Occupier focused,

Opportunity led.

Picton Property Income Limited

Annual Report 2024

Future-proofing

our portfolio,

unlocking value

Through our occupier focused,

opportunity led approach, we

aim to be one of the consistently

best performing diversified

UK REITs listed on the London

Stock Exchange.

To us this means being a

responsible owner of commercial

real estate, helping our occupiers

succeed and being valued by all

our stakeholders.

Strategic Report

01 Business Overview

02 Highlights

04 Purpose

05 Strategy

06 Business Model

08 Future-proofingourPortfolio

16 ChiefExecutive’sReview

20 KeyPerformanceIndicators

24 OurMarketplace

28 PortfolioReview

38 FinancialReview

42 PrincipalRisks

47 TCFDStatement

56 Being Responsible:

Sustainability Reporting

Governance

78 Chair’sIntroduction

80 GovernanceataGlance

82 BoardofDirectors

84 OurTeam

86 Leadership and Purpose

90 Section172Statement

94 DivisionofResponsibilities

96 Composition,SuccessionandEvaluation

103 Audit,RiskandInternalControl

109 RemunerationReport

128 Directors’Report

Financial Statements

131 IndependentAuditor’sReport

135 ConsolidatedStatementof

ComprehensiveIncome

136 ConsolidatedStatementofChanges

inEquity

137 ConsolidatedBalanceSheet

138 ConsolidatedStatementofCashFlows

139 NotestotheConsolidatedFinancial

Statements

Additional Information

158 EPRABPRandSupplementary

Disclosures

162 PropertyPortfolio

163 FiveYearFinancialSummary

164 Glossary

167 FinancialCalendar

168 ShareholderInformation

ClickheretowatchourAtaGlancevideo

Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

These results demonstrate that we have

been able to grow EPRA earnings despite

the impacts of inflation, higher interest

rates and a weaker economic backdrop.

This year, helped by our industrial exposure

and strategy to reposition non-core office

assets for alternative uses, our portfolio has

outperformed the MSCI UK Quarterly

Property Index. This marks our eleventh

consecutive year of outperformance and

maintains our track record of upper quartile

performance since launch in 2005.

We have a resilient business model with

long-term fixed rate financing, and we are

confident in our ability to capture the

significant income upside potential

from our portfolio. I am pleased that

we were able to announce in April

a near 6% dividend increase.

Lena Wilson CBE

Chair

Performance summary

4.0p

EPRAearningspershare

114%

Dividendcover

3.5p

Dividends paid

per share

96p

NAV per share

ReadmoreinourChair’sIntroductionto

theGovernanceReportonpages78–79

Business Overview

Picton Property Income Limited / Annual Report 202402

Highlights

2023/2024

Valuable long-term

debt structure

28%

Loan to value

93%

Borrowings

Atfixedinterestrates

3.9%

Weighted average interest rate

7.2 years

Debt maturity profile

101p

EPRA Net Disposal Value

(per share)

Reflectingfairvalueofdebt

£524m

Net asset value

96p

NAV per share

£19m

Dividends paid

114%

Dividend cover

Robust financial performance delivering

EPRA earnings growth

£745m

Portfolio valuation

£22m

EPRA earnings

Backtocontents

Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

80%

EPC ratings A-C

Improvedfrom76%in2023

16%

Reduction in Scope 1 & 2 emissions

comparedto2019baseline

184%

Increase in solar capacity

comparedto2023

£4.5m

Invested into upgrading

over 20 assets

62%

Occupier energy data coverage

99%

Of leases contained green clauses

3% increase in

passing rent,

contracted rent

and ERV

4.5% increase in net

property income

Allfiguresarestatedasat31March2024orfortheyearended31March2024unlessotherwisestated.Comparative

figuresarefortheyearended31March2023.

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158–161weprovidemoredetailedinformationandreconciliationstoIFRSwhereappropriate.

Lettings

3%aheadofMarch2023ERV

Lease renewals/regears

2%aheadofMarch2023ERV

Rent reviews

2%aheadofMarch2023ERV

99%

Rent collection

93%

Occupancy

(Excludingassetsheldforsale)

29%

Reversionary potential

(Abovecurrentpassingrent)

Continued sustainability

progress towards net zero

carbon targets

Outperforming property portfolio with

improving income and reversionary potential

Repositioning our

portfolio to improve

income and occupancy

Continued MSCI outperformance

for the eleventh consecutive year

and long-term upper quartile

outperformance since launch

Diversified income

stream with over

Picton Property Income Limited / Annual Report 202404

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.

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.

Creating stakeholder value

Shareholders

£19m

Dividends paid

Occupiers

£4.5m

Investedintoupgradingproperties

Communities

Charities supported

Our people

86%

Employeesatisfactionscore

The environment

80%

EPCratingsA-C

Formoredetailedinformationon

ourstakeholders,seeourSection172

Statementonpages90–91

Backtocontents

Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

Strategy

Throughouroccupierfocused,opportunityledapproach,weaim

tobeoneoftheconsistentlybestperformingdiversifiedUKREITs,

creatingvalueforourshareholders.

Ourstrategicprioritiesguidethedirectionofourbusinessandare

reviewedannually.

Our strategic priorities

Portfolio

Performance

/ Managetheportfolio

toprovideincomeand

capitalgrowth

/ Growoccupancyand

incomeprofile

/ Enhanceassetquality

andcreatespace

thatmeetsevolving

occupierexpectations

/ OutperformtheMSCIUK

QuarterlyPropertyIndex

Operational

Excellence

/ Runanefficient

and innovative

operatingplatform

/ Adapttomarkettrends

withanagileandflexible

businessmodel

/ Deliver earnings growth

/ Maintain appropriate

capitalstructureforthe

marketcycle

/ Pursue opportunities

forgrowthtodeliver

economiesofscale

Acting

Responsibly

/ Reduceouremissions

tobecomenetzero

carbonby2040

/ Activelyengage

withouroccupiers,

shareholders,communities

and other stakeholders

/ Promoteourcompany

values,nurtureapositive

workingculture,and

alignmentoftheteam

/ Ensurethelong-term

successofthebusiness

withstronggovernance

and transparent reporting

1 2 3

Fordetailsontheassociatedrisks

seepages42–46

FordetailsonconnectedKPIs

seepages20–23

Fordetailsonourstrategicprogressseethe

ChiefExecutive’sReviewonpages16–19

04 02

Knowledge,

expertise and

research led

decision making

Selling assets

to recycle

into better

opportunities

Creating value

through proactive

asset management

Asset selection

and acquisition

Picton Property Income Limited / Annual Report 202406

Business Model

Our business model

How we create value

This is underpinned by:

Risk management

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.

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 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.

Backtocontents

Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

Long-term outperformance

through a diversified approach

Wehavealong-termperformance

trackrecord,outperformingthe

MSCIUKQuarterlyPropertyIndex

foreleven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andknowledgeable

teamhasaprovenlong-termtrack

recordofsuccessandisfinancially

aligned.Weareinternallymanaged

enablingustounlockefficiencies

throughgrowth.Ouragilebusiness

modelprovidesflexibilitytoadapt

tochangingmarketconditions.

Occupier focused, opportunity led

Ourcollaborativeapproachensures

weengagewithouroccupiers

tocreatespacestohelpthem

succeed.Ourproactiveasset

managementhelpstomaintain

highoccupancyacrosstheportfolio.

Sustainable thinking,

responsible business

Ourresponsibleapproachtobusiness

withanincreasingenvironmental

focusisessentialforthebenefitofall

our stakeholders and understanding

thelong-termimpactofour

decisionshelpsustomanagerisk

andcontinuetogeneratevalue.

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.

Asset 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.

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.

Selling assets to recycle

into better opportunities

Weidentifyassetsfordisposalto

maximisevaluecreation.Proceeds

areinvestedintonewopportunities,

orusedelsewherewithintheGroup.

What makes us different

Readmoreonpages8–15

Readmoreonpages32–37

Readmoreonpages56–77

Picton Property Income Limited / Annual Report 202408

Future-proofi ng our Portfolio

Portfolio at a glance

Key

Our strategic priorities

Portfolio Performance

Operational Excellence

Acting Responsibly

Future-proofi ng

our portfolio,

unlocking value

We own a portfolio strategically positioned to capture

income and capital growth, currently weighted

towards the industrial sector. Our agile business

model provides fl exibility to adapt to evolving market

trends over the long-term as demonstrated by our

track record of upper quartile outperformance against

the MSCI UK Quarterly Property Index.

£745m

Portfolio valuation

59%

Industrial weighting

30%

Offi ce weighting

11%

Retail and Leisure weighting

Assets

400

Occupiers

Back to contents

Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

Our occupier focused approach

ensures we engage with our

occupiers to create spaces to

meet their evolving requirements,

help their businesses succeed and

maintain high occupancy across

the portfolio.

We are opportunity led and our

business model provides fl exibility

to adapt to evolving market trends.

Alongside our proactive asset

management and disciplined

approach to capital structure, we

have delivered outperformance

and a consistently higher income

return than the MSCI Quarterly

Property Index over the long-term.

We are committed to acting

responsibly and have a target to

become net zero carbon by 2040,

which we believe is essential for the

benefi t of all our stakeholders.

Unlocking value

with alternative

use strategies

Recognising the changing offi ce

sector landscape, we have made good

progress on repositioning our portfolio

to secure more valuable alternative

uses at some of our offi ce assets.

Read more on pages 12–13

Strategic priority

1 2 3

Strategic priority

1 23

Strategic priority

123

Picton Property Income Limited / Annual Report 202410

Future-proofi ng our Portfolio / Continued

We have made

signiﬁ cant progress

securing more valuable

alternative uses.

Michael Morris

Chief Executive

Offi ce to alternative use

strategy – repositioning

e portfolio

Since the pandemic, the offi ce

sector has evolved, with occupier

demands and preferences

changing, following remote and

hybrid working arrangements and

different workplace dynamics.

While it is clear that well-located,

amenity rich, sustainable space is

still in demand, it is building specifi c,

with secondary space struggling

to attract occupiers without

signifi cant capital expenditure.

Recognising these changes in the

offi ce sector, we have made signifi cant

progress exploring and securing more

valuable alternative uses at selected

offi ce assets. Several of our properties

have alternative use potential, and

we have agreed sales to developers

in respect of two of them as well as

securing a healthcare occupier at a

third following receipt of planning.

Longcross, Cardiff

We have exchanged contracts

to sell a partially vacant

offi ce building to an

experienced student

accommodation developer.

The transaction is conditional

on planning permission and

vacant possession. The sale price is

dependent on the exact planning

consent obtained and in particular

upon the number of rooms secured.

The base price was 16% ahead of the

March 2023 valuation and we expect

to benefi t from an overage payment

once planning is secured. We will

retain a small income-producing

industrial unit and car parking site

that will be sold separately in due

course. To facilitate the disposal,

we have completed a number of

transactions that have ensured we

can secure vacant possession in 2024.

We expect planning to be secured

in the fourth quarter of 2024.

Accounting for

12%

Of the total portfolio void

16%

Base price ahead of the

March 2023 valuation

Strategic priority

123

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Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

Angel Gate, London

During the year, we obtained

residential consent via

permitted development rights on

30,000 sq ft of vacant offi ce space.

This was made possible during a

period when the Article 4 restrictions

had lapsed, however, from September

2023, any further conversion of offi ce

space to residential was restricted

by an updated Article 4 Direction.

We engaged directly with both

the local and national planning

authorities. As a result of this proactive

approach, the new Article 4 Direction

was modifi ed to remove the entire

1.7 acre site from this restriction,

unlocking a further 34,000 sq ft

of space for residential conversion.

Having secured the site’s full

residential conversion potential, this

has enabled us to sell the property

to a residential developer. Contracts

were exchanged in March with the

sale completing post year-end.

While we worked through the

planning position, we were able

to maintain occupancy at an

average of 50%, ensuring positive

cash fl ow from the asset.

19%

Of the total portfolio void

Accounting for

Colchester

Business Park

At Colchester Business Park, we

have leased a vacant offi ce suite

to a healthcare occupier at a rent

of £0.1 million per annum, which

is in line with ERV. The lease

completed following receipt of

planning permission for change

of use and once the associated

conditions were satisfi ed.

Picton Property Income Limited / Annual Report 202412

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.

Occupational demand in the

industrial sector remains positive and

we are continuing to capture rental

growth. A lack of supply, especially

of multi-let estates, coupled with

increasing build costs, means that

occupiers have restricted choice when

looking for space, which has driven

rental growth across the country.

Future-proofi ng our Portfolio / Continued

44%

Uplift on the previous passing rent

Parkbury, Radlett

At our largest asset in Radlett,

we have captured rental growth

at lease events over the year.

A rent review was settled with a trade

supplier to the professional audio,

broadcast, light and power industries

where the rent was increased by

56% to £0.1 million per annum.

We agreed a renewal with a

cosmetics business, who renewed

for ten years, subject to break, at

a rent of £0.2 million per annum,

an uplift of 44% on the previous

passing rent. The combined new

rent was in line with ERV.

We have relocated an occupier to

our estate in Luton, meaning we

now have one vacant unit we are

refurbishing. This will be the fi rst

open market letting since 2019 on

the estate and we believe will provide

further rental growth. The unit is

being refurbished in line with our

sustainable refurbishment guidelines.

Strategic priority

1 23

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Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

River Way, Harlow

In Harlow, we enabled a food

packaging provider to expand

into an adjoining unit that we had

comprehensively refurbished after a

previous occupier vacated, improving

its environmental credentials and

EPC rating from a D to an A.

This secured higher, longer-term

income across both units, with

the new rent increasing by 47% on

their existing unit and 57% ahead

of the rent the previous occupier

was paying on the additional unit.

38%

Rent increase to £1.6 million

per annum

Rent ahead of ERV

Grantham

distribution

warehouse

A rent review was settled with a

book distributor where the rent was

increased by 38% to £1.6 million

per annum, 8% ahead of ERV.

We are in discussions with the

occupier to extend the lease

and carry out sustainability

improvements to the unit.

Ten-year lease

at a rent of

£0.7 million

per annum

47%

Higher passing rent

Picton Property Income Limited / Annual Report 202414

Future-proofi ng our Portfolio / Continued

Rent ahead of ERV

Sustainable

refurbishments:

investing in our buildings

We are committed to enhancing

the environmental performance

of our buildings to improve

their operational effi ciency

and to ensure 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 certifi cation, services,

structure and building resilience.

Where possible, we aim to remove

gas fi red systems and install solar

on roofs to provide on-site renewable

energy, with fi ve projects having

been completed this year.

Sentinel House,

Fleet

In Fleet, which is leased to a serviced

offi ce provider, we extended their

lease by a further fi ve years, to

2030. We agreed a small rental

uplift in 2025 to £0.5 million per

annum, 4% ahead of ERV.

The reversionary lease included

our standard green lease clauses,

and we arranged for solar panels

to be installed, with the cost being

deducted from the incentive being

given to the occupier. In addition, we

have added insulation to the property

and refurbished the windows. The

building achieved an A rated EPC

and the works align with our net zero

commitments as well as reducing

our occupier’s running costs.

£4.5m

Invested across the portfolio

80%

EPC ratings A–C

Strategic priority

1 2 3

Back to contents

Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

The circular

economy

As part of our net zero carbon

pathway, we are embracing the

circular economy principles to

reuse, recycle and repurpose

where possible.

We have agreed to sell Longcross,

Cardiff and as part of the agreement,

we are permitted to strip the building

of any internal fi nishes. We are reusing

20,000 sq ft of carpet, a modern

air-conditioning system, lights and

furniture which will be used in the

refurbishment of two other offi ce

buildings in Colchester and Bristol.

By reusing the air-conditioning unit,

we estimate this will save £0.2 million

with further cost savings from

repurposing the fi xtures and fi ttings.

Easter Court,

Warrington

As part of the full refurbishment

works at Unit 1, we removed gas

heating systems from the warehouse

and replaced the roof. The offi ce

area, common areas and warehouse

area have all been fi tted with new

LED lighting. We also installed solar

panels on the roof to provide on-

site renewable energy and allow

excess electricity to be fed back

into the grid which will help to

reduce the operational emissions

of the unit. These refurbishments

have improved the EPC rating

of the building to an A rating.

We subsequently leased the unit

to a national car dealership at a

rent of £0.1 million per annum,

which was in line with ERV.

£0.2m

Savings by reusing the air-conditioning

equipment from Cardiff

Picton Property Income Limited / Annual Report 202416

We have grown rental

income, capturing and

improving reversionary

potential during the year.

Michael Morris

Chief Executive

Chief Executive’s Review

Well-positioned and

resilient portfolio

Back to contents

Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

We have operated with a well-covered

dividend of 114% (covered for the

twelfth consecutive year) and earlier

this month we were able to announce

a near 6% uplift, increasing the

dividend above its pre-pandemic level.

Our share price performance over the

year has been weaker, with a total

shareholder return of -1%. At the year-

end our discount to net asset value

was 32%, but encouragingly this has

narrowed in recent weeks, in part

refl ecting some of the positive activity

that we have been able to announce.

Portfolio Performance

Outperforming property portfolio

We have again outperformed the

MSCI UK Quarterly Property Index,

now for the eleventh consecutive

year and we continue to deliver

upper quartile performance

since launch in 2005.

Our diversifi ed approach and

long-term track record highlight

the benefi ts of being able to

adapt the portfolio to changing

market conditions.

Growing occupancy and income

We have taken steps to reposition

the portfolio, through our alternative

use strategy, looking to reduce our

offi ce exposure. During the year,

we exchanged contracts to sell

two part-vacant offi ce buildings,

both at premiums to the preceding

valuation. One disposal completed

following the year-end and the other is

conditional upon planning permission

which is expected to be obtained

during the next fi nancial year.

Headline occupancy remained stable

at 91%. Occupancy in our industrial

and retail assets was more than 97%,

but offi ces remained lower, in part

due to market conditions, and also

the need to obtain vacant possession

on some assets in order to maximise

disposal proceeds. Excluding the

two assets held for sale at the year-

end, occupancy rose to 93%.

We have been able to grow rental

income and capture some of

the reversionary potential in the

portfolio through leasing activity

and rent reviews during the year,

particularly in the industrial assets,

and further details are within

the Portfolio Review section.

This year, we have increased both

rental income and the reversionary

potential of our portfolio, despite

the impact of higher costs, and

we have also been able to grow

our EPRA earnings. The business

is well-positioned with valuable

long-term fi xed rate debt and we

continue to outperform the MSCI

UK Quarterly Property Index.

Despite a challenging economic

backdrop we have achieved letting

success across all areas of the portfolio

and extended or increased income,

capturing reversionary potential

and demonstrating rental growth

within the portfolio. The team has

worked incredibly hard and I would

like to thank them for their individual

and collective contributions over

the last 12 months as we have

continued to make good progress

with our strategic priorities.

Performance

We have seen considerably more

stability in the property market,

however, it has not been an easy

operating environment with the

ongoing impact of rising interest

rates affecting sentiment and activity.

Our portfolio valuation reduced

from £766 million to £745 million

or 2.8% over the year, contributing

to a decline in net assets of 4.2% to

£524 million or 96 pence per share.

Encouragingly our net assets showed

stability between December 2023

and March 2024, the fi rst time since

the 2022 disruption in bond markets.

Despite this, we have improved

many key metrics over the year.

Most notably, we have increased

the passing rent, contracted

rent and also the reversionary

potential of the portfolio by 3%.

We have successfully continued

our long-term track record of

outperformance through our proactive

approach to asset management.

£745m

Portfolio valuation

96p

Net asset value per share

4.0p

EPRA earnings per share

Click here to watch our Results Video

Picton Property Income Limited / Annual Report 202418

Chief Executive’s Review / Continued

During the year, we incurred a

number of non-recurring costs to

further develop and improve the

operation of the business. Effective

from October, we internalised

our company secretarial function,

which has improved our corporate

governance and our overall

operational effectiveness.

We have also recruited a new Chief

Financial Offi cer, Saira Johnston, as

successor to Andrew Dewhirst who

retired at the end of the fi nancial

year. Andrew has been with the

Company since 2011 and will be

greatly missed by the team. We

are looking forward to working

with Saira who has a proven track

record in real estate fi nance.

Despite the infl ationary pressures

on costs generally and an

increase in these one-off costs,

we have been able to grow EPRA

earnings by 2.2% over the year.

Operational excellence

The long-term success we have

had at a property level has also

been mirrored with prudent

management of our balance sheet.

We have been able to repay our

revolving credit facility using proceeds

from an asset sale, post year-end.

At the time of writing, our revolving

credit facility of £50.0 million

remains fully undrawn and we will

be exploring options to extend this

ahead of its maturity next year.

We have a valuable debt structure

with 100% of our long-term debt

fi xed for over seven years and at an

average interest rate of 3.7%, well

below the prevailing market rate.

The fair value of our debt book is

not refl ected in our reported net

assets, but in our EPRA NDV which

is 5% higher or 101 pence per share.

We have a valuable

debt structure with 100%

of our long-term debt ﬁ xed

for over seven years.

Michael Morris

Chief Executive

101p

EPRA NDV per share

28%

Loan to value

Back to contents

Picton Property Income Limited / Annual Report 2024

Financial Statements Additional InformationGovernanceStrategic Report

We considered multiple opportunities

during the year and specifi cally had

extensive discussions in 2023 about

a possible combination with UK

Commercial Property REIT, which we

were disappointed to be unable to

progress. We still believe there is merit

in consolidation, and equally that

there is a place for a well-managed

diversifi ed REIT that can adapt to

changing market conditions.

While the rationale for merging

was to capitalise on our internalised

management model and track

record, allowing shareholders to

benefi t from the economies of scale,

we believe this corporate activity

also had some adverse short-

term impact on our share price.

Outlook

2024 appears to have started with

considerably more momentum

than the preceding year and this

has been apparent in the continued

rental growth and stabilisation

in capital growth as captured in

the MSCI indices. The occupier

markets remain more resilient

than some had expected and we

have a good pipeline of activity

across all areas of the portfolio.

Our approach capitalises on real

estate being an ever-evolving asset

class, with buildings continually

adapted, upgraded or repurposed

to meet changing occupier demand.

There remains signifi cant income

upside within the portfolio, whether

that is captured directly at rent

review or lease expiry or through the

recycling of assets and reinvestment.

Our priority in the short-term is

continuing to grow EPRA earnings

while focusing on improving our

share price rating to be more

refl ective of the performance

and potential of the business.

Michael Morris

Chief Executive

22 May 2024

Acting responsibly

We have continued to invest in

our portfolio to ensure not only

that it meets the needs of today’s

occupiers but is also future-

proofed and helps us achieve our

net zero carbon commitments.

We have invested in our assets and

improved our portfolio EPCs with

80% of the portfolio now rated

A–C. This is yet another year-on-

year improvement and compares

with 55% A–C rated in 2020.

We have made good progress in

removing gas installations and

converting heating to electrical

systems across fi ve assets. This is

refl ected in the 10% reduction in

like-for-like Scope 1 emissions in the

year. We have installed more on-site

renewables in the form of solar this

year than in any preceding period;

an increase in capacity of 184%.

Consolidation and growth

The Board and the team are

committed to act in the interests

of all stakeholders and recognise

the need to remain relevant to

shareholders. Much has been written

about the challenges with the UK

listed markets generally. Real estate

businesses have been impacted by

the rising interest rate environment

and wide share price discounts have

led to consolidation, acquisitions

and managed wind-downs.

Our priority is to

continue to grow EPRA

earnings while focusing

on improving our share

price rating to be more

reﬂ ective of the potential

of the business.

Michael Morris

Chief Executive

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Picton Property Income Limited / Annual Report 202420

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.

Financial KPIs

Total return (%)

-0.9%

Total shareholder return (%)

-1.0%

Total property return (%)

1.6%

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.

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.

Our performance in 2024

We have grown EPRA earnings this year,

but this has been offset by the adverse

valuation movements over the year.

Our performance in 2024

In line with the property sector generally,

our share price has declined over the year.

Our performance in 2024

We have outperformed the MSCI

UK Quarterly Property Index for the

eleventh consecutive year, delivering

a return of 1.6% compared to the Index

return of -1.0% for the year. We have also

delivered upper quartile outperformance

against MSCI over three, five and ten

years, and since launch in 2005.

1 2 3 1 2 31 2 3

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Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

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.

Property income return (%)

5.1%

Loan to value ratio (%)

27.9%

Cost ratio (%)

1.2%

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.

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.

Our performance in 2024

The income return for the year of 5.1%

was ahead of the MSCI UK Quarterly

Property Index of 4.7%, and we have

also outperformed over three, five and

ten years, and since launch in 2005.

Our performance in 2024

The loan to value ratio has increased

slightly over the year with the adverse

valuation movements. After the year-end,

we have reduced this measure through the

repayment of our revolving credit facility.

Our performance in 2024

The cost ratio has increased over the

year, predominantly due to the reduction

in net assets over the period, rising

staff costs and additional resource.

1 2 3 1 2 3 1 2 3

Our strategic priorities

PortfolioPerformance

OperationalExcellence

ActingResponsibly

FormoreinformationonEPRA

Best Practices Recommendations

see pages 158–161

Remuneration Link

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Picton Property Income Limited / Annual Report 202422

Key Performance Indicators / Continued

EPRA KPIs

EPRA NTA per share (pence)

96p

EPRA earnings per share (pence)

4.0p

EPRA vacancy rate (%)

9.2%

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 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 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 2024

The EPRA NTA per share has declined

slightly this year as a result of the

adverse valuation movements,

despite earnings growth.

Our performance in 2024

EPRA earnings per share have grown

this year to 4.0 pence per share,

reflecting growth in income.

Our performance in 2024

Our vacancy rate has remained stable

this year. However, it has improved

subsequent to the year-end with the

sale of a part-vacant office building,

in line with our alternative use strategy.

1 2 3 1 2 31 2 3

Backtocontents

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Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

Non-financial KPIs

Retention rate (%)

76%

EPC rating A-C (%)

80%

Employee satisfaction (%)

86%

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.

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

prohibited 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

on proposals to require a minimum of C

by 1 April 2028, and B by 1 April 2030.

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 team. The

indicator is based on the employee

survey carried out during the year.

Our performance in 2024

Our significantly higher retention

rate reflects our proactive approach

to asset management and

engagement with our occupiers.

Total ERV at risk due to lease expiries or

break options totalled £6.4 million, higher

than last year. This excludes office

buildings where we have kept space

vacant for alternative uses.

Our performance in 2024

The proportion of EPC ratings between

A–C has increased against the prior year

and makes up 80% of the portfolio.

The remaining 20% is rated D or E.

Our performance in 2024

Our employee satisfaction score has

increased this year with very positive

team sentiment.

1 2 3 1 2 31 2 3

Picton Property Income Limited / Annual Report 202424

Our Marketplace

Lower interest rates will

fuel economic recovery

AccordingtotheONS,retailsales

volumeshavebeenonadownward

trajectorysinceApril2021,whereas

retailsalesvalueshavebeenrising,

whichreflectstheimpactof

inflation.Lookingatthequarterto

March2024,retailsalesvolumesdid

increaseby1.9%comparedtothe

previousthreemonths,following

thelowsalesvolumesoverthe

Christmasperiod.Goingforwards,

householdsbenefittingfromfalling

inflationandinterestratesshould

supportconsumerspending.

Theshorttomedium-termeconomic

outlookofferssignsofcautious

optimism.Downsiderisksremain,

particularlyinrelationtogeopolitical

instabilityintheMiddleEastand

easternEurope,whichcould

potentiallyfuelinflationarypressures.

ThetimingofandscaleoftheBank

ofEngland’sinterestratecutsare

highlydependentonthetrajectory

ofinflationandstrengthofthelabour

marketinthecomingmonths.

Economic backdrop

Afterachallenging2023,theUK

economyappearstobeimproving,

withinflationfallingandtheBank

ofEnglandwidelyanticipatedto

commencebaseratecutsinthe

secondhalfof2024.Thisexpected

reductionininterestratesshould

continuethepositivemomentum

intermsofimprovingbusiness,

investorandconsumerconfidence,

asthecostofdebtandcostof

livingpressurescontinuetoease.

Despiteincreasesinlong-term

UKGovernmentbondyieldsover

theyear,paralleledbysimilar

risesinpropertyyields,thereare

signsofstabilisationemerging.

Theeconomyhasalreadyrecovered

fromthemildtechnicalrecession

of2023,withtheOfficeforNational

Statisticsestimatingencouragingly

strongGDPgrowthof0.6%for

thefirstthreemonthsof2024.

Intermsofoutput,bothservicesand

productioncontributedpositively

totherecovery,recordinggrowth

of0.7%and0.8%respectively.

Outputfromconstructionfell-0.9%,

whichsomewhatreflectsthebad

weatherconditionsthataffected

thebuildingsectorduringthis

period.Intermsofexpenditure,

increasesinthevolumeofnettrade,

householdandGovernmentspending

contributedtoeconomicgrowth.

Inflationhasfallenalongwayfrom

itsforty-yearpeakof11.1%inOctober

2022,withtheannualincreasein

theconsumerpricesindexinMarch

2024at3.2%.Coreinflation(excluding

energy,foodandtobaccoprices),

whichhasbeenmorestubborn,

reducedto4.2%inMarch2024.

Therehasrecentlybeensome

softeningwithinthelabourmarket,

withtheunemploymentlevel

increasingto4.3%,andjobvacancy

numbersonadownwardtrend,

however real wage growth is now

positiveandhasremainedsosince

June2023.AsatMarch2024,wage

growthinrealtermswas2.0%

perannumforregularpayand

1.7%perannumfortotalpay.

Thehousingmarkethasremained

resilientinthefaceofrisinginterest

rates,andhousepricegrowthhas

startedtore-emerge,withnew

mortgageratesdownfromthepeak

ofsummer2023.Accordingtothe

HalifaxHousePriceIndex,house

pricesgrew1.1%intheyeartoApril

2024.Widespreadloandefaults

andforcedsaleshavenotbeena

featureofthisdownturn,partlydue

tostricterlendingcriteriaandhigh

levelsofemploymentincomparison

topreviousmarketcycles.

0.6%

IncreaseinUKGDPinthethree

monthstoMarch2024

Backtocontents

All Retail Ofﬁce Industrial

Mar 2007

Mar 2008

Mar 2009

Mar 2010

Mar 2011

Mar 2012

Mar 2013

Mar 2014

Mar 2015

Mar 2016

Mar 2017

Mar 2018

Mar 2019

Mar 2020

Mar 2021

Mar 2022

Mar 2023

Mar 2024

-10

-20

-30

-40

All Retail Ofﬁce Industrial

Mar 2007

Mar 2008

Mar 2009

Mar 2010

Mar 2011

Mar 2012

Mar 2013

Mar 2014

Mar 2015

Mar 2016

Mar 2017

Mar 2018

Mar 2019

Mar 2020

Mar 2021

Mar 2022

Mar 2023

Mar 2024

-5

-10

-15

Picton Property Income Limited / Annual Report 2024

FinancialStatements AdditionalInformationGovernance

StrategicReport

TheMSCIRetailtotalreturnfor

theyeartoMarch2024was-0.2%,

comprisingcapitalgrowthof-5.9%

andincomereturnof6.0%.

Retailcapitalgrowthrangedfrom

-8.3%to-1.0%betweensub-sectors;

Supermarketsexperiencedthe

strongestfallincapitalvalues,whereas

OutofTownShoppingCentreswas

thebestperformer.InMarch2024,the

MSCIRetailequivalentyieldwas6.8%

(March2023:6.6%).RetailERVgrowth

was1.0%,withsub-sectorsranging

from-1.6%forShoppingCentres–In

Townto3.7%forDepartmentStores.

During the year there has been

lacklustretransactionalactivity,dueto

theincreasedcostofdebtandfalling

capitalvalues.MSCIrecorded£40.1

billionofinvestmenttransactionsfor

theyeartoMarch2024,whichis27%

downonthe£55.4billionrecordedfor

theyeartoMarch2023and51%lower

thanthe£82.1billiontransactedinthe

yeartoMarch2022.Transactionsin

theindustrialsectorhadthehighest

weighting,comprising24%ofthetotal.

Withinterestratesanticipatedto

reducefromthesecondhalfof2024

andincreasedliquidityinthelending

market,itisexpectedthattrading

activitywillbegintopickupaswe

headtowardstheendoftheyear.

UK property market

FortheyeartoMarch2024,the

propertymarketremainedsubdued

astheimpactofhigherinterest

ratescontinuedtobefelt.

TheMSCIUKQuarterlyPropertyIndex

reported an All Property total return

of-1.0%,comprising-5.5%capital

growthand4.7%incomereturn.

Thiswasasignificantimprovement

onthe-12.6%totalreturnforthe

yeartoMarch2023.InMarch2024,

theMSCIAllPropertyequivalent

yieldwas6.6%(March2023:6.2%).

Theoccupiermarkethasrecently

shownmoreresiliencethanthe

investmentmarket,withAllProperty

ERVgrowthfortheyeartoMarch2024

recordedat3.7%(March2023:3.5%).

TheAllPropertyaveragesmask

nuancesatsectorandsub-sector

levels,withpolarisationremaining

akeytheme.

Thechartsaboveshowannualcapital

growthandERVgrowthrecordedby

theMSCIUKQuarterlyPropertyIndex,

withallpropertydepictedinthebars

andthesectorswiththemarkers.

Ofthethreemainsectors,industrial

wasthebestperformer,bothin

termsofinvestmentreturnsand

rentalgrowth.Standardindustrial

marketfundamentalsareparticularly

favourable,withcontinued

healthydemandforwell-placed

unitsandlowlevelsofsupply.

TheMSCIIndustrialtotalreturnfor

theyeartoMarch2024was4.4%,

comprisingcapitalgrowthof0.0%

andanincomereturnof4.3%.

Lookingatsub-sectors,capitalgrowth

rangedfrom-0.9%forDistribution

Warehousesto1.7%forStandard

Industrial–London.InMarch2024the

MSCIIndustrialequivalentyieldwas

6.0%(March2023:5.7%).Industrial

rentalgrowthfortheyeartoMarch

2024was6.5%andstronginall

sub-sectors,rangingfrom5.7%for

StandardIndustrial–RestofUKto

7.0%forStandardIndustrial–London.

Theofficesectorisstillundergoing

aperiodofrecalibration,with

increasingrefurbishmentand

upgradingcosts,combined

withweakerandmoreselective

occupationaldemand,impacting

bothpricingandinvestorsentiment.

TheMSCIOfficetotalreturnfor

theyeartoMarch2024was-9.5%,

comprising-13.1%capitalgrowthand

4.1%incomereturn.Officecapital

growthwasnegativeacrossallsub-

sectors,rangingfrom-18.7%inthe

RestofLondonto-9.9%inCentral

London.InMarch2024theMSCIOffice

equivalentyieldwas7.6%(March2023:

6.7%).Officerentalgrowthfortheyear

toMarch2024was2.8%andpositive

forallsub-sectors,rangingfrom

0.5%fortheRestofLondonto4.6%

inCentralLondon,however,these

rentalgrowthnumbersdonotreflect

capitalinvestedintoupgradingspace.

Theretailsectorhasshownsignsof

stabilisation,aidedbyeasinginflation

andarecoveryinrealearnings

positivelyimpactingconsumer

confidence.However,storeclosures

andCVAsstillremainafeatureof

themarketandnotallsub-sectors

arerecoveringatthesamepace.

MSCI UK Quarterly Property Index

Annual Capital Growth (%)

MSCI UK Quarterly Property Index

Annual Estimated Rental Value Growth (%)

Picton Property Income Limited / Annual Report 202426

Our Marketplace / Continued

Market drivers

Theme Impact on investment markets Impact on occupational markets Our strategic response

Geopolitical drivers:

/ Conflict

/ Uncertainty

/ Supplychaindisruption

/ Energyprices

Highlevelsofgeopoliticaluncertaintycanhaveanadverseimpactoninvestmentmarkets.

Geopoliticaltensionandconflicthavethepotentialtocreatedisruption,causepriceshocks,

andincreasetheriskpremium.

However,theUKisanattractivelocationforinvestorsinaglobalcontext,offeringhighlevels

oftransparency,governanceandstability.TheUKisrankedfirstinthelatestJLLGlobal

TransparencyIndex.

Geopoliticaltensionhasthepotentialtoimpactsupplychains,increase

energyprices,increaseimport/exportcosts,causesocialunrestand

impactbusinessconfidence.

Factorsaffectingoccupierdecisionmakingrelatingtoproperty

requirementsmayincludechanginglocations,improvingsupplychain

efficiency,theneedtoreducecostsandanincreaseddesireforon-site

renewableenergy.

Wehaveanagileandflexiblebusinessmodelandsoareabletoadaptand

respondtomarkettrends.

Wehavebeenabletokeepenergycostsdownforsomeofouroccupiers

throughworkingwithourmanagingagentstoofferreducedratesand

bulkbuying.

Weareundertakingaphasedroll-outofon-siterenewableenergyacross

ourportfoliowherefeasible,whichwillbeavailabletoouroccupiersat

areducedrate.Fivesiteswerefittedwithsolarpanelsduringtheyear.

ForfurtherdetailsseethePrincipalRiskssectionofthisreportonpages42–46.

Economic drivers:

/ GDP growth

/ Inflation

/ Interestrates

/ Businessandconsumerconfidence

ThepaceatwhichtheBankofEnglandincreasedthebaseratebetweenJanuary2022andAugust

2023inresponsetosoaringinflationcauseduncertaintyintheGovernmentbondmarkets.CPI

inflationreachedapeakof11.1%inOctober2022andremainedelevatedforlongerthanexpected.

Long-termgiltyieldsrose,whichnarrowedthegapbetweentherisk-freerateandpropertyyields.

Acorrectionfollowed,causingcommercialpropertyvaluestofall.

Investmentvolumesareadverselyimpactedbyhighlevelsofuncertaintyandanincreaseinthecost

ofdebt.Highercostsincreasethehurdlerateaninvestmentisrequiredtoachieve,affectingfeasibility.

During2023,UKcommercialpropertyinvestmentvolumesweresignificantlybelowaverage.

CPIinflationhasfallento3.2%asatMarch2024andtheBankofEnglandbaseratehasbeenheldat

5.25%sinceAugust2023.ItisexpectedthattheBankofEnglandwillstarttoreducethebaseratein

thesecondhalfof2024.

Thestateoftheeconomyaffectsoccupiers’outlookfortheirbusinesses,

intermsofconfidence,expansionactivityandtheirneedforspace.

Thedifferentpropertysectorsaretypicallylinkedtoeconomicconditions

indifferentways.Forexample,retailersarestronglyimpactedby

consumerconfidenceandretailsales,whereasindustrialoccupiersmay

havestrongertiestoimport/exportvolumes.

Ifoccupiersareinexpansionmode,thisismorelikelytoincreasetakeup/

netabsorptionfigures,reducevacancyratesandgeneraterentalgrowth.

Theoppositeistrueifoccupierbusinessesarestruggling.

Wehaveanappropriatecapitalstructureforthemarketcycleandhave

retainedourdefensiveposition,withaloantovalueratioof28%and93%

ofborrowingsfixed,with2031/32maturities.Ourweightedaverageinterest

rateislessthanthebaserateat3.9%.

Wehaveadiverseincomebaseviaour400occupiersthathaveprovento

beveryresilient,operatingwithinawidevarietyofindustries.Ouroccupier

focused,opportunityledapproachenablesustocreatespacestohelpour

occupierssucceed.

Proactiveassetmanagementdrivesperformancethroughenhancingasset

quality,attractingandretainingoccupiers,minimisingthecostofvacancy

andmaximisingefficiency.

Property cycles:

/ Sectordifferences

/ Stagesofrecovery

Thecommercialpropertymarketiscyclicalduetoavarietyoffactors,forexampledemandsupply

dynamics,economicconditions,theimpactofinflationonconstructioncosts,andpropertyyields

comparedtobondyields.

Thiscyclicalityisadriverofcapitalmarkets,giventhattimingofinvestmentdecisionscanhave

asignificantimpactonreturns.

Thedifferentsectorswithincommercialpropertycanbeatdifferentpointsinthecycle,therefore

adiversifiedapproachcanbringthebenefitofreducedriskoverthelonger-term.

Structuraldriverscanimpacttheoccupiermarketsofpropertysectors

differently,placingthematdifferentphasesofthecycle.

E-commercehashadaprofoundimpactontheindustrialandretail

sectors.Demandforindustrialpropertysoaredasaresultofan

increasingproportionofretailspendoccurringonline.Supplydid

notkeeppace,andasaresult,thesectorhasbenefittedfromstrong

increasesinrents.Theoppositesituationoccurredintheretailsector,

whereconsolidation,CVAsandinsolvenciescontributedtorising

vacancyratesandfallingrents.

PosttheCovid-19pandemicandriseinworkingfromhome,the

officesectorcontinuestoexperienceastructuralchange,with

occupiersreassessingtheirrequirements.However,astherehasbeen

reasonablylimiteddevelopmentactivity,thereiscompetitionforprime

spacethatmeetsmodernESGrequirements,leadingtopolarisation

withinthesector.

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.

Throughmaintainingadiversifiedportfolio,weareabletodilutecyclical

risksassociatedwithasinglesector.Dynamicsthatcauseadownturn

ordisproportionateshockinonesectorhaveareducedimpacton

overallperformance.

Wehaveretainedouroverweightpositionintheoutperformingindustrial

sectorandareseekingalternativeusesforselectedbuildingswithinour

officeportfolio.

ForfurtherdetailsseethePortfolioReviewsectionofthisreporton

pages28–37.

ESG drivers:

/ Environmentalfactors

/ Climatechange

/ Biodiversity

/ Socialimpact

/ Governance

FactorsconsideredundertheumbrellatermofEnvironmental,SocialandGovernanceareplaying

anincreasinglyvitalroleininvestmentpricinganddecisionmaking.

Assetswhicharedecarbonised,energyefficient,carryahighEPCratingandalowlevelofphysical

riskaremorelikelytocommanda‘greenpremium’,whereasa‘browndiscount’canbeapplicable

toassetsoftheoppositecalibre.

Assetswhicharenotdecarbonised,carryingphysicalrisksfromtheimpactsofclimatechange,or

transitionrisksthroughnotconformingwithregulationandlegislation,areatriskofbecomingstranded.

Investorsarealsodrivenbysocialissues,andwanttobeseentobemakingarealpositiveimpact

ratherthangreenwashing.Propertyownerswhodonotbalancedifferentstakeholders’needs,

ornatureandthebuiltenvironmentriskscrutiny.

OccupiershavevariousmotivesforengagingwithESG.Ultimately,being

moresustainablecanincreaseprofitability.Achievingmorewhilstusing

fewerresourcescutscosts,andoccupyingasustainablebuildingaligns

withthisnarrative.

Someoccupierswillbemotivatedbytheirownpathwaystonetzero.

Occupyingtechnologyenabled,energyefficientbuildings,signingupto

greenleaseclausesandinitiativeslikesharingenergyusagedata,using

on-siterenewableandadoptinggreenenergytariffswillaidprogress.

Fromasocialperspective,buildingscontaininghealthandwellness

facilities,greenspaces,biophilicdesignandotheramenitiescanimprove

occupiers’employeesatisfactionandretention.

Wearecommittedtointegratingsustainabilitywithinallourbusiness

activities,andinawaythatmakesapositivecontributiontosociety,

whilstminimisinganynegativeimpactonpeople,localcommunities,

andtheenvironment.

Wearefocusedonbecomingnetzerocarbonby2040throughfollowing

theUKGreenBuildingCouncil’snetzerocarbonhierarchy.Weareinvesting

indecarbonisingtheportfolio,includingremovingfossilfuel-basedsystems,

installationofon-siterenewablesandengagingwithouroccupiersto

measureandmanageourScope3emissions.

Wehavecarriedoutriskassessmentsofourexistingassetsinlinewiththe

TCFDframework,andintegratedsustainability-focusedduediligenceinour

investmentprocess.

ForfurtherdetailsseetheBeingResponsiblesectionofthisreporton

pages56–77.

Technology drivers:

/ AI

/ PropTech

/ Big Data

/ Digitalisationofsociety

/ Supplychainoptimisation

/ Rapidpaceofchange

Technologydriversaffectingcapitalmarketscouldbeintheformofconstructsdrivingstructural

changes,liketheevolutionofGeneralPurposeAI,MachineLearning,BigDataandthedigitalisation

ofsociety,whichhavethepotentialtoaffecthowandwherewework,liveandspendrecreational

time,andthereforewhichpropertysectorswillwinorloseasaresult.

AIandBigDataarelikelytogiveacompetitiveadvantagetothosewhousethesetoolstomake

investmentdecisions.

AIalsocarrieswiderrisks,forexampleintheformofcyberinsecurity,joblosses,socialriskand

informationinaccuracy.Investorswhofailtoaccountforthesemaybecompromisedinthelonger-term.

Morespecifically,assetswhichhavetechnologicalcapabilityandsupportinginfrastructurearelikely

tobemoreinvestablethanthosethatfallshortorarereliantonlegacysystems.

Advancesintechnology,causedforexamplebyautomation,emerging

industriesandnewskills,reshapetheemploymentindustry,andrequire

evolutionofspacesandplacesthatbusinessesoccupy.

Buildingsthataretechnologyenabled,forexamplewithelementsof

automationandsufficientgridcapacity,arelikelytobemoreappealing

tooccupiersandcommandarentalpremium.

Therearesectorspecificoccupationaldrivers,forexampletechnologyto

optimisesupplychainsandthecapacitytorunfleetsofelectricvehicles

withinthelogisticsector,orthetechnologicalcapabilityofabuildingto

beusedasadatacentre.

Wearecommittedtomaintaininganefficientoperatingplatformand

continuetoinvestigateandinvestinPropTechsolutionswhereappropriate.

Whereverpossible,weusedatatomeasure,manageanddriveprogresson

ourstrategy,includingoursustainabilitygoals.

ForfurtherdetailsseethePrincipalRiskssectionofthisreportonpages42–46.