Picton Property Income Limited Annual Report 2022

Financial Statements

Notes to the consolidated financial statements continued for the year ended 31 March 2022 13. Investment properties continued

In addition, the Group’s investment properties are valued quarterly by CBRE Limited. The valuations are based on: ‒ Information provided by the Group including rents, lease terms, revenue and capital expenditure. Such information is derived from the Group’s financial and property systems and is subject to the Group’s overall control environment. ‒ Valuation models used by the valuers, including market-related assumptions based on their professional judgement and market observation. The assumptions and valuation models used by the valuers, and supporting information, are reviewed by senior management and the Board through the Property Valuation Committee. Members of the Property Valuation Committee, together with senior management, meet with the independent valuer on a quarterly basis to review the valuations and underlying assumptions, including considering current market trends and conditions, and changes from previous quarters. The Board will also consider whether circumstances at specific investment properties, such as alternative uses and issues with occupational tenants, are appropriately reflected in the valuations. The fair value of investment properties is measured based on each property’s highest and best use from a market participant’s perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible. As at 31 March 2022 and 31 March 2021 all of the Group’s properties, including owner-occupied property, are Level 3 in the fair value hierarchy as it involves use of significant judgement. There were no transfers between levels during the year and the prior year. 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, as derived from prices). Information on these significant unobservable inputs per sector of investment properties is disclosed as follows: 2022 2021

Retail and Leisure 88,470

Retail and Leisure 76,285

Office

Industrial

Office

Industrial

251,125 509,730

Appraised value (£000) Area (sq ft, 000s)

245,385 360,740

828

3,240

692

828

2,570

706

Range of unobservable inputs: Gross ERV (sq ft per annum) – range

£10.96 to £82.32 £35.10 0.92% to 9.00%

£2.82 to £26.77 £11.47 0.00% to 6.75%

£3.23 to £28.49 £11.83 3.07% to 25.00%

£11.00 to £78.05 £34.10

£3.75 to £21.18 £10.39

£3.46 to £29.65 £11.84

– weighted average Net initial yield – range – weighted average Reversionary yield – range – weighted average True equivalent yield – range

0.00% to 7.98%

2.79% to 7.63%

3.07% to 29.58%

4.64% 3.25% 7.33%

4.35% 4.38% 7.64%

4.29% to 9.63%

3.04% to 7.37%

6.19% to 12.89%

4.34% to 10.83%

3.68% to 8.59%

7.01% to 26.95%

7.00% 4.24% 7.42%

7.02% 4.97% 7.95%

4.09% to 9.95%

3.00% to 7.00%

6.25% to 13.02%

4.42% to 9.95%

3.73% to 8.39%

7.80% to 14.03%

– weighted average 6.82% 5.02% 8.99% An increase/decrease in ERV will increase/decrease valuations, while an increase/decrease to yield decreases/increases valuations. We have reviewed the ranges used in assessing the impact of changes in unobservable inputs on the fair value of the Group’s property portfolio and concluded these were still reasonable. The table below sets out the sensitivity of the valuation to changes of 50 basis points in yield. Sector Movement 2022 Impact on valuation 2021 Impact on valuation Industrial Increase of 50 basis points Decrease of £55.2m Decrease of £36.3m Decrease of 50 basis points Increase of £69.0m Increase of £45.4m Office Increase of 50 basis points Decrease of £11.9m Decrease of £20.3m Decrease of 50 basis points Increase of £12.5m Increase of £24.5m Retail and Leisure Increase of 50 basis points Decrease of £5.1m Decrease of £5.2m Decrease of 50 basis points Increase of £5.9m Increase of £6.7m 6.49% 4.11% 7.55%

Picton Property Income Limited Annual Report 2022

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