Company Announcements

Picton Property Income Ltd - Preliminary Annual Results

26 May 2022


(“Picton”, the “Company” or the “Group”)

LEI: 213800RYE59K9CKR4497

Preliminary Annual Results

Picton announces its annual results for the year ending 31 March 2022.

Strong financial performance

–  Profit after tax of £147 million, the highest profit recorded since launch in 2005 (2021: £34 million)

–  Net assets of £657 million, or 120p per share, an increase of 24.4% (2021: £528 million or 97p per share)

–  Earnings per share of 27.0p (2021: 6.2p)

–  Total return of 28.3% (2021: 6.6%)

–  Increased dividends paid of £18.4 million with dividend cover of 115%

–  Loan to value ratio maintained at 21% with significant headroom against loan covenants

–  Refinanced existing debt facility increasing borrowings by £49 million while reducing the cost of debt and extending the term

Outperforming property portfolio

–  Significant valuation gains with like-for-like valuation increase of 21%

–  Total property return of 24.3%, outperforming MSCI UK Quarterly Property Index of 19.6%

–  Outperformed MSCI UK Quarterly Property Index for the ninth consecutive year

–  Upper quartile outperformance against MSCI over three, five and ten years, and since inception

–  Well positioned portfolio comprising Industrial 60%, Office 30%, Retail and Leisure 10%

–  Like-for-like increase in passing rent of 2.1%

–  Like-for-like estimated rental value increase of 5.4%

–  Selective investment activity:

        -     Two industrial assets acquired for £25.0 million

        -     One retail asset disposal for £0.7 million, 16% ahead of March 2021 valuation

–  Rent collection back to pre-pandemic levels

Occupier focused asset management

–  Increased occupancy to 93% (2021: 91%)

–  76 asset management transactions completed including:

        -     34 lettings or agreements to lease, 8% ahead of ERV

        -     21 lease renewals or regears, 3% ahead of ERV

        -     12 rent reviews, 7% ahead of ERV

        -     9 other asset management transactions

–  £10 million invested into asset refurbishment, upgrades and repositioning projects

Responsible stewardship

–  Improved EPC ratings with 71% rated A-C (2021: 64% rated A-C)

–  Pathway to net zero carbon published:

        -     Target date of 2040

        -     Includes both operational and embodied emissions

–  Signatory to Better Buildings Partnership Climate Commitment

                   31 March 2022 31 March 2021 31 March 2020

Property valuation     £849m         £682m         £665m

Net assets             £657m         £528m         £509m

EPRA NTA per share     120p           97p           93p


                          Year ended    Year ended    Year ended
                         31 March 2022 31 March 2021 31 March 2020

Profit for the year         £147.4m       £33.8m        £22.5m

EPRA earnings               £21.2m        £20.1m        £19.9m

Earnings per share           27.0p         6.2p          4.1p

EPRA earnings per share      3.9p          3.7p          3.7p

Total return                 28.3%         6.6%          4.5%

Total shareholder return     18.7%         0.0%          3.6%

Total dividend per share     3.4p          2.8p          3.5p

Dividend cover               115%          134%          105%

Picton Chair, Lena Wilson CBE, commented:

“We are delighted to announce a record set of results, which are reflective of the work and dedication of the team during a period which was still impacted by disruption caused during lockdown. We have restored the dividend to pre-pandemic levels and our recent acquisitions will further help to improve our earnings. We remain focused on delivering long-term shareholder value, reinforced by our recently announced net zero carbon commitments.”

Michael Morris, Chief Executive of Picton, commented:

“This year we have delivered strong financial performance driven by a portfolio that has seen a marked uplift in value. We have again outperformed the MSCI UK Quarterly Property Index, delivering upper quartile performance since our launch in 2005. Our lettings success and asset management have improved occupancy across our industrial, office and retail assets. We will continue to invest into our assets, ensuring they remain attractive to occupiers, enhancing their sustainability credentials and protecting both income and value.”

This announcement contains inside information.

For further information:


Jeremy Carey/James Verstringhe, 020 7920 3150,


Michael Morris, 020 7011 9980,

Note to Editors

Picton, established in 2005, is a UK REIT. It owns and actively manages a £849 million diversified UK commercial property portfolio, invested across 47 assets and with around 400 occupiers (as at 31 March 2022). 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:

Chair’s Statement    

I am delighted to report that Picton has delivered a total profit of £147 million, resulting in the most successful year since our launch in 2005.

As lockdown restrictions were lifted, the economy rebounded. Driven by improving income and marked capital growth, our portfolio was well positioned. The majority of our assets saw a significant improvement in value.

Almost all our key performance indicators have improved from last year.


We have delivered a total return of 28.3% alongside a 5.5% increase in EPRA earnings, which has enabled us to increase dividends accordingly.

Our total shareholder return was 18.7% and whilst it saw a healthy improvement during the year, like many listed real estate companies, our share price currently remains below our net asset value.

We have delivered property performance ahead of the MSCI UK Quarterly Property Index. This continues to reinforce our strong longer-term track record, achieving upper quartile property performance against this Index over three, five and ten years, and since inception.

Property portfolio

Our outperformance at a property level has principally been driven by our high exposure to the industrial, warehouse and logistics sector, but we have also benefitted this year from a recovery in the value of our retail warehouse assets. Performance in the office sector has been more muted, but our focus on asset management has helped to offset a wider market slowdown.

Encouragingly we have had leasing success across all three sectors, and grown occupancy to 93% from 91% a year ago. This has had a positive impact in terms of void holding costs, which will flow into future years.

In separate transactions, we acquired two multi-let industrial assets and disposed of one small high street retail asset. Although at the early stage of our asset management plans, our acquisitions have already delivered valuation and income growth.

Capital structure

During the year we have extended and increased our longer-term borrowings by £49 million, insulating the business from further rising borrowing costs. Our new debt facility is at a lower cost than our existing borrowings and we incurred one-off costs in resetting the facility to a lower overall rate. By substantially repaying our revolving credit facility, we have future operational flexibility and firepower. At the year-end borrowings totalled £219 million, with the loan to value ratio broadly constant over the year at 21%.


On the back of strong leasing activity and improving rent collection, we have increased the dividend twice during the period. We have restored our distributions back to their pre-pandemic level and we can report a healthy dividend cover of 115% over the period.

Our aim is to continue to grow dividends on a progressive basis, which in the short-term will be driven by further improvement in occupancy and rental growth, predominantly coming from our industrial assets.


We have made significant progress on our sustainability priorities, recently publishing our plan to become net zero carbon by 2040.

Our net zero carbon pathway ambition of 2040 is ten years ahead of the Government target and although our initial focus will be on reducing Scope 1 and 2 emissions, we intend to work with our occupiers to reduce the most significant part of the portfolio’s emissions, which come under Scope 3. We will report regularly on our progress.

I am grateful to Maria Bentley who has agreed to act as Board champion and oversee the work with the Executive Committee on sustainability.


We are acutely aware of the new challenges emerging both directly and indirectly from the conflict in Ukraine. Rising energy, food and commodity prices, along with supply chain disruptions and labour market shortages are becoming increasingly visible and will impact economic growth.

We are already seeing rising interest rates and gilt yields have risen this year. Real estate has both an income and capital element and can offer inflation protection as evidenced by our performance this year, particularly in areas where supply is constrained, and demand enables rents to continue to rise.

As a UK diversified REIT we have greater flexibility with regard to asset selection giving us the ability to position the portfolio for the long-term. We will continue to explore opportunities for growth, but this must be on terms that are attractive to our shareholders and with the right quality of asset. We remain disciplined in our approach.

As in previous years we have invested in our assets and upgraded the quality of accommodation. This approach is increasingly relevant to a discerning occupier base, and will enable us to grow income.

Whilst returns in 2022 are likely to soften from those seen over this reporting period, we can be confident that we have a portfolio that will continue to see further growth.

Lena Wilson CBE


25 May 2022

Chief Executive’s Review

We have had a very successful year, delivering a record profit against a backdrop of reduced pandemic-related disruption. Our clear purpose and strategic priorities have enabled us to focus on what matters.

To reflect the closer integration of sustainability into our business model and our commitment to achieving net zero carbon, we have redefined our Purpose, which now states:

‘To be a responsible owner of commercial real estate, helping our occupiers succeed and being valued by all our stakeholders.’

We have also added two strategic priorities, specifically relating to the work we are doing to reduce our impact on climate change:

–  Adapting to and mitigating the impact of climate change; and,

–  reducing emissions to become carbon net zero in or before 2040.

This makes it clear that the focus of our sustainability strategy is aligned with our occupiers and other stakeholders.

Portfolio performance

Income and capital growth

We have seen exceptionally strong portfolio growth over the period. This has been predominantly driven by our industrial, warehouse and logistics assets where both rental and capital values have continued to move higher. Our retail portfolio, which now comprises 65% retail warehouse assets, has also seen strong valuation growth, with a reversal of some of the writedowns seen during the pandemic. Our office assets have not seen the valuation growth we might have expected, especially recognising the leasing success in this sector. This in part reflects perceived changes in working habits and costs associated with improving sustainability credentials.

We will seek to offset increasing cost pressures where we can attract premium rents, either due to limited supply or by providing high quality space.

Growing occupancy and income profile

We have improved occupancy this year, which has led to increased income. Our rent collection over the period has averaged 98% and was close to 100% for the December 2021 and March 2022 quarters. This higher level of income has enabled us to increase the dividend twice during the year, which we cover in more detail in the Financial Review.

Enhancing asset quality

During the year, we have invested £10 million in upgrading our assets. The impact of some of this activity is very obvious, such as the creation of Rum Runner Works, at Regency Wharf, in Birmingham where we have converted leisure space into offices; however, some of the less visible work is equally important as it aligns to our sustainability targets. For example, the complete upgrade and removal of our gas-fired air-conditioning system at 50 Farringdon Road, London, will help with our net zero commitments and improve energy efficiency for our occupiers.

In our refurbishments at Angel Gate, London, 180 West George Street, Glasgow and Longcross, Cardiff, we have also focused on improving occupier amenities, creating more communal and informal space with outside areas where possible.

Outperforming MSCI

We have outperformed the MSCI UK Quarterly Property Index for the ninth consecutive year. This year, across the Index, the range between lower quartile and upper quartile returns was the widest on record at 10.7%. We delivered a portfolio return of 24.3% compared to the Index of 19.6% and upper quartile of 24.9%. Whilst we are just below upper quartile for the year, we have still delivered upper quartile returns against the Index over three, five and ten years, and since inception.

Of note, our industrial assets delivered a total property return of 38.2%, our retail assets delivered 25.6%, which comprised retail warehousing delivering 33.4%, and our office assets delivered 4.4%.

Operational excellence

Efficient platform

We continue to run the business as efficiently as possible and have maintained our cost ratio at 1.0%. We have a small but very dedicated team and use external resource as appropriate. We are not immune from rising costs and it is clear that sustainability focused measures will add to both our workload and costs. We expect to recruit further this year to support our transition to net zero carbon.

Adaptable business model

One of the advantages of our diversified approach is our ability to position the portfolio as market conditions dictate. As returns become more convergent we are looking more widely across sectors. During the year we acquired two adjoining city centre industrial estates, off attractive pricing. Our most recent acquisition post period end was an office and retail asset in London.

This year we introduced SwiftSpace, our flexible lease offering, in response to changes in occupier demand, particularly as we face increased competition from serviced office providers. Our solution provides fast, flexible, inclusive leases, which we are offering in our smaller multi-let offices.

Earnings growth

Our earnings per share of 27.0p are significantly higher than the preceding year, reflecting the growth in the portfolio value. Our EPRA earnings are 5.5% higher reflecting the enhanced income position.

Capital structure

We have recently completed the refinancing of one of our long-term debt facilities, which not only increases the maturity by four years until 2031, but also reduces the overall interest rate. As part of the same transaction, we increased our borrowings by £49 million, which has allowed us to repay most of our revolving credit facility and gives us future financial flexibility. Recognising the asset value growth over the period, the loan to value ratio remained stable at the year-end at 21%.

Growth and economies of scale

We have seen growth this year in two forms: firstly, the valuation growth from the portfolio, which with the use of gearing has increased net assets and secondly, through acquisitions. We have made £25 million of acquisitions, which are earnings accretive, although during the period we have been impacted by stamp duty and other transaction costs.

Within our Interim results, we expressed a desire to grow and highlighted the wide discounts across the listed REIT sector, as well as some of the challenges in the UK real estate open ended sector, which are still prevalent. While we have not yet concluded any transactions, we have been proactive in our dialogue with suitable prospects. We will continue to advocate for change, but remain selective to ensure enhanced future performance.

Acting responsibly

Values and alignment

Ultimately, the performance of the business is delivered by those who work here. Having a small team means that we are able to operate quickly and efficiently with clear objectives that are aligned to remuneration. Our values of being principled, progressive and perceptive have guided us through the challenges of this year. We have broadened our team objectives and asked everyone, irrespective of their role, to help to reduce our impact on the environment.

Working closely with our occupiers

We have spent much of this year focused on a return to normal working practices, as have our occupiers. We have worked with many occupiers to help them rightsize their business. This has enabled us to retain income and de-risk future lease events. We have undertaken 12 transactions where we have extended leases or enabled occupiers to remain in our buildings.


We have devoted significant resource this year to further integrating sustainability within our business model. Specifically, much of the year was spent considering climate-related risks and creating a plan to mitigate these. In addition, we have been preparing our net zero carbon pathway, which is now published, and sets out a clear direction for the business as we aim to meet our 2040 target. The majority of the team have benefitted from specific training in this area and contributed to the formulation of our net zero carbon pathway. We have held externally facilitated workshops on relevant sustainability issues, alongside an internal workshop to ensure that the team is appropriately briefed on our future plans.


We are positive about our future. Although we have had considerable letting success during the year, we can still increase income by improving occupancy. Most of the assets are now seeing stabilised or increasing values. In the industrial sector, we are generally seeing rental growth that is ahead of inflation and believe it is likely that growth will continue, especially if construction costs continue to rise and this impacts supply.

The team is aligned with the need to continue to enhance the portfolio and mitigate any risks from changing occupier habits or climate change. Our future engagement with occupiers and communication of our plan will be crucial moving forwards.

Macroeconomic events are likely to dampen a further recovery in property values, but despite this we believe that the right assets will remain attractive to occupiers and investors alike. We have created a quality portfolio, that is well managed and offers scope to continue to grow both the income and capital position.

Michael Morris

Chief Executive

25 May 2022

Our marketplace

Economic backdrop

As Covid-19 concerns began to dissipate, the war in Ukraine has become a fresh source of uncertainty. The consequences of the sanctions on Russia and embargo on Russian oil and gas are multifaceted. In the UK, we are fortunately less reliant on Russian imports than our neighbours in Europe but the added pressure on household incomes as a result of commodity price increases and persistent inflation will still be considerable.

UK GDP saw an annual rise of 7.4% in 2021 following a -9.3% fall in 2020 and at the end of March 2022 was 0.7% above its pre-pandemic level in December 2019. In the short-term, the rate of economic recovery is expected to be impacted on the supply side by disrupted supply chains and shortages of goods and labour and on the demand side by the cut in household incomes. Forecasters have revised down their GDP growth expectations for 2022 to reflect the impact of the crisis, which are now 3.8% for 2022 according to the Office for Budget Responsibility.

Quantitative easing and Government stimulus during the pandemic supported households and injected significant capital into the economy. As lockdowns ended and more and more businesses were able to reopen, consumer demand increased but this was not always matched with increases in supply, putting upward pressure on prices. The 12-month CPI inflation rate hit a new 40-year high of 9.0% in April 2022. The increase reflects the change in Ofgem’s energy price cap in April causing a jump in utility prices, alongside the rise in fuel and food prices as the agriculture sector faced increasing cost pressures.

The Bank of England’s response to rising inflation has been a series of base rate increases from a historic low of 0.1% to 1.0% in May 2022, the highest level since 2009. Further rate increases are expected, together with a programme of quantitative tightening.

Growth in average total pay (including bonuses) was 7.0% and growth in regular pay (excluding bonuses) was 4.2% among employees in January to March 2022. In real terms, total pay increased on the year by 1.4% and regular pay fell on the year by -1.2%.

In terms of demand, there is still momentum from the reopening of the economy, particularly for the travel industry which is one of the last to see restrictions lifted. As workers have returned to the office, albeit in a more flexible capacity, this will hopefully create an increase in the consumption associated with business travel, city centre retail and leisure activity.

Retail sales volumes are 4.1% above their level in February 2020, however did fall by -0.3% in the three months to April 2022, fuelling concerns that consumers are being hit by affordability pressures. The proportion of online retail sales stood at 27.0% in April 2022, remaining significantly higher than the 19.9% level in February 2020 before the pandemic.

The end of the furlough scheme in September 2021 did not have a significant impact on unemployment. The unemployment rate has fallen below pre-pandemic levels and job vacancies are at a record high. The number of job vacancies in February 2022 to April 2022 rose to a new record of 1.3 million, an increase of 0.5 million from its January to March 2020 level.

UK ten-year gilt yields have been on a generally upward trajectory since December 2021, but remain relatively low by historic standards.

House prices accelerated during the pandemic as changes to the tax paid on property purchases were announced. UK average house prices increased by 10.9% over the year to February 2022. Rising interest rates are likely to dampen the housing market to some extent in the short-term.

Despite the now more muted outlook for the UK economy and the current inflationary environment, there are reasons for cautious optimism. The Covid-19 pandemic has moved into the rear-view mirror. With the vast majority of adults in the UK fully vaccinated, restrictions have been lifted and normality has largely resumed. In a global context the UK remains a safe haven for international capital and posted the strongest GDP growth of all the G7 economies in 2021.

UK property market

The speed and strength of the property market’s recovery from the pandemic was better than expected. Although the average returns are positive, there is still polarisation between sectors and within subsectors, particularly

According to the MSCI UK Quarterly Property Index, commercial property delivered a total return of 19.6% for the year ended March 2022, which compares to 1.1% for the year ending March 2021. The stellar performance was largely attributable to the continued growth in the industrial sector and a recovery in values in the retail warehouse subsector. All Property capital growth was 14.9% in the year to March 2022, significantly better than the -3.2% recorded for the previous year. The income return was 4.2%, slightly lower than the 4.5% recorded for the preceding year.

The industrial sector had an extraordinarily strong year. The industrial total return for the year ending March 2022 was 40.7%, with annual capital growth reaching an all time high of 35.9% and an income return of 3.6%. Industrial ERV growth for the period was 11.2%, with a subsector range of 15.8% to 8.2%. Capital growth ranged from 47.7% to 28.2% within subsectors. Equivalent yields for industrial property now stand at 4.1% (March 2021: 5.0%).

The office sector continued to face a degree of uncertainty over future demand levels and suffered an additional setback in December 2021 as people were once again advised to work from home in the face of the Omicron wave. The office sector produced a total return of 6.9% for the year to March 2022, comprising 3.2% capital growth and 3.7% income return. All Office annual rental growth was 1.4% ranging from 2.4% to 0.9% within subsectors. Office capital growth ranged from 6.5% to -0.6%. Equivalent yields for office property now stand at 5.5% (March 2021: 5.8%).

The elevated rate of online sales over bricks and mortar retail and oversupply of retail units continues to hamper the retail sector as a whole, albeit some segments have recently seen a return to positive capital growth. The retail sector produced a total return of 14.9% for the year to March 2022. This comprised capital growth of 8.9% and income return of 5.6%. Rental values fell -2.0% over the period, ranging from 0.6% to -7.0%. Retail subsector capital growth ranged from 22.9% to -5.8%. The retail warehouse subsector was the driver of growth, with increased demand from investors pushing down yields. Equivalent yields for all retail property now stand at 5.9% (March 2021: 6.7%).

According to Property Data, the total investment volume for the year to March 2022 was £70.5 billion, a 66.5% increase on the year to March 2021. The volume of investment by overseas investors in the year to March 2022 was £33.0 billion, accounting for 46.8% of all transactions.

As the disruptive threat of the pandemic recedes, new challenges for the property market are emerging from the macroeconomic and geopolitical environment. In times of uncertainty, UK property is often seen as a safe haven for investment. During periods of increased inflationary pressure property can provide a hedge in the form of an opportunity to grow income through rental growth and in turn generate capital growth. Certain property types are more akin to acting as an inflation hedge. At the current time, assets where demand is strong and supply limited are likely to offer protection through rising rental values, equally leases with fixed or inflation linked leases will also provide support.

Portfolio Review

Industrial weighting 60%

South East           44%

Rest of UK           16%


Office weighting 30%

Central London   11%

Rest of UK       10%

South East        9%


Retail and Leisure weighting 10%

Retail Warehouse              7%

High Street Rest of UK        2%

Leisure                       1%

Throughout the year we have continued to engage with our occupiers, invested into our assets and driven forward our sustainability priorities, which is at the forefront of our thinking as we actively manage the portfolio.

Driven by significant investor and occupier demand in the industrial sector, combined with a rebound in the retail warehousing sector, we have seen strong valuation gains. We have had like-for-like increases in passing rent and estimated rental value (ERV).

It has been another busy year in terms of the portfolio, with 76 asset management transactions completed. Our repositioning programme has especially helped us secure new office occupiers seeking best in class space, and this has resulted in an increase in occupancy over the period to 93%, up from 91% in the prior year.

Our occupier focused approach has always been key to enabling us to actively manage the portfolio. We are guided by our Picton Promise of Action, Community, Technology, Support and Sustainability. This philosophy of working in collaboration with our occupiers is a significant contributor to our long-term track record of outperformance.

During the year we have launched SwiftSpace at several of our office buildings, this initiative recognises that flexibility and ease of occupation are particularly important for some smaller businesses, and we are offering bespoke leasing solutions to include fitted space, inclusive rents and flexibility.


Our portfolio comprises 47 assets, with around 400 occupiers, and is valued at £849 million with a net initial yield of 4.0% and a reversionary yield of 5.4%.

Our asset allocation, with 60% in industrial, 30% in office and 10% in retail and leisure, combined with increasing occupancy and transactional activity, has enabled us to outperform the MSCI UK Quarterly Property Index over the year.

Overall, the like-for-like valuation was up 21%, with the industrial sector up 34%, offices up by 2% and retail and leisure up by 17%. This compares with the MSCI UK Quarterly Property Index recording a capital value increase of 15% over the period.

The overall portfolio passing rent is £38.7 million, an increase from the prior year of £2.2 million. On a like-for-like basis the passing rent increased by 2% and the contracted rent, which is the gross rent receivable after lease incentives, increased by £2.7 million or 7%.

The March 2022 ERV of the portfolio is £49.8 million, an increase from the prior year of 5% on a like-for-like basis. We had positive growth in all three sectors, with the industrial sector increasing 11% and the other two sectors both up 1%.

We have set out below the principal activity in each of the sectors in which we are invested and believe our sector strategy and proactive occupier engagement has delivered positive performance this year.

The industrial sector has had a very strong year, with considerable investment demand, with multiple buyers for well-located assets, resulting in further price growth. A lack of supply, especially of multi-let estates, coupled with increasing build costs, means that occupiers have restricted choice when looking for a unit, which in turn has driven strong rental growth across the country and especially in London and the South East where 73% of our portfolio is located. As examples, the ERV at Datapoint, London increased by 26%, Lyon Business Park, Barking by 15% and River Way, Harlow by 11%.

The office sector is returning to a ‘new normal’ with building occupancy improving, albeit on a more flexible basis. Increasingly businesses are focused on providing best in class space for their employees with good sustainability characteristics. There is good demand for Grade A space with take-up almost at pre-pandemic levels, but poorer quality buildings are struggling to attract occupiers.

Many companies are revising working patterns, with offices being used two or three days a week and staff working from home the rest of the time. We have invested substantially into our office portfolio over the last few years, which has meant we have best in class assets which we have been able to lease during the year as well as retaining existing occupiers.

Retail warehouse parks have performed strongly, and our parks are busy with occupiers trading well. Investment demand has resulted in price growth in 2021 and early 2022, however we have not yet seen significant rental growth. This investor demand has not translated to the high street, but there is activity at the prime end with the indication that pricing has reached a floor for best in class assets. The leisure market is returning to normal, with pubs and restaurants reporting brisk trading.

We believe the portfolio remains well placed in respect of our sector allocations. Combined with the quality of our assets, we will be able to continue to drive performance going forward.


We have had another good year in respect of asset management transactions. We completed 12 rent reviews, 7% ahead of ERV, 21 lease renewals or regears, 3% ahead of ERV and 34 lettings or agreements to lease, 8% ahead of ERV. Two industrial assets were acquired for £23.5 million plus costs and one retail asset disposed of for £0.7 million, 16% ahead of March 2021 valuation.

Over the year we have invested £10 million into the portfolio principally across eight key projects. These have all been aimed at enhancing space to attract occupiers, improve sustainability credentials and grow income.

A major renovation project was recently completed at Rum Runner Works, Regency Wharf, Birmingham, where we have converted leisure space to offices with the development being shortlisted for the British Council of Offices Awards 2022.

The air conditioning plant was replaced at 50 Farringdon Road, while the building was fully leased. The system has now been converted from gas to electric, reducing carbon emissions and improving the EPC from a D to a B.

Our largest void is Angel Gate Office Village, London. The property offers space for smaller businesses and this market is beginning to pick up. We have upgraded the common parts, installed an occupier lounge, which is already very popular, and fitted out office suites for immediate occupation in line with our SwiftSpace concept.

We are continually focused on futureproofing assets from a sustainability perspective, which has resulted in an improvement in our EPCs with 71% now rated C and above. The average lot size of the portfolio is £18.1 million, 22% ahead of last year.

Our total void is £3.6 million per annum by ERV. By sector, 70% is in offices, 16% is in industrial and 14% is in retail and leisure.

Retention rates and occupancy

Over the year, total ERV at risk due to lease expiries or break options totalled £5.5 million, a reduction on the £6.6 million in the year to March 2021.

We retained 37% of total ERV at risk in the year to March 2022. Of the ERV that was not retained, a further 29% or £1.6 million was re-let to a different occupier during the year.

In addition, a further £2.1 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 91% to 93%, which is ahead of the MSCI UK Quarterly Property Index of 92% at March 2022. The increase primarily reflects the success of the refurbishment programmes in the office sector, with occupiers seeking best in class space. In addition, we have seen strong demand for our industrial units and the retail portfolio remains well let. Industrial occupancy is 98% (2021: 100%), office occupancy is 87% (2021: 82%) and retail and leisure occupancy is 93% (2021: 92%).

At the year end, over half of our vacant buildings were being refurbished, with the remainder available to let and being actively marketed.


As the UK opened up we saw a bounce in consumer confidence and spending. Subsequently, the war in Ukraine has caused a more uncertain outlook with inflationary pressure and supply chain issues being the immediate result. The war has not had any direct repercussions on the property market to date, however we are mindful of the fact that there could be secondary impacts going forward.

Our net zero carbon pathway is in place, and we continue to focus on sustainability and upgrading our buildings to ensure they are attractive to occupiers.

We have had success in securing occupiers in all sectors, with industrial demand remaining very strong. Our occupiers remain key and we have long-standing relationships in place with many of them, which enable us to work with and assist businesses as they grow and contract.

As at 31 March 2022 the portfolio had £11.1 million of reversionary income potential, £3.6 million from letting the vacant space, £4.5 million from expiring rent free periods and £3.0 million where the passing rent is below market level.

Demand for our industrial properties continues to be robust as proven by our high occupancy and growing ERVs. With this sector accounting for 60% of the total portfolio by value, we believe it will continue to contribute strongly to our performance, with supply constraints likely to lead to further rental growth.

The majority of office occupiers are now working on a flexible basis, with staff coming into the office two or three days a week. The longer-term implications differ from business to business but we are not seeing a significant reduction in overall floorspace. As we predicted, there has been a flight to quality, with companies wanting to upgrade their space to retain and attract staff. There is now a limited supply of Grade A space, as the development pipeline has slowed over the last two years, and this should result in rental growth. Poor quality buildings are less in demand, with many requiring significant expenditure to incorporate sustainability requirements and make them appealing to occupiers. We expect a significant proportion of these buildings to be repurposed in due course.

Retail warehousing, which makes up 65% of our retail allocation, has seen a valuation rebound, with retailers preferring out of town units to the high street. We have succeeded in letting all of our vacant retail warehouse units during the year and our parks are now fully leased.

We remain in a strong position with advantageous portfolio weightings, good quality assets and a proven occupier focused approach. Looking forward, we will continue to grow occupancy and income, acquire value accretive assets, engage with our occupiers, and invest further into our properties.

Jay Cable

Senior Director and Head of Asset Management

25 May 2022

Top ten occupiers

The largest occupiers, based as a percentage of contracted rent, as at 31 March 2022, are as follows:

Occupier                            Contracted rent (£m)    %

Public sector                                        2.3  5.0

Whistl UK Limited                                    1.6  3.6

B&Q Plc                                              1.2  2.8

The Random House Group Limited                       1.2  2.6

Snorkel Europe Limited                               1.2  2.6

XMA Limited                                          1.0  2.2

Portal Chatham LLP                                   0.9  2.1

DHL Supply Chain Limited                             0.8  1.7

Hi-Speed Services Limited                            0.7  1.5

Canterbury Christ Church University                  0.7  1.5

Total                                               11.6 25.6

Top ten assets

The largest assets, as at 31 March 2022, ranked by capital value, represent 55% of the total portfolio valuation and are detailed below:

Assets     Acquisition   Property     Tenure Approximate Capital    No. of Occupancy
                  date       type               area (sq  value  occupiers  rate (%)
                                                     ft)    (£m)

Parkbury       03/2014 Industrial   Freehold     343,800    >100        21       100

River Way      12/2006 Industrial   Freehold     454,800   50-75        10       100

Datapoint,     05/2010 Industrial  Leasehold      55,100   30-50         6       100
Cody Road,
London E16

Lyon           09/2013 Industrial   Freehold      99,400   30-50         8        77

Stanford       05/2010     Office   Freehold      19,600   30-50         4       100
London WC2

Shipton        07/2014 Industrial   Freehold     312,900   30-50         1       100

Angel          10/2005     Office   Freehold      64,600   30-50        18        61
Gate, City
London EC1

Tower          08/2017     Office   Freehold      70,600   20-30         6        90

50             10/2005     Office Leasehold*      31,300   20-30         4       100
London EC1

Sundon         10/2005 Industrial   Freehold     127,800   20-30        11        91
Way, Luton

*Denotes leasehold interest in excess of 950 years.

Longevity of income

As at 31 March 2022, expressed as a percentage of contracted rent, the average length of the leases to the first termination was 4.8 years (2021: 4.9 years). This is summarised as follows:


0 to 1 year        11.4

1 to 2 years       12.9

2 to 3 years       15.4

3 to 4 years       20.8

4 to 5 years        9.3

5 to 10 years      23.2

10 to 15 years      5.7

15 to 25 years      0.1

25 years and over   1.2

Total             100.0



                             2022       2021

Value                     £509.7m    £360.7m

Internal area          3.2m sq ft 2.6m sq ft

Annual rental income       £17.6m     £16.9m

Estimated rental value     £23.4m     £19.3m

Occupancy                     98%       100%

Number of assets               18         16

The industrial sector accounts for 60% of the portfolio and had the strongest sector performance of the year.

Continued strength in the investment market, driven by strong occupational fundamentals, has resulted in another very positive year for this sector. Strong occupational demand, combined with active management extending income and securing rental uplifts, have all contributed to performance.

On a like-for-like basis, the value of our industrial assets increased by £123.4 million or 34%. The passing rent was £17.6 million at year end, with an ERV of £23.4 million. Due to eight occupiers being in rent-free periods the passing rent decreased by -5% on a like-for-like basis, but on a contracted rent basis the rent increased by 8%. The portfolio has an average weighted lease length of 4.2 years and £5.8 million of reversionary potential.

We have seen ERV growth of 11% across the industrial portfolio, reflecting a supply constrained market. Occupancy is 98%, with all of the vacant units being refurbished.

Portfolio activity

Madleaze and Mill Place Trading Estates, located in Gloucester city centre, were acquired in two separate transactions, for a combined purchase price of £23.5 million or £35 per sq ft, considerably below replacement cost. Our combined ownership now totals over 29 acres, with 670,000 sq ft of warehouse and ancillary accommodation, with a site coverage of 52%. The average rent on acquisition was only £2.76 per sq ft with a further 100,000 sq ft of vacant accommodation available to upgrade or redevelop, subject to occupational demand. We have already leased 22,000 sq ft without any capital expenditure and are in discussions with a number of occupiers in respect of either expansion or relocation.

At Rugby, we let a 99,500 sq ft unit to a logistics operator for ten years, subject to break. The lease commenced the day after the existing occupier vacated, meaning there were no void costs or capital expenditure. The new rent agreed at £0.7 million per annum is 11% ahead of both the previous passing rent and the ERV.

At Lyon Business Park, Barking we had an occupier severely affected by the pandemic. We actioned a landlord break option on the 45,000 sq ft unit, which was subsequently refurbished and leased to a catering company on a 15-year lease. The new rent of £0.6 million per annum is 46% ahead of the previous passing rent and 5% ahead of ERV. We renewed and extended three further leases on the estate securing £0.1 million per annum, 23% ahead of the previous passing rent and in line with ERV. We recently had another pandemic related void at the estate and have a 26,000 sq ft unit to lease, which is currently being refurbished.

At The Business Centre, Wokingham, we have driven income growth through agreeing two rent reviews, increasing the passing rent by 26% to £0.4 million per annum and leasing two units for a combined £0.1 million per annum, 2% ahead of ERV. The estate is fully leased.

At Dencora Way, Luton, we increased income through settling a rent review, increasing the passing rent by 43%, 1% ahead of ERV and renewing two leases at a rent 30% ahead of the previous passing rent. We leased one unit for £0.1 million per annum, 9% ahead of ERV.

At Easter Court, Warrington, following the completion of a rent review, we achieved a 47% uplift in rent, 3% ahead of ERV. A further lease was renewed, increasing the passing rent by 31% to £0.1 million per annum, 7% ahead of ERV.


The industrial sector has performed exceptionally well this year, with continued strong demand, low vacancy rates and rental growth. Where units have come back due to occupiers relocating or insolvencies, we have been able to promptly re-let them at higher rents, post refurbishment.

We do not anticipate a material slowdown in occupational demand, and combined with limited availability and development pipeline, especially for multi-let estates, we expect continued rental growth.

The focus going forward is to maintain high occupancy, continue to capture rental growth, and work proactively with our occupiers to unlock asset management opportunities. We have 41 lease events forecast for the coming year, and the overall ERV for these units is 10% higher than the current passing rent of £2.7 million. This provides us with the opportunity to grow income and value further.


                             2022       2021

Value                     £251.1m    £245.4m

Internal area          0.8m sq ft 0.8m sq ft

Annual rental income       £14.0m     £13.1m

Estimated rental value     £19.3m     £19.0m

Occupancy                     87%        82%

Number of assets               15         15

The office sector accounts for 30% of the portfolio and delivered positive performance driven by leasing activity and active management.

The value of the office portfolio has increased on a like-for-like basis by £5.7 million or 2% to £251.1 million and the annual rental income increased by £0.8 million or 6% to £14.0 million.

Occupancy within the office sector has increased from 82% to 87%. We have secured £2.9 million per annum from lettings and have worked with our occupiers to extend income elsewhere.

The office portfolio has an average weighted lease length of 4.0 years and £5.3 million of reversionary potential. The ERV has increased slightly over the year, which is mainly due to regional offices with London being stable.

The impact of the global pandemic on working practices continues to be felt, however this varies dramatically from business to business. Occupational demand has picked up, especially for better quality space as businesses return to the office and review their requirements.

We have launched our SwiftSpace offering in order to meet the need for more flexible space requirements in a post-Covid-19 environment. From a regulatory standpoint, the Welsh Government retained their work from home policy until the end of our financial year, and this had an impact on demand for our Cardiff building.

We invested £6.2 million into our office assets during the period. Key projects were completed at Angel Gate, London, 50 Farringdon Road, London, 180 West George Street, Glasgow and Longcross, Cardiff.

Portfolio activity

At 50 Farringdon Road, London, we extended a lease, due for expiry later this year. This was our largest lease event in the office sector retaining £0.6 million per annum, which is 2% ahead of ERV. The transaction follows an upgrade of the heating and cooling system last year, transitioning from gas to electric, reducing carbon emissions from the building and upgrading the EPC from a D to a B.

At 180 West George Street, Glasgow, following a comprehensive refurbishment of the first, fifth and sixth floors to include new external roof terraces, we leased all three floors to separate occupiers, securing a combined rent of £0.6 million per annum, 19% ahead of ERV. This is a good example of occupiers seeking best in class space for their employees.

In Chatham, we completed the letting of all the remaining space at 50 Pembroke Court to NatWest at £0.3 million per annum, 8% ahead of ERV, for a term of five years, subject to break. In line with the occupier’s sustainability policy the refurbished floor achieved a B-rated EPC.

Following the completion of the refurbishment of Stanford Building, London, we leased the remaining two office floors to a recruitment company, securing a rent of £0.5 million per annum, 3% below ERV but reflecting a longer ten-year lease commitment. We also leased the flagship retail unit, which is covered in the Retail and Leisure section.

At Colchester Business Park, we renewed three leases securing a combined rent of £0.4 million per annum, an 11% increase on the previous passing rent and 1% ahead of ERV. Two large occupiers vacated towards year end, and we are therefore refurbishing this space. We expect good levels of demand on completion of the works.

At Grafton Gate, Milton Keynes, we retained an occupier on lease expiry and removed two break options in return for taking back one suite this summer. The combined rent secured was £0.4 million per annum, 5% ahead of ERV. One rent review was agreed, securing a 33% increase to £0.2 million per annum, 4% ahead of ERV.

Our largest office void is Angel Gate, London, which has suffered from smaller businesses choosing to work from home during the pandemic and only now beginning to look to return to the office. The common areas have been redesigned and we have converted a ground floor office suite into an occupier lounge that has proved attractive to occupiers. We renewed two leases during the year for a combined £0.2 million per annum, 19% ahead of ERV and relocated four occupiers, all of whom upgraded their space and we let one fully fitted suite, securing a combined £0.4 million per annum, 5% ahead of ERV. We are beginning to see enquiries rise and believe our SwiftSpace option is attractive to occupiers looking for this type of flexible space.


As we predicted, we are seeing a flight to quality with businesses looking for best in class space to attract their employees back to the office.

The majority of businesses have moved to a flexible working pattern, with employees working from home one or two days a week. This means they still require office space for all of their staff, and we have not seen a lot of second hand space being put on the market.

Sustainability is an ever-increasing factor in choosing a building and older stock, where the capital expenditure required to upgrade is prohibitive, will be converted to other uses. We have invested £15.2 million into our office portfolio over the last three years, creating high quality contemporary space with occupier amenities that offer flexibility in workspace planning, meaning our buildings are attractive to occupiers as demonstrated by our leasing success.

We have 33 lease events forecast for the coming year, with the current ERV for these units being 4% higher than the current passing rent of £2.6 million and a 13% void, with an ERV of £2.5 million, providing us with the opportunity to significantly grow income and value.

Retail and Leisure

                             2022       2021

Value                      £88.5m     £76.3m

Internal area          0.7m sq ft 0.7m sq ft

Annual rental income        £7.1m      £6.4m

Estimated rental value      £7.1m      £7.1m

Occupancy                     93%        92%

Number of assets               14         15

The retail and leisure sector accounts for 10% of the portfolio and delivered a marked improvement in performance over the year.

The value of the retail and leisure sector increased on a like-for-like basis by £12.8 million or 17% with the majority of the increase relating to our retail parks, which account for 65% of this element of the portfolio. The annual rental income increased by £0.8 million or 14% to £7.1 million. The portfolio has an average weighted lease length of 8.1 years with the ERV being £7.1 million.

Investor demand for retail warehouse parks has increased substantially over the last six months, resulting in valuation increases on the back of yield movement. While the sector remains more attractive to retailers seeking accommodation, we have yet to see significant rental growth coming through.

The high street is still struggling following the pandemic with an oversupply in most markets. Shoppers are however returning to city centres and local shopping is still performing well, with signs of occupational demand returning off rebased rents.

We have seen positive ERV growth of 1% across this element of the portfolio and pleasingly we have been able to increase occupancy during this period to 93%. Our largest retail void is the office element of Regency Wharf, Birmingham and we only have three vacant high street shops, one is under offer, and we have interest in the other two.

£2.5 million was invested into the retail portfolio during the period, the majority into the Regency Wharf conversion.

Portfolio activity

At Stanford Building, London, we let the flagship retail unit to Scotch & Soda, an international fashion retailer, for ten years, subject to break. The rent of £0.5 million per annum is 22% ahead of ERV. The lease starts in May 2022 and the incentive package was less than one year’s rent.

We had success at our retail parks, with a letting to the UK Government in Swansea for a Job Centre, which worked well in this end of terrace unit. We secured a five-year lease, subject to break, at a rent of £0.1 million per annum, in line with ERV. The park is fully leased with occupiers including Lidl, FarmFoods, JD Gyms, and Pets at Home.

At Angouleme Way Retail Park, Bury we leased the final vacant unit to JD Gyms. We secured a ten-year term certain at a rent of £0.2 million per annum, in line with ERV. The park is fully leased with occupiers including TK Maxx, Argos and JYSK.

At Scots Corner, Birmingham, where we have a parade of local high street retail units with a Job Centre above, we extended two leases for a combined rent of £0.1 million per annum, which was 5% ahead of ERV. At the same property we leased a unit securing a rent 23% ahead of ERV. We have one unit to lease, and we have interest.

Victoria Lane, Huddersfield, was sold in September. The property consisted of three small retail units, with short income to Argos, Savers, and Peacocks, but with Argos vacating. The property was sold for £0.7 million, 16% ahead of valuation, to the local council.


The retail and leisure sector is stabilising following the pandemic. Retail warehouse parks are trading well and are in demand from investors. Although there remains an oversupply of floorspace in the high street and shopping centre subsectors, there are signs that yields have reached a floor and there could be opportunities in carefully selected prime assets.

Our portfolio is well leased, provides an attractive income return and with 65% in the retail warehouse sector we are strategically well placed. We have been successful in securing new occupiers over the year and our parks have remained busy. High street valuations, which have moved down over the past few years, are now stabilising.

The inflationary pressures currently being felt may result in a drop in consumer spending. Therefore, we remain cautious within the sector and will be selective when considering potential investments.

Financial Review

This financial year has seen a significant rebound in the economy, with UK GDP returning above pre-pandemic levels by the end of March 2022. However the conflict in Ukraine has tempered the outlook, with rising inflation expected to restrain growth in the short-term.

The total profit for the year was £147.4 million, up from £33.8 million in 2021. Both income and capital elements were ahead of the previous year’s position.

On the capital side, we saw very strong growth in our industrial and retail warehouse assets, with the overall valuation movement of £130 million for the year. The like-for-like gain in the valuation of the property portfolio was 21%.

Our EPRA earnings, comprising the operating results and net interest expense, increased to £21.2 million for the year, an increase of 5.5%. As discussed below, property revenue rose by over £3 million compared to 2021, or over 7%. With the new acquisitions made in the year, plus the one recently announced post year-end, we expect revenue to move forward again next year. 

We have raised the level of dividend twice in the year, and this is now back to the pre-pandemic level.

The total return for the year was 28%, significantly improving upon the 6.6% recorded last year.

Net asset value

The net assets of the Group increased to £657.1 million, or 120 pence per share, which was a rise of 24.4% over the year. The chart below shows the components of this increase.


March 2021 net asset value  528.2

Income profit                21.2

Valuation movement          130.2

Debt prepayment fees        (4.0)

Share-based awards            0.6

Purchase of shares          (0.7)

Dividends paid             (18.4)

March 2022 net asset value  657.1

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). 

                                                2022    2021   2020
                                                   £m     £m     £m

Net asset value – IFRS and EPRA NTA             657.1  528.2  509.3

Fair value of debt                              (6.7) (21.0) (29.6)

EPRA NDV asset value                            650.4  507.2  479.7

Net asset value per share (pence)                 120     97     93

EPRA net tangible asset value per share (pence)   120     97     93

EPRA net disposal value per share (pence)         119     93     88

Income statement

As noted above our results for the year are very strong. Valuation gains are at a record level, but there has also been growth in EPRA earnings, with an increase in property income.

Total revenue from the property portfolio for the year was £46.5 million, up from £43.3 million last year. Rental income has increased by 9.8% compared to 2021, as a result of the new acquisitions made during the year, as well as the increased occupancy and reduced bad debt provisions. On a like-for-like basis, rental income increased by 9.5% compared to the previous year, on an EPRA basis.

Rent collection has largely returned to pre-pandemic levels.

Property operating and void costs are slightly higher than the previous year, at £4.9 million compared to £4.6 million. Although occupancy has increased, following a number of lettings towards the end of the year, void holding costs are higher this year, impacted by general inflationary pressure.

Administrative expenses for the year were £5.8 million, compared to £5.4 million in 2021. Staff costs are some 6% higher compared to the previous year, reflecting higher variable remuneration provisions as well as the new fee and salary rates agreed for 2021/22. There have been other additional costs this year relating to developing the net zero carbon pathway and other sustainability related issues.

Interest costs for this year are £8.5 million. This includes the additional amortisation this year of costs associated with the original Canada Life facility from 2012, which, as set out below, has been extended this year. We have also made drawdowns under our revolving credit facility, although these were largely repaid within the year. As a result of resetting the interest rate on our Canada Life facility our cost of debt will be lower going forward.

Capital gains on the portfolio were £130.2 million for the year, including the gains on owner-occupied property. There were strong valuation gains across the portfolio, with the industrial and retail warehouse assets performing particularly well. One disposal of a retail asset was made during the year, realising a small gain compared to the March 2021 valuation.

The total profit for the year was £147.4 million, up by over 300% compared to 2021.


As the restrictions caused by the pandemic have eased and our rent collection rate has risen, we have been able to increase the quarterly dividend twice over the course of the year, and have now returned to the pre-pandemic rate of 0.875 pence per share. The full dividend for the year was 3.375 pence per share, with total dividends paid out of £18.4 million, compared to £15.0 million last year, an increase of 23%. Dividend cover for the full year was 115%.

Investment properties

The appraised value of our investment property portfolio was £849.3 million at 31 March 2022, up from £682.4 million a year previously. We have made two acquisitions this year, for a total consideration of £25.0 million, as well as a disposal of one small retail property, for net proceeds of £0.7 million. The two industrial acquisitions are discussed in more detail in the Portfolio Review section. This year we have invested £9.6 million of capital expenditure in the portfolio. There have been a number of key refurbishment projects undertaken this year, principally at Regency Wharf, Birmingham, Longcross, Cardiff and at 50 Farringdon Road, London. There were significant portfolio valuation gains totalling £130.2 million this year, principally in the industrial and retail warehouse sectors.

As last year, the value of the floor that we occupy at Stanford Building, London, has been excluded from the value of Investment Properties and included separately with Property, Plant and Equipment. Any gains arising from the revaluation of this element of the property are shown within Other Comprehensive Income.

At 31 March 2022 the portfolio comprised 47 assets, with an average lot size of £18.1 million.


Total borrowings are now £218.8 million at 31 March 2022, with the loan to value ratio at 21.2%. The weighted average interest rate on our borrowings has reduced to 3.7%, while the average loan duration is now 9.6 years.

In March, we extended and amended our Canada Life facility. Previously the outstanding £80 million loan had a maturity date of July 2027, which we have moved out to July 2031. We have also borrowed an additional £49 million under this facility, increasing the principal to £129 million, and at the same time reducing the interest rate payable on the full amount to 3.25%. As a result of resetting the rate on the original principal we have incurred one-off prepayment fees of £4.0 million.

Our senior loan facility with Aviva reduced by the regular amortisation, £1.3 million in the year.

The Group remained fully compliant with its loan covenants throughout the year. During the year we utilised our revolving credit facility to acquire the two industrial assets mentioned above. Much of this has been repaid using the proceeds from the new Canada Life borrowings. At 31 March 2022 we had £4.9 million drawn under the revolving credit facility, which had been used to fund capital expenditure projects. The revolving credit facility, originally for an initial term of three years, was extended by a further year in 2021/22, and a further one-year extension has now been granted, taking the maturity to 2025.

The fair value of our borrowings at 31 March 2022 was £225.6 million, higher than the book amount. Lending margins have fallen slightly compared to the previous year, but gilt rates have risen more significantly.

A summary of our borrowings is set out below:

                                    2022  2021  2020

Fixed rate loans (£m)              213.9 166.2 167.5

Drawn revolving facility (£m)        4.9     –     –

Total borrowings (£m)              218.8 166.2 167.5

Borrowings net of cash (£m)        180.3 142.8 143.9

Undrawn facilities (£m)             45.1  50.0  49.0

Loan to value ratio (%)             21.2  20.9  21.7

Weighted average interest rate (%)   3.7   4.2   4.2

Average duration (years)             9.6   8.9   9.9

Cash flow and liquidity

Our overall cash position increased by £15.1 million over the year. This was partly due to the additional borrowings that were received in March 2022, but additionally the cash flow from operating activities was higher this year at £20.0 million. Cash outflows from investing activities was £33.8 million for the year, being the consideration paid for the two new assets, plus £9.6 million of capital expenditure. Dividends paid increased to £18.4 million. Our cash balance at the year-end stood at £38.5 million, compared to the previous year’s balance of £23.4 million.

Share capital

No new ordinary shares were issued during the year.

The Company’s Employee Benefit Trust acquired a further 750,000 shares, at a cost of £0.7 million, or 97 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 1,974,253 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

25 May 2022

Principal Risks

Managing 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.

Covid-19 impacts

The impacts of the Covid-19 pandemic have lessened over the past year as restrictions have been lifted and the UK economy has largely recovered, with GDP above pre-pandemic levels. However, the longer-term implications may be felt for some time. Government borrowing has increased significantly during the pandemic which could lead to higher taxes and lower growth. Other consequences of the pandemic, such as flexible working and increased online retailing, are unlikely to reverse.

Climate-related risks

The Board has carried out an assessment of the physical and transition risks most relevant to the business, and undertaken a review of its procedures for identifying and managing those risks. This review made a number of recommendations which will be implemented during the coming year.

Emerging risks

During the year the Board has considered themes where emerging risks or disrupting events may impact the business. These may arise from behavioural changes, political or regulatory changes, advances in technology, environmental factors, economic conditions or demographic changes. All emerging risks are reviewed as part of the ongoing risk management process.

The principal emerging risks have been identified to be:

–  rising inflation in the UK economy, caused by higher energy, food and commodity prices;

–  the legacy effects of the pandemic, which has heightened awareness of social injustice and global inequality, and the pressure on businesses to create positive societal value;

–  cyber security, heightened by the disruption during the pandemic and greater home working;

–  the increasing importance of sustainability issues to all stakeholders;

–  office working is evolving into a more flexible model, making businesses reassess their space requirements;

–  online retailing continues to reduce the demand for physical space in the retail market;

–  advances in technology are impacting both the real estate sector, in areas such as smart building systems and electric vehicle charging, and also occupiers’ businesses, changing their space requirements;

–  changes in regulations are increasing environmental standards and property owners must keep pace to avoid the risk of stranded assets.

Corporate Strategy


Political and economic

Risk                 Mitigation           Commentary           Risk trend
Uncertainty in the   The Board considers  The recent and       Increasing
UK economy, whether  economic conditions  continuing conflict
arising from         and market           in Ukraine has
political events or  uncertainty when     brought further
otherwise, brings    setting strategy,    uncertainty to
risks to the         considering the      global markets.
property market and  financial strategy   Although UK GDP has
to occupiers’        of the business and  recovered to above
businesses. This can in making investment pre-pandemic levels
result in lower      decisions.           there are still
shareholder returns,                      risks to the
lower asset                               economy, with
liquidity and                             inflation rising,
increased occupier                        higher energy and
failure.                                  commodity prices and
                                          supply chain issues.


Market cycle

Risk                 Mitigation           Commentary           Risk trend
The property market  The Board reviews    Uncertainty in the   No change/ stable
is cyclical and      the Group’s strategy property market has
returns can be       and business         declined with the
volatile. There is   objectives on a      easing of
an ongoing risk that regular basis and    restrictions. There
the Company fails to considers whether    is still a marked
react appropriately  any change is        divergence in
to changing market   needed, in light of  performance across
conditions,          current and forecast the market sectors,
resulting in an      market conditions.   due to structural
adverse impact on                         differences.
shareholder returns.


Regulatory and tax

Risk                 Mitigation           Commentary           Risk trend
The Group could fail The Board and senior There are no         No change/ stable
to comply with       management receive   significant changes
legal, fiscal,       regular updates on   expected to the
health and safety or relevant laws and    regulatory
regulatory matters   regulations.         environment in which
which could lead to  The Group is a       the Group operates.
financial loss,      member of the BPF
reputational damage  and EPRA, and
or loss of REIT      management attend
status.              industry briefings.


Climate change resilience

Risk                 Mitigation           Commentary           Risk trend
Failure to react to  Sustainability is    Climate change and   Increasing
climate change could embedded within the  other sustainability
lead to reputational Group’s business     issues are
damage, loss of      model and strategy.  increasingly
income and value and We have published    important to all
being unable to      our pathway to net   stakeholders.
attract occupiers.   zero carbon with a   The UK Government
Rising materials and commitment to become has set a net zero
energy costs as a    carbon net zero by   target of 2050 and
result of climate    2040.                has implemented
change could give    We have carried out  other regulations,
rise to asset        an assessment of the such as the Minimum
obsolescence.        physical and         Energy Efficiency
                     transition risks to  Standards, which are
                     the business under   relevant to the real
                     two climate          estate industry.
                     scenarios.           Occupiers are
                     We have developed a  developing their own
                     refurbishment        net zero strategies
                     checklist to apply   and demanding energy
                     to projects ensuring efficient buildings
                     environmental        as well as more
                     factors are fully    staff amenities.
                     considered at all



Portfolio strategy

Risk                 Mitigation           Commentary           Risk trend
The Group has an     The Group maintains  As stated above      No change/ stable
inappropriate        a diversified        there is a continued
portfolio strategy,  portfolio in order   divergence across
as a result of poor  to minimise exposure sectors. The role of
sector or            to any one           the office is
geographical         geographical area or changing, and the
allocations, or      market sector.       retail sector has
holding obsolete                          longer-term
assets, leading to                        structural issues to
lower shareholder                         address.



Risk                 Mitigation           Commentary           Risk trend
Investment decisions The Executive        Environmental        Increasing
may be flawed as a   Committee must       factors and
result of incorrect  approve all          climate-related
assumptions, poor    investment           risks are becoming
research or          transactions over a  increasingly
incomplete due       threshold level, and important in
diligence, leading   significant          investment
to financial loss.   transactions require decisions.
                     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.


Asset management

Risk                 Mitigation           Commentary           Risk trend
Failure to properly  Management prepare   Occupier engagement  No change/ stable
execute asset        business plans for   will remain
business plans or    each asset which are important to
poor asset           reviewed regularly.  successful asset
management could     The Executive        management,
lead to longer void  Committee must       particularly through
periods, higher      approve all          the transition to
occupier defaults,   investment           net zero.
higher arrears and   transactions over a
low occupier         threshold level, and
retention, all       significant
having an adverse    transactions require
impact on earnings   Board approval.
and cash flow.       Management maintain
                     close contact with
                     occupiers and have
                     oversight of the
                     Group’s Property



Risk                 Mitigation           Commentary           Risk trend
A fall in the        The Group’s property Investment markets   Decreasing
valuation of the     assets are valued    have returned to
Group’s property     quarterly by an      more normal
assets could lead to independent valuer   conditions as
lower investment     with oversight by    restrictions have
returns and a breach the Property         eased.
of loan covenants.   Valuation Committee.
                     Market commentary is
                     provided regularly
                     by the independent
                     The Board reviews
                     financial forecasts
                     for the Group on a
                     regular basis,
                     sensitivity and
                     adequate headroom
                     against financial




Risk                 Mitigation           Commentary           Risk trend
The Group relies on  The Board has a      The team has         No change/ stable
a small team to      remuneration policy  remained stable
implement the        in place which       throughout the year.
strategy and run the incentivises         The results of the
day-to-day           performance and is   employee engagement
operations. Failure  aligned with         survey were again
to retain or recruit shareholders’        positive. Flexible
key individuals with interests.           working arrangements
the right blend of   There is a           have been introduced
skills and           Non-Executive        following employee
experience may       Director responsible feedback.
result in poor       for employee
decision making and  engagement who
underperformance.    provides regular
                     feedback to the



Finance strategy

Risk                 Mitigation           Commentary          Risk trend
The Group has a      The Group’s property The Group has       No change/ stable
number of loan       assets are valued    increased its
facilities to        quarterly by an      borrowings during
finance its          independent valuer   the year but still
activities. Failure  with oversight by    has good headroom
to comply with       the Property         under its lending
covenants or to      Valuation Committee. covenants. The
manage refinancing   Market commentary is revolving credit
events could lead to provided regularly   facility has been
a funding shortfall  by the independent   extended for a
for operational      valuer.              further year.
activities.          The Board reviews
                     financial forecasts
                     for the Group on a
                     regular basis,
                     sensitivity against
                     financial covenants.
                     The Audit and Risk
                     Committee considers
                     the going concern
                     status of the Group


Capital structure

Risk                 Mitigation           Commentary          Risk trend
The Group operates a The Board regularly  Although borrowings No change/ stable
geared capital       reviews its gearing  have increased the
structure, which     strategy and debt    Group’s loan to
magnifies returns    maturity profile, at value ratio has
from the portfolio,  least annually, in   remained low.
both positive and    light of changing
negative. An         market conditions.
inappropriate level
of gearing relative
to the property
cycle could lead to
lower investment

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 rising inflation, geopolitical tensions and the legacy effects of the Covid-19 pandemic 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.

The Board considered a number of scenarios and their impact on the Group’s property portfolio and financial position. These scenarios included different levels of rent collection, occupier defaults, void periods and incentives within the portfolio, and the consequential impact on property costs and loan covenants. All lease events and assumptions were reviewed over the period under the different scenarios including their impact on revenue and cash flow. Forecast movements in capital values were included in these scenarios including their potential impact on the Group’s loan covenants. The Group’s long-term loan facilities are contracted to be in place throughout the assessment period, while the Board has assumed that the Group will continue to have access to its short-term facilities. 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 2027 and will continue to be assessed over rolling five-year 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 2027.

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

25 May 2022

Financial Statements

Consolidated statement of comprehensive income

for the year ended 31 March 2022

                                                Notes    2022     2021
                                                          £000    £000


Revenue from properties                             3   46,543  43,331

Property expenses                                   4 (11,098) (9,877)

Net property income                                     35,445  33,454


Administrative expenses                             6  (5,755) (5,388)

Total operating expenses                               (5,755) (5,388)

Operating profit before movement on investments         29,690  28,066


Profit on disposal of investment properties        13       42     868

Investment property valuation movements            13  129,801  12,861

Total profit on investments                            129,843  13,729

Operating profit                                       159,533  41,795


Interest received                                            –       5

Interest paid                                       8  (8,502) (7,999)

Debt prepayment fees                               18  (4,045)       –

Total finance costs                                   (12,547) (7,994)

Profit before tax                                      146,986  33,801

Tax                                                 9        –       –

Profit after tax                                       146,986  33,801

Other comprehensive income

Revaluation of owner-occupied property             14      434       –

Total other comprehensive income for the year              434       –

Total comprehensive income for the year                147,420  33,801

Earnings per share

Basic                                              11    27.0p    6.2p

Diluted                                            11    26.9p    6.2p

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 2022

                 Notes   Share Retained Other reserves Revaluation    Total
                       capital earnings           £000     reserve     £000
                          £000     £000                       £000

Balance as at 31       164,400  345,667          (784)           –  509,283
March 2020

Profit for the               –   33,801              –           –   33,801

Dividends paid      10       – (15,002)              –           – (15,002)

Share-based                  –        –            758           –      758

Purchase of          7       –        –          (643)           –    (643)
shares held in

Balance as at 31       164,400  364,466          (669)           –  528,197
March 2021

Profit for the               –  146,986              –           –  146,986

Dividends paid      10       – (18,425)              –           – (18,425)

Share-based                  –        –            668           –      668

Purchase of          7       –        –          (730)           –    (730)
shares held in

Other               14       –        –              –         434      434
income for the

Balance as at 31       164,400  493,027          (731)         434  657,130
March 2022

Notes 1 to 27 form part of these consolidated financial statements.

Consolidated balance sheet

as at 31 March 2022

                              Notes     2022       2021
                                         £000      £000

Non-current assets

Investment properties            13   830,027   665,418

Property, plant and equipment    14     4,383     4,111

Total non-current assets              834,410   669,529

Current assets

Accounts receivable              15    22,850    19,584

Cash and cash equivalents        16    38,547    23,358

Total current assets                   61,397    42,942

Total assets                          895,807   712,471

Current liabilities

Accounts payable and accruals    17  (19,138)  (18,805)

Loans and borrowings             18   (1,068)     (944)

Obligations under leases         22     (114)     (107)

Total current liabilities            (20,320)  (19,856)

Non-current liabilities

Loans and borrowings             18 (215,764) (162,711)

Obligations under leases         22   (2,593)   (1,707)

Total non-current liabilities       (218,357) (164,418)

Total liabilities                   (238,677) (184,274)

Net assets                            657,130   528,197


Share capital                    20   164,400   164,400

Retained earnings                     493,027   364,466

Other reserves                          (731)     (669)

Revaluation reserve                       434         –

Total equity                          657,130   528,197

Net asset value per share        23      120p       97p

These consolidated financial statements were approved by the Board of Directors on 25 May 2022 and signed on its behalf by:

Andrew Dewhirst


25 May 2022

Notes 1 to 27 form part of these consolidated financial statements.

Consolidated statement of cash flows

for the year ended 31 March 2022

                                                     Notes     2022      2021
                                                                £000     £000

Operating activities

Operating profit                                             159,533   41,795

Adjustments for non-cash items                          21 (129,010) (12,964)

Interest received                                                  –        5

Interest paid                                                (8,102)  (7,515)

Tax received                                                       –       56

Increase in accounts receivable                              (3,305)  (1,983)

Increase/(decrease) in accounts payable and accruals             897    (825)

Cash inflows from operating activities                        20,013   18,569

Investing activities

Purchase of investment properties                       13  (25,005)        –

Capital expenditure on investment properties            13   (9,551)  (4,961)

Disposal of investment properties                                726    3,928

Purchase of tangible assets                             14       (3)    (268)

Cash outflows from investing activities                     (33,833)  (1,301)

Financing activities

Borrowings repaid                                       18  (26,917)  (1,258)

Borrowings drawn                                        18    79,545        –

Debt prepayment fees                                    18   (4,045)        –

Financing costs                                         18     (419)    (574)

Purchase of shares held in trust                         7     (730)    (643)

Dividends paid                                          10  (18,425) (15,002)

Cash inflows/(outflows) from financing activities             29,009 (17,477)

Net increase/(decrease) in cash and cash equivalents          15,189    (209)

Cash and cash equivalents at beginning of year                23,358   23,567

Cash and cash equivalents at end of year                16    38,547   23,358

Notes 1 to 27 form part of these consolidated financial statements.

Notes to the consolidated financial statements

for the year ended 31 March 2022

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 2022 with comparatives for the year ended 31 March 2021.

2. Significant accounting policies

Basis of accounting

The financial statements have been prepared on a going concern basis and adopt the historical cost basis, except for the revaluation of investment properties. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The financial statements, which give a true and fair view, are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB and the Companies (Guernsey) Law, 2008.

The Directors have assessed whether the going concern basis remains appropriate for the preparation of the financial statements. They have reviewed the Group’s principal and emerging risks, existing loan facilities, access to funding and liquidity position and then considered 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.

–  Interest Rate Benchmark Reform – Phase 2

–  Covid-19 Related Rent Concessions (Amendment to IFRS 16)

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 2022 and thus have not been applied by the Group.

–  Classification of liabilities as current or non-current (Amendments to IAS 1)

–  Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

–  Definition of Accounting Estimate (Amendment to IAS 8)

–  Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment to IFRS 10 and IAS 28)

–  Onerous Contracts - Cost of fulfilling a Contract (Amendments to IAS 37)

–  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 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 control over the entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. These financial statements include the results of the subsidiaries disclosed in Note 12. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Fair value hierarchy

The fair value measurement for the Group’s assets and liabilities is categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred.

Investment properties

Freehold property held by the Group to earn income or for capital appreciation, or both, is classified as investment property in accordance with IAS 40 ‘Investment Property’. Property held under head leases for similar purposes is also classified as investment property. Investment property is initially recognised at purchase cost plus directly attributable acquisition expenses and subsequently measured at fair value. The fair value of investment property is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and who has recent experience in the location and category of the investment property being valued.

The fair value of investment properties is measured based on each property’s highest and best use from a market participant’s perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible.

The fair value of investment property generally involves consideration of:

–  Market evidence on comparable transactions for similar properties;

–  The actual current market for that type of property in that type of location at the reporting date and current market expectations;

–  Rental income from leases and market expectations regarding possible future lease terms;

–  Hypothetical sellers and buyers, who are reasonably informed about the current market and who are motivated, but not compelled, to transact in that market on an arm’s length basis; and

–  Investor expectations on matters such as future enhancement of rental income or market conditions.

Gains and losses arising from changes in fair value are included in the Consolidated Statement of Comprehensive Income in the year in which they arise. Purchases and sales of investment property are recognised when contracts have been unconditionally exchanged and the significant risks and rewards of ownership have been transferred.

An investment property is derecognised for accounting purposes upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated Statement of Comprehensive Income in the year the asset is derecognised. Investment properties are not depreciated.

The majority of the investment properties are charged by way of a first ranking mortgage as security for the loans made to the Group; see Note 18.

Property, plant and equipment

Owner-occupied property

Owner-occupied property is stated at its revalued amount, which is determined in the same manner as investment property. It is depreciated over its remaining useful life (in this case 40 years) with the depreciation included in administrative expenses. On revaluation, any accumulated depreciation is eliminated against the gross carrying amount of the property concerned, and the net amount restated to the revalued amount. Subsequent depreciation charges are adjusted based on the revalued amount. Any difference between the depreciation charge on the revalued amount and that which would have been charged under historic cost is transferred between the revaluation reserve and retained earnings as the property is used. Any gain arising on this remeasurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive income and presented in the revaluation reserve. Any loss is recognised in profit or loss. However, to the extent that an amount is included in the revaluation surplus for that property, the loss is recognised in other comprehensive income and reduces the revaluation surplus within equity.

Plant and equipment

Plant and equipment is depreciated on a straight-line basis over the estimated useful lives of each item of plant and equipment. The estimated useful lives are between three and five years.


Where the Group holds interest in investment properties other than as freehold interests (e.g. as a head lease), these are accounted for as right of use assets, which is recognised at its fair value on the Balance Sheet, within the investment property carrying value. Upon initial recognition, a corresponding liability is included as a 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.

The Group leases its investment properties under commercial property leases which are held as operating leases. An operating lease is a lease other than a finance lease. A finance lease is one 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. Upon receipt of a surrender premium for the early termination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease concerned, is immediately reflected in revenue from properties if there are no relevant conditions attached to the surrender.

Cash and cash equivalents

Cash includes cash in hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities in three months or less and that are subject to an insignificant risk of change in value.

Income and expenses

Income and expenses are included in the Consolidated Statement of Comprehensive Income on an accruals basis. All of the Group’s income and expenses are derived from continuing operations.

Lease incentive payments are amortised on a straight-line basis over the period from the date of lease inception to the end of the lease term and presented within accounts receivable. Lease incentives granted are recognised as a reduction of the total rental income, over the term of the lease.

Property operating costs include the costs of professional fees on letting and other non-recoverable costs.

The income charged to occupiers for property service charges and the costs associated with such service charges are shown separately in Notes 3 and 4 to reflect that, notwithstanding this money is held on behalf of occupiers, the ultimate risk for paying and recovering these costs rests with the property owner.

Employee benefits

Defined contribution plans

A defined contribution plan is a retirement benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the Consolidated Statement of Comprehensive Income in the periods during which services are rendered by employees.

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payments

The fair value of the amounts payable to employees in respect of the Deferred Bonus Plan, when these are to be settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. Where the awards are equity settled, the fair value is recognised as an expense, with a corresponding increase in equity. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised under the category staff costs in the Consolidated Statement of Comprehensive Income.

The grant date fair value of awards to employees made under the Long-term Incentive Plan is recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value of the share-based awards is measured to reflect such conditions and there is no adjustment between expected and actual outcomes.

The cost of the Company’s shares held by the Employee Benefit Trust is deducted from equity in the Consolidated Balance Sheet. Any shares held by the Trust are not included in the calculation of earnings or net assets per share.


Dividends are recognised in the period in which they are declared.

Accounts receivable

Accounts receivable are stated at their nominal amount as reduced by appropriate allowances for estimated irrecoverable amounts. The Group applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected impairment provision for all applicable accounts receivable. Bad debts are written off when identified.

Loans and borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss in the Consolidated Statement of Comprehensive Income when the liabilities are derecognised for accounting purposes, as well as through the amortisation process.

Assets classified as held for sale

Any investment properties on which contracts for sale have been exchanged but which had not completed at the period end are disclosed as properties held for sale. Investment properties included in the held for sale category continue to be measured in accordance with the accounting policy for investment properties.

Other assets and liabilities

Other assets and liabilities, including trade creditors, accruals, other creditors, and deferred rental income, which are not interest bearing are stated at their nominal value.

Share capital

Ordinary shares are classified as equity.

Revaluation reserve

Any surplus or deficit arising from the revaluation of owner-occupied property is taken to the revaluation reserve.


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.

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

                                                  2022    2021
                                                   £000   £000

Rents receivable (adjusted for lease incentives) 40,133 36,558

Surrender premiums                                   59    202

Dilapidation receipts                                21  1,195

Other income                                        118     82

Service charge income                             6,212  5,294

                                                 46,543 43,331

Rents receivable have been adjusted for lease incentives recognised of £2.8 million (2021: £2.0 million).

4. Property expenses

                                  2022   2021
                                   £000  £000

Property operating costs          2,477 2,384

Property void costs               2,409 2,199

Recoverable service charge costs  6,212 5,294

                                 11,098 9,877

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 on the Group’s net asset value. As the total return on the Group’s net asset value is calculated based on the net asset value per share calculated under IFRS as shown at the foot of the Consolidated Balance Sheet, assuming dividends are reinvested, the key performance measure is that prepared under IFRS. Therefore, no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the opinion that the Group, through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and across one primary geographical area, namely the United Kingdom, and therefore no segmental reporting is required. The portfolio consists of 47 commercial properties, which are in the industrial, office, retail and leisure sectors.

6. Administrative expenses

                              2022   2021
                               £000  £000

Director and staff costs      3,415 3,219

Auditor’s remuneration          206   206

Other administrative expenses 2,134 1,963

                              5,755 5,388


Auditor’s remuneration comprises:           2022 2021

Audit fees:

Audit of Group financial statements           92   92

Audit of subsidiaries’ financial statements   82   82

Audit-related fees:

Review of half-year financial statements      16   16

                                             190  190

Non-audit fees:

Additional controls testing                   16   16

                                              16   16

                                             206  206

7. Director and staff costs

                                      2022   2021
                                       £000  £000

Wages and salaries                    1,765 1,724

Non-Executive Directors’ fees           275   250

Social security costs                   402   358

Other pension costs                      27    28

Share-based payments – cash settled     201   166

Share-based payments – equity settled   745   693

                                      3,415 3,219

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 22 June 2021, awards of 531,108 notional shares were made which vest in June 2023 (2021: 599,534 notional shares). The next awards are due to be made in June 2022 for vesting in June 2024.

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   Units   Units     Units     Units  Units at   Units     Units     Units  Units at
date         at granted cancelled  redeemed  31 March granted cancelled  redeemed 31 March
             31  in the    in the    in the      2021  in the    in the    in the      2022
          March    year      year      year              year      year      year

31      242,509       –         – (242,509)         –       –         –         –         –

19 June 438,907       –         –         –   438,907       –         – (438,907)         –

29 June       – 599,534         –         –   599,534       –         –         –   599,534

22 June       –       –         –         –         – 531,108         –         –   531,108

        681,416 599,534         – (242,509) 1,038,441 531,108         – (438,907) 1,130,642

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 22 June 2021, awards for a maximum of 1,107,155 shares were granted to employees in respect of the three-year period ending on 31 March 2024. In the previous year, awards of 860,740 shares were made on 29 June 2020 for the period ending 31 March 2023.

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:


Grant date                                            22 June 2021 29 June 2020

Share price at date of grant                                 87.3p        68.4p

Exercise price                                                 Nil          Nil

Expected term                                              3 years      3 years

Risk-free rate – TSR condition                               0.23%      (0.05)%

Share price volatility – TSR condition                       28.3%        24.2%

Median volatility of comparator group – TSR condition        31.8%        24.5%

Correlation – TSR condition                                  29.4%        37.8%

TSR performance at grant date – TSR condition                 0.3%      (11.4)%

Median TSR performance of comparator group at grant          10.7%      (10.7)%
date – TSR condition

Fair value – TSR condition (Monte Carlo method)              37.7p        26.7p

Fair value – TPR condition (Black-Scholes model)             87.3p        68.4p

Fair value – EPS condition (Black-Scholes model)             87.3p        68.4p

The Trustee of the Company’s Employee Benefit Trust acquired 750,000 ordinary shares during the year for £730,000 (2021: 958,000 shares for £643,000).

The Group employed nine members of staff at 31 March 2022 (2021: ten). The average number of people employed by the Group for the year ended 31 March 2022 was ten (2021: nine).

8. Interest paid

                                             2022   2021
                                              £000  £000

Interest payable on loans                    8,134 7,574

Interest on obligations under finance leases   129   114

Non-utilisation fees                           239   311

                                             8,502 7,999

The loan arrangement costs incurred to 31 March 2022 are £3,325,000 (2021: £4,590,000). These are amortised over the duration of the loans with £967,000 amortised in the year ended 31 March 2022 and included in interest payable on loans (2021: £531,000).

9. Tax

The charge for the year is:

                    2022 2021

Tax expense in year    –    –

Total tax charge       –    –

A reconciliation of the tax charge applicable to the results at the statutory tax rate to the charge for the year is as follows:

                                                                   2022     2021
                                                                    £000    £000

Profit before taxation                                           146,986  33,801

Expected tax charge on ordinary activities at the standard rate   27,927   6,422
of taxation of 19% (2021: 19%)


UK REIT exemption on net income                                  (3,257) (3,813)

Revaluation movement not taxable                                (24,662) (2,444)

Gains on disposal not taxable                                        (8)   (165)

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.

10. Dividends

                                                                    2022    2021
                                                                     £000   £000

Declared and paid:

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

Interim dividend for the period ended 31 March 2021: 0.8 pence      4,365      –

Interim dividend for the period ended 30 June 2021: 0.85 pence      4,644      –

Interim dividend for the period ended 30 September 2021: 0.85       4,640      –

Interim dividend for the period ended 31 December 2021: 0.875       4,776      –

                                                                   18,425 15,002

The interim dividend of 0.875 pence per ordinary share in respect of the period ended 31 March 2022 has not been recognised as a liability as it was declared after the year-end. This dividend of £4,774,000 will be paid on 31 May 2022.

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:

                                                               2022        2021

Net profit attributable to ordinary shareholders of the

from continuing operations (£000)                           147,420      33,801

Weighted average number of ordinary shares for basic    545,904,197 545,590,722
profit per share

Weighted average number of ordinary shares for diluted  547,295,589 546,793,381
profit per share

12. Investments in subsidiaries

The Company had the following principal subsidiaries as at 31 March 2022 and 31 March 2021:

Name                                Place of incorporation Ownership proportion

Picton UK Real Estate Trust                       Guernsey                 100%
(Property) Limited

Picton (UK) REIT (SPV) Limited                    Guernsey                 100%

Picton (UK) Listed Real Estate                    Guernsey                 100%

Picton UK Real Estate (Property) No               Guernsey                 100%
2 Limited

Picton (UK) REIT (SPV No 2) Limited               Guernsey                 100%

Picton Capital Limited                     England & Wales                 100%

Picton (General Partner) No 2                     Guernsey                 100%

Picton (General Partner) No 3                     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 Financing UK (No 2) Limited         England & Wales                 100%
(established on 28 February 2022)

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.

                                               2022     2021
                                                £000    £000

Fair value at start of year                  665,418 654,486

Capital expenditure on investment properties   9,551   4,961

Acquisitions                                  25,005       –

Disposals                                      (687) (3,928)

Transfer to owner-occupied property                – (3,830)

Acquisition of right of use asset                897       –

Realised gains on disposal                        42     868

Unrealised movement on investment properties 129,801  12,861

Fair value at the end of the year            830,027 665,418

Historic cost at the end of the year         654,370 625,359

The fair value of investment properties reconciles to the appraised value as follows:

                                              2022      2021
                                               £000     £000

Appraised value                             849,325  682,410

Valuation of assets held under head leases    2,237    1,313

Owner-occupied property                     (4,168)  (3,830)

Lease incentives held as debtors           (17,367) (14,475)

Fair value at the end of the year           830,027  665,418

The investment properties were valued by independent valuers, CBRE Limited, Chartered Surveyors, as at 31 March 2022 and 31 March 2021 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 based on their professional judgement and market observation.

The assumptions and valuation models used by the valuers, and supporting information, are reviewed by senior management and the Board through the Property Valuation Committee. Members of the Property Valuation Committee, together with senior management, meet with the independent valuer on a quarterly basis to review the valuations and underlying assumptions, including considering current market trends and conditions, and changes from previous quarters. The Board will also consider whether circumstances at specific investment properties, such as alternative uses and issues with occupational tenants, are appropriately reflected in the valuations. The fair value of investment properties is measured based on each property’s highest and best use from a market participant’s perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible.

As at 31 March 2022 and 31 March 2021 all of the Group’s properties, including owner-occupied property, are Level 3 in the fair value hierarchy as it involves use of significant judgement. There were no transfers between levels during the year and the prior year. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to Level 1 (inputs from quoted prices) and Level 2 (observable inputs either directly, i.e. as prices, or indirectly, as derived from prices).

Information on these significant unobservable inputs per sector of investment properties is disclosed as follows:

              2022                            2021

                 Office Industrial Retail and    Office Industrial Retail and
                                      Leisure                         Leisure

Appraised       251,125    509,730     88,470   245,385    360,740     76,285
value (£000)

Area (sq ft,        828      3,240        692       828      2,570        706

Range of

Gross ERV (sq
ft per annum)

– range       £10.96 to  £2.82 to   £3.23 to  £11.00 to   £3.75 to   £3.46 to
                 £82.32     £26.77     £28.49    £78.05     £21.18     £29.65

– weighted       £35.10     £11.47     £11.83    £34.10     £10.39     £11.84

Net initial

– range        0.92% to   0.00% to   3.07% to  0.00% to   2.79% to   3.07% to
                  9.00%      6.75%     25.00%     7.98%      7.63%     29.58%

– weighted        4.64%      3.25%      7.33%     4.35%      4.38%      7.64%


– range        4.29% to   3.04% to   6.19% to  4.34% to   3.68% to   7.01% to
                  9.63%      7.37%     12.89%    10.83%      8.59%     26.95%

– weighted        7.00%      4.24%      7.42%     7.02%      4.97%      7.95%


– range        4.09% to   3.00% to   6.25% to  4.42% to   3.73% to   7.80% to
                  9.95%      7.00%     13.02%     9.95%      8.39%     14.03%

– weighted        6.49%      4.11%      7.55%     6.82%      5.02%      8.99%

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     2022 Impact on     2021 Impact on
                                                 valuation          valuation

Industrial         Increase of 50 basis Decrease of £55.2m Decrease of £36.3m

                   Decrease of 50 basis Increase of £69.0m Increase of £45.4m

Office             Increase of 50 basis Decrease of £11.9m Decrease of £20.3m

                   Decrease of 50 basis Increase of £12.5m Increase of £24.5m

Retail and Leisure Increase of 50 basis  Decrease of £5.1m  Decrease of £5.2m

                   Decrease of 50 basis  Increase of £5.9m  Increase of £6.7m

14. Property, plant and equipment

Property, plant and equipment principally comprises the fair value of owner-occupied property. The fair value of these premises is based on the appraised value at 31 March 2022.

                 Owner Occupied Property Plant and equipment £000 Total
                                    £000                           £000

At 1 April 2020                        –                       20    20

Additions                          3,830                      268 4,098

Depreciation                           –                      (7)   (7)

Revaluation                            –                        –     –

At 31 March 2021                   3,830                      281 4,111

Additions                              –                        3     3

Depreciation                        (96)                     (69) (165)

Revaluation                          434                        –   434

At 31 March 2022                   4,168                      215 4,383

15. Accounts receivable

                                                  2022    2021
                                                   £000   £000

Tenant debtors (net of provisions for bad debts)  4,618  4,326

Lease incentives                                 17,367 14,475

Other debtors                                       865    783

                                                 22,850 19,584

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 2022, tenant debtors of £302,000 (2021: £1,874,000) were considered impaired and provided for.

16. Cash and cash equivalents

                          2022    2021
                           £000   £000

Cash at bank and in hand 38,542 23,353

Short-term deposits           5      5

                         38,547 23,358

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. The carrying amounts of these assets approximate to their fair value.

17. Accounts payable and accruals

                        2022    2021
                         £000   £000

Accruals                4,994  4,496

Deferred rental income  8,399  7,596

VAT liability           1,638  1,780

Trade creditors           357    596

Other creditors         3,750  4,337

                       19,138 18,805

18. Loans and borrowings

                                      Maturity   2022     2021
                                                  £000    £000


Aviva facility                               –   1,372   1,314

Capitalised finance costs                    –   (304)   (370)

                                                 1,068     944


Canada Life facility              24 July 2031 129,045  80,000

Aviva facility                    24 July 2032  83,518  84,894

NatWest revolving credit facility  26 May 2025   4,900       –

Capitalised finance costs                    – (1,699) (2,183)

                                               215,764 162,711

                                               216,832 163,655

The following table provides a reconciliation of the movement in loans and borrowings to cash flows arising from financing activities.

                                      2022     2021
                                       £000    £000

Balance at start of year            163,655 165,136

Changes from financing cash flows

Proceeds from loans and borrowings   79,545       –

Repayment of loans and borrowings  (26,917) (1,258)

Financing costs paid                  (419)   (574)

                                     52,209 (1,832)

Other changes

Amortisation of financing costs         967     531

Change in accrued financing costs         1   (180)

                                        968     351

Balance as at 31 March              216,832 163,655

The Group has refinanced its existing loan facility with Canada Life increasing borrowings to £129.0 million and extending the maturity date until July 2031. Interest is now fixed at 3.25% (previously 4.08%) over the remaining life of the loan. A debt prepayment fee of £4.0 million was incurred during the year to reset the interest rate on the existing debt. 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 £415.2 million (2021: £330.0 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 (2021: £1.3 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 £208.1 million (2021: £184.9 million).

The Group also has a £50 million revolving credit facility (‘RCF’) with National Westminster Bank Plc which matures in May 2025. There is currently £4.9 million drawn under the facility, interest is charged at 150 basis points over SONIA from 20 January 2022 (previously 150 basis points over LIBOR) on drawn balances and there is an undrawn commitment fee of 60 basis points. The facility is secured on properties held by Picton UK Real Estate Trust (Property) Limited, valued at £163.2 million (2021: £131.7 million).

The fair value of the drawn loan facilities at 31 March 2022, estimated as the present value of future cash flows discounted at the market rate of interest at that date, was £225.6 million (2021: £187.2 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 2022 was 3.7% (2021: 4.2%).

19. Contingencies and capital commitments

The Group has entered into contracts for the refurbishment of six properties with commitments outstanding at 31 March 2022 of approximately £2.4 million (2021: £6.7 million). No further obligations to construct or develop investment property or for repairs, maintenance or enhancements were in place as at 31 March 2022 (2021: £nil).

20. Share capital and other reserves

                                                              2022     2021
                                                               £000    £000


Unlimited number of ordinary shares of no par value               –       –

Issued and fully paid:

547,605,596 ordinary shares of no par value (31 March 2021:       –       –

Share premium                                               164,400 164,400

The Company has 547,605,596 ordinary shares in issue of no par value (2021: 547,605,596).

No new ordinary shares were issued during the year ended 31 March 2022.

                                                     2022              2021
                                          Number of shares Number of shares

Ordinary share capital                         547,605,596      547,605,596

Number of shares held in Employee Benefit      (1,974,253)      (2,052,269)

Number of ordinary shares                      545,631,343      545,553,327

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 1,974,253 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

                                                2022      2021
                                                 £000     £000

Profit on disposal of investment properties      (42)    (868)

Movement in investment property valuation   (129,801) (12,861)

Share-based provisions                            668      758

Depreciation of tangible assets                   165        7

                                            (129,010) (12,964)

22. Obligations under leases

The Group has entered into a number of head leases in relation to its investment properties. These leases are for fixed terms and subject to regular rent reviews. They contain no material provisions for contingent rents, renewal or purchase options nor any restrictions outside of the normal lease terms.

Lease liabilities in respect of rents on leasehold properties were payable as follows:

                                                    2022     2021
                                                     £000    £000

Future minimum payments due:

Within one year                                       185     116

In the second to fifth years inclusive                740     466

After five years                                    9,083   7,150

                                                   10,008   7,732

Less: finance charges allocated to future periods (7,301) (5,918)

Present value of minimum lease payments             2,707   1,814

The present value of minimum lease payments is analysed as follows:

                                       2022   2021
                                        £000  £000


Within one year                          114   107

                                         114   107


In the second to fifth years inclusive   410   379

After five years                       2,183 1,328

                                       2,593 1,707

                                       2,707 1,814

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):

                      2022     2021
                       £000    £000

Within one year      41,928  37,744

One to two years     39,244  33,954

Two to three years   35,416  32,008

Three to four years  29,972  27,937

Four to five years   24,748  23,235

After five years     99,788  91,294

                    271,096 246,172

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 2022          Notes           Held at      Financial assets and  Total
                             fair value through liabilities at amortised    £000
                                profit or loss                     cost
                                           £000                     £000

Financial assets

Debtors                   15                  –                    5,483   5,483

Cash and cash             16                  –                   38,547  38,547

                                              –                   44,030  44,030

Financial liabilities

Loans and borrowings      18                  –                  216,832 216,832

Obligations under head    22                  –                    2,707   2,707

Creditors and accruals    17                  –                    9,101   9,101

                                              –                  228,640 228,640


31 March 2021          Notes            Held at     Financial assets and   Total
                             fair value through liabilities at amortised    £000
                                         profit                     cost
                                        or loss                     £000

Financial assets

Debtors                   15                  –                    5,109   5,109

Cash and cash             16                  –                   23,358  23,358

                                              –                   28,467  28,467

Financial liabilities

Loans and borrowings      18                  –                  163,655 163,655

Obligations under head    22                  –                    1,814   1,814

Creditors and accruals    17                  –                    9,429   9,429

                                              –                  174,898 174,898

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 share capital, reserves, retained earnings and revaluation reserve. The Group is not subject to any external capital requirements.

The Group monitors capital on the basis of its gearing ratio. This ratio is calculated as the principal borrowings outstanding, as detailed under Note 18, divided by the gross assets. There is a limit of 65% as set out in the Articles of Association of the Company. Gross assets are calculated as non-current and current assets, as shown in the Consolidated Balance Sheet.

At the reporting date the gearing ratios were as follows:

                                      2022     2021
                                       £000    £000

Total borrowings                    218,835 166,208

Gross assets                        895,807 712,471

Gearing ratio (must not exceed 65%)   24.4%   23.3%

The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Group has managed its capital risk by entering into long-term loan arrangements with different maturities, which will enable the Group to manage its borrowings in an orderly manner over the long-term. The Group also has a revolving credit facility which provides greater flexibility in managing the level of borrowings.

The Group’s net debt to equity ratio at the reporting date was as follows:

                                           2022      2021
                                            £000     £000

Total liabilities                        238,677  184,274

Less: cash and cash equivalents         (38,547) (23,358)

Net debt                                 200,130  160,916

Total equity                             657,130  528,197

Net debt to equity ratio at end of year     0.30     0.30

Credit risk

The following tables detail the balances held at the reporting date that may be affected by credit risk:

31 March 2022    Notes                   Held at     Financial assets and Total
                       fair value through profit liabilities at amortised   £000
                                        or loss                     cost
                                            £000                     £000

Financial assets

Tenant debtors      15                         –                    4,618  4,618

Cash and cash       16                         –                   38,547 38,547

                                               –                   43,165 43,165


31 March 2021    Notes                   Held at     Financial assets and  Total
                       fair value through profit liabilities at amortised   £000
                                         or loss                     cost
                                            £000                     £000

Financial assets

Tenant debtors      15                         –                    4,326  4,326

Cash and cash       16                         –                   23,358 23,358

                                               –                   27,684 27,684

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 to 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 concentration risk whether in terms of credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with strong credit ratings assigned by international credit rating agencies.

The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk. The Board continues to monitor the Group’s overall exposure to credit risk.

The Group has a panel of banks with which it makes deposits, based on credit ratings assigned by international credit rating agencies and with set counterparty limits that are reviewed regularly. The Group’s main cash balances are held with National Westminster Bank Plc (‘NatWest’), Nationwide International Limited (‘Nationwide’) and Lloyds Bank Plc (‘Lloyds’). Insolvency or resolution of the bank holding cash balances may cause the Group’s recovery of cash held by them to be delayed or limited. The Group manages its risk by monitoring the credit quality of its bankers on an ongoing basis. NatWest, Nationwide and Lloyds are rated by all the major rating agencies. If the credit quality of any of these banks were to deteriorate, the Group would look to move the relevant short-term deposits or cash to another bank. Procedures exist to ensure that cash balances are split between banks to minimise exposure. At 31 March 2022 and at 31 March 2021, Standard & Poor’s short-term credit rating for each of the Group’s bankers were A-1.

There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior periods, due to the actions taken to mitigate this risk, as stated above.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board, which has put in place an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group’s liquidity risk is managed on an ongoing basis by senior management and monitored on a quarterly basis by the Board by maintaining adequate reserves and loan facilities, continuously monitoring forecasts, loan maturity profiles and actual cash flows and matching the maturity profiles of financial assets and liabilities for a period of at least 12 months.

The table below has been drawn up based on the undiscounted contractual maturities of the financial assets/(liabilities), including interest that will accrue to maturity.

31 March 2022                 Less than  1 to 5  More than    Total
                                          years                 £000
                                1 year      £000  5 years
                                   £000               £000

Cash and cash equivalents        38,547        –         –    38,547

Debtors                           5,483        –         –     5,483

Capitalised finance costs           304      934       765     2,003

Obligations under head leases     (185)    (740)   (9,083)  (10,008)

Fixed interest rate loans       (8,524) (37,049) (242,891) (288,464)

Floating interest rate loans      (113)  (5,031)         –   (5,144)

Creditors and accruals          (9,101)        –         –   (9,101)

                                 26,411 (41,886) (251,209) (266,684)


31 March 2021                 Less than   1 to 5 More than     Total
                                 1 year    years   5 years      £000
                                   £000     £000      £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)

The Group expects to meet its financial liabilities through the various available liquidity sources, including a secure rental income profile, asset sales, undrawn committed borrowing facilities and, in the longer-term, debt refinancing.

Market risk

The Group’s activities are primarily within the real estate market, exposing it to very specific industry risks.

The yields available from investments in real estate depend primarily on the amount of revenue earned and capital appreciation generated by the relevant properties as well as expenses incurred. If properties do not generate sufficient revenues to meet operating expenses, including debt service costs and capital expenditure, the Group’s operating performance will be adversely affected.

Revenue from properties may be adversely affected by the general economic climate, local conditions such as oversupply of properties or a reduction in demand for properties in the market in which the Group operates, the attractiveness of the properties to occupiers, the quality of the management, competition from other available properties and increased operating costs

In addition, the Group’s revenue would be adversely affected if a significant number of occupiers were unable to pay rent or its properties could not be rented on favourable terms. Certain significant expenditure associated with investment in real estate (such as external financing costs and maintenance costs) is generally not reduced when circumstances cause a reduction in revenue from properties. By diversifying in regions, sectors, risk categories and occupiers, senior management expects to mitigate the risk profile of the portfolio effectively. The Board continues to oversee the profile of the portfolio to ensure risks are managed.

The valuation of the Group’s property assets is subject to changes in market conditions. Such changes are taken to the Consolidated Statement of Comprehensive Income and thus impact on the Group’s net result. A 5% increase or decrease in property values would increase or decrease the Group’s net result by £42.5 million (2021: £34.1 million).

Interest rate risk management

Interest rate risk arises on interest payable on the revolving credit facility only. The Group’s senior debt facilities have fixed interest rates over the terms of the loans. The amount drawn under the revolving credit facility makes up a small proportion of the overall debt, therefore the Group has limited exposure to interest rate risk on its borrowings and no sensitivity is presented.

Interest rate risk

The following table sets out the carrying amount, by maturity, of the Group’s financial assets/(liabilities).

31 March 2022             Less than  1 to 5  More than    Total
                                      years                 £000
                            1 year      £000  5 years
                               £000               £000


Cash and cash equivalents    38,547        –         –    38,547

Secured loan facilities           –  (4,900)         –   (4,900)


Secured loan facilities     (1,372)  (6,127) (206,436) (213,935)

Obligations under leases      (114)    (410)   (2,183)   (2,707)

                             37,061 (11,437) (208,619) (182,995)


31 March 2021             Less than  1 to 5 More than     Total
                             1 year   years   5 years      £000
                               £000    £000      £000


Cash and cash equivalents    23,358       –         –    23,358


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)

Concentration risk

As discussed above, all of the Group’s investments are in the UK and therefore the Group is exposed to macroeconomic changes in the UK economy. Furthermore, the Group derives its rental income from around 400 occupiers with the single largest occupier accounting for only 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 £275,000 (2021: £250,000). As at 31 March 2022, the Group owed £nil to the Non-Executive Directors (2021: £nil).

Picton Property Income Limited has no controlling parties.

27. Events after the Balance Sheet date

A dividend of £4,774,000 (0.875 pence per share) was approved by the Board on 26 April 2022 and will be paid on 31 May 2022.

The Group has completed on the acquisition of one property for £13.7 million.