TIDMPCTN
14 November 2017
PICTON PROPERTY INCOME LIMITED
LEI: 213800RYE59K9CKR4497
HALF YEAR RESULTS
("PICTON", THE "COMPANY" OR THE "GROUP")
Picton (LSE: PCTN) announces its half year results for the six month period to
30 September 2017.
Continued NAV and earnings growth with dividend increase
- Profit after tax of GBP30.7 million
- Total return for the six months of 7.1%
- Increase in EPRA NAV per share of 5.0%, to 86 pence per share
- Gearing of 28.2% and weighted average interest rate reduced from 4.2% to
4.1%
- Dividends paid of GBP9.2 million or 1.7 pence per share
- Dividend cover of 118%
- 3% increase in annual dividend announced today, to 3.5 pence per share
Portfolio outperformance
- Total property return of 6.3%, outperforming the MSCI IPD Quarterly
Benchmark of 5.0%
- Improved occupancy to 95%, ahead of the MSCI IPD Quarterly Digest of 93%
- Acquisition of multi-let office in Bristol for GBP23.2 million
- Two disposals for GBP9.9 million, 37% ahead of March 2017 valuation
- Like-for-like portfolio rental income growth of 4.4%
- Like-for-like ERV growth of 1.7%
- 8% increase in average lot size to GBP12.7 million
30 September 31 March
2017 2017
Property assets* GBP652.1m GBP615.2m
Net assets GBP463.8m GBP441.9m
EPRA NAV per Share 86p 82p
* net of lease incentives, see Note 9.
Six months to Six months to
30 September 30 September
2017 2016
Profit after tax GBP30.7m GBP15.7m
Earnings per share 5.7p 2.9p
EPRA earnings per share 2.0p 2.0p
Total return 7.1% 3.8%
Total shareholder return 3.9% 5.7%
Total dividend per share 1.70p 1.65p
Dividend cover 118% 179%**
** 120% prior to one-off income.
Picton Chairman, Nicholas Thompson, commented:
"As demonstrated by these results the team remains focused on our objective to
achieve consistent long-term performance on behalf of our shareholders.
Additionally it is pleasing to be able to announce a further increase in our
level of dividend. With an eye on the future, we remain committed to our
current portfolio strategy whilst ensuring the Company is prepared to be able
to convert to UK REIT status. This decision will depend on the forthcoming
result of the Government's consultation into bringing non-resident landlord
companies, like Picton, into the scope of UK corporation tax."
Michael Morris, Chief Executive of Picton Capital, commented:
"We have continued to make considerable progress in the first half, improving
occupancy and increasing the overall lot size of the portfolio. Strong
performance from the industrial and logistics sector in particular, contributed
to NAV growth, along with the disposal of two non-core assets. With our recent
Bristol acquisition there is GBP6 million of reversionary potential in the
portfolio and we believe that capturing this is key to driving income and
valuation growth in the short to medium term. As we continue to seek to grow
the business and enhance returns, we are confident that Picton is well placed
to continue delivering value for shareholders."
This announcement contains inside information.
For further information:
Tavistock
Jeremy Carey/James Verstringhe, 020 7920 3150,
james.verstringhe@tavistock.co.uk
Picton Capital Limited
Michael Morris, 020 7011 9980, michael.morris@picton.co.uk
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Andy Le Page, 01481 745 001, team_picton@ntrs.com
Note to Editors
Picton is a property investment company established in 2005. It owns and
actively manages a GBP661 million diversified UK commercial portfolio, invested
across 52 assets and with around 350 occupiers (as at 30 September 2017).
Through an occupier-focused, opportunity-led approach to asset management,
Picton aims to be one of the consistently best performing diversified UK
property companies listed on the main market of the London Stock Exchange.
www.picton.co.uk
CHAIRMAN'S STATEMENT
For the half year to 30 September 2017, I am pleased to report another set of
good financial results, as evidenced by a profit after tax of GBP31 million, and
a 5% increase in the net asset value over the six months.
The Company generated earnings per ordinary share of 5.7 pence. Net assets rose
by GBP22 million to stand at GBP464 million at 30 September, or 86 pence per share.
Based on these results the total return for the period was 7.1%.
Within the property portfolio, we have grown occupancy and achieved some
significant lettings, which are set out in more detail in the Investment
Manager's Report.
Strategy
As we stated in our last Annual Report, our aim is to be one of the
consistently best performing UK diversified property companies listed on the
main market of the London Stock Exchange.
In order to achieve this aim, we have five key strategic priorities - working
with occupiers, growing net income, operational efficiency, portfolio and asset
management and the effective use of debt.
Performance
At the portfolio level, our assets have continued to outperform the MSCI IPD
Quarterly Benchmark delivering a total property return of 6.3%, against 5.0%,
in part driven by our income focus, our portfolio allocation and some
attractively priced disposals.
Our ongoing charges over the period reduced to 1.1%, compared to 1.2% at 31
March 2017.
Whilst we have made good progress over the period, our objective is to generate
consistent long term performance. Over the last five years we have increased
our net asset value by 65% and our property portfolio has delivered an average
annual total return of 12.7%.
Property Portfolio
In common with the wider market, the strongest performance within the portfolio
has been in the industrial sector, followed by offices, with the retail and
leisure sector making little progress, against a backdrop of higher inflation
affecting retailers and consumers alike.
Through investment activity and growth in capital values, we have increased the
average lot size within the portfolio, by some 8% to GBP12.7 million, which in
turn reflects part of our strategy to improve operational efficiency.
Occupancy improved over the period and now stands at 95%, ahead of the market
at 93%. We are confident of further lettings success which will improve the
position.
Capital Structure
Recognising market risks and the ongoing uncertainty following last year's
referendum result, we believe that it remains appropriate in the current
climate to try and keep our gearing level below 30%. During the last six
months, we extended one of our two revolving credit facilities, moving the
maturity date from 2018 to 2021. We intend to make use of these facilities on a
tactical basis. A short-term increase in gearing, with the potential to pay
down debt via equity issuance or future asset sales, gives us operational
flexibility and allows us to act opportunistically. During the period, we made
a drawdown of GBP12.5 million to partly fund the acquisition of our new Bristol
asset.
The Company's shares continue to trade broadly in line with the net asset
value, against a backdrop of some UK REITs and property companies trading at
significant premiums or discounts.
Future Growth
The Directors believe that Picton is in a strong position to benefit from the
economies of scale that would result from prudent growth of the Company's
portfolio. As an internally managed company, we can do this without
proportionately increasing our cost base.
We will continue to seek to grow the asset base of the Company selectively with
attractive opportunities, provided that these are sourced under the right
market conditions.
Corporate Structure
Earlier this year the Government ran a consultation exploring the case and
option for bringing non-resident landlord companies, such as Picton, into the
scope of UK corporation tax. We expect any legislation in this regard to be
announced in the Budget later this month. In anticipation of this, we have
continued to progress our planning for a potential conversion to a UK REIT in
2018.
Contingent on the timing of the introduction of any new legislation, we expect
to hold an extraordinary general meeting early in 2018 to seek shareholder
approval for any corporate changes that may be required with UK REIT
conversion. As part of this process, we are also reviewing how we can optimise
our internal management structure by reducing costs and improving efficiency to
maximise shareholder value. Although we do not intend to change our investment
approach and portfolio strategy, we are undertaking an appraisal of the
benefits of the Company's current technical listing status as an investment
company, rather than that of a commercial company, which would be more in-line
with our internally managed peers.
Board Composition
In our 2017 Annual Report, I highlighted that we would be seeking to recruit a
new Director this year and I am pleased to confirm that, after a comprehensive
search and selection process, we announced the appointment of Mark Batten to
the Board in October. Mark, a recently retired partner from PwC, has extensive
experience in financial services, real estate, corporate finance, structuring
and transactions and will further broaden the skill set of the Board. He will
become Chairman of the Audit and Risk Committee during 2018 and Robert Sinclair
has kindly agreed to remain on the Board to help facilitate this transition.
Dividends
During the period we paid GBP9.2 million in dividends, which were 118% covered by
income profit.
We have said previously that our policy is to maintain a covered dividend in
the long term, which is important in enabling the Company to invest back into
the portfolio and safeguard future performance, whilst also allowing us to grow
dividends progressively as our earnings increase.
Last year we announced a 3% dividend increase, having previously increased the
dividend by 10% in 2015. I am pleased to confirm that after careful
consideration by the Board, a further 3% increase in the Company's dividend has
been approved. The annual dividend will be increased to 3.5 pence per share and
the first quarterly dividend of 0.875 pence per share is expected to be paid in
February 2018. Once any transition to a UK REIT is complete we will revisit our
dividend policy, particularly in the light of REIT regime distribution
requirements.
Outlook
Consensus forecasts indicate that future returns look set to be driven in the
short term by income. Picton remains well positioned at a macro level in terms
of its sector allocation and I am confident that the team will, through active
management, continue to unlock value and outperform the market.
We believe the basics of asset management, occupier retention and growing
income through leasing are our core strengths. With GBP6 million of reversionary
potential within the portfolio, we believe that capturing this is key to
driving income and valuation growth in the short to medium term. As we continue
to seek to grow the business and enhance returns, the Board is confident that
Picton is well placed to carry on delivering value for shareholders.
Nicholas Thompson
Chairman
13 November 2017
INVESTMENT MANAGER'S REPORT
Occupancy
95%
Number of assets
52
Average lot size
GBP12.7m
Estimated rental value
GBP47.6m
Economic Backdrop
During the last six months no significant progress appears to have been made in
the negotiations surrounding the UK's exit from the European Union, creating a
general feeling of uncertainty. Despite this, UK GDP has been positive, albeit
growing at a modest rate of 0.4% in the third quarter of 2017 and 0.3% in the
second quarter of 2017.
Together with persistently higher than expected inflation, primarily driven by
weak sterling as well as low productivity, the future economic growth outlook
remains subdued. Despite this, the labour market has been resilient, recording
its highest level of employment in over four decades.
The decision to leave the European Union is having a noticeable impact on the
economic outlook. The increase in the inflation rate reflects the impact of the
fall in sterling on the price of imports. In order to counter this inflationary
pressure earlier this month the Bank of England increased the Base Rate by
0.25% to 0.5%, its first rise in ten years. In our view, this suggests that
they are sufficiently confident that the economy can absorb this rise without
significant impact and whilst further rises are possible, the Monetary Policy
Committee stated that any future increases would be expected to be at a gradual
pace and to a limited extent. They also indicated that there remains
considerable risks to the economic outlook, including the response of
households, businesses and financial markets to developments related to the
process of EU withdrawal and with this move, the Committee has further headroom
to respond as required.
UK Property Market
The commercial property market has held up well against this backdrop. The MSCI
IPD Monthly Index shows a total return for All Property for the six months to
September 2017 of 5.2%, with an income return of 2.7%. Capital growth for the
six months to September 2017 was 2.4% compared to 2.0% for the six months to
March 2017. Rental growth was positive at 1.0% for the six months to September,
marginally higher than 0.8% for the six months to March 2017. Initial yields
have moved from 5.3% in March 2017 to 5.2% in September 2017.
Industrial remained the best performing sector for the six months to September
with total returns of 9.6%, almost double the All Property average. For the
same period, office and retail returns were 4.0% and 3.7%, respectively.
The MSCI IPD Quarterly Digest recorded an occupancy rate of 93.0% in September
2017 (March 2017: 92.8%).
In the industrial sector, returns comprised 2.8% income and 6.7% capital
growth. Rental growth was 2.6%. In terms of capital growth by segment, growth
ranged from 2.8% in North and Scotland to 8.7% in London. Similarly, rental
growth ranged from 4.9% in Inner South East to 1.0% for North and Scotland.
In the office sector, returns comprised 2.4% income and 1.6% capital growth.
Rental growth was 0.7%. In terms of capital growth by segment, growth ranged
from 2.9% in Outer South East to -2.0% in Scotland. Similarly, rental growth
ranged from 3.0% for Outer South East to -0.3% for Scotland.
In the retail sector, returns comprised 3.0% income and 0.7% capital growth.
Rental growth was 0.3%. In terms of capital growth by segment, growth ranged
from 3.5% for Retail Warehouses in London to -2.5% for Rest of UK Shopping
Centres. Similarly, rental growth ranged from 2.2% for South East Retail
Warehouses to -1.5% for West Midland Standard Retail.
According to Property Data, total investment for the six months to September
2017 was GBP30 billion, an increase of 10.2% compared to GBP27.2 billion in the six
months to March 2017. Over half of total investment in the period was from
overseas investors.
Performance
For the six months to September, the portfolio returned 6.3%, outperforming the
MSCI IPD Quarterly Benchmark which delivered 5.0%. The income return was 2.9%,
0.7% ahead of the Benchmark.
The portfolio valuation increased on a like-for-like basis by 3.4% over the
period. The industrial portfolio increased by 6.0% and the office portfolio by
3.1%, while there was no change in the retail and leisure portfolio.
Our overweight position to the better performing sectors combined with active
management and leasing activity contributed to the portfolio's outperformance.
Passing rent increased on a like-for-like basis by 4.4%, with the lettings at
50 Farringdon Road, London EC1 being the major driver. Overall, like-for-like
ERV grew by 1.7%, led by the industrial portfolio at 3.0%, followed by the
office portfolio at 1.5% and no change on the retail and leisure portfolio.
Portfolio Strategy
We believe that our diversified portfolio strategy, focus on income, overweight
position to the better performing industrial and office sectors and our strong
occupier focus is entirely appropriate for current market conditions. We remain
committed to providing good quality space that businesses want to occupy and to
working with our occupiers to assist them in achieving their goals.
We have demonstrated over the long term our ability to consistently deliver a
higher than average income return despite a shorter than average lease expiry
profile. By offering occupiers flexibility, we have been able to maintain a
high occupancy rate. Where occupiers vacate, our aim is to create a product
which is attractive to occupiers and re-lets easily. Over the six months, we
have invested GBP2.3 million back into our assets, including refurbishing vacant
space at 180 West George Street, Glasgow and at Angel Gate, London, developing
the Starbucks pod unit at Gloucester Retail Park and modernising our industrial
estate in Wokingham.
Investment Activity
Investment activity over the period reflected our strategy of investing into
sectors where we have identified value and income growth potential and
disposing of assets where upside is limited and business plans have been
completed.
Two non-income producing office assets in Bracknell were sold for a combined
consideration of GBP9.9 million, representing an overall gain of 37% above the
March valuation. L'Avenir was a single-let office, which became vacant at the
end of June. Phoenix House was also vacant and followed the disposal of
Queensgate House, both in Waterside Park, earlier in the year. The rationale
for the disposals was the attractive pricing relative to the future leasing and
redevelopment risk.
During the period, we completed the acquisition of a grade A waterfront office
building located in Bristol city centre for GBP23.2 million. Tower Wharf was
constructed in 2005 to a BREEAM 'Excellent' rating, and provides over 70,000 sq
ft of office accommodation arranged over ground and five upper floors. With
25,400 sq ft of vacant accommodation already fully refurbished to a high
standard, we envisage leasing the space quickly in a strong occupational
market. This is a good example of the type of investment opportunity where we
can unlock attractive future performance.
The purchase price reflects a net initial yield of 3.6%, which is expected to
grow to 7.5% on leasing the remaining vacant space and capturing the full
reversionary potential. The purchase price represents a capital value of
approximately GBP328 per sq ft, in line with the estimated replacement cost.
Occupancy
Occupancy has increased over the period to 95%, primarily due to the lettings
at 50 Farringdon Road, London EC1 and Unit E, River Way, Harlow, which
contribute a combined rent of over GBP1 million per annum.
The purchase of Tower Wharf, Bristol held back the occupancy as it is currently
64% occupied, which provides significant upside potential upon letting.
Combined with the recently refurbished floors at 180 West George Street in
Glasgow, these two properties account for 44% of the portfolio void. Both
buildings provide grade A space in regional city centre markets with tight
supply and we are confident about the letting prospects.
Looking Ahead
The portfolio has GBP6.0 million of reversion, primarily in the industrial and
office sectors. GBP2.6 million of the reversion is from lettings, GBP1.6 million
from lease renewals and rent reviews with the remainder from contracted
uplifts. The supply and demand imbalance, combined with a lack of development,
should drive rental growth in the industrial and office sectors in particular,
providing further upside.
Picton Capital Limited
13 November 2017
INVESTMENT MANAGER'S REPORT
INDUSTRIAL PORTFOLIO
30 31 March
September 2017
2017
Value GBP265.4 GBP250.4
million million
Internal Area 2,730,000 2,730,000
sq ft sq ft
Annual Rental Income GBP15.8 GBP15.3
million million
Estimated Rental Value GBP17.8 GBP17.3
million million
Occupancy 98.2% 98.6%
Number of Assets 17 17
The industrial portfolio has continued to perform well. Tight supply, limited
development and continued demand has resulted in significant rental growth,
especially in the South East, which we have captured through asset management
activity. Capital values increased by 6.0% on a like-for-like basis. The rent
roll increased by 3.3% to GBP15.8 million per annum and the ERV grew by 3.0% to GBP
17.8 million on a like-for-like basis. The portfolio has a weighted average
lease length of 4.8 years to the first lease event.
The UK wide distribution warehouse portfolio totals 1.3 million sq ft in six
fully income producing units, let to occupiers including Belkin, DHL and The
Random House Group. The multi-let estates, 69% located in the South East and
31% in the rest of the UK, total 1.4 million sq ft and are 97% let. Eight units
are vacant, three of which were recently surrendered.
Notable lettings during the period include our largest industrial void, at Unit
E, River Way in Harlow. This follows receipt of planning consent for a change
of use, thereby satisfying conditions contained within an Agreement to Lease,
completed earlier in the year. The 30,500 sq ft letting secures a minimum
ten-year term certain and will produce an initial rent of GBP0.2 million per
annum.
We have secured GBP0.14 million of additional income from five rent reviews
settled over the period, 2% ahead of ERV. Two tenants have been retained at
renewal securing GBP0.22 million per annum, 8% above ERV. Three leases were
surrendered to facilitate active management and we expect to increase the
passing rent, on re-letting, by 31% to GBP0.22 million per annum. Two of these
units are under offer.
The industrial portfolio currently has GBP2.0 million of reversion and with high
occupancy we can look to capture this through active management and lease
events. Looking to the end of 2018, we have 23 lease events with an ERV of GBP2.0
million per annum, GBP0.3 million above the current passing rent.
OFFICE PORTFOLIO
30 September 31 March
2017 2017
Value GBP236.3 GBP213.9
million million
Internal Area 936,000 sq 925,000 sq
ft ft
Annual Rental Income GBP14.9 GBP13.8
million million
Estimated Rental Value GBP18.8 GBP17.6
million million
Occupancy 89.8% 87.5%
Number of Assets 18 19
Our office portfolio was rebalanced last year towards the regional markets,
with 64% outside London, which has helped us to outperform. On a like-for-like
basis capital values increased by 3.1% and the rent roll increased by 9.7% to GBP
14 million per annum. The portfolio has a weighted average lease length of 3.8
years, assisted by recent lettings and active management such as at Sentinel
House in Fleet, where we removed the break clauses from two leases extending
the income from 2020 to 2025 with no incentive.
The portfolio is 90% let and letting activity was dominated by the largest
office vacancy at 50 Farringdon Road. Three suites of a combined 15,600 sq ft
have been let, generating a combined rent of GBP0.81 million per annum. The
lettings are 2% ahead of ERV and 87% of the building is now let.
We have secured a 70% uplift at one rent review, increasing the rent to GBP0.19
million per annum, 7% over ERV, and retained three tenants at lease renewal
securing GBP0.28 million per annum, 3% above ERV.
The short-term opportunities are the letting of the recently acquired Tower
Wharf, Bristol, which is being marketed with good interest, and 180 West George
Street, Glasgow where the refurbishment was completed in August. The combined
ERV of voids at these two properties is GBP1.1 million. Along with the final
suite at 50 Farringdon Road, these three properties account for 69% of the
total office void.
We believe that our regional offices will perform well due to a tight supply in
key locations, continued demand for space and the potential for rents to
increase from relatively low levels. In London, the occupational market is
active but more subdued. The portfolio has GBP3.8 million of reversionary
potential and up to the end of 2018 the office portfolio has 37 lease events
with an ERV of GBP3.0 million per annum, GBP0.14 million above the current passing
rent.
RETAIL AND LEISURE PORTFOLIO
30 September 31 March
2017 2017
Value GBP159.7 GBP160.1
million million
Internal Area 824,000 sq 824,000 sq
ft ft
Annual Rental Income GBP10.9 GBP11.0
million million
Estimated Rental Value GBP11.0 GBP11.0
million million
Occupancy 97.1% 98.8%
Number of Assets 17 17
On a like-for-like basis both capital values and the rent roll remained flat
over the period, with passing rent being GBP10.9 million per annum. The portfolio
has a weighted average lease length of 7.9 years and is rack rented. The retail
portfolio is delivering the highest yield of 6.3% and a lot of the rents have
been rebased since 2007.
The largest asset in the retail and leisure portfolio by value is Stanford
House in Covent Garden, a prime central London asset. 40% is in four retail
warehouses with active management potential, and the remainder is in high
street retail and leisure.
There has been limited asset management activity in the retail and leisure
portfolio reflecting the already high occupancy at 97%. The most significant
void relates to a retail warehouse unit in Bury, Greater Manchester, which
recently became vacant. We are working on a comprehensive refurbishment to
attract new retailers. The park continues to be anchored by TK Maxx.
During the period, the creation of the pod unit at Gloucester Retail Park was
finished and a lease completed with a Starbuck's franchisee for ten years at GBP
60,000 per annum. At the same time, we improved the landscaping and signage,
and resurfaced the car park.
Existing trends will continue in retail and leisure, with big regional cities
and the best micro-locations succeeding at the expense of more secondary
locations; however, we consider our exposure to the sector to be robust with
added value opportunities on the retail warehouse parks and at Stanford House
in Covent Garden in particular. Up to the end of 2018 the retail and leisure
portfolio has only ten lease events with an ERV of GBP2.1 million per annum, GBP
0.43 million above the current passing rent. 73% of this reversion relates to
Stanford House, where the leases are lined up to secure vacant possession to
facilitate a comprehensive refurbishment and repositioning scheme in 2018.
TOP TEN ASSETS
The largest assets in the portfolio as at 30 September 2017, ranked by capital
value, represent 48% of the total portfolio valuation and are detailed below:
Sector Tenure Approximate
Area (sq ft)
Parkbury Industrial Estate, Radlett, Herts. Industrial Freehold 336,700
River Way Industrial Estate, Harlow, Essex Industrial Freehold 455,000
Angel Gate Office Village, City Road, London EC1 Office Freehold 64,500
Stanford House, Long Acre, London WC2 Retail Freehold 19,600
50 Farringdon Road, London EC1 Office Leasehold 31,000
Tower Wharf, Bristol Office Freehold 70,600
Shipton Way, Rushden, Northants. Industrial Freehold 312,850
Pembroke Court, Chatham, Kent Office Leasehold 86,300
Colchester Business Park, Colchester, Essex Office Leasehold 151,000
Queens Road, Sheffield Retail Freehold 106,000
Warehouse
A full portfolio listing is available on the Company's website:
www.picton.co.uk
PORTFOLIO ALLOCATION BY VALUE
Sector %
Industrial 40.1
South East 27.5
Rest of UK 12.6
Office 35.7
London City & West End 4.2
Inner & Outer London 8.8
South East 10.6
Rest of UK 12.1
Retail & Leisure 24.2
Retail Warehouse 9.8
High Street - Rest of 6.8
UK
High Street - South 5.5
East
Leisure 2.1
DIRECTORS' RESPONSIBILITIES
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
The Company's assets comprise direct investments in UK commercial property. Its
principal risks are therefore related to the commercial property market in
general and its investment properties. Other risks faced by the Company include
economic, investment and strategic, regulatory, management and control,
operational and financial risks.
These risks, and the way in which they are managed, are described in more
detail under the heading 'Risk Management' within the Strategic Report in the
Company's Annual Report for the year ended 31 March 2017. The Company's
principal risks and uncertainties have not changed materially since the date of
that report.
STATEMENT OF GOING CONCERN
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Therefore, they continue to adopt the going concern basis in preparing the
financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE INTERIM REPORT
We confirm that to the best of our knowledge:
a. the condensed set of consolidated financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
b. the Chairman's Statement and Investment Manager's Report (together
constituting the Interim Management Report) together with the Statement of
Principal Risks and Uncertainties above include a fair review of the
information required by the Disclosure Guidance and Transparency Rules ('DTR')
4.2.7R, being an indication of important events that have occurred during the
first six months of the financial year, a description of principal risks and
uncertainties for the remaining six months of the year, and their impact on the
condensed set of consolidated financial statements; and
c. the Chairman's Statement together with the condensed set of consolidated
financial statements include a fair review of the information required by DTR
4.2.8R, being related party transactions that have taken place in the first six
months of the current financial year and that have materially affected the
financial position or performance of the Company during that period, and any
changes in the related party transactions described in the last Annual Report
that could do so.
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.
By Order of the Board
Robert Sinclair
Director
13 November 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEARED 30 SEPTEMBER 2017
Note Income Capital 6 months 6 months Year
GBP000 GBP000 ended ended ended
30 30 31 March
September September 2017
2017 2016 audited
unaudited unaudited Total
Total Total GBP000
GBP000 GBP000
Income
Revenue from properties 3 24,323 - 24,323 29,894 54,398
Property expenses 4 (5,605) - (5,605) (5,324) (12,011)
Net property income 18,718 - 18,718 24,570 42,387
Expenses
Management expenses (1,810) - (1,810) (1,610) (3,636)
Other operating expenses (924) - (924) (681) (1,613)
Total operating expenses (2,734) - (2,734) (2,291) (5,249)
Operating profit before movement 15,984 - 15,984 22,279 37,138
on investments
Gains and (losses) on investments
Profit/(loss) on disposal of 9 - 2,488 2,488 (570) 1,847
investment properties
Investment property valuation 9 - 17,362 17,362 266 15,087
movements
Total gains/(losses) on - 19,850 19,850 (304) 16,934
investments
Operating profit 15,984 19,850 35,834 21,975 54,072
Financing
Interest receivable 10 - 10 35 62
Interest payable (4,904) - (4,904) (6,018) (10,885)
Total finance costs (4,894) - (4,894) (5,983) (10,823)
Profit before tax 11,090 19,850 30,940 15,992 43,249
Tax (286) - (286) (334) (499)
Profit and total comprehensive 10,804 19,850 30,654 15,658 42,750
income for the period
Earnings per share
Basic and diluted 7 2.0p 3.7p 5.7p 2.9p 7.9p
The total column of this statement represents the Group's Condensed
Consolidated Statement of Comprehensive Income. The supplementary income return
and capital return columns are both prepared under guidance published by the
Association of Investment Companies. All items in the above statement derive
from continuing operations.
All income is attributable to the equity holders of the Company. There are no
minority interests. Notes 1 to 15 form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEARED 30 SEPTEMBER 2017
Note Share Other Retained Total
Capital Reserves Earnings GBP000
GBP000 GBP000 GBP000
Balance as at 31 March 2016 157,449 - 259,683 417,132
Profit for the period - - 15,658 15,658
Dividends paid 6 - - (8,911) (8,911)
Balance as at 30 September 2016 157,449 - 266,430 423,879
Profit for the period - - 27,092 27,092
Dividends paid 6 - - (9,046) (9,046)
Balance as at 31 March 2017 157,449 - 284,476 441,925
Profit for the period - - 30,654 30,654
Share based awards - 358 - 358
Dividends paid 6 - - (9,181) (9,181)
Balance as at 30 September 2017 157,449 358 305,949 463,756
Notes 1 to 15 form part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2017
Note 30 30 September 31 March
September 2016 2017
2017 unaudited audited
unaudited GBP000 GBP000
GBP000
Non-current assets
Investment properties 9 652,104 621,149 615,170
Tangible assets 12 34 17
Accounts receivable 3,155 3,470 3,204
Total non-current assets 655,271 624,653 618,391
Current assets
Accounts receivable 16,256 21,208 16,077
Cash and cash equivalents 30,071 35,302 33,883
Total current assets 46,327 56,510 49,960
Total assets 701,598 681,163 668,351
Current liabilities
Accounts payable and accruals (19,421) (21,246) (19,958)
Loans and borrowings 10 (1,128) (30,115) (1,104)
Obligations under finance leases (109) (109) (109)
Total current liabilities (20,658) (51,470) (21,171)
Non-current liabilities
Loans and borrowings 10 (215,470) (204,098) (203,540)
Obligations under finance leases (1,714) (1,716) (1,715)
Total non-current liabilities (217,184) (205,814) (205,255)
Total liabilities (237,842) (257,284) (226,426)
Net assets 463,756 423,879 441,925
Equity
Share capital 11 157,449 157,449 157,449
Retained earnings 305,949 266,430 284,476
Other reserves 11 358 -
-
Total equity 463,756 423,879 441,925
Net asset value per share 13 86p 78p 82p
These condensed consolidated financial statements were approved by the Board of
Directors on 13 November 2017 and signed on its behalf by:
Robert Sinclair
Director
Notes 1 to 15 form part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE HALF YEARED 30 SEPTEMBER 2017
Note 6 months 6 months ended Year
ended 30 September ended
30 2016 31 March
September unaudited 2017
2017 GBP000 audited
unaudited GBP000
GBP000
Operating activities
Operating profit 35,834 21,975 54,072
Adjustments for non-cash items 12 (19,480) 327 (16,894)
Interest received 10 35 62
Interest paid (4,532) (4,702) (9,273)
Tax paid (202) (91) (232)
Increase in receivables (202) (7,087) (2,344)
(Decrease)/ increase in payables (709) 2,710 1,449
Cash inflows from operating activities 10,719 13,167 26,840
Investing activities
Acquisition of investment properties 9 - -
(24,543)
Capital expenditure on investment properties 9 (2,266) (2,507) (2,819)
Disposal of investment properties 9,725 27,602 51,510
Purchase of tangible assets (7) - -
Cash (outflows)/inflows from investing activities (17,091) 25,095 48,691
Financing activities
Borrowings repaid (546) (16,323) (45,965)
Borrowings drawn -
12,500 -
Financing costs (213) (485) (485)
Dividends paid 6 (9,181) (8,911) (17,957)
Cash inflows/(outflows) from financing activities 2,560 (25,719) (64,407)
Net (decrease)/increase in cash and cash equivalents (3,812) 12,543 11,124
Cash and cash equivalents at beginning of period/ 33,883 22,759 22,759
year
Cash and cash equivalents at end of period/year 30,071 35,302 33,883
Notes 1 to 15 form part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEARED 30 SEPTEMBER 2017
1. GENERAL INFORMATION
Picton Property Income Limited (the "Company" and together with its
subsidiaries the "Group") was registered on 15 September 2005 as a closed ended
Guernsey investment company.
The financial statements are prepared for the period from 1 April to 30
September 2017, with unaudited comparatives for the period from 1 April to 30
September 2016. Comparatives are also provided from the audited financial
statements for the year ended 31 March 2017.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with IAS 34
'Interim Financial Reporting'. They do not include all of the information
required for full annual financial statements, and should be read in
conjunction with the financial statements of the Group as at and for the year
ended 31 March 2017.
The accounting policies applied by the Group in these financial statements are
the same as those applied by the Group in its financial statements as at and
for the year ended 31 March 2017.
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by the IASB.
The Group's annual financial statements for the year ended 31 March 2017 refer
to new Standards and Interpretations none of which had a material impact on
these financial statements. There have been no significant changes to
management judgement and estimates as disclosed in the last annual report and
financial statements for the year ended 31 March 2017.
3. REVENUE FROM PROPERTIES
6 months 6 months Year
ended ended ended
30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
Rents receivable (adjusted for lease incentives) 20,366 20,730 40,555
Surrender premiums 133 213 263
Dilapidation receipts 689 155 1,090
Other income 134 6,005 6,003
Service charge income 3,001 2,791 6,487
24,323 29,894 54,398
Rents receivable includes lease incentives recognised of GBP0.1 million (30
September 2016: GBP0.9 million, 31 March 2017: GBP0.9 million).
In the period ended 30 September 2016 and year ended 31 March 2017, GBP5.3
million was included within other income from the settlement received in
respect of a dispute at the Strathmore Hotel in Luton.
4. PROPERTY EXPENSES
6 months 6 months Year
ended ended ended
30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
Property operating expenses 1,704 1,468 3,501
Property void costs 900 1,065 2,023
Recoverable service charge costs 3,001 2,791 6,487
5,605 5,324 12,011
5. OPERATING SEGMENTS
The Board is charged with setting the Company's investment policy and strategy
in accordance with the Company's investment restrictions and overall
objectives. 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 Balance
Sheet, assuming dividends are reinvested, the key performance measure is that
prepared under IFRS. Therefore no reconciliation is required between the
measure of profit or loss used by the Board and that contained in the financial
statements.
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board is of the opinion that the Group, through its subsidiary undertakings,
operates in one reportable industry segment, namely real estate investment, and
across one primary geographical area, namely the United Kingdom, and therefore
no segmental reporting is required. The portfolio consists of 52 commercial
properties, which are in the industrial, office, retail, retail warehouse and
leisure sectors.
6. DIVIDS
Declared and paid: 6 months 6 months Year ended
ended ended 31 March
30 30 2017
September September GBP000
2017 2016
GBP000 GBP000
Interim dividend for the period ended 31 March 2016: 0.825 - 4,455 4,455
pence
Interim dividend for the period ended 30 June 2016: 0.825 - 4,456 4,456
pence
Interim dividend for the period ended 30 September 2016: - - 4,456
0.825 pence
Interim dividend for the period ended 31 December 2016: 0.85 - - 4,590
pence
Interim dividend for the period ended 31 March 2017: 0.85 4,590 -
pence -
Interim dividend for the period ended 30 June 2017: 0.85 4,591 -
pence -
9,181 8,911 17,957
The interim dividend of 0.85 pence per ordinary share in respect of the period
ended 30 September 2017 has not been recognised as a liability as it was
declared after the period end. A dividend of GBP4,591,000 will be paid on 30
November 2017.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the
period attributable to ordinary shareholders of the Company by the weighted
average number of ordinary shares in issue during the period. The following
reflects the profit and share data used in the basic and diluted profit per
share calculation:
6 months 6 months Year ended
ended ended 31 March
30 30 2017
September September
2017 2016
Net profit attributable to ordinary shareholders of the 30,654 15,658 42,750
Company from continuing operations (GBP000)
Weighted average number of ordinary shares for basic profit/ 540,053,660 540,053,660 540,053,660
(loss) per share
Weighted average number of ordinary shares for diluted profit 541,084,131 540,053,660 540,053,660
/(loss) per share
The diluted number of shares reflects the contingent shares to be issued under
the Long Term Incentive Plan.
8. FAIR VALUE MEASUREMENTS
The fair value measurement for the financial assets and financial liabilities
are categorised into different levels in the fair value hierarchy based on the
inputs to valuation techniques used. The different levels have been defined as
follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly. The fair
value of the Group's secured loan facilities, as disclosed in note 10, are
included in Level 2.
Level 3: unobservable inputs for the asset or liability. The fair value of the
Group's investment properties is included in Level 3.
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. There
were no transfers between levels for the period ended 30 September 2017.
The fair value of all other financial assets and liabilities is not materially
different from their carrying value in the financial statements.
The Group's financial risk management objectives and policies are consistent
with those disclosed in the consolidated financial statements for the year
ended 31 March 2017.
9. INVESTMENT PROPERTIES
6 months 6 months Year
ended ended ended
30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
Fair value at start of period/year 615,170 646,018 646,018
Acquisitions 24,543 - -
Capital expenditure on investment properties 2,266 2,507 2,819
Disposals (9,725) (27,072) (50,601)
Realised gains on disposal 2,520 - 2,440
Realised losses on disposal (32) (570) (593)
Unrealised gains on investment properties 25,416 7,336 25,729
Unrealised losses on investment properties (8,054) (7,070) (10,642)
Fair value at the end of the period/year 652,104 621,149 615,170
Historic cost at the end of the period/year 659,722 670,047 654,057
The fair value of investment properties reconciles to the appraised value as
follows:
30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
Appraised value 661,415 630,460 624,410
Valuation of assets held under finance leases 1,660 1,701 1,680
Lease incentives held as debtors (10,971) (11,012) (10,920)
Fair value at the end of the period/year 652,104 621,149 615,170
As at 30 September 2017, all of the Group's properties are Level 3 in the fair
value hierarchy as it involves the use of significant inputs and there were no
transfers between levels during the period. Level 3 inputs used in valuing the
properties are those which are unobservable, as opposed to Level 1 (inputs from
quoted prices) and Level 2 (observable inputs either directly, i.e. as prices,
or indirectly, i.e. derived from prices).
The investment properties were valued by CBRE Limited, Chartered Surveyors, as
at 30 September 2017 on the basis of fair value in accordance with the RICS
Valuation - Global Standards 2017 which incorporates the International
valuation standards and the RICS Valuation - Professional Standards UK January
2014 (revised April 2015). There were no significant changes to the inputs into
the valuation process (ERV, net initial yield, reversionary yield and true
equivalent yield), or assumptions and techniques used during the period,
further details on which were included in note 14 of the consolidated financial
statements of the Group for the year ended 31 March 2017.
The Group's borrowings (note 10) are secured by a first ranking fixed charge
over the majority of investment properties held.
10. LOANS AND BORROWINGS
Maturity 30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
Current
Aviva facility - 1,128 1,080 1,104
Zero dividend preference shares 15 October - 29,035 -
2016
1,128 30,115 1,104
Non-current
Santander revolving credit facility 18 June 2021 12,500 - -
Canada Life facility 20 July 2022 33,718 33,718 33,718
Canada Life facility 24 July 2027 80,000 80,000 80,000
Aviva facility 24 July 2032 89,252 90,380 89,822
215,470 204,098 203,540
216,598 234,213 204,644
In 2012, the Group entered into loan facilities with Canada Life Limited and
Aviva Commercial Finance Limited for GBP113.7 million and GBP95.3 million
respectively. The facility with Canada Life has a term of 15 years, with GBP33.7
million repayable on the tenth anniversary of drawdown. The Aviva facility has
a term of 20 years with approximately one third repayable over the life of the
loan in accordance with a scheduled amortisation profile.
The fair value of the secured loan facilities at 30 September 2017, estimated
as the present value of future cash flows discounted at the market rate of
interest at that date, was GBP223.2 million (30 September 2016: GBP235.3 million,
31 March 2017: GBP229.1 million). The fair value of the secured loan facilities
is classified as Level 2 under the hierarchy of fair value measurements.
The Group has two revolving credit facilities ("RCF") with Santander Corporate
& Commercial Banking. The facility that had a maturity date of 2018 was
extended during the period and now expires at the same time as the second RCF,
in June 2021. The extended RCF is initially for GBP24 million, and once drawn,
interest is charged at 190 basis points over 3 month LIBOR. In total the Group
has GBP51.0 million available under both facilities, of which GBP12.5 million was
drawn down in the period.
The weighted average interest rate on the Group's borrowings as at 30 September
2017 was 4.10% (30 September 2016: 4.59%, 31 March 2017: 4.21%).
11. SHARE CAPITAL AND OTHER RESERVES
The Company has 540,053,660 ordinary shares in issue of no par value (30
September 2016: 540,053,660, 31 March 2017: 540,053,660).
The balance on the Company's share premium account as at 30 September 2017 was
GBP157,449,000 (30 September 2016: GBP157,449,000, 31 March 2017: GBP157,449,000).
The fair value of awards made under the Long Term Incentive Plan is recognised
in other reserves.
12. ADJUSTMENT FOR NON-CASH MOVEMENTS IN THE CASH FLOW STATEMENT
6 months 6 months Year
ended ended ended
30 30 31 March
September September 2017
2017 2016 GBP000
GBP000 GBP000
(Profit)/loss on disposal of investment properties (2,488) 570 (1,847)
Investment property valuation movements (17,362) (266) (15,087)
Share based provisions 358 - -
Depreciation of tangible assets 12 23 40
(19,480) 327 (16,894)
13. NET ASSET VALUE
The net asset value per ordinary share is based on net assets at the period end
and 540,053,660 (30 September 2016: 540,053,660, 31 March 2017: 540,053,660)
ordinary shares, being the number of ordinary shares in issue at the period
end.
At 30 September 2017, the Company had a net asset value per ordinary share of GBP
0.86 (30 September 2016: GBP0.78, 31 March 2017: GBP0.82).
14. RELATED PARTY TRANSACTIONS
The total fees earned during the period by the five Directors of the Company
were GBP103,000 (30 September 2016: GBP103,000, 31 March 2017: GBP205,500). As at 30
September 2017 the Group owed GBPnil to the Directors (30 September 2016 and 31
March 2017: GBPnil).
There have been no changes in the related parties transactions described in the
last annual report that could have a material effect on the financial position
or performance of the Group in the first six months of the current financial
year.
The Company has no controlling parties.
15. EVENTS AFTER THE BALANCE SHEET DATE
A dividend of GBP4,591,000 (0.85 pence per share) was approved by the Board on 19
October 2017 and is payable on 30 November 2017.
The Group has exchanged on the disposal of one property since 30 September 2017
for proceeds of GBP0.6 million.
ENDS
END
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