Strategic Report
Financial Statements
Additional Information
Governance
I am delighted to report that Picton has delivered a total profit of £147 million, resulting in the most successful year since our launch in 2005. As lockdown restrictions were lifted, the economy rebounded. Driven by improving income and marked capital growth, our portfolio was well positioned. The majority of our assets saw a significant improvement in value. Almost all our key performance indicators have improved from last year. Further details on these are set out later in this Report. Performance We have delivered a total return of 28.3% alongside a 5.5% increase in EPRA earnings, which has enabled us to increase dividends accordingly. Our total shareholder return was 18.7% and whilst it saw a healthy improvement during the year, like many listed real estate companies, our share price currently remains below our net asset value. We have delivered property performance ahead of the MSCI UK Quarterly Property Index. This continues to reinforce our strong longer-term track record, achieving upper quartile property performance against this Index over three, five and ten years, and since inception. Property portfolio Our outperformance at a property level has principally been driven by our high exposure to the industrial, warehouse and logistics sector, but we have also benefitted this year from a recovery in the value of our retail warehouse assets. Performance in the office sector has been more muted, but our focus on asset management has helped to offset a wider market slowdown. Encouragingly we have had leasing success across all three sectors, and grown occupancy to 93% from 91% a year ago. This has had a positive impact in terms of void holding costs, which will flow into future years. In separate transactions, we acquired two multi-let industrial assets and disposed of one small high street retail asset. Although at the early stage of our asset management plans, our acquisitions have already delivered valuation and income growth. Capital structure During the year we have extended and increased our longer-term borrowings by £49 million, insulating the business from further rising borrowing costs. Our new debt facility is at a lower cost than our existing borrowings and we incurred one-off costs in resetting the facility to a lower overall rate. By substantially repaying our revolving credit facility, we have future operational flexibility and firepower. At the year-end borrowings totalled £219 million, with the loan to value ratio broadly constant over the year at 21%.
Dividends On the back of strong leasing activity and improving rent collection, we have increased the dividend twice during the period. We have restored our distributions back to their pre-pandemic level and we can report a healthy dividend cover of 115% over the period. Our aim is to continue to grow dividends on a progressive basis, which in the short-term will be driven by further improvement in occupancy and rental growth, predominantly coming from our industrial assets. Sustainability We have made significant progress on our sustainability priorities, recently publishing our plan to become net zero carbon by 2040. Our net zero carbon pathway ambition of 2040 is ten years ahead of the Government target and although our initial focus will be on reducing Scope 1 and 2 emissions, we intend to work with our occupiers to reduce the most significant part of the portfolio’s emissions, which come under Scope 3. We will report regularly on our progress. I am grateful to Maria Bentley who has agreed to act as Board champion and oversee the work with the Executive Committee on sustainability. Outlook We are acutely aware of the new challenges emerging both directly and indirectly from the conflict in Ukraine. Rising energy, food and commodity prices, along with supply chain disruptions and labour market shortages are becoming increasingly visible and will impact economic growth. We are already seeing rising interest rates and gilt yields have risen this year. Real estate has both an income and capital element and can offer inflation protection as evidenced by our performance this year, particularly in areas where supply is constrained, and demand enables rents to continue to rise. As a UK diversified REIT we have greater flexibility with regard to asset selection giving us the ability to position the portfolio for the long-term. We will continue to explore opportunities for growth, but this must be on terms that are attractive to our shareholders and with the right quality of asset. We remain disciplined in our approach. As in previous years we have invested in our assets and upgraded the quality of accommodation. This approach is increasingly relevant to a discerning occupier base, and will enable us to grow income. Whilst returns in 2022 are likely to soften from those seen over this reporting period, we can be confident that we have a portfolio that will continue to see further growth. Lena Wilson CBE Chair 25 May 2022
Picton Property Income Limited Annual Report 2022
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