Half Yearly Report

PICTON PROPERTY INCOME LTD - Half Yearly Report

PR Newswire

London, November 17

18 November 2015

PICTON PROPERTY INCOME LIMITED("Picton" or the "Company")

HALF YEAR RESULTS

Picton (LSE: PCTN) announces its half year results for the six month period to 30 September 2015.

HIGHLIGHTS

* net of lease incentives, see Note 9. 

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

Picton Chairman, Nicholas Thompson, commented:

Michael Morris, Chief Executive of Picton Capital, commented:“A disciplined approach to acquisitions, asset management and selective disposals, has resulted in good performance across the portfolio. Our strategic use of debt and a high level of dividend cover in particular have further contributed to NAV growth.”For further information:TavistockJeremy Carey/James Verstringhe, 020 7920 3150, [email protected]Picton Capital LimitedMichael Morris, 020 7011 9980, [email protected]The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt Peter PortGuernseyGY1 3QLDavid Sauvarin, 01481 745 529, [email protected]Note to EditorsPicton is an income focused, internally managed Investment Company listed on the London Stock Exchange. Picton can invest both directly and indirectly in commercial property across the United Kingdom.With Net Assets of £393.1 million at 30 September 2015, the Company's objective is to provide shareholders with an attractive level of income, together with the potential for capital growth by investing in the principal commercial property sectors. www.picton.co.uk 

CHAIRMAN’S STATEMENT

Following a busy half year, I am pleased to be able to report on behalf of Picton another strong set of results for the six months to 30 September 2015, demonstrating our continued success on many fronts.

Financial Results

We have maintained positive momentum as we manage the property portfolio, which has resulted in strong growth in net assets that has been further enhanced by our use of debt.

The total profit for the period after tax was £31.9 million, comprising capital gains of £22 million with an income profit of £9.9 million, reflecting a total return of 8.7%. Our reported income profit is 41% ahead of the comparative figure for 2014, which can partly be attributed to the larger portfolio and the increased economies of scale resulting from our internal management structure. Dividend cover for the period was 112%, including the impact of our higher dividend which was effective from May this year.

Despite these strong returns, the share price performance has lagged over this period and currently the share price is at a small discount to the September net asset value.

Portfolio

The return from the property portfolio, as measured by MSCI IPD, was 7.3% for the period, outperforming the IPD Quarterly Benchmark, which was 6.9%.

The portfolio is now valued at £615 million, an increase of 14% from the reported figure at 31 March 2015. We have continued to reshape the portfolio - with a variety of leasing, acquisition and disposal activity - which is covered in more detail in the investment manager’s report. As a result of this activity, there has been a 12% increase in the average lot size of the portfolio.

Our occupier focused, opportunity led approach has enabled the asset management team to achieve considerable success managing the portfolio, resulting in valuation and income growth, and maintaining occupancy at 95%, well ahead of the IPD Monthly Index, at 91%.

We made four acquisitions during the half year, investing over £54 million in high quality assets, with average income longevity of more than five years and an initial yield of 7.7%. They will contribute positively to net income and dividend cover in the future, once the income is fully reflected. These acquisitions used the remaining proceeds from the Placing Programme, which closed in March 2015.

Financing

As I have stated previously, we believe that it is appropriate for Picton to operate with mid-cycle gearing in the range of 30% to 35%. Our current gearing is at 35%, down from 43% a year ago, and this reflects our view that we are still at a mid-point in the property investment cycle.

Occupier demand appears to be improving in most areas and we believe this, combined with rental growth, will continue to provide positive momentum for property values. There are undoubtedly sub sectors that are moving faster or slower than the average, but overall we are comfortable with our strategy to reduce gearing as we progress through the cycle.

In our view, gearing is key to maintaining financial flexibility, giving us the ability to act quickly and decisively as and when opportunities arise. To enable this, we intend to maintain our revolving credit facility as a core component of our financing strategy going forward.

Corporate Governance

There have been two changes to the composition of the Board since I last reported to you in June. Trevor Ash has retired following ten years of service, and, along with my other Board colleagues, I would like to thank him for his considerable contribution over that period.

Also, Michael Morris has been appointed as a non-executive director, alongside his existing role as chief executive of Picton Capital Limited, the Group’s wholly-owned investment manager. Recognising his position, it is our current intention that he will not join any of the Board Committees, nor be involved with reviewing the performance of, and contractual arrangements with, the investment manager.

I would like to thank our shareholders on behalf of the Board for passing all the resolutions at the Annual General Meeting on 12 November 2015.

Outlook

We remain positive about our outlook, but are mindful of potential external risks to the property market, such as the threat of sharply rising interest rates, although unlikely in the short-term. With long-dated bond yields currently close to 2% and property yields at 5%, there remains a healthy premium in favour of the real estate sector, which has the additional advantage of income growth potential.

Our internalised management model, generating economies of scale through growth, ensures alignment with shareholders’ interests and this will help ensure that Picton continues to meet and indeed exceed investor expectations. 

Nicholas Thompson

Chairman

17 November 2015

INVESTMENT MANAGER’S REPORT

At 30 September 2015, the portfolio comprised 58 assets valued at £614.9 million, reflecting a net initial yield, based on contracted net income, of 6.1%. The estimated rental value of the portfolio was £44.5 million, with a net reversionary yield of 6.9%. The sector and geographic weightings are set out below.

Annual income above represents the contracted rent passing at the Balance Sheet date and therefore excludes leases in rent free periods. At 30 September 2015, £1.5 million of annual income was in rent free periods.

As at 30 September 2015, based as a percentage of current annual income, the weighted average lease length to first termination was 6.0 years.

Top Ten Assets

The largest assets in the portfolio as at 30 September 2015, ranked by capital value, represent 47% of the total portfolio valuation and are detailed below:

A full portfolio listing is available on the Company’s website, www.picton.co.uk.

Top Ten Occupiers

The top ten occupiers, based as a percentage of annualised contracted rental income, after lease incentives, as at 30 September 2015, are summarised below:

Market Overview

UK GDP is estimated to have increased by 0.5% in the third quarter of the year and is 6.4% higher than the pre-economic downturn peak in 2008. The unemployment rate at the end of September was at its lowest rate since 2008, at 5.3%.

Growth in the UK economy, now positive for eleven consecutive quarters, coupled with improving employment and a low supply of suitable space, has helped drive rental growth. Yield compression is stabilising across the market and rental growth is expected to play a larger role in capital value growth going forwards.

According to MSCI IPD, All Property total returns for the six months to September 2015 were 7.2%, which comprised capital growth of 4.3% and an income return of 2.8%. IPD All Property capital values in September 2015 were 22.1% below their peak in June 2007, which compares to March 2015 when values were 25% below their peak.

Capital values in the office sector grew by 7.2%, industrial by 6.0% and retail by 1.5%. In the six months to September 2015, only one of the 37 IPD Segments recorded negative capital movements, compared to four in the six months to March 2015.

Overall rents grew by 2.4% in the six months to September 2015. Rents in the office sector grew by 4.6%, industrials by 2.5% and retail by 0.4%. In the six months to September 2015, six of the 37 IPD Segments recorded negative rental movements compared to 11 in the six months to March 2015.

In September 2015, capital growth and rental growth were strongest in segments outside of London, compared to March 2015 where they were strongest in central London segments.

The IPD Index in September 2015 had an occupancy rate of 90.6%, lower than the 91.5% recorded in March 2015.

Review of half year to September 2015

Our core focus remains on enhancing both income and value within the property portfolio. This is achieved by maintaining and growing income, reducing costs and completing business plans to add value through active management.

In the six months to September 2015, the property portfolio delivered a total return of 7.3%, outperforming the IPD Quarterly Benchmark total return of 6.9%. This comprised 3.1% income return and 4.1% capital growth. Offices were the best performing sector, driven by central London, followed by industrial and then retail.

Annual contractual income, including the impact of acquisitions, new lettings and the expiry of rent free periods, grew by 16.5% to £40.3 million. Rental values grew by 1.3% on a like-for-like basis and stood at £44.5 million as at 30 September 2015.

During the period, we concluded 17 lettings, adding £1 million per annum after incentives, which was on average 2% ahead of the estimated rental value. The occupancy rate was maintained at 95%.

Seven leases were renewed securing £0.4 million per annum, which is on average 6% ahead of the preceding estimated rental value. £0.1 million per annum in additional income was secured from 13 rent reviews, the combined settlements being 13% ahead of the preceding estimated rental value and 21% ahead of the preceding passing rent.

Two occupier break options were removed securing income of £0.1 million per annum and six leases were surrendered to facilitate asset management initiatives.

Four properties were acquired, including two multi-let office buildings in Chatham and Glasgow, a single-let retail warehouse in Sheffield and a further unit at Angel Gate, London EC1, consolidating our ownership at that property. On purchase these assets provided, on average, a net initial yield of 7.7%, a lease length of 5.6 years and a lot size of £13.0 million. The purchases reflect our strategy of buying larger lot sizes where we see opportunities to add value. A non-income producing property in Swindon was sold for £4.8 million and a non-core property in Southampton for £1.5 million, before costs, which when combined were 11% ahead of the March 2015 valuation and 40% ahead of the September 2014 valuation. Details of these transactions are reported below. 

Portfolio valuation growth, combined with the above acquisition activity, led to a 12% increase in the average lot size to £10.6 million. 

Industrial portfolio

Key Metrics

The industrial portfolio remains well let, with only 13 vacant units, reflecting 95% occupancy. The distribution units remain fully let and the focus has been on the multi-let industrial estates, as outlined below. There were no acquisitions or disposals during the period.

Two rent reviews were settled at Datapoint, London E16, securing a combined uplift of £67,600 per annum. The overall uplift was 25% ahead of the previous passing rent and 21% ahead of the preceding estimated rental value.

At River Way in Harlow, which remains fully let, we removed a tenant break clause for a nominal incentive, securing £57,700 per annum until September 2021, which is subject to review next year. In addition, we secured a 16% uplift in rent at a February 2015 rent review, increasing the rent to £169,600 per annum. This uplift was 6% ahead of the preceding estimated rental value.

At Parkbury, Radlett, we renewed one lease for a further five years, increasing the previous passing rent by 5% to £103,800 per annum, or 3% ahead of the preceding estimated rental value. In addition, we completed a long outstanding rent review, which pre-dated our ownership of the estate, achieving a 2% uplift on the passing rent, to £85,200 per annum. There is currently one vacant unit at this property, which is being refurbished.

Following the refurbishment of three units at Dencora Way in Luton, we have let two of these for a combined annual income of £102,600, which was 6% ahead of the preceding estimated rental value. In another transaction at this property, we removed a tenant break clause securing £53,500 per annum for another five years. This transaction was 11% ahead of the preceding estimated rental value. At a further unit, we settled a March 2015 rent review securing £54,000 per annum. The new rent is 43% ahead of the previous passing rent and 10% ahead of the preceding estimated rental value.

The largest industrial void is at Lyon Business Park in Barking, where we have just completed the refurbishment of four units, with a combined rental value of £300,000 per annum. The reconfigured units present extremely well and one has been let following the period end, at 22% ahead of the September estimated rental value. 

Office portfolio

Key Metrics

Central London offices continue to perform extremely well, with refurbished space letting quickly and rental growth continuing. However, it is the regional portfolio where we have had a noticeable improvement in occupational demand which has culminated in a number of lettings.

We have made three office acquisitions in the period, including a consolidation of an existing holding.

Two attractive and well specified modern buildings of 35,000 sq ft and 51,000 sq ft respectively in Chatham, Kent were acquired for £19.1 million, reflecting a net initial yield of 8.6% and a low capital value of £220 per sq ft. The offices are fully let, with an average rent of £20 per sq ft.

A prime office building in Glasgow was acquired for £14.25 million, reflecting a net initial yield of 7.8%. 180 West George Street provides 52,100 sq ft of office accommodation over basement, ground and six upper floors and is located in the heart of Glasgow's central business district. It is fully let with the average rent under £23 per sq ft. The weighted average unexpired lease term is two years, which provides us the opportunity to extend leases and, where we know space is being vacated, refurbish and re-let at higher rents.

As part of an ongoing estate strategy, the long leasehold interest at Unit 12 Angel Gate, London EC1 was acquired for £1.1 million, reflecting a capital value of approximately £350 per sq ft. The unit comprises 3,200 sq ft and was approximately 70% occupied. The passing rent was £46,000 per annum and we have already leased the vacant space, which has increased annual income by £27,000, effectively increasing the running yield to 6.0%, with a reversionary yield of 7.5%.

In respect of these acquisitions, we have identified a number of asset management initiatives which are in hand and we expect to deliver value in the short to medium term.

Two non-core assets were sold during the period for gross proceeds of £6.3 million, reflecting a yield of 2.0%. Planning permission was received in February for a food store and residential scheme at Westlea Campus in Swindon. The redundant office buildings were demolished and the site was sold to Aldi and Bellway Homes for 11% ahead of the March 2015 valuation. At 8-9 College Place, Southampton we let the vacant ground floor suite in January at 38% ahead of the estimated rental value and subsequently sold the property for 11% ahead of the March 2015 valuation.

At Stanford House in Covent Garden, where an office occupier had vacated in March, we re-let the suite for a term of three years at £139,000 per annum, an increase on the previous passing rent of 69%, and 28% ahead of the estimated rental value. The expiry of the shorter-term lease is similar to other office leases at the property and provides future flexibility in respect of alternative use options. In addition, we also applied for and received planning permission for an enhanced, larger residential scheme in respect of the upper parts.

At Boundary House, London EC3, we completed a Rights of Light settlement receiving £575,000 from the developer of an adjoining property. We are also negotiating an additional claim on another nearby development, which we expect to settle shortly. Both settlements provide us with reciprocal rights, in perpetuity, to redevelop Boundary House.

In Fleet, where we own two linked office buildings on Ancells Business Park, we have completed a ten-year lease, subject to a break, with a serviced office provider with a stepped rent of up to £200,000 per annum, plus a profit share. One building has been refurbished as part of the transaction and offers Grade A space. An Agreement for Lease is in place on the second building, with the same occupier, and a lease will complete later in the year following completion of the refurbishment works.

As at 30 September, the largest void within the office portfolio is at Angel Gate, London EC1, where we are refurbishing three units. The combined estimated rental value is £450,000 and we are confident they will let quickly following completion of the works this year. 

Retail and Leisure portfolio

Key Metrics

The retail and leisure portfolio is almost fully let, with only two vacant units at this time. These are high street units with a combined rental value of £45,000 per annum.

During the period we made one new asset acquisition and no disposals.

We acquired a freehold retail warehouse in Sheffield for £17.7 million, reflecting a net initial yield of 6.6%. The property is well located close to Sheffield city centre in an established retail warehouse location. It was built in 2002 on a nine-acre site, comprising a 103,000 sq ft retail warehouse with a 40,000 sq ft outdoor garden centre, builder’s yard and 460 space car park. The property is leased in its entirety to B&Q plc for over 12 years, at a current annual rent of £1.24 million. This equates to a low overall rent of approximately £12 per sq ft, and is subject to review in 2017.

At Broadmead, Bristol, we have re-let the former Phones 4U unit, to Sally Salon Services, for a term of ten years, subject to a break, at a rent of £77,500 per annum. This is 5% ahead of the preceding estimated rental value.

Following a wider repositioning exercise at Regency Wharf, Birmingham, we have completed two lettings, and this has achieved full occupancy. We have let the ground floor unit to Karaoke Box, at an annual rent of £80,000, and the second floor unit to Rub Smokehouse, at a rent of £70,000 per annum, both of which were in line with the preceding estimated rental values.

Outlook

We remain positive in our outlook. We continue to provide space that meets occupiers’ needs which has enabled us to run the portfolio with occupancy levels well ahead of the market and continue to outperform the MSCI IPD Quarterly Benchmark.

Activity within the portfolio remains encouraging across all sectors, which is enabling us to push rents and extend income, which in itself is providing further opportunities for valuation improvement. Our strategy of reducing gearing through the cycle will continue and we remain comfortable with the current level.

Investment markets are in a much healthier position than for many years and liquidity has considerably improved. As with any asset price rises, the question remains about over-pricing. We believe with the benign interest rate environment, capital values will continue to be supported. Similarly, with a backdrop of improving occupational demand, limited supply and the emergence of rental growth, the property cycle, in particular outside of central London, still has some way to run.

We believe our portfolio strategy, being overweight to the better performing office and industrial sectors and maintaining a diversified income stream, remains appropriate for current market conditions. 

Picton Capital Limited17 November 2015

Statement of Principal Risks and UncertaintiesThe Company’s assets comprise direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general and its investment properties. Other risks faced by the Company include economic, investment and strategic, regulatory, management and control, operational, and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading ‘Risk Management’ within the Strategic Report in the Company’s Annual Report for the year ended 31 March 2015. The Company’s principal risks and uncertainties have not changed materially since the date of that report.

Statement of Going ConcernThe Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis in preparing the financial statements.

Statement of Directors’ Responsibilities in Respect of the Interim ReportWe confirm that to the best of our knowledge:

a) the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;

b) the Chairman’s Statement and Investment Manager’s Report (together constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties above include a fair review of the information required by the Disclosure and Transparency Rules (‘DTR’) 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year, a description of principal risks and uncertainties for the remaining six months of the year, and their impact on the condensed set of consolidated financial statements; and

c) the Chairman’s Statement together with the condensed set of consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.By Order of the Board

Robert SinclairDirector

17 November 2015

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the half year ended 30 September 2015

The total column of this statement represents the Group’s Condensed Consolidated Statement of Comprehensive Income. The supplementary income return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. 

All income is attributable to the equity holders of the Company. There are no minority interests. Notes 1 to 15 form part of these condensed consolidated financial statements. 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Notes 1 to 15 form part of these condensed consolidated financial statements. 

CONDENSED CONSOLIDATED BALANCE SHEET

These condensed consolidated financial statements were approved by the Board of Directors on 17 November 2015 and signed on its behalf by:Robert SinclairDirectorNotes 1 to 15 form part of these condensed consolidated financial statements. 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Notes 1 to 15 form part of these condensed consolidated financial statements. 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2015

1. General information

Picton Property Income Limited (the “Company” and together with its subsidiaries the “Group”) was registered on 15 September 2005 as a closed ended Guernsey investment company.

The financial statements are prepared for the period from 1 April to 30 September 2015, with unaudited comparatives for the period from 1 April to 30 September 2014. Comparatives are also provided from the audited financial statements for the year ended 31 March 2015.

The financial information for the year ended 31 March 2015 is derived from the financial statements delivered to the UK Listing Authority and does not constitute statutory accounts.

2. Significant accounting policies

These financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the financial statements of the Company as at and for the year ended 31 March 2015.

The accounting policies applied by the Company in these financial statements are the same as those applied by the Company in its financial statements as at and for the year ended 31 March 2015.

The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the IASB. There have been no significant changes to management judgement and estimates.

3. Revenue from properties

Rents receivable includes lease incentives recognised of £0.7 million (30 September 2014: £0.3 million, 31 March 2015: £1.2 million).

4. Property expenses

5. Operating segments

The Board is charged with setting the Company’s investment policy and strategy in accordance with the Company’s investment restrictions and overall objectives. The key measure of performance used by the Board to assess the Group’s performance is the total return on the Group’s net asset value. As the total return on the Group’s net asset value is calculated based on the net asset value per share calculated under IFRS as shown at the foot of the Balance Sheet, assuming dividends are re-invested, the key performance measure is that prepared under IFRS. Therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the opinion that the Group, through its subsidiary undertakings, operates in one reportable industry segment, namely real estate investment, and across one primary geographical area, namely the United Kingdom and therefore no segmental reporting is required. The portfolio consists of 58 commercial properties, which are in the industrial, office, retail, retail warehouse, and leisure sectors.

6. Dividends

The interim dividend of 0.825 pence per ordinary share in respect of the period ended 30 September 2015 has not been recognised as a liability as it was declared after the period end. A dividend of £4,455,000 will be paid on 30 November 2015.

7. Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period. The following reflects the profit and share data used in the basic and diluted profit per share calculation: 

8. Fair value measurements

The fair value measurement for the financial assets and financial liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. The fair value of the zero dividend preference shares issued by the Group is included in level 1.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group’s secured loan facilities, as disclosed in note 10, are included in level 2.

Level 3: unobservable inputs for the asset or liability. The fair value of the Group’s investment properties is included in level 3.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. There were no transfers between levels for the period ended 30 September 2015.

The fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.

The Group’s financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2015.

9. Investment properties

The fair value of investment properties reconciles to the appraised value as follows:

As at 30 September 2015, all of the Group’s properties are level 3 in the fair value hierarchy as it involves the use of significant inputs and there were no transfers between levels during the period. 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, i.e. derived from prices).

The investment properties were valued by CBRE Limited, Chartered Surveyors, as at 30 September 2015 on the basis of fair value in accordance with the RICS Valuation – Professional Standards (2014). There were no significant changes to the valuation process, assumptions and techniques used during the period, further details on which were included in note 14 of the consolidated financial statements of the Group for the year ended 31 March 2015.

The Group’s borrowings (note 10) are secured by a first ranking fixed charge over the majority of investment properties held.

10. Loans and borrowings

In 2012, the Group entered into loan facilities with Canada Life Limited and Aviva Commercial Finance Limited for £113.7 million and £95.3 million respectively. The facility with Canada Life has a term of 15 years, with £33.7 million repayable on the tenth anniversary of drawdown. The Aviva facility has a term of 20 years with approximately one third repayable over the life of the loan in accordance with a scheduled amortisation profile.

The fair value of the secured loan facilities at 30 September 2015, estimated as the present value of future cash flows discounted at the market rate of interest at that date, was £221.6 million (30 September 2014: £197.7 million, 31 March 2015: £224.9 million). The fair value of the secured loan facilities is classified as level 2 under the hierarchy of fair value measurements.

The Group has 22,000,000 zero dividend preference shares (ZDPs) in issue. These accrue additional capital at a rate of 7.25% per annum, resulting in a final capital entitlement at maturity of 132.3 pence per share. The fair value of the ZDPs at 30 September 2015, based on the quoted market price at that date, was £28.0 million (30 September 2014: £27.7 million, 31 March 2015: £27.7 million). The fair value of the ZDPs is classified as level 1 under the hierarchy of fair value measurements.

The weighted average interest rate on the Group’s borrowings as at 30 September 2015 was 4.57% (30 September 2014: 4.52%, 31 March 2015: 4.56%).

11. Share capital

The Company has 540,053,660 ordinary shares in issue of no par value (30 September 2014: 439,191,763, 31 March 2015: 540,053,660).

The balance on the Company’s share premium account as at 30 September 2015 was £157,449,000 (30 September 2014: £91,078,000, 31 March 2015: £157,313,000).

12. Adjustment for non-cash movements in the cash flow statement

13. Net asset value

The net asset value per ordinary share is based on net assets at the period end and 540,053,660 (30 September 2014: 439,191,763, 31 March 2015: 540,053,660) ordinary shares, being the number of ordinary shares in issue at the period end.

At 30 September 2015, the Company had a net asset value per ordinary share of £0.73 (30 September 2014: £0.62, 31 March 2015: £0.69). 

14. Related party transactions

The total fees earned during the period by the five Directors of the Company were £121,000 (30 September 2014: £101,000, 31 March 2015: £212,000). As at 30 September 2015 the Group owed £nil to the Directors (30 September 2014 and 31 March 2015: £nil).

Picton Property Income Limited has no controlling parties.

15. Events after the balance sheet date

A dividend of £4,455,000 (0.825 pence per share) was approved by the Board on 19 October 2015 and payable on 30 November 2015.

The Group has completed on the disposal of one property since 30 September 2015 for proceeds of £3.3 million.

INDEPENDENT REVIEW REPORT TO PICTON PROPERTY INCOME LIMITED (The “Company”)

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Half Year Report for the six months ended 30 September 2015 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilitiesThe Half Year Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this Half Year Report has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’.Our responsibilityOur responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half Year Report based on our review.Scope of reviewWe conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.ConclusionBased on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Year Report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FCA.Neale D JehanFor and on behalf of KPMG Channel Islands LimitedChartered AccountantsGuernsey17 November 2015