PCTN Picton Property Income Ld

12 November 2024

PICTON PROPERTY INCOME LIMITED

('Picton', the 'Company' or the 'Group')

LEI: 213800RYE59K9CKR4497

Half Year Results

Picton announces its half year results for the period to 30 September 2024.

Commenting on the results, Michael Morris, Chief Executive of Picton, said:

"We are pleased with the progress we have made during the period delivering EPRA earnings growth of nearly 12% compared to this time last year. Net assets have increased and we continue to operate with a fully covered dividend.

We have improved occupancy and further invested into upgrading our portfolio. With asset disposal proceeds we have also fully repaid floating rate debt, with the remaining facilities now 100% fixed, with a seven-year maturity profile.

We are progressing our portfolio repositioning strategy and are also encouraged by our pipeline of asset management activity. Alongside our investment into our portfolio this will drive occupancy, income and capital growth."

Property portfolio and performance

* LfL denotes a like-for-like basis excluding the disposal in the period

** Six months to September 2024 and 12 months to March 2024

Financial overview

Company returns and performance

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE UK MARKET ABUSE REGULATION

For further information:

Picton

Kathy Thompson, Company Secretary

020 7011 9988, kathy.thompson@picton.co.uk

Tavistock

James Verstringhe

020 7920 3150, james.verstringhe@tavistock.co.uk

About Picton

Established in 2005, Picton is listed on the main market of the London Stock Exchange and is a constituent of a number of EPRA indices including the FTSE EPRA Nareit Global Index.

Picton owns and actively manages a £721 million UK commercial property portfolio, invested across 48 assets and with around 350 occupiers (as at 30 September 2024).

Through an occupier focused, opportunity led approach, Picton aims to be one of the consistently best performing diversified UK REITs and has delivered upper quartile outperformance and a consistently higher income return than the MSCI Quarterly Property Index since launch. 

With a portfolio strategically positioned to capture income and capital growth, currently weighted towards the industrial sector, Picton's agile business model provides flexibility to adapt to evolving market trends over the long-term.

Picton has a responsible approach to business and is committed to being net zero carbon by 2040.

For more information please visit: www.picton.co.uk

BUSINESS OVERVIEW

Against a backdrop of stabilising UK commercial property values, these results show encouraging progress over the last six months, as demonstrated by improved earnings, underpinned by our capital structure and the positive valuation movement within our property portfolio.

Financial performance

We have delivered 11.6% growth in EPRA earnings, compared with this time last year, which reflects our portfolio activity, including an asset disposal and repayment of debt. Profit after tax was £11.5 million compared with a loss of £1.4 million in the first half of last year. Further detail is provided in the Financial Review.

During the period, we increased our dividend by 6%, and we have sustained a healthy level of cover at 111%.

Positive portfolio valuation

Our property portfolio rose in value by 0.8% on a like-for-like basis, driven primarily by gains in the industrial and retail warehouse assets.

The portfolio is currently weighted 62% to the industrial, warehouse and logistics sector. We continue to reduce office exposure, with the disposal of assets that have been repositioned for alternative use. Our retail exposure, which is predominantly in retail warehouse assets, remains unchanged over the period.

Improving income and occupancy through asset repositioning

We are seeing the positive impact of our portfolio repositioning activity that we started last year.

Our office exposure has reduced to 27% and will further reduce to 25% with the planned disposals of Longcross, Cardiff and Charlotte Terrace, London, having secured planning for alternative use options.

In part, by virtue of the need to be able to provide vacant possession for the above, headline occupancy only increased from 91% to 92%. However, excluding these assets, occupancy increases to 94%.

Of our total vacancy, 32% is in assets classified for alternative use and held for sale, 43% is in offices,15% is in industrial and the remaining 10% is in the retail and leisure sector of the portfolio.

Capital structure

We have a strong balance sheet and a highly attractive debt position. All our drawn debt is fixed with a weighted maturity of more than seven years. Our current loan to value ratio is a conservative 25% and we have a £50 million undrawn facility.

During the period, we repaid all our higher rate floating debt with the proceeds from the Angel Gate sale, which has reduced finance costs.

The value of our debt structure is reflected in our EPRA net disposal value ('NDV') being £23 million higher than our reported net assets.

Governance

We welcomed to the Board a new Chief Financial Officer, Saira Johnston, on 1 April 2024 and a new Non-Executive Director and Remuneration Committee Chair, Helen Beck, on 1 August 2024, succeeding Andrew Dewhirst and Maria Bentley respectively.

We also recently announced that our Chair, Lena Wilson, will step down from the Board at the end of January 2025. Mark Batten, our Senior Independent Director, is acting as interim Chair of the Nomination Committee and leading the process to find a suitable replacement, which we expect to announce in early 2025.

Sustainability progress

We have made good progress improving the environmental credentials of our portfolio through our refurbishments and are working to set interim targets to meet our 2040 net zero commitments, collaborating with our occupiers and suppliers to gain alignment.

Our approach has always been to reinvest in the portfolio to improve its quality and maintain and grow both income and value over the medium and long-term. Increasingly, these projects include more energy efficiency and on-site renewable measures where practical, thus reducing our reliance on carbon-intensive fuels such as gas. As part of upgrading our assets prior to leasing, we have completed two solar renewable energy projects on industrial units with a total capacity of 0.05 MWp.

During the period, our EPC ratings improved from 80% to 81% A-C, by ERV.

We are pleased to have improved our GRESB score, which increased to 81 points (2023: 77 points). In addition, we have maintained our EPRA Gold award for our 2024 Annual Report and our sustainability reporting.

Listed market

We were pleased to see a recovery in our share price which has reacted positively to our progress, up 14% over the six months to September 2024, but there is still more to be done particularly recognising share price movements post period end. 

Like many listed real estate companies, our shares still trade at a discount to NAV, but we are not complacent. We recognise the need to further grow earnings and are focused on capturing the portfolio's reversionary potential that will enable this. We recognise the evolving landscape in both the listed and unlisted real estate markets, but firmly believe the REIT structure remains one of the best ways to access this asset class.

The team is aligned with the interests of shareholders through the company's employee share based incentive plans and during the period the employee benefit trust has acquired 2,100,000 shares to hedge against future commitments. 

Our long-term upper quartile outperformance against the MSCI UK Quarterly Property Index demonstrates the value of our income focused, total return approach. Diversification enables us to pivot the portfolio as market conditions evolve over time.

Outlook

We have now seen a change of Government and two reductions in the base rate. UK commercial property capital values have started to react positively with the MSCI UK Quarterly Property Index showing recent increases in some sub-markets. Moving forward, we expect to see signs of a more stable macro environment and, following the repricing of the retail and office sectors, we expect medium-term returns across all sectors to be more convergent, with stock selection and asset management becoming increasingly important.

With the repricing in the commercial property market since 2022, in many instances values are below the cost of construction. We have been encouraged by the recent investment opportunities being marketed and have been undertaking due diligence on assets, primarily in the retail and industrial sectors.

There has undoubtedly been some business uncertainty around the change of Government and the Autumn Budget. Despite this, occupational markets remain resilient, with rents moving forward, especially for better quality accommodation.

We are encouraged by the prospect of improving occupancy within the portfolio as we reduce office exposure, with identified assets expected to be sold before the end of the financial year. Not only will this reduce void costs, but it will also enable us to reinvest proceeds on an earnings-accretive basis.

There are three key drivers to income and earnings growth: enhancing occupancy thereby increasing income and reducing void hold costs, capturing rental reversion, particularly in the industrial sector, and scaling the business to be able to improve operational efficiencies.

The team remains focused on unlocking potential in our portfolio and capturing upside from new opportunities.

MARKET OVERVIEW

Economic backdrop

During the last six months, the UK economic backdrop has been impacted by the early election and the change in Government. Falling inflation allowed the Bank of England to begin its base rate cutting cycle in August, with the first 25 basis point reduction since March 2020. This was followed by a second 25 basis point reduction in November, which brought the base rate down to 4.75%.

Recent events, including the Labour Government's Autumn Budget and the election result in the US, have caused volatility in the equity and bond markets. The ten-year UK Government bond yield has edged above 4.5% and the five-year SONIA swap rate is now approximately 4.0%, up from a September low of approximately 3.5%.

Annual CPI inflation fell to 1.7% in September 2024, down from 2.2% in August and below the Bank of England's 2% target for the first time since April 2021. Inflation is expected to remain close to target in 2025, allowing interest rates to fall further.

UK Gross Domestic Product is estimated to have grown by 0.5% in the quarter to June 2024. According to more recent data from the Office of National Statistics ('ONS'), monthly GDP was flat in July and grew 0.2% in August. The UK Composite PMI shows that business confidence remains reasonably robust despite a drop in October, indicative of further economic growth. Consumer data was quite volatile over the period. Retail sales volumes were affected by adverse weather conditions in early summer but did see consistent growth between July and September. Consumer confidence as measured by GfK, had been improving, but dropped sharply in September in anticipation of the Autumn Budget and the potential impacts on personal finances. Household debt is still rising, as lower fixed-rate mortgages come to the end of their term, but the household savings ratio has been increasing for the last two years, indicating that households are adopting a somewhat precautionary view.   

The labour market continues to ease, having seen a cooling in labour demand and wage growth. Job vacancies have been on a downward trend since peaking in May 2022. Although wage growth has reduced, it is still positive with the annual growth in wages to August 2024 adjusted for inflation being 1.9% for regular pay. The unemployment rate reduced to 4.0% for the three months to August 2024.

Improved economic stability combined with lower interest rates is expected to provide a more favourable and predictable environment for investors. This is caveated with potential ramifications from the conflicts in the Middle East, Eastern Europe and the changing political landscape in the United States in particular.

UK property market

The MSCI UK Quarterly Property Index showed a total return for All Property for the six months to September 2024 of 2.7%, with an income return of 2.4% and capital growth of 0.3%. This compares with capital growth of -2.9% for the six months to March 2024. Capital values and yields have begun to stabilise, with the All Property net initial yield recorded at 4.9% in September 2024, compared to 5.1% in March 2024. According to MSCI, investment volumes for the six months to September 2024 were £22.5bn, 14% higher than the same period last year. 

Positive rental growth was recorded in 92% of core market segments for the six months to September 2024. All Property rental growth was 1.9% for the period, compared with 1.8% for the six months to March 2024. Although capital invested to achieve rental growth is not reflected in this data, occupier market fundamentals remain favourable.

Occupancy at an All Property level decreased slightly over the six months, with the MSCI UK Quarterly Property Index recording an occupancy rate of 91% for September 2024, down from 92% in March 2024.

The market performance for the six months to September 2024 for All Property and the three main sectors is shown below.

PORTFOLIO REVIEW

Performance

Our portfolio comprises 48 assets, with around 350 occupiers, and was valued at £721 million as at 30 September 2024 with a net initial yield of 5.1% and a reversionary yield of 6.9%. The average lot size of the portfolio is £15 million.

Over the six months, the portfolio has delivered a total return of 2.5% compared to the MSCI UK Quarterly Property Index which delivered 2.7%. We continue to outperform MSCI over twelve months, with long-term upper quartile outperformance since launch in 2005. A breakdown of the portfolio and valuation movements is as follows:

Angel Gate, London was sold during the period, reducing our office exposure from 30% to 27%. This exposure will reduce further to 25% assuming the disposals of Longcross, Cardiff and Charlotte Terrace, London, which are classified as alternative use assets.

Overall, the like-for-like valuation increased by 0.8% over the period, which reflects a stabilisation in property values and investment into upgrading assets, which is further detailed below. The industrial assets saw a 1.7% valuation increase over the half year, and the retail and leisure assets increased by 0.4%, while the office assets had a negative valuation movement of 1.0%. Investment into the office assets limited some of the declines seen in the wider market, as space was upgraded, improving rental values. The full impact of these projects will only be seen once the works are completed and space re-leased.

The portfolio's estimated rental value is £56.4 million per annum, a like-for-like increase of 1.6%, with all three sectors showing positive ERV growth as follows:

-       Industrial: 1.1%

-       Office: 2.3%

-       Retail and Leisure: 2.0%

The contracted annual rent of the portfolio as at 30 September 2024 was £47.9 million. The reversionary potential comprises £4.8 million of void income, of which 32% will be crystalised through asset disposals, and £3.7 million of reversionary income, which will be captured by resetting rents to market level.

In the industrial sector we are seeing demand at our multi-let industrial estates and continue to capture rental growth through new lettings, renewals and rent reviews. Our five distribution warehouses remain fully leased and during the period we extended the lease of our second largest occupier in Grantham by 13 years, which led to a significant valuation uplift.

We are delivering rental growth in the office portfolio, which reflects our ongoing programme to decarbonise and upgrade our assets to meet occupier requirements. Where appropriate, we have pivoted to higher value alternative use strategies as described further below.

The retail portfolio remains well occupied. Two units were vacated at the end of the period and on one, we have already secured planning consent for a change of use to leisure with terms agreed for re-letting.

Proactive asset management

There has been positive asset management activity, delivering income growth and proving rental value growth across the portfolio, including:

-     12 lettings or agreements to lease, 9% ahead of the March ERV and securing new contracted annual rent of £1.6 million which includes:

-       six office transactions

-       five industrial transactions

-       one retail transaction

-     16 lease renewals or regears, 7% ahead of the March ERV, securing a 14% uplift in contracted annual rent of £0.5 million which includes:

-       two office transactions

-       ten industrial transactions

-       four retail transactions

-       Six rent reviews, 9% ahead of March ERV, securing a 26%, or £0.3 million, uplift in passing rent

-       Two lease variations to remove occupier break options, securing contracted annual rent of £0.3 million

-       Two lease surrenders in order to facilitate alternative use strategies and one agreement to surrender

On a like-for-like basis contracted rent increased over the period by 1% to £47.9 million per annum.

Occupancy

Occupancy increased during the period from 91% to 92% with a total void ERV of £4.8 million. During the period we made progress on key repositioning strategies which are outlined below.

-     Angel Gate, London - following the successful strategy to secure residential conversion rights for the largest void property in the portfolio, we completed its sale for £29.6 million, reflecting a 5% premium to the preceding valuation.

-      Longcross, Cardiff - we received a resolution to grant planning consent for 706 beds across 488 units for this asset, which accounts for 18% of the total portfolio void, having previously exchanged contracts to sell the asset to a student accommodation developer. Completion of the disposal will follow receipt of a satisfactory section 106 agreement, which is being finalised. This has delivered a 17% valuation uplift in the half year.

-    Charlotte Terrace, London - the property, which accounts for 14% of the total portfolio void, is being marketed for disposal after we received planning consent for change of use of part to residential.

Assuming the above initiatives are concluded, occupancy increases to 94%, which compares to the MSCI UK Quarterly Property Index occupancy rate of 91% as at 30 September 2024.

Our industrial portfolio is 98% leased and we only have seven vacant units, of which two are under offer. The office portfolio occupancy is 83% but rises to 89% assuming the planned disposals referred to above are concluded. Retail and leisure occupancy was 93% at the half year end.

Our top five voids, excluding the assets held for sale, equates to 39% of the total vacancy as follows:

-      Colchester Business Park, Essex - Office - 14% of the portfolio void. This is a single office building that we are refurbishing to a high specification, which includes decarbonising the property and improving occupier amenities.

-     Metro, Salford Quays, Manchester - Office - 9% of the portfolio void. We have a single refurbished floor available to lease at the building, which benefits from excellent public transport links.   

-    Tower Wharf, Bristol - Office - 6% of the portfolio void. We are converting a single large suite into two smaller fully-fitted suites in order to meet greater occupier demand.

-      Madleaze Trading Estate, Gloucester - Industrial - 5% of the portfolio void. We have three units available, all of which have been refurbished and are generating good occupier interest.

-      Gloucester Retail Park, Gloucester - Retail - 5% of the portfolio void. Following a lease expiry at the end of the period we have one vacant unit. This is already under offer to a leisure operator, and planning consent has recently been secured for the change of use.

Investing to upgrade our portfolio

We invested £4.2 million into the portfolio during the period, with the focus on decarbonising office assets, refurbishing and upgrading space prior to re-leasing and carrying out upgrade works as part of active management transactions.

Key projects in the period in the office sector include works at offices in Pembroke Court, Chatham, and Atlas House, Marlow. We are now on-site at Tower Wharf, Bristol to facilitate a letting to an existing occupier who is increasing their floorspace by 146%, and to also create two smaller fully-fitted suites. We are also on-site at Colchester Business Park, Essex, to create a high quality, fully decarbonised headquarters office building.

In the industrial sector at River Way, Harlow, and Madleaze Trading Estate, Gloucester, we are improving the units and EPC ratings, which enabled us to secure two lease renewals at a combined 39% premium to the previous passing rents. At Easter Court, Warrington we have refurbished a unit, which was pre-let prior to completion of the works.

We expect our office exposure to reduce further and we continue to consider each asset on its merits with regard to alternative uses or upgrading for existing use. We will continue to exercise discipline over capital expenditure, investing only where we can improve an asset and where occupational demand is strong. We are in discussions with a number of existing office occupiers to align building upgrade works to renewing or regearing leases at higher rents, which would allow us to underwrite the expenditure. 

Top ten assets

The top ten assets as at 30 September 2024, ranked by capital value, represent 55% of the total portfolio valuation as shown below:

A full portfolio listing is available on the Company's website: www.picton.co.uk

Top ten occupiers

The top ten occupiers, based as a percentage of annualised contracted rental income, after lease incentives, as at 30 September 2024, are summarised below:

​

FINANCIAL REVIEW

Income statement

The trading performance for the six months to 30 September 2024 has been positive with a profit of £11.5 million, or 2.1p per share (30 September 2023: £1.4 million loss). 

We have increased EPRA earnings by 11.6% to £11.2 million, compared with EPRA earnings for the six months to 30 September 2023 of £10.0 million, maintaining a healthy level of dividend cover over the period of 111% and supporting the 6% dividend increase, effective May 2024. 

The EPRA earnings growth was supported by our capital structure and the repositioning of the office assets in the portfolio, in particular:

-    Net property income - increased by £0.2 million compared with the six months to 30 September 2023. Excluding assets held for sale, net property income increased by £0.7 million or 3.6%. Previous leasing activity at industrial assets in Harlow, Barking and Warrington underpinned the rental income growth.

-     Net finance costs - reduced by £1.0 million due to the repayment of the revolving credit facility in April 2024 and increased interest income as a result of interest earned on the residual sale proceeds and the higher interest rate environment.

Administrative expenses for the period were broadly in line with the six months to 30 September 2023 and lower on an annualised basis, reflecting the one-off costs in the prior year.

Balance sheet

The net asset value was stable during the period and as at 30 September 2024 was £524.8 million (31 March 2024: £524.5 million). The valuation of the investment portfolio increased by £5.7 million to £721.3 million, equivalent to 0.8% on a like-for-like basis (i.e. excluding Angel Gate, London which was sold in the period), or 0.2% including the capital expenditure incurred in the period.

Longcross, Cardiff and Charlotte Terrace, London are classified as investment properties held for sale at the CBRE appraised valuation (£20.6 million). In respect of Cardiff, this is in line with expected proceeds on completion and reflects an uplift of 17% during the period, with completion expected to take place before the end of the financial year. Charlotte Terrace is currently being marketed for sale.

As at 30 September 2024 we held £28.2 million of cash, an increase of £8.5 million during the period. The net proceeds from the Angel Gate, London disposal (£29.0 million) have primarily been used to repay the revolving credit facility (£17.1 million), fund capital expenditure (£4.2 million) and purchase shares on behalf of the Employee Benefit Trust to hedge amounts outstanding under employee share schemes (£1.5 million). The remaining proceeds and future disposal proceeds will be reinvested into the existing portfolio and new opportunities to support value and earnings growth.       

Total borrowings have reduced during the period following the repayment of the revolving credit facility. This has resulted in the loan to value ratio reducing from 28% to 25%. The weighted average maturity of our borrowings is now 7.2 years and 100% of the drawn debt is fixed at a weighted average interest rate of 3.7%.

The long-term loan facilities with Canada Life and Aviva are in place until 2031 and 2032 respectively. Our £50 million revolving credit facility remains committed and undrawn with a maturity in May 2025. We continue to operate with considerable headroom on our financial loan covenants and uncharged assets provide £70 million of additional flexibility. We intend to put in place a new revolving credit facility to maintain flexibility for capital and investment opportunities.

EPRA net tangible assets at 30 September 2024 were 96p per share, in line with the IFRS net asset value. However, the EPRA net disposal value, which included a £23 million fair value adjustment to our borrowings, was higher at 101p per share.

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, financial and climate related risks.

These risks, and the way in which they are managed, are described in more detail under the heading 'Managing Risk' within the Strategic Report in the Company's Annual Report for the year ended 31 March 2024. The Company's principal risks and uncertainties have not changed materially since the date of that report.

STATEMENT OF GOING CONCERN

The Directors have assessed whether the going concern basis remains appropriate for the preparation of the financial statements for the period ended 30 September 2024. In making their assessment the Directors have considered the principal and emerging risks relating to the Group and scenarios impacting the portfolio and the potential consequences on financial performance, asset values, investing and financing activities. The Directors have also considered the maturity of the revolving credit facility in May 2025 and, whilst currently undrawn as at 30 September 2024, have commenced steps to refinance this. More details regarding the Group's business activities, together with the factors affecting performance, investment activities and future developments are set out in the Portfolio Review. 

Further information on the financial position of the Group, including its liquidity position and debt facilities, is set out in the Financial Review and in the condensed consolidated financial statements.

Under all of these scenarios the Group has sufficient cash resources to continue its operations, and remain within its loan covenants, for a period of at least 12 months from the date of these financial statements.

Based on their assessment and knowledge of the portfolio and market, the Directors have therefore continued to adopt the going concern basis in preparing the financial statements.

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 Business Overview and Portfolio Review (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 the 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 Business Overview 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

Saira Johnston

Director
11 November 2024

INDEPENDENT REVIEW REPORT TO PICTON PROPERTY INCOME LIMITED

CONCLUSION

We have been engaged by Picton Property Income Limited (the 'Company') to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2024 of the Company and its subsidiaries (together, the 'Group'), which comprises the condensed consolidated balance sheet, the condensed consolidated statements of comprehensive income, changes in equity and cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2024 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ('ISRE (UK) 2410') issued by the Financial Reporting Council 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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) 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.

CONCLUSIONS RELATING TO GOING CONCERN

Based on our review procedures, which are less extensive than those performed in an audit as described in the Scope of review section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However future events or conditions may cause the Group and the Company to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group and the Company will continue in operation.

DIRECTORS' RESPONSIBILITIES

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards. The directors are responsible for preparing the condensed set of consolidated financial statements included in the half-yearly financial report in accordance with IAS 34 Interim Financial Reporting.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

OUR RESPONSIBILITY

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the scope of review paragraph of this report.

THE PURPOSE OF OUR REVIEW WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES

This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of 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. 

Steven Stormonth

For and on behalf of KPMG Channel Islands Limited
Chartered Accountants

Guernsey

11 November 2024

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2024

All of the profit and total comprehensive income for the period 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 YEAR ENDED 30 SEPTEMBER 2024

Notes 1 to 15 form part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2024

These condensed consolidated financial statements were approved by the Board of Directors on 11 November 2024 and signed on its behalf by:

Saira Johnston
Director 

Notes 1 to 15 form part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2024

Notes 1 to 15 form part of these condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2024

1. GENERAL INFORMATION

Picton Property Income Limited (the 'Company' and together with its subsidiaries the 'Group') was established in Guernsey on 15 September 2005 and entered the UK REIT regime on 1 October 2018.

The financial statements are prepared for the period from 1 April to 30 September 2024, with unaudited comparatives for the period from 1 April to 30 September 2023. Comparatives are also provided from the audited financial statements for the year ended 31 March 2024.

2. MATERIAL 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 2024.

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 2024.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the IASB. The Group's annual financial statements for the year ended 31 March 2024 refer to new Standards and Interpretations none of which has a material impact on these financial statements. There have been no significant changes to management judgements and estimates as disclosed in the last annual report and financial statements for the year ended 31 March 2024.

The Directors have assessed whether the going concern basis remains appropriate for the preparation of the financial statements. They have reviewed the Group's principal and emerging risks, existing loan facilities, access to funding and liquidity position and then considered different adverse scenarios impacting the portfolio and the potential consequences on financial performance, asset values, dividend policy, capital projects and loan covenants. Under all these scenarios the Group has sufficient resources to continue its operations, and remain within its loan covenants, for a period of at least 12 months from the date of these financial statements. Based on their assessment and knowledge of the portfolio and market, the Directors have therefore continued to adopt the going concern basis in preparing the financial statements.

3. REVENUE FROM PROPERTIES

Rents receivable includes lease incentives recognised of £0.3 million (30 September 2023: £(0.1) million, 31 March 2024: £nil million).

4. PROPERTY EXPENSES

5. OPERATING SEGMENTS

The Board is charged with setting the Group's business model and strategy. 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 48 commercial properties, which are in the industrial, office, retail and leisure sectors.

6. DIVIDENDS

The interim dividend of 0.925 pence per ordinary share in respect of the period ended 30 September 2024 has not been recognised as a liability as it was declared after the period end. A dividend of £5,038,000 will be paid on 29 November 2024.

7. EARNINGS PER SHARE

Basic and diluted earnings per share is calculated by dividing the net profit/(loss) for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period, excluding the average number of shares held by the Employee Benefit Trust. The diluted number of shares also reflects the contingent shares to be issued under the Long-term Incentive Plan.

The following reflects the profit/(loss) and share data used in the basic and diluted earnings per share calculation:

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 2024.

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 2024.

9. INVESTMENT PROPERTIES

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

As at 30 September 2024, two assets were held for sale; contracts have been exchanged to sell Longcross, Cardiff and Charlotte Terrace, London is being marketed for sale. As at 31 March 2024, Angel Gate, London EC1 and Longcross, Cardiff were assets classified as held for sale.

All of the Group's properties are Level 3 in the fair value hierarchy as they involve 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 2024 on the basis of fair value in accordance with the RICS Valuation - Global Standards (incorporating the International Valuation Standards) and the UK national supplement (the Red Book) current as at the valuation date.

The fair value of the Group's investment properties has been determined using an income capitalisation technique, whereby contracted and market rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the equivalent yields and the fair market values per square foot derived from comparable market transactions on an arm's length basis.

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

An increase/decrease in ERV will increase/decrease valuations, while an increase/decrease in yield will decrease/increase valuations.

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

The Group has a loan with Canada Life Limited for £129.0 million which matures in July 2031. Interest is fixed at 3.25% over the life of the loan.

Additionally, the Group has a loan facility agreement with Aviva Commercial Finance Limited for £95.3 million, which was fully drawn on 24 July 2012. The loan matures in July 2032, with approximately one-third repayable over the life of the loan in accordance with a scheduled amortisation profile. Interest on the loan is fixed at 4.38% over the life of the loan.

The Group also has a £50 million revolving credit facility ('RCF') with National Westminster Bank Plc which matures in May 2025 and is currently undrawn. The RCF interest is 150 basis points over SONIA on drawn balances and has an undrawn commitment fee of 60 basis points.

The fair value of the secured loan facilities at 30 September 2024, estimated as the present value of future cash flows discounted at the market rate of interest at that date, was £187.4 million (30 September 2023: £193.2 million, 31 March 2024: £202.8 million). The fair value of the secured loan facilities is classified as Level 2 under the hierarchy of fair value measurements.

The weighted average interest rate on the Group's borrowings as at 30 September 2024 was 3.7% (30 September 2023: 3.9%, 31 March 2024: 3.9%).

11. SHARE CAPITAL AND OTHER RESERVES

The Company has 547,605,596 ordinary shares in issue of no par value (30 September 2023: 547,605,596, 31 March 2024: 547,605,596).

The balance on the Company's share premium account as at 30 September 2024 was £164,400,000 (30 September 2023: £164,400,000, 31 March 2024: £164,400,000).

The fair value of share awards made under the Long-term Incentive Plan and the Deferred Bonus Plan is recognised in other reserves.

Subject to the solvency test contained in the Companies (Guernsey) Law, 2008 being satisfied, ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. The Trustee of the Company's Employee Benefit Trust has waived its right to receive dividends on the 2,942,959 shares it holds but continues to hold the right to vote. Ordinary shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights. The Employee Benefit Trust acquired 2,100,000 shares in the period (30 September 2023: nil shares, 31 March 2024: nil shares) and 799,481 share awards were exercised in the period (30 September 2023: 7,696 shares, 31 March 2024: 746,254 shares).

12. ADJUSTMENT FOR NON-CASH MOVEMENTS IN THE CASH FLOW STATEMENT

13. NET ASSET VALUE

The net asset value per share calculation uses the number of shares in issue at the period end and excludes the actual number of shares held by the Employee Benefit Trust at the period end; see note 11.

At 30 September 2024, the Company had a net asset value per ordinary share of £0.96 (30 September 2023: £0.99, 31 March 2024: £0.96).

14. RELATED PARTY TRANSACTIONS

There have been no changes in the related party 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 £5,038,000 (0.925 pence per share) was approved by the Board on 28 October 2024 and is payable on 29 November 2024.

END