Picton Property Income Limited Annual Report 2023

Occupier focused, Opportunity led.

& Adapting Outperforming

Welcome

Strategic Report 01 Business Overview 02 Highlights 04 Purpose 05 Strategy 06 Business Model

Purpose and Strategy

08 Responding to Uncertainty 18 Chief Executive’s Review 22 Key Performance Indicators 26 Our Marketplace 28 Portfolio Review 38 Financial Review 42 Principal Risks 47 TCFD Statement 56 Being Responsible: Sustainability Reporting Governance 86 Leadership and Purpose 90 Section 172 Statement 94 Division of Responsibilities 96 Composition, Succession and Evaluation 100 Audit, Risk and Internal Control 106 Remuneration Report 80 Chair’s Introduction 82 Board of Directors 84 Our Team 128 Independent Auditor’s Report 132 Consolidated Statement of Comprehensive Income 133 Consolidated Statement of Changes in Equity 134 Consolidated Balance Sheet 135 Consolidated Statement of Cash Flows 136 Notes to the Consolidated Financial Statements Additional Information 155 EPRA BPR and Supplementary Disclosures 159 Property Portfolio 160 Five Year Financial Summary 161 Glossary 164 Financial Calendar 165 Shareholder Information 123 Directors’ Report Financial Statements

Our purpose is to be a responsible owner of commercial real estate, helping our occupiers succeed and being valued by all our stakeholders.

Responding to uncertainty: adapting and outperforming We have continued to increase rental income, outperforming the MSCI UK Quarterly Property Index for ten consecutive years.

Chief Executive’s Review Against a challenging economic backdrop, we continue to explore opportunities to maximise the earnings potential from our portfolio. We have continued to make good progress against our strategic objectives and our key sustainability priorities.

Portfolio Review This year has seen significant asset management activity, increasing passing rent and estimated rental value (ERV).

Strategic Report

Governance

Financial Statements

Additional Information

Business Overview

Performance summary Despite the challenges of inflation and higher interest rates, we have maintained both our EPRA earnings and our long-term track record of outperformance. We are continuing to upgrade and adapt our assets, ensuring they remain relevant and attractive to our occupiers, providing income sustainability. As a business, we are in a resilient position. We have a strong capital structure with attractive long-term fixed rate debt. Our portfolio offers significant income upside, and we are already starting to see stability in asset values. Lena Wilson CBE Chair

EPRA earnings per share 3.9p Dividend cover 112%

Dividends paid per share 3.5p NAV per share 100p

Read more in our Chair’s Introduction to the Governance Report on pages 80–81

Picton Property Income Limited Annual Report 2023

Highlights

Highlights 2022/23

£21m Stable EPRA earnings Financial performance

£766m Portfolio valuation £548m

Net asset value £19m Dividends paid 4% higher than preceding year

112% Dividend cover

27% Loan to value 95% Of borrowings fixed , with 2031/2032 maturities 3.8% Weighted average interest rate £571m EPRA Net Disposal Value £23m higher than net assets reflecting fair value of debt £38m Undrawn debt facilities Defensive capital structure

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Resilient operational performance

Outperforming property portfolio relative to MSCI UK Quarterly Property Index

9% like-for-like increase in estimated rental value

Capturing rental growth through: 39 Lettings 25% ahead of March 2022 ERV 37 Lease extensions/regears 6% ahead of March 2022 ERV 20 Rent reviews 7% ahead of March 2022 ERV

99% Rent collection

91% Occupancy

Like-for-like increase in passing rent of 10% and contracted rent of 3%

£6m Invested into upgrading over 15 assets £21m Invested in new acquisitions 100% Compliance with 2023 EPC minimum standards 76% EPC ratings A-C Improved from 71% Increased investment with sustainability focus

Net zero carbon pathway progress including installation of solar arrays 24% Reduction in Scope 1 & 2 emissions compared to 2019 baseline 85% Energy data coverage Improved from 75%

The Financial Statements are prepared under IFRS. We use a number of alternative performance measures (APMs) when reporting on the performance of the business and its financial position. In common with many other listed property companies we report the EPRA performance measures. In the Additional Information section of this report on pages 155–158 we provide more detailed information and reconciliations to IFRS where appropriate.

Picton Property Income Limited Annual Report 2023

Purpose

Our purpose

Our purpose is to be a responsible owner of commercial real estate, helping our occupiers succeed and being valued by all our stakeholders.

Creating stakeholder value Shareholders £19m Dividends paid

Occupiers £6m Invested into upgrading properties

Our values

Principled We are professional, diligent and strategic. Demonstrated through our transparent reporting, occupier focused approach, alignment with shareholders, delivery of our Picton Promise, our commitment to sustainability and positive environmental initiatives. Perceptive We are insightful, thoughtful and intuitive. Demonstrated through our long-term track record, our gearing strategy, our dynamic positioning of the portfolio, and engagement with our occupiers. Progressive We are forward-thinking, enterprising, and continually advancing. Demonstrated through our culture, work ethic, and proactive asset management.

Communities 23 Charities supported

Our people 82% Employee satisfaction score

The environment 76% EPC ratings A-C

For more detailed information on our stakeholders, see our Section 172 statement on pages 90–91

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Strategy

Our strategic priorities Through our occupier focused, opportunity led approach, we aim to be one of the consistently best performing diversified UK REITS. Our strategic priorities guide the direction of our business and are reviewed annually. Portfolio Performance Operational Excellence

Acting Responsibly

1 Creating and owning a portfolio which provides income and capital growth 2 Growing occupancy and income profile 3 Enhancing asset quality, providing space that exceeds occupier expectations 4 Outperforming the MSCI UK Quarterly Property Index

1 Maintaining an efficient operating platform, utilising technology as appropriate 2 Having an agile and flexible business model, adaptable to market trends earnings growth 4 Having an appropriate capital structure for the market cycle 5 Growing to deliver economies of scale 3 Delivering

1 Progressing our environmental focus and reducing our emissions to become carbon net zero by 2040 2 Working closely and engaging with our occupiers, shareholders, communities and other stakeholders 3 Ensuring we maintain our company values, positive working culture and alignment of the team 4 Having strong governance and transparent reporting

to ensure the long- term success of the business

For details on the associated risks see pages 42–46 For details on connected KPIs see pages 22–25

For details on our strategic progress see the Chief Executive’s Review on pages 18–21

Picton Property Income Limited Annual Report 2023

Business Model

Our business model

Our business model creates value through owning a portfolio that generates a diversified and stable income stream. We have the flexibility to adapt to changing market conditions and so deliver value to our stakeholders through the property cycle. How we create value

Knowledge, expertise and research led decision making

Selling assets to recycle into better opportunities

Stock selection and acquisition

Creating value through proactive asset management

This is underpinned by: Risk management

Responsible stewardship We have a responsible and ethical approach to business and sustainability is embedded within our corporate strategy. We understand the impact of our business on the environment and are committed to acting for the benefit of all our stakeholders.

Our diverse portfolio and occupier base spreads risk and generates a stable income stream throughout the property cycle. We adapt our capital structure and use debt effectively to achieve enhanced returns. We maintain a covered dividend policy, to generate a surplus which we can invest back into the portfolio.

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

What makes us different Long-term outperformance through a diversified approach We have a long-term performance track record, outperforming the MSCI UK Quarterly Property Index for ten consecutive years. We own a diverse range of assets which enables us to position the portfolio as market conditions dictate and have delivered upper quartile performance over three, five and ten years, and since launch in 2005.

Aligned and high performing management team Our experienced, knowledgeable and long-standing team has a proven track record of success since internalisation in 2012. Our internally managed and agile business model enables cost efficiencies and flexibility to adapt to changing property cycles.

01/ Knowledge, expertise and research led decision making Our in-depth understanding of the UK commercial property market enables us to identify and source value across different sectors and reposition the portfolio through the property cycle. 02/ Stock selection and acquisition – buying into growth assets, locations or sectors We have established a diversified UK property portfolio and while income focused, we will consider opportunities where we can enhance value and/or income. 03/ Creating value through proactive asset management Our diverse occupier base generates a stable income stream, which we aim to grow through active management and capturing market rental uplifts. Our occupier focused, opportunity led approach ensures we create space that meets our occupiers’ needs in order to maintain high levels of occupancy across the portfolio. 04/

Read more on pages 16–17

Picton Property Income Limited Annual Report 2023

Responding to Uncertainty/Continued

Proactive management: increasing income from our recent Gloucester acquisitions

Our combined ownership in Gloucester totals over 29 acres, having acquired two adjoining city centre industrial estates in 2021/2022: Madleaze Trading Estate, and Mill Place Trading Estate. Since our acquisition of the estates, we have been focused on improving their appeal for our existing occupiers as well as to attract new businesses. The two estates provide 670,000 sq ft of warehouse and ancillary accommodation, with a site coverage of 52%. The average contracted rent across leased property on purchase was £2.76 per sq ft and there was 100,000 sq ft of vacant accommodation in need of redevelopment and refurbishment. The combined consideration was £23.5 million or £35 per sq ft. Over the year we have increased the average contracted rent across leased property by 23% to £3.43 per sq ft and reduced the amount of vacant space by 35%.

We have successfully increased income through proactive asset management and refurbishment. Jay Cable Head of Asset Management

Increased contracted rent by 23% In 2022/23

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

£1.4m Invested into upgrading the estates 11 Businesses attracted or retained

UPGRADING THE ESTATES In line with our net zero carbon commitment to reduce operational emissions, we have recently completed the installation of solar on one unit. Across the estates we are aiming to improve the energy efficiency of units and we directly control the electricity supply at Mill Place Trading Estate, meaning we can ensure it is renewably sourced. We have started our programme of refurbishment upgrades across the estates and have installed new signage, LED lighting, repaired roads and enhanced security though mobile patrols, security barriers and CCTV. We have met in person with all of our occupiers and delivered welcome packs, ensuring everyone has a direct point of contact with us.

Key activity ‒ Letting of eight units and compounds for a combined £0.3 million per annum, 79% ahead of the March 2022 ERV ‒ Secured a 29% rental uplift at a review with our largest occupier (by income), to £0.3 million per annum, 23% ahead of ERV ‒ Refurbished a 21,000 sq ft unit, installing solar panels and improving its EPC from a D rating to an A rating ‒ Acquired an adjoining unit for £0.4 million to consolidate our ownership ‒ Successfully relocated an existing occupier to the newly acquired unit, enabling us to secure a new letting at a record rent

Summary of management and leasing activities over the year

Ahead of previous passing rent (%)

Ahead of March 2022 ERV (%)

Rent per annum (£m)

Activity Letting

Number

8 6 4

0.3 0.4 0.4

79% 18% 23%

–

Lease renewal Rent review

64% 33%

Picton Property Income Limited Annual Report 2023

Responding to Uncertainty/Continued

Sustainable refurbishments: investing in our buildings

PARKBURY INDUSTRIAL ESTATE, RADLETT As part of the full refurbishment works at Unit 16, we removed a gas fired heating system from the warehouse and added new rooflights for improved natural daylight. The office area, common areas and warehouse area have all been fitted with new LED lighting. We also installed solar on the roof to provide on-site generated energy and excess electricity will be fed back into the grid which will help to greatly reduce the operational emissions of the unit. These refurbishments have improved the EPC rating of the building to an A rating.

Occupiers are increasingly prioritising energy efficient and sustainable workspaces. We are committed to enhancing the environmental performance of our buildings to ensure their operational efficiency and that they meet occupier requirements. In line with our sustainable refurbishment guidelines, when space becomes vacant, we seek to improve its sustainability credentials in terms of certification, services, structure and building resilience. We aim to remove fossil fuels where possible and we are also further developing our plans for on-site solar array installation across the portfolio as we continue to identify energy efficiency measures.

Improved EPC ratings Removed On-site fossil fuel burning systems

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

COLCHESTER BUSINESS PARK

At Colchester Business Park we have carried out an extensive refurbishment of an industrial unit including the installation of new LED lighting and removing the gas fired heating system from the warehouse, as well as installing EV charging points and new rooflights for improved natural daylight. These works improved the EPC from a C to a B rating. We also refurbished two office suites in the business park, installing LED lighting to reduce energy consumption. These works improved the EPCs, both a D rating, to a B and an A rating respectively.

UNITS 1 & 2, WESTERN INDUSTRIAL ESTATE, BRACKNELL We commenced a full refurbishment of Unit 2 at Bracknell, including the addition of new LED lighting and the removal of the gas fired heating system from the warehouse. We also added new rooflights for improved natural daylight. We installed solar on the roof to improve the operational efficiency of the unit, with excess electricity to be fed back into the grid. Additionally, we installed EV charging points externally and refurbished the office area, adding new LED lighting and a new energy efficient heating and cooling system. These works are expected to improve the EPC rating of the unit to an A rating.

METRO, MANCHESTER

We are committed to improving the environmental credentials of our buildings, to future-proof these in terms of certification, structure and services. Andy Lynch Head of Building Surveying

At our Metro office building, we recently carried out a full internal refurbishment and redecoration of the fifth floor office space, including installation of new LED lighting and occupier amenities, including new and improved kitchen facilities. These works improved the EPC rating from a D to a B rating.

Installed on-site solar energy generation

Picton Property Income Limited Annual Report 2023

Responding to Uncertainty/Continued

Our new leasing solution: Flexible, Fitted, Inclusive

We moved in with a small team in the early days of our business. We’ve almost quadrupled in size over the past 18 months. Picton have always been helpful and easy to work with so we decided to stay with them by upsizing our space. They kept it simple for us, managing the entire fit-out and moving process. Daniel Ball The Early Careers Group, Angel Gate, London

FLEXIBLE LEASING PROGRESS

Last year we launched SwiftSpace, our flexible leasing offering in response to both increased competition from serviced office providers and changes in occupier demand. This flexible lease structure enables occupiers to scale their businesses as their needs evolve and is particularly suited to smaller businesses looking to return to the office or move out of serviced accommodation, yet still wanting to retain flexibility of occupation. Rental agreements include Flexible (short-lease terms), Fitted (ready to move in space, fitted out to occupier requirements) and Inclusive (ready to move in space with no service charges or insurance costs). All three options are intended to speed up the moving in process with quick and easy documentation and reduced upfront costs. This new flexible proposition has succeeded in attracting new occupiers looking for a more bespoke solution and has helped to grow occupancy on our smaller units. Over the year, we have to date signed nine SwiftSpace lettings, nearly a quarter of our total lettings. SwiftSpace is available at selected multi-let offices across our portfolio, including Angel Gate, London, Longcross, Cardiff, Queen’s House, Glasgow, Charlotte Terrace, London, Colchester Business Park and Trident House, St Albans.

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Our suite has been finished to a high specification and is modern, bright and airy – perfect for our brand and will give a great impression to visitors and our team as we expand our new business. Andy Tait Sallyport, Queen’s House, Glasgow

Picton Property Income Limited Annual Report 2023

Chief Executive’s Review

Resilient business performance

Growing occupancy is a priority as there is significant upside income potential from our current position.

Michael Morris Chief Executive

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Against a challenging economic backdrop, we have been able to grow income through our proactive approach to asset management and have successfully continued our long-term track record of outperformance.

Outperforming property portfolio For the tenth consecutive year we have outperformed the MSCI UK Quarterly Property Index. We have now delivered upper quartile returns over three, five, ten years and since inception in 2005 and we are ranked fifth out of 141 portfolios over the last ten years. At a portfolio level, we delivered a total property return of -8.7% which reflects this marked change in the macroeconomic outlook. Asset management activity drove rental growth and helped offset some of the impact of rising yields. Growing occupancy and income We have seen a resilient occupational market, particularly in the industrial sector, and we have been able to increase income and rental growth through asset management and acquisition activity, leading to a 3% increase in contracted rent, a 10% increase in passing rent and a 9% increase in estimated rental value, all on a like-for-like basis. Although we have been able to grow net income there has also been a rise in property costs, primarily driven by void costs, including service charges, business rates and security. Growing occupancy is a priority as the portfolio has significant upside income potential with more than £5.3 million of additional rent available from current vacancies. With the majority of our vacancy in the office sector, we are pursuing change of use strategies at a number of office assets to include residential, student and other uses to help to reduce this void. Concerns over the health of the UK economy and political uncertainty have led to a more cautious approach from businesses taking new space during the year. Occupancy at 31 March 2023 was 91%, lower than the previous year but up from a low of 90% at September 2022.

Following our record profit delivered a year ago, this period has been defined by a significant change in macroeconomic conditions evidenced by rising interest rates, inflationary pressures and lower economic growth. Driven in part by rising food and energy costs, a consequence of the disruption caused by the war in Ukraine, UK inflation has been over 10% and in response base rates have quadrupled since this time last year. Asset pricing has been adversely impacted and commercial real estate has been no exception. In October 2022, the MSCI Monthly Index recorded the worst month of capital decline on record and a 21% decline in values between July 2022 and February 2023. After eight months and a much sharper pricing correction than during the global financial crisis in 2008, markets finally appear to have stabilised, and positive overall monthly movements were recorded in the Index in March and April 2023. In these conditions we have continued to focus on what we can control, undertaking nearly 40% more asset management activity than last year. This has enabled us to grow rental income and the overall rental value of the portfolio. With the majority of our debt being fixed, we are insulated from rising financing costs and have been able to report EPRA earnings of £21.3 million, marginally ahead of last year. During the year, we paid dividends of £19.1 million, 4% higher than the preceding year with strong dividend Our net assets are £548 million or 100 pence per share, a 16.6% reduction from a year ago, principally driven by the revaluation of our property portfolio. Our accounting total return was -13.9% in the year to 31 March 2023. Our total shareholder return, reflecting share price movement and dividends paid, was -26.4%. As markets have adjusted to a higher interest rate environment so too have share prices of UK REITs and discounts have widened in the sector. However, it is encouraging to see that these discounts have narrowed more recently as reported asset values have stabilised. cover of 112%. Performance

100p Net asset value per share 3.9p EPRA earnings per share

Picton Property Income Limited Annual Report 2023

Chief Executive’s Review/Continued

We have decided during the year to bring our company secretarial arrangements in house and have recently appointed a dedicated resource here in London. We will be transitioning these arrangements in the coming months, following this year’s Annual General Meeting. We have received positive feedback from recent occupier engagement surveys across our office and industrial assets and have started to roll out occupier apps at a number of our multi-let office assets to improve engagement. Rent collection for the year stood at over 99%. Capital structure We are well placed in terms of our debt structure, with over 95% of borrowing fixed until 2031/32. Our weighted average interest rate is 3.8% per annum, well below current market rates and as our longer-term facilities are fixed directly with our lenders, there is no mark-to-market pricing of our debt in our reported net asset value. This is reflected in our EPRA NDV being £23 million higher than our net asset value.

Enhancing asset quality We have invested £6 million into the portfolio this year, across over 15 separate projects. This is partly a reflection of the current occupancy position but also reflects further upgrading of our assets from a sustainability perspective. We are now reviewing on a project-by- project basis whether it is appropriate to install renewable energy, primarily in the form of solar panels on refurbishments. Three projects on industrial assets have already recently completed and whilst these incur additional costs, in due course they will generate a modest supplementary revenue stream, There is significant work required to upgrade our assets as we seek to reduce emissions from the portfolio and progress on our net zero pathway. This year we have expanded the team and brought in a dedicated Head of Building Surveying to oversee the increasing number of refurbishment projects that we are undertaking. They are now training to become an in-house EPC assessor, which will enable us to better understand and improve our assets. alongside rental income. Operational excellence

One of the key advantages of having a diversified approach and a team with a proven track record of managing assets across sectors through the investment cycle, is that we can draw on this experience during more challenging markets.

Michael Morris Chief Executive

£21m Total acquisitions

27% Loan to value

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

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

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

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

Michael Morris Chief Executive

through growth. Michael Morris Chief Executive 24 May 2023

Picton Property Income Limited Annual Report 2023

Key Performance Indicators

Measuring the success of the business

We have a range of key performance indicators that we use to measure the performance and success of the business.

Strategic pillars

Operational Excellence

Portfolio Performance

Acting Responsibly

Financial KPIs

Total return (%)

Total shareholder return (%)

Total property return (%)

2023 2022 2021

–26.4

–13.9

–8.7

18.7

28.3

24.3

0.0

6.6

7.3

Why we use this indicator The total property return is the combined income and capital return from our property portfolio for the year, as calculated by MSCI. We use this indicator because it shows the success of the portfolio strategy without the impact of gearing and corporate costs. Our total property return relative to the MSCI UK Quarterly Property Index is a performance condition for both the annual bonus and the Long-term Incentive Plan.

Why we use this indicator The total return is the key measure of the overall performance of the Group. It is the change in the Group’s net asset value, calculated in accordance with IFRS, over the year, plus dividends paid. The Group’s total return is used to assess whether our aim to be one of the consistently best performing diversified UK REITs is being achieved, and is a measure used to determine the annual bonus.

Why we use this indicator The total shareholder return measures the change in our share price over the year plus dividends paid. We use this indicator because it is the return seen by investors on their shareholdings. Our total shareholder return relative to a comparator group is a performance metric used in the Long-term Incentive Plan.

Our performance in 2023 Although the EPRA earnings component of total return was stable this year, the adverse valuation movements in the year resulted in a negative total return.

Our performance in 2023 In line with the property sector generally our share price has declined over the year, reflecting the rising interest rate environment.

Our performance in 2023 We have outperformed the MSCI UK Quarterly Property Index for the tenth consecutive year, delivering a return of -8.7% compared to the Index return of -12.6% for the year. We have also delivered upper quartile outperformance against MSCI over three, five and ten years, and since inception.

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

We consider that industry standard measures, such as those calculated by MSCI, are appropriate to use alongside certain EPRA measures and others that are relevant to us. In this regard, we consider that the EPRA net tangible asset per share (EPRA NTA), earnings per share and vacancy rate are the most appropriate measures to use in assessing our performance. Key performance indicators are also used to determine variable remuneration rewards for the Executive Directors and the rest of the Picton team. The indicators used are total return, total shareholder return, total property return and EPRA earnings per share. This is set out more fully in the Remuneration Report.

For more information on EPRA Best Practices Recommendations see pages 155–158

Remuneration Link

Property income return (%)

Loan to value ratio (%)

Cost ratio (%)

2023 2022 2021 2023 2022 2021

4.4

26.7

85 1.0 1.0 1.0

82 82

4.5

21.2

4.7

20.9

Why we use this indicator The loan to value ratio is total Group borrowings, net of cash, as a percentage of the total portfolio value. This is a recognised measure of the Company’s level of borrowings and is a measure of financing risk. See the Supplementary Disclosures section for further details.

Why we use this indicator The cost ratio, recurring administration expenses as a proportion of the average net asset value, shows how efficiently the business is being run, and the extent to which economies of scale are being achieved. See the Supplementary Disclosures section for further details.

Why we use this indicator The property income return, as calculated by MSCI, is the income return of the portfolio. Income is an important component of total return and our portfolio is biased towards income generation.

Our performance in 2023 The cost ratio has been maintained at 1.0%, despite the inflationary impact on costs and the lower valuations over the year.

Our performance in 2023 Although there was only a marginal increase in borrowings this year, the loan to value ratio has increased, reflecting adverse movements in property valuations.

Our performance in 2023 The income return for the year of 4.4% was ahead of the MSCI UK Quarterly Property Index of 4.1%, and we have also outperformed over three, five and ten years, and since inception.

Picton Property Income Limited Annual Report 2023

Key Performance Indicators/Continued

EPRA KPIs

EPRA NTA per share (pence)

EPRA earnings per share (pence)

EPRA vacancy rate (%)

2023 2022 2021

9.5

3.9 3.9

100

7.2

120

8.8

3.7

Why we use this indicator The earnings per share, calculated in accordance with EPRA, represents the earnings from core operational activities and excludes investment property revaluations, gains/losses on asset disposals and any exceptional items. We use this because it measures the operating profit generated by the business from the core property rental business. The growth in EPRA earnings per share is also a performance measure used for the annual bonus and the Long-term Incentive Plan.

Why we use this indicator The EPRA net tangible assets (NTA) per share, calculated in accordance with EPRA, measures the value of shareholders’ equity in the business. We use this to measure the growth of the business over time and regard this as the most relevant net asset metric for the business.

Why we use this indicator The vacancy rate measures the amount of vacant space in the portfolio at the end of each financial period, and over the long-term, is an indication of the success of asset management initiatives undertaken.

Our performance in 2023 The EPRA NTA per share has declined this year as a result of the adverse valuation movements.

Our performance in 2023 EPRA earnings per share has remained stable at 3.9 pence this year. Higher rental income has been largely offset by increased property costs.

Our performance in 2023 Most of our vacancy is in the office sector which is currently a difficult market. We are holding some assets vacant as we progress alternative use strategies.

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Non-financial KPIs

Retention rate (%)

EPC rating A-C (%)

Employee satisfaction (%)

2023 2022 2021

82 82

Why we use this indicator Energy Performance Certificates (EPCs) indicate how energy efficient a building could be by assigning a rating from A (very efficient) to G (very inefficient). From 1 April 2023 Minimum Energy Efficiency Standards (MEES) regulations prohibit leasing space that is F or G rated, unless an exemption certificate applies. The minimum EPC rating is likely to be raised further, with the UK Government consulting in 2021 on proposals to require a minimum of C by 1 April 2027, and B by 1 April 2030. The outcome of this consultation is awaited.

Why we use this indicator We use this indicator to assess our performance against one of our strategic objectives, to nurture a positive culture reflecting the values and alignment of the Picton team. The indicator is based on the employee survey carried out during the year.

Why we use this indicator This provides a measure of income at risk and the retention of that income during the year. This is achieved through lease extensions or removal of break options.

Our performance in 2023 Our higher retention rate principally reflects our active asset management approach to the portfolio. Total ERV at risk due to lease expiries or break options totalled £5.5 million, in line with last year.

Our performance in 2023 The proportion of EPC ratings between A to C has increased against the prior year and makes up 76% of the portfolio. The remaining 24% is rated D or E.

Our performance in 2023 Our employee satisfaction score remains at a consistently high level.

Picton Property Income Limited Annual Report 2023

Our Marketplace

Signs of economic stability

0.1% Increase in UK GDP in the three months to March 2023

Households have been impacted by the cost of living crisis, soaring fuel and energy bills, lower real incomes and rising debt and mortgage costs. Retail sales volumes did rise by 0.6% in the three months to March 2023, however this is the first rolling three- month increase since August 2021. It is hoped that increased post- pandemic tourism will go some way to compensate for weak domestic consumer demand in 2023. The Consumer Price Index (CPI) rose by 8.7% in the 12 months to April 2023. This is the first month that consumer price inflation has been below 10% since August 2022. As inflationary pressures start to reduce, households are expected to increase spending power, helping to drive the economic recovery. In terms of business confidence, the S&P Global/CIPS UK Composite PMI saw the longest period of decline since the Global Financial Crisis of 2007/08, experiencing six consecutive months of contraction to January 2023. This is due largely to the elevated cost of materials and labour putting pressure on profit margins, and higher financing costs hampering expansion plans. A sharp rebound began in February, and the latest data for April shows the Composite PMI was 54.9. Although job vacancies have declined from their recent peak, at 1.08 million, they remain elevated. The strong labour market has driven up average pay; however, in real terms, wages are not keeping up with inflation.

Economic backdrop After a tumultuous year, there are signs that the economic backdrop is beginning to stabilise. Geopolitical tension, the war in Ukraine, rising inflation, the cost of living crisis and the fall-out from the political events and Autumn mini- budget caused unprecedented volatility, high levels of market stress and economic headwinds. Following the end of the pandemic and the war in Ukraine’s impact on energy and commodity prices and supply chains, CPI inflation rose to a peak of 11.1% in October 2022. As a shock reaction to the Autumn mini-budget, ten-year Government bond yields increased by approximately 200 basis points in a month to reach 4.5% in late September and the value of sterling fell to historic lows. The Bank of England’s response was a series of interest rate hikes, with the base rate rising from 1.75% in August 2022 to 4.5% in May 2023. The ramifications of the increased cost of debt and rise in the risk- free rate have been multifaceted, from the impact on pensions, investment markets and property yields, to house prices, retail sales and consumer and business confidence.

At 3.9%, unemployment is very low by historic standards, having risen only slightly from a 50-year low of 3.5% in August 2022. The economic backdrop is now showing positive signs of stabilisation and even recovery. GDP growth has surprised on the upside, with the UK narrowly avoiding a recession in 2022. UK GDP is estimated to have increased 0.1% in the three months to March 2023. Inflation has been more stubborn than expected, owing largely to persistent growth in food prices. There have been improvements in supply driven inflation, as some of the production difficulties and supply chain issues faced by businesses have started to ease, leading to a fall in the price of imported goods. In addition, higher interest rates and the fall in households’ disposable incomes have dampened demand driven inflation and fuel prices have fallen significantly. Interest rate expectations have moderated compared to what was predicted in late 2022. Reduced uncertainty and falling inflation have allowed bond yields to stabilise, with ten-year Government bonds now at around 4%.

Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

UK property market Due to the sharp rise in the risk-free rate and cost of debt, the MSCI UK Quarterly Property Index All Property equivalent yield moved out by 85 basis points in the three months to December 2022. MSCI reported capital growth of -12.6% for this period, the fastest quarterly correction since December 2008 at the height of the Global Financial Crisis. The situation appears to now be stabilising and the three months to March 2023 saw capital growth of -1.0%. Looking at the year to March 2023, the MSCI UK Quarterly Property Index reported an All Property total return of -12.6%, comprising -16.1% capital growth and 4.1% income return. This is in sharp contrast to the previous year; the total return for the 12 months to March 2022 was 19.5%. Despite the tribulations of the investment market, the occupier market saw a more encouraging performance, and All Property ERV growth for the year to March 2023 was 3.5%. This compares to 3.1% ERV growth for the year to March 2022. Following an extraordinarily strong year of capital growth to March 2022, the low yielding industrial sector was disproportionately affected by the recent market correction. The MSCI All Industrial total return for the year to March 2023 was -20.4%, comprising capital growth of -23.2% and income return of 3.6%. Capital growth ranged from -18.7% to -27.1% between sub-sectors. On a more positive note, due to ongoing supply constraints and healthy occupier demand, the industrial sector achieved strong rental growth for the year to March 2023 of 8.6%, ranging from 10.0% to 7.2% between sub-sectors. In addition to the recent rise in yields experienced by all sectors, the office sector is still undergoing a structural change reflecting post-pandemic working patterns and sustainability- related costs. There is a growing trend of polarisation between prime, energy efficient space and secondary office stock and locations. MSCI reported an All Office total return of -12.3% for the year to March 2023, comprising -15.3% capital growth and 3.6% income return. Capital growth ranged from -10.3% to -22.7% between sub-sectors. ERV growth was 1.6%, ranging from 2.8% to 0.6% between sub-sectors.

MSCI UK Quarterly Property Index – Annual Capital Growth (%)

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Following a prolonged phase of repricing, the retail sector suffered less of an impact from the recent correction than others. The MSCI All Retail total return for the year to March 2023 was -7.9%, comprising capital growth of -12.7% and income return of 5.4%. Capital growth ranged from -5.6% to -17.8% between sub-sectors. The wave of retailer liquidations and CVAs seems to have abated, and arguably retailers that survived the pandemic years should be better placed to weather the storm of weaker consumer demand owing to the cost of living crisis. Following four years of decline, All Retail ERV growth turned positive at 0.4%, ranging from 4.4% to -2.1% between sub-sectors. According to analysis from Property Data, the total investment volume for the year to March 2023 was £50.6 billion, a 31% decrease on the year to March 2022. The slowdown in investment activity is only evident during the six months to March 2023, which is 58% down on the same period for the previous year.

Investors have been waiting for greater stability in the macroenvironment, which has more recently been affected by concerns within the banking sector. The five-year swap rate currently stands at around 4%, placing the cost of debt just below the MSCI All Property equivalent yield. The chart above shows the annual capital growth for All Property and the three main sectors. It illustrates the increased polarisation of sectors in more recent years, until the year to March 2023 which saw a return to a narrower range of capital growth. The chart below shows the strength of industrial rental growth in comparison to other sectors, particularly in the last two years, and the significant rental value declines endured by the retail sector, particularly during the pandemic.

MSCI UK Quarterly Property Index – Annual Capital Growth More recent data from the MSCI UK Monthly Property Index shows that property values have begun to stabilise with continued positive capital growth in the industrial and retail sectors in April. MSCI UK Quarterly Property Index – Annual Estimated Rental Value Growth (%)

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Picton Property Income Limited Annual Report 2023

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