Picton Property Income Limited Annual Report 2021

Strategic Report Principal Risks continued

Property

5

Portfolio strategy

Risk trend

Strategic Pillar

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 pandemic continues to impact many occupiers’ businesses, particularly in the retail and leisure sectors. The longer-term impact of home working on the office sector is also unclear. The divergence of returns seen previously across sectors is expected to continue.

Connected KPIs

A C

1

3

2

6

Investment

Risk trend

Strategic Pillar

Risk Investment decisionsmay be flawed as a result of incorrect assumptions, poor research or incomplete due diligence, leading to financial loss.

Mitigation The Executive Committee must 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.

Commentary There is no change to this risk.

Connected KPIs

A C

1

3

2

A review of each acquisition is performed within two years of completion.

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 lowoccupier retention, all having an adverse impact on earnings and cash flow.

Risk trend

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 and have oversight of the Group’s Property Manager. 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 Effective asset management continues to be key, engaging with occupiers to provide appropriate solutions while maintaining cash flow and occupancy.

Connected KPIs C I J K

Strategic Pillar

1

3

2

8

Valuation

Risk trend

Risk A fall in the valuation of the Group’s property assets could lead to lower investment returns and a breach of loan covenants.

Commentary Although there is still some economic uncertainty, valuations are more stable with improved market evidence. Valuers have removed the material uncertainty clause that was introduced at the start of the pandemic.

Connected KPIs

Strategic Pillar

A C E

1

3

2

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