Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

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 industrial sector, having benefitted from strong investment demand leading to lower yields, saw a greater valuation movement in 2022. Demand for the office sector remains muted as businesses continue to reassess their requirements. The retail sector is showing some improvement, but from a low base.

Risk trend

6 Investment Risk

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 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. Management regularly assess the performance 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 Volatility in the investment market has increased over the year. There is more uncertainty in making investment decisions due to increasing costs, climate-related risks and recessionary pressures.

Risk trend

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

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 Rent collection has remained high throughout the year, with limited occupier defaults.

Risk trend

8 Valuation Risk

Commentary Following the mini-budget in September 2022, there were significant increases in interest rates and bond yields, causing commercial property valuations to decline. After a marked fall in December, valuations have subsequently stabilised to some extent. However, further interest rate rises may cause some further pressure on valuations. 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 2023

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