Picton Property Income Limited Annual Report 2022

Portfolio Review continued

Over the year we have invested £10 million into the portfolio principally across eight key projects. These have all been aimed at enhancing space to attract occupiers, improve sustainability credentials and grow income. A major renovation project was recently completed at Rum Runner Works, Regency Wharf, Birmingham, where we have converted leisure space to offices with the development being shortlisted for the British Council of Offices Awards 2022. The air conditioning plant was replaced at 50 Farringdon Road, while the building was fully leased. The system has now been converted from gas to electric, reducing carbon emissions and improving the EPC from a D to a B. Our largest void is Angel Gate Office Village, London. The property offers space for smaller businesses and this market is beginning to pick up. We have upgraded the common parts, installed an occupier lounge, which is already very popular, and fitted out office suites for immediate occupation in line with our SwiftSpace concept. We are continually focused on futureproofing assets from a sustainability perspective, which has resulted in an improvement in our EPCs with 71% now rated C and above. The average lot size of the portfolio is £18.1 million, 22% ahead of last year. Our total void is £3.6 million per annum by ERV. By sector, 70% is in offices, 16% is in industrial and 14% is in retail and leisure. Retention rates and occupancy Over the year, total ERV at risk due to lease expiries or break options totalled £5.5 million, a reduction on the £6.6 million in the year to March 2021. We retained 37% of total ERV at risk in the year to March 2022. Of the ERV that was not retained, a further 29% or £1.6 million was re-let to a different occupier during the year. In addition, a further £2.1 million of ERV was retained by either removing future breaks or extending future lease expiries ahead of the lease event. Occupancy has increased during the year from 91% to 93%, which is ahead of the MSCI UK Quarterly Property Index of 92% at March 2022. The increase primarily reflects the success of the refurbishment programmes in the office sector, with occupiers seeking best in class space. In addition, we have seen strong demand for our industrial units and the retail portfolio remains well let. Industrial occupancy is 98% (2021: 100%), office occupancy is 87% (2021: 82%) and retail and leisure occupancy is 93% (2021: 92%). At the year end, over half of our vacant buildings were being refurbished, with the remainder available to let and being actively marketed.

Many companies are revising working patterns, with offices being used two or three days a week and staff working from home the rest of the time. We have invested substantially into our office portfolio over the last few years, which has meant we have best in class assets which we have been able to lease during the year as well as retaining existing occupiers. Retail warehouse parks have performed strongly, and our parks are busy with occupiers trading well. Investment demand has resulted in price growth in 2021 and early 2022, however we have not yet seen significant rental growth. This investor demand has not translated to the high street, but there is activity at the prime end with the indication that pricing has reached a floor for best in class assets. The leisure market is returning to normal, with pubs and restaurants reporting brisk trading. We believe the portfolio remains well placed in respect of our sector allocations. Combined with the quality of our assets, we will be able to continue to drive performance going forward. Activity We have had another good year in respect of asset management transactions. We completed 12 rent reviews, 7% ahead of ERV, 21 lease renewals or regears, 3% ahead of ERV and 34 lettings or agreements to lease, 8% ahead of ERV. Two industrial assets were acquired for £23.5 million plus costs and one retail asset disposed of for £0.7 million, 16% ahead of March 2021 valuation.