide reasonable, and not absolute, assurance against material misstatement or loss. They have therefore established an ongoing process designedtomeettheparticularneedsof theGroupin managing the risks to which it is exposed, consistent with the guidance provided by the Turnbull Committee. Such review procedures have been in place throughout the full financialyear,anduptothedateofthe approvalofthe financialstatements,andtheBoardis satisfiedwith their effectiveness. Shareholder engagement In conjunction with the Board, the Administrator keeps under review the register of members of the Company. All shareholdersareencouragedtoparticipateinthe 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 Chair has met with a number of larger shareholders as part of her onboarding process and intends to join analyst meetings where possible. Further meetings with investors willtakeplaceifrequested.Theoutcomeofinvestor 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 out by theDirectors,basedonaquestionnairepreparedbythe Company’s Administrator. The anonymised results of the evaluation were considered by the Board at its meeting in December 2020. The main conclusions of the evaluation were as follows: This process involves a review by the Board of the control environment within the Group’s service providers to ensure thattheGroup’srequirementsaremet. ӱ Thefrequencyofmeetingswillbereviewed ӱ There will be an increased emphasis on diversity of external input to meetings The Group does not have an internal audit function. Given thescaleoftheGroup’soperations,theBoardhas determined that a separate internal audit function is unnecessary and that additional procedures carried out by theexternalauditorinconjunctionwiththeauditof the Group’saccountswillprovidetheBoardwithsufficient assurance regarding the internal control systems in place. TheBoardcontinuestoplacerelianceonthe Company’s Administrator’s internal control systems. 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 likelihoodofcostsbeingincurredandcostsofcontrol. It follows,therefore,thatthesystemsofinternalcontrol can onlyprovidereasonable,butnotabsolute,assurance against the risk of material misstatement or loss. The effectiveness of the internal control systems is reviewed annually by the Audit and Risk Committee and the Board. The Audit and Risk Committee has a discussion annually with the auditor to ensure that there are no issues of concerninrelationtotheauditopiniononthefinancial statements and representatives of senior management are excluded from that discussion. ӱ More meetings will be held in person when conditions allow ӱ The content of regular reports will be reviewed ӱ The Audit and Risk Committee will consider the Group’s risk appetite, including proposed sector and geographic weightings ӱ Sustainability issues and setting a pathway to net zero carbon will be a focus for the coming year 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. Maria Bentley is the designated Non-Executive Director with responsibility for employee engagement. We have again carried out an annual employee survey, covering all of the Picton team with the exception of the Directors. The results of the survey werethendiscussedataninformalmeeting attended by Maria and the employees. The feedback from theteamwaspositive,particularlyinthelightofthe challenges caused by the Covid-19 pandemic, including remote working. 73 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Nomination Committee Report Nomination Committee Lena Wilson CBE Chair of the Nomination Committee The members of the Nomination Committee are Lena Wilson, Richard Jones, Mark Batten and Maria Bentley. Lena Wilson is the Chair of the Committee, having taken over this role on 31 January 2021. Maria Bentley was Chair of the Committee from 20 May 2020 until 31 January 2021, while the search and appointment of a new Company Chair took place. This Report covers the appointment and induction of Lena Wilson as a Non-Executive Director and Chair designate, and those sections of the Report were prepared by the previous Chair. The role of the Committee is to consider the size, structure and composition of the Board to ensure that it has the right balance of skills, knowledge, experience and diversity to carry out its duties and provide effective leadership. In making any new appointment the Board will consider a number of factors, but principallytheskillsandexperiencethatwillberelevanttothespecificroleand that will complement the existing Board members. The Committee ensures that the appointment process is formal, rigorous and transparent. Terms of reference The Committee’s terms of reference include consideration of the following issues: ӱ Review and make recommendations regarding the size and composition of the Board; ӱ Consider and make recommendations regarding succession planning for the Board and senior management; ӱ Identify and nominate candidates tofillBoardvacanciesastheyarise; ӱ Review the results of the Board evaluation relating to composition; ӱ Reviewthetimerequirementsfor Directors; and ӱ Recommend the membership of Board Committees. Visit our website www.picton.co.uk With the appointments made this year, the current succession plan has been completed. Lena Wilson CBE Chair of the Nomination Committee 74 Picton Property Income Limited Annual Report 2021Activity The Committee met three times during the year ended 31 March 2021 and considered the following matters: ӱ The selection process for the appointment of a new Director to replace Roger Lewis; ӱ The selection process for the appointment of a new Company Chair to replace Nicholas Thompson; ӱ The appointment of external consultants to compile lists of candidates; ӱ The formation of a working group of the Committee to manage the recruitment process and work with the consultants; and ӱ Considerationofthefinalshortlists of candidates for both roles and finalrecommendations. Appointments to the Board The Committee’s main focus during the year was on the selection and appointment of two new Non-Executive Directors, one as Company Chair designate to replace Nicholas Thompson, and the other to replace Roger Lewis, who had served on the Board since 2010. For both roles independent executive search consultants JCA Group were appointed. The Committee provided JCA with a detailed description of the rolesandthecapabilitiesrequired for them. The consultants prepared lists of potential candidates, ensuring therewassufficientdiversity,which were assessed by the Committee for suitability to the roles. Short lists for each of the roles were drawn up and the candidates were interviewed initially by the Chair of the Committee andsubsequentlybytwoother Directors. The whole Committee then considered the feedback from this process before making recommendations to the Board. The Board approved the appointments of Richard Jones from 1 September 2020 and of Lena Wilson from 1 January 2021. Board composition and succession The Board comprises the Chair, two Executive Directors and three independent Non-Executive Directors. With the appointments made this year the current succession plan has been completed. Tenure and re-election The tenure of Non-Executive Directors, including the Chair, is limited to nine years in accordance with the Corporate Governance Code. The provisions of the Corporate Governance Code recommend that all Directors be subject to 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 both Richard Jones and Lena Wilson was led by the Chair and supported by the other Directors. The process commenced shortly after each appointmentwasconfirmedand comprised a number of virtual one-to-one meetings with the other Non-Executive Directors, the Chief Executive and the Finance Director. There were also virtual meetings held with the rest of the Picton team. Additional reading and reference material was provided that was specifictotheGroupanditsbusiness. Lena Wilson CBE Chair of the Nomination Committee 26 May 2021 75 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Audit and Risk Committee Report Audit and Risk Committee Mark Batten Chair of the Audit and Risk Committee The Audit and Risk Committee is chaired by Mark Batten. The other members of the Committee are Richard Jones and Maria Bentley. Terms of reference The Committee’s terms of reference include consideration of the following issues: ӱ Financial reporting, including significantaccountingjudgements and accounting policies; ӱ Development of a comprehensive Risk Management Policy for the adoption by the Group; ӱ Evaluation of the Group’s risk profileandriskappetite,and whether these are aligned with its investment objectives; ӱ Ensuring that key risks are being effectivelyidentified,measured, managed, mitigated and reported; ӱ Internal controls, controls testing and risk management systems; ӱ The Group’s relationship with the external auditor, including effectiveness and independence; ӱ Internal audit; and ӱ Reporting responsibilities. Visit our website www.picton.co.uk The Committee has developed a comprehensive Risk Management Policy which has been adopted by the Group. Mark Batten Chair of the Audit and Risk Committee 76 Picton Property Income Limited Annual Report 2021Meetingsofthe AuditandRisk Committee are attended by the Group’s Finance Director and other membersofthefinanceteam,and the external auditor. The external auditor is given the opportunity to discuss matters without management presence. Activity The Audit and Risk Committee met three times during the year ended 31 March 2021 and considered the following matters: ӱ External audit strategy and plan; 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; The valuation is conducted on a quarterlybasisbyindependent valuers, and is subject to oversight by the Property Valuation Committee. It is a key component of the annual andhalf-yearfinancialstatements and is inherently subjective, requiringsignificantjudgement. Members of the Property Valuation Committee, together with members of the Picton team, meet with the independentvalueronaquarterly basis to review the valuations and underlying assumptions, including the year-end valuation process. The Chair of the Property Valuation Committee reported to the Audit and Risk Committee at its meeting inApril2021andconfirmedthat the following matters had been considered in discussions with the independent valuers: ӱ Property market conditions; ӱ Yields on properties within the portfolio; ӱ Review of the Group’s Risk ӱ Letting activity and vacant Management Policy and appetite properties; ӱ Review of the risk matrix and ӱ Covenant strength and lease mitigating controls; and lengths; ӱ Stock Exchange announcements. ӱ Estimated rental values; and ӱ Comparable market evidence. The Audit and Risk Committee reviewed the Report from the Chair 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 comparedtopreviousquarters.The Committee considered the valuation and agreed that this was appropriate forthefinancialstatements. TheCommitteewassatisfiedthat the 2021 Annual Report is fair, balanced and understandable and included the necessary information as set out above, and it hasconfirmedthistotheBoard. Financial reporting and significant reporting matters The Committee considers all financialinformationpublishedin theannualandhalf-yearfinancial statements and considers accounting policies adopted by the Group, presentation and disclosure of the financialinformationandthekey judgements made by management inpreparingthefinancialstatements. The Directors are responsible for preparing the Annual Report. AttherequestoftheBoard,the Committee considered whether the 2021 Annual Report was fair, balanced and understandable and whether it provided the necessary information for shareholders to assess the Group’s strategy, business model and performance. The key area of judgement that the Committee considered in reviewingthefinancialstatements was the valuation of the Group’s investment properties. Risk Management Policy The Committee has considered and developed a comprehensive Risk Management Policy which has been adopted by the Group. The purpose of the Risk Management Policy is to strengthen the proper management of risks through proactiveriskidentification, measurement, management, mitigation and reporting in respect of all activities undertaken by the Group. The Risk Management Policy is intended to: ӱ Ensure that major risks are reported to the Board for review; ӱ Result in the management of thoserisksthatmaysignificantly affect the pursuit of the stated strategic goals and objectives; 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 Company’s internal control system and for reviewing its effectiveness. It has therefore established a process designed to meet the particular needs of the Company in managing the risks to which it is exposed. As part of this process, a risk matrix 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, in order to provide the Board with comfort that the controls are operating as intended and have been in place throughout the year. The Board also monitors the performance of the Company against its strategy and receives regular reports from management covering all business activities. 77 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Audit and Risk Committee Report continued also considers the external audit plan, setting out the auditor’s assessment of the key audit risk areas and reporting received from the external auditor in respect of both the half-year and year end reports and accounts. As part of the review of auditor independence and effectiveness, KPMG Channel Islands Limited hasconfirmedthat: ӱ They have internal procedures in place to identify any aspects of non-audit work which could compromise their role as auditor and to ensure the objectivity of the audit report; 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 their objectivity and independence are not in any way impaired by reason of the non-audit services which they provide to the Group. KPMG Channel Islands Limited have been auditor to the Group since the year ended 31 December 2009. They were reappointed as the Group’s auditor following a tender process in February 2020. The current audit engagement partner, Deborah Smith, has served four 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 26 May 2021 The Committee has received and reviewed a copy of CBRE Limited’s Real Estate Accounting Services – Service Organisation Control Report as at 31 December 2020, prepared in accordance with International Standard on Assurance Engagements 3402, in respect of property management accounting services provided to Picton Property Income Limited. Given the scale of the Group’s operations, the Board has determined that a separate internal audit function is unnecessary and that additional procedures carried out by the external auditor in conjunction with the audit of the Group’s accounts will provide the Board with sufficientassuranceregardingthe internal control systems in place. Independence of auditor It is the policy of the Group that non-audit work will not be awarded to the external auditor if there is a risk their independence may be conflicted.TheCommitteemonitors the level of fees incurred for non-audit services to ensure that this is not material,andobtainsconfirmation, where appropriate, that separate personnel are involved in any non- audit services provided to the Group. The Committee must approve in advance all non-audit assignments to be carried out by the external auditor. The fees payable to the Group’s auditoranditsmemberfirmsare as follows: Audit fees Interim review fees Non-audit fees 2021 £000 174 16 16 206 2020 £000 159 16 16 191 Thenon-auditfeesinclude£16,000 for 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 questionnaireandconfirmationfrom the external auditor. The Committee 78 Picton Property Income Limited Annual Report 2021Governance Remuneration Report Remuneration Committee Maria Bentley Chair of the Remuneration Committee The Remuneration Committee is chaired by Maria Bentley. The other members of the Committee are Lena Wilson, Mark Batten and Richard Jones. We are putting forward a revised Remuneration Policy for approval by shareholders this year. Maria Bentley Chair of the Remuneration Committee Terms of reference The Committee’s terms of reference are available on the Company’s website. The principal functions of the Committeeassetoutinthe terms ofreferenceincludethe 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; 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 www.picton.co.uk 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 £43,500(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 advice andissatisfiedthatitdoesnot 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. 79 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued 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 2021. This report comprises three sections: ӱ This annual statement; ӱ Directors’ Remuneration Policy; and ӱ The Annual Report on Remuneration for the year ended 31 March 2021. The Committee met eight times during the year and set out below is a summary of its activity. Our Covid-19 response Covid-19 impact Remuneration is considered against the performance of the Group in the both the short and longer-terms, and against the broader economic backdrop. The Covid-19 pandemic has provided a number of challenges overthelastfinancialyearandis likely to continue to do so. Picton has continued to perform well, and this is set out in the Strategic Report. The decisions that we have taken this year have been made against the backdrop of the economic conditions in the UK, market practice and investor feedback. We have not had to furlough any employees and have not taken any form of Government support. We have worked with our occupiersthroughthisdifficultperiod and found solutions that have helped them but also maintained value for all our stakeholders. At the start of thepandemicwetookthedifficult decision to reduce our dividend, buthavesubsequentlyincreased ittwice,sothatitisnowat91%of the pre-pandemic level. Our share price, although still at a discount to net asset value, has recovered significantlyfromwhereitwasin the early stages of the pandemic. Given the Group’s performance and returns achieved the Committee considered it appropriate that the variable elements of remuneration pay out in accordance with their respective performance conditions having been met. The Committee determined that the outcomes did represent a fairreflectionoftheperformanceof the Group, and that no overriding adjustment was necessary. New Remuneration Policy and adjustments to Executive Directors’ remuneration mix and opportunity The current Directors’ Remuneration Policy was set in 2018 and approved by shareholders at the Annual General Meeting that year. It is now approaching the end of its three- year life, and we are putting forward a revised policy for approval by shareholders this year. Our existing policy is already compliant with most aspects of the 2018 Corporate Governance Code so there are relatively few changes in the proposed new policy. The principal change is the introduction of a post- employment shareholding guideline - further details are on page 88. In parallel with the introduction of the new policy, the Committee has reviewed the Executive Directors’ remuneration arrangements. The current arrangements were set when Picton transitioned from an investment company to a UK REIT in 2018, and new Executive Director roles were established. At that time the remuneration packages for the appointed individuals were not adjusted commensurate with their new roles. Our objective is to provide straightforward remuneration packages,justifiabletoall stakeholders, which are designed so as to attract and retain outstanding talent and to fairly reward delivery of strategic priorities and enhanced shareholder value. We believe we are currently failing to meet aspects of this objective: 80 Picton Property Income Limited Annual Report 2021 ӱ Salarieswillbeincreasedby15% in 2021/22forbothExecutive Directors and, subject to the aforementioned Committee review,therewillbefurther15% increases in 2022/23 and 2023/24. The Executive Directors received no pay rise in 2020/21. ӱ The maximum annual bonus potentialwillbereducedby10% to 165%ofsalaryin2021/22with further10%decreasesin2022/23 (155%ofsalary)and2023/24(145% of salary) if the salary increases outlined above are enacted. This will result in a more market standard remuneration mix. ӱ Asaconsequenceofthese changes, we intend for the Executive Directors’ total remuneration potential at the end of the three-year policy period in 2023/24 to be positioned slightly belowthe2019/20lowerquartile of similarsizedUK-listedREITs– we believethatthisconservative market positioning is appropriate in the current circumstances. We have consulted with our major shareholders on the above proposals and we received positive responses from consultees. We have also given careful consideration as to how these proposals will be received by employees and, in my role as designated Non-Executive Director with responsibility for employee engagement, I have consulted with them as part of this stakeholder engagement process. Group performance and alignment We have set out on pages 30 to 33 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 2020/21 and 2021/22 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 2020/21 The Executive Directors were set a number of challenging targets for this year, comprising a combination offinancialmeasuresandcorporate and personal objectives. 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 Directorsearnedanestimated77% of the maximum award available underthesefinancialmeasures. ӱ Despite consistent outperformance, our Executive Directors are being paid significantlybelowthelevelsof most of their peers and with more atrisk(duetoamoresignificant skew in their remuneration mix towards annual bonus than most of our peers). This raises an issue of fairness about the current arrangements. ӱ The Committee is concerned that the extent of the gap between our Executive Directors and their peers enhances the risk that one of these individuals could be attracted elsewhere to receive a considerably higher pay package with the replacement cost for either most likelytobeconsiderably higher to attract the right calibre of candidate. Both of these issues stem from our decision not to adjust salaries tomorefairlyreflectthescaleand responsibilities of the Executive Directors’ roles when we transitioned to a UK REIT. We, therefore, have concluded that it is the right time to make sensible adjustments to the Executive Directors’ remuneration packages to more fairlyreflecttheirresponsibilities as Directors of a listed company. We are acutely aware that this is a particularly sensitive environment in which to be making changes to pay arrangements and the planned salary transition has been structured accordingly: ӱ The salary transition will be phased over a three-year period with changes in the second and third years being conditional on the Committeebeingsatisfiedthat they remain appropriate in the context of prevailing business performance and economic circumstances. 81 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued The corporate objectives were set in the context of the Covid-19 pandemic. These objectives were intended to ensure that the business was able to withstand the adverse impacts of the pandemic and be well positioned for a recovery. The Committee considered that the Executive Directors had largely met the corporate objectives, evidenced by the robust results for the year. More detail is provided later in this Remuneration Report, but overall the Committee considered that outcomes of84%ofthemaximumawardforthe two Executive Directors were merited against the corporate objectives. In aggregate, annual bonus awards for the two Executive Directors are 80%ofthemaximumaward(2019/20 –70%and73%ofmaximum). 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 £34million,givingatotalreturnof 6.6%.Theprofitwassome50% higher than the previous year and achieved in a very challenging market. ӱ EPRA earnings for the year were slightly ahead of the previous year, with an increase in occupancy and lowercostsoffsettingthe additional provisions made against income. ӱ The loan to value ratio has fallen, and no drawdowns have been made under the revolving credit facility. The Committee concluded that it wassatisfiedtheformulaicbonus outcomewasafairreflection of overall Group performance duringthepastfinancialyear. Long-term Incentive Plan awards (performance period to 31 March 2021) The awards made under the Long-term Incentive Plan (‘LTIP’) in June 2018 were based on three performance conditions measured over the three-year period ended on 31 March 2021. 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 Remuneration Report and giverisetoanoverallawardof67%of the maximum granted. As explained above, the Committee concluded thatitwassatisfiedtheformulaic outcomewasafairreflection of overall Group performance over the performance period. Salary review for 2021/22 In considering the salary review for 2021/22, 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. The Committee’s deliberations regarding the base salaries for the Executive Directors are set out above. For the remainder of the team as a whole the Committee determined that there would be an overallaverageriseof6.4%inbase salaries with effect from 1 April 2021. Non-Executive Director fees The fees for the Chair and Non- Executive Directors were last reviewed in 2018, at the start of the current Remuneration Policy. In conjunction with the new Policy, a further review of the fees was carried out, incorporating an independent market data report of similar companies, and an assessment of the annual time commitment for each role, including the Committee Chairs. In light of this review, the following annual fee rates apply from 1 April 2021. ӱ The Chair fee is increased to £116,800from£105,000 ӱ The Non-Executive Director fee is increasedto£45,000from £40,000 ӱ The additional fee for the Chair of the Audit and Risk, Remuneration and Property Valuation Committeesis£7,500(increased from£5,000forthelattertwo roles) The new rates position the fees at themarketlowerquartile,which is considered appropriate. 82 Picton Property Income Limited Annual Report 2021As 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 26 May 2021 Corporate Governance Code 2018 We have considered 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 only releasedfiveyearsafteraward;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. This year we introduced a post- employment shareholding guideline in the new Remuneration Policy. The remuneration arrangements provide alignment with shareholders throughtheuseoffinancialmetrics and corporate objectives. All members of the team participate in the annual bonus and LTIP, not just the Executive 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. Wearealsosatisfiedthatthe remuneration structure does not encourage inappropriate risk-taking. The Committee does retain discretion over formulaic outcomes if it considers thatthesearenotafairreflection of the Group’s performance. Implementation of Policy Our remuneration structure will be in accordance with the new Policy for the year to 31 March 2022. The bonus deferral policy for Executive Directorswillcontinue,with50% of any annual bonus award being deferred into Picton shares for a period of two years before vesting. The maximumannualbonuspotential for2021/22willfallto165%ofbase salary for the Executive Directors as outlined above. As in previous years the annual bonus will be determined 60%byfinancialmetricsand40% by corporate objectives. For 2021/22 weintendtousetwofinancial metrics, being total return, relative to a comparator group, and total property return, relative to the MSCI UK Quarterly Property Index. The Committee considered that EPRA earnings per share (previously used as a third annual bonus metric) was more appropriate as a longer-term measure. This year we have reverted to our normal level of awards under the Long-term Incentive Plan. For the awards to be made in June 2021 for the three-year period to 31 March 2024 we will retain the three performance measures used previously, being: ӱ Total shareholder return, compared to a comparator group ӱ Total property return, compared to the MSCI UK Quarterly Property Index ӱ Growth in EPRA earnings per share For the growth in EPRA earnings per share, we intend to use an absolute range of targets based on forecasts over the performance period. 83 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued Remuneration at a glance The components of remuneration for 2020/21 are: Fixed Pay Read more on pages 90–97 Base salary Benefits Pension contributions Variable pay The annual bonus for 2020/21 is determined by: ctives bje o e t a r o p r o C 5% 5% 5% 20% 5% 5% 5% 5% 5% 20% F i n a n c i a l c o n ditions 20% Personal and corporate objectives Strengthen Picton’s reputation through crisis Ensure team adequately resourced and working effectively Ensure Picton values maintained. Make progress on Picton Promise Mitigate risks, manage cash ﬂow, maintain loan covenants Work creatively to maintain income/value, increase occupancy Position the business for future opportunities Maximise rent collection while minimising arrears and write-offs Set sustainability commitments and targets 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% Annual (and deferred) bonus Up to 50% of the annual bonus is deferred into shares which will vest in two years’ time. Long-term Incentive Plan (LTIP) 84 Picton Property Income Limited Annual Report 2021 The single figure of remuneration for the Directors for the year 2020/21 (in £ thousands) is: Chief Executive Finance Director Non-Executive Directors 208 250 290 122 846 2 38 348 556 557 359 237 170 198 x x x x 2 26 198 250 x x x x Key: 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 2022 is: The following charts show the composition of the Executive Directors’ remuneration at three performance levels: – Fixed pay – this comprises base salary from 1 April 2021,benefitsandpensionsalarysupplementof 15% ofbasesalary – On target –thisisfixedpayplustargetvestingfor the annualbonus(at50%ofmaximumopportunity for illustrative purposes) and threshold vesting for the LTIP(at25%ofmaximumaward) – Maximum – Fixed pay plus maximum vesting for boththeannualbonus(165%ofbasesalary)and theLTIP(125%(ChiefExecutive)and110%(Finance Director) of base salary) – Maximum with share price growth – maximum scenarioincorporatingassumptionof50%share price growth during LTIP vesting period Other than where stated, the charts do not incorporate sharepricegrowthordividendequivalentawards. Remuneration in context Chief Executive Finance Director 100% 100% 100% £333K 100% £333K £333K 100% 100% 50% 36% 14% £660K 52% 36% 12% 50% 50% 36% 36% 14% 14% £660K £660K 52% 52% 36% 36% 12% 12% £227K £227K £227K £442K £442K £442K 28% 41% 31% £1,166K 30% 42% 28% £765K 28% 28% 41% 41% 31% 31% £1,166K £1,166K 30% 30% 42% 42% 28% 28% £765K £765K 25% 35% 27% 13% £1,346K 26% 37% 25% 12% £873K 25% 25% Key: 35% 35% 27% 27% 13% £1,346K 13% £1,346K 26% 26% 37% 37% 25% 25% 12% £873K 12% £873K Key: Key: Total ﬁxed Annual bonus Total ﬁxed Total ﬁxed Annual bonus Annual bonus LTIP LTIP LTIP Share growth Share growth Share growth Percentage change in remuneration The table below shows the percentage change in total remuneration for each of the Directors between the years ended 31 March 2020 and 31 March 2021 compared to the average remuneration of the employees of the Group. Change from previous year Relative importance of spend on pay The table below shows the expenditure and percentage changeinstaffcostscomparedtootherkeyfinancial indicators. Michael Morris Andrew Dewhirst Nicholas Thompson Mark Batten Maria Bentley Roger Lewis Base salary 0% 0% 0% 0% 0% 0% Benefits 0.6% 0.8% Annual bonus 14.4% 8.6% Employee costs Dividends EPRA earnings – – – – – – – – Average of all other employees 4.6% 8.1% 15.4% The table above excludes those Non-Executive Directors who joined during the year ended 31 March 2021. 31 March 2021 £000 3,219 15,002 20,072 31 March 2020 £000 % change 3,273 (1.6)% 19,039 (21.2)% 19,912 0.8% 85 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business Overview Governance Remuneration Report continued Directors’ Remuneration Policy The current Directors’ Remuneration Policy was approved by our shareholders at the Annual General Meeting in 2018. The Remuneration Committee has reviewed the continued appropriateness of the current policy over a series of meetings whichconsideredourstrategicpriorities,governancerequirementsandevolvingmarketpractice.Inputwassoughtfrom theChiefExecutiveandFinanceDirectorwhilstensuringthatconflictsofinterestweresuitablymitigated.Anexternal perspective was provided by our major shareholders and our independent advisers, Deloitte. Shareholder approval will be sought at the forthcoming Annual General Meeting for the updated policy set out below. Subject to shareholder approval, the updated policy will take effect immediately after the Annual General Meeting and willapplytothe2021/22financialyear. The updated policy is essentially consistent with the policy approved in 2018 – the only changes of note are: ӱ theintroductionofapost-employmentshareholdingguidelinewherebyExecutiveDirectorswillberequiredtoremain compliantwiththeirexisting‘inemployment’shareholdingguideline(200%ofsalary)fortwoyearsafterstepping down as a Director; and ӱ theadditionofflexibilitytouseESGmeasureswithintheannualbonus. Principles The objective of the Group’s Remuneration Policy is to have a simple and transparent remuneration structure aligned with the Group’s strategy. The Group aims to provide a remuneration package which will retain Directors who possess the skills and experience necessary to manage the Group and maximise shareholder value on a long-term basis. The Remuneration Policy aims to incentivise Directors by rewarding performance through enhanced shareholder value. Executive Directors’ Remuneration Policy Table 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: – Salaries would typically be increased at a rate consistent with the average employee salary increase. – Larger increases may be considered appropriate in certain circumstances (including, but not limited to, a change in an individual’s responsibilities or in the scale of their role or in the size and complexity of the Group). – Larger increases may also be considered appropriate if a Director has been initially appointed to the Board at a lower than typical salary. None None Part of competitive remuneration package. TheCompanyhasestablisheddefinedcontributionpensionarrangementsforallemployees. For Executive Directors the Company pays a monthly salary supplement in lieu of Company pension contributions. Aconsistentrateofpensionprovision(15%ofbasesalary)appliestoallemployeesincluding Executive Directors. Performance measures Clawback Pension Purpose Operation Maximum Performance measures Clawback None None 86 Picton Property Income Limited Annual Report 2021Benefits Purpose Operation Part of a competitive remuneration package. This principally comprises: – Private medical insurance – Life assurance – Permanent health insurance TheCommitteemayagreetoprovideotherbenefitsasitconsidersappropriate. Maximum Benefitsareprovidedatmarketrates. Performance measures Clawback None None Annual bonus Purpose Operation Maximum Performance measures Clawback Long-term Incentive Plan Purpose Operation Maximum Performance measures Clawback A short-term incentive to reward Executive Directors on meeting the Company’s annual financialandstrategictargetsandontheirpersonalperformance. TheCommitteemaydeterminethatupto50%oftheannualbonuswillbepaidinthe Company’ssharesanddeferredfortwoyears.Dividendequivalentswillbepaidattheendof the deferral period (in the form of shares or cash). ThemaximumbonuspermittedunderthePolicywillbe175%ofbasesalary.Thelevelofbonus opportunity within this maximum will be determined by the Committee each year. In 2021/22, themaximumopportunitywillbelimitedto165%ofbasesalaryasexplainedonpage81ofthis Remuneration Report. Theannualbonusisbasedonarangeoffinancial,strategic,ESG,operationalandindividual targets (measured over a period of up to one year) set by the Committee. The weightings will also be determined annually to ensure alignment with the Company’s strategic priorities althoughatleast50%oftheawardwillbeassessedoncorporatefinancialmeasures. Forcorporatefinancialmeasures,50%ofthemaximumbonusopportunitywillbepayablefor ontargetperformanceand,ifapplicable,upto25%forthresholdperformance. Malus and clawback provisions may be applied in the event (within two years of bonus determination/grant of the deferred bonus shares) of a material misstatement of the audited financialresults,anerrorinassessingaperformanceconditionapplicabletotheawardorinthe information or assumptions on which the award was granted or is released, a material failure of risk management, material misconduct on the part of the award holder or a corporate failure. A long-term incentive plan to align Executive Directors’ interests with those of shareholders and to promote the long-term success of the Company. Awards are granted annually usually in the form of a conditional share award or nil cost option. Awards will normally vest at the end of a three year period subject to meeting the performance conditions and continuing employment. TheRemunerationCommitteemayawarddividendequivalents(intheformofsharesorcash) on awards that vest. The Committee will usually apply a holding period of a further two years to awards that vest. Annualawardswithamaximumvalueofupto150%ofbasesalarymaybemade. Vesting will be subject to performance conditions, aligned to the corporate strategy, as determined by the Committee on an annual basis. There will be three performance conditions eachmeasuredoverathree-yearperformanceperiod.Eachconditionwillbeequallyweighted, buttheCommitteehastheflexibilitytovarythisforeachaward. Forthresholdlevelsofperformanceupto25%oftheawardvests,risingusuallyona straight-linebasisto100%formaximumperformance. Malusandclawbackprovisionsmaybeappliedintheevent(withinfiveyearsofgrant)ofa materialmisstatementoftheauditedfinancialresults,anerrorinassessingaperformance condition applicable to the award or in the information or assumptions on which the award was granted or is released, a material failure of risk management, material misconduct on the part of the award holder or a corporate failure. 87 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business Overview Governance Remuneration Report continued Shareholding guidelines Purpose Operation To align Executive Directors with the interests of shareholders. Whilst in employment, Executive Directors are expected to build up and thereafter maintain a minimumshareholdingequivalentto200%ofbasicsalary. The Committee will review progress towards the guideline on an annual basis and has the discretion to adjust the guideline in what it feels are appropriate circumstances. Executive Directors will also be expected to remain compliant with the above guideline for a periodoftwoyearspost-employment.Thisrequirementwillapplytosharesfromincentive awards due to be released from the date of adoption of the policy at the 2021 Annual General Meeting. The Committee would retain discretion to waive this guideline if it is not considered appropriateinthespecificcircumstances. Maximum Performance measures Clawback Not applicable Not applicable Not applicable Non-Executive Directors Policy Table Fees Purpose Operation To provide competitive Director fees. Annual fee for the Chair, and annual base fees for other Non-Executive Directors. Additional fees for those Directors with additional responsibilities such as chairing a Board Committee. All fees will be payable monthly in arrears in cash. Fees will usually be reviewed independently every three years. The independent Non-Executive Directors are not eligible to receive share options or other performance-relatedelements,orreceiveanyotherbenefitsotherthanwheretraveltothe Company’sregisteredofficeisrecognisedastaxablebenefitinwhichcaseaNon-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 retains discretion to make downward or upward adjustments resulting from the application of the performance measures if it considers that an adjustment is appropriate (for example,iftheoutcomesarenotdeemedbytheCommitteetobeafairandaccuratereflectionofbusinessperformance).IntheeventthattheCommitteewastomakean adjustment of this sort, a full explanation would be provided in the next Remuneration Report. 2. Performancemeasures–annualbonus.Theannualbonusmeasuresarereviewedannuallyandchosentofocusexecutiverewardsondeliveryofkeyfinancialtargetsforthe forthcomingyearaswellaskeystrategicoroperationalgoalsrelevanttoanindividual.SpecifictargetsforbonusmeasuresaresetatthestartofeachyearbytheRemuneration Committeebasedonarangeofrelevantreferencepoints,includingforGroupfinancialtargets,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, provided that the terms of the payment were consistent with the shareholder approved Remuneration Policy in force at the time they were agreed; 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. Service contracts Executive Directors have service contracts containing the remuneration elements set out within this policy. There is no fixedlengthofserviceandnoticeperiodsdonotexceed12months. On termination the applicable payments for each element of remuneration are set out opposite. TheExecutiveDirectorservicecontractsareavailableforinspectionattheCompany’sregisteredoffice. 88 Picton Property Income Limited Annual Report 2021Letters of appointment Each independent Non-Executive Director has a letter of appointment which sets out the terms and conditions. They have a six-month notice period and their appointment would terminate without compensation if not re-elected at the Annual General Meeting. The independent Directors have no service contracts or interests in any material contracts with the Group. Recruitment The remuneration package for a new Executive Director would follow, as far as practicable, the above Policy Table. Salaries wouldreflecttheskillsandexperienceoftheindividual,andmaybesetataleveltoallowprogressionandperformance intherole.ThestructureofthevariableremunerationelementswouldreflectthoseinthePolicyTable.However,the Committeemayflexthebalancebetweenannualandlong-termincentivesandthemeasuresusedtoassess performance. If appropriate, different measures and targets may be applied to a new appointment’s annual bonus and/or LTIP in their year of joining. Variable pay would be subject to the maximums set out in the Policy Table. WherenecessarytheCommitteemayapprovethepaymentofrelocationexpensestofacilitaterecruitment,andflexibility is retained to pay for legal fees and other costs incurred by the individual in relation to their appointment. Where an Executive Director is an internal promotion, the normal policy is that any legacy arrangements would be honoured in line with the original terms and conditions. Similarly, if an Executive Director is appointed following the Company’sacquisitionoformergerwithanothercompany,legacytermsandconditionswouldbehonoured. Remuneration arrangements for a new Non-Executive Director would be consistent with the above Policy. The Committee may agree to make compensatory payments for any remuneration arrangements subject to forfeit on leavingapreviousemployer.Thiswouldbeconsideredforeachspecificcase,takingintoaccountanyrelevantfactors relating to the recruitment. There is no limit on such payments, but the Committee would not intend to pay more than the commercial value forfeited. If necessary, the Committee may grant such awards under Listing Rule 9.4.2 R. Policy for other employees RemunerationforotheremployeesbroadlyfollowsthesameprinciplesasforExecutiveDirectors.Asignificantelement of remunerationislinkedtoperformancemeasures.AllemployeesusuallyparticipateintheLong-termIncentivePlan, 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 importanceofensuringthatitspaydecisionsforExecutiveDirectorsareregardedasfairandreasonablewithin the business. Policy for payment on loss of office On cessation of employment of an Executive Director the Committee will honour any contractual arrangements in place. TheCommitteemaymakeanyotherpaymentsinconnectionwithlossofofficeindischargeoflegalobligationsorbyway of a compromise or settlement of any claim arising. This may include reasonable amounts for outplacement assistance and professional or legal advice. The Committee may, at its discretion, make an annual bonus payment for the year of cessation depending on the reason for leaving. The Committee will take into consideration appropriate performance measures which may include the individual’sperformanceandcontributionduringtheyear,andtheGroup’sfinancialresults.Thebonuswouldusuallybe time pro-rated and may be settled wholly in cash. The treatment of outstanding deferred bonus and Long-term Incentive Plan awards will be governed by the relevant plan rules. In both cases unvested awards will normally lapse unless the participant is determined to be a good leaver. The vestingdateforagoodleaver’sawardswillnormallybetheoriginalvestingdate,buttheCommitteehastheflexibilityto determine that awards may vest at an earlier date. The Committee’s determination of the extent to which a good leaver’s LTIP awards should vest will take into account the extent to which performance conditions are met either at the date of cessationofemploymentortheendoftheoriginalperformanceperiodand,unlesstheCommitteedetermines otherwise, will be adjusted on a time pro-rated basis. Where an individual leaves after the vesting date but before the end ofanyholdingperiod,theywillretaintheirLTIPawardsunlesssummarilydismissedwithawardsbeingreleasedat the normaldateunlesstheCommitteedeterminesthattheyshouldbereleasedatanearlierdate. 89 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued Annual Report on Remuneration Total remuneration for the year ThetablebelowsetsoutthetotalremunerationreceivablebyeachoftheDirectorswhoheldofficeduringtheyearto 31March2021,withacomparisontothepreviousfinancialyear: Salary/fees £000 Benefits £000 Pension salary supplement £000 Executive Michael Morris Andrew Dewhirst Non-Executive Lena Wilson Nicholas Thompson Roger Lewis Mark Batten Maria Bentley Richard Jones Nicholas Wiles Total (audited) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 250 250 170 170 21 – 82 98 22 45 48 48 45 49 26 – 6 10 670 670 2 2 2 2 – – – – – – – – – – – – – – 4 4 Total fixed £000 290 290 198 198 21 – 82 98 22 45 48 48 45 49 26 – 6 10 Annual bonus £000 Deferred bonus £000 Long-term incentive plan £000 Total variable £000 174 153 119 109 174 152 118 109 208 174 122 102 556 479 359 320 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total £000 846 769 557 518 21 – 82 98 22 45 48 48 45 49 26 – 6 10 38 38 26 26 – – – – – – – – – – – – – – 64 64 738 738 293 262 292 261 330 276 915 799 1,653 1,537 Benefitscompriseprivatemedicalinsuranceandlifeassurance. ExecutiveDirectorsreceiveasalarysupplementof15%ofbasesalaryinlieuofcompanypensioncontributions. The value of LTIP awards is based on the number of shares to be awarded to the Executive Directors and the average sharepriceoverthequarterended31March2021of84.71pence,andtheestimatedvalueofdividendequivalents. Theabove2020LTIPfiguresfortheExecutiveDirectorshavebeenrestatedtoreflecttheactualsharepriceatvesting (67.83pence)ratherthantheaverageforthequarterended31March2020(92.64pence).Thisrestatementrepresentsa reductioninthevalueofthe2020LTIPawardsby£55,000forMichaelMorrisandby£33,000forAndrewDewhirst. Lena Wilson joined the Board on 1 January 2021 and was appointed as Chair from 1 February 2021. Richard Jones joined the Board on 1 September 2020. Nicholas Thompson retired from the Board on 31 January 2021. Nicholas Wiles joined the Board on 1 January 2020 and resigned on 20 May 2020. Annual bonus for 2020/21 Theannualbonusfortheyearended31March2021fortheExecutiveDirectorswasbasedonacombinationoffinancial metrics(60%)andcorporateobjectives(40%). The targets set for the year ended 31 March 2021 and the assessment of actual performance achieved are set out in the table opposite. Thefinancialmetricscomprisedthreeequallyweightedcomponents:totalreturnrelativetoacomparatorgroupofsimilar companies, set out later in this Report; total property return compared to the MSCI UK Quarterly Property Index; and growthinEPRAearningspershareoverthefinancialyear. At the date of this Report not all of the companies in the total return comparator group had announced their results to 31 March 2021 and the Committee has estimated, based on the results to date, that this condition will be met at the upperlevel,resultinginanawardof100%.TheCommitteewilldeterminetheactualoutcomeofthisconditiononceall companieshavereported,andanyadjustmentrequiredbetweentheestimateandactualwillbemadeinnextyear’s RemunerationReport.Therewillbenopayoutofthebonusuntilafinalisedresultcanbeconfirmed. 90 Picton Property Income Limited Annual Report 2021Performance condition Basis of calculation Total return versus comparator group Bonus weighting: 20% Total property return versus MSCI Index Bonus weighting: 20% Lessthanmedian–0% Equaltomedian–50% Equaltoupperquartile–100% Lessthanmedian–0% Equaltomedian–50% Equaltoupperquartile–100% Growth in EPRA EPS Bonus weighting: 20% Lessthan3.66p–0% Equalto3.66p–25% Equaltoorgreaterthan3.84p–100% Awarded (%of maximum) Awarded (%ofsalary) 100% (estimate) 35% (estimate) 100% 35% Range Not yet available Actual 6.6% Median2.6% Upperquartile 4.9% 7.3% (above upper quartile) 3.66p to 3.84p 3.67p 31% 10.8% The corporate objectives for the Executive Directors for the year to 31 March 2021 were determined by the Remuneration Committeeandaccountedfor40%ofthemaximumaward. The corporate objectives applying to both Executives, and the assessment of performance against these, are as follows: Awarded (% of maximum) Awarded (% of salary) 80% 7% Performance condition Assessment Strengthen Picton’s reputation through crisis Bonus weighting: 5% Throughout the pandemic there has been considerable engagement with occupiers, with positive feedback received. There has also been positive commentary from real estate analysts and from the Company’s brokers. Although the dividend was reduced at the start of the pandemic this was a smaller reduction than many other companies in the sector, and has been followed by two subsequentincreases,earlierthanothersinthesector. The share price has been at a discount to net asset value, but this has narrowed over the latter half of the year, and compares favourably with the comparator group. Dividendcoverfortheyearwasinexcessof130%. The Group has not taken any form of Government support, nor placed any employees on furlough. Ensureteamadequatelyresourced and working effectively Theemployeesatisfactionscoreincreasedto85%from 83%.Therewerenoleaversduringtheyear. 80% 7% Bonus weighting: 5% There was positive feedback from the employees to the Non-Executive Directors, especially in the context of remote working. TheofficemovetoStanfordBuildingwassuccessfully completed. Ensure Picton values maintained. Make progress on Picton Promise There has been a high level of engagement with occupiers during the pandemic. 80% 7% Bonus weighting: 5% Assistance has been given to support over 90 occupiers, either through monthly payments or rental assistance. A vacant unit was provided to London Ambulance Service during the pandemic. Mitigaterisks,managecashflow, maintain loan covenants Loan covenants were complied with throughout the year, with no additional borrowing incurred. 90% 7.9% Bonus weighting: 5% Cash balances remained positive throughout the year. Rent collection was consistently high, which enabled two dividend increases in the second half of the year. Administrativeexpenses,propertyandfinancecosts were all lower than the preceding year. Thecostratiowas1.0%,lowerthantheprecedingyear. 91 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued Performance condition Assessment Work creatively to maintain income/ value, increase occupancy Bonus weighting: 5% Occupancyhasincreasedto91%. Portfolio capital growth is ahead of the MSCI UK Property Index for the year. Awarded (% of maximum) Awarded (% of salary) 90% 7.9% In 28 cases where support was provided, lease extensions, rent review settlements, and break removals were tied in with concessions. Position the business for future opportunities Bonus weighting: 5% The Group’s loan to value ratio has reduced over the year. 80% 7% Dividendcoverwasover130%fortheyear. NewofficeatStanfordBuildingprovidesexpansionspace. Maximise rent collection while minimising arrears and write-offs Rentcollectionfortheyearwas93%,includingamounts deferred. 90% 7.9% Bonus weighting: 5% Rentconcessionsamountedto4%ofrentdueoverthe year. Rentalincomewas97%of2020result. Set sustainability commitments and targets Bonus weighting: 5% An action plan has been developed, based on the materialissuesidentifiedinthepreviousyear.Targets and objectives have been formulated, while the net zero carbon pathway will be determined in 2021. 80% 7% As discussed in the Committee Chair’s statement on pages 80 to 83, the Committee considered the formulaic bonus outcomeinthecontextoftheGroup’soverallperformancefortheyearandconcludedthatitwassatisfiedthatthe formulaicbonusoutcomewasafairreflectionofoverallGroupperformanceduringtheyear.TheCommitteewasalso satisfiedthattheaboveperformancewasachievedwithinanacceptableriskprofile. Subject to the estimated total return component noted above, 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 40%) Overall bonus%of maximum Bonus%of salary Total bonus £ 46.2 46.2 33.5 33.5 79.7 79.7 139.4 348,600 139.4 237,000 InaccordancewiththeDirectors’RemunerationPolicytheCommitteehasdeterminedthat50%oftheannualbonuses awardedtotheExecutiveDirectorsshouldbedeferredandpayableinsharesintwoyears’time.Dividendequivalentswill accrue on the shares and these will be paid in cash when the awards vest. Long-term Incentive Plan The LTIP awards granted on 8 June 2018 were subject to performance conditions for the three years ended 31 March 2021. The performance conditions and the actual performance for these were as follows: Performance condition Basis of calculation Range Actual Median–(12.4)% Upperquartile–4.9% Median–3.1% Upperquartile–4.6% 14.5% (above upper quartile) 6.7% (above upper quartile) Weighting (%ofaward) Awarded (%of maximum) 33.3% 100% 33.3% 100% 3%–4.58p 9%–5.43p 3.67p 33.3% 0% Total shareholder return versus comparator group Total property return versus MSCI Index Growth in EPRA EPS Lessthanmedian–0% Equaltomedian–25% Equaltoupperquartile–100% Lessthanmedian–0% Equaltomedian–25% Equaltoupperquartile–100% Lessthan3%perannum–0% Equalto3%perannum–25% Equalorgreaterthan9%per annum–100% 92 Picton Property Income Limited Annual Report 2021 TheCommitteewassatisfiedthattheaboveperformancewasachievedwithinanacceptableriskprofile.Asdiscussedin the Committee Chair’s statement on pages 80 to 83, the Committee considered the formulaic LTIP outcome in the contextoftheGroup’soverallperformanceovertheperformanceperiodandconcludedthatitwassatisfiedtheformulaic outcomewasafairreflectionofoverallGroupperformanceduringtheperiod.Basedonthevestingpercentageabove, thesharesawardedandtheirestimatedvalues,usinganaveragesharepriceof84.71penceforthequarterended 31 March 2021, are: Director Michael Morris Andrew Dewhirst Maximum number of shares at grant Number of shares vesting Number of lapsed shares Estimated value1,2 £ 330,396 220,263 110,133 207,895 193,833 129,221 64,612 121,965 1. TheestimatedvalueincludesdividendequivalentawardswhichwillbemadeinrelationtovestedLTIPawardsatthepointofvesting.Thevalueofthedividendequivalent awardsis£21,310(MichaelMorris)and£12,502(AndrewDewhirst). 2. Theaveragesharepriceforthequarterended31March2021islowerthanthesharepriceatgrantsotherehasbeennosharepricegrowthintheestimatedvalueoftheawards. The following awards in the Long-term Incentive Plan were granted to the Executive Directors on 29 June 2020: Number of shares Basis (%ofsalary) Face value per share (£) Award face value (£) Performance period Michael Morris Andrew Dewhirst 309,275 87.5% 0.7073 218,750 1 April 2020 to 31 March 2023 185,070 77% 0.7073 130,900 1 April 2020 to 31 March 2023 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 business days immediately preceding the award date. Awards will vest after three years subject to continued service and theachievementofthreeequallyweightedperformanceconditions(relativetotalshareholderreturn,relativetotal property return and EPRA EPS). The vesting schedule for the relative measures will be as applied to the June 2018 LTIP set outabove.TheEPSelementwillvestat25%forachievementofEPRAEPSof3.75pintheyearended31March2023 increasingonastraightlinebasisto100%vestingforEPRAEPSof4.1p. AnyLTIPvestingwillalsobesubjecttotheRemunerationCommitteeconfirmingthat,initsassessment,thevesting outturnwasachievedwithinanacceptableriskprofile. 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 2020 Granted in year Exercised in year Lapsed in year As at 31 March 2021 Michael Morris 2016 LTIP 27 January 2017 2017 LTIP 16 June 2017 2018 LTIP 8 June 2018 2019 LTIP 19 June 2019 2020 LTIP 29 June 2020 2019 DBP 19 June 2019 2020 DBP 29 June 2020 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 March2022 1 April 2020 to 31 March2023 1 April 2018 to 31 March2019 1 April 2019 to 31 March2020 79.085p 296,815 84.917p 334,150 90.80p 330,396 95.23p 328,153 – – – – 70.73p – 309,275 95.23p 175,137 – 70.73p – 215,333 (296,815) – (222,766) (111,384) – – – – – – – – 330,396 – 328,153 – 309,275 – 175,137 – 215,333 1,464,651 524,608 (519,581) (111,384) 1,358,294 93 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued Date of grant Performance period Market value on date of grant At 1 April 2020 Granted in year Exercised in year Lapsed in year As at 31 March 2021 Andrew Dewhirst 2016 LTIP 27 January 2017 2017 LTIP 16 June 2017 2018 LTIP 8 June 2018 2019 LTIP 19 June 2019 2020 LTIP 29 June 2020 2019 DBP 19 June 2019 2020 DBP 29 June 2020 1 April 2016 to 31 March2019 1 April 2017 to 31 March2020 1 April 2018 to 31 March2021 1 April 2019 to 31 March2022 1 April 2020 to 31 March2023 1 April 2018 to 31 March2019 1 April 2019 to 31 March2020 79.085p 174,899 84.917p 196,898 90.80p 193,833 95.23p 214,218 – – – – 70.73p – 185,070 95.23p 116,758 – 70.73p – 154,312 (174,899) – (131,265) (65,633) – – – – – – – – 193,833 – 214,218 – 185,070 – 116,758 – 154,312 896,606 339,382 (306,164) (65,633) 864,191 Awards under the Long-term Incentive Plan normally vest three years after the grant date. Awards from 2019 onwards are subject to a further two-year holding period. Awards under the Deferred Bonus Plan normally vest two years after the grant date. Comparator group The Committee has agreed that the following companies will be used as a comparator group for the total shareholder return and total return metrics in determining variable remuneration for 2021/22 awards. A smaller group is used for the total return metric due to the different reporting periods of some companies. 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 McKay Securities PLC NewRiver 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 Supermarket Income REIT and Warehouse REIT were added to the group for awards made from 2019 onwards. Hansteen Holdings plc and Mucklow (A.&J.) PLC were additionally included in the group for awards made up to and including 2019. LondonMetric Property PLC and RDI REIT plc were additionally included in the group for awards made up to and including 2020. Tritax Big Box REIT was additionally included in the group for awards made in 2017 only. Statement of Directors’ shareholdings Directors and employees are encouraged to maintain a shareholding in the Company’s shares to provide alignment with investors. 94 Picton Property Income Limited Annual Report 2021ThenumbersofsharesbeneficiallyheldbyeachDirector(includingconnectedpersons)asat31March2021,wereas follows: Michael Morris Andrew Dewhirst Lena Wilson Nicholas Thompson Roger Lewis Mark Batten Maria Bentley Richard Jones Holding as a %ofsalary Outstanding LTIP awards Outstanding DBP awards 113 102 967,824 390,470 593,121 271,070 Beneficial holding 2021 Beneficial holding 2020 328,485 53,596 201,978 28,500 30,000 N/A N/A 215,000 N/A 600,000 – – 74,436 74,436 53,845 N/A The percentage holding for the Executive Directors is based on base salaries as at 31 March 2021 and a share price of £0.858.Thebeneficialholdingsofsharesincludeanyheldbyconnectedpersons. ExecutiveDirectorsarerequiredtomaintainashareholdingof200%ofbasesalaryandbothDirectorsarecurrentlyinthe processofbuildinguptothatlevel.TheExecutiveDirectorsintendtoretainatleast50%ofanyshareawards(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 TherewerenopaymentstopastDirectorsorpaymentsforlossofofficetoDirectorsduringtheyearended31March2021. Historical total shareholder return performance The graph below shows the Company’s total shareholder return (TSR) since 31 March 2011 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 2 011 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 2 017 M ar 2 018 S e p 2 018 M ar 2 019 S e p 2 019 M ar 2 0 2 0 S e p 2 0 2 0 M ar 2 0 21 Key: Picton FTSE EPRA NAREIT UK FTSE All-Share The table below shows the remuneration of the Chief Executive for the past three 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 three years. 2021 2020 2019 Total remuneration (£000) Annual bonus(%of maximum) 846 769 920 80% 70% 79% LTIP vesting (%of maximum award) 67% 67% 83% 95 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Remuneration Report continued Implementation of Remuneration Policy in 2021/22 Executive Directors Base salaries MichaelMorris(ChiefExecutive)–£287,500 AndrewDewhirst(FinanceDirector)–£195,500 Pension and benefits 15%salarysupplementinlieuofpensionplusstandardotherbenefits Annual bonus* Maximumbonusof165%ofsalarywith50%ofanybonusdeferredin shares for two years 60%ofbonustobedeterminedbycorporatefinancialmetricsof relative total property return (using the same performance target rangesasin2020/21)withtheremaining40%determinedbystrategic and personal measures LTIP* Award of shares worth: ӱ MichaelMorris(ChiefExecutive)125%ofsalary ӱ AndrewDewhirst(FinanceDirector)110%ofsalary Shares released after three-year performance and two-year holding period.Vestingofsharesbasedequallyonrelativetotalshareholder return, relative total property return and growth in EPRA earnings per share measures. Target ranges for the relative measures are as set out on page 91. Targets for the EPS measure for the year ended 31 March 2024 are: Lessthan3.85pencepershare–0% Equalto3.85pencepershare–25% Greaterthan4.25pencepershare–100% A result between 3.85 pence and 4.25 pence will be calculated on a straight-linebasisbetween25%and100% Non-Executive Directors Fees Chair–£116,800 Director–£45,000 SupplementaryfeeforCommitteeChairs–£7,500 Change from prior year As set out in the Committee Chair’s statement base salaries for both of the Executive Directors will increase by15%thisyear.Theaverageincrease fortherestoftheworkforceis6.4%. No change. All employees receive company pension contributions at therateof15%ofbasesalaryor15% salary supplement in lieu of company contributions. As set out in the Committee Chair’s statement the maximum bonus potential for Executive Directors will decreasefrom175%ofsalaryto165% ofsalarythisyearandtwofinancial metrics will be used this year rather than three. Awards to the Executive Directors have been restored this year back to a normal level. As set out in the Committee Chair’s statement, the Chair fee has been increasedfrom£105,000to£116,800 and the Non-Executive Director fee from£40,000to£45,000witheffect from 1 April 2021. The supplementary fee for all Committee Chairs will be £7,500,anincreasefrom£5,000for the Remuneration and Property Valuation Committee Chairs. There is no change for the Chair of the Audit and Risk Committee. *The Remuneration Committee has discretion to override the formulaic outcomes in both the annual bonus and LTIP. TheCommitteealsoconfirmsthatperformancehasbeenachievedwithinanacceptableriskprofilebeforepayoutsare made. Incentive payouts are subject to malus and clawback provisions. 96 Picton Property Income Limited Annual Report 2021Statement 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 GeneralMeetingheldon18November2020,representing52%oftheissuedsharecapitaloftheCompany,andalsofor the Remuneration Policy, which was approved by shareholders at the Annual General Meeting held on 13 September 2018,representing31%oftheissuedsharecapitaloftheCompany. For Against Votes cast Withheld Maria Bentley Chair of the Remuneration Committee 26 May 2021 Remuneration Report Remuneration Policy Votes cast % Votes cast % 287,135,654 9,476,646 278,749,348 48,528 96.81 3.19 100.0 148,636,904 94.98 7,853,028 5.02 156,489,932 100.0 10,100,551 97 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance 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 Significantissuesthatshouldbe raised with management; ӱ Material and unexplained movements in the Company’s net asset value; 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. Visit our website www.picton.co.uk Richard Jones Chair of the Property Valuation Committee The Property Valuation Committee is chaired by Richard Jones. The other members of the Committee are Lena Wilson, Mark Batten and Maria Bentley. Richard Jones became Chair of the Committee on 1 October 2020 after Roger Lewis retired from the Board. Activity The Committee met four times during the year ended 31 March 2021. Members of the Property Valuation Committee, together with management, met with theindependentvaluereach quartertoreviewthevaluationsand 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. 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. Material uncertainty As a result of the Covid-19 pandemic a ‘material uncertainty’ statement was applied to the March 2020 and June 2020 valuations. From 30 September 2020 the statement was removed entirely from the valuers’ reports as there was deemed to be sufficientmarketevidencetorender thequalificationunnecessary. Richard Jones Chair of the Property Valuation Committee 26 May 2021 98 Picton Property Income Limited Annual Report 2021Governance Directors’ Report Directors’ Report The Directors of Picton Property Income Limited present the Annual Reportandauditedfinancial statements for the year ended 31 March 2021. The Company is registered under the provisionsoftheCompanies (Guernsey) Law, 2008. 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 Companyhaspaidfourinterim dividends in the year, two at 0.625 pence per share, one at 0.7 pence per share and one at 0.8 pence per share, making a total dividend for the year ended 31 March 2021 of 2.75 pence per share (2020: 3.5 pence). All four interim dividends were paid as PIDs. Directors The Directors of the Company who served throughout the year are: ӱ Lena Wilson (appointed 1 January 2021) ӱ Nicholas Thompson (resigned 31 January 2021) ӱ Michael Morris ӱ Andrew Dewhirst ӱ Mark Batten ӱ Maria Bentley ӱ Richard Jones (appointed 1 September 2020) ӱ Roger Lewis (resigned 30 September 2020) ӱ Nicholas Wiles (resigned 20 May 2020) The Directors’ interests in the shares of the Company as at 31 March 2021 are set out in the Remuneration Report. All of the Directors will offer themselves for re-election at the forthcoming Annual General Meeting. 2018 UK Corporate Governance Code Compliance Statement TheBoardconfirmsthatfortheyear ended 31 March 2021 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. As both Nicholas Thompson and Roger Lewis served on the Board for more than nine years before their retirement this year, the Company has not complied with those provisions within the Code relating to tenure for thewholeoftheyearended 31 March 2021. With the changes to the Board made during the year the Company is now fully compliant with the Code. 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 2021 was 547,605,596 (2020: 547,605,596) ordinary shares of no par value, including 2,052,269 ordinary shares which are held by the Trustee of the Company’sEmployeeBenefitTrust (2020: 2,103,683 ordinary shares). The Directors have authority to buy backupto14.99%oftheCompany’s ordinary shares in issue, subject to the renewal of this authority from shareholders at each Annual General Meeting. Any buy-back of ordinary shares is, and will be, made subject to Guernsey law, and the making and timing of any buy-backs are at the absolute discretion of the Board. No ordinary shares were purchased under this authority during the year. At the 2020 Annual General Meeting shareholders gave the Directors authority to issue up to 54,760,558shares(being10%ofthe Company’s issued share capital as at 14 October 2020) without having tofirstofferthosesharestoexisting shareholders. No ordinary shares have been issued under this authority, 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 2,052,269 ordinary shares in the Company in a trust to satisfy awards made under the Long-term Incentive Plan and the Deferred Bonus Plan. During the year the Trusteeacquired958,000ordinary shares at 67.0 pence per share. The Trustee has waived its right to receive dividends on the shares it holds. Statement of going concern The Directors have focused on assessing whether the going concern basis remains appropriate forthepreparationofthefinancial statements for the year ended 31 March 2021, including giving consideration to the impact of the Covid-19 pandemic on the UK economy. In making their assessment the Directors have considered the principal and emerging risks relating to the Group, its loan covenants, accesstofundingandliquidity position. They have also considered a number of scenarios in particular as regards to the impact of different levels of rent collection across the portfolio and over varying timescales, andthepotentialconsequences onfinancialperformance,asset values, capital projects and loan covenants. Leasing and investment transactions have been assumed to be curtailed throughout the assessment period. Future lease 99 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewGovernance Directors’ Report continued 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 goingconcern basisinpreparing thefinancialstatements. Viability assessment and statement The UK Corporate Governance CoderequirestheBoardtomakea ‘viability statement’ which considers the Company’s current position and principal and emerging 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,consideredto be the most appropriate for long- term investment in commercial property. The assessment has been undertaken taking into account the principal and emerging risks and uncertainties faced by the Group which could impact its investment strategy, future performance, loancovenantsandliquidity. Themajorrisksidentifiedwerethose relating to the Covid-19 pandemic and its 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 the Covid-19 pandemic the Board considered a number of scenarios around its impact on the Group’s property portfolioandfinancialposition.These scenarios included different levels of rent collection, occupier defaults, void periods and incentives within theportfolio,andtheconsequential impact on property costs and loan covenants. All lease events and assumptions were reviewed over the period under the different scenarios and their impact on revenue and cashflow.Futurelettingactivitywas assumed to be curtailed during the initial period of the assessment. Forecast movements in capital values were included in these scenarios including their 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 2026 and will continue to be assessed overfive-yearrollingperiods. 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 they fall due over the five-yearperiodto31March2026. Substantial shareholdings Basedonnotificationsreceived and on information provided by the Company’s brokers, the Company understands the following shareholdersheldabeneficialinterest of3%ormoreoftheCompany’s issued share capital as at 20 May 2021. %ofissued share capital Investec Wealth & Investment Limited Bank of Montreal BlackRock Inc. Mattioli Woods plc Brewin Dolphin Limited The Vanguard Group Inc. Smith & Williamson Investment Management 14.2 7.3 5.5 5.3 4.7 4.1 3.8 Disclosure of information to auditor TheDirectorswhoheldofficeatthe date of approval of this Directors’ Reportconfirmthat,sofarasthey are each aware, there is no relevant audit information of which the Company’s auditor is unaware and each Director has taken all the steps that he 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. 100 Picton Property Income Limited Annual Report 2021Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financialstatementsinaccordance with applicable law and regulations. CompanylawrequirestheDirectors topreparefinancialstatementsfor eachfinancialyear.Underthatlaw theyarerequiredtopreparethe financialstatementsinaccordance 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. Inpreparingthesefinancial statements, the Directors arerequiredto: ӱ select suitable accounting policies and then apply them consistently; ӱ make judgements and estimates that are reasonable, relevant and reliable; ӱ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explainedinthefinancial statements; ӱ assess the Group and Company’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 the Company or 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 Group 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 offinancialstatementsmaydiffer from legislation in other jurisdictions. Directors’ responsibility statement in respect of the Annual Report and financial statements Weconfirmthattothebestof our knowledge: ӱ thefinancialstatements,prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities,financialpositionand profitorlossoftheCompany;and ӱ the Strategic Report includes a fair review of the development and performance of the business and the position of the Issuer, together with a description of the principal risks and uncertainties that they face. 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 Company’s position and performance, business model and strategy. By Order of the Board Andrew Dewhirst 26 May 2021 101 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Independent Auditor’s Report to the Members of Picton Property Income Limited Key audit matters: our assessment of the risks of material misstatement Key audit matters are those matters that, in our professionaljudgment,wereofmostsignificancein the auditoftheconsolidatedfinancialstatementsand includethemostsignificantassessedrisksofmaterial 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,and in formingouropinionthereon,andwedonotprovidea separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2020): Valuation of investment properties £665.4million(2020:£654.5million) Refer to page 77 of the Audit and Risk Committee Report, Note2significantaccountingpoliciesandNote13investment properties disclosures Our opinion is unmodified Wehaveauditedtheconsolidatedfinancialstatements of PictonPropertyIncomeLimited(the‘Company’)and its subsidiaries(together,the‘Group’),whichcomprise the consolidatedbalancesheetasat31March2021,the consolidated statements of comprehensive income, changesinequityandcashflowsfortheyearthenended, andnotes,comprisingsignificantaccountingpoliciesand other explanatory information. In our opinion, the accompanying consolidated financial statements: ӱ giveatrueandfairviewofthefinancialpositionofthe Groupasat31March2021,andoftheGroup’sfinancial performanceandcashflowsfortheyearthenended; ӱ are prepared in accordance with International Financial Reporting Standards; and ӱ comply with the Companies (Guernsey) Law, 2008. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. 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 accountedfor93%(2020:94%)ofthe Group’s total assets as at 31 March 2021. The fair value of investment properties at 31 March 2021 was assessed by the Board of Directors based on independent valuations prepared by the Group’s third party independent valuer (the ‘Valuer’). Risk: The valuation of the Group’s investment propertiesisasignificantareaofour audit given that it represents the majority of the total assets of the Group and in viewofthesignificanceoftheestimates and judgements that may be involved in the determination of their fair value. Our audit procedures included: Control evaluation: We assessed the design, implementation and operating effectiveness of controls over the valuation of investment properties including the capture and recording of information contained in the lease database for investment properties. Evaluating experts engaged by management: We assessed the competence, capabilities and objectivity of the Valuer. We also assessed the independence of the Valuer by considering the scope of their work and the terms of their engagement. Evaluating assumptions and inputs used in the valuation: With the assistance of our own Real Estate valuation specialist we assessed the valuations prepared by the Valuer by:: 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 applicationasdescribedinthenotestotheconsolidatedfinancialstatementsfor compliancewithIFRSinadditiontotheadequacyofdisclosuresinNote13in relation to fair value of the investment properties including the impact of Covid-19. 102 Picton Property Income Limited Annual Report 2021Our application of materiality and an overview of the scope of our audit Materialityfortheconsolidatedfinancialstatementsasa wholewassetat£7.1million,determinedwithreference toabenchmarkofgrouptotalassetsof£712.5million, ofwhichitrepresentsapproximately1%(2020:1%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across thefinancialstatementsasawhole.Performance materialityfortheGroupwassetat75%(2020:75%)of materialityforthefinancialstatementsasawhole,which equatesto£5.3million.Weappliedthispercentageinour determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We reported to the Audit Committee any corrected oruncorrectedidentifiedmisstatementsexceeding £356,000,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 aboveandcovered100%oftotalgrouprevenue,total groupprofitbeforetax,andtotalgroupassetsandliabilities. Going concern TheDirectorshavepreparedtheconsolidatedfinancial statements on the going concern basis as they do not intendtoliquidatetheGrouportheCompanyortocease their operations, and as they have concluded that the GroupandtheCompany’sfinancialpositionmeansthat this is realistic. They have also concluded that there are nomaterialuncertaintiesthatcouldhavecastsignificant doubt over their ability to continue as a going concern for at least a year from the date of approval of the consolidated financialstatements(the‘goingconcernperiod’). In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group and the Company’s business model and analysed how those risksmightaffecttheGroupandtheCompany’sfinancial resources or ability to continue operations over the going concern period. The risks that we considered most likely toaffecttheGroupandtheCompany’sfinancialresources or ability to continue operations over this period were: ӱ Availability of capital to meet operating costs and other financialcommitments; ӱ Theabilitytosuccessfullyrefinanceorrepaydebt;and ӱ The ability of the Company to comply with debt covenants. We considered whether these risks could plausibly affect theliquidityinthegoingconcernperiodbycomparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the levelofavailablefinancialresourcesindicatedbythe Group’sfinancialforecasts. We considered whether the going concern disclosure in Note2tothefinancialstatementsgivesafullandaccurate description of the Directors’ assessment of going concern. Our conclusions based on this work: ӱ we consider that the Directors’ use of the going concern basis of accounting in the preparation of the consolidatedfinancialstatementsisappropriate; ӱ wehavenotidentified,andconcurwiththeDirectors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively,maycastsignificantdoubtontheGroup and the Company’s ability to continue as a going concern for the going concern period; and ӱ we have nothing material to add or draw attention to in relation to the Directors’ statement in the notes to the consolidatedfinancialstatementsontheuseofthe going concern basis of accounting with no material uncertaintiesthatmaycastsignificantdoubtoverthe Group and the Company’s use of that basis for the going concern period, and that statement is materially consistentwiththeconsolidatedfinancialstatements and our audit knowledge. However, as we cannot predict all future events or conditionsandassubsequenteventsmayresultin outcomes that are inconsistent with judgements that were reasonableatthetimetheyweremade,theabove conclusions are not a guarantee that the Group and the Company will continue in operation. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (‘fraud risks’) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: ӱ enquiringofmanagementastotheGroup’spolicies and procedures to prevent and detect fraud as well as enquiringwhethermanagementhaveknowledgeof any actual, suspected or alleged fraud; ӱ reading minutes of meetings of those charged with governance; and ӱ using analytical procedures to identify any unusual or unexpected relationships. Asrequiredbyauditingstandards,weperformprocedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit we donotbelievethereisafraudriskrelatedtorevenue recognition because the Group’s revenue streams are simple in nature with respect to accounting policy choice, andareeasilyverifiabletoexternaldatasourcesor agreementswithlittleornorequirementforestimation from management. We did not identify any additional fraud risks. 103 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Independent Auditor’s Report to the Members of Picton Property Income Limited continued We performed procedures including: ӱ Identifying journal entries and other adjustments to test basedonriskcriteriaandcomparinganyidentified entries to supporting documentation; and ӱ incorporating an element of unpredictability in our audit procedures. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations Weidentifiedareasoflawsandregulationsthatcould reasonably be expected to have a material effect on the consolidatedfinancialstatementsfromoursector experience and through discussion with management (as requiredbyauditingstandards),andfrominspection of theGroup’sregulatoryandlegalcorrespondence,if any, anddiscussedwithmanagementthepolicies and proceduresregardingcompliancewithlawsand regulations. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complyingwithregulatoryrequirements. The Group is subject to laws and regulations that directly affecttheconsolidatedfinancialstatementsincluding financialreportinglegislationandtaxationlegislationand we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financialstatementitems. The Group is subject to other laws and regulations wheretheconsequencesofnon-compliancecould have a material effect on amounts or disclosures in the consolidatedfinancialstatements,forinstancethrough theimpositionoffinesorlitigationorimpactsonthe GroupandtheCompany’sabilitytooperate.Weidentified financialservicesregulationasbeingtheareamostlikely to have such an effect, recognising the regulated nature of the Group’s activities and its legal form. Auditing standards limittherequiredauditprocedurestoidentifynon- compliancewiththeselawsandregulationstoenquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some materialmisstatementsintheconsolidatedfinancial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations is from the events andtransactionsreflectedintheconsolidatedfinancial statements, the less likely the inherently limited procedures requiredbyauditingstandardswouldidentifyit. In addition, as with any audit, there remains a higher risk of non-detectionoffraud,asthismayinvolvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. 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 opinionontheconsolidatedfinancialstatementsdoes not 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 Wearerequiredtoperformprocedurestoidentifywhether there is a material inconsistency between the Directors’ disclosures in respect of emerging and principal risks and theviabilitystatement,andtheconsolidatedfinancial statements and our audit knowledge. We have nothing material to add or draw attention to in relation to: ӱ theDirectors’confirmationwithintheViability assessment and statement (page 100) 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 disclosures describing these emerging and principal risks and explaining how they are being managed or mitigated; ӱ the Directors’ explanation in the Viability assessment and statement (page 100) 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 WearealsorequiredtoreviewtheViabilityassessment and statement,setoutonpage100undertheListing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with theconsolidatedfinancialstatementsandouraudit knowledge. Corporate governance disclosures Wearerequiredtoperformprocedurestoidentifywhether there is a material inconsistency between the Directors’ corporate governance disclosures and the consolidated financialstatementsandourauditknowledge. 104 Picton Property Income Limited Annual Report 2021Auditor’s responsibilities Our objectives are to obtain reasonable assurance about 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,inaccordancewithsection262oftheCompanies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matterswearerequiredtostatetotheminan auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report,orfortheopinionswehaveformed. Deborah Smith For and on behalf of KPMG Channel Islands Limited Chartered Accountants and Recognised Auditors, Guernsey 26 May 2021 Based on those procedures, we have concluded that each ofthefollowingismateriallyconsistentwiththe consolidatedfinancialstatementsandouraudit knowledge: ӱ the Directors’ statement that they consider that the AnnualReportandconsolidatedfinancialstatements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; ӱ the section of the Annual Report describing the work of theAuditCommittee,includingthesignificant issues thattheauditcommitteeconsideredinrelation tothefinancialstatements,andhowtheseissueswere addressed; and ӱ the section of the Annual Report that describes the review of the effectiveness of the Company’s risk management and internal control systems. WearerequiredtoreviewthepartofCorporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate GovernanceCodespecifiedbytheListingRulesforour review. We have nothing to report in this respect. 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 page 101, the Directors are responsible for: the preparation of theconsolidatedfinancialstatementsincludingbeing satisfiedthattheygiveatrueandfairview;suchinternal control as they determine is necessary to enable the preparationofconsolidatedfinancialstatementsthatare free from material misstatement, whether due to fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend toliquidatetheGrouportheCompanyortocease operations, or have no realistic alternative but to do so. 105 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Consolidated statement of comprehensive income for the year ended 31 March 2021 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 Total finance costs Profit before tax Tax Profit and total comprehensive income for the period Earnings per share Basic Diluted 2021 Total £000 2020 Total £000 Notes 3 4 43,331 (9,877) 45,664 (12,027) 33,454 33,637 6 (5,388) (5,563) (5,388) (5,563) 28,066 28,074 13 13 868 12,861 3,478 (882) 13,729 2,596 41,795 30,670 8 9 5 (7,999) 9 (8,295) (7,994) (8,286) 33,801 – 22,384 124 33,801 22,508 11 11 6.2p 6.2p 4.1p 4.1p All items in the above statement derive from continuing operations. AlloftheprofitandtotalcomprehensiveincomefortheyearisattributabletotheequityholdersoftheCompany. Notes1to27formpartoftheseconsolidatedfinancialstatements. 106 Picton Property Income Limited Annual Report 2021Financial Statements Consolidated statement of changes in equity for the year ended 31 March 2021 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 Profitfortheyear Dividends paid Share-based awards Purchase of shares held in trust Balance as at 31 March 2021 Notes1to27formpartoftheseconsolidatedfinancialstatements. Share capital £000 Retained earnings £000 Other reserves £000 Total £000 Notes 157,449 342,252 22,508 (19,039) – – (54) – – – – 7,137 (186) – – – 164,400 345,667 33,801 (15,002) – – – – – – 10 20 7 7 10 7 7 (286) 499,415 22,508 (19,039) 7,137 (186) – 292 (844) – – – – 54 292 (844) (784) 509,283 33,801 (15,002) 758 (643) – – 758 (643) 164,400 364,466 (669) 528,197 107 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Consolidated balance sheet as at 31 March 2021 Non-current assets Investment properties Property,plantandequipment 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 2021 £000 2020 £000 13 665,418 654,486 20 14 4,111 669,529 654,506 15 16 19,584 23,358 17,601 23,567 42,942 41,168 712,471 695,674 17 18 22 (18,805) (944) (107) (19,438) (888) (108) (19,856) (20,434) 18 (162,711) 22 (1,707) (164,248) (1,709) (164,418) (165,957) (184,274) (186,391) 528,197 509,283 20 164,400 164,400 364,466 345,667 (784) (669) 528,197 509,283 23 97p 93p TheseconsolidatedfinancialstatementswereapprovedbytheBoardofDirectorson26May2021andsignedonits behalf by: Andrew Dewhirst Director 26 May 2021 Notes1to27formpartoftheseconsolidatedfinancialstatements. 108 Picton Property Income Limited Annual Report 2021Financial Statements Consolidated statement of cash flows for the year ended 31 March 2021 Operating activities Operatingprofit Adjustments for non-cash items Interest received Interest paid Tax received Increase in accounts receivable Decrease 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 (outflows)/inflows from investing activities Financing activities Borrowings repaid Borrowings drawn Financing costs 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 2021 £000 2020 £000 21 13 18 18 18 20 7 10 41,795 (12,964) 5 (7,515) 56 (1,983) (825) 30,670 (2,295) 9 (7,952) 123 (4,078) (2,936) 18,569 13,541 (4,961) 3,928 (268) (8,861) 33,859 (4) (1,301) 24,994 (1,258) – (574) – – (643) (15,002) (33,204) 6,000 – 7,137 (186) (844) (19,039) (17,477) (40,136) (209) 23,567 (1,601) 25,168 Cash and cash equivalents at end of year 16 23,358 23,567 Notes1to27formpartoftheseconsolidatedfinancialstatements. 109 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements for the year ended 31 March 2021 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 domiciled investment company and entered the UK REIT regime on 1October2018.Theconsolidatedfinancialstatementsarepreparedfortheyearended31March2021withcomparatives fortheyear ended31March2020. 2. Significant accounting policies Basis of accounting Thefinancialstatementshavebeenpreparedonagoingconcernbasisandadoptthehistoricalcostbasis,exceptfor the revaluationofinvestmentproperties.Historicalcostisgenerallybasedonthefairvalueoftheconsiderationgiven 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. TheDirectorshaveassessedwhetherthegoingconcernbasisremainsappropriateforthepreparationofthefinancial statements, including giving consideration to the continuing impact of the Covid-19 pandemic on the UK economy. They have reviewed the Group’s principal and emerging risks, recent levels of rent collection, existing loan facilities, access to fundingandliquiditypositionandthenconsideredanumberofscenariosarounddifferentlevelsofrentcollection,(and thepotentialconsequencesonfinancialperformance),assetvalues,capitalprojectsandloancovenants.Underallof thesescenariostheGrouphassufficientresourcestocontinueitsoperations,andremainwithinitsloancovenants,fora periodofatleast12monthsfromthedateofthesefinancialstatements. 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 Business Combinations, Amendments to IFRS 3 ӱ Interest Rate Benchmark Reform, Amendments to IFRS 9, IAS 39 and IFRS 7 ӱ DefinitionofMaterial,AmendmentstoIAS1andIAS8 TheadoptionofthesestandardshashadnomaterialeffectontheconsolidatedfinancialstatementsoftheGroup. Atthedateofapprovalofthesefinancialstatementsthereareanumberofnewandamendedstandardsinissuebut not yeteffectiveforthefinancialyearended31March2021andthushavenotbeenappliedbytheGroup. ӱ Interest Rate Benchmark Reform – Phase 2 ӱ OnerousContracts–CostoffulfillingaContract(AmendmentstoIAS37) ӱ Classificationofliabilitiesascurrentornon-current(AmendmentstoIAS1) ӱ Annual Improvements to IFRS Standards 2018-2020 The adoption of these new and amended standards, together with any other IFRSs or IFRIC interpretations that are not yeteffective,arenotexpectedtohaveamaterialimpactonthefinancialstatementsoftheGroup. 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 believedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingestimatesabout the carryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfrom these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Significant judgements and estimates JudgementsmadebymanagementintheapplicationofIFRSsthathaveasignificanteffectonthefinancialstatements and major sources of estimation uncertainty are disclosed in Note 13. The critical estimates and assumptions relate to the investment property and owner-occupied property valuations applied by the Group’s independent valuer. 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. 110 Picton Property Income Limited Annual Report 2021Basis 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 fromthedateonwhichcontrolistransferredoutoftheGroup.Thesefinancialstatementsincludetheresultsofthe subsidiaries disclosed in Note 12. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Fair value hierarchy The fair value measurement for the assets and liabilities are categorised into different levels in the fair value hierarchy 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 18. Property, plant and equipment Owner-occupied property Owner-occupied property is stated at its revalued amount, which is determined in the same manner as investment property. It is depreciated over its remaining useful life (40 years) with the depreciation included in administrative expenses. On revaluation, any accumulated depreciation is eliminated against the gross carrying amount of the property concerned,andthenetamountrestatedtotherevaluedamount.Subsequentdepreciationchargesareadjustedbased on the revalued amount. Any difference between the depreciation charge on the revalued amount and that which would have been charged under historic cost is transferred between the revaluation reserve and retained earnings as the propertyisutilised.Anygainarisingonthisremeasurementisrecognisedinprofitorlosstotheextentthatitreversesa previousimpairmentlossonthespecificproperty,withanyremaininggainrecognisedinothercomprehensiveincome andpresentedintherevaluationreserve.Anylossisrecognisedinprofitorloss.However,totheextentthatanamountis included in the revaluation surplus for that property, the loss is recognised in other comprehensive income and reduces therevaluationsurpluswithinequity. 111 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 2. Significant accounting policies continued Plant and equipment Plantandequipmentisdepreciatedonastraight-linebasisovertheestimatedusefullivesofeachitemofplantand equipment.Theestimatedusefullivesarebetweenthreeandfiveyears. Leases Whereinvestmentpropertiesareheldunderoperatingleases,theleaseholdinterestisclassifiedasifitwereheldundera financelease,whichisrecognisedatitsfairvalueonthebalancesheet,withintheinvestmentpropertycarryingvalue. Uponinitialrecognition,acorrespondingliabilityisincludedasafinanceleaseliability.Minimumleasepaymentsare apportionedbetweenthefinancechargeandthereductionoftheoutstandingliabilitysoastoproduceaconstant periodicrateofinterestontheremainingfinanceleaseliability.Contingentrentpayable,beingthedifferencebetween the rent currently payable and the minimum lease payments when the lease liability was originally calculated, are charged as expenses within property expenditure in the years in which they are payable. Leaseincomearisesfromoperatingleasesgrantedtotenants.Anoperatingleaseisaleaseotherthanafinancelease.A financeleaseisonewherebysubstantiallyalltherisksandrewardsofownershiparepassedtothelessee.Leaseincomeis recognised as 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 on surrender if there are no relevant conditions attached to the surrender. Cash and cash equivalents Cashincludescashinhandandcashwithbanks.Cashequivalentsareshort-term,highlyliquidinvestmentsthatare readily convertible to known amounts of cash with original maturities in three months or less and that are subject to an 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. Lease incentive payments are amortised on a straight-line basis over the period from the date of lease inception to the end of the lease term and presented within accounts receivable. Lease incentives granted are recognised as a reduction of the total rental income, over the term of the lease. Upon receipt of a surrender premium for the early termination of a lease,theprofit,netofdilapidationsandnon-recoverableoutgoingsrelatingtotheleaseconcerned,isimmediately reflectedinrevenuefromproperties. 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-employmentbenefitplanunderwhichtheCompanypaysfixedcontributionsinto a separateentityandwillhavenolegalorconstructiveobligationtopayfurtheramounts.Obligationsforcontributions 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 these are to be settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees becomeunconditionallyentitledtopayment.Wheretheawardsareequitysettled,thefairvalueisrecognisedasan expense,withacorrespondingincreaseinequity.Theliabilityisremeasuredateachreportingdateandatsettlement date. Any changes in the fair value of the liability are recognised under the category staff costs in the Consolidated Statement of Comprehensive Income. 112 Picton Property Income Limited Annual Report 2021The 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. 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,loansandborrowingsaresubsequentlymeasuredatamortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discountorpremiumonsettlement.GainsandlossesarerecognisedinprofitorlossintheConsolidatedStatementof Comprehensive 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, other creditors, and deferred rental income, which are not interest bearing are stated at their nominal value. Share capital Ordinarysharesareclassifiedasequity. Revaluation reserve Anysurplusordeficitarisingfromtherevaluationofowner-occupiedpropertyistakentotherevaluationreserve. Taxation TheGroupelectedtobetreatedasaUKREITwitheffectfrom1October2018.TheUKREITrulesexempttheprofitsofthe Group’s UK property rental business from UK corporation and income tax. Gains on UK properties are also exempt from tax, provided they are not held for trading. The Group is otherwise subject to UK corporation tax. 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 related 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 Rents receivable (adjusted for lease incentives) Surrender premiums Dilapidation receipts Other income Service charge income 2021 £000 2020 £000 36,558 202 1,195 82 5,294 43,331 37,780 603 471 81 6,729 45,664 Rentsreceivablehavebeenadjustedforleaseincentivesrecognisedof£2.0million(2020:£1.3million). 113 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 4. Property expenses Property operating costs Property void costs Recoverable service charge costs 2021 £000 2,384 2,199 5,294 9,877 2020 £000 2,293 3,005 6,729 12,027 5. Operating segments The Board is responsible for setting the Group’s strategy and business model. The key measure of performance used by the Board to assess the Group’s performance is the total return of 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 theConsolidatedBalanceSheet,assumingdividendsarereinvested,thekeyperformancemeasureisthatprepared underIFRS.Therefore,noreconciliationisrequiredbetweenthemeasureofprofitorlossusedbytheBoardandthat containedinthe financialstatements. TheBoardhasconsideredtherequirementsofIFRS8‘OperatingSegments’.TheBoardisoftheopinionthattheGroup, through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and acrossoneprimarygeographicalarea,namelytheUnitedKingdom,andthereforenosegmentalreportingisrequired. Theportfolioconsistsof46commercialproperties,whichareintheindustrial,office,retailandleisuresectors. 6. Administrative expenses Director and staff costs Auditor’s remuneration Other administrative expenses Auditor’s remuneration comprises: Audit fees: AuditofGroupfinancialstatements Auditofsubsidiaries’financialstatements Audit-related fees: Reviewofhalf-yearfinancialstatements Non-audit fees: Additional controls testing 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 2021 £000 3,219 206 1,963 5,388 2021 £000 92 82 16 190 16 16 206 2021 £000 1,724 250 358 28 166 693 3,219 2020 £000 3,273 191 2,099 5,563 2020 £000 92 67 16 175 16 16 191 2020 £000 1,688 250 394 45 473 423 3,273 The emoluments of the Directors are set out in detail within the Remuneration Committee report, including the audited totals on page 90. 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. 114 Picton Property Income Limited Annual Report 2021With theexceptionofExecutiveDirectors,awardsarecashsettledandvestaftertwoyears.Thefinalvalueofawardsis determined by the movement in the Company’s share price and dividends paid over the vesting period. For Executive Directors,awardsareequitysettledandalsovestaftertwoyears.On29June2020awardsof599,534notionalshares were madewhichvestinJune2022(2020:441,322notionalshares).ThenextawardsareduetobemadeinJune2021for vesting in June 2023. 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. Vesting date 31 March 2020 19 June 2021 29 June 2022 Units at 31 March 2019 Units granted in the year Units cancelled in the year Units redeemed in the year Units at 31 March 2020 Units granted in the year Units cancelled in the year Units redeemed in the year 564,604 – – 441,322 – – (2,616) (2,415) – (319,479) 242,509 – 438,907 – – – – 599,534 564,604 441,322 (5,031) (319,479) 681,416 599,534 – – – – (242,509) – – (242,509) 1,038,441 Units at 31 March 2021 – 438,907 599,534 TheGroupalsohasaLong-termIncentivePlanforallemployeeswhichisequitysettled.Awardsaremadeannuallyand vest three years from the grant date. Vesting is conditional on three performance metrics measured over each three-year period. Awards to Executive Directors are also subject to a further two-year holding period. On 29 June 2020 awards for a maximum of 860,740 shares were granted to employees in respect of the three-year period ending on 31 March 2023. In the previous year, awards of 878,164 shares were made on 19 June 2019 for the period ending 31 March 2022. 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 share 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) 29 June 2020 68.4p Nil 3 years (0.05)% 24.2% 24.5% 37.8% (11.4)% (10.7)% 26.7p 68.4p 68.4p 19 June 2019 95.0p Nil 3 years 0.84% 18.7% 18.1% 27.1% 7.5% 3.0% 51.5p 95.0p 95.0p TheTrusteeoftheCompany’sEmployeeBenefitTrustacquired958,000ordinarysharesduringtheyearfor£643,000 (2020:954,000sharesfor£844,000). The Group employed ten members of staff at 31 March 2021 (2020: nine). The average number of people employed by the Group for the year ended 31 March 2021 was nine (2020: ten). 8. Interest paid Interest payable on loans Interestonobligationsunderfinanceleases Non-utilisation fees 2021 £000 7,574 114 311 7,999 2020 £000 7,933 114 248 8,295 Theloanarrangementcostsincurredto31March2021are£4,590,000(2020:£4,534,000).Theseareamortisedoverthe durationoftheloanswith£531,000amortisedintheyearended31March2021andincludedininterestpayableonloans (2020:£371,000). 115 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 9. Tax The charge for the year is: Tax expense in year Tax adjustment to provision for prior year Total tax charge/(credit) 2021 £000 – – – 2020 £000 – (124) (124) 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 Expectedtaxchargeonordinaryactivitiesatthestandardrateoftaxationof19%(2020:19%) Less: UK REIT exemption on net income Revaluation movement not taxable Gains on disposal not taxable Total tax charge 2021 £000 2020 £000 33,801 22,384 6,422 4,253 (3,813) (2,444) (165) – (3,760) 168 (661) – AsaUKREIT,theincomeprofitsoftheGroup’sUKpropertyrentalbusinessareexemptfromcorporationtax,asareany gains it makes from the disposal of its properties, provided they are not held for trading. The Group is otherwise subject to UK corporation tax at the prevailing rate. 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 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 2019: 0.875 pence Interim dividend for the period ended 30 June 2019: 0.875 pence Interim dividend for the period ended 30 September 2019: 0.875 pence Interim dividend for the period ended 31 December 2019: 0.875 pence Interim dividend for the period ended 31 March 2020: 0.625 pence Interim dividend for the period ended 30 June 2020: 0.625 pence Interim dividend for the period ended 30 September 2020: 0.7 pence Interim dividend for the period ended 31 December 2020: 0.8 pence 2021 £000 2020 £000 – – – – 3,409 3,410 3,819 4,364 4,712 4,781 4,773 4,773 – – – – 15,002 19,039 The interim dividend of 0.8 pence per ordinary share in respect of the period ended 31 March 2021 has not been recognisedasaliabilityasitwasdeclaredaftertheyearend.Thisdividendof£4,364,000willbepaidon28May2021. 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 2021 2020 33,801 545,590,722 546,793,381 22,508 544,192,866 546,227,914 116 Picton Property Income Limited Annual Report 202112. Investments in subsidiaries The Company had the following principal subsidiaries as at 31 March 2021 and 31 March 2020: 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 Picton Property No 3 Limited Place of incorporation Guernsey Guernsey Guernsey Guernsey Guernsey England & Wales Guernsey Guernsey England & Wales England & Wales England & Wales Guernsey Ownership proportion 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% TheresultsoftheaboveentitiesareconsolidatedwithintheGroupfinancialstatements. PictonUKRealEstateTrust(Property)LimitedandPicton(UK)REIT(SPV)Limitedown100%oftheunitsinPicton(UK) ListedRealEstate,aGuernseyUnitTrust(the‘GPUT’).TheGPUTholdsa99.9%interestinbothPictonNo2Limited 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 Transfer to owner-occupied property 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 Owner-occupied property Lease incentives held as debtors Fair value at the end of the year 2021 £000 2020 £000 654,486 676,102 8,861 (33,073) – 3,478 (882) 4,961 (3,928) (3,830) 868 12,861 665,418 654,486 625,359 629,932 2021 £000 2020 £000 682,410 664,615 1,489 – (11,618) 1,313 (3,830) (14,475) 665,418 654,486 The investment properties were valued by independent valuers, CBRE Limited, Chartered Surveyors, as at 31 March 2021 and 31 March 2020 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 valuationdate.ThetotalfeesearnedbyCBRELimitedfromtheGrouparelessthan5%oftheirtotalUKrevenue. 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 Valuation models used by the valuers, including market-related assumptions are based on their professional judgement and market observation. 117 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 13. Investment properties continued 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.TheBoardwillalsoconsiderwhethercircumstancesatspecificinvestmentproperties,suchasalternativeuses andissueswithoccupationaltenants,areappropriatelyreflectedinthevaluations.Thefairvalueofinvestmentproperties is measured based on each property’s highest and best use from a market participant’s perspective and considers the potentialusesofthepropertythatarephysicallypossible,legallypermissibleandfinanciallyfeasible. The outbreak of Covid-19, declared by the World Health Organization as a ‘global pandemic’ on 11 March 2020, has had a significantimpactonmanyaspectsofdailylifeandtheglobaleconomy–withsomerealestatemarketshaving experiencedlowerlevelsoftransactionalactivityandliquidity.Travelrestrictionsareinplaceandlockdownshavebeen applied both nationally and at a local level. Whilst restrictions are currently being eased in the UK, following the successful rollout of the vaccination programme local lockdowns may continue to be deployed as necessary and the emergence of significantfurtheroutbreaksora‘furtherwave’ispossible. The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date some property markets have started to function again, with transaction volumes and propertiesonthemarketreturningtolevelswhereingeneralanadequatequantumofmarketevidenceexistsuponwhich to base opinions of value. Accordingly, and in contrast to the year ended 31 March 2020, the valuation is not reported as beingsubjectto‘materialvaluationuncertainty’asdefinedbyVPS3andVPGA10oftheRICSValuation–GlobalStandards. As at 31 March 2021 and 31 March 2020 all of the Group’s properties, including owner-occupied property, are Level 3 in the fairvaluehierarchyasitinvolvesuseofsignificantjudgement.Therewerenotransfersbetweenlevelsduringtheyearand the prior year. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to Level 1 (inputs fromquotedprices)andLevel2(observableinputseitherdirectly,i.e.asprices,orindirectly,i.e.derivedfromprices). 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 2021 2020 Office Industrial 245,385 828 360,740 2,570 Retail and Leisure 76,285 706 Office Industrial 224,620 808 318,330 2,570 Retail and Leisure 121,665 829 £11.00 to £78.05 £34.10 £3.75 to £21.18 £10.39 £3.46 to £29.65 £11.84 £11.00to £53.59 £27.92 £3.54to £19.58 £9.79 £3.46to £81.77 £32.13 0.00% to 7.98% 4.35% 2.79% to 7.63% 4.38% 3.07% to 29.58% 7.64% 0.00%to 7.59% 4.89% –2.54%to 8.16% 4.63% –0.18%to 25.27% 5.25% 4.34% to 10.83% 7.02% 3.68% to 8.59% 4.97% 7.01% to 26.95% 7.95% 5.47%to 10.80% 7.04% 4.46%to 10.17% 5.40% 4.36%to 11.97% 6.63% 4.42% to 9.95% 6.82% 3.73% to 8.39% 5.02% 7.80% to 14.03% 8.99% 5.33%to 9.80% 6.97% 4.39%to 9.65% 5.40% 3.97%to 11.95% 7.17% Thepropertyvaluationsreflecttheexternalvaluers’assessmentoftheimpactofCovid-19atthevaluationdate.An increase/decrease in ERV will increase/decrease valuations, while an increase/decrease to yield decreases/increases valuations. 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 2021 Impact on valuation 2020 Impact on valuation 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 Decrease of £36.3m Increase of £45.4m Decrease of £20.3m Increase of £24.5m Decrease of £5.2m Increase of £6.7m Decreaseof£29.3m Increaseof£36.1m Decreaseof£17.5m Increaseof£20.5m Decreaseof£10.9m Increaseof£13.9m 118 Picton Property Income Limited Annual Report 202114. Property, plant and equipment Property,plantandequipmentprincipallycomprisesthefairvalueofowner-occupiedproperty.On11March2021the Group moved to premises at one of its own buildings. The fair value of these premises is based on the appraised value at 31March2021whichapproximatestothefairvalueat11March2021.Consequentlytherehasbeennotransferto revaluation reserve for the year. 15. Accounts receivable Tenant debtors (net of provisions for bad debts) Lease incentives Other debtors 2021 £000 4,326 14,475 783 19,584 2020 £000 5,197 11,618 786 17,601 Theestimatedfairvaluesofreceivablesarethediscountedamountoftheestimatedfuturecashflowsexpectedtobe received and the approximate value 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 2021, tenant debtorsof£1,874,000(2020:£1,676,000)wereconsideredimpairedandprovidedfor. 16. Cash and cash equivalents Cash at bank and in hand Short-term deposits 2021 £000 2020 £000 23,353 5 23,358 23,564 3 23,567 Cashatbankandinhandearnsinterestatfloatingratesbasedondailybankdepositrates.Short-termdepositsaremadefor varyingperiodsofbetweenonedayandonemonthdependingontheimmediatecashrequirementsoftheGroup,and earn interest at the respective short-term deposit rates. The carrying amounts of these assets approximate their fair value. 17. Accounts payable and accruals Accruals Deferred rental income VAT liability Trade creditors Other creditors 18. Loans and borrowings Current Aviva facility Capitalisedfinancecosts Non-current Canada Life facility Aviva facility Capitalisedfinancecosts 2021 £000 4,496 7,596 1,780 596 4,337 2020 £000 5,263 7,817 1,685 1,058 3,615 18,805 19,438 Maturity 2021 £000 2020 £000 – – 1,314 (370) 944 1,258 (370) 888 24 July 2027 24 July 2032 – 80,000 84,894 (2,183) 80,000 86,207 (1,959) 162,711 164,248 163,655 165,136 119 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 18. Loans and borrowings continued Thefollowingtableprovidesareconciliationofthemovementinloansandborrowingstocashflowsarisingfrom financingactivities. Balance as at 1 April Changes from financing cash flows Proceeds from loans and borrowings Repayment of loans and borrowings Financing costs paid Other changes Amortisationoffinancingcosts Accruedfinancingcosts Balance as at 31 March 2021 £000 2020 £000 165,136 191,969 – (1,258) (574) 6,000 (33,204) – (1,832) (27,204) 531 (180) 351 371 – 371 163,655 165,136 TheGrouphasan£80milliontermloanfacilitywithCanadaLifeLimitedwhichmaturesinJuly2027.Interestisfixedat 4.08%overthelifeoftheloan.Theloanagreementhasaloantovaluecovenantof65%andaninterestcovertestof1.75. 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£330.0million(2020:£307.5million). Additionally,theGrouphasa£95.3milliontermloanfacilitywithAvivaCommercialFinanceLimitedwhichmaturesinJuly 2032. The loan is for a term of 20 years and was fully drawn on 24 July 2012 with approximately one-third repayable over thelifeoftheloaninaccordancewithascheduledamortisationprofile.TheGrouphasrepaid£1.3millionintheyear (2020:£1.2million).Interestontheloanisfixedat4.38%overthelifeoftheloan.Thefacilityhasaloantovaluecovenantof 65%andadebtservicecoverratioof1.4.ThefacilityissecuredovertheGroup’spropertiesheldbyPictonNo3Limited PartnershipandPictonPropertyNo3Limited,valuedat£184.9million(2020:£189.0million). InMay2020theGroupenteredintoanew£50millionrevolvingcreditfacility(‘RCF’)withNationalWestminsterBankPlc; this replaces the facilities held with Santander Corporate & Commercial Banking which have been cancelled. The new facility is for an initial term of three years with the option of two, one-year extensions. Currently undrawn, the RCF will incur interest at 150 basis points over LIBOR on drawn balances and an undrawn commitment fee of 60 basis points. The facilityissecuredonpropertiesheldbyPictonUKRealEstateTrust(Property)Limited,valuedat£131.7million. Thefairvalueofthedrawnloanfacilitiesat31March2021,estimatedasthepresentvalueoffuturecashflowsdiscounted atthemarketrateofinterestatthatdate,was£187.2million(2020:£197.0million).Thefairvalueofthesecuredloan facilitiesisclassifiedasLevel2underthehierarchyoffairvaluemeasurements. There were no transfers between levels of the fair value hierarchy during the current or prior years. TheweightedaverageinterestrateontheGroup’sborrowingsasat31March2021was4.2%(2020:4.2%). 19. Contingencies and capital commitments The Group has entered into contracts for the refurbishment of 11 properties with commitments outstanding at 31 March 2021ofapproximately£6.7million(2020:£4.5million).Nofurtherobligationstoconstructordevelopinvestmentproperty orforrepairs,maintenanceorenhancementswereinplaceasat31March2021(2020:£nil). 20. 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 2020: 547,605,596) Share premium The Company has 547,605,596 ordinary shares in issue of no par value (2020: 547,605,596). 2021 £000 2020 £000 – – – – 164,400 164,400 120 Picton Property Income Limited Annual Report 2021On21June2019theCompanyraised£7.1millionthroughtheissueof7,551,936newordinaryshareofnoparvalueat94.5 pence per share. No new ordinary shares were issued during the year ended 31 March 2021. Ordinary share capital NumberofsharesheldinEmployeeBenefitTrust Number of ordinary shares 2021 Number of shares 2020 Number of shares 547,605,596 (2,052,269) 545,553,327 547,605,596 (2,103,683) 545,501,913 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 2,052,269 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 renewal of the authority from shareholders. Any buy-back of ordinary shares will be made subject to Guernsey law, and the making and timing of any buy-backs will be at the absolute discretion of the Board. 21. Adjustment for non-cash movements in the cash flow statement Profitondisposalofinvestmentproperties Movement in investment property valuation Share-based provisions Depreciation of tangible assets 2021 £000 (868) (12,861) 758 7 2020 £000 (3,478) 882 292 9 (12,964) (2,295) 22. Obligations under leases TheGrouphasenteredintoanumberofheadleasesinrelationtoitsinvestmentproperties.Theseleasesareforfixed terms and subject to regular rent reviews. They contain no material provisions for contingent rents, renewal or purchase options nor any restrictions outside of the normal lease terms. 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 2021 £000 2020 £000 116 466 7,150 7,732 (5,918) 1,814 117 466 7,266 7,849 (6,032) 1,817 2021 £000 2020 £000 107 107 108 108 379 1,328 1,707 1,814 388 1,321 1,709 1,817 121 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 22. Obligations under leases continued 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 lease length was as follows (based on annual rentals): Within one year One to two years Two to three years Three to four years Fourtofiveyears Afterfiveyears 2021 £000 2020 £000 37,744 33,954 32,008 27,937 23,235 91,294 38,296 35,665 32,356 30,342 26,322 111,711 246,172 274,692 These properties are measured under the fair value model as the properties are held to earn rentals. Commercial property leasestypicallyhaveleasetermsbetweenfiveandtenyearsandincludeclausestoenableperiodicupwardrevisionof the rentalchargeaccordingtoprevailingmarketconditions.Someleasescontainoptionstobreakbeforetheendofthe lease term. 23. 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 numberofsharesheldbytheEmployeeBenefitTrustattheyear-end;seeNote20. 24. 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,asdisclosedinNote18,thefairvalueofthefinancialassets andliabilitiesisnotmateriallydifferentfromtheircarryingvalueinthefinancialstatements. Categories of financial instruments Held at fair value through profit or loss £000 Financial assets and liabilities at amortised cost £000 Total £000 – – – 5,109 23,358 5,109 23,358 28,467 28,467 – 163,655 163,655 1,814 – 9,429 – 1,814 9,429 – 174,898 174,898 Note 15 16 18 22 17 31 March 2021 Financial assets Debtors Cashandcashequivalents Financial liabilities Loans and borrowings Obligations under head leases Creditors and accruals 122 Picton Property Income Limited Annual Report 202131 March 2020 Financial assets Debtors Cashandcashequivalents Financial liabilities Loans and borrowings Obligations under head leases Creditors and accruals Held at fair value through profitorloss £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 Note 15 16 18 22 17 25. Risk management The Group invests in commercial properties in the United Kingdom. The following describes the risks involved and the risk management framework applied by the Group. Senior management reports regularly both verbally and formally to the Board, and its relevant committees, to allow them to monitor and review all the risks noted below. Capital risk management The Group aims to manage its capital to ensure that the entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through optimising its capital structure. The Board’s policy is to maintain a strongcapitalbasesoastomaintaininvestor,creditorandmarketconfidenceandtosustainfuturedevelopmentof the business. ThecapitalstructureoftheGroupconsistsofdebt,asdisclosedinNote18,cashandcashequivalentsandequity attributabletoequityholdersoftheCompany,comprisingissuedcapital,reservesandretainedearnings.TheGroup is not subjecttoanyexternalcapitalrequirements. The Group monitors capital on the basis of its gearing ratio. This ratio is calculated as the principal borrowings outstanding,asdetailedunderNote18,dividedbythegrossassets.Thereisalimitof65%assetoutintheArticlesof 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%) 2021 £000 2020 £000 166,208 712,471 167,465 695,674 23.3% 24.1% 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 also has a revolving credit facility which provides greater flexibilityinmanagingthelevelofborrowings. TheGroup’snetdebttoequityratioatthereportingdatewasasfollows: Total liabilities Less:cashandcashequivalents Net debt Total equity Net debt to equity ratio at end of year 2021 £000 2020 £000 184,274 186,391 (23,567) (23,358) 160,916 162,824 528,197 509,283 0.30 0.32 123 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 25. Risk management continued Credit risk The following tables detail the balances held at the reporting date that may be affected by credit risk: 31 March 2021 Financial assets Tenant debtors Cashandcashequivalents 31 March 2020 Financial assets Tenant debtors Cashandcashequivalents Held at fair value through profit or loss £000 Financial assets and liabilities at amortised cost £000 Total £000 – – – 4,326 23,358 4,326 23,358 27,684 27,684 Held at fair value through profitorloss £000 Financial assets and liabilities at amortised cost £000 Total £000 – – – 5,197 23,567 5,197 23,567 28,764 28,764 Note 15 16 Note 15 16 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. Tenant debtors consist of a large number of occupiers, spread across diverse industries and geographical areas. Ongoing creditevaluationsareperformedonthefinancialconditionoftenantdebtorsand,whereappropriate,creditguarantees, orrentdepositsareacquired.Rentcollectionisoutsourcedtomanagingagentswhoreportregularlyonpayment performanceandprovidetheGroupwithintelligenceonthecontinuingfinancialviabilityofoccupiers.TheGroupdoes nothaveanysignificantcreditriskexposuretoanysinglecounterpartyoranygroupofcounterpartieshavingsimilar characteristics.The creditriskonliquidfundsislimitedbecausethecounterpartiesarebankswithhighcreditratings assigned by international credit rating agencies. Thecarryingamountoffinancialassetsrecordedinthefinancialstatements,netofanyallowancesforlosses,represents the Group’s maximum exposure to credit risk. The Board continues to monitor the Group’s overall exposure to credit risk. The Group has a panel of banks with which it makes deposits, based on credit ratings with set counterparty limits that are reviewed regularly. 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.TheGroupmanagesitsriskbymonitoringthecreditqualityofitsbankersonanongoingbasis.NatWest, Santander,NationwideandRBSareratedbyallthemajorratingagencies.Ifthecreditqualityofthesebanksdeteriorates, the Group would look to move the short-term deposits or cash to another bank. Procedures exist to ensure that cash balances are split between banks to minimise exposure. At 31 March 2021 and at 31 March 2020 Standard & Poor’s short-term 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 monitoringforecastsandactualcashflowsandmatchingthematurityprofilesoffinancialassetsandliabilitiesfor a periodofatleast12months. Thetablebelowhasbeendrawnupbasedontheundiscountedcontractualmaturitiesofthefinancialassets/(liabilities), including interest that will accrue to maturity. 124 Picton Property Income Limited Annual Report 202131 March 2021 Cashandcashequivalents Debtors Capitalisedfinancecosts Obligations under head leases Fixed interest rate loans Floating interest rate loans Creditors and accruals 31 March 2020 Cashandcashequivalents Debtors Capitalisedfinancecosts Obligations under head leases Fixed interest rate loans Creditors and accruals Less than 1 year £000 23,358 5,109 370 (116) (8,332) (300) (9,429) 1 to 5 years £000 More than 5 years £000 Total £000 – – 1,355 (466) 23,358 – 5,109 – 2,553 828 (7,732) (7,150) (33,329) (184,927) (226,588) (646) (9,429) (346) – – – 10,660 (32,786) (191,249) (213,375) 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) (33,329) – – – 1,047 (7,266) (193,259) – 23,567 5,983 2,329 (7,849) (234,920) (9,936) 11,535 (32,883) (199,478) (220,826) 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 operating performance 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’srevenuewouldbeadverselyaffectedifasignificantnumberofoccupierswereunabletopay rent oritspropertiescouldnotberentedonfavourableterms.ThisriskhasincreasedgiventheCovid-19pandemicand theresultanteffectonoccupiers’abilitytopayrent.Certainsignificantexpenditureassociatedwitheachequity investmentin realestate(suchasexternalfinancingcosts,realestatetaxesandmaintenancecosts)isgenerallynot reduced when circumstances cause a reduction in revenue from properties. By diversifying in regions, sectors, risk categoriesandoccupiers,seniormanagementexpectstomitigatetheriskprofileoftheportfolioeffectively.TheBoard continuestooverseetheprofile oftheportfoliotoensurerisksaremanaged. The valuation of the Group’s property assets is subject to changes in market conditions. Such changes are taken to the ConsolidatedStatementofComprehensiveIncomeandthusimpactontheGroup’snetresult.A5%increaseordecrease inpropertyvalueswouldincreaseordecreasetheGroup’snetresultby£34.1million(2020:£33.2million). Interest rate risk management Interestrateriskarisesoninterestpayableontherevolvingcreditfacilityonly.TheGroup’sseniordebtfacilitieshavefixed interest rates over the terms of the loans and the revolving credit facility is currently undrawn, thus the Group has limited exposure to interest rate risk on the majority of its borrowings and no sensitivity is presented. 125 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewFinancial Statements Notes to the consolidated financial statements continued for the year ended 31 March 2021 25. Risk management continued Interest rate risk Thefollowingtablesetsoutthecarryingamount,bymaturity,oftheGroup’sfinancialassets/(liabilities). 31 March 2021 Floating Cashandcashequivalents Fixed Secured loan facilities Obligations under leases 31 March 2020 Floating Cashandcashequivalents Fixed Secured loan facilities Obligations under leases Less than 1 year £000 1 to 5 years £000 More than 5 years £000 Total £000 23,358 – – 23,358 (1,314) (107) (5,867) (159,027) (166,208) (1,814) (1,328) (379) 21,937 (6,246) (160,355) (144,664) 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) (388) (160,591) (1,321) (167,465) (1,817) 22,201 (6,004) (161,912) (145,715) 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 occupiersforitsrentalincome,withthesinglelargestoccupieraccountingfor5.0%oftheGroup’sannualcontracted rental income. Currency risk The Group has no exposure to foreign currency risk. 26. Related party transactions ThetotalfeesearnedduringtheyearbytheNon-ExecutiveDirectorsoftheCompanyamountedto£250,000(2020: £250,000).Asat31March2021theGroupowed£niltotheNon-ExecutiveDirectors(2020:£nil).Theemolumentsofthe Executive Directors are set out in the Remuneration Report. Picton Property Income Limited has no controlling parties. 27. Events after the balance sheet date Adividendof£4,364,000(0.8pencepershare)wasapprovedbytheBoardon29April2021andwaspaidon28May2021. The revolving credit facility held with National Westminster Bank Plc has been extended by a further 12 months to May 2024. 126 Picton Property Income Limited Annual Report 2021Additional Information Supplementary disclosures (unaudited) for the year ended 31 March 2021 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. As at 31 March 2021 Picton has adopted the new EPRA net asset value (NAV) metrics: net reinvestment value (NRV); net tangibleassets(NTA);andnetdisposalvalue(NDV).NAVmetricsforthecomparativeperiodshavealsobeen recalculated on the new basis to further aid comparison. The EPRA NAV set of metrics makes adjustments to the NAV per theIFRSfinancialstatementstoprovidestakeholderswiththemostrelevantinformationonthefairvalueoftheassets and liabilities of a REIT under different scenarios. EPRA NTA is regarded as the most relevant metric for the business as this focusesonreflectingacompany’stangibleassets. 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 2021 £000 2020 £000 2019 £000 33,801 22,508 30,955 (12,861) (868) – 882 (3,478) – (10,909) (379) 3,245 20,072 19,912 22,912 545,591 544,193 538,816 3.7p 3.7p 4.3p EPRA NRV per share The EPRA net reinstatement value measure highlights the value of net assets on a long-term basis. Assets and liabilities thatarenotexpectedtocrystalliseinnormalcircumstancessuchasthefairvalueoffinancialderivativesanddeferred taxesonpropertyvaluationsurplusesarethereforeexcluded.Sincetheaimofthemetricistoalsoreflectwhatwouldbe neededtorecreatetheCompanythroughtheinvestmentmarketbasedonitscurrentcapitalandfinancingstructure, related costs such as real estate transfer taxes should be included. Balance Sheet net assets Purchasers’ costs Fair value of debt Deferred tax EPRA NRV Shares in issue (000s) EPRA NRV per share 2021 £000 2020 £000 2019 £000 528,197 509,283 44,847 – – 46,029 – – 499,415 46,771 – – 574,226 554,130 546,186 545,553 545,502 538,512 105p 102p 101p EPRA NTA per share The EPRA net tangible assets calculation assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. Balance Sheet net assets Fairvalueoffinancialinstruments Deferred tax EPRA NTA Shares in issue (000s) EPRA NTA per share 2021 £000 2020 £000 2019 £000 528,197 509,283 – – – – 499,415 – – 528,197 509,283 499,415 545,553 545,502 538,512 97p 93p 93p 127 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewAdditional Information Supplementary disclosures (unaudited) continued for the year ended 31 March 2021 EPRA NDV per share The EPRA net disposal value shows the impact to shareholder value if company assets are sold and/or liabilities are not held until maturity. Balance Sheet net assets Fair value of debt EPRA NDV Shares in issue (000s) EPRA NDV per share 2021 £000 2020 £000 2019 £000 528,197 509,283 (29,569) (21,012) 499,415 (24,811) 507,185 479,714 474,604 545,553 545,502 538,512 93p 88p 88p EPRA net initial yield (NIY) EPRA NIY is calculated as the annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the gross market valuation of the properties. Investment property valuation Allowance for estimated purchasers’ costs Gross up property portfolio valuation Annualised cash passing rental income Property outgoings Annualised net rents EPRA net initial yield 2021 £000 2020 £000 2019 £000 682,410 664,615 685,335 46,771 44,847 46,029 728,439 709,462 732,106 36,504 (1,860) 34,644 4.8% 36,236 (2,017) 37,699 (1,896) 34,219 35,803 4.8% 4.9% EPRA ‘topped-up’ net initial yield The EPRA “topped-up” NIY is calculated by making an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). EPRA NIY annualised net rents Annualised cash rent that will apply at expiry of lease incentives Topped-up annualised net rents EPRA ‘topped-up’ NIY 2021 £000 2020 £000 2019 £000 34,644 5,411 40,055 5.5% 34,219 3,910 35,803 2,739 38,129 38,542 5.4% 5.3% EPRA vacancy rate EPRA vacancy rate is the estimated rental value (ERV) of vacant space divided by the ERV of the whole property, expressed as a percentage. Annualised potential rental value of vacant premises Annualised potential rental value for the complete property portfolio EPRA vacancy rate 2021 £000 3,980 45,357 8.8% 2020 £000 2019 £000 5,179 45,224 4,828 46,839 11.5% 10.3% 128 Picton Property Income Limited Annual Report 2021EPRA 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) 2021 £000 2,384 2,199 5,388 (207) 9,764 (2,199) 7,565 36,558 (207) 36,351 26.9% 20.8% 2020 £000 2,293 3,005 5,563 2019 £000 2,342 1,373 5,842 (259) (256) 10,602 (3,005) 7,597 37,780 (259) 9,301 (1,373) 7,928 40,942 (256) 37,521 40,686 28.3% 20.2% 22.9% 19.5% Capital expenditure Thetablebelowsetsoutthecapitalexpenditureincurredoverthefinancialyear,inaccordancewithEPRABestPractices Recommendations. Acquisitions Development Like-for-like portfolio Other Total capital expenditure 2021 £000 – – 4,961 – 4,961 2020 £000 – – 8,861 – 8,861 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 2021 £000 13,720 – (1) 13,719 2020 £000 2021 £000 2020 £000 12,894 – 534 13,428 16,254 – – 16,254 15,738 – 625 16,363 2021 £000 6,303 – 282 6,585 2020 £000 7,589 – 400 7,989 2021 £000 2020 £000 36,277 – 281 36,558 36,221 – 1,559 37,780 129 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewAdditional Information Supplementary disclosures (unaudited) continued for the year ended 31 March 2021 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 2021 £000 2020 £000 2019 £000 166,207 167,465 194,669 (23,358) (23,567) (25,168) 142,849 143,898 169,501 682,410 664,615 685,335 20.9% 21.7% 24.7% 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 2021 £000 2020 £000 2019 £000 5,388 5,563 5,842 – – (215) 5,388 5,563 5,627 514,574 511,868 497,304 1.0% 1.1% 1.1% 130 Picton Property Income Limited Annual Report 2021Additional Information Property portfolio Properties valued in excess of £60 million ӱ Parkbury Industrial Estate, Radlett, Herts. Properties valued between £5 million and £10 million ӱ Easter Court, Europa Boulevard, Warrington Properties valued between £50 million and £60 million ӱ River Way Industrial Estate, River Way, Harlow, Essex Properties valued between £30 million and £40 million ӱ Angel Gate, City Road, London EC1 ӱ Units 1 & 2, Kettlestring Lane, York ӱ Swiftbox, Haynes Way, Rugby, Warwickshire ӱ Units 1 & 2, Western Industrial Estate, Downmill Road, Bracknell, Berks. ӱ Trident House, Victoria Street, St Albans, Herts. ӱ Stanford Building, Long Acre, London WC2 ӱ Queens House, St Vincent Place, Glasgow Properties valued between £20 million and £30 million ӱ Datapoint, Cody Road, London E16 ӱ Tower Wharf, Cheese Lane, Bristol ӱ Express Business Park, Shipton Way, Rushden, Northants. ӱ 50 Farringdon Road, London EC1 ӱ Lyon Business Park, Barking, Essex ӱ Colchester Business Park, The Crescent, Colchester, Essex ӱ Angouleme Retail Park, George Street, Bury, Greater Manchester ӱ Atlas House, Third Avenue, Marlow, Bucks. ӱ Thistle Express, The Mall, Luton, Beds. ӱ Longcross, Newport Road, Cardiff ӱ Sentinel House, Harvest Crescent, Fleet, Hants. Properties valued under £5 million ӱ Regency Wharf, Broad Street, Birmingham ӱ Crown & Mitre Complex, English Street, Carlisle, ӱ 30 & 50 Pembroke Court, Chatham, Kent Cumbria Properties valued between £10 million and £20 million ӱ Sundon Business Park, Dencora Way, Luton, Beds. ӱ Metro, Salford Quays, Manchester ӱ Grantham Book Services, Trent Road, Grantham, Lincs. ӱ The Business Centre, Molly Millars Lane, Wokingham, Berks. ӱ Scots Corner, High Street, Kings Heath, Birmingham ӱ Waterside House, Kirkstall Road, Leeds ӱ 53-57 Broadmead, Bristol ӱ Abbey Business Park, Mill Road, Newtownabbey, Belfast ӱ 78-80 Briggate, Leeds ӱ 17-19 Fishergate, Preston, Lancs. ӱ Nonsuch Industrial Estate, Kiln Lane, Epsom, Surrey ӱ Magnet Trade Centre, 6 Kingstreet Lane, Winnersh, ӱ 180 West George Street, Glasgow ӱ 401 Grafton Gate East, Milton Keynes, Bucks. ӱ Vigo 250, Birtley Road, Washington, Tyne and Wear ӱ B&Q,QueensRoad,Sheffield ӱ Parc Tawe North Retail Park, Link Road, Swansea ӱ Gloucester Retail Park, Eastern Avenue, Gloucester Reading ӱ 72-78 Murraygate, Dundee ӱ 7-9 Warren Street, Stockport ӱ 6-12 Parliament Row, Hanley, Staffs. ӱ 18-28VictoriaLane,Huddersfield,WestYorks. 131 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewAdditional Information 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/loss after tax Dividends paid Balance sheets Investment properties Borrowings Other assets and liabilities Net assets Net asset value per share (pence) EPRA net tangible asset per share (pence) Earnings per share (pence) Dividends per share (pence) Dividendcover(%) Share price (pence) Allfiguresarein£millionunlessotherwisestated 2021 2020 2019 2018 2017 33.5 (5.4) – 28.1 (8.0) 20.1 – 20.1 13.7 – 33.8 15.0 33.6 (5.6) – 28.0 (8.2) 19.8 0.1 19.9 2.6 – 22.5 19.0 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 2021 2020 2019 2018 2017 665.4 (166.2) 29.0 654.5 (167.5) 22.3 676.1 (194.7) 18.0 670.7 (214.0) 30.7 615.2 (204.6) 31.3 528.2 509.3 499.4 487.4 441.9 97 97 6.2 2.8 134 85.8 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 83.8 132 Picton Property Income Limited Annual Report 2021Additional Information Glossary Annual rental income Cash rents passing at the Balance Sheet date. Contracted rent Cost ratio DTR Dividend cover 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) Profitfortheperiodattributabletoequityshareholdersdividedbytheaveragenumberof shares in issue during the period. EPC EPRA Energyperformancecertificate. European Public Real Estate Association, the industry body representing listed companies in the real estate sector. Estimated rental value (ERV) The external valuers’ opinion as to the open market rent which, on the date of the valuation, could reasonably be expected to be obtained on a new letting or rent review of a property. Fair value The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after the proper marketing and where parties had each acted knowledgeably, prudently and without compulsion. Fair value movement An accounting adjustment to change the book value of an asset or liability to its fair value. FRI lease Group IASB IFRS Initial yield Lease incentives MSCI NAV 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. Annual cash rents receivable (net of head rents and the cost of vacancy), as a percentage of gross property value, as provided by the Group’s external valuers. Rents receivable following the expiry of rent-free periods are not included. Incentives offered to occupiers to enter into a lease. Typically this will be an initial rent-free period,oracashcontributiontofit-out.Underaccountingrulesthevalueoftheleaseincentives 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. Reversionary yield The estimated rental value as a percentage of the gross property value. TCFD Task Force on Climate-related Financial Disclosures. Total property return Combined income and capital return from the property portfolio. Total return The change in the Group’s net asset value, in accordance with IFRS, plus dividends paid. Total shareholder return Measures the change in share price over the year plus dividends paid. Weighted average debt maturity Weighted average interest rate Weighted average lease term Each tranche of Group debt is multiplied by the remaining period to its maturity and the result is divided by total Group debt in issue at the period end. The Group loan interest per annum at the period end, divided by total Group debt in issue at the period end. Theaverageleasetermremainingtofirstbreak,orexpiry,acrosstheportfolioweightedby contracted rental income. 133 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewAdditional Information Financial calendar Annual results announced Annual results posted to shareholders June 2021 NAV announcement Annual General Meeting 2021 half-year results to be announced December 2021 NAV announcement 27 May 2021 June 2021 July 2021 (provisional) November 2021 (provisional) November 2021 (provisional) January 2022 (provisional) Dividend payment dates August/November/February/May 134 Picton Property Income Limited Annual Report 2021Additional Information Shareholder information Directors Lena Wilson (Chair) Mark Batten Maria Bentley Andrew Dewhirst Richard Jones Michael Morris Registered office PO Box 255 Trafalgar Court LesBanques St Peter Port Guernsey GY1 3QL Registered Number: 43673 UK office Stanford Building 27A Floral Street London WC2E 9EZ T: 020 7628 4800 E:enquiries@picton.co.uk Administrator and Secretary Northern Trust International Fund Administration Services (Guernsey) Limited PO Box 255, Trafalgar Court LesBanques St Peter Port Guernsey GY1 3QL T: 01481 745001 E:team_picton@ntrs.com Registrar Computershare Investor Services (Guernsey) Limited 1st Floor Tudor House Le Bordage St Peter Port Guernsey GY1 1DB T: 0370 707 4040 E:info@computershare.co.je Corporate brokers JP Morgan Securities Limited 25 Bank Street London E14 5JP Stifel Nicolaus Europe Limited 150 Cheapside London EC2V 6ET Independent auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St Peter Port Guernsey GY1 1WR Media Tavistock Communications 1 Cornhill London EC3V 3ND T: 020 7920 3150 E:jeremy.carey@tavistock.co.uk Solicitors As to English law Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ As to English property law DLA Piper UK LLP Walker House Exchange Flags Liverpool L2 3YL As to Guernsey law Carey Olsen PO Box 98 Carey House 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 regardingdividendpaymentsorthelossofacertificate, should be addressed to the Company’s registrars. Website The Company has a corporate website which contains more detailed information about the Group. www.picton.co.uk 135 Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business OverviewNotes 136 Picton Property Income Limited Annual Report 2021Designed and produced by emperor /( Visit us at emperor.works �..._' Picton Property Income Limited Stanford Building 27A Floral Street London WC2E 9EZ 020 7628 4800 www.picton.co.uk

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