Picton Property Income Ltd - Preliminary Annual Results
(“Picton”, the “Company” or the “Group”)
Preliminary Annual Results
Picton announces its annual results for the year ending
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
– Outperformed MSCI
– 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
– 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
– 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%
“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.”
“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
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Note to Editors
Picton, established in 2005, is a
For more information please visit: www.picton.co.uk
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
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.
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
We are acutely aware of the new challenges emerging both directly and indirectly from the conflict in
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 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
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.
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
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
In our refurbishments at Angel Gate,
We have outperformed the MSCI
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%.
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
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.
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.
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
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.
As Covid-19 concerns began to dissipate, the war in
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
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
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
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
The end of the furlough scheme in
House prices accelerated during the pandemic as changes to the tax paid on property purchases were announced.
Despite the now more muted outlook for the
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
The industrial sector had an extraordinarily strong year. The industrial total return for the year ending
The office sector continued to face a degree of uncertainty over future demand levels and suffered an additional setback in
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
According to Property Data, the total investment volume for the year to
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,
Industrial weighting 60% South East 44% Rest of
Office weighting 30%
Central London11% Rest of UK10% South East 9%
Retail and Leisure weighting 10%
Retail Warehouse7% High Street Rest of UK2% 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
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
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%.
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
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
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,
The air conditioning plant was replaced at
Our largest void is
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
We retained 37% of total ERV at risk in the year to
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
At the year end, over half of our vacant buildings were being refurbished, with the remainder available to let and being actively marketed.
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.
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.
Senior Director and Head of Asset Management
Top ten occupiers
The largest occupiers, based as a percentage of contracted rent, as at
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 Limited0.8 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
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 Industrial Estate, Radlett, Herts. River Way 12/2006 Industrial Freehold 454,800 50-75 10 100 Industrial Estate, Harlow, Essex 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 Business Park, Barking Stanford 05/2010 Office Freehold 19,600 30-50 4 100 Building, London WC2 Shipton 07/2014 Industrial Freehold 312,900 30-50 1 100 Way, Rushden Angel 10/2005 Office Freehold 64,600 30-50 18 61 Gate, City Road, London EC1 Tower 08/2017 Office Freehold 70,600 20-30 6 90 Wharf, Cheese Lane, Bristol 50 10/2005 Office Leasehold* 31,300 20-30 4 100 Farringdon Road, London EC1 Sundon 10/2005 Industrial Freehold 127,800 20-30 11 91 Business Park, Dencora Way, Luton
*Denotes leasehold interest in excess of 950 years.
Longevity of income
% 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
Industrial 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.
At Easter Court,
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.
Office 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
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
We invested £6.2 million into our office assets during the period. Key projects were completed at Angel Gate,
In Chatham, we completed the letting of all the remaining space at
Following the completion of the refurbishment of
At Grafton Gate,
Our largest office void is
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
£2.5 million was invested into the retail portfolio during the period, the majority into the
We had success at our retail parks, with a letting to the
At Scots Corner,
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.
This financial year has seen a significant rebound in the economy, with
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
March 2021net 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 2022net 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
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
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
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
The appraised value of our investment property portfolio was £849.3 million at
As last year, the value of the floor that we occupy at
Total borrowings are now £218.8 million at
In March, we extended and amended our Canada Life facility. Previously the outstanding £80 million loan had a maturity date of
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
The fair value of our borrowings at
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
No new ordinary shares were issued during the year.
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 impacts of the Covid-19 pandemic have lessened over the past year as restrictions have been lifted and the
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.
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
– 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.
1 Political and economic Risk Mitigation Commentary Risk trend Uncertainty in the The Board considers The recent and Increasing
UKeconomy, 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. 2 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. 3 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. 4 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 stages.
5 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. returns. 6 Investment 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 including environmental assessments. A review of each acquisition is performed within two years of completion. 7 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 Manager. 8 Valuation 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 valuer. The Board reviews financial forecasts for the Group on a regular basis, including sensitivity and adequate headroom against financial covenants.
9 People 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 Board.
10 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, including sensitivity against financial covenants. The Audit and Risk Committee considers the going concern status of the Group biannually. 11 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 returns.
Viability assessment and statement
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
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
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
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
Consolidated statement of comprehensive income
for the year ended
Notes 2022 2021 £000 £000 Income Revenue from properties 3 46,543 43,331 Property expenses 4 (11,098) (9,877) Net property income 35,445 33,454 Expenses Administrative expenses 6 (5,755) (5,388) Total operating expenses (5,755) (5,388) Operating profit before movement on investments 29,690 28,066 Investments 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 Financing 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
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 year Dividends paid 10 – (15,002) – – (15,002) Share-based – – 758 – 758 awards Purchase of 7 – – (643) – (643) shares held in trust Balance as at 31 164,400 364,466 (669) – 528,197 March 2021 Profit for the – 146,986 – – 146,986 year Dividends paid 10 – (18,425) – – (18,425) Share-based – – 668 – 668 awards Purchase of 7 – – (730) – (730) shares held in trust Other 14 – – – 434 434 comprehensive income for the year 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
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 Equity 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
Notes 1 to 27 form part of these consolidated financial statements.
Consolidated statement of cash flows
for the year ended
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
1. General information
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
– 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.
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 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.
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 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.
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
Dividends are recognised in the period in which they are declared.
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.
Ordinary shares are classified as equity.
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
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
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 £000 £000 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
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 2020 31 242,509 – – (242,509) – – – – – March 2020 19 June 438,907 – – – 438,907 – – (438,907) – 2021 29 June – 599,534 – – 599,534 – – – 599,534 2022 22 June – – – – – 531,108 – – 531,108 2023 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
The three performance metrics are:
– Total shareholder return (TSR) of
– Total property return (TPR) of the property assets held within the Group, compared to the MSCI
– Growth in EPRA earnings per share (EPS) of the Group.
The fair value of share grants is measured using a combination of a
Assumptions 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
The Group employed nine members of staff at
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
The charge for the year is:
2022 2021 £000 £000 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%) Less: 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 the principal company of the REIT, the Company is required to distribute at least 90% of the income profits of the Group’s
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 pence4,365 – Interim dividend for the period ended 30 June 2021: 0.85 pence4,644 – Interim dividend for the period ended 30 September 2021: 0.85 4,640 – pence Interim dividend for the period ended 31 December 2021: 0.875 4,776 – pence 18,425 15,002
The interim dividend of
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
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 Company 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
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% Limited Picton (General Partner) No 3 Guernsey 100% Limited 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.
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,
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
– 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.
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 000s) Range of unobservable inputs: 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 average Net initial yield – 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% average Reversionary yield – 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% average True equivalent yield – 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% average
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 points Decrease of 50 basis Increase of £69.0m Increase of £45.4m points Office Increase of 50 basis Decrease of £11.9m Decrease of £20.3m points Decrease of 50 basis Increase of £12.5m Increase of £24.5m points Retail and Leisure Increase of 50 basis Decrease of £5.1m Decrease of £5.2m points Decrease of 50 basis Increase of £5.9m Increase of £6.7m points
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
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
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 Current Aviva facility – 1,372 1,314 Capitalised finance costs – (304) (370) 1,068 944 Non-current 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
Additionally, the Group has a £95.3 million term loan facility with
The Group also has a £50 million revolving credit facility (‘RCF’) with National Westminster Bank Plc which matures in
The fair value of the drawn loan facilities at
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
19. Contingencies and capital commitments
The Group has entered into contracts for the refurbishment of six properties with commitments outstanding at
20. Share capital and other reserves
2022 2021 £000 £000 Authorised: Unlimited number of ordinary shares of no par value – – Issued and fully paid: 547,605,596 ordinary shares of no par value (31 March 2021: – – 547,605,596) 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
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) Trust 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
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 Current Within one year 114 107 114 107 Non-current 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
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 equivalents – 44,030 44,030 Financial liabilities Loans and borrowings 18 – 216,832 216,832 Obligations under head 22 – 2,707 2,707 leases 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 £000 Financial assets Debtors 15 – 5,109 5,109 Cash and cash 16 – 23,358 23,358 equivalents – 28,467 28,467 Financial liabilities Loans and borrowings 18 – 163,655 163,655 Obligations under head 22 – 1,814 1,814 leases Creditors and accruals 17 – 9,429 9,429 – 174,898 174,898
25. Risk management
The Group invests in commercial properties in the
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
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
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 equivalents – 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 equivalents – 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’),
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.
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.
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 Floating Cash and cash equivalents 38,547 – – 38,547 Secured loan facilities – (4,900) – (4,900) Fixed 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 Floating Cash and cash equivalents 23,358 – – 23,358 Fixed Secured loan facilities (1,314) (5,867) (159,027) (166,208) Obligations under leases (107) (379) (1,328) (1,814) 21,937 (6,246) (160,355) (144,664)
As discussed above, all of the Group’s investments are in the
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
27. Events after the Balance Sheet date
A dividend of £4,774,000 (
The Group has completed on the acquisition of one property for £13.7 million.