27 May
2021
PICTON PROPERTY
INCOME LIMITED
(“Picton”, the “Company” or the “Group”)
LEI: 213800RYE59K9CKR4497
Preliminary Annual
Results
Picton announces its annual results for the year ending
31 March 2021.
Resilient financial performance
– Profit after tax of £33.8 million, an increase of
over 50% on the prior year results (2020: £22.5 million)
– Net assets of £528 million, or 97p per share, an
increase of 3.7% (2020: £509 million or 93p per share)
– Earnings per share of 6.2p (2020: 4.1p)
– Total return of 6.6% (2020: 4.5%)
– Received 92% of rental income over the financial
year, with a further 1% deferred
– Combined reduction of 6% in property, operating
and finance costs over the year
– Total dividends paid of £15.0 million with
dividend cover of 134% (2020: £19.0 million and 105%)
– Loan to value ratio reduced to 21% with
significant headroom against loan covenants (2020: 22%)
– New £50 million revolving credit facility
completed
Outperforming property portfolio
– Total property return of 7.3%, outperforming MSCI
UK Quarterly Property Index of 1.2%
– Upper quartile outperformance against MSCI over
one, three, five and ten years and since inception
– Well positioned portfolio comprising Industrial
53%, Office 36%, Retail and Leisure 11%
– Like-for-like valuation increase of 3.2%
– Like-for-like increase in passing rent of 1.9%
– Like-for-like estimated rental value increase of
1.1%
– One retail asset disposal for £4.0 million, 30%
ahead of March 2020 valuation
Improving occupancy through asset
management
– Increased occupancy to 91% (2020: 89%)
– Occupier retention of 88%
– 90 asset management transactions completed
including:
– 17
rent reviews, 7% ahead of ERV
– 30
lease renewals or regears, 10% ahead of ERV
– 25
lettings or agreements to lease, 3% ahead of ERV
– £5 million invested into asset refurbishment and
repositioning projects
Supporting our stakeholders
– Provided assistance to over 90 occupiers during
the Covid-19 pandemic
– Increased dividends twice during the year, with
payments almost back to pre-pandemic levels
– Reduction in property running costs to assist our
occupiers
– Improvement in annual GRESB score achieving two
Green star status
– Pathway to net zero carbon to be in place by
March 2022
| Balance
sheet |
31
March
2021 |
31
March
2020 |
31
March
2019 |
| Property valuation |
£682m |
£665m |
£685m |
| Net assets |
£528m |
£509m |
£499m |
| EPRA net tangible
assets per share |
97p |
93p |
93p |
| Income
statement |
Year
ended
31 March
2021 |
Year
ended
31 March
2020 |
Year
ended
31 March
2019 |
| Profit after tax |
£33.8m |
£22.5m |
£31.0m |
| EPRA earnings |
£20.1m |
£19.9m |
£22.9m |
| Earnings per share |
6.2p |
4.1p |
5.7p |
| EPRA earnings per
share |
3.7p |
3.7p |
4.3p |
| Total return |
6.6% |
4.5% |
6.5% |
| Total shareholder
return |
0.0% |
3.6% |
10.1% |
| Total dividends per
share |
2.8p |
3.5p |
3.5p |
| Dividend cover |
134% |
105% |
122% |
Picton Chair, Lena Wilson CBE, commented:
“These results show an improvement on the preceding year and
underline the resilience of the business, despite the obvious
challenges. Our current dividend is 91% of pre-pandemic levels and
our focus is now firmly fixed on the future as lockdown measures
continue to ease and the economic recovery gathers pace. This is an
exciting time to have joined Picton and I look forward to working
with the team to develop the business from such a solid base.”
Chief Executive of Picton,
Michael Morris, commented:
“We have increased occupancy and continued to deliver upper
quartile returns, whilst supporting our occupiers through an
incredibly difficult period. We believe this year has demonstrated
more than ever the importance of achieving sustainable investor
returns by balancing the needs of our occupiers whilst creating
long-term shareholder value. We intend to continue building on the
strong base we have established by investing in the portfolio to
further grow occupancy and income as we emerge from the
pandemic.”
This announcement contains inside information.
For further information:
Tavistock
Jeremy Carey/James Verstringhe, 020 7920 3150,
james.verstringhe@tavistock.co.uk
Picton
Michael Morris, 020 7011 9980,
michael.morris@picton.co.uk
Note to Editors
Picton, established in 2005, is a UK REIT. It owns and actively
manages a £682 million diversified UK commercial property
portfolio, invested across 46 assets and with around 350 occupiers
(as at 31 March 2021). Through an
occupier focused, opportunity led approach to asset management,
Picton aims to be one of the consistently best performing
diversified UK focused property companies listed on the main market
of the London Stock Exchange.
For more information please visit: www.picton.co.uk
Chair’s Statement
This has been an unprecedented year, with significant
disruption to businesses, livelihoods, family and day-to-day
life.
During the year, we have remained focused on our three strategic
pillars of Portfolio Performance, Operational Excellence and Acting
Responsibly. As such, it gives me pleasure to be able to report
that the business is in good shape, delivering a profit for the
year of £34 million, an increase of over 50% compared with the
preceding year.
This has been achieved during a period where we have also
provided significant assistance and support to help our occupiers
cope with the disruption caused by the Covid-19 pandemic. This
demonstrates the strength of our business model, our position
entering the pandemic and our hands-on approach which has even led
to growing occupancy over the year.
Performance
We delivered a total return of 6.6% over the year driven by
portfolio growth in the latter half of the year. We have maintained
our EPRA earnings despite being impacted by lower rent collection
during the year, and have offset this with additional income
generated through asset management transactions and a reduction in
finance, property and operating costs.
At a property level, the portfolio has again outperformed the
MSCI UK Quarterly Property Index continuing our track record of
upper quartile outperformance which spans the period since
inception.
Our share price has been more volatile over the period but has
responded well to the increases in dividend that we have announced
through the year. The share price still does not fully reflect the
net asset value of the business, but is currently in a better
position than for many of our real estate peers.
Property portfolio
The outperformance at a property level has been driven by our
exposure to the industrial sector, which now accounts for 53% of
the portfolio. Also, our retail and leisure exposure has reduced,
now accounting for only 11%. The combination of these two factors
has been helpful alongside some key lettings and retaining many
occupiers at or prior to lease-end.
Broadly, rent collection for the year stands at 92% of income
demanded, and we expect this to continue to rise, but have made
appropriate provisions to reflect the likelihood of not making a
full recovery.
Capital structure
We are conservatively positioned with a Group loan to value
ratio of 21%. We have £50 million available through our revolving
credit facility and assuming the economic recovery strengthens we
will be seeking to deploy this, at least in part during the
forthcoming year. We recognise that the current market cost of debt
is lower than our own and where opportunities arise to reduce this
on attractive terms, they will be pursued.
Governance
We continue to maintain strong corporate governance and during
the year several changes to the Board have been made including my
own appointment as Chair and that of Richard Jones as Chair of the Property Valuation
Committee. I would like to thank my predecessor, Nicholas Thompson, for his years of service and
similarly Roger Lewis who also stood
down in the year.
Despite not being able to meet physically due to the constraints
of lockdown, I am pleased to have been able to spend time virtually
with the Picton team and a number of larger shareholders. I look
forward to continuing open and constructive engagement as we return
to some degree of normality.
Dividends
Our initial response to the pandemic was to introduce a more
conservative distribution policy, recognising the uncertainty
around the severity and impact of the pandemic on our cash
flow.
Since then, and based on robust performance, we have been able
to increase the dividend in both November and February such that
the current distribution is 91% of pre-pandemic levels. We will
continue to work hard to further improve occupancy and income in
order to get back to pre-pandemic levels, hopefully during the
forthcoming year.
Sustainability
We continue to make good progress on multiple fronts in respect
of sustainability issues and during the year we joined the Better
Buildings Partnership, a collaboration of the UK’s leading
commercial property owners. Our focus for the coming year will be
on establishing our pathway to achieving net zero carbon. We are
mindful of the need to do this in a way that benefits all our
stakeholders.
During the year we celebrated our fifteenth anniversary by
supporting grassroots charities, helping support the work they do
in this particularly difficult period.
Outlook
It is clear that we are well positioned and have built up an
impressive track record over the years. What is more important is
that this is maintained, and that we can innovate and position the
business to ensure that we capture the positive opportunities that
are likely to arise following this long period of disruption.
Thankfully there is now light at the end of the tunnel, but we
are mindful of the changing landscape and longer-term impacts that
the pandemic might have on both the economy and how real estate is
used. Along with my fellow Board members, I am excited about the
potential ahead.
Lena Wilson CBE
Chair
26 May 2021
Our Marketplace
Since the Covid-19 pandemic took hold its effects have been
far reaching and dramatic; however, the UK Government’s
comprehensive stimulus package has helped to protect livelihoods
and provided much-needed support for households and
businesses.
Economic backdrop
The UK’s vaccination programme has been one of the most
well-executed globally. We are close to restrictions being fully
lifted and there is a much-anticipated economic recovery starting
to emerge. During the year the UK left the European Union, however
there remain several matters to be resolved, such as financial
passporting rights. Pending any major Brexit-related disruption or
problematic new coronavirus variants, the outlook for the UK
economy looks considerably brighter than it did this time last
year.
During 2020, GDP contracted by -9.8%, marking the largest annual
fall in UK GDP on record. The largest quarterly fall was during the
second quarter of 2020 following the first and strictest period of
lockdown. Thankfully, a double dip recession was avoided.
To mitigate the impact of the pandemic and stimulate the
economy, there has been a large response both in terms of UK
Government policy and measures introduced by the Bank of
England, including the furlough
scheme, business rates relief, a ban on commercial evictions,
record ultra-low interest rates (0.1% since March 2020) and Quantitative Easing. In stark
contrast to previous periods of recession, average house prices in
the UK rose 7.7% during 2020, largely thanks to the stamp duty
holiday, which has been extended in part until September 2021.
The UK unemployment rate hit a five-year peak of 5.1% in
November 2020, 1.3% higher than a
year earlier. The furlough and self-employed support schemes were
extended to September 2021 and this
plus the easing of restrictions is hoped will keep a lid on rising
unemployment.
The annual percentage change in the consumer price index has
been at or below 1% since April 2020
and in March 2021 stood at 0.7%.
In March 2021 retail sales rose
higher than pre-pandemic levels, even before non-essential shops
reopened. Online retail reached a record proportion of total retail
sales in January 2021 of 36.4%, as
consumers were restricted from using physical stores. Of course,
whilst some retail sectors have struggled, others have thrived. As
people were confined to their local area, businesses still able to
trade benefitted from this additional footfall at the expense of
retailers situated at transport hubs or in central business
districts. Many companies with an established online offering had a
strong year.
Many households were fortunate to see income levels maintained
and outgoings reduced, contributing to a record increase in the
household savings ratio, which reached a peak of 25.9% in the
second quarter of 2020. As restrictions are eased and retail and
leisure businesses reopen, it is expected that this elevated
savings ratio will contribute to an economic recovery.
The recovery has begun to gather pace. It is anticipated that
healthy consumer spending and interest rates staying lower for
longer will contribute to a rapid rebound in the second half of
2021. The Office for Budget Responsibility has forecast GDP growth
of 4.0% for 2021 and a recovery to pre-pandemic levels by
mid-2022.
UK property market
According to the MSCI UK Quarterly Property Index, commercial
property delivered a total return of 1.2% for the year ended
March 2021, which compares to -0.4%
for the year ending March 2020. The
increase on last year was a result of a smaller decline in capital
values; capital growth was -3.2% in the year to March 2021, better than the -4.7% recorded for
the previous year. The income return was 4.5%, the same as the
preceding year.
The industrial sector had a strong year and was the top
performing sector for the fifth consecutive year. The industrial
total return for the year ending March
2021 was 14.3%, with capital growth at a three-year high at
9.6% and an income return of 4.3%. Industrial ERV growth for the
period was 2.8%, with a sub-sector range of 2.2% to 3.8%. Capital
growth ranged from 6.1% to 13.0% within sub-sectors. Equivalent
yields for industrial property now stand at 5.0% (March 2020: 5.3%).
The office sector faced a degree of uncertainty this year, as
the success of working from home has provoked thought over future
office space requirements for many occupiers. The office sector
produced a total return of -0.8% for the year to March 2021, comprising -4.5% capital growth and
3.8% income return. All Office annual rental growth was -1.0%
ranging from -2.1% to 1.2% within sub-sectors. Office capital
growth was negative across all sub-sectors, ranging from -6.7% to
-1.7%. Equivalent yields for office property now stand at 5.8%
(March 2020: 5.6%).
It was an extraordinarily challenging time for the retail
sector, with three national lockdowns resulting in the closure of
all non-essential shops for much of the year. Months of lost
trading and dramatically reduced footfall due to Covid-19
exacerbated an already tough environment for retailers, which has
led to a high number of CVAs and administrations during the year.
The retail sector produced a total return of -8.1% for the year to
March 2021. This comprised capital
growth of -12.9% and income return of 5.5%. Rental values fell
-9.0% over the period and were negative across all sub-sectors,
ranging from -20.1% to -1.4%. Retail sub-sector capital growth
ranged from -27.4% to 3.6%. Supermarkets were the only retail
sub-sector to record positive capital growth. Equivalent yields for
retail property now stand at 6.7% (March
2020: 6.4%).
According to Property Data, the total investment volume for the
year to March 2021 was £41.5 billion,
a -28% decrease on the year to March
2020. The volume of investment by overseas investors in the
year to March 2021 was £19.5 billion,
accounting for 47% of all transactions.
When looking at average returns at the All Property level, the
year to March 2021 was disappointing
but not surprising given the plight some sectors faced during the
pandemic. However as always, the devil is in the detail as there
was a marked range of returns across sectors. At the March 2021 year end the difference between the
highest and lowest performing sectors has never been more
polarised. There are risks and heightened uncertainty to navigate
but also opportunity and optimism regarding the speed and strength
of recovery in the latter half of 2021. Low interest rates and low
returns from Government bond yields make investment into well-let
commercial property with a secure income stream an attractive
proposition.
Chief Executive’s Review
Despite the challenges of this year, we have been able to
successfully navigate the disruption caused by the Covid-19
pandemic and deliver positive results which highlight the strength
and resilience of the business.
It has probably been one of the hardest 12-month periods in
which to operate, and few could have foreseen the scale and extent
of the disruption caused by lockdown rules. As a team, we have
worked remotely for the whole year and have only all been able to
meet in person on one socially distanced occasion. The team has
pulled together incredibly well and we have been able to run the
business effectively, helped to some extent by our small size and
nimble approach. We have not made redundancies, furloughed any
employees or needed any form of Government support.
We have supported our occupiers this year and provided help
where needed. This has required a delicate balance, but to have
achieved the financial results we have, whilst simultaneously
supporting so many of our occupiers throughout the year, is an
accomplishment we are particularly proud of. Set out below is a
summary of our performance against our strategic priorities. Almost
all our key performance indicators show progress against the
previous year.
Portfolio Performance
We have continued to outperform the MSCI UK Quarterly Property
Index and have delivered upper quartile performance for the sixth
consecutive year. Over the year we ranked 24 out of the 232
portfolios in the MSCI benchmark and over the longer-term have
ranked 15 out of 99 portfolios over the 15 years since
inception.
Despite the impact of lower rent collection, we have been able
to grow income across the portfolio on a like-for-like basis
through letting and asset management activity, which has generated
additional income. We have had to think creatively around some of
the occupier assistance that we have given this year. Despite
having a short-term impact on income, this has delivered
longer-term value for our investors. Examples of this are where
leases have been extended, rent reviews have been agreed in advance
or longer-term payment plans have been put in place. Pleasingly,
the contractual passing rent and ERV of the portfolio have both
grown during the year.
We have continued to improve the portfolio and reposition
assets. As we upgrade space we are also thinking about the quality
of accommodation from a wellbeing and environmental perspective.
These are both themes that have become increasingly relevant during
lockdown. We have converted retail to office premises and have
obtained planning consent to convert leisure into offices, for a
project that is due to complete this year. This will further help
to reduce our overall retail and leisure exposure, which now stands
at only 11%.
Operational Excellence
Our portfolio positioning and conservative gearing mean that we
were in a strong position entering this crisis. At an early stage,
we took the prudent but difficult decision to reduce the dividend,
because at that time it was not clear how damaging the impact of
lockdown restrictions would prove to be across our occupiers’
businesses and to our financial performance.
Over the year, we have received 92% of the rents due and this
led us to partially restore the dividend in November 2020 and then in February 2021, such that the current dividend is
91% of the pre-pandemic level. We maintained a covered dividend
throughout the year with our EPRA earnings remaining stable
relative to last year, an outcome that was less certain 12 months
ago.
We have been able to reduce costs, both our own operating costs
and also for our occupiers, particularly in offices which were not
fully occupied. As we have grown occupancy during the year, this
has further helped to reduce costs. Finance costs are lower,
following the repayment of our revolving credit facilities at the
end of last year, and further debt amortisation this year.
Administrative expenses are also lower and by relocating to a
former retail void within the portfolio there will be further
savings in the future.
We are mindful that growth will deliver benefits through the
economies of scale embedded within our internalised model. Whilst
we have sought to acquire assets this year, the investment market
has been disrupted with lower investment volumes.
We made one disposal during the year and no acquisitions,
despite considering a number of opportunities as investment markets
opened up in the latter part of 2020.
Acting Responsibly
This is at the heart of what we do, but there has never been a
year when our occupiers have needed more support. In many
instances, they have not been able to fully utilise our buildings.
Our occupier focused approach and commitment through the Picton
Promise of - Action, Community, Technology, Support and
Sustainability, has never resonated so loudly.
In total over the year we have provided some form of support to
nearly one third of our occupiers. The team has dealt with all
occupiers personally, agreeing bespoke solutions depending on the
occupier, the type of asset and lease terms. A very small
proportion of our occupiers have not paid and refused to engage,
but until the Government moratorium on recovery of rent arrears
ends, these discussions will be postponed until a later date.
For the year we wrote off £1.6 million of debts, and increased
the provision against occupier debtors by £0.2 million, with the
total provision at 31 March 2021
standing at £1.6 million. Of the occupiers we have helped, the
level of assistance has varied, from allowing a more flexible
payment plan, generally in the form of monthly rather than
quarterly payments, to instances where we have agreed some form of
short-term rent write-off. In some cases, these reductions have
been tied into future events, e.g. future rent reviews, lease
breaks and extensions or, where there has been no conditionality,
based on need. We have tried to be fair in our approach and would
hope that our longer-term view will be recognised in future
relationships.
Our Responsibility Committee has made good progress on
sustainability matters and has identified clear targets for
material issues. During the year we joined the Better Buildings
Partnership and our focus now is on our commitment to becoming net
zero carbon.
As mentioned previously, the team has worked incredibly hard
this year under difficult circumstances. I would hope that despite
our physical remoteness we have been able to maintain the culture
and values that underpin our business. We have been there for
employees when needed and our employee engagement feedback supports
this. Our recent move to Stanford Building significantly improves
the quality of our workspace and we will see the full benefit of
this once lockdown restrictions ease. Similarly we have engaged
with shareholders virtually and have discussed activity and
progress throughout the year in conjunction with our brokers and
corporate advisers. We continue to maintain an ‘open door’ policy
and aim to be as transparent as possible in the way we
communicate.
Outlook
Our portfolio structure, conservative gearing and potential to
grow income and value through leasing activity put us in a strong
position looking forward. We have invested in the portfolio in
recent years, upgrading the quality of accommodation, giving us
confidence in our ability to let it.
The pandemic and its impact are sadly not completely behind us,
and there are likely to be more hurdles to overcome. The impacts of
the unwinding of Government support, the continued efficacy of the
vaccine and speed in which we return to normal, including tourism,
travel and even the daily commute to the office, are still not
clear.
We will continue to create opportunities from our existing
portfolio and more widely as the UK gradually returns to life as
normal and lockdown conditions ease.
Michael Morris
Chief Executive
26 May 2021
Portfolio Review
| Industrial
weighting |
53% |
| South East |
40% |
| Rest of UK |
13% |
|
|
| Office
weighting |
36% |
| South East |
16% |
| Rest of UK |
11% |
| City & West
End |
9% |
|
|
| Retail and Leisure
weighting |
11% |
| Retail Warehouse |
7% |
| High Street Rest of
UK |
3% |
| Leisure |
1% |
Through engaging proactively with our occupiers, we have
had success in managing the portfolio despite
the many challenges caused by the Covid-19 pandemic.
We ended the year with like-for-like increases in the portfolio
valuation, passing rent and estimated rental value (ERV). It has
been another busy year in terms of portfolio transactions, despite
the national lockdowns, with the number completed close to that of
the previous year.
We have continued to invest in the portfolio, repositioning
assets and enhancing the quality and lettability of space,
resulting in an increase in occupancy over the period to 91%, up
from 89% in the prior year.
Our relationships with our occupiers have been fundamental
during the year, and we have been able to help where required.
We are guided by our Picton Promise of Action, Community,
Technology, Support and Sustainability, all key commitments which
have assisted our occupiers during the pandemic.
Performance
Our portfolio now comprises 46 assets, with around 350
occupiers, and is valued at £682 million with a net initial yield
of 4.8% and a reversionary yield of 6.3%. Our asset allocation,
with 53% in industrial, 36% in office and 11% in retail and
leisure, combined with an investment disposal and transactional
activity, has enabled us to deliver upper quartile performance and
outperform the MSCI UK Quarterly Property Index over the year.
Overall, the like-for-like valuation was up 3.2%, with the
industrial sector up 13%, offices declining by -5% and retail and
leisure declining by -9%. This compares with the MSCI UK Quarterly
Property Index recording capital value declines of -3.2% over the
period.
The overall portfolio passing rent is £36.5 million, an increase
from the prior year of 2% on a like-for-like basis. This was a
result of the industrial portfolio rents growing by 6%, office
rents growing by 2%, being offset by retail and leisure rents
decreasing by -7%. Regional offices saw rental growth of 3%, offset
by declines in London of -2%,
which was more severely affected by the working from home guidance
and a reluctance to travel on public transport.
The March 2021 ERV of the
portfolio is £45.4 million, an increase from the prior year of 1%
on a like-for-like basis. Positive growth in the industrial sector
of 4% was offset by the negative growth in the retail sector of
-3%, while the office portfolio was static over the period with
increases in the regions offset by London.
We have set out the principal activity in each of the sectors in
which we are invested and believe our strategy and proactive
occupier engagement will continue to assist us in managing the
portfolio during the current business climate.
The industrial sector has been the least affected by the
Covid-19 pandemic, with strong occupational demand outstripping
supply, especially in London and
the South East where 75% of our portfolio is located. Investment
demand has been strong with multiple buyers for well-located
assets, which combined with a lack of stock has driven up
pricing.
The office sector was significantly affected by the working from
home guidance and although all our offices remained open and
Covid-19 compliant, building occupancy was significantly reduced.
The change in working patterns has made businesses reflect on their
future office strategy and during the year demand was subdued. We
are however, now seeing some encouraging signs that the market is
improving following the news that vaccination is proving effective,
with the number of enquiries and lettings going under offer
steadily increasing, albeit from a low base. Against this
background, we have had letting success and we have succeeded in
retaining occupiers.
The retail and leisure sector has been hit hard by the forced
closures, resulting in a number of well-known businesses
disappearing from the high street. Government measures halting
action to pursue arrears have exacerbated the problem, with some
occupiers purposefully not paying. Occupier demand has been muted,
with retail vacancies, especially on the high street and in
shopping centres, increasing substantially. Despite this, we have
been able to work with our occupiers and have fortunately not had
many insolvencies, and in the majority of cases, we have been able
to mitigate these.
We believe the portfolio is well placed in respect of our sector
allocations and, combined with the quality of our assets, we will
be able to continue to drive performance going forward.
Activity
We have had another good year in respect of active management
transactions. We completed 17 rent reviews, 7% ahead of ERV, 30
lease renewals or regears, 10% ahead of ERV and 25 lettings or
agreements to lease, 3% ahead of ERV. One retail asset was sold for
gross proceeds of £4.0 million, 30% ahead of the March 2020 valuation.
Over the year we have invested £5.0 million into the portfolio
across ten key projects. These have all been aimed at enhancing
space to attract occupiers, improve sustainability credentials and
grow income. Major projects are currently underway at Regency
Wharf, Birmingham, where we are
converting leisure space to offices, and at Longcross, Cardiff,
where we are carrying out a comprehensive refurbishment to update
the office building.
Our largest void is Stanford Building on Long Acre in Covent Garden, London, accounting for over a quarter of the
total. The refurbishment was completed during the period. We were
pleased to welcome our first occupier to the second floor and we
have moved into the first floor, following an expiry of our lease
in the City. This move has allowed us to reduce costs and provided
us with flexibility going forward.
We are continually focused on futureproofing assets from a
sustainability perspective, which has resulted in an improvement in
our EPCs with 92% now rated D and above.
The average lot size of the portfolio is £14.8 million, 5% ahead
of last year.
Retention rates and occupancy
Over the year, total ERV at risk due to lease expiries or break
options totalled £6.6 million, consistent with the year to
March 2020.
Excluding asset disposals, we retained 88% of total ERV at risk
in the year to March 2021. Of leases
that were due to expire during the year, 93% of ERV was retained.
Of leases that had a break clause in the year, 67% of ERV was
retained.
In addition, a further £4.2 million of ERV was retained by
either removing future breaks or extending future lease expiries
ahead of the lease event.
Occupancy has increased during the year from 89% to 91%, which
is slightly behind the MSCI UK Quarterly Property Index of 92% at
March 2021. The increase primarily
reflects the success of the refurbishment programme in 2020,
meaning we were able to attract new occupiers and that occupancy
increased in all sectors of the portfolio. At the year-end, over
half of our vacant buildings were being refurbished and with the
rest available to let and being actively marketed.
Of our total void of £4.0 million by ERV, 85% is in offices, 14%
is in retail and only 1% is in industrial.
Outlook
The impact of the pandemic and consequent lockdowns has led to a
very uncertain operating environment.
We have been able to adapt to the ‘new normal’ and although
occupational requirements have, outside the industrial sector, been
far more muted, we have secured new occupiers. We have achieved
this through embracing new technologies, creating virtual tours,
and thinking more laterally as to how we can market our buildings
with social distancing measures in place.
Our focus remains on working with our occupiers and this year
has shown more than any the importance of our long-standing
relationships and the benefit of our approach. This has enabled us
to navigate through these uncertain times and to end the year in a
positive position. As at 31 March
2021 the portfolio had £9 million of reversionary income
potential, £4 million from letting the vacant space, £3 million
from expiring rent- free periods and £2 million where the passing
rent is below market level.
Demand for our industrial properties remains robust as proven by
our high occupancy and growing ERVs. With this sector accounting
for 53% of the total portfolio by value, we believe it will
continue to contribute strongly to our outperformance.
Business activity is beginning to pick up in the office sector
where 36% of our portfolio is allocated, and we have attractive
refurbished space in which we have increasing interest. We believe
there is pent-up demand, especially in the regions, and this will
come through as the year progresses with demand focusing on
flexible Grade A space. In addition, we are now offering fitted
space, ready to occupy, which we believe is where the market is
heading in respect of smaller suites, especially in London.
The retail and leisure sector has been severely affected by the
Covid-19 pandemic; however, we are more positive about retail
warehousing which makes up 60% of our retail allocation. We have
succeeded in letting retail warehouse units during the year at our
two parks which were refurbished in 2020 and have strong interest
in our last remaining retail warehouse void. Our high street
portfolio is over 90% leased and we have no shopping centre
exposure.
We remain in a strong position with advantageous portfolio
weightings, good quality assets and a proven occupier focused
approach. Looking forward, we remain focused on continuing to grow
occupancy and income, engaging with our occupiers and investing
further into our assets.
Jay Cable
Senior Director and Head of Asset Management
26 May 2021
Longevity of income
As at 31 March 2021, expressed as
a percentage of contracted rent, the average length of the leases
to the first termination was 4.9 years (2020: 5.5 years).
This is summarised as follows:
|
% |
| 0 to 1 year |
11.9 |
| 1 to 2 years |
13.8 |
| 2 to 3 years |
13.5 |
| 3 to 4 years |
13.6 |
| 4 to 5 years |
18.9 |
| 5 to 10 years |
20.0 |
| 10 to 15 years |
6.9 |
| 15 to 25 years |
0.1 |
| 25 years and over |
1.3 |
| Total |
100.0 |
Top ten assets
The largest assets as at 31 March
2021, ranked by capital value, represent 55% of the total
portfolio valuation and are detailed below.
| Assets |
Acquisition date |
Property type |
Tenure |
Approximate area (sq ft) |
No. of
occupiers |
Occupancy rate (%) |
| Parkbury Industrial
Estate, Radlett, Herts. |
03/2014 |
Industrial |
Freehold |
343,800 |
21 |
100 |
| River Way Industrial
Estate, Harlow, Essex |
12/2006 |
Industrial |
Freehold |
454,800 |
10 |
100 |
| Angel Gate, City Road,
London EC1 |
10/2005 |
Office |
Freehold |
64,600 |
20 |
68 |
| Stanford Building, Long
Acre, London WC2 |
05/2010 |
Office |
Freehold |
20,100 |
2 |
33 |
| Datapoint, Cody Road,
London E16 |
05/2010 |
Industrial |
Leasehold |
55,100 |
6 |
100 |
| Tower Wharf, Cheese
Lane, Bristol |
08/2017 |
Office |
Freehold |
70,600 |
5 |
83 |
| Shipton Way, Rushden,
Northants. |
07/2014 |
Industrial |
Leasehold* |
312,900 |
1 |
100 |
| 50 Farringdon Road,
London EC1 |
10/2005 |
Office |
Leasehold* |
31,300 |
4 |
100 |
| Lyon Business Park,
Barking, Essex |
09/2013 |
Industrial |
Freehold |
99,400 |
9 |
100 |
| Colchester Business
Park, Colchester |
10/2005 |
Office |
Leasehold |
150,700 |
22 |
97 |
*Denotes leasehold interest in excess of 950 years.
Top ten occupiers
The largest occupiers, based as a percentage of contracted rent,
as at 31 March 2021, are as
follows:
| Occupier |
Contracted rent
(£m) |
% |
| Public sector |
2.1 |
5.0 |
| Whistl UK Limited |
1.6 |
3.9 |
| B&Q Plc |
1.2 |
3.0 |
| The Random House Group
Limited |
1.2 |
2.8 |
| Snorkel Europe
Limited |
1.2 |
2.8 |
| XMA Limited |
1.0 |
2.3 |
| Portal Chatham LLP |
0.8 |
1.9 |
| DHL Supply Chain
Limited |
0.8 |
1.9 |
| Canterbury Christ
Church University |
0.7 |
1.6 |
| PA Consulting Services
Limited |
0.6 |
1.5 |
| Total |
11.2 |
26.7 |
Industrial sector
Key
metrics
|
2021 |
2020 |
| Value |
£360.7m |
£318.3m |
| Internal
area |
2.6m sq
ft |
2.6m sq
ft |
| Annual rental
income |
£16.9m |
£16.0m |
| Estimated rental
value |
£19.3m |
£18.6m |
| Occupancy |
100% |
96% |
| Number of
assets |
16 |
16 |
The industrial sector, which accounts for 53% of the
portfolio, again had the strongest sector performance of the
year producing double digit returns.
This was a result of the portfolio being almost fully let,
active management extending income, securing rental uplifts and
continued strong occupational demand for the smaller units, which
resulted in further rental growth, especially in London and the South East. This, combined with
continued strength in the investment market, has resulted in
another strong year for this element of the portfolio.
On a like-for-like basis, our industrial portfolio value
increased by £42.4 million or 13.3% to £360.7 million, and the
annual rental income increased by £0.9 million or 5.6% to £16.9
million. The portfolio has an average weighted lease length of 4.3
years and £2.4 million of reversionary potential.
We have seen ERV growth of 3.9% across the portfolio and are
experiencing demand across all of our estates. Occupancy is 99.8%,
with the only void being one small unit in Wokingham which has
recently been refurbished.
Portfolio activity
Swiftbox, Rugby, was our
largest void at the beginning of the year. Following completion of
the refurbishment, we leased the entire 99,500 sq ft distribution
unit to UPS, on a 12-month lease, with the option to extend for up
to a further six months. UPS has taken up the option, so the lease
now expires in March 2022. The
letting immediately generated an annual income of £0.6 million,
which was 4% ahead of ERV.
At Parkbury, Radlett, we have driven income though active
management. Two rent reviews were agreed, increasing the passing
rent by 25%, one lease was renewed for a further 15 years, subject
to break, at a rent 35% ahead of the previous passing rent and we
extended a lease by five years to 2031, securing £0.3 million per
annum.
At Vigo 250, Washington, we
were pleased to be able to provide cash flow assistance as an
incentive and settle the June 2021
rent review, securing a 5% uplift to £1.2 million per annum, 12%
ahead of ERV.
At River Way, Harlow, we restructured a lease and secured longer
income until March 2023. As part of
the same transaction, the August 2021
rent review was brought forward to January
2021 and settled, securing a 27% uplift to £0.8 million per
annum, 27% ahead of ERV. Two further rent reviews were agreed,
increasing the passing rent by 11%, one lease was renewed for a
further five years, at a rent 15% ahead of the previous passing
rent, and two units were leased for a combined £0.2 million per
annum, in line with ERV.
At Datapoint in London E16,
following the completion of a rent review, we achieved a 68% uplift
in rent to £0.4 million per annum, 24% ahead of ERV. One unit was
leased for a minimum term of five years at a rent of £0.1 million
per annum, 7% ahead of ERV.
At Sundon Business Park, Luton,
following the completion of a rent review, we achieved a 57% uplift
in rent to £0.1 million per annum, 11% ahead of ERV. Three leases
were renewed, the passing rent increasing by 47% to a combined £0.3
million per annum, 10% ahead of ERV.
Outlook
The Covid-19 pandemic has had a limited impact on the industrial
sector, with strong demand, low vacancy rates and increasing rents,
especially in respect of the smaller multi-let estates. Where
occupiers have been affected by the pandemic, we have been able to
work with most of them to resolve the position, and if needed,
usually these units are easily re-let.
We do not anticipate a slowdown in demand, and combined with
limited stock availability we expect continued rental growth,
especially in respect of the smaller units in Greater London and the South East, where there
remains a lack of supply and a limited development pipeline. We do
not expect rental growth to come through on the larger units to the
same extent, due to the development pipeline, and the ability for
occupiers to build bespoke space.
The focus going forward is to maintain high occupancy, continue
to capture rental growth, and work proactively with our occupiers
to unlock asset management transactions. We have 24 lease events
forecast for the coming year, and the overall ERV for these units
is 23% higher than the current passing rent of £2.2 million. This
provides us with the opportunity to grow income and value
further.
Office sector
Key
metrics
|
2021 |
2020 |
| Value |
£245.4m |
£259.1m |
| Internal
area |
0.8m sq
ft |
0.8m sq
ft |
| Annual rental
income |
£13.1m |
£12.9m |
| Estimated rental
value |
£19.0m |
£19.0m |
| Occupancy |
82% |
81% |
| Number of
assets |
15 |
15 |
*The 2020 figures have been restated to reflect Stanford
Building now reclassified as an office.
The office sector, which accounts for 36% of the portfolio,
delivered the second strongest performance of the year, with
the regions outperforming London.
With limited occupational demand due to the Covid-19 pandemic,
our focus has been occupier retention and marketing our vacant
properties using virtual tours and socially distanced viewings.
We have been able to lease space in a difficult market, securing
£1.1 million of income, and have worked with our occupiers to
extend income and surrender leases where we can secure a premium
and immediately re-lease the space.
On a like-for-like basis, our office portfolio value declined by
£13.8 million or -5.3% to £245.4 million; however, the annual
rental income increased marginally by £0.3 million or 2.0% to £13.1
million. The portfolio has an average weighted lease length of 3.5
years and £5.9 million of reversionary potential.
Although occupational demand has been muted, it has been
stronger in the regions than in London. The ERV of the portfolio has remained
static over the year, with declines in London of -2.9% being offset by increases in
the regions of 0.9%. We invested £4.1 million into our office
assets during the period and completed key projects, including at
Tower Wharf, Bristol, 50 Pembroke
Court, Chatham, and Stanford Building, London. We have had letting success at all
three buildings.
On a like-for-like basis, occupancy has increased over the
period to 82%.
Portfolio activity
At Grafton Gate, Milton Keynes,
which was comprehensively refurbished last year, we retained two
occupiers on lease expiry. Four leases were renewed, enabling us to
increase the passing rent by 29% to a combined £0.6 million per
annum, 11% ahead of ERV.
At Tower Wharf, Bristol, we
were pleased to welcome a new occupier to part of the first floor
on a ten-year lease subject to break, at a rent of £0.2 million per
annum, marginally below ERV. We also agreed the letting of the
whole fourth floor to a new occupier, with the vacating occupier
paying a premium of £0.2 million to facilitate the transaction. We
currently have two suites available, which are being refurbished.
The common areas were comprehensively refurbished last year, and we
believe there is occupational demand which will come through as the
year progresses.
At 50 Pembroke Court, Chatham, we comprehensively refurbished a
vacant floor with the majority of the cost being covered by the
outgoing occupier’s dilapidations. The floor has been split with a
third let to the Government on a ten-year lease, subject to break,
at £0.1 million per annum, which is in line with ERV.
At 50 Farringdon Road, London
we surrendered a suite and immediately re-let it to an existing
occupier who required expansion space at a rent of £0.2 million per
annum, in line with ERV. The transaction met both occupiers’
requirements and potentially will allow us to enter into a longer
lease in due course. In another transaction, we removed an
occupier’s 2022 break option securing £0.2 million per annum, which
is subject to review, until 2027 and in return provided the
occupier with a rent-free incentive, which assisted their cashflow
during the Covid-19 pandemic.
Our largest office void is Stanford Building, London. We completed the refurbishment and
enhanced the value of the office floors and obtained planning to
convert the first floor from ancillary retail to office space. We
have relocated to this floor, which provides a great working
environment. We were pleased to welcome a new occupier to the
second floor on a five-year lease, subject to break, 5% ahead of
ERV.
Outlook
Working from home as a result of the Covid-19 pandemic has
caused a huge amount of business uncertainty; however, this is
beginning to ease and the initial reaction of businesses thinking
of disposing space is now being reconsidered.
We believe the flight to quality has been accelerated by the
pandemic, with businesses wanting to provide best-in-class space to
attract their staff back to the office. Sustainability is also now
a key factor in choosing a building and older stock, where the
capital expenditure required to upgrade is prohibitive, will be
converted to other uses.
The regions have outperformed London, primarily we believe due to people not
wanting to commute on public transport. We can see a push to get
people back to the office later this year, with companies embracing
a more flexible policy in respect of working from home.
We have invested £9.7 million into our office portfolio over the
last three years, creating high quality contemporary space and
occupier amenities, meaning our buildings remain attractive to
occupiers.
We have 36 lease events forecast for the coming year, with the
current ERV for these units being 1.8% higher than the current
passing rent of £2.5 million and an 18% void, with an ERV of £3.4
million, providing us with the opportunity to significantly grow
income and value.
Retail and Leisure sector
Key
metrics
|
2021 |
2020 |
| Value |
£76.3m |
£87.2m |
| Internal
area |
0.7m sq
ft |
0.8m sq
ft |
| Annual rental
income |
£6.4m |
£7.3m |
| Estimated rental
value |
£7.1m |
£7.6m |
| Occupancy |
92% |
91% |
| Number of
assets |
15 |
16 |
*The 2020 figures have been restated to reflect Stanford
Building now reclassified as an office.
The retail and leisure sector, which accounts for 11% of the
portfolio, delivered the weakest performance of the year.
The Covid-19 pandemic and subsequent lockdowns have had a severe
effect on an already weak bricks and mortar retail and leisure
market, with changing shopping habits accelerating the demand for
warehouse space.
Against this tough backdrop, we had success at our retail
warehouse parks which account for 60% of our retail and leisure
portfolio. Retail warehousing has been more resilient due to the
ability of shoppers to be able to park and the size of the units
being better suited to social distancing.
On a like-for-like basis, our retail and leisure portfolio value
decreased by £7.8 million or -9.3% to £76.3 million, and the annual
rental income decreased by £0.5 million or -7.0% to £6.4 million.
The portfolio has an average weighted lease length of 9.0 years and
£0.6 million of reversionary potential to £7.1 million per
annum.
The retail parks in Bury and Swansea were comprehensively
refurbished in 2020 and this has helped us to attract new occupiers
and grow the passing rent on the retail warehouse portfolio by
1.3%, with only one vacant unit at year end in which we already
have interest.
We have also worked with a number of our occupiers to extend
leases in exchange for upfront incentives. Smaller independent
retailers have been supported over the year to ensure they are
ready to reopen, and we avoid the costs associated with vacant
units.
Occupational demand was very weak over the year, with vacancy
rates increasing as retailers exited leases on expiries and breaks
and multi-national retailers such as Debenhams and Arcadia Group
disappeared from the high street, further increasing the number of
vacant shops. Correspondingly, rental values have declined and
retailers with requirements have more choice and can negotiate
substantial incentives.
We have seen negative ERV growth of -2.8% across the portfolio;
however, pleasingly we have been able to increase occupancy, on a
like-for-like basis, during this difficult period to 92%. We
invested £0.6 million into the retail portfolio during the period
to improve space and facilitate lettings.
Portfolio activity
At Parc Tawe Retail Park, Swansea, over half of our retailers
remained open during the lockdowns as they were classed as
essential retailers. Both Xercise4Less and Poundstretcher were
subject to insolvency proceedings; however, we were able to
mitigate the effect by securing JD Gyms and Deichmann Shoes as new
occupiers, with a 13% reduction in the passing rent and both of
whom have refurbished the units. The one vacant unit, at the end of
a terrace, has been put under offer via an Agreement for Lease to
the Government, subject to planning, who are taking a new five-year
lease, subject to a break in three years, at a rent of £0.1 million
per annum, in line with ERV. This means the park is fully let with
70% of the income secured for over five years and three leases
benefitting from fixed rental increases.
At Angouleme Way Retail Park, Bury, we assisted an occupier by
removing a 2022 break option in return for a rent-free incentive,
securing income until 2024. Another unit was let to JYSK on a
ten-year lease, subject to a break in five years, at a rent of £0.1
million per annum, in line with ERV. We have one unit available to
lease, accounting for 21% of the park by floor area in which we
have interest.
At Briggate, Leeds, where we
have two high street retail properties, we extended both leases in
return for a reduced rent securing income until 2026. The combined
rent was reduced by 38% to £0.2 million per annum, which is still
33% ahead of ERV.
At Fishergate, Preston, following a comprehensive refurbishment
we let the entire first floor to Slaters Menswear on a new ten-year
lease, subject to a break at year five, at £0.1 million per annum
which is in-line with ERV. The property is now fully leased with JD
Sports and Tessuti on the ground floor.
Bridge Street, Peterborough,
was sold in December. The property comprises two retail units, with
one let to TK Maxx who are vacating in June
2021 and the other vacant and previously occupied by New
Look. The asset was sold for £4.0 million, 30% ahead of
valuation.
Our largest retail void is the unit within Stanford Building,
London, (now reclassified as an
office), which has been refurbished and is being marketed. The unit
is in a prime Covent Garden location and provides unique space
arranged over two floors. We have had some interest, but expect
better terms as the lockdown eases.
Outlook
The retail and leisure sector has undergone a severe structural
change, which has been accelerated by the Covid-19 pandemic. There
is an oversupply of floorspace, especially in the shopping centre
and high street sub-sectors. Demand will be there for prime
well-configured space, with secondary units being unable to attract
occupiers. This stock will have to be repurposed and planning law
has changed to make this easier; however, with such a severe
oversupply we cannot see the position changing in the
short-term.
We are however more positive about the retail warehouse sector,
where we have 60% of our retail and leisure weighting. We have been
successful in securing new occupiers over the year and our parks
have remained busy. Valuations, which have moved down over the past
few years, are now stabilising.
With the lockdown ending and most retail and leisure having
re-opened, improving consumer confidence will give businesses the
help they need to start recovering.
Financial Review
This financial year has been unparalleled as a result of the
Covid-19 pandemic, with UK GDP declining by -9.8% in 2020, the
largest fall on record.
Many sectors of the economy have been badly disrupted by the
lockdowns and other restrictions, particularly retail, leisure and
travel. We have not been immune to this, but have been fortunate in
having limited exposure to the more badly hit retail and leisure
sectors. Our results for the year are very positive in the context
of the backdrop in which we have been operating.
The total profit for the year was £33.8 million, which is higher
than both 2020 and 2019. Our EPRA earnings increased to £20.1
million. Earnings per share were 6.2
pence overall (3.7 pence on an
EPRA basis), and the total return based on these results was 6.6%
for the year.
Net asset value
The net assets of the Group increased to £528.2 million, or
97 pence per share, which was a rise
of 3.7% over the year. The chart below shows the components of this
increase.
|
£m |
| March 2020 net asset
value |
509.3 |
| Income profit |
20.1 |
| Valuation movement |
12.8 |
| Profit on asset
disposals |
0.9 |
| Share-based awards |
0.7 |
| Purchase of shares |
(0.6) |
| Dividends paid |
(15.0) |
| March 2021 net asset
value |
528.2 |
The following table reconciles the net asset value calculated in
accordance with International Financial Reporting Standards (IFRS)
with that of the European Public Real Estate Association
(EPRA).
|
2021
£m |
2020
£m |
2019
£m |
| Net asset value – IFRS
and EPRA NTA |
528.2 |
509.3 |
499.4 |
| Fair value of debt |
(21.0) |
(29.6) |
(24.8) |
| EPRA NDV asset
value |
507.2 |
479.7 |
474.6 |
|
|
|
|
| Net asset value per
share (pence) |
97 |
93 |
93 |
| EPRA net tangible asset
value per share (pence) |
97 |
93 |
93 |
| EPRA net disposal value
per share (pence) |
93 |
88 |
88 |
Income statement
As noted above our EPRA earnings for the year have increased
compared to 2020, rising 0.6% to £20.1 million. Within that,
property revenue has reduced as expected during the pandemic, but
there have been savings in both property costs and administrative
expenses, and finance costs are also lower.
Total revenue from the property portfolio for the year was £43.3
million. Rental income, at £36.6 million, was lower by 3.2%
compared to 2020, which was due to asset disposals and additional
provisions made against income as a result of the pandemic despite
an increase in occupancy. On a like-for-like basis, rental income
increased marginally by 0.2% compared to the previous year, on an
EPRA basis.
Rent collection over the year has held up well, but the
variations between different business sectors have been quite
apparent. Our policy of engaging with occupiers from an early stage
has been beneficial, and the amount of rent concessions that we
have granted has been limited, at only 4% of rent due over the
year. The table below sets out a summary of our rent collection
over the last year.
| Rent due
25 March 2020 to 24 March 2021 |
Industrial
(%) |
Office
(%) |
Retail and
Leisure
(%) |
Total
(%) |
| Collected |
91 |
97 |
85 |
92 |
| Deferred |
1 |
– |
4 |
1 |
| Concessions agreed |
4 |
2 |
8 |
4 |
| Outstanding |
4 |
1 |
3 |
3 |
For the year we wrote off £1.6 million of debts, and increased
the provision against occupier debtors by £0.2 million, with the
total provision at 31 March 2021
standing at £1.6 million. We continue to engage with occupiers to
resolve all amounts outstanding.
Property void costs reduced by 27% to £2.2 million, reflecting
both the increase in occupancy over the year and the lower service
charge costs attributable to vacant units.
Administrative expenses for the year were £5.4 million, again
lower than the previous year, by 3%. Savings were made against a
number of corporate level costs.
Interest costs are also lower this year at £8.0 million, due to
the loan repayments that we made towards the end of the last
financial year. There were no drawdowns made under the new
revolving credit facility.
Capital gains on the portfolio were £13.7 million for the year,
with positive valuation movements during the year. There was
divergence across the sectors, with the industrial assets
showing significant gains, while retail and leisure assets
were more adversely impacted by the pandemic. One disposal was
made during the year, realising a 30% gain compared to the
March 2020 valuation.
The total profit for the year was £33.8 million, up over 50%
compared with 2020.
Dividends
At the start of the pandemic, in common with many other property
companies, we reviewed the level of our dividend and concluded that
a prudent approach was appropriate, reducing the May 2020 dividend by 29%. We maintained this
lower rate for two quarters and have subsequently increased it
twice, initially by 12% and then by a further 14%, so that the
dividend is now at 91% of the pre-pandemic level, as rent
collection rates have remained robust. The dividend for the year
was 2.75 pence per share, with total
dividends paid out of £15.0 million. Dividend cover for the full
year was 134%.
Investment properties
The appraised value of our investment property portfolio was
£682.4 million at 31 March 2021, up
from £664.6 million a year previously. This year we have disposed
of one small retail property, for net proceeds of £3.9 million,
realising a gain of £0.9 million compared to last year’s valuation.
Our programme of capital expenditure has continued, with £5.0
million invested back into the portfolio. The main project
undertaken was at Stanford Building in London WC2, where a full refurbishment has now
completed. The overall revaluation movement across the
portfolio was a gain of £12.8 million.
At 31 March 2021 the portfolio
comprised 46 assets, with an average lot size of £14.8 million.
Borrowings
Total borrowings are now £166.2 million at 31 March 2021, with the loan to value ratio
having reduced further to 20.9%. The weighted average interest
rate on our borrowings is 4.2%, while the average loan duration
is now 8.9 years.
Our senior loan facility with Aviva reduced by the regular
amortisation, £1.3 million in the year.
The Group remained fully compliant with the loan covenants
throughout the year.
During the year we completed a new single revolving credit
facility with NatWest, replacing the two existing ones. The new £50
million facility is for an initial term of three years, until
May 2023, with two one-year
extensions available. Interest is currently payable at 150 basis
points over LIBOR. We are currently undrawn under this
facility.
The fair value of our borrowings at 31
March 2021 was £187.2 million, higher than the book
amount. Lending margins have remained broadly in line with the
previous year, but gilt rates have fallen in comparison.
A summary of our borrowings is set out below:
|
2021 |
2020 |
2019 |
| Fixed rate loans
(£m) |
166.2 |
167.5 |
168.7 |
| Drawn revolving
facilities (£m) |
– |
– |
26.0 |
| Total borrowings
(£m) |
166.2 |
167.5 |
194.7 |
| Borrowings net of cash
(£m) |
142.8 |
143.9 |
169.5 |
| Undrawn facilities
(£m) |
50.0 |
49.0 |
25.0 |
| Loan to value ratio
(%) |
20.9 |
21.7 |
24.7 |
| Weighted average
interest rate (%) |
4.2 |
4.2 |
4.0 |
| Average duration
(years) |
8.9 |
9.9 |
9.8 |
Cash flow and liquidity
The cash flow from our operating activities was
£18.6 million this year, ahead of 2020. We invested £5.0
million into the portfolio, largely offset by £3.9 million raised
from the asset disposal. The lower dividends paid also helped to
maintain cash. Our cash balance at the year-end stood at £23.4
million, very close to the balance at 2020.
Share capital
No new ordinary shares were issued during the year.
The Company’s Employee Benefit Trust acquired a further 958,000
shares, at a cost of £0.6 million, or 67
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
2,052,269 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
26 May 2021
Principal Risks
The Board recognises that there are risks and uncertainties that
could have a material impact on the Group’s results.
Risk management provides a structured approach to the decision
making process such that the identified risks can be mitigated and
the uncertainty surrounding expected outcomes can be reduced. The
Board has developed a risk management policy which it reviews on a
regular basis. The Audit and Risk Committee carries out a detailed
assessment of all risks, whether investment or operational, and
considers the effectiveness of the risk management and internal
control processes. The Executive Committee is responsible for
implementing strategy within the agreed risk management policy, as
well as identifying and assessing risk in day-to-day operational
matters. The management committees support the Executive Committee
in these matters. The small number of employees and relatively flat
management structure allow risks to be quickly identified and
assessed. The Group’s risk appetite will vary over time and during
the course of the property cycle. The principal risks – those with
potential to have a material impact on performance and results –
are set out below, together with mitigating controls.
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 below.
Our Covid-19 response
The global Covid-19 pandemic has caused an unprecedented level
of disruption to economies globally. Restrictions have been in
place to varying extents since the start of the pandemic in
March 2020. Some sectors of the
economy have been more severely impacted, particularly retail,
leisure and tourism. However, since the start of the year the
vaccine programme has gathered pace and there is a planned route to
easing restrictions and opening up the economy.
The risks associated with the pandemic have impacted many of the
principal and emerging risks set out here. There has been an impact
on the Group’s rent collection and cash flow, although this
has been less significant than originally envisaged.
We have a diverse portfolio spread across the UK, with around
350 occupiers in a wide range of businesses. The cash flow arising
from our occupiers underpins our business model. We are continuing
to let space, although the number of transactions has reduced
since the pandemic began. The material uncertainty clause,
introduced by our valuers in March
2020, was subsequently removed.
We have considered in our Viability Statement the potential
impact of various scenarios resulting from Covid-19 on the
business.
Brexit
A new trading agreement was put in place with the EU at the end
of 2020, ahead of the end of the transition arrangement, removing
much of the uncertainty around this event.
Emerging risks
During the year the Board has considered themes where emerging
risks or disrupting events may impact the business. These may rise
from behavioural changes, political or regulatory changes, advances
in technology, environmental factors, economic conditions or
demographic changes. Some are already considered to be principal
risks in their own right such as the impact of climate change,
while others are reviewed as part of the ongoing risk management
process.
The principal emerging risks have been identified to be:
– the impact of climate change;
– the ongoing effects of the Covid-19 pandemic on
the economy and the property market, and potential legacy impacts
on unemployment, inflation and Government borrowing;
– potential changes in the office market as
businesses re-assess their needs in the light of flexible
working;
– structural changes in the retail market, with the
increasing prevalence of online retailing and the oversupply of
physical space;
– the impact of technology giving rise to rapid
changes in occupiers’ businesses, and consequently on their space
requirements;
– legislative and regulatory changes can bring risks
to the commercial property market, such as changes to planning
regulations or in the application of business rates.
Corporate Strategy
|
1 |
|
Political and economic |
|
Risk trend |
|
|
|
|
Risk
Uncertainty in the UK economy, whether arising from political
events or otherwise, brings risks to the property market and to
occupiers’ businesses. This can result in lower shareholder
returns, lower asset liquidity and increased occupier
failure. |
Mitigation
The Board considers economic conditions and market uncertainty when
setting strategy, considering the financial strategy of the
business and in making investment decisions. |
Commentary
The impact of the pandemic in 2020 saw the largest ever contraction
in UK GDP. A further decline occurred in the first quarter of 2021,
with GDP contracting -1.5% to stand at -8.7% below the pre-pandemic
level. With the rollout of the vaccine continuing, a rebound is
forecast during the latter part of 2021, although with the risk of
inflationary pressure. |
Down |
|
2 |
| Market
cycle |
|
|
Risk trend |
|
|
|
|
Risk
The property market is cyclical and returns can be volatile.
There is an ongoing risk that the Company fails to react
appropriately to changing market conditions, resulting
in an adverse impact on shareholder returns. |
Mitigation
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. |
Commentary
It is likely that uncertainty in the property market will decline
as restrictions ease. |
Down |
|
3 |
| Regulatory and
tax |
|
|
Risk trend |
|
|
|
|
Risk
The Group could fail to comply with legal, fiscal, health and
safety or regulatory matters which could lead to financial loss,
reputational damage or loss of REIT status. |
Mitigation
The Board and senior management receive regular updates on relevant
laws and regulations.
The Group is a member of the BPF and EPRA, and management attend
industry briefings. |
Commentary
There are no significant changes expected to the regulatory
environment in which the Group operates. |
Same |
|
4 |
| Climate
change |
|
|
Risk trend |
|
|
|
|
Risk
Failure to react to climate change could lead to the Group’s
assets becoming obsolete and unable to attract occupiers. |
Mitigation
Sustainability is embedded within the Group’s business model and
strategy.
We are committed to developing our pathway to carbon net zero over
the course of the coming year.
All refurbishment projects consider environmental impact and where
possible seek improvements. |
Commentary
There is an increasing momentum to the issue of addressing climate
change.
Investors are putting a greater emphasis on ESG credentials and
occupiers are seeking more sustainable buildings. |
Up |
Property
|
5 |
| Portfolio
strategy |
|
|
Risk trend |
|
|
|
|
Risk
The Group has an inappropriate portfolio strategy, as a result
of poor sector or geographical allocations, or holding obsolete
assets, leading to lower shareholder returns. |
Mitigation
The Group maintains a diversified portfolio in order to minimise
exposure to any one geographical area or market sector. |
Commentary
The pandemic continues to impact many occupiers’ businesses,
particularly in the retail and leisure sectors. The longer-term
impact of home working on the office sector is also unclear. The
divergence of returns seen previously across sectors is expected to
continue. |
Same |
|
6 |
| Investment |
|
|
Risk trend |
|
|
|
|
Risk
Investment decisions may be flawed as a result of incorrect
assumptions, poor research or incomplete due diligence, leading to
financial loss. |
Mitigation
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.
A review of each acquisition is performed within two years of
completion. |
Commentary
There is no change to this risk. |
Same |
|
7 |
| Asset
management |
|
|
Risk trend |
|
|
|
|
Risk
Failure to properly execute asset business plans or poor asset
management could lead to longer void periods, higher occupier
defaults, higher arrears and low occupier retention, all having an
adverse impact on earnings and cash flow. |
Mitigation
Management prepare business plans for each asset which are reviewed
regularly.
The Executive Committee must approve all investment transactions
over a threshold level, and significant transactions require Board
approval.
Management maintain close contact with occupiers and have oversight
of the Group’s Property Manager. |
Commentary
Effective asset management continues to be key, engaging with
occupiers to provide appropriate solutions while maintaining cash
flow and occupancy. |
Same |
|
8 |
| Valuation |
|
|
Risk trend |
|
|
|
|
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
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. |
Commentary
Although there is still some economic uncertainty, valuations are
more stable with improved market evidence. Valuers have removed the
material uncertainty clause that was introduced at the start of the
pandemic. |
Same |
Operational
|
9 |
| People |
|
|
Risk trend |
|
|
|
|
Risk
The Group relies on a small team to implement the strategy and
run the day-to-day operations. Failure to retain or recruit key
individuals with the right blend of skills and experience may
result in poor decision making and underperformance. |
Mitigation
The Board has a remuneration policy in place which incentivises
performance and is aligned with shareholders’ interests.
There is a Non-Executive Director responsible for employee
engagement who provides regular feedback to the Board. |
Commentary
No employees were furloughed during the pandemic. The team has
continued to work effectively from home, although a gradual return
to the office is envisaged. Feedback from the employee engagement
survey was positive. |
Same |
Financial
|
10 |
| Finance
strategy |
|
|
Risk trend |
|
|
|
|
Risk
The Group has a number of loan facilities to finance its
activities. Failure to comply with covenants or to manage
refinancing events could lead to a funding shortfall for
operational activities. |
Mitigation
The Group’s property assets are valued quarterly by an independent
valuer with oversight by the Property Valuation Committee. Market
commentary is provided regularly by the independent valuer.
The Board reviews financial forecasts for the Group on a regular
basis, including sensitivity against financial covenants.
The Audit and Risk Committee considers the going concern status of
the Group biannually. |
Commentary
The Group has significant headroom against its loan covenants. No
additional borrowing has been incurred during the pandemic, and the
Group’s revolving credit facility remains undrawn. |
Down |
|
11 |
| Capital
structure |
|
|
Risk trend |
|
|
|
|
Risk
The Group operates a geared capital structure, which magnifies
returns from the portfolio, both positive and negative. An
inappropriate level of gearing relative to the property cycle could
lead to lower investment returns. |
Mitigation
The Board regularly reviews its gearing strategy and debt maturity
profile, at least annually, in light of changing market
conditions. |
Commentary
The Group’s gearing level has remained relatively low during the
pandemic, and property values have been stable, reducing this
risk. |
Down |
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 the Covid-19
pandemic and its potential impact on the UK economy and commercial
property market over the period of the assessment. In the ordinary
course of business, the Board reviews 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.
In the context of the Covid-19 pandemic the Board considered a
number of scenarios around its 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 and their impact on revenue and cash flow. Future letting
activity was assumed to be curtailed during the initial period of
the assessment. Forecast movements in capital values were included
in these scenarios including their potential impact on the Group’s
loan covenants. The Group’s long-term loan facilities are in place
throughout the assessment period, while the Board assumed that the
Group would continue to have access to its short-term facilities.
The Board considered the impact of these scenarios on its ability
to continue to pay dividends at different rates over the assessment
period.
These matters were assessed over the period to 31 March 2026 and will continue to be assessed
over five-year rolling periods.
The Directors consider that the stress testing performed was
sufficiently robust that even under extreme conditions the Company
remains viable.
Based on their assessment, and in the context of the Group’s
business model and strategy, the Directors expect that the Group
will be able to continue in operation and meet its liabilities as
they fall due over the five-year period to 31 March 2026.
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.
In preparing these financial statements, the Directors are
required to:
– select suitable accounting policies and then apply
them consistently;
– make judgements and estimates that are reasonable,
relevant and reliable;
– state whether applicable accounting standards have
been followed, subject to any material departures disclosed and
explained in the financial statements;
– assess the Group 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
26 May 2021
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 March 2021
|
Notes |
2021
Total
£000 |
2020
Total
£000 |
| Income |
|
|
|
| Revenue from
properties |
3 |
43,331 |
45,664 |
| Property expenses |
4 |
(9,877) |
(12,027) |
|
|
|
|
| Net property
income |
|
33,454 |
33,637 |
|
|
|
|
| Expenses |
|
|
|
| Administrative
expenses |
6 |
(5,388) |
(5,563) |
|
|
|
|
| Total operating
expenses |
|
(5,388) |
(5,563) |
|
|
|
|
| Operating profit
before movement on investments |
|
28,066 |
28,074 |
|
|
|
|
| Investments |
|
|
|
| Profit on disposal of
investment properties |
13 |
868 |
3,478 |
| Investment property
valuation movements |
13 |
12,861 |
(882) |
|
|
|
|
| Total profit on
investments |
|
13,729 |
2,596 |
|
|
|
|
| Operating
profit |
|
41,795 |
30,670 |
|
|
|
|
| Financing |
|
|
|
| Interest received |
|
5 |
9 |
| Interest paid |
8 |
(7,999) |
(8,295) |
|
|
|
|
| Total finance
costs |
|
(7,994) |
(8,286) |
|
|
|
|
| Profit before
tax |
|
33,801 |
22,384 |
| Tax |
9 |
– |
124 |
|
|
|
|
| Profit and total
comprehensive income for the period |
|
33,801 |
22,508 |
|
|
|
|
| Earnings per
share |
|
|
|
| Basic |
11 |
6.2p |
4.1p |
| Diluted |
11 |
6.2p |
4.1p |
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.
Consolidated statement of changes in equity
for the year ended 31 March 2021
|
Notes |
Share
capital
£000 |
Retained
earnings
£000 |
Other
reserves
£000 |
Total
£000 |
| Balance as at 31
March 2019 |
|
157,449 |
342,252 |
(286) |
499,415 |
| Profit for the
year |
|
– |
22,508 |
– |
22,508 |
| Dividends paid |
10 |
– |
(19,039) |
– |
(19,039) |
| Issue of ordinary
shares |
20 |
7,137 |
– |
– |
7,137 |
| Issue costs of
shares |
|
(186) |
– |
– |
(186) |
| Vesting of shares held
in trust |
|
– |
(54) |
54 |
– |
| Share-based awards |
7 |
– |
– |
292 |
292 |
| Purchase of shares held
in trust |
7 |
– |
– |
(844) |
(844) |
|
|
|
|
|
|
| Balance as at 31
March 2020 |
|
164,400 |
345,667 |
(784) |
509,283 |
| Profit for the
year |
|
– |
33,801 |
– |
33,801 |
| Dividends paid |
10 |
– |
(15,002) |
– |
(15,002) |
| Share-based awards |
7 |
– |
– |
758 |
758 |
| Purchase of shares held
in trust |
7 |
– |
– |
(643) |
(643) |
|
|
|
|
|
|
| Balance as at 31
March 2021 |
|
164,400 |
364,466 |
(669) |
528,197 |
Notes 1 to 27 form part of these consolidated financial
statements.
Consolidated balance sheet
as at 31 March 2021
|
Notes |
2021
£000 |
2020
£000 |
| Non-current
assets |
|
|
|
| Investment
properties |
13 |
665,418 |
654,486 |
| Property, plant and
equipment |
14 |
4,111 |
20 |
|
|
|
|
| Total non-current
assets |
|
669,529 |
654,506 |
|
|
|
|
| Current
assets |
|
|
|
| Accounts
receivable |
15 |
19,584 |
17,601 |
| Cash and cash
equivalents |
16 |
23,358 |
23,567 |
|
|
|
|
| Total current
assets |
|
42,942 |
41,168 |
|
|
|
|
| Total
assets |
|
712,471 |
695,674 |
|
|
|
|
| Current
liabilities |
|
|
|
| Accounts payable and
accruals |
17 |
(18,805) |
(19,438) |
| Loans and
borrowings |
18 |
(944) |
(888) |
| Obligations under
leases |
22 |
(107) |
(108) |
|
|
|
|
| Total current
liabilities |
|
(19,856) |
(20,434) |
|
|
|
|
| Non-current
liabilities |
|
|
|
| Loans and
borrowings |
18 |
(162,711) |
(164,248) |
| Obligations under
leases |
22 |
(1,707) |
(1,709) |
|
|
|
|
| Total non-current
liabilities |
|
(164,418) |
(165,957) |
|
|
|
|
| Total
liabilities |
|
(184,274) |
(186,391) |
|
|
|
|
| Net assets |
|
528,197 |
509,283 |
|
|
|
|
| Equity |
|
|
|
| Share capital |
20 |
164,400 |
164,400 |
| Retained earnings |
|
364,466 |
345,667 |
| Other reserves |
|
(669) |
(784) |
|
|
|
|
| Total
equity |
|
528,197 |
509,283 |
|
|
|
|
| Net asset value per
share |
23 |
97p |
93p |
These consolidated financial statements were approved by the
Board of Directors on 26 May 2021 and
signed on its behalf by:
Andrew Dewhirst
Director
26 May 2021
Notes 1 to 27 form part of these consolidated financial
statements.
Consolidated statement of cash flows
for the year ended 31 March 2021
|
Notes |
2021
£000 |
2020
£000 |
| Operating
activities |
|
|
|
| Operating profit |
|
41,795 |
30,670 |
| Adjustments for
non-cash items |
21 |
(12,964) |
(2,295) |
| Interest received |
|
5 |
9 |
| Interest paid |
|
(7,515) |
(7,952) |
| Tax received |
|
56 |
123 |
| Increase in accounts
receivable |
|
(1,983) |
(4,078) |
| Decrease in accounts
payable and accruals |
|
(825) |
(2,936) |
|
|
|
|
| Cash inflows from
operating activities |
|
18,569 |
13,541 |
|
|
|
|
| Investing
activities |
|
|
|
| Capital expenditure on
investment properties |
13 |
(4,961) |
(8,861) |
| Disposal of investment
properties |
|
3,928 |
33,859 |
| Purchase of tangible
assets |
|
(268) |
(4) |
|
|
|
|
| Cash
(outflows)/inflows from investing activities |
|
(1,301) |
24,994 |
|
|
|
|
| Financing
activities |
|
|
|
| Borrowings repaid |
18 |
(1,258) |
(33,204) |
| Borrowings drawn |
18 |
– |
6,000 |
| Financing costs |
18 |
(574) |
– |
| Issue of ordinary
shares |
20 |
– |
7,137 |
| Issue costs of ordinary
shares |
|
– |
(186) |
| Purchase of shares held
in trust |
7 |
(643) |
(844) |
| Dividends paid |
10 |
(15,002) |
(19,039) |
|
|
|
|
| Cash outflows from
financing activities |
|
(17,477) |
(40,136) |
|
|
|
|
| Net decrease in cash
and cash equivalents |
|
(209) |
(1,601) |
| Cash and cash
equivalents at beginning of year |
|
23,567 |
25,168 |
|
|
|
|
| Cash and cash
equivalents at end of year |
16 |
23,358 |
23,567 |
Notes 1 to 27 form part of these consolidated financial
statements.
Notes to the consolidated financial statements
for the year ended 31 March
2021
1. General information
Picton Property Income Limited (the ‘Company’ and together with
its subsidiaries the ‘Group’) was established on 15 September 2005 as a closed ended Guernsey
domiciled investment company and entered the UK REIT regime on
1 October 2018. The consolidated
financial statements are prepared for the year ended 31 March 2021 with comparatives for the
year ended 31 March 2020.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared on a going concern
basis and adopt the historical cost basis, except for
the revaluation of investment properties. Historical cost is
generally based on the fair value of the consideration given
in exchange for the assets. The financial statements, which
give a true and fair view, are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
IASB and are in compliance with the Companies (Guernsey) Law,
2008.
The Directors have assessed whether the going concern basis
remains appropriate for the preparation of the financial
statements, including giving consideration to the continuing impact
of the Covid-19 pandemic on the UK economy. They have reviewed the
Group’s principal and emerging risks, recent levels of rent
collection, existing loan facilities, access to funding and
liquidity position and then considered a number of scenarios around
different levels of rent collection, (and the potential
consequences on financial performance), asset values, capital
projects and loan covenants. Under all of these scenarios the Group
has sufficient 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.
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.
– Business Combinations, Amendments to IFRS 3
– Interest Rate Benchmark Reform, Amendments to IFRS
9, IAS 39 and IFRS 7
– Definition of Material, Amendments to IAS 1 and
IAS 8
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 2021 and thus have not been applied by the Group.
– Interest Rate Benchmark Reform – Phase 2
– Onerous Contracts – Cost of fulfilling a Contract
(Amendments to IAS 37)
– Classification of liabilities as current or
non-current (Amendments to IAS 1)
– Annual Improvements to IFRS Standards
2018-2020
The adoption of these new and amended standards, together with
any other IFRSs or IFRIC interpretations that are not 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 making
estimates about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis.
Significant 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 assets and liabilities are
categorised into different levels in the fair value hierarchy based
on the inputs to valuation techniques used. The different levels
have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access at the
measurement date.
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly.
Level 3: unobservable inputs for the asset or liability.
The Group recognises transfers between levels of the fair value
hierarchy as of the end of the reporting period during which the
transfer has occurred.
Investment properties
Freehold property held by the Group to earn income or for
capital appreciation, or both, is classified as investment property
in accordance with IAS 40 ‘Investment Property’. Property held
under 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.
Property, plant and equipment
Owner-occupied property
Owner-occupied property is stated at its revalued amount, which
is determined in the same manner as investment property. It is
depreciated over its remaining useful life (40 years) with the
depreciation included in administrative expenses. On revaluation,
any accumulated depreciation is eliminated against the gross
carrying amount of the property concerned, 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
utilised. 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 investment properties are held under operating leases, the
leasehold interest is classified as if it were held under a finance
lease, 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 finance
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
finance 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.
Lease income arises from operating leases granted to tenants. An
operating lease is a lease other than a finance lease. A finance
lease is one whereby 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.
Premiums received on the surrender of leases are recorded as income
immediately on surrender if there are no relevant conditions
attached to the surrender.
Cash and cash equivalents
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. Upon receipt of a
surrender premium for the early termination of a lease, the profit,
net of dilapidations and non-recoverable outgoings relating to the
lease concerned, is immediately reflected in revenue from
properties.
Property operating costs include the costs of professional fees
on letting and other non-recoverable costs.
The income charged to occupiers for property service charges and
the costs associated with such service charges are shown separately
in Notes 3 and 4 to reflect that, notwithstanding this money is
held on behalf of occupiers, the ultimate risk for paying and
recovering these costs rests with the property owner.
Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the Company pays fixed contributions into
a separate entity and will have no legal or constructive
obligation to pay further amounts. Obligations for contributions
to defined contribution pension plans are recognised as an
expense in the Consolidated Statement of Comprehensive Income in
the periods during which services are rendered by employees.
Short-term benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid under short-term cash bonus or profit-sharing plans if the
Company has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
Share-based payments
The fair value of the amounts payable to employees in respect of
the Deferred Bonus Plan, 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 Group 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 and
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.
Taxation
The Group elected to be treated as a UK REIT with effect from
1 October 2018. The UK REIT rules
exempt the profits of the Group’s UK property rental business from
UK corporation and income tax. Gains on UK properties are also
exempt from tax, provided they are not held for trading. The Group
is otherwise subject to UK corporation tax.
As a REIT, the Company is required to pay Property Income
Distributions equal to at least 90% of the Group’s exempted net
income. To remain a UK REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group’s
qualifying activity and its balance of business. The Group
continues to meet these conditions.
Principles for the Consolidated
Statement of Cash Flows
The Consolidated Statement of Cash Flows has been drawn up
according to the indirect method, separating the cash flows from
operating activities, investing activities and financing
activities. The net result has been adjusted for amounts in the
Consolidated Statement of Comprehensive Income and movements in the
Consolidated Balance Sheet which have not resulted in cash income
or expenditure in the 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
|
2021
£000 |
2020
£000 |
| Rents receivable
(adjusted for lease incentives) |
36,558 |
37,780 |
| Surrender premiums |
202 |
603 |
| Dilapidation
receipts |
1,195 |
471 |
| Other income |
82 |
81 |
| Service charge
income |
5,294 |
6,729 |
|
43,331 |
45,664 |
Rents receivable have been adjusted for lease incentives
recognised of £2.0 million (2020: £1.3 million).
4. Property expenses
|
2021
£000 |
2020
£000 |
| Property operating
costs |
2,384 |
2,293 |
| Property void
costs |
2,199 |
3,005 |
| Recoverable service
charge costs |
5,294 |
6,729 |
|
9,877 |
12,027 |
5. Operating segments
The Board is responsible for setting the Group’s strategy and
business model. The key measure of performance used by the Board to
assess the Group’s performance is the total return of the Group’s
net asset value. As the total return on the Group’s net asset value
is calculated based on the net asset value per share calculated
under IFRS as shown at the foot of 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 46 commercial properties, which are in
the industrial, office, retail and leisure sectors.
6. Administrative expenses
|
2021
£000 |
2020
£000 |
| Director and staff
costs |
3,219 |
3,273 |
| Auditor’s
remuneration |
206 |
191 |
| Other administrative
expenses |
1,963 |
2,099 |
|
5,388 |
5,563 |
| Auditor’s remuneration
comprises: |
2021
£000 |
2020
£000 |
| Audit fees: |
|
|
| Audit of Group
financial statements |
92 |
92 |
| Audit of subsidiaries’
financial statements |
82 |
67 |
|
|
|
| Audit-related
fees: |
|
|
| Review of half-year
financial statements |
16 |
16 |
|
190 |
175 |
| Non-audit
fees: |
|
|
| Additional controls
testing |
16 |
16 |
|
16 |
16 |
|
206 |
191 |
7. Director and staff costs
|
2021
£000 |
2020
£000 |
| Wages and salaries |
1,724 |
1,688 |
| Non-Executive
Directors’ fees |
250 |
250 |
| Social security
costs |
358 |
394 |
| Other pension
costs |
28 |
45 |
| Share-based payments –
cash settled |
166 |
473 |
| Share-based payments –
equity settled |
693 |
423 |
|
3,219 |
3,273 |
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 29 June
2020 awards of 599,534 notional shares were made which
vest in June 2022 (2020: 441,322
notional shares). The next awards are due to be made in
June 2021 for vesting in June 2023.
The table below summarises the awards made under the Deferred
Bonus Plan. Employees have the option to defer the vesting date of
their awards for a maximum of seven years.
| Vesting date |
Units
at 31 March 2019 |
Units
granted
in the year |
Units
cancelled
in the year |
Units
redeemed in the year |
Units
at 31 March 2020 |
Units
granted
in the year |
Units
cancelled
in the year |
Units
redeemed in the year |
Units
at 31 March
2021 |
| 31 March 2020 |
564,604 |
– |
(2,616) |
(319,479) |
242,509 |
– |
– |
(242,509) |
– |
| 19 June 2021 |
– |
441,322 |
(2,415) |
– |
438,907 |
– |
– |
– |
438,907 |
| 29 June 2022 |
– |
– |
– |
– |
– |
599,534 |
– |
– |
599,534 |
|
564,604 |
441,322 |
(5,031) |
(319,479) |
681,416 |
599,534 |
– |
(242,509) |
1,038,441 |
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 29 June 2020 awards for a
maximum of 860,740 shares were granted to employees in respect of
the three-year period ending on 31 March
2023. In the previous year, awards of 878,164 shares were
made on 19 June 2019 for the period
ending 31 March 2022.
The three performance metrics are:
– 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 a combination
of a Monte Carlo model for the
market conditions (TSR) and a Black-Scholes model for the
non-market conditions (TPR and EPS). The fair value is recognised
over the expected vesting period. For the awards made during this
year and the previous year the main inputs and assumptions of the
models, and the resulting fair values, are:
| Assumptions |
|
|
| Grant date |
29 June
2020 |
19 June
2019 |
| Share price at date of
grant |
68.4p |
95.0p |
| Exercise price |
Nil |
Nil |
| Expected term |
3
years |
3
years |
| Risk-free rate – TSR
condition |
(0.05)% |
0.84% |
| Share price volatility
– TSR condition |
24.2% |
18.7% |
| Median volatility of
comparator group – TSR condition |
24.5% |
18.1% |
| Correlation – TSR
condition |
37.8% |
27.1% |
| TSR performance at
grant date – TSR condition |
(11.4)% |
7.5% |
| Median TSR performance
of comparator group at grant date – TSR condition |
(10.7)% |
3.0% |
| Fair value – TSR
condition (Monte Carlo method) |
26.7p |
51.5p |
| Fair value – TPR
condition (Black-Scholes model) |
68.4p |
95.0p |
| Fair value – EPS
condition (Black-Scholes model) |
68.4p |
95.0p |
The Trustee of the Company’s Employee Benefit Trust acquired
958,000 ordinary shares during the year for £643,000 (2020: 954,000
shares for £844,000).
The Group employed ten members of staff at 31 March 2021 (2020: nine). The average number of
people employed by the Group for the year ended 31 March 2021 was nine (2020: ten).
8. Interest paid
|
2021
£000 |
2020
£000 |
| Interest payable on
loans |
7,574 |
7,933 |
| Interest on obligations
under finance leases |
114 |
114 |
| Non-utilisation
fees |
311 |
248 |
|
7,999 |
8,295 |
The loan arrangement costs incurred to 31
March 2021 are £4,590,000 (2020: £4,534,000). These are
amortised over the duration of the loans with £531,000 amortised in
the year ended 31 March 2021 and
included in interest payable on loans (2020: £371,000).
9. Tax
The charge for the year is:
|
2021
£000 |
2020
£000 |
| Tax expense in
year |
– |
– |
| Tax adjustment to
provision for prior year |
– |
(124) |
| Total tax
charge/(credit) |
– |
(124) |
A reconciliation of the tax charge applicable to the results at
the statutory tax rate to the charge for the year is as
follows:
|
2021
£000 |
2020
£000 |
| Profit before
taxation |
33,801 |
22,384 |
| Expected tax charge on
ordinary activities at the standard rate of taxation of 19% (2020:
19%) |
6,422 |
4,253 |
| Less: |
|
|
| UK REIT exemption on
net income |
(3,813) |
(3,760) |
| Revaluation movement
not taxable |
(2,444) |
168 |
| Gains on disposal not
taxable |
(165) |
(661) |
| Total tax
charge |
– |
– |
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.
The Group is exempt from Guernsey taxation under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989.
10. Dividends
|
2021
£000 |
2020
£000 |
| Declared and
paid: |
|
|
| Interim dividend for
the period ended 31 March 2019: 0.875 pence |
– |
4,712 |
| Interim dividend for
the period ended 30 June 2019: 0.875 pence |
– |
4,781 |
| Interim dividend for
the period ended 30 September 2019: 0.875 pence |
– |
4,773 |
| Interim dividend for
the period ended 31 December 2019: 0.875 pence |
– |
4,773 |
| Interim dividend for
the period ended 31 March 2020: 0.625 pence |
3,409 |
– |
| Interim dividend for
the period ended 30 June 2020: 0.625 pence |
3,410 |
– |
| Interim dividend for
the period ended 30 September 2020: 0.7 pence |
3,819 |
– |
| Interim dividend for
the period ended 31 December 2020: 0.8 pence |
4,364 |
– |
|
15,002 |
19,039 |
The interim dividend of 0.8 pence
per ordinary share in respect of the period ended 31 March 2021 has not been recognised as a
liability as it was declared after the year end. This dividend of
£4,364,000 will be paid on 28 May
2021.
11. Earnings per share
Basic and diluted earnings per share is calculated by dividing
the net profit for the year attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares in
issue during the year, excluding the average number of shares held
by the Employee Benefit Trust for the year. The diluted number of
shares also reflects the contingent shares to be issued under the
Long-term Incentive Plan.
The following reflects the profit and share data used in the
basic and diluted profit per share calculation:
|
2021 |
2020 |
Net profit attributable
to ordinary shareholders of the Company
from continuing operations (£000) |
33,801 |
22,508 |
| Weighted average number
of ordinary shares for basic profit per share |
545,590,722 |
544,192,866 |
| Weighted average number
of ordinary shares for diluted profit per share |
546,793,381 |
546,227,914 |
12. Investments in subsidiaries
The Company had the following principal subsidiaries as at
31 March 2021 and 31 March 2020:
| Name |
Place of
incorporation |
Ownership
proportion |
| Picton UK Real Estate
Trust (Property) Limited |
Guernsey |
100% |
| Picton (UK) REIT (SPV)
Limited |
Guernsey |
100% |
| Picton (UK) Listed Real
Estate |
Guernsey |
100% |
| Picton UK Real Estate
(Property) No 2 Limited |
Guernsey |
100% |
| Picton (UK) REIT (SPV
No 2) Limited |
Guernsey |
100% |
| Picton Capital
Limited |
England
& Wales |
100% |
| Picton (General
Partner) No 2 Limited |
Guernsey |
100% |
| Picton (General
Partner) No 3 Limited |
Guernsey |
100% |
| Picton No 2 Limited
Partnership |
England
& Wales |
100% |
| Picton No 3 Limited
Partnership |
England
& Wales |
100% |
| Picton Financing UK
Limited |
England
& Wales |
100% |
| Picton Property No 3
Limited |
Guernsey |
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, 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.
|
2021
£000 |
2020
£000 |
| Fair value at start of
year |
654,486 |
676,102 |
| Capital expenditure on
investment properties |
4,961 |
8,861 |
| Disposals |
(3,928) |
(33,073) |
| Transfer to
owner-occupied property |
(3,830) |
– |
| Realised gains on
disposal |
868 |
3,478 |
| Unrealised movement on
investment properties |
12,861 |
(882) |
| Fair value at the
end of the year |
665,418 |
654,486 |
| Historic cost at the
end of the year |
625,359 |
629,932 |
The fair value of investment properties reconciles to the
appraised value as follows:
|
2021
£000 |
2020
£000 |
| Appraised value |
682,410 |
664,615 |
| Valuation of assets
held under head leases |
1,313 |
1,489 |
| Owner-occupied
property |
(3,830) |
– |
| Lease incentives held
as debtors |
(14,475) |
(11,618) |
| Fair value at the
end of the year |
665,418 |
654,486 |
The investment properties were valued by independent valuers,
CBRE Limited, Chartered Surveyors, as at 31
March 2021 and 31 March 2020
on the basis of fair value in accordance with the version of the
RICS Valuation – Global Standards (incorporating the International
Valuation Standards) and the UK national supplement (the Red Book)
current as at the 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.
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 are 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.
The outbreak of Covid-19, declared by the World Health
Organization as a ‘global pandemic’ on 11
March 2020, has had a significant impact on many
aspects of daily life and the global economy – with some real
estate markets having experienced lower levels of transactional
activity and liquidity. Travel restrictions are in place and
lockdowns have been applied both nationally and at a local level.
Whilst restrictions are currently being eased in the UK, following
the successful rollout of the vaccination programme local lockdowns
may continue to be deployed as necessary and the emergence of
significant further outbreaks or a ‘further wave’ is possible.
The pandemic and the measures taken to tackle Covid-19 continue
to affect economies and real estate markets globally. Nevertheless,
as at the valuation date some property markets have started to
function again, with transaction volumes and properties on the
market returning to levels where in general an adequate quantum of
market evidence exists upon which to base opinions of value.
Accordingly, and in contrast to the year ended 31 March 2020, the valuation is not reported as
being subject to ‘material valuation uncertainty’ as defined by VPS
3 and VPGA 10 of the RICS Valuation – Global Standards.
As at 31 March 2021 and
31 March 2020 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, i.e. derived from prices).
Information on these significant unobservable inputs per sector
of investment properties is disclosed as follows:
|
2021 |
2020 |
|
Office |
Industrial |
Retail
and Leisure |
Office |
Industrial |
Retail and
Leisure |
| Appraised value
(£000) |
245,385 |
360,740 |
76,285 |
224,620 |
318,330 |
121,665 |
| Area (sq ft, 000s) |
828 |
2,570 |
706 |
808 |
2,570 |
829 |
| Range of
unobservable inputs: |
|
|
|
|
|
|
| Gross ERV (sq ft per
annum) |
|
|
|
|
|
|
| – range |
£11.00
to £78.05 |
£3.75
to £21.18 |
£3.46
to £29.65 |
£11.00 to
£53.59 |
£3.54 to
£19.58 |
£3.46 to
£81.77 |
| – weighted average |
£34.10 |
£10.39 |
£11.84 |
£27.92 |
£9.79 |
£32.13 |
| Net initial
yield |
|
|
|
|
|
|
| – range |
0.00%
to 7.98% |
2.79%
to 7.63% |
3.07%
to 29.58% |
0.00% to
7.59% |
–2.54% to
8.16% |
–0.18% to
25.27% |
| – weighted average |
4.35% |
4.38% |
7.64% |
4.89% |
4.63% |
5.25% |
| Reversionary
yield |
|
|
|
|
|
|
| – range |
4.34%
to 10.83% |
3.68%
to 8.59% |
7.01%
to 26.95% |
5.47% to
10.80% |
4.46% to
10.17% |
4.36% to
11.97% |
| – weighted average |
7.02% |
4.97% |
7.95% |
7.04% |
5.40% |
6.63% |
| True equivalent
yield |
|
|
|
|
|
|
| – range |
4.42%
to 9.95% |
3.73%
to 8.39% |
7.80%
to 14.03% |
5.33% to
9.80% |
4.39% to
9.65% |
3.97% to
11.95% |
| – weighted average |
6.82% |
5.02% |
8.99% |
6.97% |
5.40% |
7.17% |
The property valuations reflect the external valuers’ assessment
of the impact of Covid-19 at the valuation date. 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 |
Movement |
2021
Impact on valuation |
2020
Impact on valuation |
| Industrial |
Increase
of 50 basis points |
Decrease of £36.3m |
Decrease
of £29.3m |
|
Decrease
of 50 basis points |
Increase of £45.4m |
Increase
of £36.1m |
| Office |
Increase
of 50 basis points |
Decrease of £20.3m |
Decrease
of £17.5m |
|
Decrease
of 50 basis points |
Increase of £24.5m |
Increase
of £20.5m |
| Retail and Leisure |
Increase
of 50 basis points |
Decrease of £5.2m |
Decrease
of £10.9m |
|
Decrease
of 50 basis points |
Increase of £6.7m |
Increase
of £13.9m |
14. Property, plant and equipment
Property, plant and equipment principally comprises the fair
value of owner-occupied property. On 11
March 2021 the Group moved to premises at one of its own
buildings. The fair value of these premises is based on the
appraised value at 31 March 2021
which approximates to the fair value at 11
March 2021. Consequently there has been no transfer to
revaluation reserve for the year.
15. Accounts receivable
|
2021
£000 |
2020
£000 |
| Tenant debtors (net of
provisions for bad debts) |
4,326 |
5,197 |
| Lease incentives |
14,475 |
11,618 |
| Other debtors |
783 |
786 |
|
19,584 |
17,601 |
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
2021, tenant debtors of £1,874,000 (2020: £1,676,000) were
considered impaired and provided for.
16. Cash and cash equivalents
|
2021
£000 |
2020
£000 |
| Cash at bank and in
hand |
23,353 |
23,564 |
| Short-term
deposits |
5 |
3 |
|
23,358 |
23,567 |
Cash at bank and in hand earns interest at floating rates based
on daily bank deposit rates. Short-term deposits are made for
varying periods of between one day and one month depending on the
immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates. The carrying amounts of these
assets approximate their fair value.
17. Accounts payable and accruals
|
2021
£000 |
2020
£000 |
| Accruals |
4,496 |
5,263 |
| Deferred rental
income |
7,596 |
7,817 |
| VAT liability |
1,780 |
1,685 |
| Trade creditors |
596 |
1,058 |
| Other creditors |
4,337 |
3,615 |
|
18,805 |
19,438 |
18. Loans and borrowings
|
Maturity |
2021
£000 |
2020
£000 |
| Current |
|
|
|
| Aviva facility |
– |
1,314 |
1,258 |
| Capitalised finance
costs |
– |
(370) |
(370) |
|
|
944 |
888 |
|
|
|
|
| Non-current |
|
|
|
| Canada Life
facility |
24 July
2027 |
80,000 |
80,000 |
| Aviva facility |
24 July
2032 |
84,894 |
86,207 |
| Capitalised finance
costs |
– |
(2,183) |
(1,959) |
|
|
162,711 |
164,248 |
|
|
163,655 |
165,136 |
The following table provides a reconciliation of the movement in
loans and borrowings to cash flows arising from financing
activities.
|
2021
£000 |
2020
£000 |
| Balance as at 1
April |
165,136 |
191,969 |
|
|
|
| Changes from
financing cash flows |
|
|
| Proceeds from loans and
borrowings |
– |
6,000 |
| Repayment of loans and
borrowings |
(1,258) |
(33,204) |
| Financing costs
paid |
(574) |
– |
|
(1,832) |
(27,204) |
| Other
changes |
|
|
| Amortisation of
financing costs |
531 |
371 |
| Accrued financing
costs |
(180) |
– |
|
351 |
371 |
| Balance as at 31
March |
163,655 |
165,136 |
The Group has an £80 million term loan facility with Canada Life
Limited which matures in July 2027.
Interest is fixed at 4.08% over the life of the loan. The loan
agreement has a loan to value covenant of 65% and an interest cover
test of 1.75. The loan is secured over the Group’s properties held
by Picton No 2 Limited Partnership and Picton UK Real Estate Trust
(Property) No 2 Limited, valued at £330.0 million (2020: £307.5
million).
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 £1.3 million in the year (2020: £1.2 million). Interest on
the loan is fixed at 4.38% over the life of the loan. The facility
has a loan to value covenant of 65% and a debt service cover ratio
of 1.4. The facility is secured over the Group’s properties held by
Picton No 3 Limited Partnership and Picton Property No 3 Limited,
valued at £184.9 million (2020: £189.0 million).
In May 2020 the Group entered into
a new £50 million revolving credit facility (‘RCF’) with National
Westminster Bank Plc; this replaces the facilities held with
Santander Corporate & Commercial Banking which have been
cancelled. The new facility is for an initial term of three years
with the option of two, one-year extensions. Currently undrawn, the
RCF will incur interest at 150 basis points over LIBOR on drawn
balances and an undrawn commitment fee of 60 basis points. The
facility is secured on properties held by Picton UK Real Estate
Trust (Property) Limited, valued at £131.7 million.
The fair value of the drawn loan facilities at 31 March 2021, estimated as the present value of
future cash flows discounted at the market rate of interest at that
date, was £187.2 million (2020: £197.0 million). The fair value of
the secured loan facilities is classified as Level 2 under the
hierarchy of fair value measurements.
There were no transfers between levels of the fair value
hierarchy during the current or prior years.
The weighted average interest rate on the Group’s borrowings as
at 31 March 2021 was 4.2% (2020:
4.2%).
19. Contingencies and capital
commitments
The Group has entered into contracts for the refurbishment of 11
properties with commitments outstanding at 31 March 2021 of approximately £6.7 million
(2020: £4.5 million). No further obligations to construct or
develop investment property or for repairs, maintenance or
enhancements were in place as at 31 March
2021 (2020: £nil).
20. Share capital and other
reserves
|
2021
£000 |
2020
£000 |
| Authorised: |
|
|
| Unlimited number of
ordinary shares of no par value |
– |
– |
|
|
|
| Issued and fully
paid: |
|
|
| 547,605,596 ordinary
shares of no par value |
|
|
| (31 March 2020:
547,605,596) |
– |
– |
| Share premium |
164,400 |
164,400 |
The Company has 547,605,596 ordinary shares in issue of no par
value (2020: 547,605,596).
On 21 June 2019 the Company raised
£7.1 million through the issue of 7,551,936 new ordinary share of
no par value at 94.5 pence per share.
No new ordinary shares were issued during the year ended
31 March 2021.
|
2021
Number of shares |
2020
Number of shares |
| Ordinary share
capital |
547,605,596 |
547,605,596 |
| Number of shares held
in Employee Benefit Trust |
(2,052,269) |
(2,103,683) |
| Number of ordinary
shares |
545,553,327 |
545,501,913 |
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 2,052,269 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
|
2021
£000 |
2020
£000 |
| Profit on disposal of
investment properties |
(868) |
(3,478) |
| Movement in investment
property valuation |
(12,861) |
882 |
| Share-based
provisions |
758 |
292 |
| Depreciation of
tangible assets |
7 |
9 |
|
(12,964) |
(2,295) |
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 payable on leasehold
properties were payable as follows:
|
2021
£000 |
2020
£000 |
| Future minimum
payments due: |
|
|
| Within one year |
116 |
117 |
| In the second to fifth
years inclusive |
466 |
466 |
| After five years |
7,150 |
7,266 |
|
7,732 |
7,849 |
| Less: finance charges
allocated to future periods |
(5,918) |
(6,032) |
| Present value of
minimum lease payments |
1,814 |
1,817 |
The present value of minimum lease payments is analysed as
follows:
|
2021
£000 |
2020
£000 |
| Current |
|
|
| Within one year |
107 |
108 |
|
107 |
108 |
|
|
|
| Non-current |
|
|
| In the second to fifth
years inclusive |
379 |
388 |
| After five years |
1,328 |
1,321 |
|
1,707 |
1,709 |
|
1,814 |
1,817 |
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):
|
2021
£000 |
2020
£000 |
| Within one year |
37,744 |
38,296 |
| One to two years |
33,954 |
35,665 |
| Two to three years |
32,008 |
32,356 |
| Three to four
years |
27,937 |
30,342 |
| Four to five years |
23,235 |
26,322 |
| After five years |
91,294 |
111,711 |
|
246,172 |
274,692 |
These properties are measured under the fair value model as the
properties are held to earn rentals. Commercial property 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.
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
2021 |
Note |
Held
at
fair value through profit or loss
£000 |
Financial assets and liabilities at amortised cost
£000 |
Total
£000 |
| Financial
assets |
|
|
|
|
| Debtors |
15 |
– |
5,109 |
5,109 |
| Cash and cash
equivalents |
16 |
– |
23,358 |
23,358 |
|
|
– |
28,467 |
28,467 |
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
| Loans and
borrowings |
18 |
– |
163,655 |
163,655 |
| Obligations under head
leases |
22 |
– |
1,814 |
1,814 |
| Creditors and
accruals |
17 |
– |
9,429 |
9,429 |
|
|
– |
174,898 |
174,898 |
| 31 March 2020 |
Note |
Held
at
fair value through profit or loss
£000 |
Financial
assets and liabilities at amortised cost
£000 |
Total
£000 |
| Financial
assets |
|
|
|
|
| Debtors |
15 |
– |
5,983 |
5,983 |
| Cash and cash
equivalents |
16 |
– |
23,567 |
23,567 |
|
|
– |
29,550 |
29,550 |
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
| Loans and
borrowings |
18 |
– |
165,136 |
165,136 |
| Obligations under head
leases |
22 |
– |
1,817 |
1,817 |
| Creditors and
accruals |
17 |
– |
9,936 |
9,936 |
|
|
– |
176,889 |
176,889 |
25. Risk management
The Group invests in commercial properties in the United Kingdom. The following describes the
risks involved and the risk management framework applied by the
Group. Senior management reports regularly both verbally and
formally to the Board, and its relevant committees, to allow them
to monitor and review all the risks noted below.
Capital risk management
The Group aims to manage its capital to ensure that the entities
in the Group will be able to continue as a going concern while
maximising the return to stakeholders through optimising its
capital structure. The Board’s policy is to maintain a 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
capital, reserves and retained earnings. 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.
At the reporting date the gearing ratios were as follows:
|
2021
£000 |
2020
£000 |
| Total borrowings |
166,208 |
167,465 |
| Gross assets |
712,471 |
695,674 |
| Gearing ratio (must
not exceed 65%) |
23.3% |
24.1% |
The Board of Directors monitors the return on capital as well as
the level of dividends to ordinary shareholders. The Group has
managed its capital risk by entering into long-term loan
arrangements which will enable the Group to manage its borrowings
in an orderly manner over the long-term. The Group also has a
revolving credit facility which provides greater flexibility in
managing the level of borrowings.
The Group’s net debt to equity ratio at the reporting date was
as follows:
|
2021
£000 |
2020
£000 |
| Total liabilities |
184,274 |
186,391 |
| Less: cash and cash
equivalents |
(23,358) |
(23,567) |
| Net debt |
160,916 |
162,824 |
| Total
equity |
528,197 |
509,283 |
| Net debt to equity
ratio at end of year |
0.30 |
0.32 |
Credit risk
The following tables detail the balances held at the reporting
date that may be affected by credit risk:
| 31 March
2021 |
Note |
Held
at
fair value through profit or loss
£000 |
Financial assets and liabilities at amortised cost
£000 |
Total
£000 |
| Financial
assets |
|
|
|
|
| Tenant debtors |
15 |
– |
4,326 |
4,326 |
| Cash and cash
equivalents |
16 |
– |
23,358 |
23,358 |
|
|
– |
27,684 |
27,684 |
| 31 March 2020 |
Note |
Held
at
fair value through profit or loss
£000 |
Financial
assets and liabilities at amortised cost
£000 |
Total
£000 |
| Financial
assets |
|
|
|
|
| Tenant debtors |
15 |
– |
5,197 |
5,197 |
| Cash and cash
equivalents |
16 |
– |
23,567 |
23,567 |
|
|
– |
28,764 |
28,764 |
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with
creditworthy counterparties and obtaining sufficient collateral
where appropriate, as a means of mitigating the risk of financial
loss from defaults. The Group’s exposure and credit ratings of its
counterparties are continuously monitored and the aggregate value
of transactions concluded is spread amongst approved
counterparties.
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. 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 credit risk exposure to any
single counterparty or any group of counterparties having similar
characteristics. The credit risk on liquid funds is limited
because the counterparties are banks with high credit ratings
assigned by international credit rating agencies.
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 with set counterparty limits that are
reviewed regularly. The Group’s main cash balances are held with
National Westminster Bank plc (‘NatWest’), Santander plc
(‘Santander’), Nationwide International Limited (‘Nationwide’) and
The Royal Bank of Scotland plc
(‘RBS’). Insolvency or resolution of the bank holding cash balances
may cause the Group’s recovery of cash held by them to be delayed
or limited. The Group manages its risk by monitoring the credit
quality of its bankers on an ongoing basis. NatWest, Santander,
Nationwide and RBS are rated by all the major rating agencies. If
the credit quality of these banks deteriorates, the Group would
look to move the short-term deposits or cash to another bank.
Procedures exist to ensure that cash balances are split between
banks to minimise exposure. At 31 March
2021 and at 31 March 2020
Standard & Poor’s short-term credit rating for the Group’s
bankers was A-1.
There has been no change in the fair values of cash or
receivables as a result of changes in credit risk in the current or
prior periods, due to the actions taken to mitigate this risk, as
stated above.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board, which has built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and
long-term funding and liquidity management requirements. The
Group’s liquidity risk is managed on an ongoing basis by senior
management and monitored on a quarterly basis by the Board by
maintaining adequate reserves and loan facilities, continuously
monitoring forecasts and actual cash flows and matching the
maturity profiles of financial assets and liabilities for
a period of at least 12 months.
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
2021 |
Less
than
1 year
£000 |
1 to
5
years
£000 |
More
than
5 years
£000 |
Total
£000 |
| Cash and cash
equivalents |
23,358 |
– |
– |
23,358 |
| Debtors |
5,109 |
– |
– |
5,109 |
| Capitalised finance
costs |
370 |
1,355 |
828 |
2,553 |
| Obligations under head
leases |
(116) |
(466) |
(7,150) |
(7,732) |
| Fixed interest rate
loans |
(8,332) |
(33,329) |
(184,927) |
(226,588) |
| Floating interest rate
loans |
(300) |
(346) |
– |
(646) |
| Creditors and
accruals |
(9,429) |
– |
– |
(9,429) |
|
10,660 |
(32,786) |
(191,249) |
(213,375) |
| 31 March 2020 |
Less
than
1 year
£000 |
1 to 5
years
£000 |
More
than
5 years
£000 |
Total
£000 |
| Cash and cash
equivalents |
23,567 |
– |
– |
23,567 |
| Debtors |
5,983 |
– |
– |
5,983 |
| Capitalised finance
costs |
370 |
912 |
1,047 |
2,329 |
| Obligations under head
leases |
(117) |
(466) |
(7,266) |
(7,849) |
| Fixed interest rate
loans |
(8,332) |
(33,329) |
(193,259) |
(234,920) |
| Creditors and
accruals |
(9,936) |
– |
– |
(9,936) |
|
11,535 |
(32,883) |
(199,478) |
(220,826) |
Market risk
The Group’s activities are primarily within the real estate
market, exposing it to very specific industry risks.
The yields available from investments in real estate depend
primarily on the amount of revenue earned and capital appreciation
generated by the relevant properties as well as expenses incurred.
If properties do not generate sufficient revenues to meet operating
expenses, including debt service and capital expenditure, the
Group’s 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 (including real estate
taxes).
In addition, the Group’s revenue would be adversely affected if
a significant number of occupiers were unable to pay rent or
its properties could not be rented on favourable terms. This risk
has increased given the Covid-19 pandemic and the resultant effect
on occupiers’ ability to pay rent. Certain significant expenditure
associated with each equity investment in real estate (such as
external financing costs, real estate taxes and maintenance costs)
is generally not reduced when circumstances cause a reduction in
revenue from properties. By diversifying in regions, sectors, risk
categories and occupiers, senior management expects to 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 £34.1
million (2020: £33.2 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 and the revolving credit
facility is currently undrawn, thus the Group has limited exposure
to interest rate risk on the majority of its borrowings and no
sensitivity is presented.
Interest rate risk
The following table sets out the carrying amount, by maturity,
of the Group’s financial assets/(liabilities).
| 31 March
2021 |
Less
than
1 year
£000 |
1 to
5
years
£000 |
More
than
5 years
£000 |
Total
£000 |
| Floating |
|
|
|
|
| Cash and cash
equivalents |
23,358 |
– |
– |
23,358 |
|
|
|
|
|
| Fixed |
|
|
|
|
| Secured loan
facilities |
(1,314) |
(5,867) |
(159,027) |
(166,208) |
| Obligations under
leases |
(107) |
(379) |
(1,328) |
(1,814) |
|
21,937 |
(6,246) |
(160,355) |
(144,664) |
| 31 March 2020 |
Less
than
1 year
£000 |
1 to 5
years
£000 |
More
than
5 years
£000 |
Total
£000 |
| Floating |
|
|
|
|
| Cash and cash
equivalents |
23,567 |
– |
– |
23,567 |
|
|
|
|
|
| Fixed |
|
|
|
|
| Secured loan
facilities |
(1,258) |
(5,616) |
(160,591) |
(167,465) |
| Obligations under
leases |
(108) |
(388) |
(1,321) |
(1,817) |
|
22,201 |
(6,004) |
(161,912) |
(145,715) |
Concentration risk
As discussed above, all of the Group’s investments are in the UK
and therefore it is exposed to macroeconomic changes in the UK
economy. Furthermore, the Group has around 350 occupiers so does
not place reliance on a limited number of occupiers for its rental
income, with the single largest occupier accounting for 5.0% 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 £250,000 (2020: £250,000). As
at 31 March 2021 the Group owed £nil
to the Non-Executive Directors (2020: £nil).
Picton Property Income Limited has no controlling parties.
27. Events after the balance sheet
date
A dividend of £4,364,000 (0.8
pence per share) was approved by the Board on 29 April 2021 and was paid on 28 May 2021.
The revolving credit facility held with National Westminster
Bank Plc has been extended by a further 12 months to May 2024.
END