Occupier focused,
Opportunity led.
Picton Property Income Limited Annual Report 2023
&Adapting
Outperforming
Strategic Report
01 Business Overview
02 Highlights
04 Purpose
05 Strategy
06 Business Model
08 Responding to Uncertainty
18 Chief Executive’s Review
22 Key Performance Indicators
26 Our Marketplace
28 Portfolio Review
38 Financial Review
42 Principal Risks
47 TCFD Statement
56 Being Responsible: Sustainability
Reporting
Governance
80 Chair’s Introduction
82 Board of Directors
84 Our Team
86 Leadership and Purpose
90 Section 172 Statement
94 Division of Responsibilities
96 Composition, Succession and Evaluation
100 Audit, Risk and Internal Control
106 Remuneration Report
123 Directors’ Report
Financial Statements
Independent Auditor’s Report
128
132 Consolidated Statement of
Comprehensive Income
133 Consolidated Statement of Changes
in Equity
134 Consolidated Balance Sheet
135 Consolidated Statement of Cash Flows
136 Notes to the Consolidated Financial
Statements
Additional Information
155 EPRA BPR and Supplementary
Disclosures
159 Property Portfolio
160 Five Year Financial Summary
161 Glossary
164 Financial Calendar
165 Shareholder Information
04
Purpose
and Strategy
Our purpose is to be a responsible
owner of commercial real estate,
helping our occupiers succeed and
being valued by all our stakeholders.
08
18
Responding to uncertainty:
adapting and outperforming
We have continued to increase rental
income, outperforming the MSCI UK
Quarterly Property Index for ten
consecutive years.
28
Portfolio Review
This year has seen significant asset
management activity, increasing passing
rent and estimated rental value (ERV).
Chief Executive’s Review
Against a challenging economic
backdrop, we continue to explore
opportunities to maximise the earnings
potential from our portfolio. We have
continued to make good progress against
our strategic objectives and our key
sustainability priorities.
Welcome Business Overview
Performance summary
Despite the challenges of inflation
and higher interest rates, we have
maintained both our EPRA earnings
and our long-term track record
of outperformance.
We are continuing to upgrade and
adapt our assets, ensuring they remain
relevant and attractive to our occupiers,
providing income sustainability.
As a business, we are in a resilient
position. We have a strong capital
structure with attractive long-term fixed
rate debt. Our portfolio offers significant
income upside, and we are already
starting to see stability in asset values.
Lena Wilson CBE
Chair
EPRA earnings
per share
Dividends paid
per share
3.9p
3.5p
Dividend cover
NAV per share
112%
100p
Read more in our Chair’s
Introduction to the Governance
Report on pages 80–81
Picton Property Income Limited Annual Report 2023
01
Strategic ReportGovernanceFinancial StatementsAdditional Information Highlights
Highlights
2022/23
Financial performance
£21m
Stable EPRA earnings
£766m
Portfolio valuation
£548m
Net asset value
£19m
Dividends paid
4% higher than preceding year
112%
Dividend cover
Defensive capital structure
27%
Loan to value
95%
Of borrowings fixed,
with 2031/2032 maturities
3.8%
Weighted average interest rate
£571m
EPRA Net Disposal Value
£23m higher than net assets
reflecting fair value of debt
£38m
Undrawn debt facilities
02
Picton Property Income Limited Annual Report 2023
Capturing rental growth through:
Resilient operational performance
Outperforming
property portfolio
relative to MSCI
UK Quarterly
Property Index
39
37
Lettings
25% ahead of March 2022 ERV
Lease extensions/regears
6% ahead of March 2022 ERV
9% like-for-like
increase in
estimated
rental value
99%
Rent collection
91%
Occupancy
20
Rent reviews
7% ahead of March 2022 ERV
Like-for-like
increase in
passing rent
of 10% and
contracted rent
of 3%
Increased investment with sustainability focus
£6m
Invested into upgrading
over 15 assets
£21m
Invested in new acquisitions
100%
Compliance
with 2023 EPC minimum standards
76%
EPC ratings A-C
Improved from 71%
Net zero
carbon pathway
progress
including installation of solar arrays
24%
Reduction in Scope 1 & 2 emissions
compared to 2019 baseline
85%
Energy data coverage
Improved from 75%
The Financial Statements are prepared under IFRS. We use a number of alternative performance measures (APMs)
when reporting on the performance of the business and its financial position. In common with many other listed
property companies we report the EPRA performance measures. In the Additional Information section of this report
on pages 155–158 we provide more detailed information and reconciliations to IFRS where appropriate.
Picton Property Income Limited Annual Report 2023
03
Strategic ReportGovernanceFinancial StatementsAdditional Information Purpose
Our purpose
Our purpose is to be
a responsible owner
of commercial real estate,
helping our occupiers
succeed and being valued
by all our stakeholders.
Our values
Principled
We are professional, diligent and strategic.
Demonstrated through our transparent reporting,
occupier focused approach, alignment with
shareholders, delivery of our Picton Promise,
our commitment to sustainability and positive
environmental initiatives.
Perceptive
We are insightful, thoughtful and intuitive.
Demonstrated through our long-term track record,
our gearing strategy, our dynamic positioning of the
portfolio, and engagement with our occupiers.
Progressive
We are forward-thinking, enterprising,
and continually advancing.
Demonstrated through our culture, work ethic,
and proactive asset management.
For more detailed information
on our stakeholders, see our
Section 172 statement
on pages 90–91
04
Picton Property Income Limited Annual Report 2023
Creating stakeholder value
Shareholders
£19m
Dividends paid
Occupiers
£6m
Invested into upgrading
properties
Communities
23
Charities supported
Our people
82%
Employee satisfaction score
The environment
76%
EPC ratings A-C
Strategy
Our strategic priorities
Through our occupier focused, opportunity led approach, we aim to be one of
the consistently best performing diversified UK REITS. Our strategic priorities
guide the direction of our business and are reviewed annually.
Portfolio
Performance
Operational
Excellence
Acting
Responsibly
3
1
2
3
1
2
3
1
2
and income profile
a portfolio which
provides income and
capital growth
1 Creating and owning
2 Growing occupancy
3 Enhancing asset
4 Outperforming the
quality, providing
space that exceeds
occupier expectations
MSCI UK Quarterly
Property Index
1 Maintaining an
efficient operating
platform, utilising
technology as
appropriate
earnings growth
flexible business
model, adaptable
to market trends
2 Having an agile and
3 Delivering
4 Having an appropriate
5 Growing to deliver
capital structure for
the market cycle
economies of scale
1 Progressing our
environmental focus
and reducing our
emissions to become
carbon net zero
by 2040
2 Working closely and
engaging with
our occupiers,
shareholders,
communities and
other stakeholders
3 Ensuring we maintain
our company values,
positive working
culture and alignment
of the team
4 Having strong
governance and
transparent reporting
to ensure the long-
term success of the
business
For details on the associated
risks see pages 42–46
For details on connected KPIs
see pages 22–25
For details on our strategic
progress see the
Chief Executive’s Review
on pages 18–21
Picton Property Income Limited Annual Report 2023
05
Strategic ReportGovernanceFinancial StatementsAdditional Information Business Model
Our business model
How we create value
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.
Knowledge,
expertise and
research led
decision making
01
Selling assets
to recycle
into better
opportunities
04
02
Stock selection
and acquisition
03
Creating value
through proactive
asset management
This is underpinned by:
Risk management
Responsible stewardship
Our diverse portfolio and occupier base spreads risk
and generates a stable income stream throughout
the property cycle. We adapt our capital structure
and use debt effectively to achieve enhanced returns.
We maintain a covered dividend policy, to generate a
surplus which we can invest back into the portfolio.
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 acting for the benefit of all our stakeholders.
06
Picton Property Income Limited Annual Report 2023
01/
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.
02/
Stock selection and acquisition –
buying into growth assets,
locations or sectors
We have established a diversified
UK property portfolio and while
income focused, we will consider
opportunities where we can
enhance value and/or income.
03/
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.
04/
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.
What makes us different
Long-term outperformance
through a diversified approach
We have a long-term performance
track record, outperforming the MSCI
UK Quarterly Property Index for ten
consecutive years. We own a diverse
range of assets which enables us
to position the portfolio as market
conditions dictate and have delivered
upper quartile performance over
three, five and ten years, and since
launch in 2005.
Aligned and high performing
management team
Our experienced, knowledgeable
and long-standing team has a
proven track record of success since
internalisation in 2012. Our internally
managed and agile business model
enables cost efficiencies and flexibility
to adapt to changing property cycles.
Read more on pages 10–11
Read more on pages 10–17
Occupier focused, opportunity led
Our collaborative approach ensures
we engage with our occupiers to
create spaces to help them succeed.
Our proactive asset management
helps to maintain high occupancy
across the portfolio.
Sustainable thinking,
responsible business
Our responsible approach to business
with an increasing environmental
focus is essential for the benefit of all
our stakeholders and understanding
the long-term impact of our decisions
helps us to manage risk and continue
to generate value.
Read more on pages 32–37
Read more on pages 56–77
Picton Property Income Limited Annual Report 2023
07
Strategic ReportGovernanceFinancial StatementsAdditional Information Responding to Uncertainty
Adapting &
outperforming
As a diversified internally
managed UK REIT, we
acquire, create and manage
buildings for around 400
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.
08
Picton Property Income Limited Annual Report 2023
Creating spaces
for our occupiers
to succeed
Picton Property Income Limited Annual Report 2023
09
Strategic ReportGovernanceFinancial StatementsAdditional Information Responding to Uncertainty/Continued
Responding to
market uncertainty:
adapting and
outperforming
Portfolio at a glance
Industrial weighting
Office weighting
Retail and Leisure weighting
Occupiers
Assets
Portfolio valuation
57%
32%
11%
400
49
£766m
10
Picton Property Income Limited Annual Report 2023
OUR CONSISTENT
TRACK RECORD OF
OUTPERFORMANCE
We have outperformed against the
MSCI UK Quarterly Property Index
again this year. We have a track
record that includes ten consecutive
years of outperformance and long-
term upper quartile performance
over three, five and ten years, and
since launch in 2005.
Our asset allocation, stock selection
and asset management have
delivered outperformance and a
consistently higher income return
than the Index over the long-term.
We are ranked fifth out of 141
portfolios over the last ten years and
we have won 23 awards since 2015.
Annual total property return %
Our diversified portfolio
exposure has been
key to our sustained
outperformance against
the MSCI Index.
Michael Morris
Chief Executive
19.0
17.1
14.0
13.5
14.3
11.3
9.9
13.0
10.1
4.6
7.5
4.6
5.3
7.3
1.2
24.3
19.5
(0.4)
(8.7)
(12.6)
Mar
2014
Mar
2015
Mar
2016
Mar
2017
Mar
2018
Mar
2019
Mar
2020
Mar
2021
Mar
2022
Mar
2023
Picton
MSCI
CREATING SPACES FOR
A NET ZERO FUTURE
We have committed to achieving
net zero carbon by 2040 and
this target covers the whole life
carbon of our assets, including
the energy use of our occupiers.
To meet our commitment, we have
set targets for whole building energy
efficiency for each asset type and
embodied carbon related to major
refurbishments, as well as reducing
operational emissions as much as
possible through energy efficiency
measures and renewable energy.
PROACTIVE ASSET
MANAGEMENT
Occupational demand remains
resilient and over the year we
have successfully increased
income through proactive asset
management and investing
in sustainable refurbishment
upgrades across our portfolio.
Read more on pages 12–13
ADAPTING TO CHANGING
MARKET CONDITIONS
Recognising the changes in the office
sector and a greater desire for flexible,
short-term leases, our SwiftSpace
offering provides small to medium-
sized businesses with bespoke
flexible leasing solutions. We are able
to create fully fitted workspaces, to
enable businesses to move straight in
and be up and running in no time.
Read more on pages 14–15
Read more on pages 16–17
Picton Property Income Limited Annual Report 2023
11
Strategic ReportGovernanceFinancial StatementsAdditional Information
Responding to Uncertainty/Continued
Proactive management:
increasing income from
our recent Gloucester
acquisitions
We have successfully
increased income
through proactive asset
management and
refurbishment.
Jay Cable
Head of Asset Management
12
Picton Property Income Limited Annual Report 2023
Our combined ownership
in Gloucester totals over
29 acres, having acquired
two adjoining city centre
industrial estates in
2021/2022: Madleaze
Trading Estate, and Mill
Place Trading Estate.
Since our acquisition of
the estates, we have been
focused on improving their
appeal for our existing
occupiers as well as to
attract new businesses.
The two estates provide 670,000
sq ft of warehouse and ancillary
accommodation, with a site coverage
of 52%. The average contracted
rent across leased property on
purchase was £2.76 per sq ft and
there was 100,000 sq ft of vacant
accommodation in need of
redevelopment and refurbishment.
The combined consideration was
£23.5 million or £35 per sq ft.
Over the year we have increased
the average contracted rent
across leased property by 23% to
£3.43 per sq ft and reduced the
amount of vacant space by 35%.
Increased
contracted
rent by 23%
In 2022/23
£1.4m
Invested into upgrading the estates
11
Businesses attracted
or retained
UPGRADING THE
ESTATES
In line with our net zero carbon
commitment to reduce operational
emissions, we have recently
completed the installation of solar
on one unit. Across the estates we
are aiming to improve the energy
efficiency of units and we directly
control the electricity supply at Mill
Place Trading Estate, meaning we
can ensure it is renewably sourced.
We have started our programme
of refurbishment upgrades across
the estates and have installed new
signage, LED lighting, repaired roads
and enhanced security though mobile
patrols, security barriers and CCTV.
We have met in person with all of our
occupiers and delivered welcome
packs, ensuring everyone has a
direct point of contact with us.
Key activity
‒ Letting of eight units and
compounds for a combined
£0.3 million per annum, 79%
ahead of the March 2022 ERV
‒ Secured a 29% rental uplift at a
review with our largest occupier
(by income), to £0.3 million per
annum, 23% ahead of ERV
‒ Refurbished a 21,000 sq ft unit,
installing solar panels and
improving its EPC from a D rating
to an A rating
‒ Acquired an adjoining unit for
£0.4 million to consolidate
our ownership
‒ Successfully relocated an existing
occupier to the newly acquired
unit, enabling us to secure a new
letting at a record rent
Summary of management and leasing activities over the year
Activity
Letting
Lease renewal
Rent review
Number
8
6
4
Rent
per annum
(£m)
Ahead of March
2022 ERV
(%)
Ahead of previous
passing rent
(%)
0.3
0.4
0.4
79%
18%
23%
–
64%
33%
Picton Property Income Limited Annual Report 2023
13
Strategic ReportGovernanceFinancial StatementsAdditional Information PARKBURY INDUSTRIAL
ESTATE, RADLETT
As part of the full refurbishment
works at Unit 16, we removed a
gas fired heating system from the
warehouse and added new rooflights
for improved natural daylight. The
office area, common areas and
warehouse area have all been fitted
with new LED lighting. We also
installed solar on the roof to provide
on-site generated energy and excess
electricity will be fed back into
the grid which will help to greatly
reduce the operational emissions
of the unit. These refurbishments
have improved the EPC rating
of the building to an A rating.
Responding to Uncertainty/Continued
Sustainable
refurbishments:
investing in
our buildings
Occupiers are increasingly
prioritising energy
efficient and sustainable
workspaces. We are
committed to enhancing
the environmental
performance of our
buildings to ensure their
operational efficiency and
that they meet occupier
requirements.
In line with our sustainable
refurbishment guidelines, when space
becomes vacant, we seek to improve
its sustainability credentials in terms of
certification, services, structure and
building resilience.
We aim to remove fossil fuels where
possible and we are also further
developing our plans for on-site solar
array installation across the portfolio
as we continue to identify energy
efficiency measures.
Improved
EPC ratings
Removed
On-site fossil fuel burning systems
14
Picton Property Income Limited Annual Report 2023
COLCHESTER
BUSINESS PARK
At Colchester Business Park we
have carried out an extensive
refurbishment of an industrial unit
including the installation of new LED
lighting and removing the gas fired
heating system from the warehouse,
as well as installing EV charging points
and new rooflights for improved
natural daylight. These works
improved the EPC from a C to a B
rating. We also refurbished two office
suites in the business park, installing
LED lighting to reduce energy
consumption. These works improved
the EPCs, both a D rating, to a B and
an A rating respectively.
UNITS 1 & 2, WESTERN
INDUSTRIAL ESTATE,
BRACKNELL
We commenced a full refurbishment
of Unit 2 at Bracknell, including the
addition of new LED lighting and the
removal of the gas fired heating
system from the warehouse. We also
added new rooflights for improved
natural daylight. We installed solar on
the roof to improve the operational
efficiency of the unit, with excess
electricity to be fed back into the grid.
Additionally, we installed EV charging
points externally and refurbished the
office area, adding new LED lighting
and a new energy efficient heating
and cooling system. These works are
expected to improve the EPC rating
of the unit to an A rating.
Installed
on-site solar energy generation
METRO,
MANCHESTER
At our Metro office building, we
recently carried out a full internal
refurbishment and redecoration of
the fifth floor office space, including
installation of new LED lighting and
occupier amenities, including new
and improved kitchen facilities. These
works improved the EPC rating from
a D to a B rating.
We are committed
to improving the
environmental
credentials of
our buildings, to
future-proof these in
terms of certification,
structure and services.
Andy Lynch
Head of Building Surveying
Picton Property Income Limited Annual Report 2023
15
Strategic ReportGovernanceFinancial StatementsAdditional Information Responding to Uncertainty/Continued
Our new leasing solution:
Flexible, Fitted, Inclusive
We moved in with a small team
in the early days of our business.
We’ve almost quadrupled in size
over the past 18 months.
Picton have always been helpful
and easy to work with so we
decided to stay with them by
upsizing our space. They kept it
simple for us, managing the entire
fit-out and moving process.
Daniel Ball
The Early Careers Group, Angel Gate, London
16
Picton Property Income Limited Annual Report 2023
FLEXIBLE LEASING
PROGRESS
Last year we launched SwiftSpace, our
flexible leasing offering in response
to both increased competition from
serviced office providers and changes
in occupier demand. This flexible
lease structure enables occupiers to
scale their businesses as their needs
evolve and is particularly suited to
smaller businesses looking to return
to the office or move out of serviced
accommodation, yet still wanting
to retain flexibility of occupation.
Rental agreements include Flexible
(short-lease terms), Fitted (ready to
move in space, fitted out to occupier
requirements) and Inclusive (ready
to move in space with no service
charges or insurance costs). All three
options are intended to speed up
the moving in process with quick and
easy documentation and reduced
upfront costs.
This new flexible proposition has
succeeded in attracting new
occupiers looking for a more bespoke
solution and has helped to grow
occupancy on our smaller units. Over
the year, we have to date signed
nine SwiftSpace lettings, nearly
a quarter of our total lettings.
SwiftSpace is available at selected
multi-let offices across our portfolio,
including Angel Gate, London,
Longcross, Cardiff, Queen’s House,
Glasgow, Charlotte Terrace,
London, Colchester Business Park
and Trident House, St Albans.
Our suite has been finished
to a high specification and
is modern, bright and airy –
perfect for our brand and
will give a great impression
to visitors and our team as
we expand our new business.
Andy Tait
Sallyport, Queen’s House, Glasgow
Picton Property Income Limited Annual Report 2023
17
Strategic ReportGovernanceFinancial StatementsAdditional Information Chief Executive’s Review
Resilient business
performance
Growing occupancy is a priority
as there is significant upside
income potential from our
current position.
Michael Morris
Chief Executive
18
Picton Property Income Limited Annual Report 2023
Against a challenging
economic backdrop,
we have been able to
grow income through
our proactive approach
to asset management
and have successfully
continued our long-term
track record of
outperformance.
100p
Net asset value per share
3.9p
EPRA earnings per share
Outperforming property portfolio
For the tenth consecutive year we
have outperformed the MSCI UK
Quarterly Property Index. We have
now delivered upper quartile returns
over three, five, ten years and since
inception in 2005 and we are ranked
fifth out of 141 portfolios over the last
ten years.
At a portfolio level, we delivered a
total property return of -8.7% which
reflects this marked change in the
macroeconomic outlook. Asset
management activity drove rental
growth and helped offset some of
the impact of rising yields.
Growing occupancy and income
We have seen a resilient occupational
market, particularly in the industrial
sector, and we have been able to
increase income and rental growth
through asset management and
acquisition activity, leading to a 3%
increase in contracted rent, a 10%
increase in passing rent and a 9%
increase in estimated rental value, all
on a like-for-like basis. Although we
have been able to grow net income
there has also been a rise in property
costs, primarily driven by void costs,
including service charges, business
rates and security.
Growing occupancy is a priority as the
portfolio has significant upside income
potential with more than £5.3 million
of additional rent available from current
vacancies. With the majority of our
vacancy in the office sector, we are
pursuing change of use strategies at
a number of office assets to include
residential, student and other uses
to help to reduce this void.
Concerns over the health of the UK
economy and political uncertainty
have led to a more cautious approach
from businesses taking new space
during the year. Occupancy at
31 March 2023 was 91%, lower than
the previous year but up from a low
of 90% at September 2022.
Following our record profit delivered
a year ago, this period has been
defined by a significant change in
macroeconomic conditions evidenced
by rising interest rates, inflationary
pressures and lower economic growth.
Driven in part by rising food and
energy costs, a consequence of the
disruption caused by the war in
Ukraine, UK inflation has been over
10% and in response base rates have
quadrupled since this time last year.
Asset pricing has been adversely
impacted and commercial real estate
has been no exception.
In October 2022, the MSCI Monthly
Index recorded the worst month of
capital decline on record and a 21%
decline in values between July 2022
and February 2023. After eight months
and a much sharper pricing correction
than during the global financial crisis
in 2008, markets finally appear to have
stabilised, and positive overall monthly
movements were recorded in the
Index in March and April 2023.
In these conditions we have continued
to focus on what we can control,
undertaking nearly 40% more asset
management activity than last year.
This has enabled us to grow rental
income and the overall rental value of
the portfolio.
With the majority of our debt being
fixed, we are insulated from rising
financing costs and have been able
to report EPRA earnings of £21.3
million, marginally ahead of last year.
During the year, we paid dividends
of £19.1 million, 4% higher than the
preceding year with strong dividend
cover of 112%.
Performance
Our net assets are £548 million or 100
pence per share, a 16.6% reduction
from a year ago, principally driven
by the revaluation of our property
portfolio. Our accounting total return
was -13.9% in the year to 31 March 2023.
Our total shareholder return, reflecting
share price movement and dividends
paid, was -26.4%. As markets have
adjusted to a higher interest rate
environment so too have share prices
of UK REITs and discounts have
widened in the sector. However,
it is encouraging to see that these
discounts have narrowed more
recently as reported asset values
have stabilised.
Picton Property Income Limited Annual Report 2023
19
Strategic ReportGovernanceFinancial StatementsAdditional Information Chief Executive’s Review/Continued
One of the key
advantages of having a
diversified approach and
a team with a proven
track record of managing
assets across sectors
through the investment
cycle, is that we can draw
on this experience during
more challenging markets.
Michael Morris
Chief Executive
£21m
Total acquisitions
27%
Loan to value
Enhancing asset quality
We have invested £6 million into
the portfolio this year, across over
15 separate projects. This is partly a
reflection of the current occupancy
position but also reflects further
upgrading of our assets from a
sustainability perspective.
We are now reviewing on a project-by-
project basis whether it is appropriate
to install renewable energy, primarily
in the form of solar panels on
refurbishments. Three projects
on industrial assets have already
recently completed and whilst these
incur additional costs, in due course
they will generate a modest
supplementary revenue stream,
alongside rental income.
Operational excellence
There is significant work required to
upgrade our assets as we seek to
reduce emissions from the portfolio
and progress on our net zero pathway.
This year we have expanded the team
and brought in a dedicated Head of
Building Surveying to oversee the
increasing number of refurbishment
projects that we are undertaking.
They are now training to become
an in-house EPC assessor, which
will enable us to better understand
and improve our assets.
We have decided during the year
to bring our company secretarial
arrangements in house and have
recently appointed a dedicated
resource here in London. We will be
transitioning these arrangements
in the coming months, following
this year’s Annual General Meeting.
We have received positive feedback
from recent occupier engagement
surveys across our office and industrial
assets and have started to roll out
occupier apps at a number of our
multi-let office assets to improve
engagement.
Rent collection for the year stood at
over 99%.
Capital structure
We are well placed in terms of our
debt structure, with over 95% of
borrowing fixed until 2031/32.
Our weighted average interest rate is
3.8% per annum, well below current
market rates and as our longer-term
facilities are fixed directly with our
lenders, there is no mark-to-market
pricing of our debt in our reported net
asset value. This is reflected in our
EPRA NDV being £23 million higher
than our net asset value.
20
Picton Property Income Limited Annual Report 2023
This year, we have made
significant progress,
delivering rental growth
and exploring and
securing more valuable
alternative uses at
selected office assets. We
have remained focused
on sustainability, with
further progress on our
net zero carbon pathway.
Michael Morris
Chief Executive
Our loan to value ratio at the year-end
was 27% and we have significant
headroom against lending covenants
on all our facilities.
Specifically, we have been able to
reduce our Scope 1 and 2 emissions
by 24% compared to our 2019
baseline year.
In the current environment, in
common with the wider real estate
market, and with the share price
trading at a discount to net asset
value, it has not been possible to
raise new equity.
We have improved the overall EPC
ratings of our assets, with 100% of
the units within the portfolio being
compliant with 2023 EPC minimum
standards and 76% by rental value
have an EPC rating A-C.
We have started to incorporate on-site
renewable energy across larger
refurbishments and provide greater
engagement with occupiers on this
issue, further embedding sustainability
into our day-to-day activities.
Although progress is encouraging,
we recognise that we must continue
to maintain our focus to meet our
2040 net zero commitment.
Outlook
Despite macroeconomic conditions,
the economy and indeed occupier
markets have remained resilient.
Equally, the interest rate environment,
both in terms of short-term rates and
longer-term gilt yields, needs to
stabilise and be more supportive,
which may be possible when
inflationary pressures start to subside.
As we have seen this year, whilst
occupational demand and tight
supply have increased rents in
some markets, rising costs have
also impacted construction. This,
combined with rising yields in the last
few months, has started to impact
development viability and is likely to
be a constraint on supply and support
rental levels.
Our predominately fixed rate debt
with a long maturity profile will
provide earnings stability during this
more challenging period. Our key
focus remains on growing net income
further and gaining efficiencies
through growth.
Michael Morris
Chief Executive
24 May 2023
Growth
Our internalised management model
means that our costs are not linked to
net asset value, so there is significant
potential for earnings accretion that
can be delivered through growth.
As discounts across the sector persist,
the case for consolidation and the
creation of larger diversified REITs
remains compelling. We continue to
believe that the combination of cost
savings and earnings growth through
economies of scale alongside greater
relevance to an investor audience
would be well received and there
is already evidence of this being
the case.
We have proactively considered
opportunities during the year and
we will continue to be an advocate
for consolidation where it is beneficial
to our shareholders.
At a portfolio level we made three
acquisitions totalling £21 million during
the year. The two principal acquisitions
were both mixed-use assets with
retail/leisure at the ground floor and
offices above. One is fully leased and
at the other we have applied for
planning consent for residential
conversion in respect of some of the
vacant space.
Acting responsibly
As part of our further commitment
to integrate sustainability into the
business this year, we have included
our sustainability reporting within our
annual report rather than producing
a separate report.
The team is increasing its efforts to
ensure our assets are relevant and
in demand in a net zero future. This
year we have set up a Climate Action
Working Group covering all areas of
the business, ensuring that there is
a cohesive approach to our net zero
commitments, mitigating the risks
of climate change and adapting our
portfolio to reduce emissions.
Picton Property Income Limited Annual Report 2023
21
Strategic ReportGovernanceFinancial StatementsAdditional Information 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.
Strategic pillars
3
3
1
1
2
2
Portfolio
Performance
3
1
2
Operational
Excellence
Acting
Responsibly
Financial KPIs
Total return (%)
2023
2022
2021
–13.9
6.6
A
28.3
Total shareholder return (%)
2023
2022
2021
–26.4
0.0
B
18.7
Total property return (%)
–8.7
2023
2022
2021
7.3
C
24.3
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 diversified UK REITs is being
achieved, and is a measure used to determine
the annual bonus.
Why we use this indicator
The total shareholder return measures
the change in our share price over the year
plus dividends paid. We use this indicator
because it is the return seen by investors on
their shareholdings.
Our total shareholder return relative to a
comparator group is a performance metric
used in the Long-term Incentive Plan.
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.
3
1
2
3
1
2
3
1
2
Our performance in 2023
Although the EPRA earnings component of
total return was stable this year, the adverse
valuation movements in the year resulted in
a negative total return.
Our performance in 2023
In line with the property sector generally our
share price has declined over the year,
reflecting the rising interest rate
environment.
Our performance in 2023
We have outperformed the MSCI UK
Quarterly Property Index for the tenth
consecutive year, delivering a return of -8.7%
compared to the Index return of -12.6% for
the year. We have also delivered upper
quartile outperformance against MSCI over
three, five and ten years, and since inception.
22
Picton Property Income Limited Annual Report 2023
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. In this regard, we consider that the EPRA
net tangible asset per share (EPRA NTA), earnings per
share and vacancy rate are the most appropriate measures
to use in assessing 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.
For more information on EPRA Best Practices
Recommendations see pages 155–158
Remuneration Link
Property income return (%)
Loan to value ratio (%)
D
2023
2023
2022
2022
2021
2021
37
67
4.4
4.5
4.7
88
2023
2023
2022
2022
2021
2021
E
26.7
76
21.2
71
20.9
64
Cost ratio (%)
2023
2023
2022
2022
2021
2021
F
1.0
82
1.0
82
1.0
85
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 loan to value ratio is total Group
borrowings, net of cash, as a percentage of
the total portfolio value. This is a recognised
measure of the Company’s level of borrowings
and is a measure of financing risk. See the
Supplementary Disclosures section for
further details.
Why we use this indicator
The cost ratio, recurring administration
expenses as a proportion of the average
net asset value, shows how efficiently the
business is being run, and the extent to
which economies of scale are being achieved.
See the Supplementary Disclosures section
for further details.
3
1
2
3
1
2
3
1
2
Our performance in 2023
The income return for the year of 4.4%
was ahead of the MSCI UK Quarterly
Property Index of 4.1%, and we have also
outperformed over three, five and ten years,
and since inception.
Our performance in 2023
Although there was only a marginal increase
in borrowings this year, the loan to value
ratio has increased, reflecting adverse
movements in property valuations.
Our performance in 2023
The cost ratio has been maintained at 1.0%,
despite the inflationary impact on costs and
the lower valuations over the year.
Picton Property Income Limited Annual Report 2023
23
Strategic ReportGovernanceFinancial StatementsAdditional Information Key Performance Indicators/Continued
EPRA KPIs
EPRA NTA per share (pence)
2023
2022
2021
100
97
G
120
Why we use this indicator
The EPRA net tangible assets (NTA) per share,
calculated in accordance with EPRA, measures
the value of shareholders’ equity in the
business. 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.
EPRA vacancy rate (%)
2023
2022
2021
I
9.5
7.2
8.8
Why we use this indicator
The vacancy rate measures the amount of
vacant space in the portfolio at the end of each
financial period, and over the long-term, is an
indication of the success of asset management
initiatives undertaken.
EPRA earnings per share
(pence)
2023
2022
2021
H
3.9
3.9
3.7
Why we use this indicator
The earnings per share, calculated in
accordance with EPRA, represents the
earnings from core operational activities and
excludes investment property revaluations,
gains/losses on asset disposals and any
exceptional items. We use this because it
measures the operating profit 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.
3
1
2
3
3
1
2
3
1
2
Our performance in 2023
The EPRA NTA per share has declined this
year as a result of the adverse valuation
movements.
Our performance in 2023
EPRA earnings per share has remained
stable at 3.9 pence this year. Higher rental
income has been largely offset by increased
property costs.
Our performance in 2023
Most of our vacancy is in the office sector
which is currently a difficult market. We are
holding some assets vacant as we progress
alternative use strategies.
24
Picton Property Income Limited Annual Report 2023
Non-financial KPIs
Retention rate (%)
2023
2022
2021
67
37
J
88
Why we use this indicator
This provides a measure of income at risk and
the retention of that income during the year.
This is achieved through lease extensions or
removal of break options.
Employee satisfaction (%)
2023
2022
2021
L
82
82
85
Why we use this indicator
We use this indicator to assess our
performance against one of our strategic
objectives, to nurture a positive culture
reflecting the values and alignment of the
Picton team. The indicator is based on the
employee survey carried out during the year.
EPC rating A-C (%)
2023
2022
2021
K
76
71
64
Why we use this indicator
Energy Performance Certificates (EPCs)
indicate how energy efficient a building could
be by assigning a rating from A (very efficient)
to G (very inefficient).
From 1 April 2023 Minimum Energy Efficiency
Standards (MEES) regulations prohibit leasing
space that is F or G rated, unless an exemption
certificate applies. The minimum EPC rating
is likely to be raised further, with the UK
Government consulting in 2021 on proposals
to require a minimum of C by 1 April 2027,
and B by 1 April 2030. The outcome of this
consultation is awaited.
3
1
2
3
1
2
3
1
2
Our performance in 2023
Our higher retention rate principally reflects
our active asset management approach to
the portfolio.
Total ERV at risk due to lease expiries or
break options totalled £5.5 million, in line
with last year.
Our performance in 2023
The proportion of EPC ratings between
A to C has increased against the prior
year and makes up 76% of the portfolio.
The remaining 24% is rated D or E.
Our performance in 2023
Our employee satisfaction score remains at a
consistently high level.
Picton Property Income Limited Annual Report 2023
25
Strategic ReportGovernanceFinancial StatementsAdditional Information Our Marketplace
Signs of
economic
stability
0.1%
Increase in UK GDP in the three
months to March 2023
Economic backdrop
After a tumultuous year, there are
signs that the economic backdrop
is beginning to stabilise.
Geopolitical tension, the war in
Ukraine, rising inflation, the cost of
living crisis and the fall-out from the
political events and Autumn mini-
budget caused unprecedented
volatility, high levels of market
stress and economic headwinds.
Following the end of the pandemic
and the war in Ukraine’s impact on
energy and commodity prices and
supply chains, CPI inflation rose to
a peak of 11.1% in October 2022.
As a shock reaction to the
Autumn mini-budget, ten-year
Government bond yields increased
by approximately 200 basis points
in a month to reach 4.5% in late
September and the value of sterling
fell to historic lows. The Bank of
England’s response was a series of
interest rate hikes, with the base
rate rising from 1.75% in August
2022 to 4.5% in May 2023.
The ramifications of the increased
cost of debt and rise in the risk-
free rate have been multifaceted,
from the impact on pensions,
investment markets and property
yields, to house prices, retail sales and
consumer and business confidence.
At 3.9%, unemployment is very
low by historic standards, having
risen only slightly from a 50-year
low of 3.5% in August 2022.
The economic backdrop is now
showing positive signs of stabilisation
and even recovery. GDP growth has
surprised on the upside, with the
UK narrowly avoiding a recession
in 2022. UK GDP is estimated
to have increased 0.1% in the
three months to March 2023.
Inflation has been more stubborn
than expected, owing largely to
persistent growth in food prices.
There have been improvements in
supply driven inflation, as some of
the production difficulties and supply
chain issues faced by businesses have
started to ease, leading to a fall in the
price of imported goods. In addition,
higher interest rates and the fall in
households’ disposable incomes have
dampened demand driven inflation
and fuel prices have fallen significantly.
Interest rate expectations have
moderated compared to what was
predicted in late 2022. Reduced
uncertainty and falling inflation
have allowed bond yields to
stabilise, with ten-year Government
bonds now at around 4%.
Households have been impacted by
the cost of living crisis, soaring fuel
and energy bills, lower real incomes
and rising debt and mortgage costs.
Retail sales volumes did rise by 0.6%
in the three months to March 2023,
however this is the first rolling three-
month increase since August 2021.
It is hoped that increased post-
pandemic tourism will go some way
to compensate for weak domestic
consumer demand in 2023.
The Consumer Price Index (CPI)
rose by 8.7% in the 12 months to
April 2023. This is the first month
that consumer price inflation has
been below 10% since August 2022.
As inflationary pressures start to
reduce, households are expected to
increase spending power, helping
to drive the economic recovery.
In terms of business confidence, the
S&P Global/CIPS UK Composite PMI
saw the longest period of decline since
the Global Financial Crisis of 2007/08,
experiencing six consecutive months
of contraction to January 2023. This
is due largely to the elevated cost
of materials and labour putting
pressure on profit margins, and higher
financing costs hampering expansion
plans. A sharp rebound began in
February, and the latest data for April
shows the Composite PMI was 54.9.
Although job vacancies have declined
from their recent peak, at 1.08 million,
they remain elevated. The strong
labour market has driven up average
pay; however, in real terms, wages
are not keeping up with inflation.
26
Picton Property Income Limited Annual Report 2023
UK property market
Due to the sharp rise in the risk-free
rate and cost of debt, the MSCI UK
Quarterly Property Index All Property
equivalent yield moved out by 85
basis points in the three months to
December 2022. MSCI reported capital
growth of -12.6% for this period, the
fastest quarterly correction since
December 2008 at the height of the
Global Financial Crisis. The situation
appears to now be stabilising and the
three months to March 2023 saw
capital growth of -1.0%.
Looking at the year to March 2023,
the MSCI UK Quarterly Property
Index reported an All Property total
return of -12.6%, comprising -16.1%
capital growth and 4.1% income
return. This is in sharp contrast to the
previous year; the total return for the
12 months to March 2022 was 19.5%.
Despite the tribulations of the
investment market, the occupier
market saw a more encouraging
performance, and All Property ERV
growth for the year to March 2023
was 3.5%. This compares to 3.1% ERV
growth for the year to March 2022.
Following an extraordinarily strong
year of capital growth to March 2022,
the low yielding industrial sector
was disproportionately affected
by the recent market correction.
The MSCI All Industrial total return
for the year to March 2023 was
-20.4%, comprising capital growth of
-23.2% and income return of 3.6%.
Capital growth ranged from -18.7%
to -27.1% between sub-sectors.
On a more positive note, due to
ongoing supply constraints and
healthy occupier demand, the
industrial sector achieved strong
rental growth for the year to March
2023 of 8.6%, ranging from 10.0%
to 7.2% between sub-sectors.
In addition to the recent rise in yields
experienced by all sectors, the office
sector is still undergoing a structural
change reflecting post-pandemic
working patterns and sustainability-
related costs. There is a growing trend
of polarisation between prime, energy
efficient space and secondary office
stock and locations. MSCI reported an
All Office total return of -12.3% for the
year to March 2023, comprising -15.3%
capital growth and 3.6% income
return. Capital growth ranged from
-10.3% to -22.7% between sub-sectors.
ERV growth was 1.6%, ranging from
2.8% to 0.6% between sub-sectors.
MSCI UK Quarterly Property Index – Annual Capital Growth (%)
40
30
20
10
0
-10
-20
-30
40
Mar
2007
Mar
2008
Mar
2009
Mar
2010
Mar
2011
Mar
2012
Mar
2013
Mar
2014
Mar
2015
Mar
2016
Mar
2017
Mar
2018
Mar
2019
Mar
2020
Mar
2021
Mar
2022
Mar
2023
All
Retail
Office
Industrial
Following a prolonged phase of
repricing, the retail sector suffered
less of an impact from the recent
correction than others. The MSCI All
Retail total return for the year to March
2023 was -7.9%, comprising capital
growth of -12.7% and income return
of 5.4%. Capital growth ranged from
-5.6% to -17.8% between sub-sectors.
The wave of retailer liquidations and
CVAs seems to have abated, and
arguably retailers that survived the
pandemic years should be better
placed to weather the storm of
weaker consumer demand owing to
the cost of living crisis. Following four
years of decline, All Retail ERV growth
turned positive at 0.4%, ranging from
4.4% to -2.1% between sub-sectors.
According to analysis from Property
Data, the total investment volume
for the year to March 2023 was £50.6
billion, a 31% decrease on the year
to March 2022. The slowdown in
investment activity is only evident
during the six months to March
2023, which is 58% down on the
same period for the previous year.
Investors have been waiting for greater
stability in the macroenvironment,
which has more recently been
affected by concerns within the
banking sector. The five-year swap
rate currently stands at around 4%,
placing the cost of debt just below
the MSCI All Property equivalent yield.
The chart above shows the annual
capital growth for All Property and
the three main sectors. It illustrates
the increased polarisation of sectors
in more recent years, until the year
to March 2023 which saw a return to
a narrower range of capital growth.
The chart below shows the
strength of industrial rental growth
in comparison to other sectors,
particularly in the last two years,
and the significant rental value
declines endured by the retail sector,
particularly during the pandemic.
More recent data from the MSCI
UK Monthly Property Index shows
that property values have begun
to stabilise with continued positive
capital growth in the industrial
and retail sectors in April.
MSCI UK Quarterly Property Index – Annual Capital Growth
MSCI UK Quarterly Property Index – Annual Estimated Rental Value Growth (%)
15
10
5
0
-5
-10
-15
Mar
2007
Mar
2008
Mar
2009
Mar
2010
Mar
2011
Mar
2012
Mar
2013
Mar
2014
Mar
2015
Mar
2016
Mar
2017
Mar
2018
Mar
2019
Mar
2020
Mar
2021
Mar
2022
Mar
2023
All
Retail
Office
Industrial
Picton Property Income Limited Annual Report 2023
27
Strategic ReportGovernanceFinancial StatementsAdditional Information Portfolio Review
47
46
Our property portfolio consists of 49 assets. Our diverse exposure
provides flexibility to adapt as market conditions dictate.
44
45
46
47
48
49
53-57 Broadmead
Bristol
13,200 sq ft – Leasehold
78-80 Briggate
Leeds
7,700 sq ft – Freehold
17-19 Fishergate
Preston
50,100 sq ft – Freehold
72-78 Murraygate
Dundee
9,700 sq ft – Freehold
7-9 Warren Street
Stockport
8,700 sq ft – Freehold
6-12 Parliament Row
Hanley
17,300 sq ft – Freehold
36
37
38
39
40
41
42
43
12
39
Retail and Leisure
11%
Queens Road
Sheffield
105,600 sq ft – Freehold
Parc Tawe North Retail Park
Swansea
116,700 sq ft – Leasehold
15
Gloucester Retail Park
Gloucester
113,900 sq ft – Freehold
Angouleme Retail Park
Bury
76,200 sq ft – Freehold
Regency Wharf
Birmingham
41,000 sq ft – Leasehold
17
Thistle Express
Luton
81,600 sq ft – Leasehold
14
36
Scots Corner
Birmingham
25,500 sq ft – Freehold
Crown & Mitre Building
Carlisle
25,200 sq ft – Freehold
12
11
11
41
42
10
9
28
6
41
33
31
1
18
168
34
9
27 19
20
22
2
4
5
24
23
16
18
19
Industrial
57%
Parkbury Industrial Estate
Radlett
343,700 sq ft – Freehold
River Way Industrial Estate
Harlow
454,800 sq ft – Freehold
Shipton Way
Rushden
312,900 sq ft – Freehold
Datapoint
London E16
55,100 sq ft – Leasehold
Lyon Business Park
Barking
99,400 sq ft – Freehold
Sundon Business Park
Luton
127,800 sq ft – Freehold
Trent Road
Grantham
336,100 sq ft – Leasehold
The Business Centre
Wokingham
96,400 sq ft – Freehold
Nonsuch Industrial Estate
Epsom
41,400 sq ft – Leasehold
Madleaze Trading Estate
Gloucester
294,500 sq ft – Freehold
Vigo 250
Washington
246,800 sq ft – Freehold
Mill Place Trading Estate
Gloucester
376,800 sq ft – Leasehold
Swiftbox
Rugby
99,500 sq ft – Freehold
Easter Court
Warrington
81,800 sq ft – Freehold
1 & 2 Kettlestring Lane
York
157,800 sq ft – Freehold
Downmill Road
Bracknell
41,200 sq ft – Freehold
Abbey Business Park
Belfast
61,500 sq ft – Freehold
Magnet Trade Centre
Reading
13,700 sq ft – Freehold
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
43
33
34
35
Office
32%
Angel Gate
London EC1
64,600 sq ft – Freehold
Stanford Building
London WC2
20,100 sq ft – Freehold
33
Tower Wharf
Bristol
70,600 sq ft – Freehold
50 Farringdon Road
London EC1
31,300 sq ft – Leasehold
30 & 50 Pembroke Court
Chatham
86,000 sq ft – Leasehold
Colchester Business Park
Colchester
150,500 sq ft – Leasehold
Metro
Manchester
71,000 sq ft – Freehold
34
180 West George Street
Glasgow
52,200 sq ft – Freehold
37
7
38
Charlotte Terrace
London W14
32,900 sq ft – Freehold
401 Grafton Gate
Milton Keynes
57,500 sq ft – Freehold
Queen's House
Glasgow
49,400 sq ft – Freehold
Longcross
Cardiff
69,700 sq ft – Freehold
Trident House
St Albans
19,000 sq ft – Freehold
109-117 High Street
Cheltenham
16,800 sq ft – Freehold
44
21
Atlas House
Marlow
24,800 sq ft – Freehold
22
45
Sentinel House
Fleet
33,500 sq ft – Freehold
Waterside House
Leeds
25,200 sq ft – Freehold
28
Picton Property Income Limited Annual Report 2023
47
26
29
43
11
17
46
39
25
14
15
45 35
36
48
49
7
40 42
13
3
37
30
32
10
12
38
21
44
Number of assets
49
£766m
4.8m sq ft
Value
Area
47
26
29
43
11
17
46
39
25
14
15
45 35
36
48
49
7
40 42
13
3
37
30
32
10
12
38
21
44
20
Properties in London
& the South East
Picton Property Income Limited Annual Report 2023
29
Strategic ReportGovernanceFinancial StatementsAdditional Information Portfolio Review/Continued
Top ten
assets
2
4
1
Parkbury
Industrial Estate,
Radlett
Property type
Industrial
Approximate area (sq ft)
343,700
Capital value (£m)
>100
No. of occupiers
21
Occupancy rate (%)
98
EPC rating
A–D
River Way Industrial
Estate, Harlow
Approximate area (sq ft)
454,800
Stanford Building,
London WC2
Approximate area (sq ft)
20,100
Property type
Industrial
Property type
Office
Capital value (£m)
50–75
No. of occupiers
10
Occupancy rate (%)
100
EPC rating
A–D
Capital value (£m)
30–50
No. of occupiers
5
Occupancy rate (%)
100
EPC rating
B–D
3
5
Angel Gate,
City Road,
London EC1
Property type
Office
Approximate area (sq ft)
64,600
Shipton Way,
Rushden
Approximate area (sq ft)
312,900
Property type
Industrial
Capital value (£m)
30–50
No. of occupiers
16
Occupancy rate (%)
56
EPC rating
B–E
Capital value (£m)
30–50
No. of occupiers
1
Occupancy rate (%)
100
EPC rating
C
30
Picton Property Income Limited Annual Report 2023
6
8
10
Sundon Business
Park, Dencora Way,
Luton
Property type
Industrial
Approximate area (sq ft)
127,800
Capital value (£m)
20–30
No. of occupiers
11
Occupancy rate (%)
93
EPC rating
B–D
Datapoint, Cody Road,
London E16
Approximate area (sq ft)
55,100
Capital value (£m)
20–30
No. of occupiers
6
Occupancy rate (%)
100
EPC rating
B–C
Property type
Industrial
7
Tower Wharf,
Cheese Lane,
Bristol
Property type
Office
Approximate area (sq ft)
70,600
Capital value (£m)
20–30
No. of occupiers
6
Occupancy rate (%)
90
EPC rating
B–D
9
Lyon Business Park,
Barking
Approximate area (sq ft)
99,400
Property type
Industrial
Capital value (£m)
20–30
No. of occupiers
7
Occupancy rate (%)
76
EPC rating
B–E
50 Farringdon Road,
London EC1
Approximate area (sq ft)
31,300
Property type
Office
Capital value (£m)
20–30
No. of occupiers
4
Occupancy rate (%)
100
EPC rating
B
Picton Property Income Limited Annual Report 2023
31
Strategic ReportGovernanceFinancial StatementsAdditional Information
Portfolio Review/Continued
Continued proactive
management of
our portfolio
Our occupier focused approach and
philosophy of working in collaboration
with our occupiers are significant
contributors to our long-term track
record of outperformance.
Jay Cable
Head of Asset Management
32
Picton Property Income Limited Annual Report 2023
The year has been
characterised by
significant active
management activity,
set against headwinds of
repricing and occupier
caution driven by a rising
interest rate environment.
Top ten occupiers
The largest occupiers, based as a percentage of contracted rent,
as at 31 March 2023, 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
4 Aces Limited
Hi-Speed Services Limited
Total
Contracted
rent (£m)
2.3
1.6
1.2
1.2
1.2
1.0
1.0
0.8
0.7
0.7
%
4.8
3.5
2.6
2.5
2.5
2.1
2.0
1.7
1.5
1.5
11.7
24.7
Industrial
weighting
57%
South East
Rest of UK
Office
weighting
32%
Central London
Rest of UK
South East
Retail and
Leisure
11%
Retail Warehouse
High Street Rest of UK
Leisure
41%
16%
13%
10%
9%
We have continued to actively manage
the portfolio, increasing passing rent
and estimated rental value (ERV) by
working with our occupiers, investing
into our assets, and advancing our
sustainability priorities.
The overall portfolio passing rent is
£43.3 million, an increase from the
prior year of £4.7 million. On a like-for-
like basis this increased by 10% and
the contracted rent, which is the gross
rent receivable after lease incentives,
increased by £1.1 million or 3%.
The March 2023 ERV of the portfolio
is £55.8 million, a 9% increase on
the prior year on a like-for-like basis.
We had ERV growth of 18% in the
industrial sector proven by new
lettings and active management,
whilst the office sector was up 2%
and the retail and leisure sector
reduced by 1%.
We have been able to offset some
of the valuation re-rating through
the completion of over 100 asset
management transactions.
reduce occupational costs. The office
sector is still going through a period
of transition following the pandemic,
with a flight to quality and many
occupiers still uncertain about working
patterns and operating on a more
flexible basis. We are adapting our
portfolio and exploring alternative
uses as we position our portfolio for
the medium-term.
Our investment into assets has helped
us to retain and secure new occupiers
while improving our EPC ratings,
with our refurbishment guidelines
specifying a minimum B rating for
most projects.
We continue to be occupier focused
and this approach remains key
to our active management of the
portfolio. This philosophy of working
in collaboration with our occupiers is
a significant contributor to our long-
term track record of outperformance.
Inflationary pressures and rising energy
costs have impacted all sectors but
particularly the office sector, where
service charges are highest.
10%
7%
2%
2%
Occupational demand remains
resilient in the industrial sector and
in the retail sector it has stabilised
for good quality real estate, with the
business rates’ revaluation acting to
Like-for-like increase in passing rent
9%
Like-for-like increase in ERV
Picton Property Income Limited Annual Report 2023
33
Strategic ReportGovernanceFinancial StatementsAdditional Information Portfolio Review/Continued
Portfolio overview
Performance
Our portfolio comprises 49 assets, with
around 400 occupiers, and is valued at
£766 million with a net initial yield of
5.0% and a reversionary yield of 6.7%.
The average lot size of the portfolio is
£15.6 million as at 31 March 2023.
Our asset allocation, with 57% in
industrial, 32% in office and 11% in
retail and leisure, combined with
transactional activity, has enabled us
to materially outperform the MSCI UK
Quarterly Property Index over the year.
Overall, the like-for-like valuation
decreased by 12%, after a 21% increase
in the prior year. This compares with
the MSCI UK Quarterly Property Index
recording a capital value decrease of
16% over the period.
We believe that the portfolio remains
well placed in respect of our overall
sector allocations. Where demand is
weaker, we are exploring higher value
alternative use strategies.
Industrial
The recent economic turmoil has
had a direct impact on property yields.
Industrial property is the lowest
yielding sector, and these yields have
risen to maintain the margin above
the risk-free rate.
Conversely, occupational demand in
the sector remains resilient and we
are capturing rental growth. A lack of
supply, especially of multi-let estates,
coupled with increasing build costs,
means that occupiers have restricted
choice when looking for a unit, which
has driven strong rental growth across
the country.
On a like-for-like basis, capital values
decreased by 14%, or £70.7 million,
and some of the significant gains over
the past two years have been eroded.
The passing rent increased by 13% and
the ERV grew by 18%, or £4.1 million,
on a like-for-like basis.
Our UK-wide distribution warehouse
assets total 1.2 million sq ft in five units,
which are fully leased with a weighted
average unexpired lease term of
4.4 years. Two of the units have rent
reviews outstanding and we expect
to secure significant uplifts.
The multi-let estates, of which 89%
by value are in the South East, total
2.1 million sq ft and we only have eight
vacant units out of 161, with one under
offer and four currently undergoing
refurbishment.
The industrial portfolio currently has
£7.6 million of reversionary income
potential, with £1.3 million relating
to the void units.
Office
In respect of the office sector, it
remains a story of Grade A versus
everything else with the latter proving
harder to lease. There is now a
noticeably widening yield gap aligned
to quality and increasing capital
expenditure required for ongoing
upgrades, including sustainability
improvements.
The investment into our portfolio over
the past few years means most of our
buildings are good quality, future-
proofed and increasingly sustainable
with a focus on health and wellbeing –
all of which are attractive attributes
to occupiers.
Several of our properties have
alternative use potential, and we have
progressed this on three buildings with
existing vacancies, further detailed
within the portfolio activity section.
On a like-for-like basis, capital values
decreased by 10%, or £24.4 million.
The passing rent increased by 6% and
the ERV grew by 2%, or £0.3 million.
We remain committed to the sector
over the medium-term, primarily
due to the strength of occupational
demand, lack of supply and low
capital expenditure requirements.
91%
Occupancy
£766m
Portfolio valuation
34
Picton Property Income Limited Annual Report 2023
The office portfolio currently has
£5.6 million of reversionary income
potential, with £3.6 million relating
to the void units.
Retail and Leisure
The retail and leisure sector was
already high yielding and has
therefore been less affected by
outward yield movement. The cost
of living crisis is predicted to further
affect the sector; however, our fully
leased retail warehouse parks are
underpinned by value led retailers.
The retail warehouse assets, which
make up 7% of the total portfolio,
total 0.4 million sq ft in 19 units across
four parks and are fully leased, with
a weighted average unexpired lease
term of 5.2 years.
Our high yielding high street portfolio,
which makes up 2% of the total
portfolio, is fully leased with the
exception of one unit in Carlisle which
is under offer. We see opportunities
in the sector for prime high street
locations off rebased rents.
On a like-for-like basis, capital values
decreased by 8%, or £7.1 million. The
passing rent increased by 9% and the
ERV declined by 1%, or £0.1 million.
The retail and leisure portfolio has
negative reversion of £0.7 million per
annum, primarily relating to the over
renting of the high street retail assets.
We believe the portfolio
remains well placed in
respect of our sector
allocations.
Jay Cable
Head of Asset Management
Portfolio activity
The office portfolio occupancy is 83%.
Our occupancy has reduced primarily
due to three office properties where
we are working through potential
changes of use to residential and
student accommodation. Excluding
these three properties, the office
occupancy rate would increase to 91%.
During the year our SwiftSpace offering
has helped to grow occupancy in
smaller units, with nearly a quarter of
lettings by number being SwiftSpace
lettings across four properties.
In terms of retail and leisure, occupancy
is 94%. The retail warehouse portfolio is
fully leased, and we have one vacant
high street shop, which is under offer.
At Regency Wharf, Birmingham, we
have a small office element to lease.
Our largest voids are at:
‒ Angel Gate, London – accounting
for 18% of the total portfolio void.
We are in the process of securing
change of use at the property to
residential in respect of vacant units.
‒ Charlotte Terrace, London –
accounting for 12% of the total
void. We recently acquired this
property and have submitted a
planning application for change
of use of part of the space to
residential.
‒ Longcross, Cardiff – accounting
for 9% of the total void. We are
working through options for
alternative uses.
Retention
Over the year, total ERV at risk due
to lease expiries or break options
totalled £5.5 million, in line with the
year to March 2022.
We retained 67% of total ERV at
risk in the year to March 2023. Of the
ERV that was not retained, a further
8% or £0.5 million was re-let to new
occupiers during the year.
In addition, a further £3.4 million
of ERV was retained by either
removing future breaks or extending
future lease expiries ahead of the
lease event.
Proactive management
It has been a very active year in respect
of asset management transactions.
We completed:
‒ 39 lettings or agreements to lease,
25% ahead of ERV and securing a
new contracted rent of £2.3 million
‒ 37 lease renewals or regears, 6%
ahead of ERV, securing an uplift in
contracted rent of £0.7 million
‒ 20 rent reviews, 7% ahead of ERV,
securing an uplift in passing rent
of £0.7 million
‒ Three lease variations to remove
occupier break options, securing
£0.4 million of income
‒ 11 lease surrenders to facilitate
active management
Leasing and occupancy
Occupancy has decreased during the
year from 93% to 91% with a total void
ERV of £5.3 million, which compares to
the MSCI UK Quarterly Property Index
of 92% as at 31 March 2023.
Our industrial portfolio is 95% leased
with demand remaining high across
the country. We have only eight vacant
industrial units, four of which are
being refurbished.
Longevity of income
As at 31 March 2023, expressed as
a percentage of contracted rent,
the average length of leases to first
termination was 4.6 years (2022: 4.8
years). This is summarised as follows:
0 to 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5 to 10 years
10 to 15 years
15 years or more
Total
%
12.9
14.2
21.7
12.5
11.5
18.4
7.6
1.2
100
Picton Property Income Limited Annual Report 2023
35
Strategic ReportGovernanceFinancial StatementsAdditional Information Portfolio Review/Continued
Portfolio investment
Investment activity
We acquired two new properties
during the year, as well as the
acquisition of a further unit at an
existing holding.
109-117 High Street, Cheltenham –
£5.3 million
This mixed-use property comprises
7,700 sq ft of ground floor retail space
with 11,450 sq ft of office space over
two upper floors, and is located in
Cheltenham’s pedestrianised town
centre, adjacent to John Lewis.
Comprehensively refurbished in 2020,
the property has good environmental
credentials including EPC ratings of B
on both the office and retail elements
and no natural gas.
On purchase it was leased to four
occupiers, with an average lease length
of 12 years to expiry and eight years to
break. We have since surrendered one
of the retail leases and re-let the unit to
a national retailer, securing a ten-year
lease, subject to break.
The current contracted rent is £0.4
million, equating to £21 per sq ft, with
most leases containing fixed rental
uplifts that will increase income to
£0.5 million per annum by 2026.
The purchase price reflected a net
initial yield of 7.2%, rising to 9.0%
by 2026. The low capital value of
£277 per sq ft is below its estimated
replacement cost.
We have invested into
our portfolio to enhance
space for our occupiers
and improve the
sustainability credentials
of our buildings.
Jay Cable
Head of Asset Management
Refurbishment upgrades
Over the year we have invested
£6.1 million into the portfolio across
over 15 projects, with the top five
projects accounting for 65% of
the spend.
These have all been aimed at
enhancing space to attract occupiers,
improve sustainability credentials and
grow income. All works undertaken
are in line with our refurbishment
guidelines, outlining best industry
practice, which includes where
appropriate, the removal of natural
gas from buildings, installation of solar
panels and insulation upgrades in line
with our net zero carbon pathway.
We are continually focused on future-
proofing assets from a sustainability
perspective, which has resulted in an
improvement in our EPC ratings with
76% of our properties (by rental value)
now rated C and above.
Read more on pages 14–15
Charlotte Terrace, Hammersmith
Road, W14 –£13.7 million
This mixed-use asset comprises
four adjoining buildings, which total
28,500 sq ft of office space and 4,400
sq ft of retail space, arranged over five
floors. The property was redeveloped
behind the façade in 1990 and is
Grade II listed, meaning there are no
business rates payable on void units.
The property is located close to
Olympia, which is currently undergoing
a £1 billion redevelopment to deliver
a new creative district, with a new
theatre, entertainment venue, hotel,
office, retail and leisure space, which
will enhance the surrounding area.
Since purchase we have leased a retail
unit and an office suite. We are in the
process of relocating an office occupier,
to secure vacant possession of one
of the office buildings so we can
seek a change of use to residential
and the planning application for this
has been submitted.
The purchase price reflects a net initial
yield of 3.3%, rising to over 8% once
fully let and reflecting a low capital
value of £417 per sq ft, which is below
its estimated replacement cost.
Residential values in the area are
approximately £1,000 per sq ft.
Unit 7V Madleaze Trading Estate,
Gloucester – £0.4 million
We acquired another unit on
this industrial estate with vacant
possession, and leased the space to
an existing occupier. The acquisition
helps to consolidate our ownership.
Read more on pages 12–13
In addition, we acquired the freehold
of our Rushden distribution asset for
nil consideration, having previously
owned a long leasehold interest.
£6.1m
Invested into the portfolio
76%
EPC ratings A-C
36
Picton Property Income Limited Annual Report 2023
Looking ahead
Outlook
The sharp yield correction in 2022
has caused a repricing of commercial
property, but we are now seeing
values stabilise, creating potential
opportunities in some sectors.
The quality of our portfolio, which has
benefited from significant investment
in respect of refurbishments and
sustainability upgrades in recent
years, means that we have started to
future-proof properties to ensure that
they are attractive to occupiers. Our
net zero carbon pathway is in place,
and we will continue to invest in the
improvement of our buildings.
Our occupiers remain our key
focus and we have long-standing
relationships with many of them, which
enable us to work with and assist
businesses as they grow and contract.
As at 31 March 2023 the portfolio had
£12.5 million of reversionary income
potential; £5.3 million from letting
the vacant space, £4.2 million from
expiring rent-free periods or stepped
rents and £3.0 million where the rent
is below market level. This is significant
and is our focus for the coming year.
Demand for our industrial properties
continues to be resilient as proven
by our high occupancy and growing
ERVs. With this sector accounting
for 57% of the total portfolio by value,
we believe it will contribute to our
performance off rebased values that
are now stable, with supply constraints
and high building costs likely to lead
to further rental growth.
Many of our office buildings have
had investment into them in recent
years, to upgrade space, create
occupier amenities and improve their
sustainability credentials. Our best-in-
class offices are attracting and retaining
occupiers; however, where we do have
higher vacancy rates, we are exploring
higher value alternative uses, including
residential conversion at two central
London properties. The sector is going
through an adjustment, and we will
look to reduce exposure through
change of use and selective sales.
The retail and leisure sector has
recovered following the pandemic,
but there are still headwinds in
respect of an oversupply of floor space
and a cost of living crisis impacting
disposable income. By virtue of
the marked repricing in this sector
in prior years we believe there are
opportunities in the sector for
selective acquisitions.
The portfolio is well placed and of a
high quality, enabling us to maintain
and enhance income through our
proven occupier focused approach.
Looking forward, our focus is on
growing occupancy and improving
the overall portfolio quality through
selective disposals, reinvestment
and refurbishments to improve the
sustainability credentials of our assets.
Jay Cable
Head of Asset Management
Picton Property Income Limited Annual Report 2023
37
Strategic ReportGovernanceFinancial StatementsAdditional Information Rental income has
increased by 7%
compared to 2022.
Andrew Dewhirst
Finance Director
£570m
£548m
EPRA NDV
2022: £650m
2021: £507m
EPRA NTA
2022: £657m
2021: £528m
Financial Review
A year marked by
resilient income,
despite valuation
movements
100p
Net assets
per share
2022: 120p
2021: 97p
112%
Dividend
cover
2022: 115%
2021: 134%
27%
Loan to value
2022: 21%
2021: 21%
3.5p
Dividends
per share
2022: 3.4p
2021: 2.8p
3.9p
EPRA earnings
per share
2022: 3.9p
2021: 3.7p
£21m
EPRA earnings
2022: £21m
2021: £20m
38
Picton Property Income Limited Annual Report 2023
The early part of this financial year saw
the UK economy continue to grow,
and at 30 June 2022 our net asset
value reached £670 million. However,
the September mini-budget caused a
significant shock to UK markets, with
rising interest rates and bond yields
impacting commercial property
pricing. The negative capital growth
between September and December
was the largest ever quarterly
movement recorded by MSCI.
Our overall loss for the year was
£90.0 million, comprising a negative
valuation movement of £111.3 million
and EPRA earnings of £21.3 million.
This year, we have seen the reversal
of some of the record valuation gains
recorded in 2021/22.
Our EPRA earnings, comprising the
operating results and net interest
expense were £21.3 million for the year,
a small increase over the equivalent
figure last year. As discussed below,
rental income rose by 7.1% compared
to 2022; however, this increase was
largely offset by higher property
operating and void costs.
Commercial property values fell in
the latter half of 2022 as interest rates
and bond yields rose rapidly. Although
we have seen valuation movements
moderating in the first quarter of 2023,
further interest rate rises may still have
an adverse impact this year.
Based on these results our total return
for the year was -13.9%, compared to
28.3% for the year to 31 March 2022.
Net asset value
The net assets of the Group at 31 March
2023 were £547.6 million, or 100 pence
per share, which was a fall of 16.7% over
the year. The chart below shows the
components of this decrease.
March 2022 net asset value
EPRA earnings
Valuation movement
Share-based awards
Purchase of shares
Dividends paid
March 2023 net asset value
£m
657.1
21.3
(111.3)
0.7
(1.1)
(19.1)
547.6
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 assets – IFRS and EPRA net tangible asset value
Fair value of debt
EPRA net disposal value
Net asset value per share (pence)
EPRA net tangible asset value per share (pence)
EPRA net disposal value per share (pence)
2023
£m
547.6
22.8
570.4
100
100
105
2022
£m
2021
£m
657.1
528.2
(6.7)
(21.0)
650.4
507.2
120
120
119
97
97
93
95% of our borrowings are at fixed
rates and do not mature until 2031/32.
This year we have drawn down further
under our revolving credit facility to
finance acquisitions. Although only a
relatively small element of our total
borrowings, the interest rate on our
revolving credit facility has increased
from 2.3% in March 2022 to its current
rate of 5.8%.
The negative capital movement on
the portfolio was £111.3 million for
the year, including the movement
on owner-occupied property. The
industrial sector saw the largest
movement, especially where yields
were lowest.
Income statement
The result for the year is dominated
by the adverse valuation movement
at the end of 2022 as property yields
moved out. However, EPRA earnings
were stable, with increased rental
income largely offset by increased
property costs.
Total revenue from the property
portfolio for the year was £51.8
million, up from £46.5 million last year.
Rental income has increased by 7.1%
compared to 2022, as a result of the
impact of new acquisitions over the
full year, as well as rental growth.
Property operating and void costs
have shown a marked increase this
year, from £4.9 million to £7.1 million.
This is partly the result of the higher
vacancy rate, but also demonstrates
the impact of inflation and higher
costs over the past year. Administrative
expenses, however, only increased
by a small amount, £0.2 million, or
3.5%, to a little under £6.0 million.
Staff costs were broadly in line with
the previous year, while some one-
off costs incurred this year increased
other corporate expenses.
Interest and other finance costs
have increased from £8.5 million to
£9.0 million. This is partly due to the
additional interest on the increased
Canada Life facility, which completed
in March 2022. This transaction also
extended the facility to 2031, reduced
the interest rate to 3.25% and enabled
us to repay most of the revolving
credit facility.
Picton Property Income Limited Annual Report 2023
39
Strategic ReportGovernanceFinancial StatementsAdditional Information Financial Review/Continued
Dividends
This year we have maintained our
quarterly dividend rate of 0.875 pence
per share, equating to an annual rate
of 3.5 pence per share. Total dividends
paid out were £19.1 million, an increase
of 3.6% compared to 2022. Dividend
cover for the year remained healthy
at 112%.
Investment properties
The appraised value of our investment
property portfolio was £766.2 million
at 31 March 2023, lower than the
£849.3 million reported a year ago.
We have made acquisitions this
year, for a total consideration of
£20.6 million, including costs. These
acquisitions are discussed in more
detail in the Portfolio Review section.
Also this year, we have invested £6.1
million of capital expenditure in the
portfolio upgrading a number of
assets, including Madleaze Trading
Estate, Gloucester, Colchester
Business Park, Lyon Business Park,
Essex and Metro, Manchester.
In line with last year, the value of the
floor that we occupy at Stanford
Building, London, has been excluded
from the value of Investment
Properties and included separately
with Property, Plant and Equipment.
Any capital movements arising from
the revaluation of this element of
the property are shown within
Other Comprehensive Income.
At 31 March 2023 the portfolio
comprised 49 assets, with an
average lot size of £15.6 million.
A further analysis of capital
expenditure, in accordance with EPRA
Best Practices Recommendations, is
set out in the EPRA BPR and
Supplementary Disclosures section.
Fixed rate loans (£m)
Drawn revolving facility (£m)
Total borrowings (£m)
Borrowings net of cash (£m)
Undrawn facilities (£m)
Loan to value ratio (%)
Weighted average interest rate (%)
Average duration (years)
2023
212.6
11.9
224.5
204.4
38.1
26.7
3.8
8.4
2022
213.9
4.9
218.8
180.3
45.1
21.2
3.7
9.6
2021
166.2
–
166.2
142.8
50.0
20.9
4.2
8.9
Borrowings
Cash flow and liquidity
Total borrowings are now £224.5
million at 31 March 2023, with the
loan to value ratio at 26.7%. The
weighted average interest rate on
our borrowings is 3.8%, while the
average loan duration is now 8.4 years.
Our loan facility with Aviva reduced by
the regular amortisation, £1.4 million
in the year.
The Group remained fully compliant
with its loan covenants throughout
the year. At 31 March 2023, we had
£11.9 million drawn under the revolving
credit facility, which matures in 2025.
This year we drew down £7.0 million
under this facility, largely to fund the
acquisition of the new Cheltenham
asset, as well as for ongoing capital
expenditure projects.
The fair value of our drawn borrowings
at 31 March 2023 was £201.7 million,
lower than the book value by some
£22.8 million. As a result, our EPRA
NDV asset value was £570.4 million
at 31 March 2023, higher than the
reported net assets under IFRS. Both
lending margins and gilt yields are
currently higher relative to the rates
set on our facilities.
A summary of our borrowings is set
out in the table above.
Our cash outflow for the year was
£18.5 million. The cash flow from
operating activities this year is £23.0
million, some 15% higher than the
previous year. We invested £26.8
million during the year; £20.6 million
being the consideration paid for two
principal acquisitions, as well as £6.1
million of capital expenditure. Overall
borrowings increased by £5.6 million.
Dividends paid increased to £19.1
million. Our cash balance at the
year-end stood at £20.1 million.
Share capital
No new ordinary shares were issued
during the year.
The Company’s Employee Benefit
Trust acquired a further 1,250,000
shares, at a cost of £1.1 million, or 90
pence per share, during the year. This
was to satisfy the future vesting of
awards made under the Long-term
Incentive Plan and Deferred Bonus
Plan, and now holds a total of
2,388,694 shares. As the Trust is
consolidated into the Group’s results,
these shares are effectively held in
treasury and therefore have been
excluded from the net asset value and
earnings per share calculations, from
the date of purchase.
Andrew Dewhirst
Finance Director
24 May 2023
40
Picton Property Income Limited Annual Report 2023
EPRA Best Practices Recommendations (BPR)
EPRA measures
The EPRA key performance measures for the year are
set out here, with more detail provided in the EPRA
BPR and Supplementary Disclosures section which
starts on page 155. This year we have also included the
EPRA loan to value measure (EPRA LTV).
Alternative performance measures (APMs)
We use a number of alternative performance
measures (APMs) when reporting on the performance
of the business and its financial position. These do not
always have a standard meaning and may not be
comparable to those used by other entities. However,
we 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,
occupier retention rate, employee satisfaction and
EPC ratings. The definition of these measures, and
the rationale for their use, is set out in the Key
Performance Indicators section.
EPRA’s mission
The European Public Real Estate Association’s (EPRA)
mission is to promote, develop and represent the
European public real estate sector. As an EPRA
member, we fully support the EPRA Best Practices
Recommendations which recognise the key
performance indicator measures, as detailed here.
Specific EPRA metrics can also be found within the
Key Performance Indicators section of this report with
further disclosures and supporting calculations on
pages 155 to 158.
105p
EPRA NDV
per share
2022: 119p
2021: 93p
£21.3m
EPRA
earnings
2022: £21.2m
2021: £20.1m
9.5%
EPRA
vacancy rate
2022: 7.2%
2021: 8.8%
5.0%
EPRA net
initial yield
2022: 4.1%
2021: 4.8%
21.3%
EPRA cost ratio2
2022: 19.9%
2021: 20.8%
100p
EPRA NTA
per share
2022: 120p
2021: 97p
110p
EPRA NRV
per share
2022: 131p
2021: 105p
3.9p
EPRA earnings
per share
2022: 3.9p
2021: 3.7p
5.5%
EPRA ‘topped-up’
net initial yield
2022: 4.8%
2021: 5.5%
29.9%
EPRA cost ratio1
2022: 26.0%
2021: 26.9%
27.0%
EPRA LTV
2022: 21.3%
2021: 21.0%
1 Including direct vacancy costs
2 Excluding direct vacancy costs
Picton Property Income Limited Annual Report 2023
41
Strategic ReportGovernanceFinancial StatementsAdditional Information
Principal Risks
Managing risks
The Board recognises that there are
risks and uncertainties that could have a
material impact on the Group’s results.
The UK Corporate Governance
Code requires the Board to make a
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.
Risk management provides a
structured approach to the
decision-making process such that
the identified risks can be mitigated
and the uncertainty surrounding
expected outcomes can be
reduced. The Board has developed
a Risk Management Policy which it
reviews on a regular basis. The Audit
and Risk Committee carries out
a detailed assessment of all risks,
whether investment or operational,
and considers the effectiveness of
the risk management and internal
control processes. The Executive
Committee is responsible for
implementing strategy within the
agreed Risk Management Policy,
as well as identifying and assessing
risk in day-to-day operational
matters. The Management
Committees support the Executive
Committee in these matters.
The small number of employees
and relatively flat management
structure allow risks to be quickly
identified and assessed. The Group’s
risk appetite will vary over time and
during the course of the property
cycle. The principal risks – those
with potential to have a material
impact on performance and
results – are set out here, together
with mitigating controls.
Principal risks
and trends
Increasing
No change/stable
Decreasing
1 Political and economic
2
Market cycle
3 Regulatory and tax
4 Climate change resilience
5 Portfolio strategy
6 Investment
7 Asset management
8 Valuation
9 People
10 Finance strategy
11 Capital structure
42
Picton Property Income Limited Annual Report 2023
Climate-related risks
Emerging risks
Last year the Board carried out an
assessment of the physical and
transition risks most relevant to the
business, and undertook a review
of its procedures for identifying
and managing those risks. The
recommendations arising from the
review have been implemented
this year. The mitigating actions
that have been carried out in
respect of climate-related risks
are described in the Task Force on
Climate-related Financial Disclosures
section of the report, together with
more detail on the risk assessment
and modelling undertaken.
Read more on pages 47–55
During the year the Board has
considered themes where emerging
risks or disrupting events may impact
the business. These may arise from
behavioural changes, political or
regulatory changes, advances in
technology, environmental factors,
economic conditions or demographic
changes. All emerging risks are
reviewed as part of the ongoing
risk management process.
The principal emerging risks have
been identified to be:
‒ high inflation remaining in the UK
economy, causing further interest
rate rises and an adverse impact
on asset values;
‒ further political uncertainty in the
lead-up to a general election in
the UK;
‒ the increasing importance of
sustainability issues to
all stakeholders;
‒ changing demand for commercial
space, as businesses reassess their
requirements in the light of more
flexible working, advances in AI
technology and employee
wellbeing;
‒ changes in regulations are
increasing environmental
standards and property owners
must keep pace to avoid the risk
of stranded assets; and
‒ cyber security, with an increased
prevalence of ransomware attacks
and greater vulnerability of systems
with home working.
Risk management framework
The matrix below illustrates the assessment of the
impact and likelihood of each of the principal risks.
Board
– Has overall responsibility for risk management
– Determines business model
– Considers risk appetite
Executive Committee
– Implements strategy
and risk policy
– Identifies and
assesses risks
– Carries out
risk mitigation
Audit and Risk
Committee
– Recommends risk
management policy
– Reviews internal controls
– Reviews detailed
risk matrix
– Considers principal
and emerging risks
Management Committees
– Review specific transaction risks
– Consider forthcoming legislation
– Review operational risk
Corporate Strategy
Property
6
6
1
1
4
4
2
5
5
8
8
7
9
3
2
10
11
11
Financial
Operational
Principal risk likelihood
High
Medium
Low
Estimated risk
of occurrence within
next five years
0% to 10%
10% to 33%
Greater than 33%
Read more on pages 44–46
Picton Property Income Limited Annual Report 2023
43
Strategic ReportGovernanceFinancial StatementsAdditional Information Principal Risks/Continued
Corporate Strategy
1
Political and economic
Risk
Mitigation
Commentary
Risk trend
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.
The Board considers economic
conditions and market uncertainty when
setting strategy, considering the financial
strategy of the business and in making
investment decisions.
Economic uncertainty has risen over the
year, although is less than in the immediate
aftermath of the September mini-budget.
Interest rates have risen significantly and
inflation remains at a high level. The cost
of living crisis is still evident and industrial
disputes, particularly in the public sector,
are causing further disruption. The UK
economy is not forecast to grow by any
meaningful amount over the next year.
The war in Ukraine continues to impact
global politics and economics.
2
Market cycle
Risk
Mitigation
Commentary
Risk trend
The property market is cyclical and
returns can be volatile. There is an
ongoing risk that the Company fails to
react appropriately to changing market
conditions, resulting in an adverse
impact on shareholder returns.
The Board reviews the Group’s strategy
and business objectives on a regular basis
and considers whether any change is
needed, in light of current and forecast
market conditions.
Economic factors have caused more
volatility in the property market this year.
Interest rates and bond yields have risen,
with a consequent adverse impact on
property yields and valuations, particularly
towards the end of 2022.
3
Regulatory and tax
Risk
Mitigation
Commentary
Risk trend
There are no significant changes expected
to the regulatory environment in which
the Group operates.
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.
The Board and senior management
receive regular updates on relevant laws
and regulations from the Group’s
professional advisers.
The Group has a Health and Safety
Committee which monitors all health
and safety issues including oversight of
the Property Manager.
The Group is a member of the BPF
and EPRA, and management attend
industry briefings.
4
Climate change resilience
Risk
Mitigation
Commentary
Risk trend
Failure to react to climate change could
lead to reputational damage, loss of
income and value and being unable to
attract occupiers. Rising materials and
energy costs as a result of climate
change could give rise to asset
obsolescence.
Sustainability is embedded within the
Group’s business model and strategy.
We have published our pathway to net
zero carbon and have reported on our
progress this year.
We have addressed the identification and
assessment of climate-related risks as
identified through the TCFD process.
Climate change resilience remains a key
issue for property owners. The increasing
cost of energy has raised the importance
of building efficiency for occupiers. On-site
renewables, such as solar panels, are
increasingly being included in
refurbishment projects.
44
Picton Property Income Limited Annual Report 2023
Property
5
Portfolio strategy
Risk
Mitigation
Commentary
Risk trend
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.
The Group maintains a diversified portfolio
in order to minimise exposure to any one
geographical area or market sector.
The industrial sector, having benefitted
from strong investment demand leading
to lower yields, saw a greater valuation
movement in 2022. Demand for the
office sector remains muted as
businesses continue to reassess their
requirements. The retail sector is showing
some improvement, but from a low base.
6
Investment
Risk
Mitigation
Commentary
Risk trend
Investment decisions may be flawed as
a result of incorrect assumptions, poor
research or incomplete due diligence,
leading to financial loss.
The Executive Committee must approve all
investment transactions over a threshold
level, and significant transactions require
Board approval.
A formal appraisal and due diligence
process is carried out for all potential
purchases including environmental
assessments.
A review of each acquisition is performed
within two years of completion.
Volatility in the investment market has
increased over the year. There is more
uncertainty in making investment
decisions due to increasing costs,
climate-related risks and recessionary
pressures.
7
Asset management
Risk
Mitigation
Commentary
Risk trend
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.
Management prepare business plans for
each asset which are reviewed regularly.
The Executive Committee must approve all
investment transactions over a threshold
level, and significant transactions require
Board approval.
Rent collection has remained high
throughout the year, with limited
occupier defaults.
Management maintain close contact
with occupiers to have early indication
of intentions.
Management regularly assess the
performance of the Group’s Property
Manager.
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
Commentary
Risk trend
The Group’s property assets are valued
quarterly by an independent valuer with
oversight by the Property Valuation
Committee. Market commentary is
provided regularly by the independent
valuer.
The Board reviews financial forecasts for
the Group on a regular basis, including
sensitivity and adequate headroom against
financial covenants.
Following the mini-budget in September
2022, there were significant increases in
interest rates and bond yields, causing
commercial property valuations to
decline. After a marked fall in December,
valuations have subsequently stabilised
to some extent. However, further interest
rate rises may cause some further
pressure on valuations.
There remains good headroom against
the Group’s lending covenants.
Picton Property Income Limited Annual Report 2023
45
Strategic ReportGovernanceFinancial StatementsAdditional Information Principal Risks/Continued
Operational
9
People
Risk
Mitigation
Commentary
Risk trend
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.
The Board has a remuneration policy in
place which incentivises performance and
is aligned with shareholders’ interests.
All employees receive an annual
performance appraisal including training
and development needs.
The team has remained stable
throughout the year with no leavers.
Positive feedback was received from the
employee engagement survey. Flexible
working arrangements for the team have
been maintained.
There is a Non-Executive Director
responsible for employee engagement who
provides regular feedback to the Board.
Financial
10
Finance strategy
Risk
Mitigation
Commentary
Risk trend
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.
11
Capital structure
The Group has mainly fixed rate
long-term borrowings in place. Covenants
are monitored regularly and there is good
headroom against these. The revolving
credit facility has been extended for a
further year until 2025.
The Board reviews financial forecasts for
the Group on a regular basis, including
sensitivity against financial covenants.
The Group’s property assets are valued
quarterly by an independent valuer with
oversight by the Property Valuation
Committee. Market commentary is
provided regularly by the independent
valuer.
The Audit and Risk Committee considers
the going concern status of the Group
biannually.
Risk
Mitigation
Commentary
Risk trend
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.
The Board regularly reviews its gearing
strategy and debt maturity profile, at
least annually, in light of changing
market conditions.
The use of gearing has amplified the
valuation movements this year, resulting
in lower returns. However, the Group’s
loan to value ratio remains low.
The Group has a revolving credit facility
in place which can be repaid if required
to reduce the level of gearing.
46
Picton Property Income Limited Annual Report 2023
TCFD Statement
Managing and
reporting climate-
related risks
We are committed to proactively managing our climate-
related risks and reporting climate-related financial
information publicly and transparently for our stakeholders.
Here we disclose the climate-related risks and opportunities
we have identified to the business and outline our
overarching risk management approach in accordance with
the Task Force on Climate-related Financial Disclosures’
(TCFD) recommendations. Complying with the LSE Listing
Rules published by the Financial Conduct Authority in
2022, all disclosures in this report comply with all 11 TCFD
recommendations and recommended disclosures.
Recommendation
Commentary
Governance
The Board’s oversight of
climate-related risks and
opportunities
The Board has ultimate responsibility for climate-related risk oversight and management, including
setting the Group’s risk appetite that defines the limits of the Group’s activities and reviewing the Group’s
risk matrix and risk radar. As climate-related risks have been identified as a principal risk to the business,
they are directly overseen by the Board and actively monitored across all levels of the business.
Our governance structure (see page 94) facilitates continuous oversight by the Board as its members also
chair our Board and Management Committees, which have formalised climate-related responsibilities.
The Audit and Risk Committee is responsible for updating the Board on the current and planned actions
being taken to mitigate material climate-related risks to the Group.
In adopting the Risk Management Policy, the Audit and Risk Committee is also formally responsible for
identifying, managing and overseeing climate-related risks and wider sustainability issues facing the
Group, using qualitative and quantitative metrics as appropriate, and for reviewing the Risk Management
Policy at least annually, revising it as necessary to support our agile risk management approach. The
Committee normally meets three times each year and the Chair, Mark Batten, is responsible for
reporting the Committee’s findings and recommendations to the Board after each meeting, including
updates on the Group’s overall risk appetite, risk profile and risk strategy, accounting for the current and
prospective macroeconomic and financial environment, and appropriate climate-related scenarios.
Management’s role in
assessing and managing
climate-related risks and
opportunities
The Responsibility Committee, chaired by Andrew Dewhirst, meets regularly to consider all aspects of
sustainability and is formally responsible for identifying and reporting any emerging climate-related risks
and opportunities. The Committee ensures compliance with all relevant ESG standards and legislation
and provides regular updates to the Executive Committee. The Committee is also responsible for
overseeing the Climate Action Working Group and our progress against the net zero carbon pathway.
A detailed overview
of our Governance
structure can be
found on page 94
The Executive Committee, chaired by Michael Morris, is formally responsible for the day-to-day
operational application of the Risk Management Policy, including identifying, managing and
monitoring all climate-related risks. The Committee ensures that physical and transition climate-
related risks are evaluated and recorded in the risk matrix and risk radar on a regular basis, and as
appropriate, it escalates risks to the Audit and Risk Committee and Board.
The Executive Committee maintains day-to-day management and oversight of all risks identified
and their mitigating activities, and reports recommendations to the Audit and Risk Committee or
the Board for the Risk Management Policy.
In response to recommendations provided through a detailed climate risk governance gap analysis
assessment, conducted in collaboration with third-party sustainability consultants, we updated and
formalised climate-related issues into our governance structures and risk management procedures at
all levels of the business. This will ensure that our governance, oversight and management of climate-
related issues is robust, enhancing our ability to respond and adapt to climate change challenges.
We have also established a Climate Action Working Group in response to the increasing environmental
focus within our business. The two key areas of focus for the Climate Action Working Group are
mitigating the impact of climate change on our portfolio and delivering against our commitment to
net zero carbon.
All members of the Responsibility Committee sit on the Climate Action Working Group, alongside
other members of the team from across the business. The Responsibility Committee maintains
oversight of the Climate Action Working Group and is responsible for progressing all of our sustainability
priorities. The Climate Action Working Group meets at least bimonthly to discuss and agree actions
and associated progress.
Picton Property Income Limited Annual Report 2023
47
Strategic ReportGovernanceFinancial StatementsAdditional Information TCFD Statement/Continued
Recommendation
Commentary
Strategy
Climate-related risks and
opportunities identified
over the short, medium
and long-term
Many climate-related risks will materialise over the medium to long-term and the assets we acquire
and hold will still be here far into the future. Therefore, without appropriate risk management, these
risks could have severe financial and reputational implications as well as physical risks to those
occupying them. We believe it is vitally important to consider climate risk from multiple angles and
timeframes. Therefore, we conducted a rigorous climate risk assessment across the two climate
scenarios RCP 4.5 (Representative Concentration Pathways) and RCP 8.5 by the Intergovernmental
Panel on Climate Change (IPCC) to identify the top climate-related risks and opportunities to our
business in the short term (2020–2029), medium-term (2030–2039) and long term (>2040) as well as
to assess their implications and the necessary actions to manage them. Our in-depth understanding
of our material climate risks has enabled informed decision making, allowing us to employ robust risk
management processes to address our material climate risks.
Scenario analysis
The comprehensive climate risk assessment process covered all relevant climate-related risks,
selected as appropriate to the geography of our assets and the asset types in scope, across
the decades 2020–2029, 2030–2039 and 2040–2049 under scenarios RCP 4.5 and RCP 8.5. By
conducting both qualitative and quantitative climate risk assessments at the business and portfolio
level, respectively, we were able to identify the risk profiles of our assets and most at-risk assets,
strengthening our ability to make sound strategic decisions on where to focus mitigation actions and
harness opportunities.
The portfolio modelling, in collaboration with a leading modelling provider, assessed our assets’
susceptibility to climate-related risks, including physical risks, for example, flooding, heat stress and
extreme weather events and transition risks, such as market risks and technology, in quantitative
terms, exposing the potential financial losses and savings associated.
The business level assessment qualitatively determined the likelihood and impact of a range of
physical and transition climate-related risks on a scale of one to five, with consideration of the
portfolio modelling results, by rigorously analysing the most up-to-date, peer-reviewed scientific
literature. The impact assessment factored in the level of disruption, financial impact and ease/cost of
mitigation of the risk, ranging from minimal or no impact (1) to catastrophic impact that threatens
the business’ future (5). Likelihood was based on the probability, frequency, duration of impact and
speed at which the risks materialise, ranging from risks with a short duration that materialise
gradually to risks that materialise rapidly and endure over a significant period. High impact
opportunities were also identified in relation to our business strategy.
We identified our top risks, which are included in the table below.
Time horizons
We have selected time horizons aligning with climate policy and available data. We have assessed
our time horizons and current business strategy against climate risks over the short, medium and
long-term.
Short-term 2020–2029
To mitigate the largest impacts
in the current decade, plans and
resilience measures must be
implemented in the immediate
term. We are investing in our
resilience now and setting short-
term targets.
Medium-term 2030–2039
We aim to achieve net zero
carbon by 2040, ahead of the
UK Government’s 2050 target.
Aligning this time horizon to our
decarbonisation target supports
clear stakeholder communications
and asset planning, as net zero
carbon and climate resilience
measures can be executed
in parallel.
Long-term 2040–2049
We recognise that long-term
climate risks present near-term
challenges, such as reputational
damage or reduced asset values.
Identifying these risks has guided
our investment decision to embed
climate resilience across our
business and portfolio.
48
Picton Property Income Limited Annual Report 2023
Recommendation
Commentary
Strategy continued
Physical and transition climate-related risks
Time
horizon
Risk
Risk
description
Risk
impacts
Risk
mitigations
Changes in
market and
occupier
expectations
and demand
Increased
building
standards
requirements
Financial
market impacts
As markets shift to meet growing demand
for low or zero carbon alternatives, climate
resilient assets could achieve ‘green
premiums’ by outperforming unsustainable
assets. Failure to adapt could create
competitive risk and occupier default risk,
while demand also may shift away from
certain geographies or sectors.
‒ Lower demand for inefficient
assets, creating lower rental and
asset values
‒ Stranded asset risk in high-risk
geographies
‒ Occupier default risk for occupiers
with carbon intensive operations
Policy mandates buildings and
developments to adhere to higher
standards, to improve efficiencies and
operational practice, and to embed climate
resilience on-site. Non-compliant assets
could experience reputational risk and
reduced occupier demand.
‒ Capital expenditure cost to meet
new standards
‒ Stranded asset risk and increased
void period for non-compliance
Macroeconomic instability could transpire
as market preferences shifts towards low
carbon solutions and climate resilience, or
due to sustained damage from climate-
related physical impacts, potentially affecting
our ability to secure financial capital,
acquisition activities and asset values.
‒ Rise in interest rates and a decrease
in economic growth leading to
higher financial capital costs
‒ Economic downturn reducing rental
income and asset value and
increasing occupancy risk
Short-
term:
2020–
2029
Decarbonisation
and increased
energy demand/
cost
Increasing the share of renewable energy
sources and decarbonising energy-intensive
industries could intensify other transition
risks associated with reputation damage,
financial impacts and litigation risk.
Flooding
Medium-
term:
2030–
2039
Heat stress
Increased duration and intensity of
precipitation, snow melt and rising sea levels
will exacerbate all types of flooding. Our
current portfolio is exposed to fluvial and
pluvial flooding risk, with limited exposure
to coastal flooding.
Rising mean temperature and extreme
temperature highs put pressure on both
our assets and people. Our concentration
of assets in Southern England increases
our susceptibility to this risk and to
associated costs.
Extreme
weather
events
Extreme weather events, including storms,
heavy winds, heavy precipitation, drought
and snow could become more frequent
and severe, exacerbated by shifting sea
temperatures and seasonal patterns.
Drought and
water stress
Water becomes increasingly scarce, with
supply unable to meet demand. As
temperatures rise, average drought lengths
could increase, with implications on water
costs, supply chains and public health.
Long-
term:
(>2040)
Transition risk
Physical risk
‒ Rise in energy prices due to support
for low carbon generation and
taxation
‒ Increased operational costs, fuelled
by price increases and rising
demand for cooling
‒ Increase in material and
procurement costs due to supply
chain disruptions and carbon tax
on embodied carbon
‒ Repair costs and loss of access
to asset
‒ Capital expenditure to install
mitigation measures
‒ Reduced regional investment
and footfall
‒ Decline in asset value or stranded
asset risk
‒ Degradation of plant and
equipment leading to capex
associated with replacement
‒ Increased operational costs
‒ Reduced occupier demand for
spaces lacking sufficient cooling
and/or ventilation
‒ Repair costs and loss of access to
asset
‒ Capital expenditure to install
mitigation measures
‒ Decline in asset value or stranded
asset risk
‒ Increased operational costs
‒ Decline in asset value for water
inefficient asset
‒ Capital expenditure to improve
efficiency
‒ Regularly review
market and occupier
demand
‒ Regularly review
regulation and
building standards
legislation
‒ Monitor the
macroeconomic and
financial environment
on an ongoing basis
‒ Implement a
policy of continual
improvement
‒ Implement our net
zero carbon pathway
‒ Implement
refurbishment
guidelines that
incorporate transition
risk mitigation
measures
‒ Conduct renewable
energy feasibility
studies across our
portfolio
‒ Annual asset business
plans consider all
material physical
climate risks
‒ Assess asset resilience
to material climate
risks
‒ Implement resilience
measures, prioritising
our most at-risk assets
‒ Implement our net
zero carbon pathway,
including installing
on-site renewables and
introducing software
to track embodied
carbon from ‘in use’
standing assets
‒ Implement our
refurbishment
guidelines that
incorporate physical
risk mitigation
measures
Picton Property Income Limited Annual Report 2023
49
Strategic ReportGovernanceFinancial StatementsAdditional Information TCFD Statement/Continued
Recommendation
Commentary
Strategy continued
Climate-related risk matrix:
5
4
3
e
c
n
a
c
fi
n
g
S
i
i
7
3
5
6
1
8
2
4
4
5
2
2
Likelihood
3
Short-term 2020–2029
Medium-term 2030–2039
Long-term 2040–2049
1. Changes in market and
occupier expectations
and demand
2.
Increased building
standards/requirements
4. Decarbonisation and
8. Drought and water stress
increased energy demand/cost
5. Flooding (fluvial and pluvial)
6. Heat stress
3. Financial market impacts
7. Extreme weather events
Additionally, we have identified opportunities that we can leverage to deliver outstanding climate-
related performance to our occupiers. These include investment into low-carbon technologies and
climate adaptation measures to achieve our net zero carbon ambitions, secure premium occupiers,
enhance asset values, enhance our reputation and future-proof our business.
50
Picton Property Income Limited Annual Report 2023
Recommendation
Commentary
Strategy continued
Impact of climate-related
risks and opportunities on
the organisation’s
businesses, strategy
and financial planning
We recognise that climate change will impact our business and that we must play our part in
tackling this global challenge. Therefore, we integrate sustainable thinking in all our activities and
accordingly, climate-related issues inform our business, strategy and financial planning decisions
and processes.
Our pathway to achieve net zero carbon by 2040 aligns with the Better Buildings Partnership (BBP)
Net Zero Carbon Pathway Framework and the UK Green Building Council’s (UKGBC) net zero
carbon hierarchy. To achieve our ambitious sustainability targets, including net zero, and enhance
our resilience to climate change impacts, climate-related risks have been embedded into our
business strategy and planning processes at all stages of the property life cycle.
During the acquisition process, we undertake environmental assessments to identify climate-
and environmental-related risks associated with the property and ground conditions, including
flooding. This year, we enhanced our acquisition due diligence by formally defining our risk
appetite in respect to ESG and climate risk. For example, all acquisitions must consider our net zero
carbon pathway, and how the acquisition could impact its aims and timeline, including financial
implications. Additionally, we set minimum criteria addressing physical and transition climate risks
such as flooding (fluvial and pluvial), building fabric and EPCs. This helps us identify and implement
opportunities to strengthen our net zero readiness and make conscientious investment decisions.
If an acquisition does not meet our minimum criteria, there has to be a clear financial rationale to
proceed, which considers the size of the asset relative to the risk and portfolio.
Refurbishments provide an opportunity to undertake climate resilience and net zero carbon
upgrades therefore, we have created net zero carbon guides for all asset types (industrial, office,
retail and leisure) in our portfolio, which outline best practice measures that should be assessed
for installation to improve energy efficiency and enhance the asset’s climate resilience. Measures
include, for example, on-site renewable energy generation and low-carbon heating and lighting
alternatives. As we recognise that industry knowledge, technology and mitigation interventions
are constantly improving, these guides will evolve to reflect market innovations, as well as our
changing net zero carbon goals. These guides support our existing sustainable refurbishment
guidelines, which integrate a range of climate-related minimum criteria. For example, medium
refurbishments must meet minimum EPC B standards or BREEAM Excellent (or equivalent),
supporting our overall sustainability performance and resilience to climate-related risks.
Additionally, we have appointed an in-house building surveyor to support our asset managers
on all capital works projects to ensure they have access to sustainability expertise.
Effective collaboration with our occupiers is essential if we are to achieve our net zero
commitment. Therefore, we created occupier fit-out principles that outline a series of measures
and criteria our occupiers should engage with during fit-out works to improve the asset’s
sustainability performance and climate resilience. Principles are established relating to, but not
limited to, occupier engagement, low energy use, EPCs, minimising and omitting fossil fuels,
embodied carbon and waste, aligning with our strategic sustainability goals.
Our actions this year have further developed how we address climate-related issues and our
commitment to future-proof our business and portfolio continues. Our sustainability action plan
roadmap sets out key actions we intend to undertake in future to ensure we can continue to
operate in a world with increasing climate change impacts. As a BBP member, underpinning our
strategy are climate mitigation and climate adaptation , which we consider as equally necessary to
achieve holistic climate resilience.
Picton Property Income Limited Annual Report 2023
51
Strategic ReportGovernanceFinancial StatementsAdditional Information
TCFD Statement/Continued
Recommendation
Commentary
Strategy continued
Resilience of the
organisation’s strategy,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario
Our net zero carbon pathway is aligned with targets for a 1.5°C scenario. In achieving these targets,
we will simultaneously be managing several transition and physical climate risks material to the
business.
Having conducted comprehensive business and portfolio climate risk assessments across the
IPCC’s RCP 4.5 and RCP 8.5 scenarios, we have a clear understanding of our material climate-
related risks and opportunities. This knowledge has enabled us to proactively implement
management, mitigation and adaptation measures to improve our resilience and act early to
harness opportunities.
Our chosen scenarios align with industry best practice and cover the most likely range of average
global temperature rise in the coming decades. The RCP 4.5 climate scenario is characterised by
significant policy action and market forces to decarbonise and meet the Paris Agreement. Our
resilience to risks presented by the low-carbon transition is being secured by implementing our
net zero carbon pathway and related activities described in this TCFD disclosure. The RCP 8.5
scenario is characterised by significant changes in weather patterns and severe physical hazards.
Our resilience against risks associated with this high emissions scenario is being secured by
embedding stringent mitigation measures to support climate adaptation and resilience across
each stage of the property life cycle and our proactive approach to assessing and managing risks.
Analysing these distinct climate scenarios has enabled us to understand the wide scope of
climate-related risks and opportunities and inform actions to support our resilience.
Our scenarios
RCP 4.5
Low emissions scenario
Transition
Lower emissions scenario where there is
increasing policy action to meet the Paris
Agreement. Transition risks dominate.
Scenario impact
1.7–3.2°C
by 2100
Economic
Substantial regulatory and market
pressure to decarbonise and associated
costs to meet these demands.
Environmental
Less physical risk, although a 2°C
warming still presents substantial
physical climate risks.
RCP 8.5
High emissions scenario
Transition
Higher emissions, business-as-usual scenario
where policy action is negligible and warming
rises drastically. Physical risks dominate.
Scenario impact
Economic
Permanently stunted GDP growth
and severe economic and social shifts.
3.2–5.4°C
by 2100
Environmental
Chronic changes to weather patterns
and ecosystems causing severe impacts
on a global scale.
52
Picton Property Income Limited Annual Report 2023
Recommendation
Commentary
Risk management
Describe the organisation’s
processes for identifying
and assessing climate-
related risks
In recognition of the threat climate change poses to our business, sector and global economy, in
early 2022 we conducted a rigorous climate risk assessment. At both the business and portfolio
level, we identified our material climate-related risks and assessed their potential likelihood and
significance, quantitatively and qualitatively, relative to each other. These results have been
integrated into our risk matrix, containing all of our material corporate risks, and given probability,
impact and residual impact ratings ranging from low to high to demonstrate the relative
significance of climate-related risks to other risks. Furthermore, this year, we updated our emerging
risk dashboard into a risk radar that identifies the principal and emerging risks to the business. Our
risk radar recognises ‘climate change’ as a top principal risk to the business, and therefore embeds
climate-related considerations into all our risk management and decision-making processes.
Climate-related risks are reviewed on an ongoing basis by the Executive Committee and presented
to the Board as part of the annual Risk Management Policy review, or as necessary.
Results from the climate risk assessments highlighted that flooding is a key physical risk facing
our existing portfolio. Therefore, this year we completed asset-level desktop assessments for our
entire portfolio to understand our exposure to this climate risk at a more granular level, addressing
flooding from rivers, surface water, reservoirs and sea. This helped us to assign a risk ranking to
each asset, ranging from very low to high, whereby mitigation action is required at assets with a
medium or high rank where flooding exposure is material. This exercise has and will continue to
inform our investment into flood resilience measures, enabling us to prioritise our most at-risk
assets. The initial assessments identified a number of properties where further investigation is
required. This will take place during 2023/24.
Picton Property Income Limited Annual Report 2023
53
Strategic ReportGovernanceFinancial StatementsAdditional Information
TCFD Statement/Continued
Recommendation
Commentary
Risk management continued
Describe the organisation’s
processes for managing
climate-related risks
Our risk matrix and risk radar are reviewed and updated regularly by the Executive Committee
to ensure that we remain attentive to the changing nature of these risks and to reflect evolving
stakeholder requirements and the wider macroeconomic and geopolitical landscape. The risk
matrix identifies individual climate-related risks with a residual risk ranking (low, medium and high)
and mitigating controls and individual responsibility are determined to ensure risks are managed
appropriately. Based on ranking, risks are communicated across relevant levels of our business.
As we now have a comprehensive understanding of our material climate-related risks to our
portfolio, this year we began undertaking asset resilience inspections to measure each asset’s
resilience to its material climate-related risks. Next year, we will continue inspections across our
portfolio, helping us to understand our portfolio’s baseline resilience to climate risk impacts and
informing our asset resilience planning and capital expenditure requirements. This ensures that our
most at-risk assets are prioritised, building our climate resilience where it matters most first. We have
created a TCFD and net zero carbon action tracker that is utilised across the business to record the
actions being taken to manage physical and transition climate-related risks at the portfolio level and
asset level. This document is monitored centrally and reviewed by the Executive Committee to
guarantee our climate resilience strategy is progressing as intended.
To enhance our management of climate-related risks in occupier-controlled spaces, we have
introduced green lease clauses and are proactively engaging with occupiers at an early stage around
their operational behaviour, energy efficiency and data sharing. Conducting ESG audits has enabled
us to identify opportunities to reduce energy consumption and improve efficiencies, supporting
our ability to make informed decisions during our investment and capital allocation activities, as
well as acquisition and divestment decisions to maximise the overall performance and resilience
of our portfolio.
We remain committed to achieving our 2040 net zero carbon target, which will be key to support
our resilience against transition climate risk impacts, including increased carbon costs and shifting
market demand towards low carbon buildings. Demonstrating our support for BBP, we have publicly
published our net zero carbon pathway, which sets out our priority actions towards decarbonising
the portfolio.
In the coming year, we plan to transform how we collect and manage our climate-related data
by moving from a third-party managed system to an internal system. This will enhance our ability
to access data and real-time updates across the portfolio, assisting our management of climate-
related issues.
Describe how the
processes for identifying,
assessing and managing
climate-related risks
are integrated into the
organisation’s overall risk
management
Our Risk Management Policy has enabled us to integrate the climate-related risks we have
identified and assessed (see the Strategy section) into our overall risk management processes
effectively such that sustainability and climate-related issues are considered across all our activities.
We are committed to conducting business responsibly and in a way that creates a positive impact
on society. Therefore, we will continue to ensure climate-related risks are identified, assessed and
managed appropriately to fulfil our role in tackling climate change.
54
Picton Property Income Limited Annual Report 2023
Recommendation
Commentary
Metrics and targets
Disclose the metrics used
by the organisation to
assess climate-related risks
and opportunities in line
with its strategy and risk
management processes
Disclose Scope 1, Scope 2
and if appropriate, Scope 3
greenhouse gas (GHG)
emissions, and the related
risks
Describe the targets used
by the organisation to
manage climate-related
risks and opportunities
and performance against
targets
We report in line with EPRA Sustainability Best Practices Recommendations for sustainability
reporting and publish our EPRA tables annually. We use a range of metrics to inform our
stakeholders of our climate-related performance and activities, including:
‒ Total and like-for-like Scope 1 and 2 emissions and total Scope 3 emissions
‒ Total and like-for-like electricity consumed in kWh, including energy intensity in kWh/m2
‒ Energy intensities for Scope 1 and 2 emissions using the metric tCO2e/m2
‒ Total and like-for-like water consumption, including occupier water consumption in absolute
terms, for each asset type
‒ Total and like-for-like waste disposal in tonnes, split into recycling, composting, recovery,
incineration and landfill
To supplement our qualitative measures, we also assess key quantitative measures, including EPC
ratings and building certifications to build a holistic view of our portfolio’s performance.
Metrics included in our net zero carbon pathway include:
‒ Portfolio on-site renewable energy capacity (MW)
‒ Renewable energy procurement %
‒ High quality renewable energy procurement %
‒ Major refurbishment embodied carbon intensity (tCO2e/m2 GIA)
‒ Minor development and fit-out embodied carbon intensity (tCO2e/m2 GIA)
‒ Total portfolio embodied carbon development (tCO2e)
‒ Total carbon emissions offset (tCO2e)
In the coming year, we intend to track and publicly report additional metrics relating to our climate
adaptation activities to support transparent communication of our progress to our stakeholders
and investors. These will be included in our next TCFD report.
We disclose Scope 1, 2 and 3 greenhouse gas emissions in our Annual Report and Sustainability
Data Performance Report. We provide trend analysis since 2019 to show progress and historical
performance.
We calculate and report our emissions in line with the GHG Protocol Corporate Accounting and
Reporting Standard.
In recognition of the escalating concerns around climate change and our awareness that the real
estate industry is a key contributor to global GHG emissions, we have developed a 1.5°C aligned net
zero carbon pathway with a target year of 2040.
Our Scope 3 emissions, attributed to landlord and occupier energy consumption, are a key source
of our overall emissions. To support the net zero carbon guides we have created for all asset types
in our portfolio, we intend to formulate targets per asset type based on the UKGBC’s targets for
offices and the Carbon Risk Real Estate Monitor (CRREM) 1.5°C Global Pathways’ aligned targets for
all other asset types.
We are pursuing an embodied carbon target of 300 kgCO2e/m2 by 2040 for major refurbishments,
aligning with the LETI 2030 Design Target for upfront embodied carbon (A1–A5).
To increase our accountability and culturally embed climate risk management throughout the
organisation, we have set remuneration-linked annual objectives applicable to Executive Directors’
bonus opportunities for sustainability performance.
Picton Property Income Limited Annual Report 2023
55
Strategic ReportGovernanceFinancial StatementsAdditional Information Being Responsible
Sustainable
thinking,
Sustainability Overview
58 Our Approach
60 Performance Highlights
Environmental Focus
62 Net Zero Carbon
66 Energy Efficiency
68 Sustainable Buildings
71 Biodiversity
71 Water Consumption
71 Materials and Waste
Stakeholder Engagement
72 Occupier Wellbeing and Satisfaction
72 Health and Safety
73 Employees and Skills
74 Community and Social Value
75 Supplier and Contractor Responsibility
Governance and Advocacy
Leadership Reporting
76
77 Policies and Data
56
Picton Property Income Limited Annual Report 2023
We are committed to
integrating sustainability
within all our business
activities and in a way that
makes a positive contribution
to society, whilst minimising
any negative impact on
people, local communities
and the environment.
responsible
business
Our Sustainability Data Performance
Report is available on our website
Picton Property Income Limited Annual Report 2023
57
Strategic ReportGovernanceFinancial StatementsAdditional Information Sustainable thinking:
our responsible approach
to business
Sustainability Overview
This year we have made
significant progress on our
sustainability priorities.
We have incorporated our
sustainability reporting into this
Annual Report, which better reflects
our integrated approach. We will
be publishing a Sustainability Data
Performance Report, which will
be made available on our website,
including disclosures which are
third party assured. We report our
emissions data by calendar year.
Our focus has been to build on our net
zero carbon pathway and climate risk
assessment work undertaken last year.
We have established a Climate Action
Working Group, involving members
of the team from all areas of the
business. Our priorities have been
to implement the short-term
recommendations identified and
good progress has been made on
these aspects.
I am pleased to report that we have
reduced our Scope 1 and 2 emissions
by 24% in absolute terms compared
to our 2019 baseline.
As the majority of our emissions come
from Scope 3 emissions, I am pleased
to note that we have further improved
the level of occupier data collection
over the year. Continued engagement
and collaboration with our occupiers
on both data collection and reducing
emissions will be a key area of focus
looking forward.
Engagement with stakeholders
has been key and we have held
sustainability briefings for investors
and occupiers alike.
We have continued to develop
team training on sustainability
issues and additionally recruited
a Head of Building Surveying who
will coordinate the building fabric
related improvements that are
required to improve our assets.
Acting responsibly is a key strategic
priority and an integral part of our
approach to business. While we
are only at the start of our net zero
carbon journey, I am confident we
are moving in the right direction.
Michael Morris
Chief Executive
58
Picton Property Income Limited Annual Report 2023
Global trends driving sustainability
Our approach
A responsible and ethical approach to business is
essential for the benefit of all our stakeholders and
understanding the long-term impact of our decisions
will help us to manage risk and continue to
generate value.
Sustainable thinking is integrated
within all our business activities. We
are committed to making a positive
contribution to society, whilst
minimising any negative impact
on people, local communities
and the environment.
Our sustainability policy guides our
long-term sustainability priorities.
We have in place a sustainability
framework based on our key material
issues and continue to review these
key priorities annually.
E n v i ronmental focus
Net zero
carbon
Biodiversity
Sustainable
buildings
Water
consumption
Energy
efficiency
Materials
& waste
Leadership
Data
Sustainable thinking,
responsible business
Health
& Safety
Employees
& skills
Occupier
satisfaction &
wellbeing
G
o
v
e
r
n
a
n
c
e
&
a
d
v
o
c
a
c
y
Transparency
& reporting
Supplier &
contractor
responsibility
Policies
Community
& social value
t
n
e
m
e
g
a
Stakeholder eng
Society is becoming increasingly
aware that the prosperity of
humanity and the planet are
intrinsically interlinked, and not
everything should be measured
in terms of economic success.
For businesses, the need to look
beyond economic success is gaining
momentum. Short-term profitability
to the long-term detriment of the
planet’s natural systems and wider
society is no longer an acceptable
or a viable business model. A more
holistic approach is required, which
incorporates stakeholder wellbeing,
circular economy principles and
nature-based solutions, whilst
accounting for natural capital and
carbon emissions, and recognising
alternative drivers of value like energy
efficiency and supply chain resilience.
In 2023 the World Economic Forum
(WEF) released its eighteenth Global
Risks Report, stating that eight out
of the top ten most severe risks on a
global scale over the next ten years,
as perceived by world leaders, are
environmental and social risks, with
the top three being climate action
failure, failure of climate change
adaptation and natural disasters
and extreme weather events.
The Intergovernmental Panel
on Climate Change’s (IPCC) sixth
assessment report confirmed that
global average temperatures are
already 1.1°C higher than pre-industrial
levels. To keep irreversible tipping
points from being reached, warming
must be limited to 1.5°C, which means
that greenhouse gas emissions must
be halved by 2030. At COP28 in 2023,
we are expecting the results of the
Paris Agreement’s global stocktake,
which will assess the current position
and global progress made towards
the 1.5°C maximum target.
There are undoubtedly challenges
to overcome and costs to incur,
but also vast opportunities, cost
savings and advantages to be
gained. Those who do not engage
and collaborate to drive change risk
much higher costs in the future.
Picton Property Income Limited Annual Report 2023
59
Strategic ReportGovernanceFinancial StatementsAdditional Information
Sustainability Overview
Key highlights
from this year
Environmental
focus
Stakeholder
engagement
Governance and
advocacy
24% reduction in absolute
Scope 1 and 2 emissions
compared to 2019 baseline
Carried out occupier
surveys at office and
industrial properties
Climate Action Working
Group established to
oversee progress on net zero
22% reduction in Scope 3
energy intensity compared
to 2019 baseline
Hosted sustainability
webinars for investors
and occupiers
Completed assessment
of climate-related risks
to the business
Continued roll out of
new supplier clauses
addressing modern slavery
Reported in line with Task
Force on Climate-related
Financial Disclosures
Helped develop new Better
Buildings Partnership
training modules
Commenced
decarbonisation of assets
Carried out annual employee
engagement survey
Commenced on-site
renewable installation
Provided further
sustainability training
for the team
Governance
Maintained EPRA Gold
awards for both Annual
Report and Sustainability
Report
Improved GRESB rating to
three green star status
Third party assurance of
GRESB submission data
Implemented new
sustainability data
management system
76%
Improved portfolio EPCs rated A-C
64
Green leases completed
£27,000
charitable donations,
supporting 23 charities
85%
Improved overall
energy data coverage
60
Picton Property Income Limited Annual Report 2023
Key priorities
for next year
Environmental
focus
Stakeholder
engagement
Governance and
advocacy
Continue net zero carbon
pathway progress and focus
on priority assets
Develop our occupier
engagement strategy
Continue third party data
assurance on sustainability
reporting
Progress roll out of occupier
apps across multi-let offices
Continue to improve the way
in which we communicate
with our occupiers on
sustainability progress
Maintain our high level
of health and safety
compliance
Maintain our positive
working culture and values
Maintain high standards of
sustainability governance
and management
Maintain clear and
transparent reporting
standards
Continue to improve
GRESB rating
Picton Property Income Limited Annual Report 2023
61
Progress priorities identified
within energy audits
Progress collaboration
with occupiers to increase
data collection coverage
and reduce emissions
Continue to progress
decarbonisation strategy
across portfolio
Continue to progress solar
installation across priority
assets
Strategic ReportGovernanceFinancial StatementsAdditional Information
Environmental Focus
Sustainable thinking,
practical solutions:
our progress
on net zero
carbon
62
Picton Property Income Limited Annual Report 2023
Environmental focus
Sustainable thinking,
practical solutions
Climate change is one of the most
significant issues to be addressed
globally and requires urgent action.
It is recognised that commercial
buildings are a key source of
emissions and that as a responsible
landlord we must seek to reduce
the environmental impact of our
buildings. We continually assess the
environmental performance of our
portfolio and seek to implement
improvements where we can.
Net zero carbon pathway
Our 2040 commitment
To ensure credibility and transparency
in our approach, we have developed
our net zero carbon pathway so that
it aligns with the Better Buildings
Partnership Net Zero Carbon Pathway
Framework and The UK Green
Building Council’s (UKGBC) net zero
carbon hierarchy.
We have committed to be net zero
carbon for our operational and
embodied emissions by 2040.
By then, all operational emissions
will be reduced as much as possible
through energy efficiency measures
and renewable energy, with any
residual emissions offset.
From 2040 onwards, all completed
refurbishment projects will have
reduced their embodied and
operational carbon as much as
possible, with any residual emissions
offset upon practical completion.
We have defined our portfolio’s
baseline carbon footprint, using 2019
as the most representative recent
year, to map the emissions’ reductions
required to meet our 2040 target. As
with similar property companies, the
majority of our emissions relate to the
energy consumption of our occupiers.
Net zero governance
This year we have established a
Climate Action Working Group, with
members of the team across the
business, to ensure we are progressing
key actions and priorities on our
pathway to net zero commitment, and
reviewing and setting interim targets.
We have also embedded net zero
carbon criteria into our acquisition
due diligence process.
Reduce
embodied
carbon
Optimise
energy efficiency
Maximise
on-site renewable
energy
Maximise
high-quality off-site
renewable energy
procurement
Purchase high-quality
carbon offsets for
residual emissions
Picton Property Income Limited Annual Report 2023
63
Strategic ReportGovernanceFinancial StatementsAdditional Information Environmental Focus/Continued
Our net zero carbon progress
Measuring and reducing
embodied carbon
Our target for major refurbishment
embodied carbon intensity is
300kgCO2e/m2 by 2040. The majority
of our development activity comprises
refurbishments and retrofit works,
for which there are no industry
benchmarks thus far. In due course,
we will begin to conduct whole life
carbon assessments for all major
refurbishments (above £1.5 million)
and fit-outs in pursuing an embodied
carbon target for our major
refurbishments.
To achieve the maximum embodied
carbon savings, our sustainable
refurbishment guidelines define
our expectations for each project
from the outset.
This year, our refurbishment activity
across the portfolio has been carried
out to improve and enhance the
buildings’ sustainability credentials
through making alterations to
structure, mechanical and electrical
maintenance or landscaping.
As the contract value of each
refurbishment has been under £1.5
million, in line with our refurbishment
guidelines we did not carry out
any embodied net zero carbon
assessments, but we endeavoured to
repurpose, recycle and reuse materials
where possible, minimising site waste.
Read more on our GHG
emissions on pages 66–67
Net zero carbon progress
Aims
Progress
Metrics
Embodied
carbon
Minimise the embodied carbon
cost of developments, major
refurbishments and occupier fit-outs
No whole life carbon assessments were
required during the year, as individual asset
refurbishment activity did not exceed
£1.5 million
Target embodied performance of
less than 300kgCO2e/m2 for major
renovations
Operational
carbon
Ensure operational carbon
performance and efficiency across
the portfolio is improved
We have worked on improving our data
accuracy and coverage and carried out five
energy audits across a representative sample
of asset types
On-site
generation
Maximise amount of on-site
renewable generation
We have commenced solar panel installation
on industrial asset refurbishments and have
commissioned feasibility studies across key
identified assets
Renewables
procurement
Procure high quality renewable
energy
No existing energy contracts were due for
renewal during the period
Offsetting
Acquire high quality offsets to
neutralise residual emissions
While not yet under consideration, we will
develop our strategy for high quality offsets
post net zero carbon target year of 2040
24% reduction in operational
carbon emissions for Scope 1 and 2,
relative to our 2019 baseline
40% reduction in energy intensity
of all Scopes, relative to our 2019
baseline
Five operational PV systems
totalling 0.176 MWp with a further
three schemes under construction
totalling 0.238 MWp. Considering a
further six schemes which would
provide a capacity of 7.625 MWp.
100% of our purchased electricity is
from REGO backed renewable
sources
Third party
verification
Maintain credibility and transparency
of our net zero carbon pathway
Annual independent third party assurance of
energy data
Certification of energy, water, and
waste data by third-party assurance
64
Picton Property Income Limited Annual Report 2023
Reducing operational carbon
Over the year we have been
introducing energy efficiency
measures across the portfolio to
help measure and reduce occupier
energy consumption, including:
‒ Developing an occupier
engagement plan to ensure
actions take place in a timely
manner and effective cost-sharing
mechanisms are introduced
‒ Continuing to include green lease
clauses within our leases, with 64
completed this year
‒ Increasing data collection coverage
to 85% and implementing a new
data management system
‒ Carrying out a complete audit
of all electricity, gas and water
meters or sub-meters under our
control to ensure that they are all
functioning properly and recording
consumption accurately. We plan
to replace a small number of
meters in 2023, which are
now obsolete
Maximising renewable opportunities
To reduce the carbon footprint of our
operational emissions, we are focusing
on increasing our on-site renewable
energy opportunities across our assets.
This year we have installed three
schemes and undertaken six
renewable energy feasibility studies
to identify asset-specific opportunities
across the portfolio.
Maximising off-site renewable
procurement
Within our portfolio currently 100%
of landlord procured electricity is
REGO backed (Renewable Energy
Guarantees of Origin).
When our electricity contracts expire,
we will seek to procure high-quality
renewables in line with the UKGBC
guidance on renewable energy
procurement.
We seek to follow three main criteria
on renewable energy procurement.
It must be from renewable non-fossil
fuel energy sources; create additional
capacity in the grid; and have exclusive
ownership and claims of the energy
attributes.
2022
2023
2024
2025
...
2040+
Conduct whole life carbon assessments
for all major refurbishments and fit-outs
Implement software to track embodied
carbon from ‘in use’ standing assets
Embodied
Carbon
Apply refurbishment
guidelines to all new
developments, refurbishments
and fit-outs
Begin to quantify emissions
related to procurement of
goods and services to inform
targets and related actions
Undertake net zero audits
across the portfolio and
establish asset specific
carbon reduction plans
Integrate findings of
net zero audits into
longer term asset plans
Identify high-quality
renewable energy
procurement options
Operational
Carbon
Identify
priority
assets
Conduct renewable feasibility studies
for assets to estimate renewable power
generation potential
Implement onsite
renewables, prioritising
most cost-effective sites
Identify a cost-effective solution
for monitoring the energy
consumption of occupiers
Liaise with key occupiers to understand
their energy reduction plans and to investigate
joint initiatives
Occupier
Engagement
Install sub-metering
for all energy recharging
to understand occupier
usage
Create a detailed
occupier
engagement plan
Integrate energy and carbon clauses into new and
renewed leases, including access to energy data where
energy procured directly by occupiers
Embed net zero criteria into
pre-acquisition due diligence
process
Develop a carbon
offsetting strategy
Consider internal
carbon price and
transition fund
Offset residual carbon
resulting from all operations
Net Zero
Governance
Develop a data and
target monitoring
process
Annually assess progress towards net zero
commitment, including exploring additional
actions towards net zero
Underway
Future initiatives
Picton Property Income Limited Annual Report 2023
65
Strategic ReportGovernanceFinancial StatementsAdditional Information Environmental Focus/Continued
Energy usage
As part of our net zero carbon
strategy, our focus on minimising
landlord controlled gas heating in
our assets has been reflected in the
3% absolute reduction in Scope 1
emissions over the period. This is
despite increased building occupancy
levels post-pandemic and property
acquisitions over the period. On a
like-for-like basis the reduction was
4% compared to the previous year.
As we continue to transition away from
gas supplies, there is a corresponding
increase in electricity consumption,
which is up 7% on a like-for-like basis,
but also impacted by increased
occupancy post-pandemic.
Reflecting property acquisitions and in
absolute terms, electricity consumption
has increased by 25% over the year.
Greenhouse gas emissions
Scope 1
Overall, we have seen an absolute
reduction in our Scope 1 emissions of
3% over the year to 989 tCO2e (-4%
on a like-for-like basis), which reflects
the ongoing strategy to replace gas
with electricity across our portfolio. For
example, during the year we replaced
the gas based air conditioning system
at 50 Farringdon Road, London and
we have also removed gas from a
number of our industrial units in line
with our refurbishment guidelines.
From our baseline year of 2019 we have
reduced Scope 1 emissions by 15%.
Our Scope 1 energy intensity has
reduced by 12% over the year as we
have acquired new assets with lower
energy intensity levels. On a like-for-
like basis the energy intensity has
increased by 10% which reflects greater
activity and use post-pandemic at
our multi-let assets. Since our 2019
baseline, our Scope 1 intensity has
reduced by 29% to 0.017 tCO2e/m2.
On an absolute basis, our Scope 3
emissions are 9,775 tCO2e. We have
restated our 2021 Scope 3 emissions as
we collected more data subsequent
to the publication of last year’s Annual
Report, making comparisons more
meaningful. Our Scope 3 energy
intensity has reduced by 19% over the
year to 0.026 tCO2e/m2. This is a 22%
reduction from our 2019 baseline.
Scope 2
Methodology
On an absolute basis, our Scope 2
emissions have increased over the
year by 14% to 1,657 tCO2e as we have
acquired new assets and replaced gas
with electrical systems. However, on a
like-for-like basis our Scope 2 emissions
have reduced by 3%, which reflects
improved building energy efficiency
and grid decarbonisation. From
our 2019 baseline we have reduced
absolute Scope 2 emissions by 28%.
Scope 3
Around 80% of our total GHG
emissions are Scope 3 emissions from
our occupiers, therefore accurately
recording this data is key to our net
zero carbon strategy. This year we
have increased our Scope 3 data
coverage to 67% of the portfolio.
We have achieved this with direct
meter readings as well as ongoing
dialogue with our occupiers.
We collect all of our landlord controlled
energy data via automatic meter
readings, and following improvements
in occupier data collection, we have
increased our overall data coverage
across the portfolio to 85% (from 75%
in 2021). The aim to is reach 100%
coverage of our portfolio and we
continue to work with our occupiers
and data providers to achieve this.
All our large supplies work from
automatic meter reads, with any void
unit meter data being aggregated to
an asset level. This means that 100% of
landlord controlled data is meter read
and not estimated. We are working
towards rolling out automatic meter
reads across the whole portfolio to
increase coverage and reliability of
our data and reporting accuracy.
We have reported on all the
emission sources required under
the core requirements of EPRA Best
Practices Recommendations and
have voluntarily disclosed business
Emission source
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased for
own use
Office premises
Total Scope 1 and 2
Business travel
Occupier data
Landlord water and treatment
Landlord waste
Total Scope 3
Total all Scopes
2022
2021
2020
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
2
3
3
3
3
989
0.017
1,020
0.019
940
0.020
1,649
0.019
1,448
0.028
1,499
0.031
8
2,646
3
9,735
21
16
9,775
12,421
0.026
0.027
N/A
0.033
0.000
0.000
0.026
0.053
5
2,473
2
10,455
6
8
10,471
12,944
0.018
0.044
N/A
0.039
0.000
0.000
0.032
0.076
8
2,447
1
3,892
12
7
3,912
6,358
N/A
0.043
N/A
0.027
0.000
0.000
0.019
0.062
66
Picton Property Income Limited Annual Report 2023
travel, occupier, and own premises
consumption emissions. An operational
control approach has been adopted
and all 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 2022. We continue to
report on a calendar year basis to
ensure there is sufficient time to
collect occupier consumption data.
We have calculated our intensity
measurements based on the area
served by each meter, for example
whole site, common area or a specific
floor within an asset. External supplies
have been excluded from the intensity
calculations. So that an accurate
comparison can be made between
reporting years, this approach has
been backdated to 2019 figures.
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 2022. Year-
on-year, we will continue to update
previous reported figures if applicable
to remove estimates and ensure actual
data is captured and reported. We
occupy a floor within one of our assets
under management and as such, have
apportioned out our consumption
based on the floor area and this is
reported as a separate line item.
Head office
We started collecting and reporting
our head office data in 2016, and while
it is only a small part of our overall
footprint, we believe it is important to
provide a holistic view where possible.
Our head office is located on a floor
within Stanford Building, London,
which is one of our own assets. This is
a recently refurbished space, providing
the latest technology and energy
efficiency measures. This switch has
allowed us to obtain more reliable
data and cut our office emissions
significantly. In 2022 our energy usage
did increase, but this reflects a greater
return to office working, following the
pandemic.
Business travel
We have seen a small increase in
business travel emissions as our
team have begun travelling more
regularly to our assets. We continue to
encourage sustainable forms of travel
and virtual meetings where feasible.
Smart buildings
During the year we have seen a
kWh reduction in four properties
of between 16% and 34%, following
the installation of Asset IQ. The
system aims to help reduce energy
consumption and is currently installed
at 401 Grafton Gate, Milton Keynes,
Pembroke Court, Chatham, 180 West
George Street, Glasgow and 50
Farringdon Road, London.
The tool connects to the building
management systems, providing live
updates from each piece of plant
equipment throughout the building
and builds a holistic picture of each
building’s energy usage over a 24/7
period. The tool highlights any key
inefficiencies and helps to:
‒ Identify issues with the operation
of the equipment
‒ Pinpoint the reasons for anomalies
‒ Suggest the most suitable
technical solutions
‒ Identify the improvement of the
overall energy strategy
This information provides quarterly
action plans and enables discussions
with occupiers on how the building
systems can be adjusted for optimum
performance and help reduce
energy costs.
We aim to increase the use of Asset
IQ throughout our multi-let offices
where feasible.
24%
Reduction in Scope 1 and
2 emissions since 2019
67%
Scope 3 occupier energy
data collection
Over the year we are pleased
to have increased Scope 3
data collection, achieving this
in part via improved automated
data collection.
Tim Hamlin
Director of Asset Management
Picton Property Income Limited Annual Report 2023
67
Strategic ReportGovernanceFinancial StatementsAdditional Information Environmental Focus/Continued
SOLAR
We currently have five operational
solar array systems totalling 0.176
MWp and we have seen a 42%
increase in energy generation over
the year.
We have a further three schemes
currently under construction
totalling 0.238 MWp.
In addition we are establishing the
feasibility of a further six schemes
which would have a maximum
output of 7.625 MWp.
We are also investigating a ‘sleeving’
arrangement which would enable
us to export any excess electricity
generated to other buildings in our
portfolio. This would enable them
to benefit from cost-effective
on-site renewable energy.
Following our sustainability
workshop engagement programme
with key occupiers, we are currently
engaged in a number of feasibility
studies to identify the optimum
delivery strategy to support them
in installing solar panels.
Sustainable buildings
Electric car charging points
Over the last 12 months we have
gradually increased the number of
charging points at our properties.
There are currently 41 car charging
points across our portfolio, of which
26 we have installed ourselves and
the remainder have been put in by
our occupiers.
During 2022, we supported our
occupiers with their own installations
at Parkbury Industrial Estate, Radlett,
Sundon Business Park, Luton and Atlas
House, Marlow.
In conjunction with one of the major
electric vehicle charging infrastructure
operators, we have developed a plan
to install a further 38 rapid and fast
chargers across five further sites
including our retail warehouse
locations.
41
Charging points installed
across seven of our sites
We are committed to monitoring
and enhancing the environmental
performance of our buildings
and ensuring they are resilient
to changes in both climate and
the regulatory environment.
It is important that we ensure our
buildings meet changes in occupier
requirements, and our approach to
our portfolio management adheres
to best practice with respect to
data collection, communication
and implementation.
In line with our net zero carbon
commitment, we aim to remove fossil
fuel supplies where practical, introduce
on-site renewable energy, increase
the efficiency of existing equipment
and support our occupiers with
their own sustainability strategies.
Over the course of this year we have:
‒ Developed our strategy for on-site
solar power generation
‒ Started to implement our strategy
for the roll out of electric vehicle
charging
‒ Improved the percentage of A-C
rated EPCs in our portfolio from
71% to 76%
‒ Continued to implement green
lease clauses
‒ Carried out five net zero audits
across the portfolio
Collaborating with our
occupiers to understand
their own sustainability
strategies is key to
delivering improved
environmental initiatives
across our buildings.
Mark Alder
Head of Occupier Services
68
Picton Property Income Limited Annual Report 2023
Sustainable refurbishments
Building certifications
Our sustainable refurbishment
guidelines, introduced in 2021, form
an integral part of the planning and
execution stages of refurbishment and
construction projects. The guidelines
allow for discussion with consultants,
designers and other stakeholders, and
provide clarity in a changing market.
The guidelines are under constant
review to ensure we evolve with
markets, technology, and expertise
enabling us to deliver against
our targets.
Updates to our sustainable
refurbishment guidelines will include:
‒ Ensuring clarity of metering and
transparency of energy usage
‒ Incorporation of on-site renewable
energy
‒ Incorporation of certification
schemes, suitable for the different
types of refurbishment
‒ Updated procurement, supply
chain and waste policies
‒ Provision of building records
‒ Ensuring the end product meets
all current and expected future
legislative requirements
Whilst our net zero carbon pathway
is focused on reducing carbon
emissions, we also recognise the
value of building certifications to
provide third party validation.
We have three certified office
buildings in our portfolio, at Metro,
Manchester and Tower Wharf,
Bristol which were both awarded
BREEAM ‘Excellent’ when they were
refurbished, and Angel Gate, London,
which has ISO 14001 certification.
In line with our refurbishment
guidelines and recognising the
composition of the portfolio we are
exploring alternative certifications
that reflect the nature of our assets
and on-site strategies.
Site type
Green building certification 2023
Office
Retail, High Street
Retail, Warehouse
Industrial, Business Parks
Industrial, Distribution
Warehouse
Hotel
29%
0%
0%
0%
0%
0%
6%
SUSTAINABILITY
ACTION PLANS
Over the year we have implemented
sustainability action plans at our
multi-let properties.
These plans identify areas for
improvement, including biodiversity
measures and social amenities as
well as the introduction of energy
efficiency measures.
Energy efficiency measures
introduced include new LED lighting
at Colchester Business Park,
Longcross, Cardiff, 180 West George
Street, Glasgow, Gloucester Retail
Park, Parkbury Industrial Estate,
Radlett and Sundon Business Park,
Luton. We have also installed motion
sensor lighting at Trident House, St
Albans and Parkbury Industrial
Estate, Radlett.
We have also undertaken a metering
survey across our service charge sites
to ensure effective metering and
improve energy reporting.
The use of the Asset IQ building
management system to monitor
and improve energy efficiency at
401 Grafton Gate, Milton Keynes,
Pembroke Court, Chatham, 180
West George, Glasgow and 50
Farringdon Road, London has
resulted in a significant kWh
reduction in electricity usage
across those assets.
Our sustainability action plans are
reviewed annually and we plan to
action further initiatives over the
course of next year.
Our refurbishment
guidelines aim
to improve the
sustainability
credentials of our
properties.
Andy Lynch
Head of Building Surveying
Picton Property Income Limited Annual Report 2023
69
Strategic ReportGovernanceFinancial StatementsAdditional Information Environmental Focus/Continued
Our bespoke set of green
lease clauses continue
to be successfully
incorporated in new
lettings and renewals.
Jay Cable
Head of Asset Management
76%
EPC ratings A-C
64
Green leases completed
Over the year, we completed 64 green
leases. We will continue to use lease
events and letting of vacant units to
drive further take up.
Minimum Energy Efficiency
Standards (MEES)
We continue to improve the EPC
profile of the portfolio. Looking at
the percentage of EPC ratings by
estimated rental value (ERV) of our
portfolio, 76% have an EPC rating
of A-C and 24% are D or E. For the
year to March 2022, 71% of the
portfolio was rated A-C by ERV.
We continue to proactively manage
our compliance with MEES, which,
as of April 2023, prohibits leasing
space that is F or G rated, unless
an exemption certificate applies.
We have one small non-compliant
industrial unit, for which we are in the
process of applying for an exemption
due to its very basic construction.
Over the year we reassessed 38 EPCs.
Using the same reporting basis as
above, 79% have been reassessed
to an A-C rating, 21% a D rating,
and none were E, F or G rated. 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.
The minimum EPC rating is likely
to be raised further, with the UK
Government having consulted in 2021
on proposals to require a minimum
rating of a C by 1 April 2027, and
a B by 1 April 2030. The outcome
of this consultation is awaited.
Notwithstanding the legislative
position, we see alignment with
MEES regulations as integral to
our net zero carbon pathway,
occupier engagement strategy,
and environmental focus. We will
continue to proactively manage
the portfolio on this basis.
Net zero carbon building audits
During the year we undertook net
zero carbon building audits at five
representative assets across our
portfolio. These took place at our
office assets at Pembroke Court,
Chatham and 401 Grafton Gate,
Milton Keynes, our retail warehouse
asset in Bury and our industrial
estates at Luton and Radlett.
In respect of the office assets,
the reports assessed the energy
performance of the assets using the
UKGBC targets for reduction in Energy
Use Intensity (EUI) required to meet
the 1.5°C global warming target for
2030 and 2050 and identified the
interventions required to achieve
these reductions. In respect of the
retail and industrial assets the reports
used the Carbon Real Estate Risk
Monitor (CRREM) targets for the same
years and same climate target.
In each case, the reports indicated
the interventions required to deliver
the reduction in EUI. These were
principally to the internal building
systems (for example, replacing
gas based systems with electric
systems), external fabric (for example,
PV systems and improved solar
shielding) as well as changes to
the operation of the buildings (for
example implementing smart
building management systems).
Whilst the characteristics of every
building differ, the output from the
reports has been valuable in helping
us refine our refurbishment guidelines,
management regimes and begin
the process of setting individual
asset net zero carbon strategies.
Green lease clauses
Green leasing continues to be an
important tool to enable us and our
occupiers to improve the performance
of a building.
The ideal green lease will help
enhance the environmental
performance of a building, mitigate
any environmental legislative and
market risk and foster improvements
in data collection.
Our bespoke set of green lease clauses
represent best practice and continue
to be successfully incorporated in
new leases and lease renewals. We
continue to review and amend these
clauses accordingly where appropriate.
70
Picton Property Income Limited Annual Report 2023
Biodiversity
Water consumption
Materials and waste
We recognise the importance of
sustainable waste disposal and
therefore remain committed to
eliminating landfill waste disposal
across the landlord controlled
portfolio. This year we have again
successfully diverted 100% of
waste from landfill across property
management activities, using
either recycling or heat recovery.
Following increased occupancy across
the portfolio post-pandemic, this
has led to an increase in absolute
waste generation over the year of
102%. Of this, 83% was recycled
and 17% recovered. On a like-for-like
basis, the increase was 100% with
84% recycled and 16% recovered.
We continue to engage with our
waste providers and occupiers with
the aim of improving the sorting and
filtering of waste at our properties.
The benefit of this is to make the
downstream sorting, recycling and
recovery process more efficient.
We are committed to broadening
the scope of biodiversity across
our portfolio by introducing more
measures at our offices and across
a number of industrial estates
where possible.
We take a collaborative approach to
biodiversity, working with biodiversity
advisers, our managing agents,
landscapers and our occupiers to
ensure we take on board ideas and
suggestions.
In line with the Better Buildings
Partnership’s biodiversity checklist,
we aim to:
‒ Set biodiversity targets at selected
properties
‒ Plan the implementation of
biodiversity improvements
measures, alongside expert advice
‒ Ensure adequate funding is
available to maintain these
measures
‒ Monitor progress and adapt if
necessary
During the year, we have installed
additional beehives, bug hotels, bird
and bat boxes as well as compost
bins across several of our multi-let
office buildings. We also have in
place biodiversity plans to guide our
approach to landscaping to promote
wild vegetation at some of our larger
locations — for example, at Colchester
Business Park.
We have also introduced biodiversity
measures successfully at appropriate
industrial estates including in Epsom
and Radlett.
Our plans for 2023 are to continue
to use the Better Buildings
Partnership’s biodiversity checklist,
and carefully manage the funding
required to introduce and maintain
our biodiversity measures as well
as improve the way in which we
communicate locally about the
importance of biodiversity.
We collect the majority of our water
data via actual manual meter reads
(90% from actual reads). Due to the
location of some water meters,
achieving accurate and regular
consumption measurements is not
practical, therefore we rely on
estimated data from the suppliers.
Reflecting increased occupancy
post-pandemic and portfolio
acquisitions, over the year we have
seen an overall increase across the
portfolio of 228% for absolute landlord
purchased water consumption and a
like-for-like increase of 60%. The large
increase is due to the increased
occupancy levels at our multi-let office
buildings, property acquisitions and
improved data capture.
We have begun works to install
automatic water flow measuring
devices across the portfolio. These
will enable us to accurately measure
water consumption and significantly
improve our data collection.
Over the past year the largest increase
in consumption in absolute terms
occurred across our office portfolio,
from 12,028m3 to 29,003m3 (a 241%
increase). On a like-for-like basis, the
increase was 169%.
Due to the nature of our retail portfolio
and distribution warehouse portfolio
(which have very few communal
areas or utility supplies), the water
consumption figures are insignificant
at a portfolio level (comprising less
than 0.1% of the total landlord
controlled consumption).
Going forward, we will continue to
follow our refurbishment guidelines
by adopting water efficiency measures
as we undertake refurbishment and
maintenance projects across the
portfolio.
100%
Waste diverted from landfill from
property management activities
Picton Property Income Limited Annual Report 2023
71
Strategic ReportGovernanceFinancial StatementsAdditional Information Our health and safety record
continued to be strong with no
reportable accidents, near misses or
other health and safety incidents
during the year. We were 99%
compliant in all critical and secondary
health and safety documentation.
During the year, our team improved
their health and safety knowledge by
attending training courses in areas
including the Building Safety Act,
first aid and regulatory defensibility.
As part of our property management
retender, we improved our managing
agent’s health and safety KPIs
covering reporting and delivery times.
In 2023, we plan to undertake security
and lighting improvements at some of
our industrial and retail warehouse
properties, as well as providing further
training to our employees for example
in asbestos management.
85%
Of occupiers surveyed
would recommend us
Stakeholder Engagement
Stakeholder engagement
‒ 75% of respondents were
interested in increasing their
awareness of sustainability
Where occupiers highlighted building
specific issues, our managing agents
have taken quick action to handle
these and communicated with the
occupiers concerned.
We will be using the valuable
feedback we obtained from
these surveys to help shape our
engagement strategy over the
next year.
In 2023, we will also broaden our
collaboration with occupiers on
sustainability matters either through
direct dialogue with them or within
the regular occupier meetings held
at our multi-let offices. We will focus
on working together to reduce
energy costs and sharing utilities
consumption data as well as ways to
improve the effectiveness of waste
removal.
Occupier health and safety
We are fully committed to making
our buildings a healthy and safe
environment for our occupiers
and their visitors, our employees,
contractors, and the public. We
therefore ensure that they comply
with the relevant health and safety
legislation and guidelines.
Health and safety is embedded within
our management culture of our
organisation.
Our Health and Safety Committee
meets every other month and reviews
all aspects of health and safety across
our portfolio and in our own office.
The Committee reports directly to the
Responsibility Committee and health
and safety is a standing item on the
Board’s agenda.
Sustainable thinking,
collaborative action
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
the wider community and the Board
acts to promote the long-term success
of the business for the benefit of all
our stakeholders.
Occupier engagement,
wellbeing and satisfaction
Working with our occupiers is at the
heart of what we do. Understanding
their current and future requirements
and working collaboratively to reduce
our environmental impact is key for us.
We continue to look for ways to
improve our occupiers’ experience. Our
Picton Promise was created to bring
together the five main commitments
to our occupiers: Action, Community,
Technology, Support and Sustainability.
These are at the core of our
engagement strategy.
Building on the success of the launch
of our apps at Angel Gate, London and
Colchester Business Park in 2022, we
have begun to roll out more of these
apps at our other multi-let office
buildings and by the Summer we
expect to have a total of ten new apps
in place. We see this as an important
part of our engagement strategy to
communicate effectively with our
occupiers and their staff.
During the year, we undertook an
occupier survey across all our multi-let
offices and industrial estates.
The results of the survey indicated that:
‒ 85% of respondents would
recommend us as a landlord to
others
‒ 80% of respondents were happy
with our communication
‒ 70% of respondents were happy
with our responsiveness
‒ 80% of respondents were happy
with the level of services we
provided
72
Picton Property Income Limited Annual Report 2023
Employee engagement
Wellbeing and benefits
Training and development
We want to encourage our employees
to realise their full potential by giving
them access to development and
training opportunities.
Employee development is based on
the following key principles.
‒ Development should be
continuous; employees should
always be actively seeking to
improve performance
‒ Regular investment of time in
learning is seen as an essential
part of working life
‒ Development needs are met by
a mix of activities, which include
internal and external training
courses, structured ‘on-the-job’
experience and through interaction
with professional colleagues
All our 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.
This year the amount of training
carried out by the team was 1.1%,
based on the number of hours spent
on training as a percentage of the
total working hours of all employees.
This year members of the team
attended the new elective modules
of the Better Buildings Partnership’s
ESG Training Course for Real Estate
Professionals. Additionally, further
training was carried out in respect
of health and safety, sustainability
and market regulations.
Next year we intend to implement
a formal cyber security awareness
training programme for the
whole team.
We believe that having a happy
and healthy team is important to
the success of the business. Our
commitment to providing a safe
and healthy working environment
for our employees is achieved by:
‒ Adhering to the appropriate
health and safety standards
‒ Providing a working environment
that enables employees to work
effectively and free from
unnecessary anxiety, stress and fear
‒ Ensuring employees can report
inappropriate behaviour or
concerns through the
whistleblowing policy
‒ Having appropriate family
friendly policies
We offer health benefits to all
employees, and they also all
participate in the Deferred Bonus and
Long-term Incentive Plans, providing
alignment with shareholders.
The absentee rate for the year was
0.5%. There were no fatalities or
work-related injuries during the year.
The turnover of employees during the
year was:
% of average
number during
year
11
0
Number
1
0
Joiners
Leavers
The joiner during the year was Andy
Lynch, our new Head of Building
Surveying. Subsequent to the year-
end, Kathy Thompson has joined as
Company Secretary.
82%
Employee satisfaction score
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.
We have once more this year carried
out an employee engagement survey
across the whole team, excluding
the Directors. Overall, the scores were
very positive, with over half of the
questions receiving Agree or Strongly
Agree responses.
The overall satisfaction score was 82%.
Issues that were raised by the team
included:
‒ The increasing demands to meet
net zero carbon commitments
‒ The balancing of information flows
against time and resource
constraints
‒ Plans for growing the business in
terms of assets and resources
This year we held a team off-site in
Gloucester. We discussed many issues
and challenges facing the business
and what actions and improvements
could be made. We were also able to
visit the recent acquisitions made in
that area.
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.
We recognise the benefits of diversity
and the value this brings to the Group.
We aim to maintain the right blend
of skills, experience and knowledge
within the Group.
The numbers of men and women
employed by the Group are:
Picton Board
Rest of team
Total
Men
Women
4
5
9
2
4
6
Picton Property Income Limited Annual Report 2023
73
Strategic ReportGovernanceFinancial StatementsAdditional Information
Stakeholder Engagement/Continued
Community and social value
As an owner of commercial property,
we recognise our role in providing
places which improve quality of life,
enhance wellbeing and generate
a positive social outcome, whilst
minimising any negative impacts
our buildings have on society and
the environment. We are committed
to understanding and supporting
the needs of local communities
where we own buildings.
Community engagement programme
Site type
Office
Retail, High Street
Retail, Warehouse
Industrial, Business Parks
Industrial, Distribution
Warehouse
Hotel
Building
coverage
(assets)
100%
100%
100%
100%
100%
100%
Under the four key themes of
employment, economic growth,
health and wellbeing and promoting
social innovation we have:
‒ Supported local economies
through creating employment
opportunities in our buildings and
local communities
‒ Contributed to safer communities
through investment in security and
surveillance technology on our sites
‒ Procured goods and services
locally where possible, through
transparent, ethical and
sustainable supply chains, and
ensured that our suppliers adhere
to our Supplier Code of Conduct
‒ Promoted health and wellness
initiatives across our team and to
our occupiers through occupier
apps and various on-site events
‒ Provided training opportunities
and career progression for our
employees, remaining committed
to evolving talent in our employees
to help all reach their full potential
and career goals
‒ Supported both national and local
charities within our communities
as set out in our charitable giving
policy
‒ Conducted a series of investor and
occupier sustainability briefings to
share knowledge and drive change
Charitable giving and partnerships
This year we supported 23 charities
and donated a total of £27,000.
Our aim through our charitable
giving and charity partnerships is
to invest in our communities at
grassroots level, seeking to make
a positive difference to the local
areas in which we hold property.
We seek to support charities which;
‒ Drive positive social change
‒ Respond to specific local needs
‒ Create a positive community
impact
‒ Are committed to improving local
areas
We have established partnerships
with a number of nationwide charities
and charities working in the local
areas in which we operate. We have
long-standing relationships with
The Funding Network and Coram
and this year were delighted to
forge two new partnerships with
The Fostering Network and Future
Youth Zone, based near our industrial
estate in Barking. We also regularly
support LandAid each year.
In addition, this year we responded to
the humanitarian crisis in Turkey and
Syria through donating to the Disasters
Emergency Committee appeal.
£27,000
Charitable donations
23
Charities supported
74
Picton Property Income Limited Annual Report 2023
However, we recognise that there are
certain activities within the real estate
sector that are more susceptible to
modern slavery risks, including
construction and maintenance.
New supplier terms now incorporate
additional clauses reflecting the
perceived level of risk. We are also
using our supplier due diligence
questionnaire for new suppliers.
This year we were delighted to begin
working with Coram and its Young
Citizens programme for young
people from migrant and refugee
backgrounds, by offering work
experience and career advice to those
wishing to explore different career
options within the real estate sector.
Working with The Fostering
Network, we are currently in the
process of joining their Fostering
Friendly employers’ scheme,
which includes initiatives such as
additional annual leave for foster
carers to accommodate appropriate
training, social worker visits and
other fostering-related activities.
We continue to offer our occupier
led charitable matched giving
initiative, which supports occupiers
within our portfolio in their local
community-based fundraising
efforts. Occupiers are invited to
apply for a matched giving donation
programme of up to £100 per
year for a registered UK charity.
Supplier and contractor
responsibility
We are committed to conducting
our business in a fair and honest
manner and ensuring our suppliers
operate in an ethical way and share
our business principles in observing
relevant laws and regulations.
We seek to maintain productive
and long-term relationships
with our business partners.
We have in place a Supplier Code of
Conduct. This is designed to promote
safe and fair working conditions and
the responsible management of social,
ethical and environmental issues in
our supply chain.
This year we have developed our
approach to supplier responsibility
and particularly the issue of modern
slavery within our supply chain.
We have assessed the level of risk in
our supplier base of exposure to
modern slavery and human trafficking
as low, as the vast majority of our
suppliers are based in the UK.
We value our long-standing
partnership with Coram and
supporting its Young Citizen
programme is an integral part of
our community, social value and
charitable giving commitment.
Coram’s work to support young
trainers such as Aymen with their
future progression is important in
providing opportunities for all
and empowering young people,
particularly those from migrant
or refugee backgrounds.
Mark Alder
Head of Occupier Services
Picton Property Income Limited Annual Report 2023
75
Strategic ReportGovernanceFinancial StatementsAdditional Information Governance and Advocacy
Governance
Sustainable thinking,
positive change
We aim to have in place high
standards of sustainability governance
and management and will undertake
initiatives to promote greater
environmental responsibility. This also
includes a focus on business practices,
which are activities relating to the way
the business is run, including business
ethics, compliance and tax principles.
Leadership
The Board has responsibility for the
long-term success of the business,
providing leadership and direction
with due regard and consideration
to all of our stakeholders. The Board
comprises the Chair, two Executive
Directors and three independent
Non-Executive Directors. They have
a range of skills and experience that
are complementary and relevant
to the business. The tables below
set out the Board’s composition,
tenure and diversity characteristics.
Function
Number
Non-Executive Chair
Executive Directors
Independent
Non-Executive
Directors
Diversity
Male
Female
Tenure
0 to 3 years
3 to 6 years
6 to 9 years
1
2
3
Number
4
2
Number
2
3
1
Age
Number
50 to 54 years
55 to 59 years
60 to 64 years
65 to 69 years
1
1
3
1
%
17
33
50
%
67
33
%
33
50
17
%
17
17
50
16
The Board has full responsibility
for the direction and control of the
business, and sets and implements
strategy within a framework of internal
controls and risk management.
The Board has established four
Committees, comprising entirely
Non-Executive Directors, to carry
out specific functions on its
behalf. In addition, there are three
Management Committees with
responsibility for certain operational
matters, chaired by one of the
Executive Directors and including
other members of the Picton
team. One of these Management
Committees is the Responsibility
Committee, which oversees all
sustainability-related matters.
As a company listed on the London
Stock Exchange, we apply the
principles of the UK Corporate
Governance Code and report
against the Code each year.
More detail on the role and
activities of the Board, including
their biographies, and its Committees
is set out in the Governance section.
Read more in the Governance
section on pages 78–125
Transparency and reporting
We recognise that it is important
to be transparent on sustainability
issues, so that our stakeholders can
make informed decisions. Also we
aim to ensure our data collection
and management is in line with best
practice to assist with our GRESB
and EPRA reporting requirements.
We have been reporting to GRESB
since 2017. Our score for 2022 increased
from 61 to 77, and from one green star
to three. We improved our score in
many areas, including improved data
coverage and assurance, and were
ranked second in our peer group.
We were also ahead of the GRESB
average for the first time.
We have maintained our GRESB
Public Disclosure score at 91, which
is at the highest possible A grade
rating. We were ranked second
in our peer group for disclosure
methods, disclosure of sustainability
implementation and disclosure of
stakeholder engagement practices.
We have continued to report in line
with the EPRA Sustainability Best
Practices Recommendations and
received a Gold award for our 2022
Sustainability Report.
Our Sustainability Data
Performance Report is
available on our website
76
Picton Property Income Limited Annual Report 2023
Better Buildings Partnership
Data management
We are committed to the responsible
and secure handling of data and our
data management practices adhere
to relevant regulatory requirements.
We strive to provide timely and
accurate data to our stakeholders, in
a format that is easily understandable.
We continuously evaluate and enhance
our data reporting processes to meet
the evolving needs of our stakeholders.
Recognising how important being
able to use accurate energy data is to
achieve our sustainability objectives,
we have taken steps during the year to
broaden our understanding of energy
use at our buildings.
We are now implementing a data
management and monitoring
system designed to help real
estate stakeholders gain a better
understanding of their sustainability
performance and achieve their
sustainability goals.
For Scope 3 data, we have increased
our dialogue with our occupiers
on sustainability and energy
management and have improved the
level of energy data sharing as part of
this, either through obtaining data
directly from occupiers or by installing
a link to their meters to receive energy
data automatically.
The Better Buildings Partnership (BBP)
is a collaboration of the UK’s leading
commercial property owners. We
joined the BBP in 2020 and are a
signatory to the BBP Climate
Commitment.
This year we have continued to
participate in the working group for
the ESG Training Course for Real
Estate Professionals, developing
new elective modules.
This year we have also reported our
portfolio’s energy data in the BBP Real
Estate Environmental Benchmark for
the first time.
Policies
We have in place an overriding
sustainability policy. This sets out
our approach to sustainability issues
and how they are embedded into
all of our activities. We believe that a
responsible and ethical approach to
business is essential for the benefit
of all our stakeholders and within
our policy we seek to:
‒ Meet the highest standards of
corporate governance
‒ Tackle environmental challenges
‒ Provide safe and sustainable
buildings for our occupiers
‒ Focus on our employees
‒ Engage with all our stakeholders
Our Responsibility Committee guides,
defines and leads our focus on these
priorities. Our sustainability policy is
supported by specific sustainability
strategies and initiatives including:
‒ Net zero carbon pathway
‒ Community and Social Value Policy
‒ Charitable Giving Policy
‒ Modern Slavery Statement
‒ Supplier Code of Conduct
‒ Sustainable Refurbishment
Guidelines
All our ESG Policies are set out
on our website
Picton Property Income Limited Annual Report 2023
77
Strategic ReportGovernanceFinancial StatementsAdditional Information Governance
Welcome
to Governance
The UK Corporate
Governance Code 2018
(the Code) has been applied
for the financial year ended
31 March 2023. Our
Statement of Compliance
is set out in the Directors’
Report on page 123.
A summary of the system of
governance adopted by the
Company and how we have
applied the principles of the
Code are set out in this
section of the Annual Report.
78
Picton Property Income Limited Annual Report 2023
Chair’s Introduction
80 An overview of our governance
activities over the year
Board and Team
82 Board of Directors
84 Our Team
Leadership and Purpose
86 The Company’s purpose and
values
87 Board and Committee attendance
87 Conflicts of interest
88 The Board’s activities during the
year
90 Section 172 Statement
92 How the Board has engaged with
its stakeholders this year
Composition, Succession and Evaluation
96 Board composition and diversity
97 Nomination Committee Report
98 Board evaluation
Audit, Risk and Internal Control
100 Overview of controls and risk
management
101 Audit and Risk Committee Report
104 Property Valuation Committee
Report
Remuneration Report
106 Introduction from the Chair of the
Remuneration Committee
110 Remuneration at a glance
112 Directors’ Remuneration Policy
115 Annual Report on Remuneration
Division of Responsibilities
Directors’ Report
94 The role of the Board and its
123 Directors’ Report
Committees
95 The roles of each Director
Picton Property Income Limited Annual Report 2023
79
Strategic ReportGovernanceFinancial StatementsAdditional Information Chair’s Introduction
Introduction to the Corporate
Governance Report
On behalf of the Board, I am pleased
to introduce our 2023 Corporate
Governance Report.
Dear Shareholder
This year we have returned to more
familiar working arrangements. We have
maintained our schedule of Board and
Committee meetings throughout the year
with our main meetings held in person.
As a result we have also been able to
interact more regularly with the whole
Picton team, which we have all valued.
The external Board evaluation was
conducted this year and brought
interesting perspectives to how we
operate. More detail is set out in the
Nomination Report.
80
Picton Property Income Limited Annual Report 2023
The return to in-person
meetings has helped to
build a stronger working
relationship across the
whole Picton team.
Lena Wilson CBE
Chair
Board activities
Under the Leadership and Purpose
section of this report we have set
out the activities of the Board and its
Committees during the year. It has
been another busy year. Following
feedback from our investors, we have
looked at opportunities to increase the
scale of the business and which would
also provide benefit to shareholders.
We have progressed our sustainability
agenda and have actioned many
of the recommendations arising from
the Board evaluation.
Board composition and diversity
There have been no changes in the
composition of the Board this year.
The Board is aware of the recent
changes to the Listing Rules around
diversity and inclusion. As set out on
page 96 we currently meet one of
the three new requirements for
diversity on listed company boards.
We recognise the need for diversity
and support the move for greater
gender and ethnicity representation
on Boards. From an all-male Board in
2018 we have moved to 33% female
representation, in line with the
Alexander-Hampton Review target,
but slightly short of the new Listing
Rules. As a small Board we do not
have frequent turnover and
opportunities to increase diversity are
limited; however, we fully intend to
comply with the new Listing Rules
as future appointments are made.
UK Corporate Governance Code
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 this year.
The following sections describe
the workings of the Board and the
Committees and how these interact
with the provisions of the Corporate
Governance Code.
Board evaluation
Last year we carried out a Board
evaluation internally, which gave
rise to a number of actions and
recommendations. Good progress
has been made against these actions
and this is set out in more detail in
the Nomination Committee report.
This year an external review has
been conducted by Boardroom
Review Limited. The conclusion of
the review was that the Board and
its Committees were continuing
to operate very effectively. The review
provided helpful improvements to
operating practices and we will
address these over the course
of this year.
One key action was to review our
company secretarial and governance
arrangements. We have considered
this and decided that the company
secretarial function would be more
effective if brought in-house. As a
result, I am pleased to note that Kathy
Thompson has recently joined the
Picton team and she will shortly
become our Company Secretary
following an orderly transition from
Northern Trust in Guernsey. I would
very much like to express my thanks
to the team at Northern Trust for
their hard work and support over
many years.
Annual General Meeting
This year we held our Annual General
Meeting in September, earlier than
in previous years and closer to the
announcement of our annual results.
I am pleased that the meeting was
held in-person for the first time since
the Covid-19 pandemic, and I would
like to thank shareholders for their
support. All of the resolutions were
approved by shareholders, with at
least 97% of votes in favour.
Our people and culture
We have returned to a regular
pattern of in-person Board meetings
this year in the office, giving us the
opportunity to meet with the whole
team on many occasions. This has
certainly helped to build a stronger
working relationship across the whole
Picton team. We have maintained
our flexible working arrangements
for the team, working in the office
three days each week, and at home
on the other two days. Feedback
from the team confirms that they
continue to value this flexibility.
In November our new Head of
Building Surveying, Andy Lynch,
joined the team. Andy will be
overseeing capital projects across
the portfolio and will be key in
helping us with our net zero carbon
pathway. On behalf of the whole
Board, I would like to welcome
both Andy and Kathy to the team.
The results of this year’s employee
engagement survey were discussed
at our Board meeting in March. The
feedback from the survey is that the
team is content and functioning well.
More detail is provided in the Being
Responsible section on page 73, as well
as the actions arising from the survey.
Our stakeholders
Our occupier focused approach is
key to our portfolio strategy. We have
carried out two occupier surveys this
year, one at our office assets, and
another at the industrial assets. Overall
the results showed that there was
a high level of satisfaction among
our occupiers. The surveys covered
sustainability topics, and there was
good interest from occupiers in making
environmental improvements at their
properties. This is very encouraging
from a net zero carbon perspective.
Reporting
I am pleased to report that last year’s
Annual Report and Sustainability
Report both received an EPRA Gold
award, reflecting our aim to report
our activities and results clearly
and concisely. This year we are fully
incorporating our sustainability
activities within this report, which is
more consistent with our integrated
approach to sustainability. The
progress that we have made against
our net zero carbon pathway is set
out in the Being Responsible section
on pages 62 to 65. We will, however,
publish all of our sustainability
data in a separate report online,
which will be available shortly.
Lena Wilson CBE
Chair
24 May 2023
Picton Property Income Limited Annual Report 2023
81
Strategic ReportGovernanceFinancial StatementsAdditional Information Board of Directors
We have the relevant
skills and experience
for future growth.
Lena Wilson CBE
Chair
Chair of the Nomination Committee
Mark Batten
Chair of the Audit and
Risk Committee
Senior Independent Director
Maria Bentley
Chair of the Remuneration
Committee
Appointed to the Board
January 2021
Appointed to the Board
October 2017
Appointed to the Board
October 2018
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.
Responsible for financial reporting and
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
– Over 15 years of Non-Executive, Senior
Independent Director and Chair experience
including FTSE 100 companies across the
financial and industrial sectors
Key strengths and skills
– Chartered Accountant and
restructuring specialist
Key strengths and skills
– Business head leading change across
global teams
– Extensive experience in banking, insurance,
real estate, debt structuring and restructuring
– Expertise in human resources
– Extensive experience in financial services
– Multi-disciplinary global career across private
– Broad real estate knowledge, covering
and public sectors
most sub-sectors
– Experienced CEO leading organisations with
an international footprint
Principal external commitments
– Chair, Chiene + Tait LLP
– Non-Executive Director and Chair of the Group
Performance and Remuneration Committee
NatWest Group plc
– Chair, AGS Group (to 31 May 2023)
Previous experience and appointments
– Chief Executive, Scottish Enterprise
– Senior Investment Advisor at the World Bank
– Non-Executive Director, Intertek PLC
– Non-Executive Director, Scottish
Power Renewables
– Non-Executive Director and Senior Independent
Director, Argentex Group PLC
Principal external commitments
– Chair, Assured Guaranty UK
– Non-Executive Director and Chair of the Audit
and Risk Committee, Reliance National
Insurance Company (Europe)
Principal external commitments
– Non-Executive Director and Chair of the
Remuneration Committee, BlueBay Asset
Management LLP
– Non-Executive Director and Chair of the
Remuneration Committee, Daiwa Capital
Markets Europe Limited
– Chair, Governing Body, Westminster School
– Non-Executive Director and Chair of
Previous experience and appointments
– Partner, PricewaterhouseCoopers LLP
(restructuring and corporate valuation
practices)
– Non-Executive Director, L&F Indemnity
– Senior adviser, UK Government Investments
– Non-Executive adviser and Chair of the Finance
Committee, Royal Brompton and Harefield
NHS Clinical Group
Remuneration Committee, Peel Hunt Limited
Previous experience and appointments
– Senior Managing Director & Global Head
of HR, Wholesale & Head of HR EMEA,
Nomura International plc
– Group Managing Director & Global Head
of HR, UBS Investment Bank
– Managing Director, Global Head of HR
for Equities and Fixed Income, Goldman
Sachs International
82
Picton Property Income Limited Annual Report 2023
The Board is responsible for the long-term success of the
business, providing leadership and direction with due regard
and consideration to all stakeholders in the business.
Richard Jones
Chair of the Property Valuation
Committee
Michael Morris
Chief Executive
Andrew Dewhirst
Finance Director
Appointed to the Board
September 2020
Appointed to the Board
October 2015
Appointed to the Board
October 2018
Responsible for overseeing the review of
the quarterly valuation process and making
recommendations to the Board as appropriate.
Key strengths and skills
– Significant real estate investment experience
– Broad experience of property asset
management
– Extensive experience of property valuation
Principal external commitments
– Investment Committee, Henley Secure Income
Property Unit Trust
– Investment Committee, Henley Secure Income
Property Unit Trust II
– Special Advisor, Clearbell UK Strategic Trust
Responsible for overall strategic direction
and execution of the Group’s business model.
Responsible for strategic financial planning
and reporting for the Group.
Key strengths and skills
– Successful track record of driving
investment strategy and delivering results
for shareholders
– Proven leadership skills
– In-depth understanding of real estate
equity capital markets
Principal external commitments
None
Previous experience and appointments
– 25 years’ wide-ranging commercial real
estate market experience
Key strengths and skills
– Chartered accountant with extensive
experience in financial planning and reporting
– In-depth knowledge of financial services,
capital markets and real estate funds
– Expertise in debt and equity financing
Principal external commitments
None
Previous experience and appointments
– Director of Client Accounting, ING Real Estate
Investment Management
– Director, Hermes Administration Services
Previous experience and appointments
– UK Managing Director on Aviva’s Investors’
– Senior Director and Fund Manager,
ING Real Estate Investment Management
Global Real Estate Board
– Special Director, Ribston UK Industrial Property
Unit Trust
– Non-Executive Director, Royal Brompton and
Harefield Hospital NHS Foundation Trust
– Transport for London’s Commercial Property
Advisory Group
Picton Property Income Limited Annual Report 2023
83
Strategic ReportGovernanceFinancial StatementsAdditional Information
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.
Louisa McAleenan
Research Analyst
James Forman
Director of Accounting
Mark Alder
Head of Occupier Services
Louisa has over 15 years of experience
in 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.
James is a Certified Accountant and
has worked with the Group since its
launch in 2005 and has over 20 years
of experience in the real estate sector.
He is responsible for all the accounting
and financial reporting for the Group
and is a member of the Transaction
and Finance Committee.
Mark joined in 2020 and is a Chartered
Surveyor with over 30 years of property
management experience. He is
responsible for delivering effective
property management and
strengthening our relationship with
our occupiers. Mark is a member of
the Responsibility Committee and
the Health and Safety Committee.
84
Picton Property Income Limited Annual Report 2023
Michael Morris
Chief Executive
Michael has over 25 years of experience
within the UK commercial property
sector and is responsible for the strategic
direction and effective execution of the
Group’s business model. Michael is Chair
of the Executive Committee and of the
Transaction and Finance Committee.
Melissa Ricardo
Office Manager
Tim Hamlin
Director of Asset Management
Andrew Dewhirst
Finance Director
Melissa joined in 2017 and is responsible
for the day-to-day management of the
office and oversees the administrative
aspects of the Company. She is a
member of the Health and Safety
Committee.
Tim is a Chartered Surveyor with
over 15 years of real estate experience
and is responsible for creating and
implementing asset level business
plans in line with the portfolio’s
strategic direction and is a member
of the Responsibility Committee.
Responsible for the financial strategy
and reporting for the Group, Andrew
has over 30 years of experience within
the financial services and real estate
sectors. Andrew is Chair of the
Responsibility Committee.
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, the Transaction
and Finance Committee and is Chair
of the Health and Safety Committee.
Lucy Stearman
Assistant Accountant
Andy Lynch
Head of Building Surveying
Lucy has over ten years of experience
within financial services and joined
the Group in April 2019 to assist with
the accounting and financial reporting.
Andy is a Chartered Surveyor with
over 15 years of experience within
the commercial real estate sector.
Andy joined the Group in November
2022 and will oversee refurbishment
projects and other building matters
across the portfolio, with a particular
focus on environmental improvements.
Kathy Thompson
Company Secretary
Kathy joined in May 2023 and, following
a handover period, will become
Company Secretary to the Group. Kathy
is a Chartered Secretary with over ten
years of experience within the financial
services sector.
Picton Property Income Limited Annual Report 2023
85
Strategic ReportGovernanceFinancial StatementsAdditional Information Leadership and Purpose
Leadership and purpose
Purpose
Our purpose is to be a
responsible owner of
commercial real estate,
helping our occupiers
succeed and being
valued by all our
stakeholders.
The role of the Board
The Board is responsible for the
long-term success of the business.
It provides leadership and direction,
with due regard to the views of all
of the stakeholders in the business.
The Board operates in an open and
transparent way, and seeks to engage
with its shareholders, employees,
occupiers and local communities.
The Board has full responsibility for the
direction and control of the business,
and sets and implements strategy,
within a framework of strong internal
controls and risk management. It
establishes the culture and values of
the Group.
The Board has a schedule of
matters reserved for its attention.
This includes all acquisitions and
significant disposals, significant
leasing transactions, dividend policy,
gearing and major expenditure.
The Board has collectively a range
of skills and experience that are
complementary and relevant to
the business.
These are set out in the
biographies of the individual
Directors on pages 82 and 83.
Our culture and values
Principled
We are professional, diligent and
strategic.
Demonstrated through our
transparent reporting, occupier
focused approach, alignment
with shareholders, delivery of our
Picton Promise, our commitment
to sustainability and positive
environmental initiatives.
Perceptive
We are insightful, thoughtful and
intuitive.
Demonstrated through our long-term
track record, our dynamic positioning
of the portfolio, gearing strategy and
engagement with our occupiers.
Progressive
We are forward-thinking, enterprising,
and continually advancing.
Demonstrated through our culture,
work ethic, and proactive asset
management.
Board meetings
The Board has a regular schedule of
meetings throughout the year. There
are normally two scheduled Board
meetings each quarter; the first to deal
with regular operational matters such
as approval of the dividend and to
review key portfolio activity; and the
second to consider more strategic
matters and thematic discussions.
Meetings are also scheduled for the
approval of the annual and half-year
results. Board education sessions are
included in the schedule, and there
is an annual Strategy Day. External
advisers are invited to attend Board
meetings on a regular basis. Meetings
this year have been a mixture of
in-person and virtual.
86
Picton Property Income Limited Annual Report 2023
Attendance at Board and Committee meetings
Board members
Lena Wilson
Michael Morris
Andrew Dewhirst
Mark Batten
Maria Bentley
Richard Jones
Total number of meetings
Date appointed
Board
Audit and Risk
Remuneration
Property
Valuation
Nomination
01.01.2021
01.10.2015
01.10.2018
01.10.2017
01.10.2018
01.09.2020
10/10
10/10
10/10
10/10
10/10
10/10
10
–
–
–
5/5
5/5
5/5
5
5/5
–
–
5/5
5/5
5/5
5
4/4
–
–
4/4
4/4
4/4
4
2/2
–
–
2/2
2/2
2/2
2
The above meetings were the scheduled Board and Committee meetings. Additional meetings were held to deal with
other matters as required and are not included above.
Board Committees
The Board has established four
Committees:
Audit and Risk, Remuneration,
Property Valuation and Nomination.
These are comprised entirely of
Non-Executive Directors and operate
within defined terms of reference.
Conflicts of interest
Directors are required to notify the
Company of any potential conflicts
of interest that they may have.
Any conflicts are recorded and
reviewed by the Board at each
meeting. No conflicts have been
recorded during the year.
The terms of reference
are available on the
Company’s website.
Picton Property Income Limited Annual Report 2023
87
Strategic ReportGovernanceFinancial StatementsAdditional Information
Leadership and Purpose/Continued
Board activities in 2022/23
The Board met on ten occasions during the year, as well as having a more informal Strategy Day. Here we have set
out the key activities and approvals over the year. Throughout the year we have maintained a programme of Board
education within the schedule of regular meetings, with relevant external input. How the Board has engaged with all its
stakeholders is set out on pages 92 and 93, and consideration of Section 172 matters is described on pages 90 and 91.
2022
The following
recurring matters
were considered
and discussed at
these meetings
The Board
considered and
approved the
following matters
April/May
June/July
September
– Review of quarterly management
– Review of portfolio and
– Review of portfolio
accounts
financial forecasts
and financial forecasts
– Review of portfolio activity
– Market update from the
– Market update from
– Review of quarterly
management accounts
– Review of portfolio
and financial forecasts
– Review of quarterly
management accounts
– Review of portfolio
and financial forecasts
– Review of portfolio activity
– Market update from
– Review of portfolio activity
– Market update from
the Company’s brokers
– Report from the
Company Secretary
Company’s brokers
– Report from the
Company Secretary
– Review of quarterly
management accounts
– Review of portfolio activity
– Health and safety matters
across the portfolio
– Health and safety matters
the Company’s brokers
across the portfolio
– Report from the Company
– Review of the external auditor
Secretary
– Review of progress against
sustainability priorities
the Company’s brokers
– Report from the
Company Secretary
– The quarterly dividend for the
January to March 2022 period
at the rate of 0.875 pence
per share
– Acceptance of the
recommendation from the
Property Valuation Committee
in respect of the 31 March 2022
independent valuation
– The Annual Report for the year
ended 31 March 2022 and the
Stock Exchange announcement
of the results
– The net zero carbon pathway
– The salary and bonus awards for
the year ended 31 March 2022
– Deferred Bonus and LTIP
share awards for the team
– The acquisition of 109–117
High Street, Cheltenham
– The quarterly dividend for
the April to June 2022 period
at the rate of 0.875 pence
per share
– Acceptance of the
recommendation from the
Property Valuation Committee
in respect of the 30 June 2022
independent valuation
– Corporate bonus objectives for
the Executive Directors for
2022/23
– The Company’s Modern
Slavery Statement for the
year ended 31 March 2022
– The updated Sustainability
and Health and Safety policies
– The updated Share Dealing Code
– Capital expenditure at Madleaze
Trading Estate, Gloucester
– The quarterly dividend for
– The Half Year Report
– The quarterly dividend for the
– The updated Sustainability
the July to September 2022
to 30 September 2022 and the
October to December 2022
and Health and Safety policies
period at the rate of 0.875 pence
Stock Exchange announcement
period at the rate of 0.875 pence
of the results
per share
– Acceptance of the
recommendation from the
Property Valuation Committee in
respect of the 30 September
2022 independent valuation
per share
– Acceptance of the
recommendation from the
Property Valuation Committee in
respect of the 31 December 2022
independent valuation
The Board discussed
the following one-off
items of business
– Initial salary review and bonus
proposals for the team
– Review of independent
benchmarking report on market
remuneration levels, both for
employees and Directors
– Review of feedback received
on corporate opportunity
– Options for renewable energy
within the Picton portfolio
– Planning of the forthcoming
Annual General Meeting
– Actions from the previous
Board evaluation
– Actions arising from the
previous Board evaluation
– Debrief from the recent Annual
– Feedback from the
– Reviewed feedback on current
– Reviewed feedback on current
General Meeting
announcement of the Half Year
corporate opportunities
corporate opportunities
results
– Consideration of the external
Board effectiveness review
– Reviewed feedback on current
corporate opportunities
– Reviewed the feedback from
the latest employee
engagement survey, and
considered actions arising
– Reviewed the actions arising
from the external Board
evaluation
– Reviewed succession planning
– Considered Board diversity
and inclusion measures
88
Picton Property Income Limited Annual Report 2023
The following
recurring matters
were considered
and discussed at
these meetings
– Review of quarterly management
– Review of portfolio and
– Review of portfolio
accounts
financial forecasts
and financial forecasts
– Review of portfolio activity
– Market update from the
– Market update from
the Company’s brokers
– Report from the
Company Secretary
Company’s brokers
– Report from the
Company Secretary
– Review of quarterly
management accounts
– Review of portfolio activity
– Health and safety matters
across the portfolio
October
2023
November/December
January
March
– Review of quarterly
management accounts
– Review of portfolio activity
– Health and safety matters
across the portfolio
– Review of the external auditor
– Review of progress against
sustainability priorities
– Review of portfolio
and financial forecasts
– Market update from
the Company’s brokers
– Report from the Company
Secretary
– Review of quarterly
management accounts
– Review of portfolio activity
– Review of portfolio
and financial forecasts
– Market update from
the Company’s brokers
– Report from the
Company Secretary
The Board
considered and
approved the
following matters
– The quarterly dividend for the
– Deferred Bonus and LTIP
– The Company’s Modern
January to March 2022 period
share awards for the team
at the rate of 0.875 pence
– The acquisition of 109–117
Slavery Statement for the
year ended 31 March 2022
per share
– Acceptance of the
High Street, Cheltenham
– The updated Sustainability
– The quarterly dividend for
and Health and Safety policies
recommendation from the
the April to June 2022 period
– The updated Share Dealing Code
Property Valuation Committee
at the rate of 0.875 pence
– Capital expenditure at Madleaze
Trading Estate, Gloucester
– The quarterly dividend for
– The Half Year Report
the July to September 2022
period at the rate of 0.875 pence
per share
to 30 September 2022 and the
Stock Exchange announcement
of the results
– Acceptance of the
recommendation from the
Property Valuation Committee in
respect of the 30 September
2022 independent valuation
– The quarterly dividend for the
October to December 2022
period at the rate of 0.875 pence
per share
– Acceptance of the
recommendation from the
Property Valuation Committee in
respect of the 31 December 2022
independent valuation
– The updated Sustainability
and Health and Safety policies
– Initial salary review and bonus
– Review of feedback received
– Actions arising from the
– Debrief from the recent Annual
– Feedback from the
– Reviewed feedback on current
– Reviewed feedback on current
on corporate opportunity
previous Board evaluation
General Meeting
announcement of the Half Year
results
– Consideration of the external
Board effectiveness review
– Reviewed feedback on current
corporate opportunities
corporate opportunities
corporate opportunities
– Reviewed the feedback from
the latest employee
engagement survey, and
considered actions arising
– Reviewed the actions arising
from the external Board
evaluation
– Reviewed succession planning
– Considered Board diversity
and inclusion measures
Picton Property Income Limited Annual Report 2023
89
in respect of the 31 March 2022
per share
independent valuation
– Acceptance of the
– The Annual Report for the year
recommendation from the
ended 31 March 2022 and the
Property Valuation Committee
Stock Exchange announcement
in respect of the 30 June 2022
of the results
independent valuation
– The net zero carbon pathway
– Corporate bonus objectives for
– The salary and bonus awards for
the Executive Directors for
the year ended 31 March 2022
2022/23
The Board discussed
the following one-off
items of business
proposals for the team
– Review of independent
benchmarking report on market
within the Picton portfolio
remuneration levels, both for
– Planning of the forthcoming
– Options for renewable energy
employees and Directors
Annual General Meeting
– Actions from the previous
Board evaluation
Strategic ReportGovernanceFinancial StatementsAdditional Information Leadership and Purpose/Continued
Section 172
Statement
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 shareholders as a whole.
The Directors have regard to:
The likely long-term consequences of decisions
Read more on pages 86–93
The interests of its employees
Read more on page 73
The Company’s relationships with its suppliers,
customers and others
Read more on pages 72–75
The impact of the Company’s operations on the
community and the environment
Read more on pages 56–71
The Company’s reputation and maintaining a
reputation for high standards of business conduct
Read more on pages 80–95
The need to act fairly towards shareholders
Read more on pages 88–93
90
Picton Property Income Limited Annual Report 2023
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 are set out below.
Board engagement with stakeholders
Our shareholders
As the 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. The Chair and Chief Executive
hold regular meetings with shareholders and feedback
from these meetings is reported back to the Board.
This feedback may be on operational matters, financing
strategy or dividend policy, as examples. Other Non-
Executive Directors will engage with shareholders on
specific matters as appropriate. The Directors normally
attend the Annual General Meeting to meet with
shareholders and to answer any questions they may have.
Our occupiers
One of our key priorities is to work with our occupiers, so
that we can understand their needs and aim to meet their
current and future requirements. The Board 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
Suppliers
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 have carried out
our annual employee survey and the feedback from the
survey has been discussed by the Board, with a number of
actions arising. The Board has also been able to meet with
the whole team informally when in-person Board meetings
have been held at Stanford Building.
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.
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.
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 also significant to any of our key 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.
Actions
Evaluation of growth
opportunities
The Board has considered a number of growth opportunities over the year. Growth of
the business would bring financial benefits to shareholders in the form of enhanced
earnings and dividends. Growth would also bring further benefits to the team in the
form of career progression.
Review of dividend
The Board is aware of the value of regular dividend payments to shareholders and
reviews the level of dividend each quarter. The Board has maintained the current
dividend level throughout the year, despite more challenging microeconomic
conditions.
Occupier engagement
The Board agreed that occupier surveys should be carried out this year to determine
whether occupiers were satisfied with the quality of space provided and the level of
service provided by the property managers.
Company Secretary
Following the Board evaluation in 2022, the Board decided to bring the Company
Secretary role in-house. The Board considered that this would create a more effective
function that would benefit both shareholders and the team.
Picton Property Income Limited Annual Report 2023
91
Strategic ReportGovernanceFinancial StatementsAdditional Information Leadership and Purpose/Continued
Engagement with 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
2023 is available on the previous pages and sets out how
some of the key decisions made by the Board during
the year were guided by stakeholder engagement.
Stakeholders and what is important to them
How we engage
What we have done this year
Our people
‒ Fair and equal treatment
‒ Career development
‒ Fair pay and conditions
‒ Good work/life balance
‒ Positive work culture and values
We have a small team and engage regularly with them.
The results of the employee engagement survey were
We have an appraisal process where each member of the
positive and our flexible working arrangements were still
team will discuss their performance and objectives with
valued by the team. This year we were able to hold a
their line manager twice a year. The Board discusses
Christmas social event for the team and guests for the
individual development and career progression regularly.
first time since the start of the pandemic.
We carry out an annual employee survey, and the results
of this are discussed by the Board. The Board also meets
with the whole team informally when in-person Board
meetings are held at Stanford Building.
Local communities and charities
‒ Local employment opportunities
‒ Positive contribution to local economy
‒ Safe and clean environment
We are committed to improving local communities
Our charitable donations for the year were £27,000, and we
where we own buildings, whether providing space
supported 23 different charities. We have maintained our
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.
long-standing partnerships with The Funding Network
and Coram, and this year have established new charity
partnerships with The Fostering Network and Future
Youth Zone, which is based close to one of our properties.
Our occupiers
‒ Cost-effective space suited to their needs
‒ Fair lease terms
‒ Well-managed, efficiently run and
sustainable buildings
‒ Good relationships
One of our key priorities is to work with our occupiers,
This year we have undertaken occupier surveys at our
so that we can understand their needs and aim to
multi-let offices and industrial estates. The results from
meet their current and future requirements. Our asset
the surveys were positive, and the specific issues raised
managers, guided by our Picton Promise, maintain
regarding buildings have been dealt with by our property
regular contact with occupiers and discuss with them any
managers. We have also rolled out our occupier app at a
issues regarding the buildings and any future plans we
further two properties, and will continue to implement
have. Our Head of Occupier Services has developed an
this at more properties over the course of this year.
occupier engagement programme and attends occupier
meetings and other events. We send out an occupier
newsletter regularly with relevant and helpful information.
Our investors
‒ Clear strategy
‒ Regular dividends
‒ Financial performance
‒ Clear and transparent reporting
We value the views of all our shareholders and senior
The Chair and Chief Executive have held meetings with
management hold regular meetings to update
major shareholders this year to receive feedback on issues
shareholders on progress and activity. We issue regular
important to the strategic direction and growth of the
investor updates with key financial highlights and
business. The Chair of the Remuneration Committee has
updates on the portfolio. Our website provides investors
sought consultation from our shareholders regarding
with up-to-date information about the Group. This year
the Directors’ Remuneration Report ahead of the 2022
our Annual General Meeting was at Stanford Building
Annual General Meeting and will consult further ahead
and we also held a webinar for shareholders at the
of this year’s Annual General Meeting.
same time for those unable to attend in person.
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. This year
we have further rolled out our modern slavery terms
with new suppliers.
92
Picton Property Income Limited Annual Report 2023
Stakeholders and what is important to them
How we engage
What we have done this year
Our people
‒ Fair and equal treatment
‒ Career development
‒ 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. The Board discusses
individual development and career progression regularly.
We carry out an annual employee survey, and the results
of this are discussed by the Board. The Board also meets
with the whole team informally when in-person Board
meetings are held at Stanford Building.
The results of the employee engagement survey were
positive and our flexible working arrangements were still
valued by the team. This year we were able to hold a
Christmas social event for the team and guests for the
first time since the start of the pandemic.
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.
Our charitable donations for the year were £27,000, and we
supported 23 different charities. We have maintained our
long-standing partnerships with The Funding Network
and Coram, and this year have established new charity
partnerships with The Fostering Network and Future
Youth Zone, which is based close to one of our properties.
Our occupiers
‒ Cost-effective space suited to their needs
‒ Fair lease terms
‒ Well-managed, efficiently run and
sustainable buildings
‒ Good relationships
One of our key priorities is to work with our occupiers,
so that we can understand their needs and aim to
meet their current and future requirements. Our asset
managers, guided by our Picton Promise, 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 attends occupier
meetings and other events. We send out an occupier
newsletter regularly with relevant and helpful information.
This year we have undertaken occupier surveys at our
multi-let offices and industrial estates. The results from
the surveys were positive, and the specific issues raised
regarding buildings have been dealt with by our property
managers. We have also rolled out our occupier app at a
further two properties, and will continue to implement
this at more properties over the course of 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 key financial highlights and
updates on the portfolio. Our website provides investors
with up-to-date information about the Group. This year
our Annual General Meeting was at Stanford Building
and we also held a webinar for shareholders at the
same time for those unable to attend in person.
The Chair and Chief Executive have held meetings with
major shareholders this year to receive feedback on issues
important to the strategic direction and growth of the
business. The Chair of the Remuneration Committee has
sought consultation from our shareholders regarding
the Directors’ Remuneration Report ahead of the 2022
Annual General Meeting and will consult further ahead
of this year’s Annual General Meeting.
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. This year
we have further rolled out our modern slavery terms
with new suppliers.
Picton Property Income Limited Annual Report 2023
93
Strategic ReportGovernanceFinancial StatementsAdditional Information Division of Responsibilities
The role of the Board and its Committees
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
Comprises:
3 Non-Executive Directors
Comprises:
4 Non-Executive Directors
Comprises:
4 Non-Executive Directors
Responsibilities:
– Oversees financial
reporting
– Monitors risk
management
– Reviews system of
internal controls
Responsibilities:
– Determines
remuneration policy
– Sets remuneration of
Executive Directors
– Reviews remuneration of
whole workforce
– Agrees internal audit plan
– Approves bonus and LTIP
and reviews reports
– Evaluates external auditor
awards
Responsibilities:
– Oversees the
independent valuation
process
– Recommends the
appointment and
remuneration of the
valuer
– Ensures compliance with
applicable standards
Nomination
Chair:
Lena Wilson CBE
Comprises:
4 Non-Executive Directors
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
Responsibilities:
– Implementation of strategy
– Manages operations
– Day-to-day management of the business
– Employee remuneration and development
Transaction and Finance
Chair: Michael Morris
Responsibility
Chair: Andrew Dewhirst
Comprises: 2 Executive Directors and senior management
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 and Climate Action
Working Group
– Approves sustainability reporting
– Employee wellbeing
94
Picton Property Income Limited Annual Report 2023
Responsibilities of the Directors
The roles and responsibilities of each of the Directors are explained below:
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
‒ Fosters productive 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
Non-Executive Directors
Mark Batten
Maria Bentley
Richard Jones
Executive Director
Andrew Dewhirst
‒ Bring independent judgement and scrutiny to the decisions of the Board
‒ Bring a range of skills and experience to the deliberations of the Board
‒ Monitor business progress against agreed strategy
‒ Review the risk management framework and the integrity of financial information
‒ Determine the remuneration policy for the Group and approve performance
targets in line with strategy
‒ Supports the Chief Executive in the formulation of strategy
‒ Manages the financial operations of the Group
‒ Develops and maintains the system of financial controls within the Group
‒ Recommends the risk management framework to the Audit and Risk Committee
and the Board
Picton Property Income Limited Annual Report 2023
95
Strategic ReportGovernanceFinancial StatementsAdditional Information Composition, Succession and Evaluation
Board composition
and diversity
These charts set out the Board’s
composition, tenure and diversity
characteristics.
The Board currently comprises the Chair, two Executive
Directors and three independent Non-Executive
Directors. The Non-Executive Directors bring a variety
of skills and business experience to the Board. Their
role is to bring independent judgement and scrutiny
to the recommendations of the Executive Directors.
Each of the Non-Executive Directors is considered
to be independent in character and judgement.
As at 31 March 2023 the Board comprised 50%
independent Non-Executive Directors.
The biographies of the Directors can be found on pages
82 and 83, which set out their skills and experience, and
their membership of each of the Committees.
Sex/gender representation
Number
of Board
members
Percentage
of the
Board
Number
of senior
Board
positions
Number in
executive
management
Percentage of
executive
management
Men
Women
4
2
67%
33%
3
1
3
0
100%
0%
Ethnic representation
Number
of Board
members
Percentage
of the
Board
Number
of senior
Board
positions
Number in
executive
management
Percentage of
executive
management
6
100%
4
3
100%
White
British
96
Picton Property Income Limited Annual Report 2023
Function
Non-Executive Chair – 1 (17%)
Executive Directors – 2 (33%)
Independent Non-Executive
Directors – 3 (50%)
Tenure
0 to 3 years – 2 (33%)
3 to 6 years – 3 (50%)
6 to 9 years – 1 (17%)
Diversity
Male – 4 (67%)
Female – 2 (33%)
Age
50 to 54 years – 1 (17%)
55 to 59 years – 1 (17%)
60 to 64 years – 3 (50%)
65 to 69 years – 1 (16%)
Nomination
Committee
The Nomination Committee is chaired
by Lena Wilson. The other members
of the Committee are Mark Batten,
Maria Bentley and Richard Jones.
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 Committee will consider many factors,
including the skills and experience that
will be relevant to any specific role and
that will complement the existing Board
members. The Committee will also seek
to continuously improve the diversity of
the Board including gender, ethnicity,
age and socio-economic background.
It is also the Committee’s role to consider
succession planning for the Board and for
the Executive team, and to lead on the
appointment process, ensuring that this
is formal, rigorous and transparent.
The Committee makes recommendations
to the Board regarding the composition
of the Remuneration, Audit and Risk,
Nomination and Property Valuation
Committees, taking into account
individuals’ time commitments
and experience.
Picton Property Income Limited Annual Report 2023
97
Strategic ReportGovernanceFinancial StatementsAdditional Information Composition, Succession and Evaluation/Continued
Terms of reference
Action
Progress
Establish an ongoing
programme of shareholder
engagement with clarity on roles
Discussions on shareholder engagement have taken place
at all Board meetings during the year and a programme
of engagement has been put in place principally for the
Chair, the Chief Executive and the Chair of the
Remuneration Committee.
Incorporate relevant external
perspectives to Board meetings
and strategy sessions
A series of external advisers and other third parties have
provided input to both Board and strategy days on key
topics identified by the Board.
Review strategy statements to
ensure they reflect ambition
Relevant external communications have been reviewed
and updated to include appropriate wording.
Highlight relevant governance
updates in Board packs
Governance and company secretarial updates are
included in Board packs.
Establish external annual review
of governance and director
training
Governance was further considered in this year’s external
Board evaluation and the resulting recommendations are
being actioned. Director training has taken place through
external speakers at Board meetings and attendance at
relevant seminars and/or webinars.
Prepare annual governance
calendar
A corporate calendar covering the Board and its
Committees has been implemented.
Ensure proactive approach to
governance topics
The Chair regularly discusses governance topics, changes
and updates with the Company Secretary and the Board
is advised accordingly.
Focus on key items in Board
materials and discussions
Board agendas clearly state key decision items allowing
these to be prioritised for discussion.
Reduce business as usual topics
Items for the Board to note are highlighted as such and
dealt with after key decision items.
Implement thematic calendar
for meetings
This has been implemented as part of the corporate
calendar.
Develop focused risk reporting
for Board
Undertake in-depth reviews of
specific risk areas
A new risk radar document has been implemented which
summarises principal and emerging risks together with
an assessment of impact and likelihood. This is reviewed
by the Audit and Risk Committee on a regular basis.
This year we have appointed BDO as internal auditor to
the Group. They have carried out three in-depth reviews
this year, covering cyber security, key financial controls
and debt covenants. The results of these reviews are
discussed in the Audit and Risk Committee report. The
internal audit plan for 2023/24 has been agreed with the
Audit and Risk Committee, and will cover property and
lease management, and valuations.
Ensure annual review of Board
composition
The composition of the Board and succession planning
are discussed at the Nomination Committee meetings.
Establish programme of
engagement with team
In addition to the annual employee engagement survey,
we have established regular informal meetings between
the Board and the rest of the team following each
in-person Board meeting.
The Committee’s terms of reference
include consideration of the following
issues:
‒ Review and make
recommendations regarding the
size and composition of the Board;
‒ Consider and make
recommendations regarding
succession planning for the Board
and senior management;
‒ Identify and nominate candidates
to fill Board vacancies as they arise;
‒ Review the results of the Board
evaluation relating to composition;
‒ Review the time requirements for
Directors; and
‒ Recommend the membership of
Board Committees.
Visit our website picton.co.uk
Activity
The Committee met twice during
the year ended 31 March 2023 and
considered the following matters:
‒ The performance and constitution
of the Committee;
‒ The time commitment required
from Non-Executive Directors;
‒ The changes to the Listing Rules
in respect of diversity targets;
‒ The external Board evaluation
for the current year and the
recommendations arising
from it; and
‒ Succession planning for the
Executive Directors.
Board evaluation
In accordance with the requirements
of the Code, the Board undertakes
a review of the effectiveness of
its performance and that of its
Committees every year. An external
review is normally carried out every
three years, with internal reviews in
the intervening years.
In 2022 the Board carried out an
internal review of its effectiveness.
The following sets out the actions
that were identified following the
review together with the progress
made since the review.
98
Picton Property Income Limited Annual Report 2023
The external review
concluded that the Board,
its Committees and the
individual Directors
continue to operate very
effectively.
Lena Wilson CBE
Chair of the Nomination Committee
This year the Board conducted
an external review carried out by
Boardroom Review Limited. This
comprised a series of interviews with
each of the Directors individually,
and the Company Secretary, followed
by a workshop where the interview
feedback was discussed and
summarised, and subsequent
actions agreed.
The review concluded that the Board,
its Committees and the individual
Directors continue to operate very
effectively.
The key themes and actions arising
from the review were:
‒ Ensure opportunities for growth
and increasing scale are fully
considered
‒ Establish clear parameters on risk
appetite
‒ Maintain occupier focus, especially
around office working and
technology
‒ Encourage more external
perspectives, particularly ESG and
technology
‒ Consider expertise and resource
within the team
‒ Improve diversity at Board level
and within the team
‒ Review existing company
secretarial arrangements
‒ Consider future Board composition
‒ Review cyber security and data
As noted in the Introduction to
Governance, we have reviewed our
company secretarial arrangements
and decided the function should be
brought in-house. The Committee
will provide an update on the other
actions arising from the evaluation
in its next report.
Boardroom Review Limited has no
connection to Picton or with any of
its Directors.
Diversity and inclusion
The Company values the
contributions made by all of our
team and is committed to treating all
employees equally and considers all
aspects of diversity, including gender,
when considering recruitment at any
level of the business. We recognise
the need for diversity and support
the move for greater gender and
ethnicity representation on Boards. As
a small team we do not have regular
appointments and opportunities
to increase diversity are limited,
however it is our strong intention
to do so whenever possible. 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.
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.
Lena Wilson CBE
Chair of the Nomination Committee
24 May 2023
Picton Property Income Limited Annual Report 2023
99
Strategic ReportGovernanceFinancial StatementsAdditional Information 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 external
auditor to ensure that there are
no issues of concern in relation to
the audit opinion on the financial
statements and representatives
of senior management are
excluded from that discussion.
Audit, Risk and Internal Control
Audit, risk and
internal control
The Board has established procedures to
manage risk, oversee the framework of internal
controls and determine its risk appetite to
achieve its long-term strategic objectives.
The Board and the Audit and
Risk Committee are responsible
for ensuring that the Group has
an effective internal control and
risk management system and
that the Annual Report provides
a fair reflection of the Group’s
activities during the year following
its review of the methodology.
The Property Valuation Committee
has oversight of the independent
valuers and the valuation process.
It recommends the adoption of
the quarterly valuations by the
Board, following its review of the
methodology and assumptions
used by CBRE Limited, the
Group’s external valuers.
Internal control and risk
management
The Board is 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 designed to meet
the particular needs of the Group
in managing the risks to which it is
exposed, consistent with the FRC’s
Guidance on Risk Management,
Internal Control and Related
Financial and Business Reporting.
Such review procedures have
been in place throughout the full
financial year, and up to the date
of the approval of the financial
statements, and the Board is
satisfied with their effectiveness.
This process involves a review by the
Board of the control environment
within the Group’s service providers to
ensure that the Group’s requirements
are met.
The Board has appointed BDO LLP
(‘BDO’) to provide internal audit and
assurance services to the Group, in
place of additional control testing
procedures carried out by the external
auditor. The Board considers that this
will provide it with a greater level of
assurance that the Group’s internal
controls are robust and are operating
effectively. The annual programme of
testing carried out by BDO is agreed
in advance by the Audit and Risk
Committee. Details of the reviews
carried out by BDO are set out in the
Audit and Risk Committee report.
These systems are designed to ensure
effective and efficient operations,
internal control and compliance with
laws and regulations. In establishing
the systems of internal control,
regard is paid to the materiality
of relevant risks, the likelihood of
costs being incurred and costs of
control. It follows, therefore, that
the systems of internal control can
only provide reasonable, but not
absolute, assurance against the risk
of material misstatement or loss.
100
Picton Property Income Limited Annual Report 2023
Audit and Risk
Committee
The Audit and Risk Committee is chaired
by Mark Batten. The other members of
the Committee are Maria Bentley and
Richard Jones.
Meetings of the Audit and Risk Committee
are attended by the Group’s Finance
Director and other members of the finance
team, the internal auditor and the external
auditor. The external auditor is given the
opportunity to discuss matters without
management presence.
The Committee was satisfied that
the 2023 Annual Report is fair,
balanced and understandable.
Mark Batten
Chair of the Audit and Risk Committee
Picton Property Income Limited Annual Report 2023
101
Strategic ReportGovernanceFinancial StatementsAdditional Information Audit, Risk and Internal Control/Continued
Terms of reference
The Committee’s terms of reference
include consideration of the
following issues:
‒ Financial reporting, including
significant accounting judgements
and accounting policies;
‒ Development of a comprehensive
Risk Management Policy for the
adoption by the Group;
‒ Evaluation of the Group’s risk
profile and risk appetite, and
whether these are aligned with its
investment objectives;
‒ Ensuring that key risks, including
climate-related risks, are being
effectively identified, measured,
managed, mitigated and reported;
‒ Internal controls, controls testing
and risk management systems;
‒ The Group’s relationship with the
external auditor, including
effectiveness and independence;
‒ Internal audit and assurance
services, including review of any
report and assessment of control
weaknesses; and
‒ Reporting responsibilities.
Visit our website picton.co.uk
Activity
The Audit and Risk Committee met
five times during the year ended
31 March 2023 and considered the
following matters:
‒ External audit strategy and plan;
‒ Audit and accounting issues of
significance;
‒ The Annual and Interim Reports
of the Group;
‒ Reports from the external auditor;
‒ The effectiveness of the audit
process and the independence of
KPMG Channel Islands Limited;
‒ Review of the Group’s Risk
Management Policy and appetite;
Financial reporting and
significant reporting matters
The Committee considers all
financial information published in
the annual and half-year financial
statements and considers accounting
policies adopted by the Group,
presentation and disclosure of the
financial information and the key
judgements made by management
in preparing the financial statements.
The Directors are responsible for
preparing the Annual Report.
At the request of the Board, the
Committee considered whether
the 2023 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
reviewing the financial statements
was the valuation of the Group’s
investment properties.
The valuation is conducted on a
quarterly basis by external valuers
and is subject to oversight by the
Property Valuation Committee. It is
a key component of the annual and
half-year financial statements and
is inherently subjective, requiring
significant judgement. Members of
the Property Valuation Committee,
together with members of the
Picton team, meet with the external
valuer on a quarterly 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 on 2 May
2023 and confirmed that the following
matters had been considered in
discussions with the external valuers:
‒ Property market conditions;
‒ Yields on properties within the
portfolio;
‒ Letting activity and vacant
‒ Review of the risk matrix and
properties;
mitigating controls;
‒ Internal audit reports and
programme; and
‒ Stock Exchange announcements.
‒ Covenant strength and lease
lengths;
‒ Estimated rental values; and
‒ 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 compared
to previous quarters. The Committee
considered the valuation and agreed
that this was appropriate for the
financial statements.
The Committee was satisfied that the
2023 Annual Report is fair, balanced
and understandable and included
the necessary information as set out
above, and it has confirmed this to
the Board.
Risk Management Policy
The Committee has considered and
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
proactive risk identification,
measurement, management,
mitigation and reporting in respect
of all activities undertaken by the
Group. The Risk Management
Policy is intended to:
‒ Ensure that major risks are
reported to the Board for review;
‒ Result in the management of
those risks that may significantly
affect the pursuit of the stated
strategic goals and objectives;
‒ Embed a culture of risk awareness
and evaluation and identify risks at
multiple levels within the Group;
and
‒ Meet legal and regulatory
requirements.
Internal control and internal audit
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.
102
Picton Property Income Limited Annual Report 2023
As part of this process, a risk matrix
has been prepared that identifies
the Company’s key functions and
the individual activities undertaken
within those functions. From
this, the Board has identified the
Company’s principal risks and the
controls employed to manage
those risks. These are reviewed at
each Audit and Risk Committee
meeting. The Board monitors the
performance of the Company
against its strategy and receives
regular reports from management
covering all business activities.
The Committee has received
and reviewed a copy of CBRE
Limited’s Real Estate Accounting
Services – Service Organisation
Control Report as at 31 December
2022, prepared in accordance
with International Standard on
Assurance Engagements 3402, in
respect of property management
accounting services provided to
Picton Property Income Limited.
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 compromised.
The Committee monitors the level of
fees incurred for non-audit services
to ensure that this is not material,
and obtains confirmation, where
appropriate, that separate personnel
are involved in any non-audit
services provided to the Group. The
Committee must approve in advance
all non-audit assignments to be
carried out by the external auditor.
The fees payable to the Group’s
auditor and its member firms are as
follows:
Audit fees
Interim review fees
Non-audit fees
2023
£000
179
16
–
195
2022
£000
174
16
16
206
During the year the Board appointed
BDO LLP to undertake internal audit
and assurance services, replacing the
previous arrangement of additional
controls testing by the external auditor.
The Committee agreed a programme
of reviews for 2022/23, which covered
cyber security, key financial controls
and debt covenants. The Committee
has considered the review reports
and the recommendations arising,
which had been discussed with
management. The Committee
also considered and agreed the
review plan for 2023/24 which will
cover property management, lease
management and asset management.
Annual auditor assessment
On an annual basis, the Committee
assesses the qualifications, expertise
and independence of the Group’s
external auditor, as well as the
effectiveness of the audit process.
It does this through discussion and
enquiry with senior management,
review of a detailed assessment
questionnaire and confirmation from
the external auditor. The Committee
also considers the external audit plan,
setting out the auditor’s assessment of
the key audit risk areas and reporting
received from the external auditor
in respect of both the half-year and
year-end reports and accounts.
As part of the review of auditor
independence and effectiveness,
KPMG Channel Islands Limited have
confirmed that:
‒ They have internal procedures in
place to identify any aspects of
non-audit work which could
compromise their role as auditor
and to ensure the objectivity of
their work and audit report;
‒ The total fees paid by the Group
during the year do not represent
a material part of their total fee
income; and
‒ They consider that they have
maintained their independence
throughout the year.
In evaluating KPMG Channel Islands
Limited, the Committee completed
its assessment of the external auditor
for the financial period under review.
It has satisfied itself as to their
qualifications and expertise and
remains confident that their objectivity
and independence are not in any
way impaired by reason of any 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, Steve
Stormonth, has now completed his
first year 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
24 May 2023
Picton Property Income Limited Annual Report 2023
103
Strategic ReportGovernanceFinancial StatementsAdditional Information Audit, Risks and Internal Controls/Continued
Property Valuation
Committee
The Property Valuation Committee is
chaired by Richard Jones. The other
members of the Committee are Mark
Batten, Maria Bentley and Lena Wilson.
104
Picton Property Income Limited Annual Report 2023
Over the course of the
year there have been
significant market
movements in the
valuation.
Richard Jones
Chair of the Property Valuation
Committee
Over the course of the year there
have been significant market
movements in the valuation which
have been carefully considered
and the Committee is confident
that these were fully reflected by
the external valuer. The Committee
was satisfied with the valuation
process throughout the year.
External valuer
CBRE Limited are appointed as the
external valuer of the Group and they
carry out a valuation of the Group’s
property assets each quarter, the
results of which are incorporated
into the Group’s half-year and annual
financial statements, and the quarterly
net asset statements. The valuations
are done in accordance with the Royal
Institution of Chartered Surveyors Red
Book valuation standards.
The Committee reviewed the
performance of the valuer and
recommended that the appointment
be continued for a further 12 months.
The Committee awaits the outcome
of the consultation process following
the RICS Review of Real Estate
Investment Valuations and the
proposed recommendations.
Richard Jones
Chair of the Property Valuation
Committee
24 May 2023
Terms of reference
The Committee shall review the
quarterly valuation reports produced
by the external valuers before their
submission to the Board, looking in
particular at:
‒ Significant adjustments from
previous quarters;
‒ Individual property valuations;
‒ Commentary from management;
‒ Significant issues that should be
raised with management;
‒ Material and unexplained
movements in the Company’s
net asset value;
‒ Compliance with applicable
standards and guidelines;
‒ Reviewing findings or
recommendations of the valuers;
and
‒ The appointment, remuneration
and removal of the Company’s
valuers, making such
recommendations to the Board
as appropriate.
Visit our website picton.co.uk
Activity
The Committee met four times
during the year ended 31 March
2023. Members of the Property
Valuation Committee, together
with management, met with
the external valuer each quarter
to review the valuations and
considered the following matters:
‒ Property market conditions
and trends;
‒ Movements compared to
previous quarters;
‒ Yields on properties within
the portfolio;
‒ Letting activity and vacant
properties;
‒ Covenant strength and lease
lengths;
‒ Estimated rental values; and
‒ Comparable market evidence.
Picton Property Income Limited Annual Report 2023
105
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report
Remuneration
Committee
The Remuneration Committee is chaired
by Maria Bentley. The other members of
the Committee are Mark Batten, Richard
Jones and Lena Wilson.
Other attendees at Committee meetings
during the year were Michael Morris and
Andrew Dewhirst. Neither participated in
discussions relating to their own remuneration.
Our remuneration packages are
designed to attract and retain the
right talent and to fairly reward
delivery of strategic priorities and
enhanced shareholder value.
Maria Bentley
Chair of the
Remuneration Committee
106
Picton Property Income Limited Annual Report 2023
The remuneration
arrangements provide
alignment with
shareholders through the
use of financial metrics
and corporate objectives.
Maria Bentley
Chair of the
Remuneration Committee
Terms of reference
The principal functions of the
Committee as set out in the terms
of reference include the following
matters:
‒ Review the ongoing
appropriateness and relevance of
the Directors’ Remuneration Policy;
‒ Determine the remuneration of the
Chair, Executive Directors and such
members of the executive
management as it is designated
to consider;
‒ Review the design of all share
incentive plans for approval by the
Board; and
‒ Appoint and set the terms of
reference for any remuneration
consultants.
Visit our website picton.co.uk
Advisers
During the year, Deloitte LLP has
provided independent advice
in relation to market data, share
valuations, share plan administration
and content of the Remuneration
Report. Total fees for the year were
£18,780 (calculated on a time spent
basis). Deloitte LLP is a founding
member of the Remuneration
Consultants Group and, as such,
voluntarily operates under the code
of conduct in relation to executive
remuneration consulting in the UK.
In addition, Deloitte also provided
taxation services and advice to
the Company during the year.
The Committee has reviewed the
nature of this additional advice
and is satisfied that it does not
compromise the independence
of the advice that it has received.
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 2023.
This report comprises three sections:
‒ This annual statement;
‒ A Summary of the Directors’
Remuneration Policy; and
‒ The Annual Report on
Remuneration for the year ended
31 March 2023.
The Committee met five times during
the year and set out below is a
summary of its activity.
Implementation of the
Remuneration Policy in 2023/24
Our objective is to provide
straightforward remuneration
packages for our Executive Directors,
fair and reasonable for all stakeholders,
which are designed so as to attract
and retain the right talent and to fairly
reward delivery of strategic priorities
and enhanced shareholder value.
In 2021 we set out our new
Remuneration Policy, including a
three-year plan to transition the
Executive Directors’ remuneration
packages to more fairly represent
their responsibilities as Directors of
a listed company. The new Policy
was overwhelmingly approved by
shareholders that year (97% in favour)
and the first two years of the transition
plan have been implemented. Ahead
of the 2022 Annual General Meeting,
we contacted major shareholders
about the second stage of the
transition plan and I am delighted
that shareholders approved the
resulting Remuneration Report for
the year ended 31 March 2022 by
a large majority (97% in favour).
The Committee has carefully
considered whether the final stage
of the transition plan should be
implemented for 2023/24, taking
into account the performance of
the Company and of the Executive
Directors over the past year.
Picton Property Income Limited Annual Report 2023
107
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
The key performance highlights
noted by the Committee included:
‒ The total property return was ahead
of the MSCI UK Quarterly Property
Index for the year, and our long-
term record of outperformance
has been maintained over one,
three, five and ten years, and
since inception;
‒ EPRA earnings rose by 0.5%
compared to 2022/23, despite
lower occupancy and higher costs;
‒ The portfolio ERV increased by 9%
over the year;
‒ Net property income rose by 2.3%
compared to the previous year;
‒ Good progress has been made
against the net zero carbon
pathway, including on-site
renewable energy installation;
‒ Key climate-related risk
management recommendations
have been implemented;
‒ The proportion of the portfolio’s
EPC ratings (A to C) has increased
to 76% from 71% last year; and
‒ Scope 1 and 2 greenhouse gas
emissions are 24% below the
2019 baseline.
In light of this performance
assessment, the Committee is
satisfied that it is appropriate for
the final stage of the transition to
proceed. Accordingly, the base
salaries of the Chief Executive and
Finance Director will be increased
by 15% to £380,219 and £258,549
respectively from 1 April 2023 and
their annual bonus opportunity
for 2023/24 will be reduced to
145% of salary (2022/23: 155%).
Group performance and alignment
We have set out on pages 22 to 25,
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.
For both 2022/23 and 2023/24,
the KPIs that we are using to
determine variable remuneration
are set out in the table above.
The remaining 40% of the annual
bonus is determined by corporate
objectives.
Measure
Comparator
Annual bonus
Total return
Relative to comparator group
(30% weighting)
Long-term
Incentive Plan
Total property
return
Relative to MSCI UK
Quarterly Property index
(30% weighting)
(33% weighting)
Total shareholder
return
Relative to comparator group
(33% weighting)
EPRA EPS
Absolute target range
(33% weighting)
Annual bonus awards for 2022/23
The Executive Directors were set a
number of challenging targets for
this year, comprising a combination
of financial measures and corporate
and personal objectives.
The two financial measures were total
return and total property return. The
actual outcomes are set out in the
Annual Remuneration Report, but the
overall result was that the Directors
earned an estimated 49% of the
maximum award available under
these financial measures.
The corporate objectives were set
to ensure that specific key strategic
targets were reached. These included
targets relating to sustainability,
including progress against the net
zero carbon pathway, portfolio
environmental measures and the
implementation of climate-risk
recommendations. The Committee
considered the extent to which the
Executive Directors had met the
objectives, and concluded that good
progress had been made against
many, but the fall in occupancy
and increased costs also had to be
recognised. Overall the Committee
considered that an outcome of 74% of
the maximum award for each of the
two Executive Directors were merited
against the corporate objectives.
In aggregate, annual bonus awards for
the two Executive Directors are 59% of
the maximum award (2021/22: 64%
of maximum).
The Committee considered the overall
bonus awards against the reported
financial results and determined that
the proportion of the bonus deferred
be increased to 60% from 50% for the
Executive Directors, and therefore the
cash element is reduced from 50%
to 40%.
The Committee considered the
formulaic bonus outcome in the
context of the Group’s overall
performance for the year. The key
highlights of performance for the year
are set out earlier in this Statement.
The Committee concluded that it
was satisfied the formulaic bonus
outcome was a fair reflection of
overall Group performance during
the past financial year.
Long-term Incentive Plan awards
(performance period to 31 March
2023)
The LTIP provides the link between the
long-term success of the Company
and the remuneration of the whole
team. The awards made under the
Long-term Incentive Plan (LTIP) in
June 2020 were based on three
performance conditions measured
over the three-year period ended
on 31 March 2023. The Committee has
assessed the extent to which these
three performance conditions have
been met.
The three equally weighted
performance conditions were total
shareholder return, total property
return and growth in EPRA earnings
per share. The actual outcomes for
these conditions are set out in the
Annual Remuneration Report and give
rise to an overall award of 52.5% of
the maximum granted. As explained
above, the Committee concluded that
it was satisfied the formulaic outcome
was a fair reflection of overall Group
performance over the performance
period. As these awards were
reduced by 30% at grant to avoid the
potential for windfall gains on vesting,
the Committee is satisfied that no
further adjustments are required.
108
Picton Property Income Limited Annual Report 2023
The Committee is satisfied that the
significant deferral element to the
annual bonus combined with the
Long-term Incentive Plan opportunity
plus shareholding guidelines ensures
that Executive Directors are aligned
with and focused on delivering
long-term growth.
Following a review of market
trends, time commitment and role
responsibilities, fee levels for the Chair
and Non-Executive Directors have
been increased by an average of 4.6%
from 1 April 2023.
As a Committee, we are committed
to ongoing dialogue with our
shareholders and welcome any
feedback regarding our remuneration
practices either ahead of the Annual
General Meeting or in the year ahead,
as we undertake our regular triennial
Remuneration Policy review. We look
forward to receiving your continued
support at the forthcoming Annual
General Meeting.
Maria Bentley
Chair of the Remuneration Committee
24 May 2023
Employee remuneration and
engagement
As in prior years, the Committee
received an independent
benchmarking report covering each
of the roles, which detailed market
trends. Having considered the report,
the Committee determined that, for
the team as a whole (excluding the
Executive Directors), there would
be an overall average rise of 9.4%
in base salaries with effect from
1 April 2023. The average employee
bonus (excluding the Executive
Directors) fell by 5.9%, reflecting
our continued outperformance but
also the more difficult economic
and property market conditions.
I have met informally with the team
on a number of occasions this year,
and we have also carried out our
annual employee engagement
survey. This is discussed in more
detail elsewhere, but the results
continue to demonstrate a high
level of satisfaction among the team.
UK Corporate Governance Code
We have considered the provisions of
the Code in respect of remuneration
and believe that our approach remains
compliant. In particular, we operate a
consistent level of pension provision
across our workforce; LTIP awards are
only released to Executive Directors
five years after award; 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.
We also have post-employment
shareholding guidelines in place.
The remuneration arrangements
provide alignment with shareholders
through the use of financial metrics
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 metric.
The Committee believes that the
variable remuneration schemes in
place are fair and proportionate
and align the remuneration of the
team with the Group’s performance.
We are also satisfied that the
remuneration structure does not
encourage inappropriate risk-taking.
The Committee does retain discretion
over formulaic outcomes if it considers
that these are not a fair reflection
of the Group’s performance.
Implementation of Policy
Our remuneration structure will be in
accordance with the Policy for the
year to 31 March 2024.
The bonus deferral policy for Executive
Directors will continue, with a
minimum of 50% of any annual bonus
award being deferred into Picton
shares for a period of two years before
vesting. The maximum annual bonus
potential for 2023/24 will fall to 145%
from 155% of base salary for the
Executive Directors as outlined above.
As in previous years the annual bonus
will be determined 60% by financial
metrics and 40% by corporate
objectives. For 2023/24 we will
continue to use two financial metrics,
being total return, relative to a
comparator group, and total property
return, relative to the MSCI UK
Quarterly Property Index.
The awards under the Long-term
Incentive Plan have been reduced this
year by 25% to reflect the lower share
price and discount to net asset value,
and to avoid any windfall gains arising
on vesting. For the awards to be made
in June 2023 for the three-year period
to 31 March 2026 we will retain the
three performance measures used
previously, being:
‒ Total shareholder return, compared
to a comparator group
‒ Total property return, compared to
the MSCI UK Quarterly Property
Index
‒ 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.
Picton Property Income Limited Annual Report 2023
109
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
Remuneration at a glance
The components of remuneration for 2022/23 are:
Fixed pay
Variable pay
The annual bonus for 2022/23 is determined by:
Base salary
Base salary
l
a
n
o
s
r
e
P
rate objectiv e s
4%
8%
6%
o
p
r
o
c
d
n
a
6%
4%
4%
8%
30%
Annual
(and deferred)
bonus
Up to 60% of the
annual bonus is deferred
into shares which will vest
in two years’ time
30%
i
F
n
a
n
c
i
a
l c
o
n
ditions
Benefits
The LTIP is based on three financial metrics, each
measured over three years:
33%
33%
Long-term
Incentive Plan
(LTIP)
33%
Pension contributions
Read more
on pages 115–121
110
Picton Property Income Limited Annual Report 2023
Personal and
corporate objectives
Improve income
and occupancy
Make progress against
net zero carbon pathway
Improve portfolio
environmental factors
Improve level of net
property income and
operational expenses
Implementation of TCFD
recommendations
Positive stakeholder
engagement
Identify and evaluate
growth opportunities
Financial conditions
Total return
Total property return
Growth in EPRA
earnings per share
Total shareholder return
The single figure of remuneration for the Directors for the year 2022/23 (in £ thousands) is:
Chief Executive
Finance Director
Non-Executive Directors
137
384
82
331
822
301
438
3
50
549
287
205
262
225
3
34
198
5
281
276
x
x
x
x
Salary
Benefits
Pension
Annual bonus
Long-term
Incentive Pay
Total fixed
Total variable
The potential remuneration of the Executive Directors for the year to 31 March 2024 is:
The following charts show the composition
of the Executive Directors’ remuneration
at three performance levels:
‒ Fixed pay – base salary from 1 April 2023,
benefits and pension salary supplement of
15% of base salary
‒ On target – fixed pay plus target vesting for
the annual bonus (at 50% of maximum
opportunity for illustrative purposes) and threshold
vesting for the LTIP (at 25% of maximum award)
‒ Maximum – fixed pay plus maximum vesting for
both the annual bonus (145% of base salary) and
the LTIP (93.75% (Chief Executive) and 82.5%
(Finance Director) of base salary)
‒ Maximum with share price growth – maximum
scenario incorporating assumption of 50% share
price growth during LTIP vesting period
Other than where stated, the charts do not
incorporate share price growth or dividend
equivalent awards.
Chief Executive
Finance Director
100%
£440K
100%
£300K
55%
34%
11%
£805K
55%
35%
10%
£540K
33%
41%
26%
£1,347K
34%
42%
24%
£888K
29%
36%
23%
12%
£1,525K
30%
38%
21%
11%
£995K
Total fixed
Annual bonus
LTIP
Share growth
Picton Property Income Limited Annual Report 2023
111
Strategic ReportGovernanceFinancial StatementsAdditional Information
Remuneration Report/Continued
Summary of Directors’
Remuneration Policy
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.
A summary of the Directors’ Remuneration Policy approved by shareholders at the 2021 Annual General Meeting is set
out below. The full Policy is contained in our 2021 Annual Report which is available on our website at www.picton.co.uk.
Executive Directors’ Remuneration Policy Table
Base salary
Purpose
Operation
A base salary to attract and retain Executives of appropriate quality to deliver the Group’s strategy.
Base salaries are normally reviewed annually with changes effective on 1 April. When setting base
salaries the Committee will consider relevant market data, as well as the scope of the role and the
individual’s skills and experience.
Maximum
No absolute maximum has been set for Executive Director base salaries.
Any annual increase in salaries is set at the discretion of the Remuneration Committee taking into
account the factors stated in this table and the following principles:
– Salaries would typically be increased at a rate consistent with the average employee salary
increase.
– Larger increases may be considered appropriate in certain circumstances (including, but not
limited to, a change in an individual’s responsibilities or in the scale of their role or in the size and
complexity of the Group).
– Larger increases may also be considered appropriate if a Director has been initially appointed to
the Board at a lower than typical salary.
None
None
Part of competitive remuneration package.
The Company has established defined contribution pension arrangements for all employees.
For Executive Directors the Company pays a monthly salary supplement in lieu of Company
pension contributions.
A consistent rate of pension provision (15% of base salary) applies to all employees including
Executive Directors.
Performance measures
Clawback
Pension
Purpose
Operation
Maximum
Performance measures
Clawback
None
None
112
Picton Property Income Limited Annual Report 2023
Benefits
Purpose
Operation
Part of a competitive remuneration package.
This principally comprises:
– Private medical insurance
– Life assurance
– Permanent health insurance
Maximum
Benefits are provided at market rates.
The Committee may agree to provide other benefits as it considers appropriate.
Performance measures
Clawback
Annual bonus
Purpose
Operation
Maximum
Performance measures
Clawback
Long-term Incentive Plan
Purpose
None
None
A short-term incentive to reward Executive Directors on meeting the Company’s annual financial
and strategic targets and on their personal performance.
The Committee may determine that up to 50% of the annual bonus will be paid in the Company’s
shares and deferred for two years. Dividend equivalents will be paid at the end of the deferral
period (in the form of shares or cash).
The maximum bonus permitted under the Policy will be 175% of base salary. The level of bonus
opportunity within this maximum will be determined by the Committee each year. In 2023/24, the
maximum opportunity will be limited to 145% of base salary.
The annual bonus is based on a range of financial, strategic, ESG, operational and individual
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 although at
least 50% of the award will be assessed on corporate financial measures.
For corporate financial measures, 50% of the maximum bonus opportunity will be payable for
on-target performance and, if applicable, up to 25% for threshold performance.
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
financial results, an error in assessing a performance 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.
A long-term incentive plan to align Executive Directors’ interests with those of shareholders and to
promote the long-term success of the Company.
Operation
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.
The Remuneration Committee may award dividend equivalents (in the form of shares or cash) on
awards that vest.
The Committee will usually apply a holding period of a further two years to awards that vest.
Maximum
Annual awards with a maximum value of up to 150% of base salary may be made.
Performance measures
Clawback
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,
each measured over a three-year performance period. Each condition will be equally weighted,
but the Committee has the flexibility to vary this for each award.
For threshold levels of performance up to 25% of the award vests, rising usually on a straight-line
basis to 100% for maximum performance.
Malus and clawback provisions may be applied in the event (within five years of grant) of a material
misstatement of the audited financial results, an error in assessing a performance 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.
Picton Property Income Limited Annual Report 2023
113
Strategic ReportGovernanceFinancial StatementsAdditional Information 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 minimum shareholding equivalent to 200% of base salary.
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 period of two years post-employment.
Maximum
Not applicable
Performance measures
Not applicable
Clawback
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-related elements or receive any other benefits other than where travel to the
Company’s registered office is recognised as a taxable benefit in which case a Non-Executive
Director may receive the grossed-up costs of travel as a benefit. Non-Executive Directors are
entitled to reimbursement of reasonable expenses.
Maximum
The Company’s Articles set an annual limit for the total of Non-Executive Directors’ remuneration
of £300,000.
Performance measures
Clawback
Notes to table:
None
None
1. The Committee may amend or substitute any performance condition(s) if one or more events occur which cause it to determine that an amended or substituted performance
condition would be more appropriate, provided that any such amended or substituted performance condition would not be materially less difficult to satisfy than the original
condition (in its opinion). The Committee may adjust the calculation of performance targets and vesting outcomes (for instance for material acquisitions, disposals or
investments and events not foreseen at the time the targets were set) to ensure they remain a fair reflection of performance over the relevant period. The Committee also
retains discretion to make downward or upward adjustments resulting from the application of the performance measures if it considers that an adjustment is appropriate (for
example, if the outcomes are not deemed by the Committee to be a fair and accurate reflection of business performance). In the event that the Committee was to make an
adjustment of this sort, a full explanation would be provided in the next Remuneration Report.
2. Performance measures – annual bonus. The annual bonus measures are reviewed annually and chosen to focus executive rewards on delivery of key financial targets for the
forthcoming year as well as key strategic or operational goals relevant to an individual. Specific targets for bonus measures are set at the start of each year by the Remuneration
Committee based on a range of relevant reference points, including for Group financial targets, the Company’s business plan and are designed to be appropriately stretching.
3. The Committee may amend the terms of awards granted under the share schemes referred to above in accordance with the rules of the relevant plans.
4. Performance measures – LTIP. The LTIP performance measures will be chosen to provide alignment with our longer-term strategy of growing the business in a sustainable
manner that will be in the best interests of shareholders and other key stakeholders in the Company. Targets are considered ahead of each grant of LTIP awards by the
Remuneration Committee taking into account relevant external and internal reference points and are designed to be appropriately stretching.
5. The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection with
such payments) notwithstanding that they are not in line with the Policy set out above where the terms of the payment were agreed (i) before the Policy set out above came
into effect, 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.
Policy for other employees
Remuneration for other employees broadly follows the same principles as for Executive Directors. A significant element of
remuneration is linked to performance measures. All employees usually participate in the Long-term Incentive Plan and
in the annual bonus. The weighting of individual and corporate measures is dependent on an individual’s role.
The Committee does not formally consult with employees when determining Executive Director pay. However, the
Committee is kept informed of general management decisions made in relation to employee pay and is conscious of the
importance of ensuring that its pay decisions for Executive Directors are regarded as fair and reasonable within the business.
114
Picton Property Income Limited Annual Report 2023
Annual Report
on Remuneration
The table below sets out the total remuneration receivable by each of the Directors who held office during the year to
31 March 2023, with a comparison to the previous financial year:
Executive
Michael Morris
Andrew Dewhirst
Non-Executive
Lena Wilson
Mark Batten
Maria Bentley
Richard Jones
Total (audited)
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
331
288
225
196
117
117
53
53
53
53
53
53
832
760
Salary/
fees
£000
Benefits
£000
Pension salary
supplement
£000
Total
fixed
£000
Annual
bonus
£000
Deferred
bonus
£000
Long-term
Incentive
Plan
£000
Total
variable
£000
3
2
3
2
5
3
–
–
–
–
–
–
50
43
34
29
–
–
–
–
–
–
–
–
384
333
262
227
122
120
53
53
53
53
53
53
120
151
82
103
181
151
123
102
137
181
82
118
438
483
287
323
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
7
84
72
927
839
202
254
304
253
219
299
725
806
1,652
1,645
Total
£000
822
816
549
550
122
120
53
53
53
53
53
53
Benefits for the Executive Directors comprise private medical insurance and life assurance. Non-Executive Directors are
reimbursed expenses incurred in connection with travel and attendance at Board meetings. These expenses are taxable
where the meetings take place at the Company’s main office. The Company settles the tax on behalf of the Non-
Executive Directors.
Executive Directors receive a salary supplement of 15% of base salary in lieu of company pension contributions.
The above 2022 LTIP figures for the Executive Directors have been restated to reflect the actual share price at vesting (92.3
pence) rather than the average for the quarter ended 31 March 2022 (100.1 pence). This restatement represents a decrease
in the value of the 2022 LTIP awards of £14,000 for Michael Morris and of £9,000 for Andrew Dewhirst.
The value of LTIP awards for 2023 is based on the number of shares to be awarded to the Executive Directors in respect of
the June 2020 LTIP awards and the average share price over the quarter ended 31 March 2023 of 74.41 pence, and the
estimated value of dividend equivalents.
Picton Property Income Limited Annual Report 2023
115
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
Annual bonus for 2022/23
The annual bonus for the year ended 31 March 2023 for the Executive Directors was based on a combination of financial
metrics (60%) and corporate objectives (40%).
The targets set for the year ended 31 March 2023 and the assessment of actual performance achieved are set out in the
table below.
The financial metrics comprised two equally weighted components: total return relative to a comparator group of similar
companies, set out later in this report; and total property return compared to the MSCI UK Quarterly Property Index.
At the date of this report not all of the companies in the total return comparator group had announced their results
to 31 March 2023 and the Committee has estimated, based on the results to date, that this condition will not be met,
resulting in an award of 0%. The Committee will determine the actual outcome of this condition once all companies
have reported, and any adjustment required between the estimate and actual will be made in next year’s Remuneration
Report. There will be no payout of the bonus until a finalised result can be confirmed.
Performance condition
Basis of calculation
Total return versus
comparator group
Bonus weighting: 30%
Total property return
versus MSCI Index
Bonus weighting: 30%
Less than median – 0%
Equal to median – 50%
Equal to upper quartile – 100%
Less than median – 0%
Equal to median – 50%
Equal to upper quartile – 100%
Range
Not yet available
Actual
(13.9)%
Awarded (% of
maximum)
Awarded (% of
salary)
0%
0%
(estimate)
(estimate)
Median (12.9)%
(8.7)%
98.0%
45.6%
Upper quartile (8.5)%
The corporate objectives for the Executive Directors for the year to 31 March 2023 were determined by the Remuneration
Committee and accounted for 40% of the maximum award.
The corporate objectives applying to both Executives, and the assessment of performance against these, are as follows:
Performance condition
Assessment
Improve occupancy and
income profile
Bonus weighting: 8%
Make progress against net
zero carbon pathway
Bonus weighting: 4%
Improve portfolio
environmental factors
Bonus weighting: 4%
The Committee considered that income metrics, including passing rent,
estimated rental value and net property income under IFRS, had all improved
over the year. However occupancy has decreased from 93% to 91% and
therefore assessed this objective as 50% met.
The published net zero carbon pathway set out a number of short-term
objectives. The Committee assessed the progress made against these
objectives and this is set out in the Being Responsible section on page 64.
The Committee assessed performance against a series of key environmental
metrics, including EPCs, GHG emissions and intensity, and green lease clauses,
as well as other environmental initiatives that had been implemented during
the year. The Committee noted that all key metrics had shown improvement
over the year.
Awarded
(% of maximum)
Awarded
(% of salary)
50%
6.2%
90%
5.6%
85%
5.3%
Improve level of net property
income and operational
expenses
EPRA earnings have remained stable at 3.9 pence per share, and the reported
cost ratio is still at 1.0%. However both EPRA cost ratios have increased this
year.
40%
3.7%
Bonus weighting: 6%
Implementation of TCFD
recommendations
The progress made against TCFD recommendations is set out in detail in the
TCFD Statement on pages 47 to 55.
85%
5.3%
Bonus weighting: 4%
Positive stakeholder
engagement
Bonus weighting: 6%
Occupier surveys were carried out in the year, with 80% of respondents
satisfied with the level of service provided. Supportive shareholder feedback
has been received via the Company’s brokers. Employee satisfaction remains
high at 82%.
Identify and evaluate growth
opportunities
Bonus weighting: 8%
A key objective for the Executive Directors was to identify growth
opportunities. In addition to asset acquisitions a number of key corporate
opportunities were considered and progressed during the year.
90%
8.4%
90%
11.2%
116
Picton Property Income Limited Annual Report 2023
As discussed in the Committee Chair’s statement on pages 106 to 109, the Committee considered the formulaic bonus
outcome in the context of the Group’s overall performance for the year and concluded that it was satisfied that the
formulaic bonus outcome was a fair reflection of overall Group performance during the year. The Committee was also
satisfied that the above performance was achieved within an acceptable risk profile.
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
29.4
29.4
29.4
29.4
58.8
58.8
Bonus %
of salary
Total bonus
£
91.1
91.1
301,300
204,800
This year the Committee has determined that the proportion of the bonus deferred be increased to 60% of the annual
bonuses awarded to the Executive Directors and payable in shares in two years’ time. Dividend equivalents will accrue on
the shares and these will be paid in cash when the awards vest.
Long-term Incentive Plan
The LTIP awards granted on 29 June 2020 were subject to performance conditions for the three years ended 31 March
2023. The performance conditions and the actual performance for these were as follows:
Performance condition
Basis of calculation
Range
Total shareholder return
versus comparator group
Total property return versus
MSCI Index
Less than median – 0%
Equal to median – 25%
Equal to upper quartile – 100%
Less than median – 0%
Equal to median – 25%
Equal to upper quartile – 100%
Growth in EPRA EPS
Less than 3.75 pence per share for
the year ended 31 March 2023 – 0%
Equal to 3.75 pence per share for the
year ended 31 March 2023 – 25%
Equal or greater than 4.1 pence per
share for the year ended 31 March
2023 – 100%
Actual
4.6%
Weighting
(% of award)
Awarded
(% of
maximum)
33.3%
0%
Median – 9.4%
Upper quartile – 22.0%
Median – 2.5%
Upper quartile – 4.3%
6.8%
(above upper
quartile)
33.3%
100%
3.90p
33.3%
57.7%
The Committee was satisfied that the above performance was achieved within an acceptable risk profile. As discussed
in the Committee Chair’s statement on pages 106 to 109, the Committee considered the formulaic LTIP outcome in the
context of the Group’s overall performance over the performance period and concluded that it was satisfied the formulaic
outcome was a fair reflection of overall Group performance during the period. Based on the vesting percentage above,
the shares awarded and their estimated values, using an average share price of 74.41 pence for the quarter ended
31 March 2023, are:
Director
Michael Morris
Andrew Dewhirst
Maximum number
of shares at grant
Number of shares
vesting
Number of lapsed
shares
Estimated
value1,2
£
309,275
185,070
162,524
146,751
136,980
97,254
87,816
81,970
1. The estimated value includes dividend equivalent awards which will be made in relation to vested LTIP awards at the point of vesting. The value of the dividend equivalent
awards is £16,050 (Michael Morris) and £9,600 (Andrew Dewhirst).
2. £5,980 (Michael Morris) and £3,580 (Andrew Dewhirst) of this value relates to share price growth since the date of grant.
The following awards in the Long-term Incentive Plan were granted to the Executive Directors on 17 June 2022:
Michael Morris
Andrew Dewhirst
Number of shares
437,473
261,784
Basis
(% of salary)
125%
110%
Face value
per share
(£)
0.9447
0.9447
Award
face value
(£)
Performance period
413,281
1 April 2022 to 31 March 2025
247,308
1 April 2022 to 31 March 2025
Threshold
vesting
25%
25%
Picton Property Income Limited Annual Report 2023
117
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
The face value is based on a weighted average price per share, being the average of the closing share prices over the
three business days immediately preceding the award date. Awards will vest after three years subject to continued service
and the achievement of three equally weighted performance conditions (relative total shareholder return, relative total
property return and EPRA EPS). The vesting schedule for the relative measures will be as applied to the June 2020 LTIP set
out above. The EPS element will vest at 25% for achievement of EPRA EPS of 4.15 pence in the year ended 31 March 2025
increasing on a straight line basis to 100% vesting for EPRA EPS of 4.50 pence.
Any LTIP vesting will also be subject to the Remuneration Committee confirming that, in its assessment, the vesting
outturn was achieved within an acceptable risk profile.
The Executive Directors have the following outstanding 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
2022
Granted in
year
Exercised in
year
Lapsed in year
As at
31 March 2023
Michael Morris
2019 LTIP
19 June 2019
2020 LTIP
29 June 2020
2021 LTIP
22 June 2021
2022 LTIP
17 June 2022
2020 DBP
29 June 2020
2021 DBP
22 June 2021
2022 DBP
17 June 2022
Andrew Dewhirst
2019 LTIP
19 June 2019
2020 LTIP
29 June 2020
2021 LTIP
22 June 2021
2022 LTIP
17 June 2022
2020 DBP
29 June 2020
2021 DBP
22 June 2021
2022 DBP
17 June 2022
1 April 2019 to
31 March 2022
1 April 2020 to
31 March 2023
1 April 2021 to
31 March 2024
1 April 2022 to
31 March 2025
1 April 2019 to
31 March 2020
1 April 2020 to
31 March 2021
1 April 2021 to
31 March 2022
1 April 2019 to
31 March 2022
1 April 2020 to
31 March 2023
1 April 2021 to
31 March 2024
1 April 2022 to
31 March 2025
1 April 2019 to
31 March 2020
1 April 2020 to
31 March 2021
1 April 2021 to
31 March 2022
(177,760)
(150,393)
–
95.23p
328,153
70.73p
309,275
89.10p
403,339
–
–
–
94.47p
–
437,473
–
–
–
70.73p
215,333
–
(215,333)
89.10p
186,666
94.47p
–
159,555
–
–
–
–
–
–
–
–
309,275
403,339
437,473
–
186,666
159,555
1,442,766
597,028
(393,093)
(150,393) 1,496,308
95.23p
214,218
70.73p
185,070
89.10p
241,358
–
–
–
94.47p
–
261,784
70.73p
154,312
89.10p
126,933
–
–
94.47p
–
108,498
(116,041)
(98,177)
–
–
–
–
(154,312)
–
–
–
–
–
–
–
–
185,070
241,358
261,784
–
126,933
108,498
921,891
370,282
(270,353)
(98,177)
923,643
Awards under the Long-term Incentive Plan normally vest three years after the grant date and are subject to a further
two-year holding period. Awards under the Deferred Bonus Plan normally vest two years after the grant date.
118
Picton Property Income Limited Annual Report 2023
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 2023/24 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
abrdn Property Income Trust Limited
AEW UK REIT plc
Balanced Commercial Property Trust Limited
CT Property Trust Limited
Custodian REIT plc
Ediston Property Investment Company PLC
NewRiver REIT PLC
Regional REIT Limited
Schroder Real Estate Investment Trust Limited
Supermarket Income REIT PLC
UK Commercial Property REIT Limited
Urban Logistics REIT plc
Warehouse REIT plc
Workspace Group PLC
The above group was also used for previous awards with the following amendments:
‒ Supermarket Income REIT and Warehouse REIT were added to the group for awards made from 2019 onwards;
‒ McKay Securities PLC was included in the group for awards made up to and including 2021;
‒ Hansteen Holdings plc and Mucklow (A.&J.) PLC were additionally included in the group for awards made up to and
including 2019; and
‒ LondonMetric Property PLC and RDI REIT plc were additionally included in the group for awards made up to and
including 2020.
Statement of Directors’ shareholdings
Directors and employees are encouraged to maintain a shareholding in the Company’s shares to provide alignment
with investors.
The numbers of shares beneficially held by each Director (including connected persons) as at 31 March 2023, were
as follows:
Beneficial holding
2023
Beneficial holding
2022
Holding as a
% of salary
Outstanding
LTIP awards
Outstanding DBP
awards
Michael Morris
Andrew Dewhirst
Lena Wilson
Mark Batten
Maria Bentley
Richard Jones
155
145
1,150,087
688,212
346,221
235,431
740,717
471,758
30,000
–
74,436
53,845
537,673
332,113
30,000
–
74,436
53,845
The percentage holding for the Executive Directors is based on base salaries as at 31 March 2023 and a share price of
£0.693. The beneficial holdings of shares include any held by connected persons.
Executive Directors are required to maintain a shareholding of 200% of base salary and both Directors are currently in the
process of building up to that level. The Executive Directors intend to retain at least 50% of any share awards (post-tax)
until the guidelines are met.
There have been no changes in these shareholdings between the year-end and the date of this report.
Payments to past Directors or payments for loss of office
There were no payments to past Directors or payments for loss of office to Directors during the year ended 31 March 2023.
Picton Property Income Limited Annual Report 2023
119
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
Historical total shareholder return performance
The graph below shows the Company’s total shareholder return (TSR) since 31 March 2013 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.
TSR chart
400
350
300
250
200
150
100
50
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
S e p 2 0 21
M ar 2 0 22
S e p 2 0 22
M ar 2 0 23
Key:
Picton
FTSE EPRA NAREIT UK
FTSE All-Share
The table below shows the remuneration of the Chief Executive for the past five 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 five years.
2023
2022
2021
2020
2019
Total
remuneration
(£000)
Annual bonus
(% of maximum)
LTIP vesting
(% of maximum
award)
822
816
836
769
920
59%
64%
76%
70%
79%
52%
54%
67%
67%
83%
Relative importance of spend on pay
The table below shows the expenditure and percentage change in staff costs compared to other key financial indicators.
Employee costs
Dividends
EPRA earnings
31 March 2023
£000
31 March 2022
£000
3,487
19,091
21,285
3,415
18,425
21,188
%
change
2.1%
3.6%
0.5%
120
Picton Property Income Limited Annual Report 2023
Implementation of Remuneration Policy in 2023/24
Executive Directors
Base salaries
Michael Morris (Chief Executive) – £380,219
Andrew Dewhirst (Finance Director) – £258,549
Pension and
benefits
15% salary supplement in lieu of pension plus standard other
benefits
Annual bonus*
Maximum bonus of 145% of salary with 50% of any bonus deferred
in shares for two years
60% of bonus to be determined by corporate financial metrics of
relative total return and relative total property return (using the
same performance target ranges as in 2022/23) with the remaining
40% determined by corporate and personal measures
LTIP*
Award of shares worth:
‒ Michael Morris (Chief Executive) 93.75% of salary
‒ Andrew Dewhirst (Finance Director) 82.5% of salary
Shares released after three-year performance and two-year holding
period. Vesting of shares based equally on relative total shareholder
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 117.
Targets for the EPS measure for the year ended 31 March 2026 are:
Less than 4.20 pence per share – 0%
Equal to 4.20 pence per share – 25%
Greater than 4.55 pence per share – 100%
A result between 4.20 pence and 4.55 pence will be calculated on a
straight-line basis between 25% and 100%
Change from prior year
As outlined in the 2021 Remuneration Report
base salaries for the Executive Directors are
being transitioned over a three-year period –
2023/24 will be the final year of that transition.
The average increase for the rest of the
workforce is 9.4%.
No change. All employees receive company
pension contributions at the rate of 15% of base
salary or 15% salary supplement in lieu of
company contributions.
As outlined in the 2021 Remuneration Report
the maximum bonus potential for Executive
Directors will decrease from 155% of salary to
145% of salary this year.
Awards to the Executive Directors have been
reduced by 25% this year to avoid the potential
for windfall gains on vesting.
Non-Executive Directors
Fees
Chair – £122,000
Director – £47,000
Supplementary fee for Committee Chairs – £8,000
The fees payable from 1 April 2023 have
increased by an average of 4.6%.
* The Remuneration Committee has discretion to override the formulaic outcomes in both the annual bonus and LTIP.
The Committee also confirms that performance has been achieved within an acceptable risk profile before payouts are
made. Incentive payouts are subject to malus and clawback provisions.
Picton Property Income Limited Annual Report 2023
121
Strategic ReportGovernanceFinancial StatementsAdditional Information Remuneration Report/Continued
Percentage change in remuneration
The table below shows the percentage change in total remuneration for each of the Directors compared to the average
remuneration of the employees of the Group.
Change from 31/3/22 to 31/3/23
Change from 31/3/21 to 31/3/22
Change from 31/3/20 to 31/3/21
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Salary/fees
Benefits
Bonus
Michael Morris
Andrew Dewhirst
Lena Wilson
Mark Batten
Maria Bentley
Richard Jones
Average of all other employees
15.0%
15.0%
0.0%
0.0%
0.0%
0.0%
8.8%
16.0%
16.4%
–
–
–
–
21.1%
(0.1)%
(0.1)%
–
–
–
–
(5.9)%
15.0%
15.0%
11.2%
10.5%
16.7%
16.7%
6.4%
15.8%
16.1%
–
–
–
–
15.0%
(9.4)%
(9.4)%
–
–
–
–
13.2%
0.0%
0.0%
n/a
0.0%
0.0%
n/a
4.6%
0.6%
0.8%
n/a
–
–
n/a
8.1%
14.4%
8.6%
n/a
–
–
n/a
15.4%
Statement of voting at the last Annual General Meeting
The following table sets out the voting for the Remuneration Report, which was approved by shareholders at the Annual
General Meeting held on 1 September 2022, representing 62% of the issued share capital of the Company, and also for
the Remuneration Policy, which was approved by shareholders at the Annual General Meeting held on 17 November 2021,
representing 63% of the issued share capital of the Company.
For
Against
Votes cast
Withheld
Maria Bentley
Chair of the Remuneration Committee
24 May 2023
Remuneration Report
Remuneration Policy
Votes cast
%
Votes cast
336,412,718
97.0
333,280,593
10,453,842
3.0
12,044,009
%
96.5
3.5
346,866,560
100.0
345,324,602
100.0
3,089,785
304,835
122
Picton Property Income Limited Annual Report 2023
Directors’ Report
Directors’ Report
The Directors of Picton Property
Income Limited present the Annual
Report and audited financial
statements for the year ended
31 March 2023.
The Company is registered under
the provisions of the Companies
(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% of the profits on its property
rental business for each accounting
period as a Property Income
Distribution (PID).
As set out in Note 10 to the
consolidated financial statements,
the Company has paid four interim
dividends in the year at 0.875 pence
per share, making a total dividend for
the year ended 31 March 2023 of 3.5
pence per share (2022: 3.375 pence).
All four interim dividends were paid
as PIDs.
Directors
The Directors of the Company who
served throughout the year are:
‒ Lena Wilson
‒ Maria Bentley
‒ Mark Batten
‒ Andrew Dewhirst
‒ Richard Jones
‒ Michael Morris
The Directors’ interests in the shares of
the Company as at 31 March 2023 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
Shares held in the Employee
Benefit Trust
The Board confirms that for the year
ended 31 March 2023 the principles of
good corporate governance contained
in the 2018 UK Corporate Governance
Code have been consistently applied.
The Company is 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 2023 was
547,605,596 (2022: 547,605,596)
ordinary shares of no par value,
including 2,388,694 ordinary shares
which are held by the Trustee of the
Company’s Employee Benefit Trust
(2022: 1,974,253 ordinary shares).
The Directors have authority to buy
back up to 14.99% of the Company’s
ordinary shares in issue, subject to
the renewal of this authority from
shareholders at each Annual General
Meeting. Any buy-back of ordinary
shares is, and will be, made subject to
Guernsey law, and the making and
timing of any buy-backs are at the
absolute discretion of the Board. No
ordinary shares were purchased under
this authority during the year.
At the 2022 Annual General Meeting
shareholders gave the Directors
authority to issue up to 54,760,558
shares (being 10% of the Company’s
issued share capital as at 4 August
2022) without having to first offer
those shares to existing 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.
The Trustee of the Picton Property
Income Limited Long-term Incentive
Plan holds 2,388,694 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 Trustee
acquired 1,250,000 ordinary shares
at an average price of 89.9 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
for the preparation of the financial
statements for the year ended
31 March 2023. In making their
assessment the Directors have
considered the principal and
emerging risks relating to the Group,
its loan covenants, access to funding
and liquidity position. They have also
considered a number of scenarios,
in particular regarding the impact
of different levels of rent collection
across the portfolio and over varying
timescales, and the potential
consequences on financial
performance, asset values, capital
projects and loan covenants. Leasing
and investment transactions have
been assumed to be curtailed
throughout the assessment period.
Future lease events over the
assessment period have been
considered on a case-by-case basis
to determine the range of most
likely outcomes. More details
regarding the Group’s business
activities, together with the factors
affecting performance, investment
activities and future development
are set out in the Strategic Report.
Further information on the financial
position of the Group, including its
liquidity position, borrowing facilities
and debt maturity profile, is set out
in the Financial Review and in the
consolidated financial statements.
Picton Property Income Limited Annual Report 2023
123
Strategic ReportGovernanceFinancial StatementsAdditional Information Directors’ Report/Continued
Under all of these scenarios the
Group has sufficient cash resources to
continue its operations, and remain
within its loan covenants, for a period
of at least 12 months from the date of
these financial statements.
Based on their assessment and
knowledge of the portfolio and market,
the Directors have therefore continued
to adopt the going concern basis in
preparing the financial statements.
Viability assessment and statement
The UK Corporate Governance Code
requires the Board to make a ‘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
a five-year timescale, considered to be
the most appropriate for long-term
investment in commercial property.
The assessment has been undertaken
taking into account the principal and
emerging risks and uncertainties
faced by the Group which could
impact its investment strategy,
future performance, loan covenants
and liquidity.
The major risks identified were those
relating to high inflation, rising interest
rates, other recessionary pressures
and the lead up to a general election
over the period of the assessment. In
the ordinary course of business, the
Board reviews a detailed financial
model on a quarterly basis, including
forecast 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 covers a five-year period and is
stress tested under various scenarios.
The Board considered a number
of scenarios and their impact on
the Group’s property portfolio and
financial position. These scenarios
included different levels of rent
collection, occupier defaults, void
periods and incentives within the
portfolio, and the consequential
impact on property costs and loan
covenants. All lease events and
assumptions were reviewed over the
period under the different scenarios,
including their impact on revenue
and cash flow. 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 contracted
to be in place throughout the
assessment period, while the Board
has assumed that the Group will
continue to have access to its short-
term facilities which expire in 2025.
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 2028 and
will continue to be assessed over
rolling five-year periods.
The Directors consider that the
stress testing performed was
sufficiently robust and that even
under extreme conditions the
Company remains viable.
Based on their assessment, and in
the context of the Group’s business
model and strategy, the Directors
expect that the Group will be able to
continue in operation and meet its
liabilities as they fall due over the
five-year period to 31 March 2028.
Substantial shareholdings
Based on notifications received
and on information provided
by the Company’s brokers, the
Company understands the following
shareholders held a beneficial interest
of 3% or more of the Company’s
issued share capital as at 5 May 2023.
Investec Wealth & Investment
Limited
Thames River Capital LLP
BlackRock Inc.
The Vanguard Group Inc.
Evelyn Partners
RBC Brewin Dolphin Limited
Alder Investment Management
Limited UK
% of issued
share capital
16.2
10.8
5.6
4.6
3.9
3.3
3.0
124
Picton Property Income Limited Annual Report 2023
Disclosure of information
to auditor
In preparing these financial statements,
the Directors are required to:
The Directors who held office at the
date of approval of this Directors’
Report confirm that, so far as they are
each aware, there is no relevant audit
information of which the Company’s
auditor is unaware and each Director
has taken all the steps that he 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
to continue in office as the Company’s
auditor and a resolution proposing its
reappointment will be submitted at
the Annual General Meeting.
Statement of Directors’
responsibilities
The Directors are responsible for
preparing the Annual Report and the
financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law they are
required to prepare the financial
statements in accordance with
International Financial Reporting
Standards, as issued by the IASB, and
applicable law.
Under company law the Directors
must not approve the financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the Company
and of its profit or loss for that period.
‒ select suitable accounting policies
and then apply them consistently;
‒ make judgements and estimates
that are reasonable, relevant and
reliable;
‒ state whether applicable
accounting standards have been
followed, subject to any material
departures disclosed and
explained in the financial
statements;
‒ assess the Group and Company’s
ability to continue as a going
concern, disclosing, as applicable,
matters related to going concern;
and
‒ use the going concern basis of
accounting unless they either
intend to liquidate the Group or
the Company or to cease
operations, or have no realistic
alternative but to do so.
The Directors are responsible for
keeping proper accounting records
that are sufficient to show and explain
the Company’s transactions and
disclose with reasonable accuracy at
any time the financial position of the
Company and enable them to ensure
that its financial statements comply
with the Companies (Guernsey) Law,
2008. They are responsible for such
internal controls as they determine are
necessary to enable the preparation of
the financial statements that are free
from material misstatement, whether
due to fraud or error, and have a
general responsibility for taking such
steps as are reasonably open to them
to safeguard the assets of the Group
and to prevent and detect fraud and
other irregularities.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website,
and for the preparation and
dissemination of financial statements.
Legislation in Guernsey governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Directors’ responsibility statement
in respect of the Annual Report and
financial statements
We confirm that to the best of our
knowledge:
‒ the financial statements, prepared
in accordance with the applicable
set of accounting standards, give
a true and fair view of the assets,
liabilities, financial position and
profit or loss of the Company; and
‒ 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
24 May 2023
Picton Property Income Limited Annual Report 2023
125
Strategic ReportGovernanceFinancial StatementsAdditional Information Financial Statements
Welcome to
our financial
statements
This section sets out the Group’s financial
statements for the year ended 31 March 2023.
126
Picton Property Income Limited
Annual Report 2023
Financial Statements
Independent Auditor’s Report
128
132 Consolidated Statement of
Comprehensive Income
133 Consolidated Statement
of Changes in Equity
134 Consolidated Balance Sheet
135 Consolidated Statement of Cash Flows
136 Notes to the Consolidated
Financial Statements
Additional Information
155 EPRA BPR and Supplementary
Disclosures
159 Property Portfolio
160 Five Year Financial Summary
161 Glossary
164 Financial Calendar
165 Shareholder Information
Picton Property Income Limited
Annual Report 2023
127
Strategic ReportFinancial StatementsAdditional InformationGovernance
Independent Auditor’s Report to the Members of Picton Property
Income Limited
Our opinion is unmodified
We have audited the consolidated
financial statements of Picton
Property Income Limited (the
‘Company’) and its subsidiaries
(together, the ‘Group’), which comprise
the consolidated balance sheet as at
31 March 2023, the consolidated
statements of comprehensive income,
changes in equity and cash flows for
the year then ended, and notes,
comprising significant accounting
policies and other explanatory
information.
In our opinion, the accompanying
consolidated financial statements:
‒ give a true and fair view of the
financial position of the Group as at
31 March 2023, and of the Group’s
financial performance and cash
flows for the year then ended;
‒ are prepared in accordance with
International Financial Reporting
Standards; and
‒ comply with the Companies
(Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in
accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’)
and applicable law. Our responsibilities
are described below. We have fulfilled
our ethical responsibilities under, and
are independent of the Company
and Group in accordance with, UK
ethical requirements including the
FRC Ethical Standard as required
by the Crown Dependencies’
Audit Rules and Guidance. We
believe that the audit evidence we
have obtained is a sufficient and
appropriate basis for our opinion.
Key audit matters: our assessment of
the risks of material misstatement
Key audit matters are those matters
that, in our professional judgement,
were of most significance in the
audit of the consolidated financial
statements and include the most
significant assessed risks of material
misstatement (whether or not due
to fraud) identified by us, including
those which had the greatest effect
on: the overall audit strategy; the
allocation of resources in the audit;
and directing the efforts of the
engagement team. These matters
were addressed in the context of our
audit of the consolidated financial
statements as a whole, and in forming
our opinion thereon, and we do
not provide a separate opinion on
these matters. In arriving at our audit
opinion above, the key audit matter
was as follows (unchanged from 2022):
Valuation of investment
properties
The risk
Our response
£746 million (2022:
£830 million)
Refer to page 102 of the
Audit and Risk Committee
Report, Note 2 significant
accounting policies and
Note 13 investment
properties disclosures.
Basis:
The Group’s investment properties accounted
for 94% (2022: 93%) of the Group’s total assets
as at 31 March 2023. The fair value of
investment properties at 31 March 2023 was
assessed by the Board of Directors based on
independent valuations prepared by the
Group’s third party independent valuer (the
‘Valuer’). The Valuer performed the valuations
based on the Royal Institution of Chartered
Surveyors (‘RICS’) Valuation – Global Standards
and the requirements of IFRS.
In determining the valuation of a property, the
Valuer takes into account property specific
information such as the current tenancy
agreements and rental income and apply
assumptions for yields and estimated market
rent, which are influenced by prevailing market
yields and comparable market transactions, to
arrive at the final valuation.
Risk:
The valuation of the Group’s investment
properties is considered a significant area of
our audit in view of the significance of the
estimates and judgements that may be
involved in the determination of their fair value
and given that it represents the majority of the
total assets of the Group.
The valuation is inherently subjective due to
property specific factors which include, but are
not limited to, the individual nature of the
property, the location and condition of the
property and the expected future rental
streams for that particular property.
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:
– evaluating the appropriateness of the valuation
methodologies and assumptions used
– critically evaluating key subjective valuation inputs and
assumptions, on a judgemental sample of properties, against
market information such as industry benchmarks and our
own knowledge and understanding of the property market.
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.
We verified that the fair values as derived by the Valuer for the
entire property portfolio were correctly included in the
financial statements.
Assessing disclosures:
We also considered the Group’s investment property valuation
policies and their application as described in the notes to the
consolidated financial statements for compliance with IFRS in
addition to the adequacy of disclosures in Note 13 in relation to
fair value of the investment properties.
128
Picton Property Income Limited Annual Report 2023
Financial Statements/Continued Our application of materiality and an
overview of the scope of our audit
Materiality for the consolidated
financial statements as a whole was
set at £7.93million, determined with
reference to a benchmark of group
total assets of £792.6 million, of which
it represents approximately 1.0%
(2022: 1.0%).
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 the consolidated financial
statements as a whole. Performance
materiality for the Group was set at
75% (2022: 75%) of materiality for the
consolidated financial statements as a
whole, which equates to £5.9million.
We applied this percentage in our
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 or uncorrected
identified misstatements exceeding
£396,000, in addition to other
identified misstatements that
warranted reporting on qualitative
grounds.
Our audit of the Group was
undertaken to the materiality level
specified above, which has informed
our identification of significant risks
of material misstatement and the
associated audit procedures performed
in those areas as detailed above.
The group team performed the audit
of the Group as if it was a single
aggregated set of financial
information. The audit was performed
using the materiality level set out
above and covered 100% of total
group revenue, total group profit
before tax, and total group assets
and liabilities.
Going concern
The directors have prepared the
consolidated financial statements on
the going concern basis as they do not
intend to liquidate the Group or the
Company or to cease their operations,
and as they have concluded that the
Group and the Company’s financial
position means that this is realistic.
They have also concluded that there
are no material uncertainties that
could have cast significant doubt over
their ability to continue as a going
concern for at least a year from the
date of approval of the consolidated
financial statements (the ‘going
concern period’).
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 risks might affect
the Group and the Company’s
financial resources or ability to
continue operations over the going
concern period. The risks that we
considered most likely to affect the
Group and the Company’s financial
resources or ability to continue
operations over this period were:
‒ Availability of capital to meet
operating costs and other financial
commitments;
‒ The ability to successfully refinance
or repay debt; and
‒ The ability of the Company to
comply with debt covenants;
We considered whether these risks
could plausibly affect the liquidity
in the going concern period by
comparing severe, but plausible
downside scenarios that could arise
from these risks individually and
collectively against the level of
available financial resources indicated
by the Company’s financial forecasts.
We considered whether the going
concern disclosure in Note 2 to the
financial statements gives a full and
accurate description of the directors’
assessment of going concern.
Our conclusions based on this work:
‒ we consider that the directors’ use
of the going concern basis of
accounting in the preparation of
the consolidated financial
statements is appropriate;
‒ we have not identified, and concur
with the directors’ assessment that
there is not, a material uncertainty
related to events or conditions that,
individually or collectively, may cast
significant doubt on the Group and
the Company’s ability to continue
as a going concern for the going
concern period; and
‒ we have nothing material to add or
draw attention to in relation to the
directors’ statement in the notes to
the consolidated financial
statements on the use of the going
concern basis of accounting with
no material uncertainties that may
cast significant doubt over the
Group and the Company’s use of
that basis for the going concern
period, and that statement is
materially consistent with the
consolidated financial statements
and our audit knowledge.
However, as we cannot predict all
future events or conditions and as
subsequent events may result in
outcomes that are inconsistent with
judgements that were reasonable at
the time they were made, the above
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:
‒ enquiring of management as to
the Group’s policies and procedures
to prevent and detect fraud as well
as enquiring whether management
have knowledge of any actual,
suspected or alleged fraud;
‒ reading minutes of meetings of
those charged with governance;
and
‒ using analytical procedures to
identify any unusual or unexpected
relationships.
Picton Property Income Limited Annual Report 2023
129
Strategic ReportFinancial StatementsAdditional InformationGovernance Independent Auditor’s Report to the Members of Picton Property
Income Limited/Continued
As required by auditing standards, we
perform procedures 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 do not
believe there is a fraud risk related to
revenue recognition because the
Group’s revenue streams are simple in
nature with respect to accounting
policy choice, and are easily verifiable
to external data sources or
agreements with little or no
requirement for estimation from
management. We did not identify any
additional fraud risks.
We performed procedures including:
‒ Identifying journal entries and
other adjustments to test based on
risk criteria and comparing any
identified entries to supporting
documentation; and
‒ 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
We identified areas of laws and
regulations that could reasonably be
expected to have a material effect on
the consolidated financial statements
from our sector experience and
through discussion with management
(as required by auditing standards),
and from inspection of the Group’s
regulatory and legal correspondence,
if any, and discussed with
management the policies and
procedures regarding compliance
with laws and regulations. As the
Group is regulated, our assessment of
risks involved gaining an
understanding of the control
environment including the entity’s
procedures for complying with
regulatory requirements.
The Group is subject to laws and
regulations that directly affect the
consolidated financial statements
including financial reporting
legislation and taxation legislation and
we assessed the extent of compliance
with these laws and regulations as
part of our procedures on the related
financial statement items.
The Group is subject to other laws and
regulations where the consequences
of non-compliance could have a
material effect on amounts or
disclosures in the consolidated
financial statements, for instance
through the imposition of fines or
litigation or impacts on the Group and
the Company’s ability to operate. We
identified financial services regulation
as being the area most likely to have
such an effect, recognising the
regulated nature of the Group’s
activities and its legal form. Auditing
standards limit the required audit
procedures to identify non-
compliance with these laws and
regulations to enquiry 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
material misstatements in the
consolidated financial 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 and
transactions reflected in the
consolidated financial statements, the
less likely the inherently limited
procedures required by auditing
standards would identify it.
In addition, as with any audit, there
remains a higher risk of non-detection
of fraud, as this may involve collusion,
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 financial
statements and our auditor’s report
thereon. Our opinion on the
consolidated financial statements
does not cover the other information
and we do not express an audit
opinion or any form of assurance
conclusion thereon.
In connection with our audit of the
consolidated financial statements, our
responsibility is to read the other
information and, in doing so, consider
whether the other information is
materially inconsistent with the
consolidated financial statements or
our knowledge obtained in the 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, we are required
to report that fact. We have nothing to
report in this regard.
Disclosures of emerging and
principal risks and longer term
viability
We are required to perform
procedures to identify whether there
is a material inconsistency between
the directors’ disclosures in respect of
emerging and principal risks and the
viability statement, and the
consolidated financial statements and
our audit knowledge we have nothing
material to add or draw attention to in
relation to:
‒ the directors’ confirmation within
the Viability assessment and
statement (page 124) 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, solvency or liquidity;
‒ the emerging and principal risks
disclosures describing these risks
and explaining how they are being
managed or mitigated;
130
Picton Property Income Limited Annual Report 2023
Financial Statements/Continued We are required to review the part of
Corporate Governance Statement
relating to the Company’s compliance
with the provisions of the UK
Corporate Governance Code specified
by the Listing Rules for our 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
requires us to report to you if, in our
opinion:
‒ the Company has not kept proper
accounting records; or
‒ the consolidated financial
statements are not in agreement
with the accounting records; or
‒ we have not received all the
information and explanations,
which to the best of our
knowledge and belief are
necessary for the purpose of our
audit.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their
statement set out on page 125, the
directors are responsible for: the
preparation of the consolidated
financial statements including being
satisfied that they give a true and fair
view; such internal control as they
determine is necessary to enable the
preparation of consolidated financial
statements that are 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 to liquidate the Group or the
Company or to cease operations, or
have no realistic alternative but to
do so.
Auditor’s responsibilities
Our objectives are to obtain
reasonable assurance about whether
the consolidated financial statements
as a whole are free from material
misstatement, whether due to fraud
or error, and to issue our opinion in an
auditor’s report. Reasonable assurance
is a high level of assurance, but does
not guarantee that an audit
conducted in accordance with ISAs
(UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or
error and are considered material if,
individually or in aggregate, they could
reasonably be expected to influence
the economic decisions of users taken
on the basis of the consolidated
financial statements.
A fuller description of our
responsibilities is provided on the
FRC’s website at www.frc.org.uk/
auditorsresponsibilities.
The purpose of this report and
restrictions on its use by persons
other than the Company’s members
as a body
This report is made solely to the
Company’s members, as a body, in
accordance with section 262 of the
Companies (Guernsey) Law, 2008. Our
audit work has been undertaken so
that we might state to the Company’s
members those matters we are
required to state to them in an
auditor’s report and for no other
purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other
than the Company and the Company’s
members, as a body, for our audit
work, for this report, or for the opinions
we have formed.
Steven Stormonth
For and on behalf of KPMG Channel
Islands Limited
Chartered Accountants and
Recognised Auditors
Guernsey
24 May 2023
‒ the directors’ explanation in the
Viability assessment and statement
(page 124) as to how they have
assessed the prospects of the
Group, over what period they have
done so and why they consider
that period to be appropriate, and
their statement as to whether they
have a reasonable expectation that
the Group will be able to continue
in operation and meet its liabilities
as they fall due over the period of
their assessment, including any
related disclosures drawing
attention to any necessary
qualifications or assumptions.
We are also required to review the
Viability assessment and statement,
set out on page 124 under the Listing
Rules. Based on the above procedures,
we have concluded that the above
disclosures are materially consistent
with the consolidated financial
statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures
to identify whether there is a material
inconsistency between the directors’
corporate governance disclosures and
the consolidated financial statements
and our audit knowledge.
Based on those procedures, we have
concluded that each of the following
is materially consistent with the
consolidated financial statements and
our audit knowledge:
‒ the directors’ statement that they
consider that the annual report
and consolidated financial
statements 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;
‒ the section of the annual report
describing the work of the Audit
Committee, including the
significant issues that the audit
committee considered in relation to
the financial statements, and how
these issues were addressed; and
‒ the section of the annual report
that describes the review of the
effectiveness of the Company’s risk
management and internal control
systems.
Picton Property Income Limited Annual Report 2023
131
Strategic ReportFinancial StatementsAdditional InformationGovernance Consolidated statement of comprehensive income
for the year ended 31 March 2023
Income
Revenue from properties
Property expenses
Net property income
Expenses
Administrative expenses
Total operating expenses
Operating profit before movement on investments
Investments
Profit on disposal of investment properties
Revaluation of owner-occupied property
Investment property valuation movements
Total (loss)/profit on investments
Operating (loss)/profit
Financing
Interest received
Interest paid
Debt prepayment fees
Total finance costs
(Loss)/profit before tax
Tax
(Loss)/profit after tax
Other comprehensive income
Revaluation of owner-occupied property
Total other comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year
Earnings per share
Basic
Diluted
Notes
2023
£000
2022
£000
3
4
51,816
(15,566)
46,543
(11,098)
36,250
35,445
6
(5,955)
(5,755)
(5,955)
(5,755)
30,295
29,690
13
14
13
–
(382)
(110,433)
42
–
129,801
(110,815)
129,843
(80,520)
159,533
8
18
9
14
24
(9,034)
–
–
(8,502)
(4,045)
(9,010)
(12,547)
(89,530)
–
(89,530)
146,986
–
146,986
(434)
(434)
434
434
(89,964)
147,420
11
11
(16.5)p
(16.5)p
27.0p
26.9p
All items in the above statement derive from continuing operations.
All of the profit and total comprehensive income for the year is attributable to the equity holders of the Company.
Notes 1 to 27 form part of these consolidated financial statements.
132
Picton Property Income Limited Annual Report 2023
Financial Statements/Continued Consolidated statement of changes in equity
for the year ended 31 March 2023
Balance as at 31 March 2021
Profit for the year
Dividends paid
Share-based awards
Purchase of shares held in trust
Other comprehensive income for the year
Balance as at 31 March 2022
Loss for the year
Dividends paid
Share-based awards
Purchase of shares held in trust
Other comprehensive loss for the year
Share
capital
£000
Retained
earnings
£000
Other
reserves
£000
Revaluation
reserve
£000
Notes
164,400
–
–
–
–
–
164,400
–
–
–
–
–
364,466
146,986
(18,425)
–
–
–
493,027
(89,530)
(19,091)
–
–
–
10
7
14
10
7
14
(669)
–
–
668
(730)
–
(731)
–
–
675
(1,126)
–
–
–
–
–
–
434
434
–
–
–
–
(434)
Total
£000
528,197
146,986
(18,425)
668
(730)
434
657,130
(89,530)
(19,091)
675
(1,126)
(434)
Balance as at 31 March 2023
164,400
384,406
(1,182)
–
547,624
Notes 1 to 27 form part of these consolidated financial statements.
Picton Property Income Limited Annual Report 2023
133
Strategic ReportFinancial StatementsAdditional InformationGovernance Consolidated balance sheet
as at 31 March 2023
Non-current assets
Investment properties
Property, plant and equipment
Total non-current assets
Current assets
Accounts receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Accounts payable and accruals
Loans and borrowings
Obligations under 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
Revaluation reserve
Total equity
Net asset value per share
Notes
2023
£000
2022
£000
13
14
746,342
3,415
830,027
4,383
749,757
834,410
15
16
22,749
20,050
22,850
38,547
42,799
61,397
792,556
895,807
17
18
22
(19,471)
(1,129)
(114)
(19,138)
(1,068)
(114)
(20,714)
(20,320)
18
22
(221,635)
(2,583)
(215,764)
(2,593)
(224,218)
(218,357)
(244,932)
(238,677)
547,624
657,130
20
164,400
384,406
(1,182)
–
164,400
493,027
(731)
434
547,624
657,130
23
100p
120p
These consolidated financial statements were approved by the Board of Directors on 24 May 2023 and signed on its
behalf by:
Andrew Dewhirst
Director
24 May 2023
Notes 1 to 27 form part of these consolidated financial statements.
134
Picton Property Income Limited Annual Report 2023
Financial Statements/Continued Consolidated statement of cash flows
for the year ended 31 March 2023
Operating activities
Operating (loss)/profit
Adjustments for non-cash items
Interest received
Interest paid
Decrease/(increase) in accounts receivable
(Decrease)/increase in accounts payable and accruals
Cash inflows from operating activities
Investing activities
Purchase of investment properties
Capital expenditure on investment properties
Disposal of investment properties
Purchase of tangible assets
Cash outflows from investing activities
Financing activities
Borrowings repaid
Borrowings drawn
Debt prepayment fees
Financing costs
Purchase of shares held in trust
Dividends paid
Cash (outflows)/inflows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Notes
2023
£000
2022
£000
21
13
13
13
14
18
18
18
18
7
10
(80,520)
111,655
24
(7,937)
101
(291)
159,533
(129,010)
–
(8,102)
(3,305)
897
23,032
20,013
(20,613)
(6,135)
–
(13)
(25,005)
(9,551)
726
(3)
(26,761)
(33,833)
(6,368)
12,000
–
(183)
(1,126)
(19,091)
(26,917)
79,545
(4,045)
(419)
(730)
(18,425)
(14,768)
29,009
(18,497)
38,547
15,189
23,358
Cash and cash equivalents at end of year
16
20,050
38,547
Notes 1 to 27 form part of these consolidated financial statements.
Picton Property Income Limited Annual Report 2023
135
Strategic ReportFinancial StatementsAdditional InformationGovernance Notes to the consolidated financial statements
for the year ended 31 March 2023
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
1 October 2018. The consolidated financial statements are prepared for the year ended 31 March 2023 with comparatives
for the year ended 31 March 2022.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared on a going concern basis and adopt the historical cost basis, except for
the revaluation of investment properties. Historical cost is generally based on the fair value of the consideration given
in exchange for the assets. The financial statements, which give a true and fair view, are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the IASB and the Companies (Guernsey) Law, 2008.
The Directors have assessed whether the going concern basis remains appropriate for the preparation of the financial
statements. They have reviewed the Group’s principal and emerging risks, existing loan facilities, access to funding
and liquidity position and then considered different adverse scenarios impacting the portfolio and the potential
consequences on financial performance, asset values, dividend policy, capital projects and loan covenants. Under all
these scenarios the Group has sufficient resources to continue its operations, and remain within its loan covenants, for
the foreseeable future and in any case for a period of at least 12 months from the date of these financial statements.
Based on their assessment and knowledge of the portfolio and market, the Directors have therefore continued to adopt
the going concern basis in preparing the financial statements.
The financial statements are presented in pounds sterling, which is the Company’s functional currency. All financial
information presented in pounds sterling has been rounded to the nearest thousand, except when otherwise indicated.
New or amended standards issued
The accounting policies adopted are consistent with those of the previous financial period, as amended to reflect the
adoption of new standards, amendments and interpretations which became effective in the year as shown below.
‒ Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
‒ Annual Improvements to IFRS Standards 2018-2020
‒ Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
‒ Reference to the Conceptual Framework (Amendments to IFRS 3)
The adoption of these standards has had no material effect on the consolidated financial statements of the Group.
At the date of approval of these financial statements, there are a number of new and amended standards in issue
but not yet effective for the financial year ended 31 March 2023 and thus have not been applied by the Group.
‒ IFRS 17 Insurance Contracts
‒ Amendments to IFRS 17
‒ Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
‒ Definition of Accounting Estimates (Amendments to IAS 8)
‒ Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes
‒ Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Amendments to IFRS 17)
‒ Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
‒ Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
‒ Non-current Liabilities with Covenants (Amendments to IAS 1)
‒ Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
The adoption of these new and amended standards, together with any other IFRSs or IFRIC interpretations that are not
yet effective, are not expected to have a material impact on the financial statements of the Group.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of estimates about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
136
Picton Property Income Limited Annual Report 2023
Financial Statements/Continued 2. Significant accounting policies/Continued
Significant judgements and estimates
Judgements made by management in the application of IFRSs that have a significant effect on the financial statements
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.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company at the reporting date. The Group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect these returns through its power over the entity.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated
from the date on which control is transferred out of the Group. These financial statements include the results of the subsidiaries
disclosed in Note 12. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Fair value hierarchy
The fair value measurement for the Group’s assets and liabilities is categorised into different levels in the fair value
hierarchy based on the inputs to valuation techniques used. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the
measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3: unobservable inputs for the asset or liability.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during
which the transfer has occurred.
Investment properties
Freehold property held by the Group to earn income or for capital appreciation, or both, is classified as investment
property in accordance with IAS 40 ‘Investment Property’. Property held under head leases for similar purposes is also
classified as investment property. Investment property is initially recognised at purchase cost plus directly attributable
acquisition expenses and subsequently measured at fair value. The fair value of investment property is based on a
valuation by an independent valuer who holds a recognised and relevant professional qualification and who has recent
experience in the location and category of the investment property being valued.
The fair value of investment properties is measured based on each property’s highest and best use from a market
participant’s perspective and considers the potential uses of the property that are physically possible, legally permissible
and financially feasible.
The fair value of investment property generally involves consideration of:
‒ Market evidence on comparable transactions for similar properties;
‒ The actual current market for that type of property in that type of location at the reporting date and current market
expectations;
‒ Rental income from leases and market expectations regarding possible future lease terms;
‒ Hypothetical sellers and buyers, who are reasonably informed about the current market and who are motivated, but
not compelled, to transact in that market on an arm’s length basis; and
‒ Investor expectations on matters such as future enhancement of rental income or market conditions.
Gains and losses arising from changes in fair value are included in the Consolidated Statement of Comprehensive Income
in the year in which they arise. Purchases and sales of investment property are recognised when contracts have been
unconditionally exchanged and the significant risks and rewards of ownership have been transferred.
An investment property is derecognised for accounting purposes upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated
Statement of Comprehensive Income in the year the asset is derecognised. Investment properties are not depreciated.
The majority of the investment properties are charged by way of a first ranking mortgage as security for the loans made
to the Group; see Note 18.
Picton Property Income Limited Annual Report 2023
137
Financial StatementsStrategic ReportAdditional InformationGovernance 2. Significant accounting policies/Continued
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 (in this case 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, and the net amount restated to the revalued amount. Subsequent depreciation charges are
adjusted based 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 property is used. Any gain arising on this remeasurement is recognised in profit or loss to the extent that it
reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive
income and presented in the revaluation reserve. Any loss is recognised in profit or loss. However, to the extent that an
amount is included in the revaluation surplus for that property, the loss is recognised in other comprehensive income and
reduces the revaluation surplus within equity.
Plant and equipment
Plant and equipment is depreciated on a straight-line basis over the estimated useful lives of each item of plant and
equipment. The estimated useful lives are between three and five years.
Leases
Where the Group holds interests in investment properties other than as freehold interests (e.g. as a head lease), these are
accounted for as right of use assets, which is recognised at its fair value on the Balance Sheet, within the investment
property carrying value. Upon initial recognition, a corresponding liability is included as a lease liability. Minimum lease
payments are apportioned between the finance charge and the reduction of the outstanding liability so as to produce a
constant periodic rate of interest on the remaining lease liability. Contingent rent payable, being the difference between
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.
The Group leases its investment properties under commercial property leases which are held as operating leases. An
operating lease is a lease other than a finance lease. A finance lease is one where substantially all the risks and rewards of
ownership are passed to the lessee. Lease income is 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. Upon receipt of a
surrender premium for the early termination of a lease, the profit, net of dilapidations and non-recoverable outgoings
relating to the lease concerned, is immediately reflected in revenue from properties if there are no relevant conditions
attached to the surrender.
Cash and cash equivalents
Cash includes cash in hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash with original maturities in three months or less and that are subject to
an insignificant risk of change in value.
Income and expenses
Income and expenses are included in the Consolidated Statement of Comprehensive Income on an accruals basis.
All of the Group’s income and expenses are derived from continuing operations.
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.
Property operating costs include the costs of professional fees on letting and other non-recoverable costs.
The income charged to occupiers for property service charges and the costs associated with such service charges are
shown separately in Notes 3 and 4 to reflect that, notwithstanding this money is held on behalf of occupiers, the ultimate
risk for paying and recovering these costs rests with the property owner.
Employee benefits
Defined contribution plans
A defined contribution plan is a retirement benefit plan under which the Company pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension plans are recognised as an expense in the Consolidated Statement of Comprehensive
Income in the periods during which services are rendered by employees.
138
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 2. Significant accounting policies/Continued
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing
plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided
by the employee and the obligation can be estimated reliably.
Share-based payments
The fair value of the amounts payable to employees in respect of the Deferred Bonus Plan, 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
become unconditionally entitled to payment. Where the awards are equity settled, the fair value is recognised as an
expense, with a corresponding increase in equity. The liability is remeasured at each reporting date and at settlement
date. Any changes in the fair value of the liability are recognised under the category staff costs in the Consolidated
Statement of Comprehensive Income.
The grant date fair value of awards to employees made under the Long-term Incentive Plan is recognised as an expense,
with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the related non-market performance conditions are expected to be
met, such that the amount ultimately recognised is based on the number of awards that meet the related non-market
performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair
value of the share-based awards is measured to reflect such conditions and there is no adjustment between expected
and actual outcomes.
The cost of the Company’s shares held by the Employee Benefit Trust is deducted from equity in the Consolidated
Balance Sheet. Any shares held by the Trust are not included in the calculation of earnings or net assets per share.
Dividends
Dividends are recognised in the period in which they are declared.
Accounts receivable
Accounts receivable are stated at their nominal amount as reduced by appropriate allowances for estimated irrecoverable
amounts. The Group applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime
expected impairment provision for all applicable accounts receivable. Bad debts are written off when identified.
Loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue
costs associated with the borrowing. After initial recognition, loans and borrowings are subsequently measured at
amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs,
and any discount or premium on settlement. Gains and losses are recognised in profit or loss in the Consolidated
Statement of Comprehensive Income when the liabilities are derecognised 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, accruals, other creditors, and deferred rental income, which are not
interest bearing are stated at their nominal value.
Share capital
Ordinary shares are classified as equity.
Revaluation reserve
Any surplus or deficit arising from the revaluation of owner-occupied property is taken to the revaluation reserve. A
revaluation deficit is only taken to retained earnings when there is no previous revaluation surplus to reverse.
Taxation
The Group elected to be treated as a UK REIT with effect from 1 October 2018. The UK REIT rules exempt the profits of the
Group’s UK property rental business from UK corporation and income tax. Gains on UK properties are also exempt from
tax, provided they are not held for trading. The Group is otherwise subject to UK corporation tax.
Picton Property Income Limited Annual Report 2023
139
Financial StatementsStrategic ReportAdditional InformationGovernance 2. Significant accounting policies/Continued
Principles for the Consolidated Statement of Cash Flows
The Consolidated Statement of Cash Flows has been drawn up according to the indirect method, separating the cash
flows from operating activities, investing activities and financing activities. The net result has been adjusted for amounts
in the Consolidated Statement of Comprehensive Income and movements in the Consolidated Balance Sheet which
have not resulted in cash income or expenditure in the 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
Rents receivable have been adjusted for lease incentives recognised of £1.2 million (2022: £2.8 million).
4. Property expenses
Property operating costs
Property void costs
Recoverable service charge costs
5. Operating segments
2023
£000
2022
£000
42,964
147
170
107
8,428
51,816
40,133
59
21
118
6,212
46,543
2023
£000
3,491
3,647
8,428
2022
£000
2,477
2,409
6,212
15,566
11,098
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 on the Group’s net asset value. As the total return on the
Group’s net asset value is calculated based on the net asset value per share calculated under IFRS as shown at the foot of
the Consolidated Balance Sheet, assuming dividends are reinvested, the key performance measure is that prepared
under IFRS. Therefore, no reconciliation is required between the measure of profit or loss used by the Board and that
contained in the financial statements.
The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the opinion that the Group,
through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and
across one primary geographical area, namely the United Kingdom, and therefore no segmental reporting is required.
The portfolio consists of 49 commercial properties, which are in the industrial, office, retail and leisure sectors.
6. Administrative expenses
Director and staff costs
Auditor’s remuneration
Other administrative expenses
140
Picton Property Income Limited
2023
£000
3,487
195
2,273
5,955
2022
£000
3,415
206
2,134
5,755
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 6. Administrative expenses/Continued
Auditor’s remuneration comprises:
Audit fees:
Audit of Group financial statements
Audit of subsidiaries’ financial statements
Audit-related fees:
Review of half-year financial statements
Non-audit fees:
Additional controls testing
7. Director and staff costs
Wages and salaries
Non-Executive Directors’ fees
Social security costs
Other pension costs
Share-based payments – cash settled
Share-based payments – equity settled
2023
£000
2022
£000
92
87
16
195
–
–
195
2023
£000
1,879
275
425
34
142
732
3,487
92
82
16
190
16
16
206
2022
£000
1,765
275
402
27
201
745
3,415
The emoluments of the Directors are set out in detail within the Remuneration Committee report, including the audited
totals on page 115.
Employees participate in two share-based remuneration arrangements: the Deferred Bonus Plan and the Long-term
Incentive Plan (the ‘LTIP’).
For all employees, a proportion of any discretionary annual bonus will be an award under the Deferred Bonus Plan. With
the exception of Executive Directors, awards are cash settled and vest after two years. The final value of awards is
determined by the movement in the Company’s share price and dividends paid over the vesting period. For Executive
Directors, awards are equity settled and also vest after two years. On 17 June 2022, awards of 500,905 notional shares
were made which vest in June 2024 (2022: 531,108 notional shares). The next awards are due to be made in June 2023 for
vesting in June 2025.
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
19 June 2021
29 June 2022
22 June 2023
17 June 2024
Units
at 31 March
2021
Units
granted in
the year
Units
cancelled in
the year
Units
redeemed in
the year
Units
at 31 March
Units
granted
2022
in the year
Units
cancelled
in the year
Units
redeemed in
the year
438,907
599,534
–
–
–
–
531,108
–
1,038,441
531,108
–
–
–
–
–
(438,907)
–
–
–
–
599,534
531,108
–
–
–
–
500,905
(438,907) 1,130,642
500,905
–
–
–
–
–
–
(589,779)
–
–
(589,779)
1,041,768
Units
at 31 March
2023
–
9,755
531,108
500,905
The Group also has a Long-term Incentive Plan for all employees which is equity settled. Awards are made annually and
vest three years from the grant date. Vesting is conditional on three performance metrics measured over each three-year
period. Awards to Executive Directors are also subject to a further two-year holding period. On 17 June 2022, awards for
a maximum of 1,174,589 shares were granted to employees in respect of the three-year period ending on 31 March 2025.
In the previous year, awards of 1,107,155 shares were made on 22 June 2021 for the period ending 31 March 2024.
Picton Property Income Limited Annual Report 2023
141
Financial StatementsStrategic ReportAdditional InformationGovernance 7. Director and staff costs/Continued
The three performance metrics are:
‒ Total shareholder return (TSR) of Picton Property Income Limited, compared to a comparator group of similar listed
companies;
‒ Total property return (TPR) of the property assets held within the Group, compared to the MSCI UK Quarterly Property
Index; and
‒ Growth in EPRA earnings per share (EPS) of the Group.
The fair value of share grants is measured using the Monte Carlo model for the TSR metric and a Black-Scholes model for
the TPR and EPS metrics. 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)
17 June 2022
92.6p
Nil
3 years
2.28%
28.3%
32.4%
25.0%
(2.5)%
2.2%
46.0p
92.6p
92.6p
22 June 2021
87.3p
Nil
3 years
0.23%
28.3%
31.8%
29.4%
0.3%
10.7%
37.7p
87.3p
87.3p
The Trustee of the Company’s Employee Benefit Trust acquired 1,250,000 ordinary shares during the year for £1,126,000
(2022: 750,000 shares for £730,000).
The Group employed ten members of staff at 31 March 2023 (2022: nine). The average number of people employed by the
Group for the year ended 31 March 2023 was nine (2022: ten).
8. Interest paid
Interest payable on loans
Interest on obligations under finance leases
Non-utilisation fees
2023
£000
8,576
175
283
9,034
2022
£000
8,134
129
239
8,502
The loan arrangement costs incurred to 31 March 2023 are £3,328,000 (2022: £3,325,000). These are amortised over the
duration of the loans with £304,000 amortised in the year ended 31 March 2023 and included in interest payable on
loans (2022: £967,000).
9. Tax
The charge for the year is:
Tax expense in year
Total tax charge
142
Picton Property Income Limited
2023
£000
2022
£000
–
–
–
–
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 9. Tax/Continued
A reconciliation of the tax charge applicable to the results at the statutory tax rate to the charge for the year is as follows:
(Loss)/profit before taxation
Expected tax (credit)/charge on ordinary activities at the standard rate of taxation of 19% (2022: 19%)
Less:
UK REIT exemption on net income
Revaluation movement not taxable
Gains on disposal not taxable
Total tax charge
2023
£000
2022
£000
(89,530)
146,986
(17,011)
27,927
(4,044)
21,055
–
(3,257)
(24,662)
(8)
–
–
As a UK REIT, the income profits of the Group’s UK property rental business are exempt from corporation tax, as are any
gains it makes from the disposal of its properties, provided they are not held for trading. The Group is otherwise subject
to UK corporation tax at the prevailing rate.
As the principal company of the REIT, the Company is required to distribute at least 90% of the income profits of the
Group’s UK property rental business. There are a number of other conditions that are also required to be met by the
Company and the Group to maintain REIT tax status. These conditions were met in the year and the Board intends
to conduct the Group’s affairs such that these conditions continue to be met for the foreseeable future. Accordingly,
deferred tax is no longer recognised on temporary differences relating to the property rental business.
10. Dividends
Declared and paid:
Interim dividend for the period ended 31 March 2021: 0.8 pence
Interim dividend for the period ended 30 June 2021: 0.85 pence
Interim dividend for the period ended 30 September 2021: 0.85 pence
Interim dividend for the period ended 31 December 2021: 0.875 pence
Interim dividend for the period ended 31 March 2022: 0.875 pence
Interim dividend for the period ended 30 June 2022: 0.875 pence
Interim dividend for the period ended 30 September 2022: 0.875 pence
Interim dividend for the period ended 31 December 2022: 0.875 pence
2023
£000
2022
£000
–
–
–
–
4,774
4,775
4,771
4,771
4,365
4,644
4,640
4,776
–
–
–
–
19,091
18,425
The interim dividend of 0.875 pence per ordinary share in respect of the period ended 31 March 2023 has not been
recognised as a liability as it was declared after the year-end. This dividend of £4,771,000 will be paid on 31 May 2023.
11. Earnings per share
Basic and diluted earnings per share is calculated by dividing the net (loss)/profit for the year attributable to ordinary
shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding the
average number of shares held by the Employee Benefit Trust for the year. The diluted number of shares also reflects the
contingent shares to be issued under the Long-term Incentive Plan.
The following reflects the (loss)/profit and share data used in the basic and diluted profit per share calculation:
Net (loss)/profit attributable to ordinary shareholders of the Company from continuing operations (£000)
Weighted average number of ordinary shares for basic earnings per share
Weighted average number of ordinary shares for diluted earnings per share
(89,964)
545,378,286
546,856,450
147,420
545,904,197
547,295,589
2023
2022
Picton Property Income Limited Annual Report 2023
143
Financial StatementsStrategic ReportAdditional InformationGovernance 12. Investments in subsidiaries
The Company had the following principal subsidiaries as at 31 March 2023 and 31 March 2022:
Name
Place of incorporation
Ownership proportion
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 Financing UK (No 2) Limited
Picton Property No 3 Limited
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
England & Wales
Guernsey
Guernsey
England & Wales
England & Wales
England & Wales
England & Wales
Guernsey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The results of the above entities are consolidated within the Group financial statements.
Picton UK Real Estate Trust (Property) Limited and Picton (UK) REIT (SPV) Limited own 100% of the units in Picton (UK)
Listed Real Estate, a Guernsey Unit Trust (the ‘GPUT’). The GPUT holds a 99.9% interest in both Picton No 2 Limited
Partnership and Picton No 3 Limited Partnership and the remaining balances are held by Picton (General Partner) No 2
Limited and Picton (General Partner) No 3 Limited respectively.
13. Investment properties
The following table provides a reconciliation of the opening and closing amounts of investment properties classified as
Level 3 recorded at fair value.
Fair value at start of year
Capital expenditure on investment properties
Acquisitions
Disposals
Acquisition of right of use asset
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
2023
£000
2022
£000
830,027
6,135
20,613
–
–
–
(110,433)
665,418
9,551
25,005
(687)
897
42
129,801
746,342
830,027
681,118
654,370
2023
£000
2022
£000
766,235
2,081
(3,248)
(18,726)
849,325
2,237
(4,168)
(17,367)
746,342
830,027
The investment properties were valued by independent valuers, CBRE Limited, Chartered Surveyors, as at 31 March 2023
and 31 March 2022 on the basis of fair value in accordance with the version of the RICS Valuation – Global Standards
(incorporating the International Valuation Standards) and the UK national supplement (the Red Book) current as at the
valuation date. The total fees earned by CBRE Limited from the Group are less than 5% of their total UK revenue.
The fair value of the Group’s investment properties has been determined using an income capitalisation technique,
whereby contracted and market rental values are capitalised with a market capitalisation rate. The resulting valuations are
cross-checked against the equivalent yields and the fair market values per square foot derived from comparable market
transactions on an arm’s length basis.
144
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 13. Investment properties/Continued
In addition, the Group’s investment properties are valued quarterly by CBRE Limited. The valuations are based on:
‒ Information provided by the Group including rents, lease terms, revenue and capital expenditure. Such information
is derived from the Group’s financial and property systems and is subject to the Group’s overall control environment.
‒ Valuation models used by the valuers, including market-related assumptions based on their professional judgement
and market observation.
The assumptions and valuation models used by the valuers, and supporting information, are reviewed by senior
management and the Board through the Property Valuation Committee. Members of the Property Valuation Committee,
together with senior management, meet with the independent valuer on a quarterly basis to review the valuations and
underlying assumptions, including considering current market trends and conditions, and changes from previous
quarters. The Board will also consider whether circumstances at specific investment properties, such as alternative uses
and issues with occupational tenants, are appropriately reflected in the valuations. The fair value of investment properties
is measured based on each property’s highest and best use from a market participant’s perspective and considers the
potential uses of the property that are physically possible, legally permissible and financially feasible.
As at 31 March 2023 and 31 March 2022 all of the Group’s properties, including owner-occupied property, are Level 3 in the
fair value hierarchy as it involves use of significant judgement. There were no transfers between levels during the year and
the prior year. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to Level 1
(inputs from quoted prices) and Level 2 (observable inputs either directly, i.e. as prices, or indirectly, as derived from prices).
Information on these significant unobservable inputs per sector of investment properties is disclosed as follows:
Appraised value (£000)
Area (sq ft, 000s)
Range of unobservable inputs:
Gross ERV (sq ft per annum)
– range
– weighted average
Net initial yield
– range
– weighted average
Reversionary yield
– range
– weighted average
True equivalent yield
– range
– weighted average
2023
2022
Office
Industrial Retail and Leisure
Office
Industrial
Retail and Leisure
245,260
877
439,570
3,240
81,405
692
251,125
828
509,730
3,240
88,470
692
£11.00 to
£84.12
£35.33
–0.68% to
11.65%
5.32%
4.76% to
13.55%
7.87%
4.57% to
10.38%
7.23%
£3.30 to
£27.83
£13.16
2.28% to
7.75%
4.30%
4.83% to
8.17%
5.78%
4.75% to
7.98%
5.51%
£3.23 to
£26.05
£11.66
3.51% to
30.85%
8.56%
6.87% to
12.18%
7.98%
7.00% to
12.17%
8.11%
£10.96 to
£82.32
£35.10
0.92% to
9.00%
4.64%
4.29% to
9.63%
7.00%
4.09% to
9.95%
6.49%
£2.82 to
£26.77
£11.47
0.00% to
6.75%
3.25%
3.04% to
7.37%
4.24%
3.00% to
7.00%
4.11%
£3.23 to
£28.49
£11.83
3.07% to
25.00%
7.33%
6.19% to
12.89%
7.42%
6.25% to
13.02%
7.55%
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
2023 Impact on valuation
2022 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 £36.7m
Increase of £44.5m
Decrease of £16.1m
Increase of £18.0m
Decrease of £4.5m
Increase of £5.1m
Decrease of £55.2m
Increase of £69.0m
Decrease of £11.9m
Increase of £12.5m
Decrease of £5.1m
Increase of £5.9m
Picton Property Income Limited Annual Report 2023
145
Financial StatementsStrategic ReportAdditional InformationGovernance 14. Property, plant and equipment
Property, plant and equipment principally comprises the fair value of owner-occupied property. The fair value of these
premises is based on the appraised value at 31 March 2023.
At 1 April 2021
Additions
Depreciation
Revaluation
At 31 March 2022
Additions
Depreciation
Revaluation
At 31 March 2023
15. Accounts receivable
Tenant debtors (net of provisions for bad debts)
Lease incentives
Other debtors
Owner
Occupied
Property
£000
Plant and
equipment
£000
3,830
–
(96)
434
4,168
–
(104)
(816)
3,248
281
3
(69)
–
215
13
(61)
–
167
Total
£000
4,111
3
(165)
434
4,383
13
(165)
(816)
3,415
2023
£000
2,855
18,726
1,168
22,749
2022
£000
4,618
17,367
865
22,850
The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected to be
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 2023, tenant
debtors of £92,000 (2022: £302,000) were considered impaired and provided for.
16. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2023
£000
20,045
5
20,050
2022
£000
38,542
5
38,547
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made
for varying periods of between one day and one month depending on the immediate cash requirements of the Group
and earn interest at the respective short-term deposit rates. The carrying amounts of these assets approximate to their
fair value.
17. Accounts payable and accruals
Accruals
Deferred rental income
VAT liability
Trade creditors
Other creditors
146
Picton Property Income Limited
2023
£000
4,712
8,654
1,782
515
3,808
2022
£000
4,994
8,399
1,638
357
3,750
19,471
19,138
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 18. Loans and borrowings
Current
Aviva facility
Capitalised finance costs
Non-current
Canada Life facility
Aviva facility
NatWest revolving credit facility
Capitalised finance costs
Maturity
2023
£000
2022
£000
–
–
1,433
(304)
1,129
1,372
(304)
1,068
24 July 2031
24 July 2032
26 May 2025
–
129,045
82,089
11,900
(1,399)
129,045
83,518
4,900
(1,699)
221,635
215,764
222,764
216,832
The following table provides a reconciliation of the movement in loans and borrowings to cash flows arising from
financing activities.
Balance at start of year
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of loans and borrowings
Financing costs paid
Other changes
Amortisation of financing costs
Change in accrued financing costs
Balance as at 31 March
2023
£000
2022
£000
216,832
163,655
12,000
(6,368)
(183)
79,545
(26,917)
(419)
5,449
52,209
304
179
483
967
1
968
222,764
216,832
The Group has a £129.0 million loan facility with Canada Life which matures in July 2031. Interest is fixed at 3.25% per
annum over the remaining life of the loan. The loan agreement has a loan to value covenant of 65% and an interest cover
test of 1.75. The loan is secured over the Group’s properties held by Picton No 2 Limited Partnership and Picton UK Real
Estate Trust (Property) No 2 Limited, valued at £353.2 million (2022: £415.2 million). In the prior year a debt prepayment fee
of £4.0 million was incurred to reset the interest rate on the Canada Life facility.
Additionally, the Group has a £95.3 million term loan facility with Aviva Commercial Finance Limited which matures in
July 2032. The loan is for a term of 20 years and was fully drawn on 24 July 2012 with approximately one-third repayable
over the life of the loan in accordance with a scheduled amortisation profile. The Group has repaid £1.4 million in the year
(2022: £1.3 million). Interest on the loan is fixed at 4.38% per annum over the life of the loan. The facility has a loan to value
covenant of 65% and a debt service cover ratio of 1.4. The facility is secured over the Group’s properties held by Picton No
3 Limited Partnership and Picton Property No 3 Limited, valued at £193.6 million (2022: £208.1 million).
The Group also has a £50 million revolving credit facility (‘RCF’) with National Westminster Bank Plc which matures in May
2025. As at 31 March there was £11.9 million drawn under the facility, interest is charged at 150 basis points over SONIA on
drawn balances and there is an undrawn commitment fee of 60 basis points. The facility is secured on properties held by
Picton UK Real Estate Trust (Property) Limited, valued at £143.4 million (2022: £163.2 million).
The fair value of the drawn loan facilities at 31 March 2023, estimated as the present value of future cash flows discounted
at the market rate of interest at that date, was £201.7 million (2022: £225.6 million). The fair value of the drawn loan facilities
is classified as Level 2 under the hierarchy of fair value measurements.
There were no transfers between levels of the fair value hierarchy during the current or prior years.
The weighted average interest rate on the Group’s borrowings as at 31 March 2023 was 3.8% (2022: 3.7%).
Picton Property Income Limited Annual Report 2023
147
Financial StatementsStrategic ReportAdditional InformationGovernance 19. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of five properties with commitments outstanding at 31 March
2023 of approximately £2.9 million (2022: £2.4 million). No further obligations to construct or develop investment property or
for repairs, maintenance or enhancements were in place as at 31 March 2023 (2022: £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 2022: 547,605,596)
Share premium
The Company has 547,605,596 ordinary shares in issue of no par value (2022: 547,605,596).
No new ordinary shares were issued during the year ended 31 March 2023.
Ordinary share capital
Number of shares held in Employee Benefit Trust
Number of ordinary shares
2023
£000
2022
£000
–
–
–
–
164,400
164,400
2023
Number of shares
2022
Number of shares
547,605,596
(2,388,694)
547,605,596
(1,974,253)
545,216,902
545,631,343
The fair value of awards made under the Long-term Incentive Plan is recognised in other reserves.
Subject to the solvency test contained in the Companies (Guernsey) Law, 2008 being satisfied, ordinary shareholders are
entitled to all dividends declared by the Company and to all of the Company’s assets after repayment of its borrowings
and ordinary creditors. The Trustee of the Company’s Employee Benefit Trust has waived its right to receive dividends on
the 2,388,694 shares it holds but continues to hold the right to vote. Ordinary shareholders have the right to vote at
meetings of the Company. All ordinary shares carry equal voting rights.
The Directors have authority to buy back up to 14.99% of the Company’s ordinary shares in issue, subject to the annual
renewal of the authority from shareholders. Any buy-back of ordinary shares will be made subject to Guernsey law, and
the making and timing of any buy-backs will be at the absolute discretion of the Board.
21. Adjustment for non-cash movements in the cash flow statement
Profit on disposal of investment properties
Movement in investment property valuation
Revaluation of owner-occupied property
Share-based provisions
Depreciation of tangible assets
2023
£000
2022
£000
–
110,433
382
675
165
(42)
(129,801)
–
668
165
111,655
(129,010)
148
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 22. Obligations under leases
The Group has entered into a number of head leases in relation to its investment properties. These leases are for fixed
terms and subject to regular rent reviews. They contain no material provisions for contingent rents, renewal or purchase
options nor any restrictions outside of the normal lease terms.
Lease liabilities in respect of rents on leasehold properties were payable as follows:
Future minimum payments due:
Within one year
In the second to fifth years inclusive
After five years
Less: finance charges allocated to future periods
Present value of minimum lease payments
The present value of minimum lease payments is analysed as follows:
Current
Within one year
Non-current
In the second to fifth years inclusive
After five years
2023
£000
2022
£000
185
740
8,898
9,823
(7,126)
2,697
185
740
9,083
10,008
(7,301)
2,707
2023
£000
2022
£000
114
114
114
114
405
2,178
2,583
2,697
410
2,183
2,593
2,707
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
Four to five years
After five years
2023
£000
43,824
39,548
34,806
29,506
25,454
105,675
2022
£000
41,928
39,244
35,416
29,972
24,748
99,788
278,813
271,096
These properties are measured under the fair value model as the properties are held to earn rentals. Commercial
property leases typically have lease terms between five and ten years and include clauses to enable periodic upward
revision of the rental charge according to prevailing market conditions. Some leases contain options to break before
the end of the 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
number of shares held by the Employee Benefit Trust at the year-end; see Note 20.
Picton Property Income Limited Annual Report 2023
149
Financial StatementsStrategic ReportAdditional InformationGovernance 24. Financial instruments
The Group’s financial instruments comprise cash and cash equivalents, accounts receivable, secured loans, obligations
under head leases and accounts payable that arise from its operations. The Group does not have exposure to any
derivative financial instruments. Apart from the secured loans, as disclosed in Note 18, the fair value of the financial assets
and liabilities is not materially different from their carrying value in the financial statements.
Categories of financial instruments
31 March 2023
Financial assets
Debtors
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Obligations under head leases
Creditors and accruals
31 March 2022
Financial assets
Debtors
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Obligations under head leases
Creditors and accruals
25. Risk management
Held at
fair value
through
profit or loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Notes
Total
£000
15
16
18
22
17
Notes
15
16
18
22
17
–
–
–
–
–
–
–
4,023
20,050
4,023
20,050
24,073
24,073
222,764
2,697
9,035
222,764
2,697
9,035
234,496
234,496
Held at
fair value
through
profit or loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
–
–
–
–
5,483
38,547
5,483
38,547
44,030
44,030
216,832
2,707
9,101
216,832
2,707
9,101
228,640
228,640
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 strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of
the business.
The capital structure of the Group consists of debt, as disclosed in Note 18, cash and cash equivalents and equity
attributable to equity holders of the Company, comprising issued share capital, reserves, retained earnings and
revaluation reserve. The Group is not subject to any external capital requirements.
The Group monitors capital on the basis of its gearing ratio. This ratio is calculated as the principal borrowings
outstanding, as detailed under Note 18, divided by the gross assets. There is a limit of 65% as set out in the Articles of
Association of the Company. Gross assets are calculated as non-current and current assets, as shown in the Consolidated
Balance Sheet.
150
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 25. Risk management/Continued
At the reporting date the gearing ratios were as follows:
Total borrowings
Gross assets
Gearing ratio (must not exceed 65%)
2023
£000
2022
£000
224,467
792,556
218,835
895,807
28.3%
24.4%
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 with different maturities, 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 flexibility in managing the level of borrowings.
The Group’s net debt to equity ratio at the reporting date was as follows:
Total liabilities
Less: cash and cash equivalents
Net debt
Total equity
Net debt to equity ratio at end of year
Credit risk
The following tables detail the balances held at the reporting date that may be affected by credit risk:
2023
£000
2022
£000
244,932
(20,050)
238,677
(38,547)
224,882
200,130
547,624
657,130
0.41
0.30
31 March 2023
Financial assets
Tenant debtors
Cash and cash equivalents
31 March 2022
Financial assets
Tenant debtors
Cash and cash equivalents
Held at
fair value
through
profit
or loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
2,855
20,050
2,855
20,050
22,905
22,905
Held at
fair value
through
profit
or loss
£000
Financial
assets and
liabilities at
amortised
cost
£000
Total
£000
–
–
–
4,618
38,547
4,618
38,547
43,165
43,165
Notes
15
16
Notes
15
16
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining collateral where
appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure to and credit ratings
of, its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst
approved counterparties.
Picton Property Income Limited Annual Report 2023
151
Financial StatementsStrategic ReportAdditional InformationGovernance 25. Risk management/Continued
Tenant debtors consist of a large number of occupiers, spread across diverse industries and geographical areas. Ongoing
credit evaluations are performed on the financial condition of tenant debtors and, where appropriate, credit guarantees
or rent deposits are acquired. As at 31 March 2023 tenant rent deposits held by the Group’s managing agents in
segregated bank accounts totalled £2.6 million (2022: £2.4 million). The Group does not have access to these rent deposits
unless the occupier defaults under its lease obligations. Rent collection is outsourced to managing agents who report
regularly on payment performance and provide the Group with intelligence on the continuing financial viability of
occupiers. The Group does not have any significant concentration risk whether in terms of credit risk exposure to any
single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited
because the counterparties are banks with strong credit ratings assigned by international credit rating agencies.
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents
the Group’s maximum exposure to credit risk. The Board continues to monitor the Group’s overall exposure to credit risk.
The Group has a panel of banks with which it makes deposits, based on credit ratings assigned by international credit
rating agencies and with set counterparty limits that are reviewed regularly. The Group’s main cash balances are held with
National Westminster Bank Plc (‘NatWest’), Nationwide International Limited (‘Nationwide’) and Lloyds Bank Plc (‘Lloyds’).
Insolvency or resolution of the bank holding cash balances may cause the Group’s recovery of cash held by them to
be delayed or limited. The Group manages its risk by monitoring the credit quality of its bankers on an ongoing basis.
NatWest, Nationwide and Lloyds are rated by all the major rating agencies. If the credit quality of any of these banks were
to deteriorate, the Group would look to move the relevant 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 2023 and at 31 March 2022,
Standard & Poor’s short-term credit rating for each of 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
Ultimate responsibility for liquidity risk management rests with the Board, which has put in place an appropriate liquidity
risk management framework for the management of the Group’s short, medium and long-term funding and liquidity
management requirements. The Group’s liquidity risk is managed on an ongoing basis by senior management and
monitored on a quarterly basis by the Board by maintaining adequate reserves and loan facilities, continuously
monitoring forecasts, loan maturity profiles and actual cash flows and matching the maturity profiles of financial assets
and liabilities for a period of at least 12 months.
The table below has been drawn up based on the undiscounted contractual maturities of the financial assets/(liabilities),
including interest that will accrue to maturity.
31 March 2023
Cash and cash equivalents
Debtors
Capitalised finance costs
Obligations under head leases
Fixed interest rate loans
Floating interest rate loans
Creditors and accruals
31 March 2022
Cash and cash equivalents
Debtors
Capitalised finance costs
Obligations under head leases
Fixed interest rate loans
Floating interest rate loans
Creditors and accruals
Less than
1 year
£000
20,652
4,023
304
(185)
(9,262)
(690)
(9,035)
1 to 5
years
£000
More than
5 years
£000
–
–
785
(740)
(37,049)
(12,696)
–
–
–
614
(8,898)
(233,629)
–
–
Total
£000
20,652
4,023
1,703
(9,823)
(279,940)
(13,386)
(9,035)
5,807
(49,700)
(241,913)
(285,806)
Less than
1 year
£000
38,547
5,483
304
(185)
(8,524)
(113)
(9,101)
1 to 5
years
£000
–
–
934
(740)
(37,049)
(5,031)
–
More than
5 years
£000
–
–
765
(9,083)
(242,891)
–
–
Total
£000
38,547
5,483
2,003
(10,008)
(288,464)
(5,144)
(9,101)
26,411
(41,886)
(251,209)
(266,684)
The Group expects to meet its financial liabilities through the various available liquidity sources, including a secure rental
income profile, asset sales, undrawn committed borrowing facilities and, in the longer-term, debt refinancing.
152
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued 25. Risk management/Continued
Market risk
The Group’s activities are primarily within the real estate market, exposing it to very specific industry risks.
The yields available from investments in real estate depend primarily on the amount of revenue earned and capital
appreciation generated by the relevant properties, as well as expenses incurred. If properties do not generate sufficient
revenues to meet operating expenses, including debt service costs 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
properties to occupiers, the quality of the management, competition from other available properties and increased
operating costs.
In addition, the Group’s revenue would be adversely affected if a significant number of occupiers were unable to pay
rent or its properties could not be rented on favourable terms. Certain significant expenditure associated with investment
in real estate (such as external financing costs and maintenance costs) is generally not reduced when circumstances
cause a reduction in revenue from properties. By diversifying in regions, sectors, risk categories and occupiers, senior
management expects to mitigate the risk profile of the portfolio effectively. The Board continues to oversee the profile
of the portfolio to ensure risks are managed.
The valuation of the Group’s property assets is subject to changes in market conditions. Such changes are taken to the
Consolidated Statement of Comprehensive Income and thus impact on the Group’s net result. A 5% increase or decrease
in property values would increase or decrease the Group’s net result by £38.3 million (2022: £42.5 million).
Interest rate risk management
Interest rate risk arises on interest payable on the revolving credit facility only. The Group’s senior debt facilities have
fixed interest rates over the terms of the loans. The amount drawn under the revolving credit facility makes up a small
proportion of the overall debt, the Group therefore has limited exposure to interest rate risk on its borrowings and no
sensitivity is presented.
Interest rate risk
The following table sets out the carrying amount, by maturity, of the Group’s financial assets/(liabilities).
31 March 2023
Floating
Cash and cash equivalents
Secured loan facilities
Fixed
Secured loan facilities
Obligations under leases
31 March 2022
Floating
Cash and cash equivalents
Secured loan facilities
Fixed
Secured loan facilities
Obligations under leases
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
20,050
–
–
(11,900)
–
–
20,050
(11,900)
(1,433)
(114)
(6,401)
(405)
(204,733)
(2,178)
(212,567)
(2,697)
18,503
(18,706)
(206,911)
(207,114)
Less than
1 year
£000
1 to 5
years
£000
More than
5 years
£000
Total
£000
38,547
–
–
(4,900)
–
–
38,547
(4,900)
(1,372)
(114)
(6,127)
(410)
(206,436)
(2,183)
(213,935)
(2,707)
37,061
(11,437)
(208,619)
(182,995)
Picton Property Income Limited Annual Report 2023
153
Financial StatementsStrategic ReportAdditional InformationGovernance 25. Risk management/Continued
Concentration risk
As discussed above, all of the Group’s investments are in the UK and therefore the Group is exposed to macroeconomic
changes in the UK economy. Furthermore, the Group derives its rental income from around 400 occupiers, although the
largest occupier accounts for only 4.8% of the Group’s annual contracted rental income.
Currency risk
The Group has no exposure to foreign currency risk.
26. Related party transactions
The total fees earned during the year by the Non-Executive Directors of the Company amounted to £275,000 (2022:
£275,000). As at 31 March 2023, the Group owed £nil to the Non-Executive Directors (2022: £nil).
The remuneration of the Executive Directors is set out in note 7 and in the Annual Remuneration Report.
Picton Property Income Limited has no controlling parties.
27. Events after the Balance Sheet date
A dividend of £4,771,000 (0.875 pence per share) was approved by the Board on 25 April 2023 and will be paid on 31 May 2023.
A further £3,000,000 was drawn down under the revolving credit facility with National Westminster Bank Plc on 3 May 2023.
154
Picton Property Income Limited
Notes to the consolidated financial statements/ContinuedFinancial Statements/Continued EPRA BPR and supplementary disclosures (unaudited)
for the year ended 31 March 2023
The European Public Real Estate Association (EPRA) is the industry body representing listed companies in the real estate
sector. EPRA publishes Best Practices Recommendations (BPR) to establish consistent reporting by European property
companies. Further information on the EPRA BPR can be found at www.epra.com.
EPRA performance measures
Measure
Definition for EPRA measure
EPRA earnings
EPRA earnings per share
EPRA net reinstatement value (NRV) Assumes assets are never sold and aims to represent the value required to
Recurring earnings from core operational activities.
EPRA earnings per weighted number of ordinary shares.
EPRA net tangible assets (NTA)
EPRA net disposal value (NDV)
EPRA net initial yield
EPRA ‘topped up’ net initial yield
EPRA vacancy rate
EPRA cost ratio
EPRA LTV
EPRA earnings per share
rebuild the entity.
Assumes entities buy and sell assets, thereby crystallising certain levels of
deferred tax liability.
Represents the shareholders’ value under a disposal scenario.
Annualised rental income based on the cash rents passing at the balance
sheet date, less non-recoverable property operating expenses, divided by the
market value of the property.
This measure incorporates an adjustment to the EPRA NIY in respect of the
expiration of rent-free periods (or other unexpired lease incentives).
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the
whole portfolio.
Administrative & operating costs (including costs of direct vacancy) divided by
gross rental income.
Administrative & operating costs (excluding costs of direct vacancy) divided by
gross rental income.
Debt divided by market value of the property.
2023
2022
£21.3m
3.9p
£21.2m
3.9p
110p
100p
105p
5.0%
5.5%
9.5%
131p
120p
119p
4.1%
4.8%
7.2%
29.9%
26.0%
21.3%
27.0%
19.9%
21.3%
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.
(Loss)/profit for the year after taxation
Exclude:
Investment property valuation movement
Gains on disposal of investment properties
Revaluation of owner-occupied property
Debt prepayment fees
EPRA earnings
Weighted average number of shares in issue (000s)
EPRA earnings per share
EPRA NRV per share
2023
£000
2022
£000
2021
£000
(89,530)
146,986
33,801
110,433
–
382
–
(129,801)
(42)
–
4,045
(12,861)
(868)
–
–
21,285
21,188
20,072
545,378
545,904
545,591
3.9p
3.9p
3.7p
The EPRA net reinstatement value measure highlights the value of net assets on a long-term basis. Assets and liabilities
that are not expected to crystallise in normal circumstances such as the fair value of financial derivatives and deferred
taxes on property valuation surpluses are therefore excluded. Since the aim of the metric is to also reflect what would be
needed to recreate the Company through the investment market based on its current capital and financing structure,
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
2023
£000
547,624
52,759
–
–
2022
£000
657,130
57,449
–
–
2021
£000
528,197
46,029
–
–
600,383
714,579
574,226
545,217
545,631
545,553
110p
131p
105p
Picton Property Income Limited Annual Report 2023
155
Strategic ReportGovernanceFinancial StatementsAdditional Information EPRA BPR and supplementary disclosures (unaudited)/Continued
for the year ended 31 March 2023
EPRA NTA per share
The EPRA net tangible assets calculation assumes entities buy and sell assets, thereby crystallising certain levels of
deferred tax liability. EPRA NTA is regarded as the most relevant metric for the business as this focuses on reflecting
a company’s tangible assets.
Balance Sheet net assets
Fair value of financial instruments
Deferred tax
EPRA NTA
Shares in issue (000s)
EPRA NTA per share
EPRA NDV per share
2023
£000
547,624
–
–
2022
£000
657,130
–
–
2021
£000
528,197
–
–
547,624
657,130
528,197
545,217
545,631
545,553
100p
120p
97p
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
EPRA net initial yield (NIY)
2023
£000
2022
£000
2021
£000
547,624
22,793
657,130
(6,766)
528,197
(21,012)
570,417
650,364
507,185
545,217
545,631
545,553
105p
119p
93p
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
EPRA ‘topped-up’ net initial yield
2023
£000
2022
£000
2021
£000
766,235
52,759
849,325
57,449
682,410
46,029
818,994
906,774
728,439
43,336
(2,125)
38,676
(1,721)
36,504
(1,860)
41,211
36,955
34,644
5.0%
4.1%
4.8%
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
2023
£000
41,211
4,057
45,268
5.5%
2022
£000
36,955
6,415
2021
£000
34,644
5,411
43,370
40,055
4.8%
5.5%
156
Picton Property Income Limited Annual Report 2023
Additional Information/Continued EPRA vacancy rate
The EPRA vacancy rate is the estimated rental value (ERV) of vacant space divided by the ERV of the whole property,
expressed as a percentage. There are no significant distorting factors influencing the EPRA vacancy rate.
Annualised potential rental value of vacant premises
Annualised potential rental value for the complete property portfolio
EPRA vacancy rate
EPRA cost ratio
2023
£000
5,311
55,774
9.5%
2022
£000
3,594
49,776
2021
£000
3,980
45,357
7.2%
8.8%
The EPRA cost ratio reflects the overheads and operating costs as a percentage of the gross rental income.
Property operating costs
Property void costs
Administrative expenses
Less:
Ground rent costs
EPRA costs (including direct vacancy costs)
Property void costs
EPRA costs (excluding direct vacancy costs)
Gross rental income
Less ground rent costs
Gross rental income
EPRA cost ratio (including direct vacancy costs)
EPRA cost ratio (excluding direct vacancy costs)
2023
£000
3,491
3,647
5,955
2022
£000
2,477
2,409
5,755
2021
£000
2,384
2,199
5,388
(376)
(283)
(207)
12,717
(3,647)
9,070
42,964
(376)
10,358
(2,409)
7,949
40,133
(283)
9,764
(2,199)
7,565
36,558
(207)
42,588
39,850
36,351
29.9%
21.3%
26.0%
19.9%
26.9%
20.8%
The Company has not capitalised any overhead or operating expenses in the accounting years disclosed above.
Only costs directly associated with the purchase or construction of properties as well as subsequent value-enhancing
capital expenditure are capitalised.
Capital expenditure
The table below sets out the capital expenditure incurred over the financial year, in accordance with EPRA Best Practices
Recommendations.
Acquisitions
Development
Investment properties
Incremental lettable space
No incremental lettable space
Tenant incentives
Other material non-allocated types of expenditure
Total capital expenditure
Conversion from accrual to cash basis
Total capital expenditure on cash basis
2023
Joint
ventures
£000
–
–
–
–
–
–
–
–
–
Group
£000
20,613
–
–
6,135
–
–
26,748
–
26,748
Total
Group
£000
20,613
–
–
6,135
–
–
Group
£000
25,005
–
–
9,551
–
–
26,748
34,556
–
–
26,748
34,556
2022
Joint
ventures
£000
–
–
–
–
–
–
–
–
–
Total
Group
£000
25,005
–
–
9,551
–
–
34,556
–
34,556
Picton Property Income Limited Annual Report 2023
157
Strategic ReportGovernanceFinancial StatementsAdditional Information EPRA BPR and supplementary disclosures (unaudited)/Continued
for the year ended 31 March 2023
EPRA 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.
Industrial
Office
Retail and Leisure
Total
Rental
income from
like-for-like
portfolio
2023
£000
Rental
income from
like-for-like
portfolio
2022
£000
Like-for-like
rental
growth
£000
Like-for-like
rental
growth
%
20,658
16,162
7,781
20,044
15,946
7,490
614
216
291
44,601
43,480
1,121
3.1
1.4
3.9
2.6
The like-for-like rental growth is based on changes in rental income for those properties which have been held for the
duration of both the current and prior reporting years. This represents a portfolio valuation, as assessed by the valuer, of
£747.1 million (2022: £849.3 million).
EPRA LTV
EPRA loan to value’s aim is to assess the gearing of the shareholder equity within a real estate company.
Loans and borrowings
Less:
Cash and cash equivalents
Net debt
Investment properties (excluding head lease right of use asset)
Property, plant and equipment
Net receivable1
Total property value
EPRA LTV
2023
£000
2022
£000
2021
£000
222,764
216,832
163,655
(20,050)
(38,547)
(23,358)
202,714
178,285
140,297
744,261
3,415
3,278
827,790
4,383
3,712
664,105
4,111
779
750,954
835,885
668,995
27.0%
21.3%
21.0%
1 Net receivable is calculated as the net position of the following line items shown on the Balance Sheet: accounts receivable and accounts payable and accruals.
Loan to value
The loan to value ratio (LTV) is calculated by taking the Group’s total borrowings, net of cash, as a percentage of the total
portfolio value.
Total borrowings
Less:
Cash and cash equivalents
Total net borrowings
Investment property valuation
Loan to value
Cost ratio
2023
£000
2022
£000
2021
£000
224,467
218,835
166,207
(20,050)
(38,547)
(23,358)
204,417
180,288
142,849
766,235
849,325
682,410
26.7%
21.2%
20.9%
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
Average net asset value over the year
Cost ratio
158
Picton Property Income Limited Annual Report 2023
2023
£000
5,955
2022
£000
2021
£000
5,755
5,388
602,822
598,022
514,574
1.0%
1.0%
1.0%
Additional Information/Continued Property portfolio
Properties valued in excess of £100 million
Properties valued between £5 million and £10 million
‒ Parkbury Industrial Estate, Radlett, Herts.
Properties valued between £50 million and £75 million
‒ River Way Industrial Estate, River Way, Harlow, Essex
Properties valued between £30 million and £50 million
‒ Angel Gate, City Road, London EC1
‒ Stanford Building, Long Acre, London WC2
‒ Express Business Park, Shipton Way, Rushden,
Northants.
‒ Units 1 & 2, Kettlestring Lane, York
‒ Units 1 & 2, Western Industrial Estate, Downmill Road,
Bracknell, Berks.
‒ Angouleme Retail Park, George Street, Bury, Greater
Manchester
‒ Queen’s House, St Vincent Place, Glasgow
‒ Longcross, Newport Road, Cardiff
‒ Regency Wharf, Broad Street, Birmingham
‒ Trident House, Victoria Street, St Albans, Herts.
‒ Thistle Express, The Mall, Luton, Beds.
‒ 109-117 High Street, Cheltenham
Properties valued between £20 million and £30 million
Properties valued under £5 million
‒ Atlas House, Third Avenue, Marlow, Bucks.
‒ Crown & Mitre Complex, English Street, Carlisle,
Cumbria
‒ Scots Corner, High Street, Kings Heath, Birmingham
‒ Sentinel House, Harvest Crescent, Fleet, Hants.
‒ Abbey Business Park, Mill Road, Newtownabbey, Belfast
‒ Waterside House, Kirkstall Road, Leeds
‒ 53-57 Broadmead, Bristol
‒ Magnet Trade Centre, 6 Kingstreet Lane, Reading
‒ 78-80 Briggate, Leeds
‒ 17-19 Fishergate, Preston, Lancs.
‒ 72-78 Murraygate, Dundee
‒ 7-9 Warren Street, Stockport
‒ 6-12 Parliament Row, Hanley, Staffs.
‒ Datapoint, Cody Road, London E16
‒ Lyon Business Park, Barking, Essex
‒ Tower Wharf, Cheese Lane, Bristol
‒ 50 Farringdon Road, London EC1
‒ Sundon Business Park, Dencora Way, Luton, Beds.
‒ 30 & 50 Pembroke Court, Chatham, Kent
Properties valued between £10 million and £20 million
‒ Grantham Book Services, Trent Road, Grantham, Lincs.
‒ The Business Centre, Molly Millars Lane, Wokingham,
Berks.
‒ Colchester Business Park, The Crescent, Colchester,
Essex
‒ Metro, Salford Quays, Manchester
‒ 180 West George Street, Glasgow
‒ B&Q, Queens Road, Sheffield
‒ Nonsuch Industrial Estate, Kiln Lane, Epsom, Surrey
‒ Parc Tawe North Retail Park, Link Road, Swansea
‒ Vigo 250, Birtley Road, Washington, Tyne and Wear
‒ Gloucester Retail Park, Eastern Avenue, Gloucester
‒ Madleaze Trading Estate, Bristol Road, Gloucester
‒ Charlotte Terrace, 99-119 Hammersmith Road,
London W14
‒ 401 Grafton Gate East, Milton Keynes, Bucks.
‒ Mill Place Trading Estate, Bristol Road, Gloucester
‒ Swiftbox, Haynes Way, Rugby, Warwickshire
‒ Easter Court, Europa Boulevard, Warrington
Picton Property Income Limited Annual Report 2023
159
Strategic ReportGovernanceFinancial StatementsAdditional Information
Five year financial summary
Income statements
Net property income
Administrative expenses
Exceptional costs
Net finance costs
Income profit before tax
Tax
Income profit
Property gains and losses
Revaluation of owner-occupied property
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)
Dividend cover (%)
Share price (pence)
All figures are in £ million unless otherwise stated.
2023
2022
2021
2020
2019
36.3
(6.0)
–
30.3
(9.0)
21.3
–
21.3
(110.4)
(0.8)
–
35.4
(5.7)
–
29.7
(8.5)
21.2
–
21.2
129.8
0.4
(4.0)
(89.9)
19.1
147.4
18.4
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
2023
2022
2021
2020
2019
746.3
(222.8)
24.1
830.0
(216.8)
43.9
665.4
(166.2)
29.0
654.5
(167.5)
22.3
676.1
(194.7)
18.0
547.6
657.1
528.2
509.3
499.4
100
100
(16.5)
3.5
112
69.3
120
120
27.0
3.4
115
98.3
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
160
Picton Property Income Limited Annual Report 2023
Additional Information/Continued Glossary
Asset IQ
A CBRE product that monitors the use of building systems.
Better Buildings Partnership
(BBP)
BMS (Building Management
System)
BREEAM (Building Research
Establishment Environmental
Assessment Method)
CO2 (carbon dioxide)
Contracted rent
Cost ratio
A collaboration of UK commercial property owners working to improve sustainability of building
stock.
A computer-based control system installed in buildings that control and monitor the building’s
mechanical and electrical equipment such as ventilation, lighting, power systems, fire systems and
security systems.
An established sustainability rating assessment for projects, infrastructure and buildings. It assesses
assets across their life cycle, from new construction to in-use and refurbishment. www.breeam.com
The most abundant greenhouse gas in our planet’s atmosphere. It is often the benchmark gas
measured for defining a company’s emissions.
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.
CRREM (Carbon Risk Real
Estate Monitor)
Provides the real estate industry with transparent, science-based decarbonization pathways aligned
with the Paris Climate Goals of limiting global temperature rise to 2°C, with ambition towards 1.5°C.
Dividend cover
DTR
EPRA earnings divided by dividends paid.
Disclosure and Transparency Rules, issued by the United Kingdom Listing Authority.
Earnings per share (EPS)
Profit for the period attributable to equity shareholders divided by the average number of shares in
issue during the period.
EPC (Energy Performance
Certificate)
EPRA
ESG (Environmental, Social,
Governance)
A certificate which provides a rating based on set criteria to measure the energy efficiency of a
lettable unit. The scale ranges from A–G.
European Public Real Estate Association, the industry body representing listed companies in the
real estate sector.
A framework that socially conscious investors use to screen potential investments. Environmental
criteria consider how a company performs as a steward of nature. Social criteria examine how it
manages relationships with employees, suppliers, customers, and the communities where it
operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and
shareholder rights.
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.
EUI (Energy Use Intensity)
Amount of energy used per square foot annually.
EV (electric vehicle)
Fair value
A vehicle powered using a battery, solar panels, fuel cells or electric generator.
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
GHG
GHG absolute
GHG intensity
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.
Greenhouse gas.
Total GHG emissions.
A normalised metric set against an economic output such as number of employees, revenue or area.
Allows for an emission reduction target to be set which accounts for economic growth.
GRESB (Global Real Estate
Sustainability Benchmarking)
An investor-driven organisation assessing the sustainability performance of the real estate sector,
through detailed analysis of ESG metrics from the corporate to the individual asset level.
www.gresb.com
Picton Property Income Limited Annual Report 2023
161
Strategic ReportGovernanceFinancial StatementsAdditional Information Glossary/Continued
Grid decarbonisation
Refers to the changing methods of grid power generation which rely less on fossil fuels and more on
renewable/sustainable energy sources resulting in fewer emissions per unit of electricity generated.
Group
IASB
IFRS
Initial yield
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.
ISO (International Organization
for Standardization)
An independent, non-governmental international organisation with a membership of 164 national
standards bodies, that develops voluntary, consensus-based, market relevant international standards
that support innovation and provide solutions to global challenges.
kg/ CO2/m2
kWh (kilowatt hour)
kWh/m2/year
Lease incentives
A measure of emissions intensity.
A standard unit for measuring electricity consumption.
A unit of measure of a property based on the annual electricity consumption by a single square
metre. The aggregation of energy in this way allows for a direct comparison between properties.
Incentives offered to occupiers to enter into a lease. Typically this will be an initial rent-free period, or
a cash contribution to fit-out. Under accounting rules the value of the lease incentives is amortised
through the Income Statement on a straight-line basis until the lease expiry.
LED (light emitting diode)
An energy efficient type of light bulb.
MEES (Minimum Energy
Efficiency Standards)
A piece of legislation set by the UK Government. From April 2018 a landlord is unable to renew or
grant a new tenancy (over six months) if the property has an Energy Performance Certificate (EPC)
rating of F or G.
MSCI
An organisation supplying independent market indices and portfolio benchmarks to the property
industry.
MWp (megawatt peak)
A unit of measurement for the output of power from a source such as solar or wind where the
output may vary.
NAV
Net zero carbon
Offsetting
Over-rented
Passing rent
Net asset value is the equity attributable to shareholders calculated under IFRS.
The point at which the amount of carbon being released into the atmosphere is equal to the
amount removed from the atmosphere.
The process of removing carbon from the atmosphere to balance emissions into the atmosphere.
Space where the passing rent is above the ERV.
The annual rental income currently receivable as at the Balance Sheet date. Excludes rental income
where a rent-free period is in operation.
PIR – (passive infrared sensor)
A device used to allow automatic lighting control.
PRI (Principles for Responsible
Investment)
A global proponent of responsible investment that supports an international network of investors to
incorporate ESG factors into their investment and ownership decisions.
Property income return
The ungeared income return of the portfolio as calculated by MSCI.
PV (photovoltaic)
RCP (Representative
Concentration Pathway)
REGO (Renewable Energy
Guarantees of Origin)
Reversionary yield
Scope 1 emissions
Photovoltaic (PV) materials and devices that convert sunlight into electrical energy.
Four pathways developed for the climate modelling community to assess a number of different
climate scenarios.
A scheme which demonstrate electricity has been generated from renewable sources.
The estimated rental value as a percentage of the gross property value.
Direct emissions from owned or controlled sources, for example from gas and oil.
162
Picton Property Income Limited Annual Report 2023
Additional Information/Continued Scope 2 emissions
Scope 3 emissions
Scope 2 emissions are indirect emissions from the generation of purchased energy, for example
from electricity.
All indirect emissions (not included in Scope 2) that occur in the value chain of the reporting
company, including both upstream and downstream emissions (e.g. occupier emissions).
TCFD (Task Force on Climate-
related Financial Disclosures)
tCO2e
A framework to help public companies disclose climate-related risks.
Tonnes of carbon dioxide equivalent, which is a measure that allows you to compare the emissions
of other greenhouse gases relative to one unit of CO2. It is calculated by multiplying the greenhouse
gas’s emissions by its 100-year global warming potential.
Total property return
Total return
Combined income and capital return from the property portfolio.
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.
UKGBC (UK Green Building
Council)
Weighted average debt
maturity
A charity launched by the construction industry to promote sustainability across the built
environment value chain.
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.
Weighted average interest rate
The Group loan interest per annum at the period end, divided by total Group debt in issue at the
period end.
Weighted average lease term
The average lease term remaining to first break, or expiry, across the portfolio weighted by
contracted rental income.
Picton Property Income Limited Annual Report 2023
163
Strategic ReportGovernanceFinancial StatementsAdditional Information Financial calendar
Annual results announced
Annual results posted to shareholders
June 2023 NAV announcement
Annual General Meeting
2023 half-year results to be announced
December 2023 NAV announcement
25 May 2023
June 2023
July 2023
September 2023
November 2023
January 2024
Dividend payment dates
August/November/February/May
164
Picton Property Income Limited Annual Report 2023
Additional Information/Continued Shareholder information
Directors
Lena Wilson (Chair)
Mark Batten
Maria Bentley
Andrew Dewhirst
Richard Jones
Michael Morris
Registered office
PO Box 255
Trafalgar Court
Les Banques
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
Les Banques
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
18 St Swithin’s Lane
London
EC4N 8AD
T: 020 7920 3150
E: james.verstringhe@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
Suite 3
The Plaza
Old Hall Street
Liverpool
L3 9QJ
As to Guernsey law
Carey Olsen
PO Box 98
Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
Property valuer
CBRE Limited
Henrietta House
Henrietta Place
London
W1G 0NB
Tax adviser
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Shareholder enquiries
All enquiries relating to holdings in Picton Property Income
Limited, including notification of change of address, queries
regarding dividend payments or the loss of a certificate,
should be addressed to the Company’s registrars.
Website
The Company has a corporate website which contains
more detailed information about the Group.
www.picton.co.uk
Picton Property Income Limited Annual Report 2023
165
Strategic ReportGovernanceFinancial StatementsAdditional Information Notes
166
Picton Property Income Limited Annual Report 2023
Printed by a CarbonNeutral® Company certified to ISO 14001
environmental management system.
This product is made using recycled materials limiting the impact on our
precious forest resources, helping reduce the need to harvest more trees.
100% of the inks used are HP Indigo ElectroInk which complies with
RoHS legislation and meets the chemical requirements of the Nordic
Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals
are recycled for further use and, on average 99% of any waste associated
with this production will be recycled and the remaining 1% used to
generate energy.
The paper is Carbon Balanced with World Land Trust, an international
conservation charity, who offset carbon emissions through the purchase
and preservation of high conservation value land. Through protecting
standing forests, under threat of clearance, carbon is locked-in, that
would otherwise be released.
Picton Property Income Limited
Stanford Building
27A Floral Street
London
WC2E 9EZ
020 7628 4800
www.picton.co.uk