Interim / Quarterly Report • Sep 30, 2013
Interim / Quarterly Report
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INTERIM REPORT 2013
| Financial and Operational Highlights | 3 |
|---|---|
| Chairman's Statement | 5 |
| Investment Manager's Report | 6 |
| Property Market Overview | 6 |
| Portfolio Review | 8 |
| Financial Review | 11 |
| Outlook | 12 |
| Property Portfolio | 13 |
| Directors' Responsibilites | 15 |
| Financial Statements | 16 |
| Condensed Consolidated Statement of Comprehensive Income | 16 |
| Condensed Consolidated Statement of Changes in Equity | 17 |
| Condensed Consolidated Balance Sheet | 18 |
| Condensed Consolidated Statement of Cash Flows | 19 |
| Notes to the Condensed Consolidated Financial Statements | 20 |
| Independent Review Report | 26 |
| Shareholder Information | 27 |
The Company is listed on both the London Stock Exchange and Channel Islands' Stock Exchange and has approximately 850 investors.
The Company's investment objective is to provide shareholders with an attractive level of income, together with the potential for capital growth, by investing in the principal commercial property sectors.
Picton has a portfolio of UK commercial property valued at £401.1 million, comprising 61 assets with around 370 occupiers. The portfolio is predominantly invested in the office and industrial sectors (70%) and is biased towards London and the South East (58%). We invest in assets where we believe there are opportunities to enhance either income or value, whilst ensuring that we continue to meet our occupiers' requirements. As at 30 September 2013, based on capital values, the sector and geographical exposure was:
£396.7m
£394.9m = As at 30 September 2012 £382.7m = As at 31 March 2013
£180.3m
£180.2m = As at 30 September 2012 £169.4m = As at 31 March 2013
50p
52p = As at 30 September 2012 49p = As at 31 March 2013
5.9%
-4.6% = 6 months to 30 September 2012 -7.6% = Year ended 31 March 2013
32.1%
-7.4% = 6 months to 30 September 2012 6.2% = Year ended 31 March 2013
* net of lease incentives, please see note 10.
£15.6m
£16.2m = 6 months to 30 September 2012 £32.1m = Year ended 31 March 2013
£6.3m
£6.9m = 6 months to 30 September 2012 £14.7m = Year ended 31 March 2013
1.8p
2.0p = 6 months to 30 September 2012 4.3p = Year ended 31 March 2013
1.5p
2.0p = 6 months to 30 September 2012 3.5p = Year ended 31 March 2013
122 %
100% = 6 months to 30 September 2012 122% = Year ended 31 March 2013
• Total shareholderreturn for the period of 32.1% (30 September 2012: -7.4%)
• Increase in EPRA net asset value to 50.4 pence per share (31 March 2013: 49.1 pence)
of new equity raised in September 2013
•Increase in net assets to £180.3 million
(31 March 2013: £169.4 million)
• Nine lease renewals and re-gears retaining £0.4 million per annum
invested in refurbishment projects across the portfolio
• Additional income of £0.3 million generated in the period
Lyon Business Park in Thames Gateway for £9.5 million generating £0.6 million per annum
• Disposal of two small assets for proceeds of £0.4 million, above 31 March 2013 valuation
Picton has had a very positive six months since the end of the previous financial year and is making good progress against its strategic objectives set out in the last Annual Report. We set out five priorities; namely, working more closely with our occupiers, growing net income, adding value through portfolio and asset management initiatives, operational efficiency and finally, the effective use of debt.
Portfolio activity, in particular the leasing of vacant space and lease restructuring, has, in many instances, led to value enhancement in our underlying assets. Our covered dividend policy is enabling retained earnings to be utilised in a number of asset refurbishment projects which will lead to further growth in both net income and capital values in the future.
In terms of growing net income, encouragingly we have seen considerable portfolio leasing activity which is described in the Investment Manager's Report. This has led to the elimination of a number of key voids and improved occupancy within the portfolio. We expect this activity to flow through to the results within the current financial year.
We are making good progress in respect of our specific occupier focused initiatives. These include creating the 'Picton Promise': eight commitments to quality and service that underpin every aspect of our occupier experience. In addition, we have introduced an incentive programme for current occupiers to stimulate the referral of new prospects, as well as opening up access to a central London touchdown office for existing occupiers. In time, we believe that these initiatives will lead to enhanced occupancy and retention rates.
We have seen two consecutive quarters of capital growth in the portfolio and consequently the gearing has enhanced the underlying property return over the period. On a like-for-like basis the capital value of the portfolio increased by 1.5% over the six months, while the total return for the same period was 5.9%. Similarly, the Company's shares have seen a marked improvement in rating, having increased by some 27% since March 2013, giving rise to a shareholder return of over 32%.
Picton shares now trade at a small premium to net asset value. This premium allowed us to issue £6.3 million of new equity in September 2013, and to complete the purchase of Lyon Business Park in the Thames Gateway. As the Company grows, the benefits of the internalised investment management model will become apparent as economies of scale flow through. In respect of portfolio activity, we are continuing to make progress with the disposal of our smaller assets, having made two sales totalling £400,000 as part of this strategy.
We are very pleased with this new acquisition made in September and the team at Picton Capital are now implementing the business plan for this asset aimed at growing income and creating value. We are confident this new property will have the look and feel of a Picton asset by the end of this calendar year.
We are also pleased to have received approval from shareholders, during the period, to widen the Company's investment policies to make full use of our investment management subsidiary, Picton Capital. Whilst I expect no immediate changes, it does open up a number of interesting future opportunities for Picton. I am also pleased to announce that the Company has been nominated for a number of awards over the period, and in particular we received a Silver Award from EPRA (European Public Real Estate Association) in respect of the 2013 Annual Report.
As a Group, we continue to operate with an occupier focused and opportunity led approach. I believe this has been demonstrated with many of the transactions undertaken recently. We have an encouraging pipeline of leasing transactions and whilst recognising that there are risks within the wider market, we remain confident about our future prospects.
In the half year to September, the outlook for the UK economy has improved. Quarterly GDP figures for the second and third quarters were positive and above the original estimates from the Office of National Statistics. Optimistic consumer and business surveys for the major sectors of services, production and construction have also helped further improve sentiment in the UK.
Employment between June and August was 71.7% compared with the period December to February 2013 which recorded 71.4%. However, according to the Lloyds Business Consumer Barometer, more than two fifths of companies expect to increase staff levels over the next year.
Lending to businesses has continued to contract with the annual rate of growth remaining negative for the fourth consecutive year. In the three months to August 2013, lending to businesses fell by £2.3 billion compared with a fall of £4.5 billion in the three months to May 2013, according to the Bank of England Trends in Lending Report. New schemes to kick start lending by the Government, such as the Funding for Lending scheme, have not had a significant impact on small and medium sized businesses, as had been intended.
The Bank of England expects the inflation rate to remain close to 3% in the near term, and has also indicated that there will be no immediate change to base rates and that the unemployment rate will need to fall from its current measure of 7.7% to 7.0%, before rates are moved up.
Property market conditions more generally appear to be improving over the course of 2013. After 18 months of negative capital movements, the IPD Monthly Index turned positive in May. In September 2013 28 IPD segments recorded positive capital growth, compared with only four in March.
Net new lending to commercial property continues to fall quarter on quarter. Official figures from the Bank of England showed net new lending to property in the third quarter of 2013 was minus £3.5 billion and in the second quarter was minus £2.0 billion. Net new lending has therefore fallen by £5.5 billion over these two quarters. These figures exclude lending from pension funds and insurance companies, who have shown a growing interest in lending to the sector.
According to Property Archive, total investment activity in commercial property in the six months to September 2013 totalled approximately £24.4 billion, compared with the six months to March 2013 which totalled £19.2 billion.
The Investment Management Association reported total net sales of property funds in the second quarter of 2013 totalling £350 million, more than triple the £97 million recorded in the first quarter of 2013, bringing the total for the six months to £447 million, which is more than double total net sales for the whole of 2012.
The IPD Monthly Index showed All Property returns delivered 4.8% in the six months to September. The income return was 3.4% and capital growth was 1.4%. Capital growth improved from minus 1.7% in the six months to March to plus 1.4% in the six months to September. The rental growth index rose by 0.3% in the six months to September compared with the six months to March where it fell by 0.2%. This increase was due to a modest rise in industrial and office rents and marked improvements in some regional markets, which turned positive over the half year.
Offices continue to perform well in terms of total returns. In the six months to September, office total returns were 6.2%, of which capital growth contributed 3.0% and income return 3.1%. Overall office returns outpaced both retail and industrial property, driven by the impact of central London.
Office sector capital growth, by geographic region, ranged from plus 5.6% for Mid-town and West End to minus 3.5% for South West offices. Office rents grew by 1.5% in the half year to September.
London and South East offices have been the primary driver of positive returns in the sector. The rate of capital decline has slowed for the South East office market. A rise in business confidence, positive PMI indicator results and a pick up in space taken by occupiers has improved since the start of the year. The strong sentiment surrounding the South East office market has started to show through in the IPD index, with positive capital growth for the South East office market month on month since June 2013.
The occupancy rate for the office market in September was 83.5%, up from 82.2% in March 2013.
A pick up in economic conditions and a rise in demand for prime distribution and industrial space has led to this sector providing the second best sector return in the period. Industrial total returns were 6.1% in the six months to September; income return contributed 3.9% and capital growth 2.1%.
Over the six months, capital growth was positive for all industrial sub-sectors and ranged from 3.4% for London to 0.6% for the North and Scotland. Rental growth across the sector was mostly positive, the strongest sub-sector was Midlands and Wales at 0.6%, marginally outperforming London, in the period. South West industrial recorded the weakest rental growth at minus 0.7%.
The occupancy rate for the industrial market at the end of September was 88.9% compared to 88.2% in March.
Total returns for retail were 3.4% over the period, driven by an income return of 3.3% and 0.1% capital growth. Returns were driven by central London capital growth which grew by 4.7%. The weakest returns were recorded in Wales Standard Retail, which fell by 3.3%.
Retail rents in the six months to September fell by 0.6%, making this the weakest performing sector. Geographically, only Central London and Rest of London Standard Retail have seen a positive rise in rental growth (of 0.8% and 0.4% respectively) in the last six months. The weakest performing sub-sector over the same period was East Midlands Standard Retail, which fell by 1.9%.
The occupancy rate for the retail market at the end of September was 93.9%, compared with 92.8% in March.
At 30 September 2013, the portfolio comprised 61 assets valued at £401.1 million. The estimated rental value of the portfolio was £33.8 million, with a net reversionary yield of 8.0%.
| Sector | Value £m | Area sq ft | Annual Income £m | No. of Assets |
|---|---|---|---|---|
| Industrial | 149.0 | 2,258,000 | 12.4 | 19 |
| Office | 132.2 | 880,000 | 10.0 | 22 |
| Retail & retail warehouse | 102.0 | 384,000 | 6.9 | 17 |
| Leisure | 17.9 | N/A | 1.5 | 3 |
| Total portfolio | 401.1 | 3,522,000 | 30.8 | 61 |
Annual income above is the cash rent passing at the Balance Sheet date and therefore excludes leases in rent free periods. At 30 September 2013 a further £2.2 million of annual income was in rent free periods.
As at 30 September 2013, based as a percentage of current annual rent, the average length of the leases to the first termination was 6.7 years. A further breakdown is summarised as follows:
Our core focus remains enhancing both income and value within the property portfolio. This is achieved through maintaining and growing income, reducing costs and completing business plans to add value through active management. Often there is a balance to be struck between short term income loss and longer term value and our strong dividend cover gives us the operational flexibility to achieve this.
In the six months to September, we have seen an improvement in enquiries for our vacant properties that have translated into us concluding 27 lettings, adding £1.2 million per annum following incentives, and renewing or re-gearing nine leases securing more than £400,000 per annum.
One occupier break option was removed securing £248,000 per annum and four leases were surrendered for a combined premium of £60,000 to facilitate asset management initiatives. Planning permission for residential use was secured at Stanford House, Covent Garden following the period end. We also had a planning application approved in respect of the ground floor of our Southampton property securing a higher value retail consent from the existing office use.
We are on site or working up refurbishment schemes at various properties, including four of our five largest voids, in order to create modern, attractive space.
On the back of the above activity, our occupancy rate has improved from 88% in March to 90% in September. We have seen a number of units returned, through lease break or expiry, and we are working to turn these round quickly for re-letting.
Two small properties were sold for £0.4 million and, following the equity raise, Lyon Business Park in Barking was purchased for £9.5 million in September. This is in line with our strategy to dispose of smaller non-core assets where the business plan has been completed and acquiring larger lot sizes where we see added value opportunities.
In the six months to September 2013 the IPD Quarterly Benchmark delivered a 4.9% total return. The Group's portfolio is unrepresentative of the Benchmark, with its higher industrial exposure and lower exposure to both London offices and retail. On a total return basis the portfolio delivered 4.6% outperforming in the industrial, retail and leisure sectors, however the lower exposure to central London offices adversely impacted relative performance.
The combined income return for the June and September quarters was 2.8% for the IPD Benchmark, compared to 3.5% for the Picton portfolio. In terms of income return, the Picton portfolio outperformed the Benchmark in all three principal sectors for the same period.
The combined capital growth for the June and September quarters was 1.9% for the IPD Benchmark, compared to 1.1% for the Picton portfolio.
INCOME RETURN 6 MONTHS TO SEPTEMBER 2013 3.5%
Following the light refurbishment of two office floors at Stanford House, Covent Garden, in central London earlier in the year, we have successfully let the second and third floors at 5% above estimated rental value. The second floor has been let to an IT company, Fivium Limited, at a rent of £170,500 per annum and the third floor to a wealth management company, New Sparta Limited, at a rent of £173,000 per annum. We have also renewed the lease on the two-bedroom residential flat at this property for a rent of £40,000 per annum and, after the period end, secured planning permission for a change of use to residential, which is a higher value use.
At 1 Chancery Lane, London WC2, which was comprehensively refurbished at the beginning of the year, we have let the last two available floors to Clarke Wilmott LLP and Cripps Sears & Partners at a combined rent of £233,000 per annum.
In the regions, we are pleased to have let the last remaining suite at Atlas House in Marlow, Buckinghamshire, to Tradebe Environmental Services Limited for a 10 year term, with a five year break, at a rent of £78,000 per annum. At Merchants House in Chester, which became fully vacant in 2012, two suites have been let to Web Media 360 Limited and Korus Recruitment Group Limited, which we anticipate will lead to further lettings.
The first phase of the refurbishment of 2 & 4 Addiscombe Road in Croydon was started during the period and is progressing well. We expect this refurbishment, which will offer grade A space opposite East Croydon station, to be completed by the end of December. In Southampton we downsized an existing occupier on lease expiry onto the upper floors of our property and have received planning permission for a change of use to retail/ restaurant on the ground floor, which we believe will enhance value through a higher rent being achievable on letting.
An occupier insolvency in Leeds resulted in a loss of £125,000 per annum of income. We are working up a scheme to refurbish and re-let this space.
In Swindon a unit was returned at Westlea Campus, and we are working through options for this asset.
The office portfolio occupancy has improved from 81% in March to 84% in September.
Lyon Business Park in Barking was purchased for £9.5 million in September and we have commenced the rebranding of the estate to improve its appeal to potential occupiers of the three small vacant units.
The final unit at Winston Business Centre in Lancing, Sussex was sold for £65,000, completing our strategy of selling from this non-core asset estate.
Occupancy has improved from 92% in March to 93% in September as a result of activity detailed below.
The refurbishment of our largest void at Unit F1, River Way, Harlow is now substantially complete, the majority of the refurbishment being covered by the outgoing occupier's dilapidations. The unit will provide approximately 50,000 sq ft and subsequent to the period end we have put it under offer to a distribution company above the estimated rental value.
We have completed lettings in Warrington and at Datapoint, London E16, and, in particular, at Heron Industrial Estate in Reading, which is now fully let after two lettings in the period at a combined rent of £82,000 per annum.
Our retail occupancy has improved significantly over the period from 90% in March to 95% in September primarily as a result of activity in Stanford House, London WC2, which is categorised by its principal use, retail.
Iceland entered into a ten year reversionary lease of the supermarket in Kings Heath, Birmingham, securing a minimum of £75,000 per annum until 2028.
In Cardiff, we have let two small vacant retail units to Loans 2 Go Limited for £17,000 per annum on a five year lease, subject to a break, and Duncan Lewis Solicitors for £12,000 per annum, also on a five year lease, subject to a break. We have one remaining retail unit to let at this property.
The retail unit at 3 Lower Borough Walls in Bath was sold for £355,000, 1.5% above valuation, and in line with our strategy to sell non-core assets where the business plan has been completed.
Our leisure occupancy rate has reduced from 94% in March to 88% in September as a result of two occupier insolvencies. We now have two vacant units at Regency Wharf, in Birmingham, and there has been a good level of interest to date, assisted by the recent addition of new estate signage and lighting.
EPRA net assets at 30 September 2013 were £180.3 million, an increase of £10.9 million or 6.4% over the last six months. The increase is due to three factors:
The EPRA net asset value per share rose from 49 pence to 50 pence over the period as a result.
The Group's profit after tax for the period was £9.7 million, comprising an income profit of £6.3 million and gains on investments of £3.4 million. The equivalent result for the previous period to 30 September 2012 was a loss of £9.0 million. The change is principally arising from positive valuation movements in this period, whereas throughout 2012 there were capital value declines across the commercial property market.
Rents receivable for the period were £15.6 million, slightly down from the 2012 period of £16.2 million. This reflects the increasing vacancy rate in the portfolio from the latter part of 2012 through to early 2013, although there has been some significant leasing activity in the portfolio during the current period, as discussed in the Portfolio Review. We expect this to positively impact the Group's results over a longer timescale.
Similarly property operating costs have increased to £1.2 million from £0.8 million for the 2012 period. The current period includes refurbishment costs which will generate additional income in future periods.
Operating expenses are in line with 2012, at £1.5 million for the six months. Management expenses have increased by £0.3 million to £1.0 million for the period, which is due to two main factors:
The Group paid two dividends during the period, of 0.75 pence per share, totalling £5.2 million. Dividend cover for the period was 122%, compared to 100% for the previous period in 2012 which is a reflection of the more prudent distribution policy introduced in November 2012. The Group's dividend yield, based on the closing share price at 30 September of 51.25 pence, was 5.9%.
Investment properties moved to £396.7 million at 30 September, up from the reported figure of £382.7 million in the 2013 Annual Report. This increase arises from the uplift in portfolio capital values of £3.4 million, as noted above, together with the acquisition of Lyon Business Park towards the end of the period for £10.0 million including costs, and capital expenditure incurred of £1.0 million. Two small assets were sold during the period, raising £0.4 million.
Borrowings remained largely unchanged from the reported 31 March balance, at £233.7 million, representing a Loan to Value ratio of 53.5%. The increased portfolio value has led this to decrease from 54.5% as stated in the last Annual Report.
The Group issued 12.3 million new ordinary shares on 5 September 2013, raising £6.3 million. These shares were issued at 51.5 pence per share, representing a premium to the Group's net asset value.
Across the wider market, we have started to see a stabilisation in values over the course of 2013, and a small element of capital appreciation. Whilst this remains biased towards London, there also appears to be more confidence outside London, where pricing is significantly lower. Occupier activity is encouraging and within our own portfolio we have a healthy pipeline of leasing transactions.
Michael Morris Chief Executive, Picton Capital Limited
Set against this backdrop, the Company is well placed. Our level of gearing has enhanced the growth in net assets and our financing, put in place 12 months ago, in hindsight, looks very attractive. Our covered dividend enables us to invest surplus net income into asset management initiatives and so provide space that meets the needs of occupiers.
We are already starting to see improved occupancy and we believe this will in due course lead to income growth. Similarly, this allows us to consider transactions that may have more impact on value generating stronger total returns and improving the quality of the portfolio, rather than providing short term income.
We look forward to continuing the momentum of the last six months.
Picton Capital Limited
11 November 2013
| As at 30 September 2013 | Sector |
|---|---|
| Properties valued in excess of £20 million | |
| River Way Industrial Estate, Harlow, Essex | Industrial |
| Unit 5320, Magna Park, Lutterworth, Leics. | Industrial |
| Stanford House, 12-14 Long Acre, London WC2 | Retail |
| Properties valued between £15 million and £20 million | |
| 50 Farringdon Road, London EC1 | Office |
| Angel Gate Office Village, City Road, London EC1 | Office |
| Boundary House, Jewry Street, London EC3 | Office |
| Parc Tawe, Phase II, Link Road, Swansea | Retail |
| Properties valued between £10 million and £15 million | |
| 1-3 Chancery Lane, London WC2 | Office |
| Colchester Business Park, The Crescent, Colchester, Essex | Office |
| Angouleme Way Retail Park, Bury, Greater Manchester | Retail |
| Properties valued between £5 million and £10 million | |
| Vigo 250, Birtley Road, Washington, Tyne and Wear | Industrial |
| Lyon Business Park, River Road, Barking, Essex | Industrial |
| Unit 3220, Magna Park, Lutterworth, Leics. | Industrial |
| Units 1-13 Dencora Way, Sundon Park, Luton, Beds. | Industrial |
| Nonsuch Industrial Estate, 1-25 Kiln Lane, Epsom, Surrey | Industrial |
| Datapoint Business Centre, Cody Road, London E16 | Industrial |
| The Business Centre, Molly Millars Lane, Wokingham, Berks. | Industrial |
| Lawson Mardon Buildings, Kettlestring Lane, York | Industrial |
| Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire | Industrial |
| 2 & 4 Addiscombe Road, Croydon | Office |
| 401 Grafton Gate East, Milton Keynes, Bucks. | Office |
| Northampton Business Park, 800 Pavilion Drive, Northampton | Office |
| L'Avenir, Opladen Way, Westwick, Bracknell, Berks. | Office |
| 56 Castle Street, 2/12 English Street and 12-21 St Cuthberts Lane, Carlisle, Cumbria | Retail |
| 53/55/57 Broadmead, Bristol | Retail |
| 17/19 Fishergate, Preston | Retail |
| Scots Corner, High Street/Institute Road, Birmingham | Retail |
| 78-80 Briggate, Leeds | Retail |
| Strathmore Hotel, Arndale Centre, Luton, Beds. | Leisure |
| Regency Wharf, Broad Street, Birmingham | Leisure |
| Sectol | |||
|---|---|---|---|
| Properties valued under £5 million | |
|---|---|
| Western Industrial Estate, Downmill Road, Bracknell, Berks. | Industrial |
| Heron Industrial Estate, Spencers Wood, Reading | Industrial |
| Easter Court, Gemini Park, Warrington | Industrial |
| Middleton Trade Park, Oldham Road, Manchester | Industrial |
| Magnet Trade Centre, Winnersh, Reading | Industrial |
| Abbey Business Park, Mill Road, Newtownabbey, Belfast | Industrial |
| Highgrove Industrial Estate, Quatremaine Road, Portsmouth | Industrial |
| Manchester Road/Drury Lane, Oldham, Lancs. | Industrial |
| Longcross Court, Newport Road, Cardiff | Office |
| Queens House, 19/29 St Vincent Place, Glasgow | Office |
| Trident House, 42/48 Victoria Street, St Albans, Herts. | Office |
| 28 Austin Friars, London EC2 | Office |
| Waterside Park, Longshot Lane, Bracknell, Berks. | Office |
| Westlea Campus, Chelmsford Road, Swindon, Wilts. | Office |
| Atlas House, Third Avenue, Globe Park, Marlow, Bucks. | Office |
| Sentinel House, Ancells Business Park, Fleet, Hants. | Office |
| Waterside House, Kirkstall Road, Leeds | Office |
| Merchants House, Crook Street, Chester | Office |
| 8-9 College Place, Southampton | Office |
| Marshall Building,122-124 Donegall Street, Belfast | Office |
| The Cloisters, Orchard Street, Dartford | Office |
| 72/78 Murraygate, Dundee | Retail |
| 123 High Street, Guildford, Surrey | Retail |
| Units 1-3, 18/28 Victoria Lane, Huddersfield, West Yorks. | Retail |
| 6/12 Parliament Row, Hanley, Worcs. | Retail |
| 7 & 9 Warren Street, Stockport | Retail |
| 2 Bath Street, Bath | Retail |
| 2/2a George Street, Richmond | Retail |
| 113 High Street, Sutton | Retail |
| 6 Argyle Street, Bath | Retail |
| Thistle Hotel, Unit 1 & Le Pavilion, Brighton | Leisure |
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 Directors' Report in the Company's Annual Report for the year ended 31 March 2013. The Company's principal risks and uncertainties have not changed materially since the date of that report.
We confirm that to the best of our knowledge:
Trevor Ash Director
11 November 2013
| For the period from 1 April 2013 to 30 September 2013 |
6 months ended 30 September 2013 Unaudited |
6 months ended 30 September 2012 Unaudited |
Year ended 31 March 2013 Audited |
|||
|---|---|---|---|---|---|---|
| Note | Income £000 |
Capital £000 |
Total £000 |
Total £000 |
Total £000 |
|
| Income | ||||||
| Revenue from properties | 3 | 18,309 | - | 18,309 | 18,689 | 38,812 |
| Property expenses | 4 | (4,747) | - | (4,747) | (4,064) | (8,989) |
| Net property income | 13,562 | - | 13,562 | 14,625 | 29,823 | |
| Expenses | ||||||
| Management expenses | 6 | (1,015) | - | (1,015) | (687) | (1,682) |
| Other operating expenses | 7 | (530) | - | (530) | (866) | (1,592) |
| Total operating expenses | (1,545) | - | (1,545) | (1,553) | (3,274) | |
| Operating profit before movement on investments | 12,017 | - | 12,017 | 13,072 | 26,549 | |
| Gains and (losses) on investments | ||||||
| Loss on disposal of investment properties | 10 | - | (4) | (4) | - | (4) |
| Investment property valuation movements | 10 | - | 3,413 | 3,413 | (17,509) | (30,937) |
| Total gains and (losses) on investments | - | 3,409 | 3,409 | (17,509) | (30,941) | |
| Operating profit/(loss) | 12,017 | 3,409 | 15,426 | (4,437) | (4,392) | |
| Financing | ||||||
| Interest receivable | 69 | - | 69 | 56 | 114 | |
| Interest payable | (5,557) | - | (5,557) | (6,076) | (11,674) | |
| Realised gains on disposal of derivative financial instruments | - | - | - | 1,617 | 1,617 | |
| Total finance costs | (5,488) | - | (5,488) | (4,403) | (9,943) | |
| Profit/(loss) before tax | 6,529 | 3,409 | 9,938 | (8,840) | (14,335) | |
| Tax | (194) | - | (194) | (123) | (272) | |
| Total comprehensive income/(loss) | 6,335 | 3,409 | 9,744 | (8,963) | (14,607) | |
| Earnings/(loss) per share Basic and diluted |
9 | 1.8p | 1.0p | 2.8p | (2.6)p | (4.2)p |
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.
| For the period from 1 April 2013 to 30 September 2013 |
Share Capital |
Retained Earnings |
Total | |
|---|---|---|---|---|
| Note | £000 | £000 | £000 | |
| Balance as at 31 March 2012 | 39,149 | 156,961 | 196,110 | |
| Loss for the period | - | (8,963) | (8,963) | |
| Dividends paid | 8 | - | (6,907) | (6,907) |
| Balance as at 30 September 2012 | 39,149 | 141,091 | 180,240 | |
| Loss for the year | - | (5,644) | (5,644) | |
| Dividends paid | 8 | - | (5,180) | (5,180) |
| Balance as at 31 March 2013 | 39,149 | 130,267 | 169,416 | |
| Issue of ordinary shares | 6,324 | - | 6,324 | |
| Profit for the period | - | 9,744 | 9,744 | |
| Dividends paid | 8 | - | (5,180) | (5,180) |
| Balance as at 30 September 2013 | 45,473 | 134,831 | 180,304 |
| As at 30 September 2013 | 30 September 2013 Unaudited |
30 September 2012 Unaudited |
31 March 2013 Audited |
|
|---|---|---|---|---|
| Note | £000 | £000 | £000 | |
| Non-current assets | ||||
| Investment properties | 10 | 396,708 | 394,891 | 382,729 |
| Tangible assets | 162 | 112 | 170 | |
| Accounts receivable | 4,281 | - | 4,518 | |
| Total non-current assets | 401,151 | 395,003 | 387,417 | |
| Current assets | ||||
| Accounts receivable | 9,749 | 12,248 | 7,945 | |
| Cash and cash equivalents | 19,210 | 31,960 | 22,906 | |
| Total current assets | 28,959 | 44,208 | 30,851 | |
| Total assets | 430,110 | 439,211 | 418,268 | |
| Current liabilities | ||||
| Accounts payable and accruals | (14,232) | (15,030) | (13,620) | |
| Loans and borrowings | 11 | (3,010) | (33,959) | (2,999) |
| Obligations under finance leases | (107) | (106) | (108) | |
| Total current liabilities | (17,349) | (49,095) | (16,727) | |
| Non-current liabilities | ||||
| Loans and borrowings | 11 | (230,733) | (208,149) | (230,401) |
| Obligations under finance leases | (1,724) | (1,727) | (1,724) | |
| Total non-current liabilities | (232,457) | (209,876) | (232,125) | |
| Total liabilities | (249,806) | (258,971) | (248,852) | |
| Net assets | 180,304 | 180,240 | 169,416 | |
| Equity | ||||
| Share capital | 12 | 45,473 | 39,149 | 39,149 |
| Retained earnings | 134,831 | 141,091 | 130,267 | |
| Total equity | 180,304 | 180,240 | 169,416 | |
| Net asset value per share | 14 | £0.50 | £0.52 | £0.49 |
These condensed consolidated financial statements were approved by the Board of Directors on 11 November 2013 and signed on its behalf by:
| For the period from 1 April 2013 to 30 September 2013 |
6 months ended 30 September 2013 Unaudited |
6 months ended 30 September 2012 Unaudited |
Year ended 31 March 2013 Audited |
|
|---|---|---|---|---|
| Note | £000 | £000 | £000 | |
| Operating activities | ||||
| Operating profit/(loss) | 15,426 | (4,437) | (4,392) | |
| Adjustments for non-cash items | 13 | (4,795) | 14,813 | 27,662 |
| Interest received | 69 | 56 | 114 | |
| Interest paid | (4,479) | (4,506) | (8,887) | |
| Tax paid | (7) | - | (7) | |
| Cash inflows from operating activities | 6,214 | 5,926 | 14,490 | |
| Investing activities | ||||
| Purchase of investment properties | 10 | (10,002) | - | - |
| Capital expenditure on investment properties | 10 | (960) | (656) | (1,998) |
| Disposal of investment properties | 10 | 392 | - | 72 |
| Purchase of tangible assets | (15) | (7) | (83) | |
| Cash outflows from investing activities | (10,585) | (663) | (2,009) | |
| Financing activities | ||||
| Borrowings repaid | (469) | (199,341) | (230,888) | |
| Borrowings drawn | - | 209,047 | 231,047 | |
| Financing costs | - | (3,756) | (5,275) | |
| Termination of derivatives | - | (3,488) | (3,487) | |
| Issue of equity | 12 | 6,337 | - | - |
| Equity issue costs | (13) | - | - | |
| Dividends paid | 8 | (5,180) | (6,907) | (12,087) |
| Cash inflows/(outflows) from financing activities | 675 | (4,418) | (20,690) | |
| Net (decrease)/increase in cash and cash equivalents | (3,696) | 845 | (8,209) | |
| Cash and cash equivalents at beginning of period/year | 22,906 | 31,115 | 31,115 | |
| Cash and cash equivalents at end of period/year | 19,210 | 31,960 | 22,906 |
FOR THE PERIOD FROM 1 APRIL 2013 TO 30 SEPTEMBER 2013
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 2013, with unaudited comparatives for the period from 1 April to 30 September 2012. Comparatives are also provided from the audited financial statements for the year ended 31 March 2013.
The financial information for the year ended 31 March 2013 is derived from the financial statements delivered to the UK Listing Authority and does not constitute statutory accounts.
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 Company as at and for the year ended 31 March 2013.
The accounting policies applied by the Company in these financial statements are the same as those applied by the Company in its financial statements as at and for the year ended 31 March 2013, with the exception of the following which have had no effect on the financial statements:
The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the IASB. There have been no significant changes to management judgement and estimates.
FOR THE PERIOD FROM 1 APRIL 2013 TO 30 SEPTEMBER 2013 (CONTINUED)
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Rents receivable (adjusted for lease incentives) | 15,553 | 16,199 | 32,125 |
| Surrender premiums | 60 | 82 | 702 |
| Dilapidation receipts | 195 | 225 | 1,039 |
| Other income | 59 | 3 | 59 |
| Service charge income | 2,442 | 2,180 | 4,887 |
| 18,309 | 18,689 | 38,812 |
Rents receivable includes lease incentives recognised of £0.7 million (30 September 2012: £0.3 million, 31 March 2013: £1.0 million).
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Property operating expenses | 1,190 | 753 | 2,426 |
| Property void costs | 1,115 | 1,131 | 1,676 |
| Recoverable service charge costs | 2,442 | 2,180 | 4,887 |
| 4,747 | 4,064 | 8,989 |
The Directors are 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 61 commercial properties, which are in the office, industrial, retail, retail warehouse, and leisure sectors. A more detailed breakdown is included within the Investment Manager's Report.
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Staff costs | 753 | 485 | 1,194 |
| Other management costs | 262 | 202 | 488 |
| 1,015 | 687 | 1,682 |
The Investment Manager for the Group is Picton Capital Limited, a wholly owned subsidiary company. The above staff and other management costs are those of Picton Capital Limited during the period.
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Recurring costs | |||
| Valuation expenses | 34 | 93 | 157 |
| Administrator fees | 94 | 105 | 221 |
| Auditor's remuneration | 63 | 63 | 170 |
| Directors' fees | 101 | 101 | 194 |
| Other expenses | 238 | 255 | 625 |
| 530 | 617 | 1,367 | |
| Exceptional costs | |||
| Debt servicing costs | - | 249 | 163 |
| Other exceptional costs | - | - | 62 |
| - | 249 | 225 | |
| 530 | 866 | 1,592 |
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Declared and paid | |||
| Interim dividend for the period ended 31 March 2012: 1 pence | - | 3,453 | 3,453 |
| Interim dividend for the period ended 30 June 2012: 1 pence | - | 3,454 | 3,454 |
| Interim dividend for the period ended 30 September 2012: 0.75 pence | - | - | 2,590 |
| Interim dividend for the period ended 31 December 2012: 0.75 pence | - | - | 2,590 |
| Interim dividend for the period ended 31 March 2013: 0.75 pence | 2,590 | - | - |
| Interim dividend for the period ended 30 June 2013: 0.75 pence | 2,590 | - | - |
| 5,180 | 6,907 | 12,087 |
The interim dividend of 0.75 pence per ordinary share in respect of the period ended 30 September 2013 has not been recognised as a liability as it was declared after the period end. A dividend of £2,682,000 will be paid on 29 November 2013.
FOR THE PERIOD FROM 1 APRIL 2013 TO 30 SEPTEMBER 2013 (CONTINUED)
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 ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| Net profit/(loss) attributable to ordinary shareholders of the Company from continuing operations (£000) |
9,744 | (8,963) | (14,607) |
| Weighted average number of ordinary shares for basic and diluted profit/(loss) per share |
347,084,396 | 345,336,118 | 345,336,118 |
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Carrying value at start of period/year | 382,729 | 411,744 | 411,744 |
| Acquisitions | 10,002 | - | - |
| Capital expenditure on investment properties | 960 | 656 | 1,998 |
| Disposals | (392) | - | (72) |
| Realised losses on disposal | (4) | - | (4) |
| Change in fair value | 3,413 | (17,509) | (30,937) |
| Carrying value at the end of the period/year | 396,708 | 394,891 | 382,729 |
| Historic cost at the end of the period/year | 559,720 | 547,901 | 549,167 |
The carrying value of investment properties reconciles to the Appraised Value as follows:
| 30 September 2013 | 30 September 2012 | 31 March 2013 | |
|---|---|---|---|
| £000 | £000 | £000 | |
| Appraised value | 401,140 | 398,005 | 386,391 |
| Valuation of assets held under finance leases | 1,406 | 1.293 | 1,483 |
| Lease incentives held as debtors | (5,838) | (4,407) | (5,145) |
| Carrying value at the end of the period | 396,708 | 394,891 | 382,729 |
The investment properties were valued by CBRE Limited, Chartered Surveyors, as at 30 September 2013 and at 31 March 2013, and by Jones Lang LaSalle Limited and CBRE Limited as at 30 September 2012, on the basis of Market Value in accordance with RICS Valuation Standards.
The Group's borrowings (note 11) are secured by a first ranking fixed charge over the majority of investment properties held.
Rental income and property expenses arise from the properties shown above.
| Maturity | 30 September 2013 | 30 September 2012 | 31 March 2013 | |
|---|---|---|---|---|
| £000 | £000 | £000 | ||
| Current | ||||
| Secured loan facility | - | 948 | 898 | 927 |
| Unsecured loan stock | - | 2,062 | 2,092 | 2,072 |
| Zero dividend preference shares | 31 October 2012 | - | 30,969 | - |
| 3,010 | 33,959 | 2,999 | ||
| Non-current | ||||
| Secured loan facility | 20 July 2022 | 33,718 | 33,718 | 33,718 |
| Secured loan facility | 24 July 2027 | 80,000 | 80,000 | 80,000 |
| Secured loan facility | 24 July 2032 | 93,483 | 94,431 | 93,963 |
| Zero dividend preference shares | 15 October 2016 | 23,532 | - | 22,720 |
| 230,733 | 208,149 | 230,401 | ||
| 233,743 | 242,108 | 233,400 |
The Group has a loan with Canada Life Limited for £113.7 million, which was fully drawn on 24 July 2012. The loan is for a term of 15 years, with £33.7 million repayable on the tenth anniversary of drawdown. Interest is fixed at 4.08% over the life of the loan. The loan agreement has a loan to value covenant of 65% and an interest cover test of 1.75. The loan is secured over the Group's properties held by Picton No 2 Limited Partnership and Picton UK Real Estate Trust (Property) No 2 Limited.
Additionally the Group has a term loan facility agreement with Aviva Commercial Finance Limited for £95.3 million, which was fully drawn on 24 July 2012. The loan is for a term of 20 years, with approximately one third repayable over the life of the loan in accordance with a scheduled amortisation profile. The Group has repaid £0.9 million since issue. Interest on the loan is fixed at 4.38% over the life of the loan. The facility has a loan to value covenant of 65% and a debt service cover ratio of 1.4. The facility is secured over the Group's properties held by Picton No 3 Limited Partnership, Picton Property No 3 Limited and the Jersey Property Unit Trusts.
On 15 October 2012 the Group issued 22,000,000 zero dividend preference shares ('ZDPs') at a price of 100 pence per share and with a maturity date of 15 October 2016. The ZDPs accrue additional capital at a rate of 7.25% per annum, resulting in a final capital entitlement at maturity of 132.3 pence per share. The ZDPs do not receive any dividends or income distributions, and are listed on the London Stock Exchange. The ZDPs have been issued by Picton ZDP Limited, a wholly owned subsidiary company.
The Group's unsecured loan stock pays interest at 0.5% above six month LIBOR. The loan stock is repayable at the request of the holders on 31 March and 30 September each year. The Group also has the option to repay the loan stock at any time by giving four months notice.
The weighted average interest rate on the Group's borrowings as at 30 September was 4.49% (30 September 2012: 4.53%, 31 March 2013: 4.49%).
FOR THE PERIOD FROM 1 APRIL 2013 TO 30 SEPTEMBER 2013 (CONTINUED)
The Company has 357,641,303 ordinary shares in issue of no par value (30 September 2012 and 31 March 2013: 345,336,118).
During the period the Company issued 12,305,185 new ordinary shares of no par value at 51.5 pence per share for cash. The consideration received net of expenses has been credited to the share premium account.
The balance on the Company's share premium account as at 30 September 2013 was £45,473,000 (30 September 2012 and 31 March 2013: £39,149,000).
| 6 months ended 30 September 2013 |
6 months ended 30 September 2012 |
Year ended 31 March 2013 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Loss on disposal of investment properties | 4 | - | 4 |
| Investment property valuation movement | (3,413) | 17,509 | 30,937 |
| Depreciation of tangible assets | 24 | 14 | 32 |
| (Increase)/decrease in receivables | (1,804) | (1,643) | (1,379) |
| Increase/(decrease) in payables | 394 | (1,067) | (1,932) |
| (4,795) | 14,813 | 27,662 |
The net asset value per ordinary share is based on net assets at the period end and 357,641,303 (30 September 2012 and 31 March 2013: 345,336,118) ordinary shares, being the number of ordinary shares in issue at the period end.
At 30 September 2013, the Company had a net asset value per ordinary share of £0.50 (30 September 2012: £0.52, 31 March 2013: £0.49).
The total fees earned during the period by the five Directors of the Company were £101,000 (30 September 2012: £101,000 and 31 March 2013: £194,000). As at 30 September 2013 the Group owed £nil to the Directors (30 September 2012 and 31 March 2013: £nil).
Picton Property Income Limited has no controlling parties.
A dividend of £2,682,000 (0.75 pence per share) was approved by the Board on 21 October 2013 and payable on 29 November 2013.
The Group acquired a further unit at Angel Gate Office Village, London EC1, on 9 October 2013 for a consideration of £975,000.
We have been engaged by the Company to review the condensed set of financial statements in the Interim Report for the six months ended 30 September 2013 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
The Interim Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this Interim Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'.
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the six months ended 30 September 2013 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FCA.
KPMG Channel Islands Limited Chartered Accountants Guernsey
11 November 2013
All enquiries relating to holdings in Picton Property Income Limited, including notification of change of address, queries regarding dividend/interest payments or the loss of a certificate, should be addressed to the Company's registrars.
Nicholas Thompson (Chairman) Trevor Ash Vic Holmes Roger Lewis Robert Sinclair
Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
Registered Number: 43673
NatWest House Le Truchet St Peter Port Guernsey GY1 1WD
Picton has a corporate website which has further information about the Group and the property portfolio at: www.pictonproperty.co.uk
PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
Contact: David Sauvarin T: 01481 745 001 E: [email protected]
28 Austin Friars London EC2N 2QQ
T: 020 7628 4800 E: [email protected]
131 Finsbury Pavement London EC2A 1NT
Contact: James Verstringhe T: 020 7920 3150 E: [email protected]
20 New Street St Peter Port Guernsey GY1 4AN
Henrietta House Henrietta Place London W1G 0NB
Oriel Securities Limited 150 Cheapside London EC2V 6ET
1 Little New Street London EC4A 3TR
Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ
65 Fleet Street London EC4Y 1HS
As to Guernsey Law Carey Olsen
PO Box 98 Carey House Les Banques St Peter Port Guernsey GY1 4BZ
FSC logo to go here
Trafalgar Court Les Banques St Peter Port Guernsey, GY1 3QL
T: 01481 745 001 www.pictonproperty.co.uk
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