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 2021 What 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
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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 2021 Financial 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 2021 Business Overview
Picton at a Glance
Occupier focused,
Opportunity led.
We are an award-winning Real Estate
Investment Trust (REIT) investing in UK
commercial property. Our diversified property
portfolio consists of 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 2021 Industrial 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 2021 2018
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 2021 Business 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 2021 Sustainability
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 2021 Business 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
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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 2021 The 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 Overview Strategic 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 2021 Market 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 Overview Strategic 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 2021 Office
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 Overview Strategic Report
Our Strategy
We have a
strategy focused
on delivering
our purpose
Purpose
Through our occupier focused, opportunity led approach,
we aim to be one of the consistently best performing
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
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a
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d
a
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b
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s
O ur
e m p loyees
t a l
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viron m
foc u s
n
E
Sustainability
governance
S
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old
m
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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 2021 We 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 Overview Strategic 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 2021 Our 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 Overview Strategic 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 2021 Parkbury 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 2021 Total 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 2021 Retention 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 Overview Strategic 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 2021 effective,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 Overview Strategic 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 2021 Outlook
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 Overview Outlook
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 2021 Swiftbox
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 Overview Strategic 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 2021 Tower 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 Overview Strategic 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 2021 Parc 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 Overview Strategic 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 2021 Dividends
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 Overview Cash 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 2021 Strategic 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 Overview Strategic 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 Overview Strategic Report
Principal Risks continued
Property
5
Portfolio strategy
Risk
The Group has an inappropriate
portfolio strategy, as a result of
poor sector or geographical
allocations, or holding obsolete
assets, leading to lower
shareholder returns.
6
Investment
Risk
Investment decisions may be
flawed as a result of incorrect
assumptions, poor research or
incomplete due diligence,
leading to financial loss.
7
Asset management
Risk
Failure to properly execute asset
business plans or poor asset
management could lead to
longer void periods, higher
occupier defaults, higher arrears
and low occupier retention, all
having an adverse impact on
earnings and cash flow.
8
Valuation
Risk
A fall in the valuation of the
Group’s property assets could
lead to lower investment returns
and a breach of loan covenants.
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 2021 Operational
9
People
Risk
The Group relies on a small team
to implement the strategy and
run the day-to-day operations.
Failure to retain or recruit key
individuals with the right blend
of skills and experience may
result in poor decision making
and underperformance.
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 Overview Strategic 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 2021 Impact 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 Overview Strategic 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 Overview Strategic 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 2021 Sustainable
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 2021 Stakeholder
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 Overview Strategic 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 2021 Stakeholder
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 Overview Strategic 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 Overview Governance
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 2021 Reporting
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 Overview Governance
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 2021 Mark 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 2021 2
5
8
1
4
7
3
6
9
69
Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business Overview Governance
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 2021 Division 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 Overview Governance
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 2021 Non-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 Overview Governance
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.
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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 2021 Activity
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 Overview Governance
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.
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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 2021 Meetingsofthe 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 Overview Governance
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 2021 Governance
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
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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 Overview Governance
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.
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Strategic ReportGovernanceFinancial StatementsAdditional InformationPicton Property Income Limited Annual Report 2021Business Overview Governance
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 2021 As a Committee, we are committed
to ongoing dialogue with our
shareholders. We look forward
to receiving your continued
support at the forthcoming
Annual General Meeting.
Maria Bentley
Chair of the Remuneration Committee
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 Overview Governance
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 2021 Benefits
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 2021 Letters 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 Overview Governance
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 2021 Performance 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 Overview Governance
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 Overview Governance
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 2021 ThenumbersofsharesbeneficiallyheldbyeachDirector(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 Overview Governance
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 2021 Statement of voting at the last Annual General Meeting
The following table sets out the voting for the Remuneration Report, which was approved by shareholders at the Annual
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 Overview Governance
Property Valuation Committee Report
Property Valuation Committee
Terms of reference
The Committee shall review the
quarterlyvaluationreportsproduced
by the independent valuers before
their submission to the Board, looking
in particular at:
ӱ Significantadjustmentsfrom
previousquarters;
ӱ Individual property valuations;
ӱ Commentary from management;
ӱ 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 2021 Governance
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 Overview Governance
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 2021 Statement 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 Overview Financial 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 2021 Our 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 Overview Financial 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 2021 Auditor’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 Overview Financial 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 2021 Financial 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 Overview Financial 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 2021 Financial 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 Overview Financial 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 2021 Basis of consolidation
TheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandentitiescontrolledbythe
Company at the reporting date. The Group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect these returns through its power over the entity.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated
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 Overview Financial 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 2021 The grant date fair value of awards to employees made under the Long-term Incentive Plan is recognised as an expense,
withacorrespondingincreaseinequity,overthevestingperiodoftheawards.Theamountrecognisedasanexpenseis
adjustedtoreflectthenumberofawardsforwhichtherelatednon-marketperformanceconditionsareexpectedtobe
met, such that the amount ultimately recognised is based on the number of awards that meet the related non-market
performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair
valueoftheshare-basedawardsismeasuredtoreflectsuchconditionsandthereisnoadjustmentbetweenexpected
and actual outcomes.
ThecostoftheCompany’ssharesheldbytheEmployeeBenefitTrustisdeductedfromequityintheGroupBalance
Sheet. Any shares held by the Trust are not included in the calculation of earnings or net assets per share.
Dividends
Dividends are recognised in the period in which they are declared.
Accounts receivable
Accounts receivable are stated at their nominal amount as reduced by appropriate allowances for estimated irrecoverable
amounts.TheGroupappliestheIFRS9simplifiedapproachtomeasuringexpectedcreditlosses,whichusesalifetime
expectedimpairmentprovisionforallapplicableaccountsreceivable.Baddebtsarewrittenoffwhenidentified.
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 Overview Financial 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 2021 With 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 Overview Financial 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 2021 12. 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 Overview Financial 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 2021 14. 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 Overview Financial 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 2021 On21June2019theCompanyraised£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 Overview Financial 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 2021 31 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 Overview Financial 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 2021 31 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 Overview Financial 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 2021 Additional 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 Overview Additional 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 2021 EPRA cost ratio
EPRAcostratioreflectstheoverheadsandoperatingcostsasapercentageofthegrossrentalincome.
Property operating costs
Property void costs
Administrative expenses
Less:
Ground rent costs
EPRA costs (including direct vacancy costs)
Property void costs
EPRA costs (excluding direct vacancy costs)
Gross rental income
Less ground rent costs
Gross rental income
EPRA cost ratio (including direct vacancy costs)
EPRA cost ratio (excluding direct vacancy costs)
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 Overview Additional 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 2021 Additional 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 Overview Additional 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 2021 Additional 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 Overview Additional 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 2021 Additional 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 Overview Notes
136
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Picton Property Income Limited
Stanford Building
27A Floral Street
London
WC2E 9EZ
020 7628 4800
www.picton.co.uk