Governance
Financial Statements
Additional Information
Strategic Report
Property
5 Portfolio strategy Risk The Group has an inappropriate portfolio strategy, as a result of poor sector or geographical allocations, or holding obsolete assets, leading to lower shareholder returns.
Mitigation The Group maintains a diversified portfolio in order to minimise exposure to any one geographical area or market sector.
Commentary The Group has implemented a strategy to reduce its office sector weighting through exploring higher value alternative uses. The outlook for the industrial and retail sectors is positive over the medium-term.
Risk trend
6 Investment Risk
Mitigation The Executive Committee must
Commentary Uncertainty and high interest rates have impacted investment market volumes in the UK this year. Recessionary pressures have started to ease and interest rates are expected to fall later in 2024.
Risk trend
Investment decisions may be flawed as a result of incorrect assumptions, poor research or incomplete due diligence, leading to financial loss.
approve all investment transactions over a threshold level, and significant transactions require Board approval. A formal appraisal and due diligence process is carried out for all potential purchases, including environmental assessments. A review of each acquisition is performed within two years of completion. Mitigation Management prepare business plans for each asset which are reviewed regularly. The Executive Committee must approve all investment transactions over a threshold level, and significant transactions require Board approval. Management maintain close contact with occupiers to have early indication of intentions.
7 Asset management Risk Failure to properly execute asset business plans or poor asset management could lead to longer void periods, higher occupier defaults, higher arrears and low occupier retention, all having an adverse impact on earnings and cash flow.
Commentary The occupational market has shown positive signs since the beginning of 2024. Rent collection has remained high throughout the year, with limited occupier defaults.
Risk trend
Management regularly assess the performance of the Group’s Property Manager.
8 Valuation Risk
Mitigation The Group’s property assets are valued quarterly by an independent valuer with oversight by the Property Valuation Committee. Market commentary is provided regularly by the independent valuer. The Board reviews financial forecasts for the Group on a regular basis, including sensitivity and adequate headroom against financial covenants.
Commentary Commercial property values have declined to a modest extent over the year. Interest rates have risen in the early part of the year but are considered to have peaked and may fall later in 2024. There remains good headroom against the Group’s lending covenants.
Risk trend
A fall in the valuation of the Group’s property assets could lead to lower investment returns and a breach of loan covenants.
Picton Property Income Limited / Annual Report 2024
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