Half Yearly Report

RNS Number : 2997N

Picton Property Income Limited

31 August 2011

 



31 August 2011

Picton Property Income Limited

Half Year Results

("Picton" or the "Company")

Picton (LSE: PCTN), the investment company with an income focussed approach to the UK commercial property market, announces its half year results for the six months ended 30 June 2011.

FINANCIAL HIGHLIGHTS

·      Increase in Net Asset Value to £208.9 million (31 December 2010: £206.9 million)

·      Increase in NAV per share to 61 pence (31 December 2010: 60 pence; 30 June 2010: 59 pence)

>   EPRA adjusted NAV per share 63 pence (31 December 2010: 63 pence, 30 June 2010: 63 pence)

·      Rental income increased to £15.6 million (30 June 2010: £14.5 million)

·      Pre-tax profit of £9.2 million (30 June 2010: £20.8 million)

·      Earnings per share of 2.6 pence (30 June 2010: 6.0 pence)

>   EPRA earnings per share of 1.6 pence

·      Dividends paid of £6.9 million (30 June 2010: £6.6 million)

·      Gearing at 46.0% (31 December 2010: 46.6%)

OPERATIONAL HIGHLIGHTS

·      20 new lettings in the period, adding £396,000 per annum

·      12 lease renewals, totalling £389,000 per annum

·      Six rent reviews, adding £40,000 per annum

·      Completed refurbishment of 50 Farringdon Road, London, EC1

>   post period end let 25,300 sq ft (75%) to Trainline.com Limited at £835,000 per annum

·      Annualised rent roll increased to £31.3 million at period end, increasing to £32.2 million following letting of 50 Farringdon Road

·      Occupancy rate at 90%, increasing to 93%, above industry average, following letting of 50 Farringdon Road

·      Four asset disposals for a total consideration of £2.9 million in line with valuation

·      £0.4 million of RBS debt repaid

>   further £1.8 million paid since period end

·      Change of name to Picton Property Income Limited with a new LSE ticker: PCTN

·      Creation of wholly owned management subsidiary, Picton Capital Limited, and good progress made with the internalisation

·      Picton Capital Limited received formal approval from the FSA to become authorised and regulated

·      Agreement reached with existing Manager and key staff that they will transfer across on 1 January 2012

·      Possible offer for Invista Foundation Property Trust Limited announced on 19 August 2011, further announcements when appropriate

	Six Months to 30 June 2011	Year ended 31 Dec 2010	Six Months to 30 June 2010
Net asset value per share	61 pence	60 pence	59 pence
Net asset value	£208.9 million	£206.9 million	£203.0 million
EPRA net asset value per share1	63 pence	63 pence	63 pence
EPRA net initial yield2	6.6%	6.9%	6.8%
EPRA topped up net initial yield3	6.7%	7.2%	7.2%
Pre-tax profit including unrealised gains	£9.2 million	£31.9 million	£20.8 million
Earnings per share	2.6 pence	9.3 pence	6.0 pence
EPRA earnings per share4	1.6 pence	4.3 pence	2.7 pence
Gearing5	46.0%	46.6%	46.0%
Dividends paid	£6.9 million	£13.5 million	£6.6 million

1      EPRA (European Public Real Estate Association) NAV per share ignores mark to market swap liability or gains.

2      EPRA NIY deducts non-recoverable property operating expenses.

3      EPRA 'topped up' NIY deducts non-recoverable property operating expenses and includes annualised cash rents applied at the expiry of rent free periods.

4      EPRA  earnings per share excludes capital gains/(losses) during the period.

5      Calculated as total debt less cash deposits as a proportion of the property asset value.

Picton Chairman, Nicholas Thompson, commented: "Our income focussed approach, combined with active management, appears to be the right strategy for current market conditions.  The markets in which we are operating continue to remain subdued, but fundamentally we have good quality assets for which we are maintaining, and indeed improving, occupancy levels which will, in turn, enhance our underlying cashflow and drive Net Asset Value growth.

"Having made significant progress internalising our management, we are on track, by the end of the year, to achieving a major step in our goal of creating a company that is truly aligned with the interests of its shareholders."

Enquiries:

Oriel Securities Limited	Tavistock Communications
Nicholas How	Jeremy Carey
Neil Winward	James Verstringhe
Neil Langford	020 7920 3150
020 7710 7600

Notes to Editors

Picton Property Income Limited ("Picton")*, a closed-end Investment Company listed on the London and Channel Islands Stock Exchanges, was established in 2005 to invest both directly and indirectly in commercial property across the United Kingdom.

With a Net Asset Value of GBP 209 million at 30 June 2011 and over 850 investors, 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.

On the 1 January 2012 the Company will become a self managed property investment company with Picton Capital Limited, a wholly owned subsidiary of Picton Property Income Limited, taking over investment management from ING REIM UK Limited.

*Picton Property Income Limited changed its name from ING UK Real Estate Income Trust Limited on 1 June 2011.

Picton Property Income Limited

Half Yearly Financial Report - 30 June 2011

GROUP SUMMARY

Picton Property Income Limited (formerly ING UK Real Estate Income Trust Limited) ("Picton" or "the Company") is a closed-ended, Guernsey registered investment company, launched on the London and Channel Islands' Stock Exchanges on the 25 October 2005. With approximately 850 investors, the Company, together with several subsidiaries including a Guernsey unit trust ("the GPUT"), four Jersey unit trusts ("the JPUTs"), which beneficially hold title to the properties, comprise "the Group".

GROUP OBJECTIVE

The Group aims to provide shareholders with an attractive level of income together with the potential for capital growth. It can invest both directly and indirectly in an investment portfolio comprising UK, Isle of Man and Channel Islands properties. The Group's focus is on five principal commercial property sectors: office, retail, retail warehouse, industrial and leisure.  Maximum borrowings are limited to 65% of gross assets. 

The investment portfolio is currently managed by ING Real Estate Investment Management (UK) Limited but with effect from 1 January 2012, will become self managed using a wholly owned subsidiary, Picton Capital Limited.

FINANCIAL HIGHLIGHTS

·      Increase in Net Asset Value to £208.9 million (31 December 2010: £206.9 million)

·      Increase in NAV per share to 61 pence (31 December 2010: 60 pence; 30 June 2010: 59 pence)

>   EPRA adjusted NAV per share 63 pence (31 December 2010: 63 pence, 30 June 2010: 63 pence)

·      Rental income increased to £15.6 million (30 June 2010: £14.5 million)

·      Pre-tax profit of £9.2 million (30 June 2010: £20.8 million)

·      Earnings per share of 2.6 pence (30 June 2010: 6.0 pence)

>   EPRA earnings per share of 1.6 pence

·      Dividends paid of £6.9 million (30 June 2010: £6.6 million)

·      Gearing at 46.0% (31 December 2010: 46.6%)

OPERATIONAL HIGHLIGHTS

·      20 new lettings in the period, adding £396,000 per annum

·      12 lease renewals, totalling £389,000 per annum

·      Six rent reviews, adding £40,000 per annum

·      Completed refurbishment of 50 Farringdon Road, London, EC1

>   post period end let 25,300 sq ft (75%) to Trainline.com Limited at £835,000 per annum

·      Annualised rent roll increased to £31.3 million at period end, increasing to £32.2 million following letting of 50 Farringdon Road

·      Occupancy rate at 90%, increasing to 93%, above industry average, following letting of 50 Farringdon Road

·      Four asset disposals for a total consideration of £2.9 million in line with valuation

·      £0.4 million of RBS debt repaid

>   further £1.8 million paid since period end

·      Change of name to Picton Property Income Limited with a new LSE ticker: PCTN

·      Creation of wholly owned management subsidiary, Picton Capital Limited, and good progress made with the internalisation

·      Picton Capital Limited received formal approval from the FSA to become authorised and regulated

·      Agreement reached with existing Manager and key staff that they will transfer across on 1 January 2012

·      Possible offer for Invista Foundation Property Trust Limited announced on 19 August 2011, further announcements when appropriate

	Six Months to 30 June 2011	Year ended 31 Dec 2010	Six Months to 30 June 2010
Net asset value	£208.9 million	£206.9 million	£203.0 million
Net asset value per share	61 pence	60 pence	59 pence
Dividends paid	£6.9 million	£13.5 million	£6.6 million
Net income for the period/year	£5.3 million	£14.2 million	£9.0 million
Pre-tax profit including unrealised gains	£9.2 million	£31.9 million	£20.8 million
Earnings per share	2.6 pence	9.3 pence	6.0 pence
Gains/(losses) on interest rate swaps	£1.8 million	£(1.6) million	£(4.0) million
Gains on revaluation of portfolio	£1.9 million	£10.2 million	£7.2 million
Gearing 1	46.0%	46.6%	46.0%
Share price	51.2 pence	53.5 pence	47.5 pence
EPRA earnings per share 2	1.6 pence	4.3 pence	2.7 pence
EPRA net asset value per share 3	63 pence	63 pence	63 pence
EPRA net initial yield 4	6.6%	6.9%	6.8%
EPRA topped up net initial yield 5	6.9%	7.2%	7.2%
EPRA vacancy rate 6	10%	10%	9%
EPRA NNNAV 7	61 pence	60 pence	59 pence

1  Calculated as total debt less cash deposits as a proportion of the property asset value.

2  EPRA (European Public Real Estate Association) earnings per share excludes capital gains/(losses) during the period.

3  EPRA NAV ignores mark to market swap liability or gains.

4  EPRA NIY deducts non-recoverable property operating expenses.

5  EPRA 'topped up' NIY excludes non-recoverable property operating expenses and includes annualised cash rents applied at the expiry of rent free periods.

6  EPRA Vacancy Rate calculated as ERV of vacant space over ERV of portfolio.

7  EPRA NNNAV includes mark to market swap liabilities or gains.

Share Price, Net Asset Value & Dividend Cover From Inception

Quarter	Share Price (P)	NAV per Share (P)	Dividend Cover
Q4 2005	108.2	105	-
Q1 2006	120.2	110	-
Q2 2006	114.7	117	-
Q3 2006	122.5	123	-
Q4 2006	118	126	126%
Q1 2007	121	129	-
Q2 2007	106.3	133	-
Q3 2007	101.5	124	-
Q4 2007	69.5	112	89%
Q1 2008	69	102	-
Q2 2008	47.5	97	-
Q3 2008	46	84	-
Q4 2008	22.5	64	95%
Q1 2009	19	52	-
Q2 2009	29.5	49	-
Q3 2009	42.5	49	-
Q4 2009	53.7	55	121%
Q1 2010	48	56	-
Q2 2010	47.5	59	-
Q3 2010	45.5	59	-
Q4 2010	53.5	60	105%
Q1 2011	53	61	-
Q2 2011	51.2	61	-

 Dividend cover is expressed as the annual total income profit as a percentage of dividends paid.

Chairman's Statement

The Company has seen considerable activity over the last six months, set against a backdrop of a relatively flat UK commercial property market.

At a corporate level, we have made good progress with our strategy of becoming a self managed Investment Company.  This has included the transformation to Picton from ING UK REIT and the creation of a wholly owned Investment Management subsidiary, Picton Capital Limited.

Led by Michael Morris and Andrew Dewhirst, Picton Capital Limited has now received formal approval from the FSA to become authorised and regulated.  In addition, the Company has now secured the services of the majority of key staff working on this account at the existing Manager, who will transfer across on 1 January 2012.  This will provide the Company with proven, skilled and experienced professionals in both its real estate and finance positions.

We have also started to progress the Company's refinancing plans and have been encouraged by the feedback received from both existing and potential new lenders. These discussions indicate that despite the pressures within the debt market the Company is fortunate to be refinancing a portfolio which has a diverse range of assets, low loan to value ratio and high interest cover, which would be attractive to third party debt providers.

Despite a limited momentum in UK property values, we have seen positive growth in the property portfolio over the period.  It is particularly pleasing that I am able to report a significant letting at our Farringdon asset, which was the largest void in the portfolio and which has significantly enhanced our income position following the period end.

There have also been a range of portfolio initiatives undertaken during the period to enhance income and maintain values, alongside continued progress with our asset sales and debt reduction plan.  We are now in a position where 10 disposals have been made following our acquisition last year of Rugby REIT at prices in excess of the apportioned value paid, with the remaining assets contributing positively to overall Company performance.

Our income focused approach, combined with active management, appears to be the right strategy for current market conditions.  The markets in which we are operating continue to remain subdued, but fundamentally we have good quality assets for which we are maintaining, and indeed improving, occupancy levels which will, in turn, enhance our underlying cashflow and drive Net Asset Value growth.

On 19 August 2011, the Company announced that it was in discussions concerning a possible offer for Invista Foundation Property Trust Limited. The Board will make a further announcement when appropriate.

I look forward to updating shareholders on this and the various other initiatives that the Company is pursuing during the remainder of this year.

Nicholas Thompson

Chairman

30 August 2011

Responsibility Statement

We confirm to the best of our knowledge:

(a)        the condensed set of Financial Statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b)        the interim Investment Manager's Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)        the interim Investment Manager's Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Nicholas Thompson

Investment Manager's Report

ECONOMIC OVERVIEW

For the second quarter of 2011 economic growth was measured at 0.2% (quarter-on-quarter), which was weaker than expected and negatively impacted by the extended Bank Holiday/Royal Wedding period and the Japanese tsunami. Recent data (e.g. weakening PMI lead indicators) suggests that the UK's soft economic patch is likely to be more prolonged than previously thought. The hope that corporate activity can offset weakness in household and government spending is yet to materialise. This has negative implications for a broad UK property market rental recovery, although central London, where tight supply conditions give support for rental uplifts, is likely to be a notable exception.

CPI inflation is likely to rise further in the next few months and, given the preannounced increases in utility bills (15-20%), CPI is likely to be pushed above 5% in the near term. However, with energy and food commodity prices appearing to be topping out, worries about lower global activity set to dampen input costs and this year's VAT hike dropping out of the annual comparison, we expect inflation to drop back sharply next year. Real (inflation adjusted) wages turning positive in 2012 for the first time in four years gives some hope for the consumer sector and thus retail rents in 2013 and beyond.

While the US debt crisis appears to have eased for now, concerns about the ongoing crisis in the Eurozone escalate. While the UK is currently seen as a safe haven (10 year gilt yields fell below 2.5% in early August), mainland European countries are by far our largest trade partners and this still has major ramifications for the UK economic growth outlook. Given these uncertainties, we have pushed back our expectations for the first Bank of England rate increase until the second half of 2012 and reduced the pace of tightening thereafter. Providing rental growth does not suffer a double dip, low rates for a more prolonged period have beneficial implications for property pricing (yields) in the short term.

PROPERTY MARKET REVIEW

According to the IPD Monthly Index, the UK property market achieved a total return for the first six months of the year of 4.4% (9.0% on an annualised basis), of which 3.4% (6.9% annualised) came from income and 1.0% (2.0% annualised) from capital growth.

On a sector basis, the strongest returns were recorded in the office market of 4.7% in the first six months of the year, compared to 4.3% and 3.9% for retail and industrial respectively. The out-performance of offices was the result of a boost from the central London market where a lack of Grade A accommodation continues to drive rents upwards.

The occupier market remains subdued in all markets outside central London and is expected to remain so in the short term, with the worst prospects being in those locations with a high exposure to government job cuts.

Investors continue to seek property's high income return relative to gilts and equities, with the focus being on prime, secure, cash flows. However, this type of stock remains in very short supply. Transaction volumes in the second quarter of 2011 are expected to have been significantly lower (possibly as much as 50% less) than previous quarters.

UNDERLYING PERFORMANCE

At an underlying ungeared property level, as measured by IPD, the portfolio delivered a total return of 3.5%.  Consistent with the Company's objectives, the income return was 3.1%, marginally ahead of the benchmark.  Capital growth was 0.4%.

Over a longer term time horizon, on a rolling three and five year basis (the Manager's performance threshold), the underlying portfolio has exceeded its benchmark, delivering anannualisedtotal return of 1.2% and 0.7% respectively.

STRATEGY

The strategy falls into three sections: the ongoing management of the property portfolio, a successful handover to Picton Capital Limited at the end of the year and the debt refinancing - the majority of which is required by January 2013.

The portfolio strategy continues to primarily focus upon driving the income return from the underlying property portfolio, whilst maintaining and where possible improving capital values.

ING Real Estate Investment Management (UK) Limited is focused on the handover to Picton Capital Limited on 31 December 2011. A transition committee is in place and good progress is being made in all areas for the internalisation of the management.

The Group's zero dividend preference shares mature in October 2012 and other lending matures in January 2013. Whilst at an early stage, discussions with existing and potential lenders have been positive and this will continue to be a focus over 2011, in order to achieve an optimal solution to the refinancing of the Group's debt.

REVIEW OF HALF YEAR TO JUNE 2011

The focus in the first six months of the year related primarily to maintaining and growing the income from the property portfolio, through renewing and regearing leases and letting vacant space. Whilst growing the income is important, equally so is mitigating outgoings in terms of vacant property costs together with maximising the impact of capital expenditure on refurbishment projects.

The Group focused on keeping vacant property costs to a minimum and actively managed its business rate liabilities where refurbishments were being carried out, for example, 50 Farringdon Road, London saving over £140,000.

During the period, the Group completed 20 lettings adding £396,128 per annum following incentives, renewed 12 leases securing £388,585 per annum and completed six rent reviews with a combined uplift of £40,025 per annum. Three tenant break options were removed securing £105,933 per annum, two lease regears were completed with a combined rent roll of £310,000 per annum and one lease was surrendered for all outgoings until lease expiry in 2012, the tenant paying a premium of £164,476, allowing the Group to refurbish the office suite and mitigate void costs whilst retaining upside potential.

We continued to sell the smaller properties in the portfolio, where active management had been completed and this is detailed further below.  Following three sales post the period end we have now sold close to a third, by number, of the Rugby assets acquired in 2010, consistent with the original business plan at the time of acquisition. The majority of the sale proceeds have been used to repay debt.

OFFICES

The refurbishment of 50 Farringdon Road, London EC1 was completed in May and the building re-launched to the market. The property provides 32,000 sq ft of air-conditioned Grade A office space and is located adjacent to Farringdon Station, which is a planned Crossrail hub. Following the period end, a letting was completed to Trainline.com Limited of the first and second floors of the property on a new ten year lease with a break/rent review in year five at a rent, following incentives, of £835,296 per annum, slightly ahead of the estimated rental value.

LexisNexis's lease was surrendered at Tolley House in Croydon, which is located opposite East Croydon station. The 23,895 sq ft building will be refurbished to provide good quality office accommodation and the refurbishment is expected to complete by March 2012. The building is in a strong position in Croydon and we believe, once refurbished, it is well positioned to attract a tenant at a significantly higher rent than previously passing.

Following the refurbishment of part of Queens House, Glasgow last year, three lettings were completed at a combined rent of £25,418 per annum. We have also completed a letting at Angel Gate, London EC1 to a firm of solicitors on a new 10 year lease with a break option on the expiry of year five, paying £33,500 per annum. 

At the refurbished 28 Austin Friars, London EC2 a tenant exercised a July 2011 break option.  However, the Company was able to persuade the tenant to remain on a new five year lease, with a break option on the expiry of year three, at a rent of £42,540 per annum which equates to £33.00 per sq ft. This compares to the estimated rental value on purchase in April 2010 of £30,900 per annum (£24.00 per sq ft).

The new manager, Picton Capital Limited, relocated to the last vacant floor of this building during the period.

INDUSTRIAL

At Nonsuch Industrial Estate in Epsom, we have relocated an existing tenant into a smaller unit on a new three year lease at £12,000 per annum, with no rent free, which allowed us to relocate another existing tenant from a small starter unit to a large unit where they took a new five year lease at £29,000 per annum with no rent free. Also on this estate, we have completed two new lettings adding £43,000 per annum, following incentives, to the rent roll and renewed one lease at a rent of £15,000 per annum. Following the acquisition of this estate in April 2010, we have completed the installation of a CCTV system following discussions with the tenants, which we believe will make the estate even more attractive to occupiers.

In Harlow, where we relocated an existing tenant into a larger unit, we have completed the refurbishment of the two smaller units they moved from and have let one to Sims Engineering Limited on a new five year lease at a rent of £56,000 per annum. Just after the period end, we completed the letting of unit E, the third largest void in the portfolio, to Traxx Tyres Limited on a new 10 year lease, with a break/rent review at year five, at a rent of £190,000 per annum. We have interest in the last vacant unit on this estate and are in discussions with various tenants to regear leases, which we hope to report on in due course.

RETAIL

At the Crown & Mitre complex in Carlisle, on the back of a tenant break option we regeared Top Shop onto a new 10 year lease at a rent of £230,000 per annum following a 16 month rent free period. At the same property, we renewed the Specsavers lease for a term of 15 years, with a break on the expiry of year 10, at a rent of £63,500 per annum. Following an arbitration award, we have agreed the 2008 rent review on the Crown & Mitre hotel at a rent of £112,000 per annum, an uplift from £86,000 per annum.

Following lettings to Costa Limited and The Works Stores Limited on 10 year leases paying a combined rent of £77,000 per annum, the parade of shops on the High Street in King's Heath is now almost fully let. On the same parade, we achieved an uplift at the rent review on the Iceland supermarket, taking the rent from £67,000 per annum to £75,000 per annum.

ACQUISITIONS & DISPOSALS

No acquisitions have been made during the period and the Group has focused on selling the smaller properties in the portfolio, following the completion of active management, in line with the business plan following the corporate purchase of the Rugby REIT Plc.

Four assets were sold during the period , the details of which are as follows:

·          Accrington Trade Park, Accrington.  Following the letting of two vacant units to Eurocell Building Plastics Limited, the estate was fully let. The sale price was £1.275 million. 

·          119/121 High Street, Epsom.  A vacant shop was let to Cheque Centre Properties Limited, following which the property was fully occupied and was sold for £725,000. 

Two vacant properties were sold:  

·          Unit 2/3 Spur Road, Chichester, which required capital expenditure and was sold to an owner occupier for £485,000.

·          A standalone unit at Heron Industrial Estate in Reading was sold for £445,000.

Following the period end, unit 1 Spur Road, Chichester was sold along with properties in Basildon and Poole.  

All of these disposals were in line with valuation.

OCCUPANCY

The occupancy levels within the portfolio remain in line with the market as a whole (IPD Monthly Index 90%) and remained stable over the period at 90%.

DEBT

As at 30 June the Group had total borrowings of £222.5 million, excluding the liquidity facility, interest rate swaps and finance lease obligations.  Under IFRS, the fair value of the interest rate swaps is a liability of approximately £9.5 million, equivalent to 2 pence per share.

The borrowings are diversified between a mixture of securitised loan notes, zero dividend preference shares, bank loans and loan stock.  The majority of the debt is at fixed interest rates and as at 30 June 2011 the overall blended cost of debt was 4.75%.  Ensuring an optimal solution to the Group's refinancing, which is due within the next 14 months, remains a key objective. 

In respect of the two principal facilities the Group had the following debt covenants at the period end:

			Loan to Value		Interest Cover
			Actual	Covenant	Actual	Covenant
Securitised loan notes	£171.6 million		45.6%	60% (until Jan 2012 then 55% to July 2012 falling to 50% thereafter)	2.6 times	1.75 times
Royal Bank of Scotland facility	£20.1 million		35.6%	50%	3.2 times	2.0 times

Full details of the borrowings are included in Note 10 to the Financial Statements. 

As highlighted in the Chairman's Statement, the Group is currently reviewing its refinancing options and engaging with existing and prospective lenders ahead of its loan maturities in 2012/2013.

OUTLOOK

The UK economy is expected to remain subdued in the short term, with the fourth quarter of 2011 GDP growth forecast to be sub-trend at 1.4% per annum.  This is mainly due to the weakness in the consumer sector which continues to face negative real wage growth due to a high rate of inflation (currently 4.5%, CPI measure).  Other factors negatively impacting households are a soft housing market, fragile labour market and the impact of the Government's austerity measures. 

Prospects for 2012 are more optimistic, however, due to a sharp fall in inflation as the VAT rate increase of January 2011 falls out of the data and commodity prices rise by a lower amount than over the past year or so.  Consequently, we anticipate the resumption of positive real earnings growth in the next 12 months.  Increases in the Bank of England base rate are now expected to commence in the second half of 2012, and move up from their current low of 0.5% to 1.5% by the end of 2012.

In the occupier market, the strongest prospects are in the central London office market where the average vacancy rate is down to approximately 5%. This is more than low enough to sustain double digit rental growth. We anticipate that vacancy rates will continue to tighten in both the City and West End markets over the remainder of this year with positive implications for further rental growth.  Outside of central London, office market prospects are muted due to the large overhang of available space and, as a result, rents are expected to remain flat until 2013. 

The retail sector continues to struggle in the weak consumer environment.  Most severely affected will be secondary/tertiary high streets and shopping centres, especially those in locations most exposed to cuts in government employment and welfare benefits.  Prime locations, which have a full retail offer and can maintain footfall, alongside open A1 retail parks, will see rents hold up best in 2011 and possibly grow from 2012 onwards. 

Industrial sector rents are expected to see some further falls in the short term, with the exception of London estates.  In the regions, excess availability and the impact of government spending cuts, will continue to hamper rental growth; while the South East should fare a little better.  A structural lack of supply in London will continue to provide support for rental values which we expect to grow in line with inflation over the short to medium term. 

Over the first six months of the year, we have seen a pick up in activity and have completed lettings in regional markets such as Belfast, Birmingham and Glasgow. We believe this is fundamentally down to having the right stock in these markets and being able to offer flexible terms. Whilst the outlook for markets outside London is muted, the portfolio is well diversified to continue to provide a strong income return and proactive management is likely to be the driver of capital growth in the short term.

ING Real Estate Investment Management (UK) Limited

30 August 2011

Portfolio Analysis

Geographical

As at 30 June 2011 the regional weightings of the Property Portfolio, which comprised 68 assets, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
South East & Greater London	107,610	25.2
Central London	79,445	18.6
North	75,795	17.7
Midlands	70,879	16.6
Eastern	36,995	8.7
Wales	23,470	5.5
South West	19,920	4.7
Scotland	10,550	2.5
Northern Ireland	2,340	0.5
Total	427,004	100%

Sector

As at 30 June 2011 the sector weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:

	£000	% of Portfolio
Offices	149,830	35.1
Industrial	142,905	33.5
Retail	84,309	19.7
Retail Warehouse	30,825	7.2
Leisure/Other	19,135	4.5
Total	427,004	100%

Covenant Strength

Covenant strength data is produced by Investment Property Databank (IPD) in the form of an income credit rating.  This rating, based as a percentage of current passing rent, as at 30 June 2011, is summarised as follows:

	% of Portfolio
Negligible and Government risk	49.9
Low risk	26.9
Low-medium risk	3.6
Medium-high risk	3.1
High risk	3.2
Maximum risk	8.2
Ineligible/not matched	5.1
Total	100%

The Group held a total of £1.8 million of rental deposits at 30 June 2011.

Longevity of Income

As at 30 June 2011, based as a percentage of current net annual rent, the length of the leases to the first termination is summarised as follows:

Years	£000	%
Up to 5	15,311	48.9
5 to 10	9,852	31.4
10 to 15	2,829	9.0
15 to 25	2,429	7.8
25 and over	909	2.9
Total	31,330	100%

Top Ten Tenants

The top ten tenants, based as a percentage of current passing rent, as at 30 June 2011 is summarised as follows:

	% of Passing Rent
TNT UK Limited	9.0%
Tanfield Group Plc	3.2%
Cadence Design Systems Limited	3.1%
Menzies Hotels Property No.20 Limited	2.7%
Exel UK Limited	2.7%
BT Telecommunications Plc	2.4%
Edward Stanford Limited	2.1%
Asda Stores Limited	1.9%
Amcor Packaging UK Limited	1.7%
Exel Europe Limited	1.6%
Total	30.4%

Valuation Schedule as at 30 June 2011

Properties Valued in Excess of £20 million	Predominant Sector
Unit 5320, Magna Park, Lutterworth, Leics.	Industrial
Units A-G2, River Way Industrial Estate, Harlow, Essex	Industrial
Stanford House, 12-14 Long Acre, London WC2	Retail
Properties Valued Between £15 million and £20 million
Phase II, Parc Tawe, Link Road, Swansea	Retail Warehouse
Properties Valued Between £10 million and £15 million
Colchester Business Park, The Crescent, Colchester, Essex	Office
Boundary House, Jewry Street, London EC3	Office
Angouleme Way Retail Park, Bury, Greater Manchester	Retail Warehouse
50 Farringdon Road, London EC1	Office
1-3 Chancery Lane, London WC2	Office
56 Castle Street, 2/12 English Street and 12-21 St Cuthberts Lane, Carlisle, Cumbria	Retail
Angel Gate Office Village, City Road, London, EC1	Office
Vigo 250, Birtley Road, Washington, Tyne and Wear	Industrial
401 Grafton Gate East, Milton Keynes, Bucks.	Office
Properties Valued Between £5 million and £10 million
City Link House & Tolley House, Addiscombe Road, Croydon	Office
L'Avenir, Opladen Way, Westwick, Bracknell, Berks.	Office
Strathmore Hotel, Arndale Centre, Luton, Beds.	Leisure
Unit 3220, Magna Park, Lutterworth, Leics.	Industrial
17/19 Fishergate, Preston	Retail
53/55/57 Broadmead, Bristol	Retail
Units 1-13 Dencora Way, Sundon Park, Luton, Beds.	Industrial
Regency Wharf, Broad Street, Birmingham	Leisure
The Business Centre, Molly Millars Lane, Wokingham, Berks.	Industrial
Scots Corner, High Street/Institute Road, Birmingham	Retail
Westlea Campus, Chelmsford Road, Swindon, Wilts.	Office
Datapoint Business Centre, Cody Road, London, E16	Industrial
Northampton Business Park, 800 Pavillion Drive, Northampton	Office
Queens House, 17/29 St Vincent Place, Glasgow	Office
Lawson Mardon Buildings, Kettlestring Lane, York	Industrial
Nonsuch Industrial Estate, 1-25 Kiln Lane, Epsom, Surrey	Industrial
Waterside Park, Longshot Lane, Bracknell, Berks.	Office
78-80 Briggate, Leeds	Retail
Sentinel House, Ancells Business Park, Fleet, Hants.	Office
Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire	Industrial
Longcross Court, Newport Road, Cardiff	Office
Easter Court, Gemini Park, Warrington	Industrial
Zenith, Downmill Road, Bracknell, Berks.	Industrial

Properties Valued Under £5 million	Predominant Sector
Trident House, 42/48 Victoria Street, St Albans, Herts.	Office
Waterside House, Kirkstall Road, Leeds	Office
72/78 Murraygate, Dundee	Retail
6/12 Parliament Row, Hanley, Worcs.	Retail
Units 1-3, 18/28 Victoria Lane, Huddersfield, West Yorks.	Retail
28 Austin Friars, London EC2	Office
Atlas, Third Avenue, Globe Park, Marlow, Bucks.	Office
123 High Street, Guildford, Surrey	Retail
Heron Industrial Estate, Spencers Wood, Reading	Industrial
7 & 9 Warren Street, Stockport	Retail
Merchants House, Crook Street, Chester	Office
2/2a George Street, Richmond	Retail
Middleton Trade Park, Oldham Road, Manchester	Industrial
Magnet Trade Centre, Winnersh, Reading	Industrial
Abbey Business Park, Mill Road, Newtownabbey, Belfast	Industrial
2 Bath Street, Bath	Retail
8-9 College Place, Southampton	Office
Thistle Hotel, Unit 1 & Le Pavilion, Brighton	Leisure
Highgrove Industrial Estate, Quatremaine Road, Portsmouth	Industrial
Nuffield Industrial Centre, Nuffield Road, Poole*	Industrial
113 High Street, Sutton	Retail
Marshall Building,122-124 Donegall Street, Belfast	Office
Manchester Road/Drury Lane, Oldham, Lancs.	Industrial
Churchfields Industrial Estate, St. Leonards-on-Sea, Sussex**	Industrial
BT Unit, Eagle Trading Estate, Blackpool	Industrial
6 Argyle Street, Bath	Retail
Unit 1 Spur Road, Quarry Lane, Chichester*	Industrial
3 Lower Borough Walls, Bath	Retail
Cloisters, Orchard Street, Dartford	Office
10 Margaret Street, Canterbury, Kent	Retail
Winston Business Centre, Lancing, Sussex	Industrial
Repton Court, 12 Burnt Mills Industrial Estate, Basildon, Essex*	Industrial

*    Completed sales following the period end.

**   Exchanged contracts for sale following the period end.

Risk Management

There are a number of potential risks and uncertainties, which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from expected and historic results.

The main risks and how they are mitigated are summarised below:

Issue	Risk	Mitigation
Market risk	The Group operates in the property sector which is known to be cyclical.	The Investment Manager undertakes significant research to ensure that the strategy of the Group can be appropriately amended to take account of changes in the prevailing market.
Geographical risk	Property market returns can vary significantly between geographical areas.	By maintaining a diversified portfolio the Investment Manager can minimise exposure to one particular geographical area.
Investment risk	Identifying good investments ahead of competitors.	The Investment Manager has a dedicated and experienced team which assists in identifying, negotiating and completing acquisitions and sales according to strict returns criteria.
Letting risk	The risk of being unable to let the majority of lettable space.	The Investment Manager maintains close contact with leasing agents and utilises its research team to ensure exposure to less favourable markets is minimised.
Valuation risk	The property portfolio is susceptible to fluctuations in property valuations.	By maintaining a diversified portfolio the Investment Manager may spread the risk of a large downturn in a specific class of asset.
Expertise risk	The risk of being unable to attract appropriate individuals to manage the portfolio.	The Investment Manager has a policy of ensuring that remuneration is linked to the market. The Investment Manager's agreement is regularly reviewed by the Board.
Liquidity risk	The risk that insufficient funds are available for operating costs, maintenance of debt and asset management initiatives.	Cash flows are continuously monitored and detailed forecasts prepared to ensure sufficient resources exist. Covenant requirements are also continually monitored and reported regularly to the Board.
Interest rate risk	The risk of fluctuation of interest rates on loans.	Interest payable on substantially all debt is fixed by way of interest rate swaps to minimise exposure.
Credit risk	The risk of default by tenants.	The Investment Manager has a policy of only dealing with creditworthy counterparties.  Counterparty limits are regularly reviewed. Trade debtors consist of a large number of tenants spread across diverse industries and geographical areas.
Cash flow  risk	The risk of a shortfall in funds to operate the Group.	The Investment Manager monitors cash flows and assesses all capital and operational expenditure. The Board is regularly updated on major cash flows.

Independent Review Report

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 Yearly Financial Report for the six months ended 30 June 2011 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained in the Half Yearly Financial 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 Services Authority ("the UK FSA"). 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' responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Yearly Financial Report in accordance with the DTR of the UK FSA.

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 Yearly Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half Yearly Financial Report based on our review.

Scope of review

We 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Yearly Financial Report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FSA.

Ewan McGill

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

Guernsey

30 August 2011

Financial Statements

Condensed Consolidated Statement of Comprehensive Income For the period from 1 January to 30 June 2011
				1 Jan to 30 June 2011	1 Jan to 30 June 2010	1 Jan to 31 Dec 2010
				Unaudited	Unaudited	Audited
	Notes	Income	Capital	Total	Total	Total
		£000	£000	£000	£000	£000
Income
Rental income	3	15,589	-	15,589	14,448	31,131
Service charges recharged to tenants		2,962	-	2,962	2,208	4,892
Other operating income		552	-	552	4,875	5,174
Total operating income		19,103	-	19,103	21,531	41,197
Gains and losses on investments
Realised gains/(losses) arising on disposal of investment properties	8	-	(67)	(67)	1,365	1,530
Unrealised gains/(losses) on revaluation of investment properties	8	-	1,872	1,872	7,205	10,191
Gains arising on acquisition of subsidiary		-	-	-	8,761	8,761
Total gains and losses on investments		-	1,805	1,805	17,331	20,482
Expenses
Property operating expenses		(2,127)	-	(2,127)	(3,127)	(5,504)
Service charge costs		(2,962)	-	(2,962)	(2,208)	(4,892)
Acquisition costs of subsidiary		-	-	-	(2,259)	(2,509)
Management expenses	5	(1,647)	-	(1,647)	(1,269)	(2,882)
Other operating expenses	6	(1,048)	-	(1,048)	(1,130)	(2,340)
Total operating expenses		(7,784)	-	(7,784)	(9,993)	(18,127)
Profit before finance costs and tax		11,319	1,805	13,124	28,869	43,552
Financing
Interest receivable		52	-	52	120	235
Interest payable		(5,819)	-	(5,819)	(4,932)	(11,236)
Realised (losses)/gains on disposal of interest rate swaps		-	-	-	(209)	(767)
Realised gains on cancellation of loan notes		-	-	-	750	976
Unrealised gains/(losses) on revaluation of interest rate swaps		-	1,849	1,849	(3,789)	(839)
Total finance costs		(5,767)	1,849	(3,918)	(8,060)	(11,631)
Profit before tax		5,552	3,654	9,206	20,809	31,921
Tax		(274)	-	(274)	(15)	(340)
Profit for the period/year		5,278	3,654	8,932	20,794	31,581
Earnings per share
Basic and diluted		1.5p	1.1p	2.6p	6.0p	9.3p

There is no comprehensive income other than the profit for the period.

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 parent company.  There are no minority interests. Notes 1 to 14 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity For the period from 1 January to 30 June 2011
	Notes	Share Capital	Distributable Reserve	Retained Earnings	Total
		£000	£000	£000	£000
Balance as at 31 December 2009		31,389	296,883	(147,211)	181,061
Net profit for the period		-	-	20,794	20,794
Dividends paid	7	-	-	(6,608)	(6,608)
Issue of ordinary shares		8,420	-	-	8,420
Issue costs		(660)	-	-	(660)
Balance as at 30 June 2010		39,149	296,883	(133,025)	203,007
Net profit for the period		-	-	10,787	10,787
Dividends paid	7	-	-	(6,907)	(6,907)
Balance as at 31 December 2010		39,149	296,883	(129,145)	206,887
Net profit for the period		-	-	8,932	8,932
Dividends paid	7	-	-	(6,907)	(6,907)
Balance as at 30 June 2011		39,149	296,883	(127,120)	208,912

Notes 1 to 14 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Financial Position As at 30 June 2011
		30 June 2011	30 June 2010	31 Dec 2010
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000
Non-current assets
Investment properties	8	425,778	422,752	424,260
Total non-current assets		425,778	422,752	424,260
Current assets
Accounts receivable	9	6,250	10,895	7,589
Cash and cash equivalents		36,809	45,133	34,839
Total current assets		43,059	56,028	42,428
Total assets		468,837	478,780	466,688
Current liabilities
Accounts payable and accruals		(15,566)	(18,490)	(13,883)
Loans and borrowings	10	(1,840)	-	(237)
Total current liabilities		(17,406)	(18,490)	(14,120)
Non-current liabilities
Loans and borrowings	10	(242,519)	(257,283)	(245,681)
Total non-current liabilities		(242,519)	(257,283)	(245,681)
Total liabilities		(259,925)	(275,773)	(259,801)
Net assets		208,912	203,007	206,887
Equity
Share capital		39,149	39,149	39,149
Distributable reserve		296,883	296,883	296,883
Retained earnings		(127,120)	(133,025)	(129,145)
Total equity		208,912	203,007	206,887
Net asset value per share	12	0.61	0.59	0.60

These Condensed Consolidated Financial Statements were approved by the Board of Directors on 30 August 2011 and signed on its behalf by:

Robert Sinclair                                                                                                             

Director                                                                       

Notes 1 to 14 form part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Cash Flow Statement For the period from 1 January to 30 June 2011
		1 Jan to 30 June 2011	1 Jan to 30 June 2010	1 Jan to 31 Dec 2010
		Unaudited	Unaudited	Audited
	Notes	£000	£000	£000
Profit before tax		9,206	20,809	31,921
Adjusted for
Interest receivable		(52)	(120)	(235)
Interest payable		5,819	4,932	11,236
Realised and unrealised gains		(3,654)	(11,824)	(17,343)
Net acquisition costs of subsidiary		-	(1,794)	(2,044)
Tax expense		(14)	(15)	(340)
Cash flows from operating profit before working capital changes		11,305	11,988	23,195
Decrease/(increase) in trade and other receivables		947	(1,096)	(941)
Increase/(decrease) in trade and other payables		1,250	1,124	(2,857)
Net cash flows from operating activities		13,502	12,016	19,397
Cash flows from investing activities
Subsidiary cash at acquisition		-	2,563	2,563
Capital expenditure on investment properties	8	(2,556)	(1,588)	(2,698)
Disposal of investment properties		2,843	9,005	15,133
Interest received		52	120	235
Net cash flows from investing activities		339	10,100	15,233
Cash flows from financing activities
Proceeds from long term borrowings		-	851	1,300
Repayment of long term borrowings		(634)	(17,358)	(25,513)
Disposal of interest rate swaps		-	(1,090)	(2,858)
Interest paid on loans		(4,330)	(2,687)	(9,114)
Equity issue costs		-	(660)	(660)
Dividends paid	7	(6,907)	(6,608)	(13,515)
Net cash flows from financing activities		(11,871)	(27,552)	(50,360)
Net increase in cash and cash equivalents		1,970	(5,436)	(15,730)
Cash and cash equivalents at beginning of period/year		34,839	50,569	50,569
Cash and cash equivalents at end of period/year		36,809	45,133	34,839

Notes 1 to 14 form part of these Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2011

1.      General information

Picton Property Income Limited ("the Company"), formerly ING UK Real Estate Income Trust Limited, was incorporated on 15 September 2005 and is registered as a closed-ended Guernsey investment company.

These Half Yearly Financial Statements are prepared for the period from 1 January to 30 June 2011, with unaudited comparatives for the period from 1 January to 30 June 2010. Comparatives are also provided from the audited financial statements for the year ended 31 December 2010.

The financial information for the year ended 31 December 2010 is derived from the Financial Statements delivered to the UK Listing Authority and does not constitute statutory accounts. 

2.      Significant accounting policies

These Half Yearly 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 December 2010.

The accounting policies applied by the Company in these Half Yearly Financial Statementsare the same as those applied by the Company in its Financial Statementsas at and for the year ended 31 December 2010.

The Annual Financial Statements of the Company are prepared in accordance with International Financial Reporting Standards ('IFRS').

3.      Rental income

Rent receivable is stated exclusive of Value Added Tax and arose wholly from continuing operations in the United Kingdom.

4.      Business and Geographical segments

The Directors are 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 68 commercial properties, which are in the office, retail, retail warehouse, industrial and leisure sectors.  A more detailed breakdown is included with the Investment Manager's Report.

5.      Management expenses

	1 Jan to 30 June 2011	1 Jan to 30 June 2010	Year ended 31 Dec 2010
	£000	£000	£000
Investment Manager's fees	1,647	1,269	2,882

Under the terms of the Investment Management Agreement, ING Real Estate Investment Management (UK) Limited (the "Investment Manager") receives remuneration for property management and administration services. 

With effect from 14 May 2010 the base quarterly management fee payable to the Investment Manager was revised as follows;

·      The base management fee is payable quarterly in arrears and is equal to one quarter of 72.5 basis points of the net asset value represented by the value of the ZDP shares issued, calculated on the basis of the issue price of the ZDP shares, being 65 pence per ZDP share; and

·      One quarter of 145 basis points of the Group's net asset value (but excluding the net asset value represented by the value of the ZDP shares).

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2011 (continued)

5.      Management expenses (continued)

On 16 December 2010 the Company announced its intention to internalise the investment management function of the Company. ING Real Estate Investment Management (UK) Limited will continue as investment manager until 31 December 2011 when its contract terminates. From 1 January 2012 the Company's investment manager will be Picton Capital Limited.

6.      Other operating expenses

	1 Jan to 30 June 2011	1 Jan to 30 June 2010	Year ended 31 Dec 2010
	£000	£000	£000
Valuation expenses	115	70	184
Audit fees	57	23	101
Listing of zero dividend preference shares	-	-	245
Rugby operating expenses	-	365	630
Internalisation expenses	173	-	-
Other expenses	703	672	1,180
	1,048	1,130	2,340

Other than the Directors the Group had two employees for the period ended 30 June 2011 (period ended 30 June 2010: nil, year ended 31 December 2010: nil).

7.      Dividends

	1 Jan to 30 June 2011	1 Jan to 30 June 2010	Year ended 31 Dec 2010
Declared and paid:	£000	£000	£000
Interim dividend for the period ended 31 December 2009: 1 pence	-	3,304	3,304
Interim dividend for the period ended 31 March 2010: 1 pence	-	3,304	3,304
Interim dividend for the period ended 30 June 2010: 1 pence	-	-	3,453
Interim dividend for the period ended 30 September 2010: 1 pence	-	-	3,454
Interim dividend for the period ended 31 December 2010: 1 pence	3,454	-	-
Interim dividend for the period ended 31 March 2011: 1 pence	3,453	-	-
	6,907	6,608	13,515

The interim dividend of 1 pence per ordinary share in respect of the period ended 30 June 2011 has not been recognised as a liability as it was declared after the period end.  A dividend of £3,453,000 will be paid on 26 August 2011.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2011 (continued)

8.      Investment properties

	1 Jan to 30 June 2011	1 Jan to 30 June 2010	31 Dec 2010
	£000	£000	£000
Balance at start of period	424,260	352,599	352,599
Capital expenditure	2,556	1,588	2,698
Acquisitions through business combinations	-	69,000	69,000
Disposals	(2,843)	(9,005)	(11,758)
Realised gains/(losses) on disposal	(67)	1,365	1,530
Change in fair value	1,872	7,205	10,191
Balance at end of period	425,778	422,752	424,260
Historic cost at end of period	546,193	547,664	546,195

The carrying value of investment properties reconciles to the Appraised Value at 30 June 2011 as follows:

	30 June 2011	30 June 2010	31 Dec 2010
	£000	£000	£000
Appraised value	427,004	423,590	425,408
Valuation of assets held under finance leases	1,700	1,671	1,726
Lease incentives held as debtors	(2,926)	(2,509)	(2,874)
	425,778	422,752	424,260

The investment properties were valued by Jones Lang LaSalle (formerly King Sturge LLP) and CB Richard Ellis Limited, Chartered Surveyors, as at 30 June 2011, on the basis of Market Value in accordance with the RICS Valuation Standards.

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

Rental income and property operating expenses arise from the properties shown above.

9.      Accounts receivable 

	30 June 2011	30 June 2010	31 Dec 2010
	£000	£000	£000
Tenant debtors	1,998	1,633	2,909
Lease incentives	2,926	2,509	2,874
Other debtors	190	4,690	264
Capitalised finance costs	1,136	2,063	1,542
	6,250	10,895	7,589

The loan arrangement costs incurred to 30 June 2011 are £3,642,000 (30 June 2010: £3,746,000, 31 December 2010: £3,655,000). These are amortised over the lives of the loans.  For the period ended 30 June 2011 £392,000 of these costs were written off to the Statement of Comprehensive Income (period ended 30 June 2010: £210,000, year ended 31 December 2010: £944,000).

The Directors consider that the carrying amount of accounts receivable approximates their fair value.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2011 (continued)

10.   Loans and borrowings          

	Maturity	30 June 2011	30 June 2010	31 Dec 2010
Current		£000	£000	£000
Unsecured guaranteed loan stock	30 September 2012	-	-	170
Unsecured loan stock	30 September 2012	-	-	67
Bank loan	30 January 2013	1,840	-	-
		1,840	-	237
Non-current
Floating rate notes	31 January 2013	171,600	175,050	171,600
Bank loan	30 January 2013	18,216	20,270	20,414
Unsecured guaranteed loan stock	30 September 2012	-	734	-
Unsecured loan stock	30 September 2012	2,327	2,580	2,364
Zero dividend preference shares	31 October 2012	28,490	30,537	27,566
		220,633	229,171	221,944
Liquidity facility	31 January 2013	10,677	10,892	10,677
Marked to market liability of interest rate swaps		9,483	15,492	11,332
Obligations under finance leases		1,726	1,728	1,728
		21,886	28,112	23,737
		244,359	257,283	245,918

On 20 December 2005 the Group issued £200 million of AAA rated seven year loan notes to the debt market. The interest payable on these notes is fixed at 4.795% by means of an interest rate swap. On 6 July 2006 a further £25 million of loan notes were issued on the same terms, with the interest payable fixed at 5.3804% by means of a further swap. The interest rate swaps mature on the same dates as the associated borrowings. Since issue £53.4 million of loan notes have been prepaid.

The loan notes have a loan to value covenant of 60% until January 2012 when it reduces to 55%, falling back to 50% in July 2012.  The interest cover ratio is 1.75 times until maturity of the notes in January 2013.

The loan notes are secured over the investment properties held by the GPUT and the JPUTs, and are repayable on 31 January 2013. The loan notes were issued by Picton (UK) Listed Real Estate Issuer PLC (formerly ING (UK) Listed Real Estate Issuer PLC), a Special Purpose Entity that is consolidated under the principles of SIC 12.

On 14 May 2010 the Group issued 46.6 million zero dividend preference shares ('ZDPs') at 65 pence per share as consideration for the acquisition of Rugby Estates Investment Trust Plc. The ZDPs have an entitlement to receive a fixed cash amount on 31 October 2012 but do not receive any dividends or income distributions. Additional capital accrues to the ZDPs at a rate of 6.875% per annum resulting in a final capital entitlement of approximately 77 pence per share on maturity. The ZDPs were listed on the London Stock Exchange at the end of 2010.  Upon listing the Company repurchased 5,902,317 at approximately 68 pence per share.

On 25 August 2010 the Group entered into a new £21.3 million loan facility agreement with The Royal Bank of Scotland Plc of which £20.4 million was drawn down at issue. The interest payable on the loan is charged at LIBOR plus 185 basis points. However interest on £12.0 million is fixed until 30 January 2013 by means of an interest rate swap at 1.255% plus a margin of 185 basis points. Additionally the Group pays a commitment fee of 0.75% per annum on any unutilised part of the facility. During the period £0.4 million of the loan facility was repaid with a further £1.8 million repaid post period end on 25 July 2011.

The unsecured loan stock pays interest at two separate rates, £0.2 million at 0.75% below the Royal Bank of Scotland Plc base rate and £2.2 million at 0.5% above the six month LIBOR. The final date of repayment to all holders is 30 September 2012.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January to 30 June 2011 (continued)

10.   Loans and borrowings (continued)

The Company is in the process of obtaining the necessary approvals to the change of investment manager in accordance with the underlying loan documentation on both the Company's bank and securitised loan facilities before 31 December 2011.

The weighted average interest rate paid on the Group's borrowings for the period was 4.75% (30 June 2010: 4.94%, 31 December 2010: 4.73%).

11.   Contingencies and capital commitments 

The Group has entered into contracts of approximately £2.5 million across the portfolio at 30 June 2011 (30 June 2010: £810,000, 31 December 2010: £4.3 million). There are no other contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements as at 30 June 2011.

12.   Net asset value

The net asset value per ordinary share is based on net assets at the period end and on 345,336,118 (30 June 2010: 345,336,118, 31 December 2010: 345,336,118) ordinary shares, being the number of ordinary shares in issue at the period end.

At 30 June 2011, the Company had a net asset value per ordinary share of £0.61 (30 June 2010: £0.59, 31 December 2010: £0.60). 

13.   Related party transactions

During the period the Investment Manager was paid a total of £1,647,000 (30 June 2010: £1,269,000, 31 December 2010: £2,882,000) in respect of the property management and administration services. As at 30 June 2011 the Group owed £813,000 to the Investment Manager (30 June 2010:£678,000, 31 December 2010:£830,000).

The Group has one non-independent Director, who is connected with the Investment Manager.  The remuneration in respect of this appointment was waived.

Picton Property Income Limited has no controlling parties.

14.   Events after the reporting date

Following the reporting date property sales totalling £2.1 million have exchanged contracts or completed.

On 25 July 2011 a payment of £1.8 million was made in part repayment of the bank loan with The Royal Bank of Scotland Plc.

A dividend of £3,453,000 (1 pence per share) was approved by the Board on 27 July 2011 and will be paid on 26 August 2011. 

Managers and Advisers

Directors         Nicholas Thompson (Chairman)                       Trevor Ash                                                                   Tjeerd Borstlap Roger Lewis Robert Sinclair	Registered Office Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL
Investment Manager (until 31 December 2011) ING Real Estate Investment Management (UK) Limited 60 London Wall London EC2M 5TQ (with effect from 1 January 2012) Picton Capital Limited 28 Austin Friars London EC2N 2QQ	Auditor KPMG Channel Islands Limited 20 New Street St. Peter Port Guernsey GY1 4AN Property Valuers Jones Lang LaSalle 30 Warwick Street London W1B 5NH
Administrator, Registrar and Secretary Northern Trust International Fund Administration       Services (Guernsey) Limited    PO Box 255, Trafalgar Court    Les Banques    St. Peter Port   Guernsey GY1 3QL	CB Richard Ellis Limited Kingsley House 1a Wimpole Street London W1G 0RE
Crest Service Provider Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier           Jersey JE1 1ES Corporate Brokers JP Morgan Securities Limited 125 London Wall London EC2Y 5AJ Oriel Securities Limited 150 Cheapside London EC2V 6ET	Solicitors to the Group: As to English Law Norton Rose LLP 3 More London Riverside London SE1 2AQ Freshfields Bruckhaus Deringer LLP 65 Fleet Street  London EC4Y 1HS Mayer Brown International LLP 30 St Mary Axe London EC3A 8EP
Tax Advisers Deloitte LLP Hill House 1 Little New Street London EC4A 3TR	As to Guernsey Law Carey Olsen PO Box 98 Carey House Les Banques St. Peter Port Guernsey GY1 4BZ Company Website www.pictonproperty.co.uk

 

END

 

 

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