Picton Property Income Limited Annual Report 2020 Occupier focused, Opportunity led. Picton Property Income Limited Annual Report 2020 Picton Property Income Limited Business Overview Welcome AnnualReport 2020 Welcome to our 2020 Annual Report Driven by our occupier focused, opportunity led approach, we acquire, create and manage buildings for a wide range of commercial occupiers. By applying insight, agility and a personalised service, we provide attractive, well-located spaces to help our occupiers succeed. Contents Business Overview Financial Statements Welcome Independent Auditor’s Report 88 2020 Highlights 2 Consolidated Statement of Comprehensive Income 91 Picton at a Glance 4 Consolidated Statement Chairman’s Statement 6 ofChangesin Equity 92 Strategic Report Consolidated Balance Sheet 93 Business Model 8 Consolidated Statement of Cash Flows 94 Our Marketplace 10 Notes to the Consolidated Financial Statements 95 Our Strategy 14 Chief Executive’s Review 16 Additional Information Key Performance Indicators 24 Supplementary Disclosures 112 Portfolio Review 28 Property Portfolio 116 Financial Review 38 Five Year Financial Summary 117 Principal Risks 41 Glossary 118 Being Responsible 46 Financial Calendar 119 Section 172 Companies Act 2006 Shareholder Information 120 Statement 52 Governance Chairman’s Introduction 54 Board of Directors 56 Our Team 58 Corporate Governance Report 60 Nomination Committee Report 64 Audit and Risk Committee Report 66 Visit our website www.picton.co.uk Remuneration Report 69 Property Valuation Committee Report 84 Directors’ Report 85 Picton Property Income Limited Investment AnnualReport 2020 Rationale 1 2 3 OverviewBusiness Opportunity for income Diversified exposure to the UK Established a track record of and capital growth. commercial property market. outperformance. As an asset class, UK commercial Ourdiversifiedpropertyportfolio We are total return driven property is known for its stable consists of 47 assets in the with an income bias and have income characteristics, which over industrial,office,retailandleisure outperformed the MSCI UK the long-term have been shown to sectors, generating income from Quarterly Property Index delivering deliver over 70% of its total return. around 350 occupiers across a upperquartilereturnsoverone, Property is also considered cyclical, wide range of businesses. three,fiveandtenyears. Strategic Report correlated with economic growth, and there is the potential for capital appreciation as well as income growth. 4 5 6 Our occupier focused, Our business model ensures Our responsible approach to opportunity led approach we have the flexibility to business. Governance ensures we actively manage adapt to changing market We have a responsible and our assets, maintain high conditions. ethical approach to business and occupancy and create the Our in-depth understanding of the sustainability is embedded in our space our occupiers need. UK commercial property market corporate strategy. Our asset management team has a enables us to identify and source hands-on approach and maintains a value across different sectors and close relationship with our occupiers. geographies and reposition our Our experience, knowledge and portfolio through the property personalised service ensures we cycle. We operate a covered Statements Financial provide attractive, well-located dividend policy, allowing us to spaces to help our occupiers’ invest back into the portfolio. businesses succeed. Additional Information Additional Visit our website for more information on why to invest www.picton.co.uk 1 Picton Property Income Limited Business Overview 2020 Highlights AnnualReport 2020 Highlights Financial highlights Outperforming ӱ Profitaftertaxof£22.5million property portfolio ӱ Netassetsof£509million,or93ppershare ӱ Total property return of 5.3%, outperforming ӱ Total return of 4.5% MSCI UK Quarterly Property Index of -0.5% ӱ Earnings per share of 4.1p ӱ Portfoliotopquartileoutperformance ӱ Dividend cover of 105% againstMSCIoverone,three,fiveandtenyears ӱ Like-for-like valuation increase of 1.4% ӱ Like-for-like rental income increase of 1.2% ӱ Like-for-like estimated rental value Strengthened balance sheet increase of 1.3% ӱ 14% reduction in total debt outstanding ӱ Occupancy at 89% to£167.5million ӱ 104 asset management transactions ӱ Loan to value ratio reduced to 22% completed including: ӱ Raised£7millionofnon-dilutiveequity – 20 rent reviews – 10% ahead of ERV ӱ New£50millionrevolvingcreditfacility – 31 lease renewals or regears – 12% ahead completed post year end of ERV ӱ Further tax savings as result of REIT regime – 35 lettings or agreements to lease – 2% ahead of ERV ӱ Twoassetdisposalsfor£34.1million,15% ahead of March 2019 valuations ӱ £9millioninvestedintorefurbishmentprojects Responsible stewardship ӱ Embedded sustainability into corporate strategy, completing materiality assessment review ӱ Improved portfolio EPC ratings ӱ Incorporatedenergyefficiencymeasuresinto building refurbishments ӱ Further developed occupier and employee engagement programmes 2 Picton Property Income Limited 93p £509m £665m 4.5% 3.6% AnnualReport 2020 NAV per share Net assets Property valuation Total return Total shareholder (2019: 93p) (2019:£499m) (2019:£685m) (2019: 6.5%) return (2018: 90p) (2018:£487m) (2018:£684m) (2018: 14.9%) (2019: 10.1%) (2018: 4.8%) £23m 4.1p 3.5p 105% Profit after tax Earnings per share Dividends per share Dividend cover OverviewBusiness (2019:£31m) (2019: 5.7p) (2019: 3.5p) (2019: 122%) (2018:£64m) (2018: 11.9p) (2018: 3.4p) (2018: 122%) EPRA measures Strategic Report 93p 88p £19.9m 3.7p 11.5% EPRA NAV per share EPRA NNNAV per EPRA earnings EPRA earnings EPRA vacancy rate (2019: 93p) share (2019:£22.9m) per share (2019: 10.3%) (2018: 90p) (2019: 88p) (2018:£22.6m) (2019: 4.3p) (2018: 4.2%) (2018: 87p) (2018: 4.2p) 4.8% 5.4% 28.3% 20.2% Governance EPRA net initial yield EPRA ‘topped-up’ net EPRA cost ratio1 EPRA cost ratio2 (2019: 4.9%) initial yield (2019: 22.9%) (2019: 19.5%) (2018: 5.5%) (2019: 5.3%) (2018: 23.7%) (2018: 19.2%) 1 Including direct vacancy costs (2018: 5.9%) 2 Excluding direct vacancy costs Financial Statements Financial The European Public Real Estate Alternative We have reported these for Association’s (EPRA) mission is to performance measures a number of years in order to promote, develop and represent the provide a consistent comparison We use a number of alternative European public real estate sector. As with similar companies. In the performance measures (APMs) an EPRA member, Picton fully Additional Information section of this when reporting on the performance supports the EPRA Best Practices Report we provide more detailed ofthebusinessanditsfinancial Recommendations which recognise information and reconciliations position. These do not always have the key performance measures, as to IFRS where appropriate. a standard meaning and may not detailed above. We have also be comparable to those used by Our key performance indicators highlightedotherspecificEPRA other entities. However, we will use include three of the key EPRA metrics throughout the Report. Information Additional industry standard measures and measures but also total return, total terminology where possible. property return, property income return, total shareholder return, loan In common with many other listed to value ratio, cost ratio, occupier property companies we report the Read more on pages retention rate, EPC ratings and EPRA performance measures, as 112–114 employeesatisfaction.Thedefinition stated above. of these measures, and the rationale for their use, is set out in the Key Performance Indicators section. 3 Picton Property Income Limited Business Overview Picton at a Glance Our values AnnualReport 2020 Occupier focused, Principled We are professional, diligent and Opportunity led. strategic. Demonstrated through our transparent reporting, occupier focused approach, alignment with shareholders, delivery of our Picton We are an award winning Real Estate Promise and commitment to Investment Trust (REIT) investing in UK sustainability and positive commercial property. Our diversified environmental initiatives. Perceptive property portfolio consists of 47 assets We are insightful, thoughtful and with over 80% invested in the industrial intuitive. Demonstrated through our long-term and office sectors. track record, our gearing strategy, Weacquire,createandmanage producingupperquartilereturns diverse sector allocation and buildings for around 350 overone,three,fiveandtenyears. engagement with our occupiers. commercial occupiers across Progressive a wide range of businesses. Our purpose We are forward-thinking, enterprising, By applying insight, agility and a Through our occupier focused, and continually advancing. personalised service, we provide opportunity led approach, we aim attractive, well-located spaces to to be one of the consistently best Demonstrated through our culture, help our occupiers’ businesses performingdiversifiedUKREITs. work ethic and proactivity. succeed and in turn enhance To us this means being a responsible value for our shareholders. owner of commercial real estate, We have a long-term track record helping our occupiers succeed and and have outperformed the MSCI being valued by all our stakeholders. UK Quarterly Property Index Industrial Office Retail and Leisure weighting weighting weighting 48% 34% 18% South East 35.4% South East 17.4% Retail Warehouse 7.3% Rest of UK 12.5% Rest of UK 12.2% High Street South East 5.2% City & West End 4.2% High Street