Picton Property Income Limited Annual Report 2023

Strategic Report


Financial Statements

Additional Information

Our loan to value ratio at the year-end was 27% and we have significant headroom against lending covenants on all our facilities. In the current environment, in common with the wider real estate market, and with the share price trading at a discount to net asset value, it has not been possible to raise new equity. Growth Our internalised management model means that our costs are not linked to net asset value, so there is significant potential for earnings accretion that can be delivered through growth. As discounts across the sector persist, the case for consolidation and the creation of larger diversified REITs remains compelling. We continue to believe that the combination of cost savings and earnings growth through economies of scale alongside greater relevance to an investor audience would be well received and there is already evidence of this being the case. We have proactively considered opportunities during the year and we will continue to be an advocate for consolidation where it is beneficial to our shareholders. At a portfolio level we made three acquisitions totalling £21 million during the year. The two principal acquisitions were both mixed-use assets with retail/leisure at the ground floor and offices above. One is fully leased and at the other we have applied for planning consent for residential conversion in respect of some of the vacant space. Acting responsibly As part of our further commitment to integrate sustainability into the business this year, we have included our sustainability reporting within our annual report rather than producing a separate report. The team is increasing its efforts to ensure our assets are relevant and in demand in a net zero future. This year we have set up a Climate Action Working Group covering all areas of the business, ensuring that there is a cohesive approach to our net zero commitments, mitigating the risks of climate change and adapting our portfolio to reduce emissions.

Specifically, we have been able to reduce our Scope 1 and 2 emissions by 24% compared to our 2019 baseline year. We have improved the overall EPC ratings of our assets, with 100% of the units within the portfolio being compliant with 2023 EPC minimum standards and 76% by rental value have an EPC rating A-C. We have started to incorporate on-site renewable energy across larger refurbishments and provide greater engagement with occupiers on this issue, further embedding sustainability into our day-to-day activities. Although progress is encouraging, we recognise that we must continue to maintain our focus to meet our 2040 net zero commitment. Outlook Despite macroeconomic conditions, the economy and indeed occupier markets have remained resilient. Equally, the interest rate environment, both in terms of short-term rates and longer-term gilt yields, needs to stabilise and be more supportive, which may be possible when inflationary pressures start to subside. As we have seen this year, whilst occupational demand and tight supply have increased rents in some markets, rising costs have also impacted construction. This, combined with rising yields in the last few months, has started to impact development viability and is likely to be a constraint on supply and support rental levels. Our predominately fixed rate debt with a long maturity profile will provide earnings stability during this more challenging period. Our key focus remains on growing net income further and gaining efficiencies

This year, we have made significant progress, delivering rental growth and exploring and securing more valuable alternative uses at selected office assets. We have remained focused on sustainability, with further progress on our net zero carbon pathway.

Michael Morris Chief Executive

through growth. Michael Morris Chief Executive 24 May 2023

 Picton Property Income Limited  Annual Report 2023


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