Custodian REIT PLC

1

Custodian

REIT plc A

nnual Report

and Acco

unts 2022

Custodian REIT

plc

(“Cus

todian

REIT” or

“the

Company

1

”)

is

a UK

real

estate

investment trust

(“REIT”)

with a

portfolio comprising properties predominantly let

to

instituti

onal

gra

de

te

nants

thro

ughout the

UK,

principally ch

aracterised b

y properties w

ith individua

l values of less than £

10m at

acquisition.

Fo

r more i

nformation vi

sit

custodianr

eit.com

.

Contents

Strategic report

Highlights

Business

model and str

ategy

Chairman’s st

atement

Investment M

anager’s rep

ort

Asset manag

ement rep

ort

ESG Co

mmittee report

Financial r

eview

Property port

folio

Principal r

isks and uncert

ainties

Section 172

statement

and stakehold

er relationshi

ps

Governance

Board of

Directors and

Investment Man

ager person

nel

Governance r

eport

Audit and

Risk Committee

report

Manageme

nt Engagemen

t Committee

report

Nomination

s Committee r

eport

Remunerat

ion Committee

report

Directors’ re

port

Directors’ re

sponsibilit

ies statement

Financial st

atements

Independent

auditor’s re

port

1

References

to

the

Company

in

the

Strategic

report

include

the

Company

and

its

subsidiar

ies

:

Custodian

Real

Estate

Limited,

Custodian Real

Estate

(Drop)

Limited,

Custodian

Real Estate (Drop Holdings) Limited,

Cu

stodian Real Estate BL Limited, Custodian

Rea

l Estate (Beaumont Leys) Limited and

Custodian Real Estate (Leicester) Limited.

2

Consolidated a

nd Company

statements of co

mprehensive

income

Consolidated

and Company

statements of

financial posit

ion

Consolidated

and Co

mpany statements

of cash flo

ws

Consolidated

and Co

mpany statements

of changes

in equity

Notes to the f

inancial st

atements

Environment

al disclosures

Historical p

erformance su

mmary

Company

information

3

Property hi

ghlights

2022

£m

Comments

Portfolio va

lue

665.2

Property valu

ation increas

es

2

:

•

From asset

management

initiatives

13.4

Detailed in

the Asset m

anagement

report

•

Acquisition

of DRUM R

EIT

7.3

The acquisit

ion of DRUM

REIT wa

s completed

at

a discount to

NAV

•

General va

luation

increases

73

.3

Primarily due

to hardening yields

in the

indust

rial

and logistics s

ector

94.0

Property acqu

isitions

3

63.5

•

A

portfolio

of

10

office,

retail

and

industr

ial

assets

through

the

corp

orate

acquisition

of

DRUM Inco

me Plus

REIT

plc (“D

RUM REIT”)

- £

41.

7m

•

Industrial

units

in York,

Knowsley, Du

ndee

and Notting

ham - £11.1m

•

Offices in central M

anche

ster - £6.2m

•

A

retail wareho

use in Cro

mer - £4.5m

Capital exp

enditure

3.5

Includes

£1.

2m

comp

letion of

the redevelopment

of an industr

ial site in Wes

t Bromwich

Profit on d

isposal

4

5.4

•

A

portfolio

of

seven

industrial

assets

for

£32.6m,

£5.1m

ahead

of

valuation

when

the

terms of sa

le were agreed

•

Two

car

showro

oms

in

Sto

ckport

and

Stafford

for

£13.9m,

£2.6

m

ahead

of

valuation

wh

en

the terms of

sale were a

greed

•

A

ret

ail

warehouse

in

Galashie

ls

for

£4.5m

,

£1.8m ahead

of valuat

ion

•

Five

smaller

un

its

in

the

ret

ail

and

other

sectors for £3.

5m at valua

tion

Net cash dep

loyment sinc

e

the year end

5

.6

•

Grangemouth ac

quisition -

£7.5m

•

Winchester acqu

isition -

£3.

7m

•

Derby disposal - (

£5.6

m)

2

Before acquisition costs

of £2.3

m.

3

Before rent top

-

ups of £0.3m.

4

Net of disposal costs of £0.

5

m.

4

Financial hig

hlights and

performanc

e summary

2022

2021

Comments

Returns

EPRA

5

earnings per

share

6

5.9p

5.6p

Increased du

e to stabilisat

ion of rent

collection

following

the

COVI

D

-19

pandemic,

with

a

£0.3m

decreas

e

in

the

doubtful

debt

provision

during

the

year

(2021: £2.7

m increase)

Basic and

diluted earn

ings per share

7

28.5p

0.9p

Profit before t

ax (£m)

122.3

3.7

Dividends per

share

8

5.25

p

5.0p

Target

div

idend

per

shar

e

for

the

year

end

ed

31

March

2023

of

not

less

than

5.

5p

Dividend cover

9

110.

3%

112.7%

In li

ne with the

Company’s policy of

paying fully co

vered divid

ends

NAV total return

per share

10

28.4%

0.9%

5.8%

dividends

paid

(2021:

4.8%)

and

a

22.6%

capital

increase

(2021:

3.9%

capital decr

ease)

Share pric

e total return

11

17.0%

2.3%

Share

price increased

from

91.8p to

101.8p durin

g the year

Capital val

ues

NAV and E

PRA NTA

12

(£m)

527.6

409.9

Increased

due

to

£94.0m

of

valuation

increases,

£5.4

m

profit

on

disposals

and

the

acqu

isition

of

DR

UM

REIT

for

£19.1m of ne

w shares

NAV per s

hare and NTA p

er share

119.7p

97.6p

Net gearing

13

19.1%

24.9%

Costs

Ongoing ch

arges ratio

14

(“OCR”)

1.94

%

2.48%

OCR exclud

ing direct

property

expenses

15

1.

20%

1.12%

Increases

in

ESG

compliance

and

marketing costs

,

partially offset by NAV

increasing

above £

500m

which

resulte

d

in

a

marginal

reduction

in

the

rate

of

manage

ment fees

Environment

al

5

The European Public Real Estate Ass

ociation (“EPRA”).

6

Profit after tax excluding ne

t gain

s or losses

on investment propert

y di

vided by weighted average number of shares in issu

e.

7

Profit after tax divided by w

eighted aver

age number of shares in issue.

8

Dividends paid and approved for the year.

9

Profit after tax, excluding n

et gain

s or losses

on investment propert

y,

divided by dividends paid and approved

for the year.

10

Net Asset Value (“NAV”) movement inclu

ding dividends paid

d

uring

the year on shares in issue at 3

1 March 2

02

1.

11

Share price movement inclu

ding dividends paid

d

uring

the year.

12

EPRA net tangible assets (“

NTA

”

)

does not differ from

the Company’s

IFRS NAV

or

EPRA NAV

.

13

Gross borrowings less cash

(excluding r

ent deposits) divided by property

portfoli

o value.

14

Expenses

(excluding operating expen

ses of rental property recharged

to tenants

)

divided by average quarterly NAV.

15

Expenses

(excluding operating expen

ses of rental property)

divided by average

quarterly NAV

.

5

Weighted

average

energy

performanc

e

certificat

e

(“EPC”)

rating

16

C (61)

C (63)

Continued

improvem

ents

in

the

environment

al

performa

nce

of

the

portfolio

Alternative

performance

measures

The

Company

report

s

alternative

perform

ance

measures

(“AP

Ms”)

to

assist

stakehold

ers

in

assessin

g

performanc

e

alongside the Company’s results on a statutory basis

, set out above. APMs are among the

key

performance i

nd

icators

used

by

the

Board

to

assess

the

Company’s

perform

ance

and

are

used

by

research

analysts

covering

the Compan

y.

Certain

other

APMs

may

not

be

directly

comparable

wi

th

other

companies’

adjusted

me

asures,

and

APMs

are

not

intended

to

b

e

a

substitu

te

for,

or

superior

to

,

any

IFRS

measures

of

performance.

Supporting

calculations

for

APMs

and

reconciliations

between

APMs

and their I

FRS equivalent

s are set out in Note

21

.

16

F

or properties in Scotland

,

English equivalent EPC ratings have bee

n

obtained.

6

Business mo

del and str

ategy

Purpose

Custodian

REIT

offers

investors

the

opportun

ity

to

access

a

diversif

ied

portfolio

of

UK

commercial

real

estate through a closed-

ended fund.

The Company

seeks to provide investors with an att

ractive level of

income

and

the

potential

for

capita

l

growth,

beco

ming

the

REI

T

of

choice

for

private

and

inst

itutional

investors see

king high a

nd stable div

idends fro

m well-diversified

UK real e

state.

Investment P

olicy

The

Company

’s investm

ent policy

17

is

su

mmarised b

elow:

•

To

i

nv

est

in

a

diverse

portf

olio

of

UK

commercial

real

estate,

principal

ly

characterised

by

individual

property va

lues of less t

han £10m

18

at

acquisiti

on.

•

The

property

port

folio

should

be

diversif

ied

by

sector

,

location,

tenant

and

lease

term,

with

a

maximum

weighting to

any one pro

perty sector

or geograph

ic region of

50%.

•

To

acqu

ire

modern

b

uildings

or

t

hose

considered

fit

for

purpos

e

by

occupiers

,

focussing

on

areas

with:

-

High residu

al values;

-

Strong loca

l economies; a

nd

-

An imbalanc

e between su

pply and d

emand.

•

No one

tenant or property should account for more than 10% of

th

e

rent

roll at

the time of purchase,

except

for

:

-

Government

al bodies or d

epartments; or

-

Single tenants

rated by

Dun

& Bradstreet as

having a

credit

risk score

higher than

two

19

, w

here

exposure

may not exceed

5% of t

he rent roll.

•

The

Company will

not undertake

specu

lative

devel

opment

exc

ept

for the

refurbish

ment

20

of existing

holdings,

but

may

invest

in

forward

fundi

ng

agreements

where

the

Co

mpany

may

acquire

pre-let

development

land

and

construct

invest

ment

property

w

ith

the

intention

of

owning

the

completed

development.

•

The

Company

may

use

gearing

provided

that

the

maximum

LTV

shall

not

exceed

35%

,

wi

th

a

medium-ter

m net gearing

target of 25%

LTV.

17

A full version of the Company’s Investm

ent Policy is available at cust

odianreit.com/wp

-content/uplo

ads/2021/02/CREIT

-Investment-

policy.pdf

.

18

The Board proposes increasing this u

pper lot

-

size limit to £15m at the Company’s f

orthcoming AGM.

19

A risk score of two represent

s “lower than average risk”.

20

The Board proposes

broadening the

definition of refurbishment to include the redev

elopment of existing holdings

, to a max

imum 10% of the Company’s gross

assets,

at the Company’s for

thcoming AGM.

7

The B

oard rev

iews

the Com

pany’s i

nvestment

objectives

at

least annual

ly

to ensure

they r

emain

appropriate t

o the market

in which the

C

o

mpany oper

ates and in the best

inter

ests of sharehol

ders.

Property strat

egy

The Company

’s

port

folio

i

s focused

on smaller l

ots,

principally targeting

properties of

less than

£10

m

at

the point of

acquisition.

This focus on

smaller lots

offers:

•

An

enha

nced

yield

on

acquis

ition

–

with

no

n

eed

t

o

sacrifice

quality

of

property/

location/tenant

for

income and

with a greater

share of value

in ‘bricks a

nd mortar’

;

•

Greater diversificatio

n

–

spread

ing risk across more assets, locations and ten

ants and offering more

stable cash fl

ows; and

•

A

higher

income

component

of

total

return

–

drivi

n

g

out-performance

with

forecastable

and

predictable

returns.

Richard

Shepherd-Cross,

Investment

Manager,

commented:

"O

ur

smaller-lot

speci

alism

has cons

istently

delivered si

gnificantly hig

her yields

without exposi

ng sharehold

ers to

additiona

l risk”.

8

Growth strat

egy

The

Board is

committed

to

seek

ing

further

gro

wth

in

the

Co

mpany

to

increa

se

the

liqui

dity

of

its

sh

ares

and reduce on

going charg

es. Our

growth strategy invol

ves:

•

Organic growth t

hrough share is

suance at a pre

mium to NA

V;

•

Broadening

the

Company’s

shareholder

base,

part

icularly

through

further

penetration

into

online

platforms;

•

Becoming

the

natural

choice

for

private

clients

and

wealth

managers

seeking

to

i

nvest

in

UK

real

estate;

•

Taking market share

from f

ailing open-ended

funds;

•

Strategic propert

y portfolio acqu

isitions and c

orporate conso

lidation.

In all situati

ons, the Board

ensures that

property fun

damentals are c

entral to

all decisions.

Acquisition

of DRUM I

ncome Plus R

EIT plc

In November

2021 the

Company acquired

DRUM I

ncome Plus R

EIT plc

(“DRUM

REIT”) at a

28%

discount to it

s net asset

value, resulting i

n a £7.3m

valuation ga

in post-acquisition.

Since acq

uisition

DRUM REI

T has traded

well, enhan

cing the Co

mpany’s

EPRA earnin

gs per share an

d maintainin

g its

‘red

-

book’ va

luation at £4

9m.

Since the

year end n

ew lettings have

been sec

ured at certain

sites which

should further

enhance t

otal returns in t

he coming period

s.

David

Hunter,

Chairman

of

Custodian

REIT

plc,

commented:

“Shareholders

are

seeking

the

consolidat

ion

of

smaller

R

EI

Ts

as larger

funds

typically

offer lower

operating

costs

w

ith

better

l

iquid

ity.

This acq

uisition

demonstrat

ed

that

the

Com

p

any

and

its

Investment

Manager

are

capable

of

delivering

accretive

corporate

acquisitio

ns which benef

it both existin

g and inco

ming shareh

ol

ders.”

9

Diverse port

folio

Top ten ten

ants

Asset locat

ions

Annual

passing re

nt

(£m)

%

portfolio

income

Menzies

Distribution

Aberdeen, E

dinburgh, G

lasgow,

Ipswich, Norw

ich, Dundee

,

Swansea, York

1.

5

3.

4%

B&M Reta

il

Swindon, Asht

on-under-L

yne,

Plymouth, C

arlisle

1.3

2.7%

B&Q

Banbury, Wey

mouth

1.1

2.

4%

Wickes Bui

lding Suppl

ies

Winnersh, B

urton upon Tr

ent

0.8

1.8%

First Title (t

/a Enact Co

nveyancing)

Leeds

0.6

1.

4%

Sainsbury’

s

Torpoint, G

osforth

0.6

1.

4%

Regus (Ma

idstone West

Malling)

West Malling

0.6

1.

4%

H&M

Winsford

0.6

1.

4%

l, Evesham

0.6

1.

2%

VW Group

Derby, Shre

wsbury

0.

5

1.

2%

Sector

Weighting by

income

31 Mar 202

2

Industrial

38%

Retail ware

house

21%

Office

17%

Other

13%

High street r

etail

11%

Location

Weighting

by income

31 Mar 202

2

West Midla

nds

18%

North-West

19%

South-East

14%

East Midlands

13%

Scotland

10%

North-East

12%

South-West

9%

Eastern

4%

Wales

1%

10

Our environme

ntal, socia

l and

governa

nce (“

ESG

”)

object

ives

•

Improving the energy performance of

our

buildings

-

invest

ing in

carb

on

re

ducing technology

,

infrastructure

and

onsite

renewables

and

ensuring

redevelopments

are

completed

to

hig

h

environment

al standards.

•

Re

duci

ng

e

nergy usage and emissions

-

liaising closely with our

tena

nts to

gather and analyse

data on the en

vironme

ntal performance of

our prope

rties to identify area

s for impr

ovement.

•

Achieving social

outcomes

an

d

supporting

local

communities

- engaging

constructive

ly

with

tenants

and local

governme

nt

to

ensure we

support

the

wider

co

mmunity

thr

ough

local

economic

and

environmenta

l

plans

and

strategies

and

playing

our

part

in

providing

the

real

estate

fabric

of

the econo

my, giving e

mployers safe p

laces of busin

ess that pro

mote tenant w

ell-being.

•

Understan

ding

environmental

risks

and

opportunities

–

allowing

the

Board

to

maintain

appropriate

governa

nce

structures

to

e

nsure

the

In

vestment

Manager

i

s

appropriately

mitigating

risks and

maximising op

portunities

•

Complying with all requirements and

reporti

ng in

line with best

practic

e whe

re appr

opriate

- exposing the

Company to

public scrutiny an

d communicatin

g our targets,

activities and i

nitiatives

to stakeholder

s

11

Investment M

anager

Custodian

Capita

l

Limite

d

(“the

Investment

Manager”)

is

appointed

under

an

investment m

an

agement

agree

ment

(“IMA”)

to

provide

property

management

and

administrat

ive

servic

es

to

the

Company.

Richard

Shepherd-Cro

ss

is

Mana

ging

Director

of

the

Investment

Manager. Richard

has

over 25 years

’ experience in

commercia

l

proper

ty, qualifying as

a Chartered Surveyor

in 1996 and until 2008 worked for JLL, latterly runni

ng its

national port

folio investme

nt team.

Richard estab

lished Custodi

an Capital Limited as the

Property

Fund Manage

ment subs

idiary

of

Mattio

li Woods

plc

and

in

2014

was

instrumenta

l

in

the

launch

of

Custodi

an REIT

plc

from

Mattioli

Woods

’

syndicated

property

portf

olio

and

its

1,200

investors.

Following

the

successful

IPO

of

the

Company,

Richard

has

overseen the

growth of t

he Compan

y to its current

property portfolio of

over £

650m.

Richard

is

supported

by

the

Investment

Manager’s

other

key

personnel:

Ed

Moore

-

Finance

Director,

Alex Nix - Assistant Investment

Manager and Tom Donnachie

–

Portfolio Manager, along with a team of

six other survey

ors and fo

ur accountant

s.

12

Chairman’s st

atement

The year to

31 March 2022 has been a

period of significant recovery for the Company

’s NAV and share

price after the

extre

me challenges presented by the global pandemic.

NAV total return for the

year was

28.4%,

up

f

rom 0.9% in th

e previous fin

ancial year d

ue primari

ly to valuation in

creases of £94.0

m during

the

year

.

Rent

collect

ion

is

back

at

pre

-pan

demic

levels

and

tenants

have

honoured

their

deferred

rent

agreements

which has tak

en recurring (E

PRA) earni

ngs to 5.9p per sh

are.

Acknowledg

ing

the

importance

of

income

for

shareholders

I

was

delighted

the

Board

was a

ble

to

increase

quarterly

dividends

during

the year

which

took th

e tot

al

divide

nd dec

lared

for th

e year

to

5.25p per

share.

This

dividend

was

one

of

the

highest

fully

covered

dividends

amongst

its

peer

group

of

listed

propert

y

investment

co

mpanies

21

for

the

year ended

31

March 2022

and,

in

line with

the

Company

’s

policy, was

1

10

% covere

d by EPRA e

arnings.

The

Compan

y

is

targeting

a

dividend

per share

of

at

least 5.5

p per

share

for the

year

ending 31

March

2023

.

Strategy for

future gro

wth

Custodian

REIT

supportively

acknowledges

the

m

a

rket

desire

for

consolidati

on

in

the

REIT

sector,

but

inertia

and

entrenche

d

interests

can

make

delivering

consolidation

much

harder

than

it

should

be

.

Despite

these challenges we w

ere

delighted

to announce the

all-share acquisiti

on

of Drum Income Plus REIT

i

n

November

2021.

Alignment

of

property

strategy

and

a

shared

focus

on

income

returns

made

a

compelling

rationale for

the benefit of

shareholders o

ld and ne

w.

The

propose

d

closure

of

t

wo

large

open-ended

pro

perty

funds

by

Av

iva

and

Aegon

and

t

he

anticipate

d

sale of the e

ntire £940m J

anus Henderso

n UK prop

erty fund portf

olio has marked a

watershed f

or open-

ended property funds off

ering theoretical da

ily dealing to retail investors. With universal recognit

ion

that

the

open-ended

model

has

failed

invest

ors

we

se

e

diversified

property

inv

estment

companies

as

the

natural cho

ice for retail in

vestors and

wealth

managers seek

ing income fr

om commerc

ial property.

Shareholder

i

nco

me

is

derived

from

earn

ings

and

Custodian

REIT

operate

s

with

one

of

the

highest

earnings

yields

of

its

peer

group

giving

it

the

greatest

capacity

to

pay

sustainable,

fully

covered

dividends,

which

will

m

ak

e

up

the

largest

part

of

total

return

to

shareh

olders.

Based

on

most

recently

reported

EPRA

21

Source: Numis Securities Li

mited.

13

earnings

Custodian

REIT

delivered

an

earnings

yield

22

,

as

at

31

March

2022

of

5.9%,

versus

a

peer

group

average of 4.

1

%.

Net asset

value

The NAV of

the Compa

ny at 31 March

2022 was £5

27.6m, approxi

mately 119.

7p per share, an

increase

of 22.1p (22.6%)

since 31

March

2021

:

Pence per

share

£m

NAV at 31 Marc

h 2021

97.6

409.9

Issue of equ

ity

23

(0.2)

19.

6

Valuation

movements

relating to:

-

Ac

quirin

g DRUM REIT a

t a discount

to NAV

1.7

7.3

- Asset mana

gement activ

ity

3.0

13.4

- General va

luation incr

eases

16.7

73.3

Valuation

in

crease

before acqu

isition costs

21.4

94.0

Impact of

asset acquisiti

on costs

(0.5)

(2.3)

Valuation

in

crease

including

acquisition cost

s

20.9

91.7

Profit on d

isposal of inv

estment proper

ty

1.2

5.4

Net valuat

ion moveme

nt

22.1

97.1

Revenue

8.9

39.9

Expenses and n

et finance

costs

(3.2)

(14.7)

Dividends pa

id

24

(5.5)

(24.2)

NAV at 31 M

arch 2022

119.7

527.6

The

net

valuation

in

crease

of

£94.0m

saw

significa

nt

increases

in

the

industrial

and

l

o

gistics

and

retail

warehouse

sectors,

comprising in a

ggregate

68% of

the

portfolio b

y val

ue, whi

ch together

have

been t

he

principal drivers

of NAV

growth through

the year.

A

lso

of note

has been

the

ret

urn

to modest

growt

h

in

the

latter

part

of

the

year

i

n

our

High

Street

portfolio,

perhap

s

marking

an

inflection

point

in

investor

demand.

Property valu

ation comme

ntary is

detailed

in the Invest

ment Manag

er’s report

.

22

EPRA earnings

per share

d

ivided by average share price.

23

Comprising the

tap

issue of

550,000

shares on 7 May 2021 at 101.5p per shar

e, a 6% premium to NAV, and the

issue of

20,247,040 shares

as consideration for the

acquisition of DRUM REIT

on

3 November 2021 at their market value of 94.5p

.

24

Dividends

totalling 5

.625p

per share (

1.

75

p relating to the p

rior year and

3.

87

5p

relating

to the year

)

were paid on shares in

issue throughout the

year.

14

Custodian

REIT’s

investment

strateg

y

has

sto

od

the

Company

in

good

stead

again

this

year.

F

or

the

year

to

March 2022,

NAV

total

ret

urn

of

28.4

%

ha

s outstripped

total

share price

return

of

17.0%, which

the

Board

regards

as

vindication

of

the

quality

of

the

portfolio

and

dividend

capacity

that

might

support

future share pri

ce growth.

During

M

ay

and June 2022

all of

the serving

Non-E

xecutive Directors acquired shares

in the

Com

pany

,

reflecting

the

Board’s

view

that

the

Company’s

current

share

price

does

not

sufficiently

reflect

the

true

value of its net

assets.

The market

Thematic

investment

continu

es

to

dominate

fund

raising

and

is

polarising

property

investment

demand

and

pricing.

The

weight

of

capital

chas

ing

the

ind

ustrial

and

logistics

sector

and

more

rece

ntly

retai

l

warehousin

g

has

led

to

some

significant

yield

compression

25

and

has

boosted

capital

value

returns

for

investors

in

logistics

specialists.

While

this

yield

compress

ion

has

led

to

NAV

growth

for

existing

investors,

the

counterbalan

ce

is

that

income

yields

are

being

materially

sque

ezed.

Custodian

R

EI

T’s

regional

smaller

propert

y

specialism

,

targeting

t

he

marginal

income

ad

vanta

ge

from

smaller

l

ots

which

offer

a

higher

rental

yie

ld

for

the

same

level

of

property

and

tenant

risk,

has

never

been

of

greater

relative

importance than

i

n curr

ent market

conditions.

With

logist

ics

property yields

now by

some

dist

ance

at historical

lows,

investors are

acutely

sen

sitive

to

any hint of

slowdown fr

om operators

such as

Amazon.

At a time of

rising inter

est rates we si

mply do not

believe

th

at

yield

compression

driven

gro

wth

will

continue

in

logistics

propert

y

over

the

years.

Without

further

yield

compression,

investors

are

relying

on

continuing

high

levels

of

rental

growt

h

to

deliver

returns,

which

again

points

to

the

fortunes

of

the

operators.

A

reversal

of

returns

from

logist

ics

property

w

ill

quickly high

light the

risks inherent

in a

single s

ector

property

strategy,

and

we b

elieve w

ould

generate

a re-focus

on diversifi

ed st

rategies

where

managers

can exp

loit

mispricing

in sub-sectors

of the

office

and

retail

markets

,

w

h

ile

still en

joying

rental

growth

from

industrial,

logist

ics

and ret

ail

warehous

ing.

25

An increase in the

valuation of a pro

perty due to an excess of demand over sup

ply.

15

Property

investment strat

egy

The

C

o

mpany

targets

smaller

regional

properties,

typically belo

w t

he

value

level s

ought

by larg

er

investment

funds,

which

results

in

higher

yields

and

more

robust

vacant

possess

ion

values

with

b

etter

mitigation

against binary t

enant and geographic

al risk comp

ared to investi

ng in larger

lots

.

Since 2016 the Company

’s upper target lot

-size has been £10m but capita

l values have seen significant

price

inflation

since

then,

particularly

in

the

indus

tria

l

and

logistics

sector.

T

he

Board

therefor

e

recommends

that

shareholders

approve

an

in

crease

in

the

upper

target

lot

-

size

from

£10

m

to

£15m

at

the

Compan

y’s

General

Meeting

(“AG

M”)

on

31

August

2022.

While

even

£15

m

remain

s

below the

ge

neral l

e

vel of i

nstitut

ional demand, assets larger

t

han

£

10m will onl

y be acquired

where we

can

still

achieve

a

ben

eficial

yield

margin

relative

to

larger

lots

and

the

proposed

change

will

offer

the

Investment

Manager

the

flexibility

to

consider

a

wider

range

of

opportunities

that

fit

the

Com

p

any’s

investment

policy.

The B

oar

d

will also

propo

se

broaden

ing

its investment policy’s

defin

ition

of refurbishm

ent

to include

th

e

redevelop

ment

of

existing

holdings,

to

a

maximum

10%

of

the

Company’s

gross

assets,

at

the

C

ompan

y’s

forthcoming

AGM to provi

de flexibility

to maximise

sharehold

er returns fro

m existing ass

ets.

Borrowings

Since

the

year end

the

Compan

y

has

arranged a

£25m

tranche

of

10

year

debt

with

Aviva Real

Estate

Investors

(“Aviva”)

at

a

fixed

rate

of

interest

of

4.10%

per

annum

to

refina

nce

a

£25m

variable

rate

revolving

credit

facility

with

Royal

Bank

of

Scotland

(“RBS”)

,

acquir

ed

via

the

DRUM

REIT

acquisition

.

This

refinancing

will

mitigate

in

terest

rate

risk

and

refinancing

risk

for

shareholders

and

i

n

crease

the

proportion

of

the

Company’s

agreed

debt

facilities

that

are

at

fixed

rates

of

interest

from

61%

to

74%

.

Th

e

refinancing

maintains

the

significant

accretive

margin

between

the

Company’

s

3.

2%

w

e

ighted

average cost

of debt post

-refinancing an

d property port

folio net in

itial yield of 5

.7%.

Investment M

anager

The

performance

of

the

Investment

Manager

is

r

eviewed

each

year

by

the

Management

Engagemen

t

Committee

(“MEC”).

D

uring

the

year

the f

ees

paid

to

the

Investment

Manager

were

£

4.

4m

(2021:

£3.8m)

in res

pect of

annu

al mana

gement, ad

ministrative

and

transaction fees.

Furthe

r details

of fees

payable t

o

the Invest

ment Manager a

re set out in N

ote 18.

16

The

Board

is

pleased

with

the

performance

of

the

Investment

Manager,

particularly

complet

ing

the

corporate

acquisitio

n of

DRUM

REIT and

its continued

successfu

l asset

man

agement

initiatives,

detaile

d

in the

Investment Mana

ger’s report

and

Asset

manageme

nt report

respective

ly,

which co

ntributed

significantly to

increases

in

net

asset value,

portfolio

value

and

inco

me.

The

Board

is

satisfied that

the

Investment M

anager’s per

formance re

mains

aligned

with the C

ompany

’s purpose,

values and

strategy

.

Board succ

ession

After

eight

years

of

service,

Matthew

Thorne

has

indicated

his

intention

to

retire

as

Non-Executiv

e

Director

of

the

Compa

ny

at

the

A

G

M

on

31

August

2022,

in

line

with

its

success

ion

plan.

The

Board

would like to thank Matthe

w for his significant contribution to the dev

elopment of the Company sin

ce his

appointme

nt on IPO

in

2

014.

Responding to Matthew’s expected departure we

are

delighted to

welco

me

M

alcolm Cooper who

joined

the

Board

on 6

June

2022

and will

offer

a

range

of

skills

includin

g

the

financ

ial

expertis

e

to

take

on

t

he

role

of

Chair

of

the

Audit

and

Risk

C

o

mmittee

and

maintain

the

Board’s

property

and

governance

experience.

We look forw

ard to the contr

ibution Malcol

m will make.

The

Board

is

conscious

of

stakeholder

focus

on

d

iversity

and

recognises

the

value

and

i

mportance

of

diversity

in

the

boardroo

m.

No

Directors

are

from a

minority

ethnic

background

but

t

he

Company’s

Board

contains

two

women

which

satisfied

the

gender

diversity

recommendations

of

the

Hampton

-

Alexande

r

Review

for

at

least

33%

female

representation

on

FTSE350

compan

y

boards

at

the

year

end.

As

a

constituent

of

the

FTSESmallC

ap

Index

Custodian

REIT

is

not

bound

by

this

reco

mmendation.

T

he

Board

supports

the

overall

r

ecommendation

s

of

t

he

Ha

mpton-Alexander

and

Parker

Re

v

iews

for

appropr

i

at

e

gender

and

ethnic

diversity

although

it

is

not

see

n

to

be

in

the

interests

of

the

Company

and

its

shareholders

to set prescr

iptive divers

ity targets for

the Board at t

his point.

The

recruitment

process

involved

the

use

of

external

consultants

and

focused

on

key

skills

a

new

Director

would

bri

ng

including financial experience

as

well as

diversity of

experience, background and

approach

as well as t

he tradition

al facets of gen

der, ethnicity and ag

e.

Environment

al, social a

nd governance

The

Board

recogn

ises

that

its

decisions

have

an

impact

on

the

environment,

people

and

commu

nities.

The Board also believes that the Company’s proper

ty strategy and ESG aspirations create a compelling

rationale to make environmentally beneficial improv

ements to its

prop

erty portfolio

and

i

n

corporate ESG

best practice

into everyth

ing the Co

mpany does.

17

On

1

April

2021

the

Board

constitut

ed

an

ESG

Committee

to

:

set

and

amend

where

neces

sary

the

Company

’s

environmental

key

performanc

e

indicators

(“KPIs”)

and

monitor

its

performance

against

them;

ensure

it

complies

wi

t

h

its

environmental

repor

ting

requirements

and

best

practice;

assess

the

engagement

wi

th

the

Co

mpany

’s

environmenta

l

consultants

and

assess

the

l

eve

l

of

social

outco

mes

being achie

ved for its stak

eholders and the

communities

in which it op

erates.

The

Company's

E

SG

policy

outlines

our

approach

to

managing

ESG

impacts

and

provides

the

framework

for

setting

and

reviewing

environmental

and

social

objectives

to

ensure

we

are

continuously

improving

our perfor

mance and setti

ng a leaders

hip direction.

As a result,

the Board has

committed to:

•

Understan

ding environ

mental risks

and opportuniti

es;

•

Improving t

he energy perf

ormance of

our buildings;

•

Reducing e

nergy usage

and emissi

ons;

•

Achieving

social outco

mes and su

pporting loca

l communit

ies; and

•

Complying

with all require

ments and re

porting in lin

e with best pract

ice where appropr

iate.

Progress

towards

these

commitment

s

during

the

year,

d

etails

of

the

Company’s

environment

al

policy

and

performanc

e

against

its

targets

are

contained

within

the

ESG

Committee

report

within

the

Strategic

report

.

The

B

oar

d

is

determine

d t

o ens

ure

the

C

o

mpany’s

pathwa

y t

owards

net zero

carbon f

its

with

stake

holder

expectation

s

and

the

Comp

any’s

pr

operty

str

ategy.

We

see

the

carefu

l

im

plementation

of

a

pr

actical

carbon reducti

on

strategy as a cr

ucial next step in t

he Company’s E

SG journey

and during the course

of

the year ending 31 March 2023 we will engage advisors t

o assist the Investment Mana

ger in developin

g

a detailed

plan to achiev

e this.

Cladding

Custodian

REIT

’s

portfoli

o

has

no

exposure

to

‘

high

r

isk’

assets

which

are

typically

either

high

-r

ise

buildings

(those

over

18m

tall)

which

use

cladding

in

their

construction

or

those

used

for

m

ultipl

e

residential

occup

ation.

However,

d

urin

g

the

year

the

Board

instigated

a

detailed

review

of

the

Company’s

cladding

risks

and

obligations

involvin

g

the

Invest

ment

Manager

and

the

Compan

y’s

solic

itors

.

This

review

has resulted

in

the

Investment Manager

implementi

ng

a

more

exte

nsive

cla

dding

policy

,

movi

ng

beyond

the

mandatory

fire

risk

assessment

requi

r

ements

for

properties

where

the

composit

ion

of

cladding

material

is

unknown

and

considering

core-drilling

and

replacing,

w

here

necessary,

cladding

not

compliant

with Loss

Prevention Cert

ification Bo

ard guidel

ines.

18

Company

name

To

better

refle

ct

the

Company

’s

focus

on income

and

to facilitate

retail i

nve

stors

more

eas

ily

access

ing

the Company’s shares

via

online platforms, the Board

will propose changing

the Company

’s

na

me from

Custodian R

EIT plc to C

ustodian Pro

perty Inco

me REIT plc at t

he 31 August

2022 AGM.

Outlook

The Company

en

joys

the support of

a wide

range of shareholders with

the

majority classified as

privat

e

client or

dis

cretionary wealth management investors

.

The Company’s investment

and

dividen

d

st

rategy

and

diversified

portfolio

are

well

suited

to

investors

l

oo

king

for

a

close

proxy

to

di

re

ct

real

estate

investment

but

in

a

managed

and

liquid

structure.

Cap

ital

flows

out

of

the

failing

open-ended

property

fund

model

and

investors

moving

from a

yield

compressi

on fuel

led ca

pital

growth

strategy to

a long-term,

secured inco

me strategy

will find their

interests alig

ned with

Custo

d

ian REIT.

Inflation

is a

clear and

present risk

in the

m

ark

et today.

Traditiona

lly invest

ors

have looked

to real

estate

as

a

hedge

against

the

negative

impact

of

i

nflati

on

investment

returns

as

over

the

longer

term

historically

propert

y

values

and

rents

increase

i

n

an

inflationar

y

environme

nt.

Following

a

period

of

growth,

the

cha

llenge

for

real

estate companies

is

to

own

pro

perties

with

furt

her

rental

growth potential

whose

valuation

will

m

os

t

closely

keep

pace

with

rising

prices

;

Custodian

REIT’s

a

pproach

to

this

challenge

is expanded up

on in the Inv

estment Manager’

s report

.

The

impact

of

inflation,

particularly

in

energy

and

food

prices,

on

consume

r

spending,

supply

chain

constraints

and

the

uncertainty

caused

by

the

war

i

n

Ukraine

and

the af

termath

of

the

COVID-19

pandemic

could

lea

d

to an

econo

mic

downtur

n

but w

e believe Custodian REIT’s portfolio

, diversified by

sector,

geography

and

tenants,

with

low

gearing

w

i

ll

remain

resilient

in

the

face

of

any

econom

ic

headwinds.

Income is likely to form the greater component of total return over the next phase of the property marke

t

and

w

e

believe

that

Custodian

R

EIT’s

strong

inco

me

y

ielding

portfolio,

sup

ported

by

higher

-than-peer

group EPR

A earnings per

share, will underpin sh

areholder

returns.

David Hunter

Chairman

16 June

20

22

19

Investment

Manager’s

report

The UK pr

operty market

Market

sentiment r

emains

strongly positiv

e f

or

the

industrial

and l

ogistics

sector

.

Positivity has

emerged,

post

COVID-

19

lockdown

s,

for

central

London

and

m

a

jor

regional

city

offices

and

the

retail

w

areh

ouse

sector has

cha

llenged the

general retail malaise.

As

we have reported

over the last

six

mont

hs there

is

a nascent recovery

in sentiment towards high street retail,

but onl

y in prime

pi

tches and

in leading retail

centres.

So,

with

the

exception

of

secondary

retail,

business

park

offices

and

secondary

leisure

schemes,

market demand

is driving val

u

e

increases across

th

e

board which

h

as

led directly

to seven

co

nsecutive

qu

arters of N

AV growth fo

r Custodian

REIT.

Sector by sector t

he Custodian REI

T portfolio has followed the wider

market trends during the year w

ith,

like

for

l

ike,

the

industrial

and

logistics

valuation

increasing

by

26.4%,

retail

warehousin

g

i

ncre

asing

16.4

%

and

high

street,

although

decreasing

by

4.8%

in

the

year,

bottoming

out

and

showing

a

7.3%

increas

e

over

the

l

a

st

six

months.

The

office

portfolio

showed

a

slight

like-for-like

increas

e

in

value

of

1.9

%

reflecting

the

50%

weighting

to

business

park

offices,

which

have

be

en

a

sl

i

ght

drag

on

perf

ormance.

Prime re

gional

city centre

offices have

fared

better p

ost COVID-

19

lockdo

wns.

The

current st

rategy is

to

weight

our

office

allocation

away

from busin

ess

parks and

toward

s st

rong

city cent

res, a

s rece

nt

acquisitio

ns

in

Manchester

and

Oxford

have

demonstrated,

where

w

e

are

witnessing

the

strongest

occupier a

nd investor d

emand and

we believe t

he office port

folio is set f

air to see

growth.

There

is

rightly

a

keen f

ocus

on inflat

ion

at

present

and wh

ether

real

estate

investment

can

offer

a

degree

of inflation hedgin

g. In short, the answer must be

‘

yes

’

as rents should grow over t

ime, but with typically

five-yearly

rent

reviews

and

average

unexpired

lease

terms

of

circa

five

years,

investors

should

not

expec

t

a

straight-line

relationship

between

rents

and

inflation.

Much

focus

i

s

currently

on

RPI

and

CPI

linked

rent reviews, ge

nerally ca

pped at up to

4% per ann

um, which of cours

e provide

shorter-term co

mfort but

can

have

the

effect

of

creating

bond

like

investment

characteristics

with

a

greater

emphasis

placed

on

tenant

covenant

than the

property f

undamentals.

At

some point

in a

property’s

life

cycle

rents

will a

lways

be

re-base

d

to open

market values.

An ov

er

-r

eliance

on index

linked rent

reviews can

lead to

disparity

between

invest

ment

values

and

underlying

property

values.

Over

the

long

term

we

do

not

feel

indexed

rent

reviews

are

a worthy

substitute

for

owning

good

real estat

e

where

w

e

back

open

market

re

nt

reviews

to deliver rental growth. For long

-t

erm investors, such as Custodi

an REIT, the aim is to provide inflation

protection f

rom the brick

s and mortar,

not from the cont

ractual terms

of the leases.

20

The table

belo

w shows ho

w Custodian

REIT’s port

folio rental gro

wth perf

ormance ha

s played its

part in

mitigating th

e negative i

mpacts of inflat

ion on costs

and interest rat

es. Notabl

y, in the last s

ix months all

sectors have

shown rental

growth:

Li

ke

-f

or-

lik

e

r

ent

al

va

lu

e

ch

ang

e

Se

ct

or

12

mo

nth

s t

o

31 M

arc

h

20

22

6

mont

hs t

o 3

1 Ma

rch

2

022

In

du

st

ri

al

+1

0.

7%

+4

.9

%

Re

ta

il

w

ar

eh

o

us

e

-1

.7

%

+0

.3

%

Of

fi

ce

+2

.7

%

+1

.1

%

Ot

he

r

-

2.

9

%

+1

.9

%

Hig

h s

tr

e

et

ret

ai

l

-

5.

3

%

+2

.0

%

Wh

o

le

port

f

oli

o

+

3.

8

%

+2

.9

%

Across

the

i

ndu

strial

and

logistics

portfolio,

notwithstandi

ng

the

rental

growt

h

to

date,

the

average

rent

stands at

only £6.17

per

sq f

t for

let properties (£

5.27

including

vacancies)

w

it

h an

estimated

rental

value

of

£7.05

per

sq

ft

(£6.20

including

vacancies),

suggesting

a

latent

rental

uplift

of

c.14%.

Furthermore,

both

passing

rents

and

estimated

rental

values

are

some

way

below

the

rent

requi

re

d

to

bring

forward

new develo

pment, indic

ating further

growth potenti

al.

Retail

warehou

sing

and

high

street

retail

rents

appear

to

have

bottomed

out

and

we

are

se

eing

some

recent demand

led rental growth

in these

sector

s.

Im

p

ortantly retail

rents are growing

from a

low base,

following a perio

d of rental decl

ine making them affo

rdable for tenants.

By way of example, the a

verage

retail

warehouse

r

ent

across

the

portfolio

stands

at

circa

£14.

30

per

sq

ft

(£13.58

includ

ing

vacancies)

,

broadly in line

with current

estimated re

ntal values a

nd much lo

wer than average market

levels.

In

sel

ect

locat

ions,

n

otably prime

reg

ional city

centr

es,

we

are seeing office

rents

increa

sing.

This is

by

no means

applica

ble to

all regional

offices but

i

s

focused

on high

quality, f

lexible of

fice space

with

strong

environment

al credentials. The

r

ecent acquisition of 60 Fountain Street in Manchester is an

exa

mple of

how

Custod

ian

REIT

is

ta

king

advant

age

of

the opportunity

to

reposit

ion

prop

erty

to

meet

t

he

expected

demands of

tenants, post

pandemic,

and to pick up t

he higher rents at

tributab

le to refurbish

ed space.

The

greater

driver of

inflati

on app

ears

to

be cost-p

ush

rather than

demand-pull

as the

economy str

uggles

with

supply

chain

constraints,

energy

price

incre

ases,

labour

short

ages

and

the

aftermath

of

pandemic

restrictions.

These

factor

s

al

l

mitigate

against

widespread,

low

cost,

speculative

deve

lopment

which

would otherw

ise help reso

lve the de

mand/supply i

mbalance that

is promoting

rental growth.

We believe Custodian REIT’s portfol

io is

part

icularly well positioned to see rental growth as

it is focused

on smaller re

gional prop

erties:

21

In the industrial and logistics sector, which accounts for 49% of the portfolio by value, smaller propertie

s

are

more

expensive

to

develop,

pro-rata,

so

require

higher

rents

to

justify

development.

Rents

will

continue to

grow until they

balance o

ut inflation in build c

osts.

The

retail warehouse

port

folio

is

almo

st

exclusive

ly

focused on

DIY,

home

wares,

discou

nters

and food,

all let off

affordable rents.

This occupier profil

e is best matche

d with current

market demand

and so well

placed to pi

ck up rental gr

owth.

We ha

ve re

organised

our

high

street r

etail

portfolio

over the

last t

wo years,

ex

iting

most of

the second

ary

retail locations.

We

have let

three vacant

high street properties during

the year

and

have terms

a

greed

or

are

seeing

active

demand

for

t

he

very

limited

remaining

vacant

space

we

have

in

the

high

street

portfolio

from

both

retail

and

leisure

occupiers.

Low

vacancy

rates

in

prime

locations

and

occupier

demand sho

uld be suppor

tive of future

rental growth

.

In

the

office

portfolio

we h

ave ide

ntified,

or

are

progressing,

a number

of refurbish

ment

opportunities

with

a keen

eye on

environme

ntal impro

vements.

O

wners of

smaller regiona

l offices

are often

not sufficiently

well

resourced

to

create

high

quality

small

suite

offices

that

are

a

match

for

the

larger

floorplates

.

However,

we

believe

that

occupier

demand

will

be

focused

on

higher

quality

space

to

support

businesses

in

attracting

their

employees

back

i

nto

the

office.

We

believe

that

by

posi

t

ioning

our

office

portfolio

to

meet occupi

er demand w

e will reduce vaca

ncy and

drive rental gro

wth.

Prevailing

investment

approach

Based o

n our asses

sment of

the current

market, our

strategy of

a regiona

lly focused

diversified

portfolio,

set

out

be

low,

has

prove

n

r

esilient

and

w

e

exp

ect

to

continue

to

rei

nvest

the

proce

eds

from

se

lective

disposals.

•

Maintain weightin

g to

indu

strial and l

o

gistics

- asset

s i

n this sector still have latent rental growth, but

yields

are

‘

topping

out

’

a

nd

there

have

been

r

ecent

signif

icant

shar

e

price

decrea

ses

in

the

lar

g

e

distribution

shed sector ov

er fears of decreas

ing de

mand for new

space;

•

Retail warehou

sing let off lo

w rents which

should re

cover from 202

1 levels;

•

Selective regional of

fices with a focus on str

ong city centre locatio

ns instead o

f out-

of

-town business

parks;

•

Drive thru’ expa

nsion involving

acquisition a

nd develop

ment where re

ntal growt

h is anticipated;

•

Selective

high

street

retail

assets in

the count

ry’s st

rongest

l

ocati

ons w

here

rents

have stabilised

and

there is pote

ntial for growt

h; and

22

•

Refurbishment of existing property, maximising all

opport

unities to invest

in the quality of

our assets

and support

our ESG go

als.

Sectoral vie

w

Industrial an

d logistics

The

industrial

and

logistics

sector

has

been f

looded

with ca

pital,

much

of

it

overseas

private

equity,

which

has

been

a

big

driver

of

price

inflation.

The

funda

mental

occupationa

l

dyna

mics f

or

smaller

i

n

dustrial

and

logistics

assets

conti

nue

to

support

rental

growth:

increased demand

from

the

logistics

sector servicing

‘E

-

tailing

’

and

the

onshor

ing

of

the

national supply

chain;

lack

of supply

of

modern,

fit-for-purpose units

and build cost inflation which is setting higher threshold rents to fund develop

me

nt. All of this has led

to

valuation

growth

w

hi

ch

has

been

strongly

positive

for

Custodian

REIT.

V

a

cancy

rates

are

very

l

o

w,

against

long-term

averages,

supportin

g

cash

flow

and

opportu

nities

to

invest

at

prices

that

are

fully

supported

by

vacant

possession

values

still

exist

amongst

smaller

regional

propert

ies.

Recently

there

have

been

indications

that

occupationa

l

demand

for

large

distri

bution

shed

s

may

be

decreasing,

wit

h

Amazon

suggesting

it

potentially

has

over-capacity,

but

the

favourable

dynamic

s

o

f

smaller

lot-sizes

which

have

seen

less

recent

speculat

ive

development

and

are

less

reliant

on

the

large

retailers

should

make

the Compan

y’s portfolio

defensive.

In summary:

•

Occupational de

mand is r

obust; supply

is tight

•

Vacancy rate bel

ow the long-ter

m average

•

Latent rental gro

wth potential

•

Investment demand at

record lev

els with pric

ing to matc

h

•

Target sector f

or well-priced

opportunities

High street r

etail

The

high

street ret

ail sect

or

is

starting

to

find

its

feet

after

a diff

icult f

our year

s.

The

pande

mic cl

eared

out

the

last

of

the

‘

lame

ducks

’

on

the

high

street,

so

most

retailers w

ho

are

still

tradin

g

appear

robust

and

want

to

be

in

physical stor

es.

In prime

locations

rents

appear

to

be b

ottoming

out, or

even s

eeing

a

slight

re

-bound.

Lower

rents are

supporting

occupier

demand

and

reducing vacan

cy rat

es and void

periods,

in

prime

locat

ions,

whic

h

is

providi

ng

a

degree

of

conf

idence

to

investors

not

seen

for

so

me

time.

The

Company’s

high

street

ret

ail

portfol

io

is,

by

and

large,

concentrated

on

ret

ailers

of

essentials

such

as

groceries, pharmaceuticals,

banking

and

d

iscount

it

ems

rather

than luxury

or

fashion

ite

ms.

This

focus

on ‘nee

d’ versu

s ‘

want’ ret

ailers

s

hould

prove

more

defensive

as cons

umer s

pending

capacity decr

eases

in the curre

nt inflationary

environment

.

23

In summary:

•

Over-supply - rents

have suf

fered but are bot

toming out

Retail warehou

se

Out-

of

-t

own

retail

has

seen

a

qui

ck

turnaround

in

investor

demand

over

the

last

24

months,

most

particular

ly in

the last 12 months. The combination

of convenience, lower costs per square foot and the

compleme

ntary

offer

to

online

reta

il

has

kept

these

ass

ets

trading

strong

ly

most

notably

amongst

DIY,

discounters,

homewares

and

food

retailers,

which

should

prove

defensive

if

consumer

spending

levels

decrease.

As

the

second

largest

sector

in

the

Custodian

REIT

portfolio,

the

recovery

in

m

ark

et

sentiment

towards out-

of

-town retai

l has been posit

ive and vac

ancy rates rem

ain low

.

In summary:

•

Units let off lo

w rents

•

Lower costs of occ

upation

•

Complementary to

online

Offices

The offic

e sector

i

s

likely

to be

forever

changed fo

llowing t

he mass

w

ork

ing fro

m home exper

iment

of the

pandemic

despite the government’s current drive to encourage a

return to the office

and the uncertainty

a

potential

e

conomic

do

wnturn

brings.

In

truth,

the

change

that

this

has

brought

a

bout

has

been

an

acceleration of

a

trend

th

at

was

already

embedded.

Prime,

regional

city

cent

res

appear

to

be

showing

demand from occupiers and investor

s

al

ike and

ha

ve outperformed busines

s park

of

fices.

A clear tren

d

that

has

emerged

is

the

need

for

landlords

to

provide

a

gre

ater

level

of

service

and

flexibilit

y

to

office

tenants, the

so called

‘

hot

elisation

’

of

offices.

The ‘hoteli

sation’ of off

ices

We expect a ‘hotel

isation’ of office

buildings to be

necessary to entice

employees away fro

m their

home office whi

le driving rents higher

.

The COVID-19 pande

mic led many

to call the demise o

f the office and val

uations plummeted

as

employees set up

work at kitchen

tables across th

e country, but we do no

t believe that of

fices will

become redundant

and in ‘the eye o

f the pandemi

c’ Custodian REIT

acquired offices

in Manchester

and Oxford and

is using the forme

r as a trial run

for the next phase o

f office investing:

‘the

hotelisation of offi

ces’.

24

The Company is no

t quite breaking new

ground but we are a

t the vanguard of

other landlords wi

th

akin to a concierge se

rvice for office

occupants, gi

ving flexibility and servic

es that are not typical

in

standard 25-year leases

. While the con

cept is yet to

be proven we know

that tenants want

more

from their landlords

than just a lease

.

From conversations

we are having with

occupants and being

occupants o

urselves as a business,

we know that the

re is nothing tenants

hate more than lo

oking at offices and bei

ng shown floor af

ter

floor of empty spa

ce with grey carpe

ts. They don’

t want to take a five

-year lease, have

to fit the

space out and i

nstall a broadband conne

ction; the

y don’t have interes

t in it, they don’t have

time, or

the resources to do

it. On top of those

costs, ten

ants then pay dilapi

dation costs to the landl

ord

when they leave and

must return the buildi

ng to the state it was

in when they took

it.

What you are as

king tenants to do is

fit out an offi

ce, then strip it out, and

put it all in a s

kip and that

is not good for

their ESG credential

s.

Instead, we plan

to offer tenants

a ‘turnkey’ office

wi

th all facilities, fit out, and

services managed by

the Investment

Manager. Occupan

ts want a space they

can walk into and

most businesses

need

the same thing;

a large meeting roo

m, a small meeting

room, a breakou

t area, a kitchen, a

comfortable recep

tion, desks with

an internet conne

ction as most peopl

e work from laptop

s, and

there will

be an element of hotdesking.

Companies expec

t a flexible workspa

ce where they wil

l

have three days a

week heavy use.

Overall, we are seeki

ng to invest in ma

king the offi

c

es ‘nicer than being at home’ so

people actuall

y

want to work the

re.

We are triall

ing the concept with

the building

in Manchester, and

this includes converting

the top

floor into a covered

roof terrace

with a coffee lou

nge, additional meeting

rooms for tenants to use

and a yoga studi

o. Having spoken to

tenants, we are

confident they will pay mo

re for a space that

they can just wal

k into and start

operating from.

Most say they are wi

lling to pay more to take all

the hassle away and

this will

minimise vacancies and drive

the rents highe

r, but we will be selective

over appropriate

locations for this

format and will

ensure upgrades a

re properly costed

to ensure

estimated costs

are supported by expe

cted rental

and valuation increases.

This is just consu

mer behaviour playi

ng out.

People don’

t buy cars anymo

re, they lease them

with

a service plan because

that takes the

problem away. You lease

your phone and when

the

battery

starts to die, you

trade it in for a new

one.

25

People are de

manding a

higher level of

service but

they do not

want the sa

me level o

f responsibi

lity

and ownership as 20

years ago.

Other

Our

key

sub-sect

or

for

growth

within

the

alternat

ive

sector

is

drive-through

where

we

have

grown

our

holding

to e

ight asset

s thr

ough acq

uisition

,

devel

opment

or co

nversion

of ex

isting rest

aurant

sites,

with

a

further conversio

n and acquisition in the pipeline. We believe these assets off

er significant rental growt

h

potential

and

the conv

ersions

carried

out

during

the

year

were

subject

to fierc

e

occupier

compet

ition

from

established o

perators and

, in particular,

new entrant

s into the U

K market

from North A

merica.

ESG

The

sustainab

ility

credent

ials

of

both

the

building

and

the

location

will

be

evermore

important

for

occupiers

and

investors.

As

Investment

M

anager

we are

absolutely

committed

to the

Company’s

challe

nging g

oals

in relation t

o ESG and be

lieve the rea

l estate sector shou

ld be a lea

der in this field.

ESG

has

become

an impe

rative

for

many

investors.

Comm

ercial

real

estate

is

a significant

contributor

to

national

emissions

so

we

believe

an

emphasis

on

how

we

can

improve

the

“E”

(Environmenta

l)

i

s

particular

ly

re

levant

for

real

estate.

In

this

regard

we are

striving

to

beat

the

Company’s

target

to

improve

the Energy

Perfor

mance Certificat

es (“EPC”)

of the

portfolio.

Durin

g the year

the Compa

ny has up

dated

EPCs

at

20

units

across

15

proper

ties

covering

358k

sq ft

for

properties

where

existing

EPCs

had

expired

or where

works had been completed.

For updated EPCs, there

was an aggregate decrease

in rating of

34

energy perf

ormance a

sset rating po

ints.

Energy

perfor

mance

and

emissions

are

important

considerations

across

all

redevelopments

and

refurbish

ments

in

the

portfolio

as

is

the

importan

ce

of

“S”

(Social)

in

creating

an

engag

ing,

appropriate

and

sustainable

(in all

senses of

the word)

built envir

onment.

We

believe

that

ESG

improvements

are an

S

ub

-

sector of

‘Other’ sect

or assets

Weighting

by income

31 Mar 202

2

Weighting

by income

31 Mar 202

1

Motor trade

2

4%

35%

Gym

20%

18%

Pub and rest

aurant

18%

16

%

Drive-throu

gh

14%

7%

Trade counter

8%

7%

Leisure

8%

9%

Other

8%

T

otal of ‘Oth

er’ sector

1

00%

1

00%

26

opportunity

for

shareholder

s to

benefit f

rom the

enhanced rents,

valuations

and

‘

lettablilty

’

of t

he port

folio

which

should

deliver

valuation

improvements

over

and

above

the

cost

of

the inv

estment.

Investing

in rea

l

estate

that

meets

the

ESG

requirements

of

occupiers

and

legislatio

n

should

lead

to

shorter

periods

of

vacancy,

higher

rents

and

enhanced

values.

Remembering

the

“G”

(Governance)

w

e

have

policies,

embedded

in

our

strateg

y,

to

keep

Custodian

REIT

on

target

to

meet

the

required

standards

but

we

remain

focused on

delivering

returns at

the

same

time.

The

targets

the

Company has

set

itself

are

set

out in the E

SG Committe

e report

.

Property port

folio balanc

e

The

propert

y

portf

olio

is split

between the

main commercial

prop

erty

sectors in

line w

ith the

Co

mpany’s

objective

to

maintain

a

suitably

balanced

i

nv

estment

portfolio.

The

Company

has

a

relatively

low

exposure

to

of

fice

and

high

street

retail

co

mbined

with

a

relatively

hig

h

exposure

to

indust

rial

and

to

alternative

sectors,

oft

en ref

erred

to

as ‘other’

in pro

perty

market

analysis.

The

current

sector weightin

gs

are:

Sector

Valuation

31 March

202

2

£m

Weighting

by income

26

31 March

202

2

Valuation

31 March

202

1

£m

Weighting

by income

31 March

202

1

Valuation

movement

before

acquisition

costs

£m

Valuation

movement

including

acquisition

costs

£m

Weighting

by value

31 March

202

2

Weighting

by value

31 March

202

1

Industrial

325.1

38%

270.2

41%

69.1

67.5

49%

Retail

warehouse

125.4

21%

99.7

21%

17.0

16.7

19%

18%

Office

88.1

17%

54.8

12%

0.1

(0.3)

13%

10%

Other

27

76.9

13%

84.4

16%

4.7

12%

15%

High street

retail

49.7

11%

42.8

10%

(4.2)

7%

8%

Gain on

acquisition

of DRUM

REIT

N/a

7.3

N/a

Total

665.2

100%

551.9

100%

94.0

91.7

100%

For details of a

ll propertie

s in the portf

olio please se

e

custodianreit.

com/prope

rty/portfolio

.

26

Current passing rent plus ERV of vaca

nt properties.

27

Includes car

showrooms, petrol filling s

tations, children’s day nurseries, restauran

ts, health and fitness units, hotels and health

care ce

ntres.

27

Acquisitions

The Comp

any invested £

63.5m in the f

ollowing asse

t acquisitions

during t

he year:

•

A

20k

sq

ft

office

buildin

g

on

Fountain

Street,

Manchest

er

for

£6.25m.

The

property

comprises

basement

parking

and

six

floors

let

to

Leyton

UK,

Meridian

Healthcomms,

Venditan

and

Fourthlin

e

with an aggr

egate annual

rent of £407k,

reflecting

a net initial yie

ld

28

(“

NIY

”)

of 6.1%;

•

A 46k

sq ft

retail ware

house

i

n

Cromer

for

£4.5m

occupied by

Homebase

with

an

annual pass

ing r

ent

of £

300

k, ref

lecting a NIY

of 6.3%;

•

A

49k

sq

ft

industrial

asset

in

Knowsley,

Liverp

ool

for

£4.325m.

The

asset

comprises

six

units

occupied

by

Engineering

Solutions

and

Automations,

Portakabin,

Green

Thumb,

Central

E

lectrical

Armature

and

Med I

maging

wi

th

an

aggregate an

nual

passing

rent of

£

260k

,

r

eflecti

ng

a

NIY of

5.6%;

•

A 29k

s

q ft industrial unit in York for £3.0m occupied by Menzie

s Distribution with an annual passing

rent of £186k,

reflecting

a NIY of 5.9%

;

•

A

30k

sq

ft

industrial

unit

in

Dundee

for

£1.9m

occupied

by

Menzies

Distributio

n

with

an

annual

passing re

nt of £

118k

, ref

lecting a NIY of

5.9%; an

d

•

A

24k sq ft industrial unit in

Not

tingham for £1.875m occupied by Hickling & Squires printers with

an

annual pass

ing rent of

£1

30

k, reflecting a

NIY of 6.53%.

On

3 November 2021

the Company acquired

10

0% of

the ordinary

share capital

of

DRUM Income P

lus

REIT

plc.

Consideration

for

the

acquisition

of

20,247,0

40

new

ordinary

shares

in

the

Company

was

calculated on an ‘adju

sted NAV

-for-NA

V basis

’

,

with

each company’s

30 June

2021 NAV being adjusted

for

respective

acquisitio

n

costs

with

DRUM

REIT

’s

property

portfolio

va

luation

adjusted

to

the

agreed

purchase pri

ce of £43.5m

(31 March 2022 va

luation:

£49.0m).

DRUM REI

T’s property

portfolio at 31

March 2022

is

summarised be

low:

•

10

regional

properties

comprising

five

offices,

three

retail

parks,

one

shopping

centre

and

one

industrial est

ate in aggreg

ate covering a

pproximate

ly 330k sq ft

•

79

tenants,

the largest

of which

is Skills

Deve

lopment Scotland with

annua

l

rent

of £0.4m

(c.13% of

DRUM REI

T’s rent roll)

•

EPRA occupancy

rate of 80.1%,

providing som

e short-term ass

et manag

ement opportun

ities

•

WAULT

29

of 3.3

years

•

Contractual ann

ual rent roll of £3.3

m with an

est

imated rental v

alue (“

ERV

”)

of

£4.5m

•

Portfolio valuat

ion of £49.0m

28

Passing rent divided by purchase price pl

us assumed purchasers’ costs.

29

Weighted average unexpired lease term t

o first br

eak or expiry.

28

•

Reversionary yie

ld

30

(“RY”) of

8.

6%

DRUM

REIT

’s

portfolio

represents

an

excellent

fit

w

ith

Custod

ian

REIT’s

investment

policy,

targeting

smaller regional property with a

stro

ng income focus.

The purchase price reflected a

sufficie

nt discount

to

DRUM

REIT’s

N

AV

to

be

accretive

to

exi

st

ing

Custodian

REIT

shareholders

and

to

provide

DRUM

REIT

sharehold

ers

with

an

increase

in

like

for

like

share

price,

as

well

as

delivering

them

a

growing

dividend

from

a

much

larger

specialist

in

the

smaller

regional

property

sector

w

i

th

much

improved

liquidity.

Details of

each property w

ithi

n DRUM REI

T’s portfoli

o are:

Lo

cat

ion

:

G

os

fo

rt

h,

New

cast

le

Se

ct

or

:

Ret

ai

l (

sho

pp

ing

cen

tr

e)

Te

na

nt

s

:

Sa

in

sbur

y

’s,

mu

lti

ple

sm

all

lo

cal

re

ta

il

er

s

RY

:

8.

1%

Ag

re

ed

p

ur

cha

se

pr

ice

: £

8.

975

m

Lo

cat

ion

:

Cen

tr

al

Gl

asg

ow

Se

ct

or

:

Of

fi

ce

Te

na

nt

:

Ski

lls

D

eve

lo

pm

ent

Sc

otl

an

d

RY

:

6.

8%

Ag

re

ed

p

ur

c

ha

se

pri

ce

: £

7.

087

m

Lo

cat

ion

:

Che

ad

le

,

Gr

eat

er

M

an

ch

est

er

Se

ct

or

:

Of

fi

ce

Te

na

nt

s

:

Ag

ile

nt

Te

ch

nol

og

ie

s,

Mic

r

on

Eur

op

e

RY

:

9.

3%

Ag

re

ed

p

ur

c

ha

se

pri

ce

: £

5.

036

m

Lo

cat

ion

:

Edi

nb

ur

gh

Bus

i

ne

ss

P

ar

k

Se

ct

or

:

Of

fi

ce

Te

na

nt

:

Mu

ltip

le

RY

:

10.

0%

Ag

re

ed

p

ur

c

ha

se

pri

ce

: £

4.

593

m

Lo

cat

ion

:

Cen

tr

al

Ma

nc

he

st

er

Se

ct

or

:

Of

fi

ce

Te

na

nt

s

:

Mu

lt

ip

le

RY

:

12.

4%

Ag

re

ed

p

ur

c

ha

se

pri

ce

: £

4.

503

m

Lo

cat

ion

:

Sou

th

po

rt

Se

ct

or

:

Ret

ail

war

eho

us

e

Te

na

nt

:

Mu

ltip

le

RY

:

9.

0%

Ag

re

ed

p

ur

c

ha

se

pri

ce

: £

3.

963

m

Lo

cat

ion

:

Dun

fe

rm

li

ne

Se

ct

or

:

Ret

ai

l

war

eho

us

e

Te

na

nt

s

:

Mu

lt

ip

le

RY

:

9.

8%

Ag

re

ed

p

ur

cha

se

pr

ice

: £

3.

687

m

Lo

cat

ion

:

Gl

ouc

es

te

r

Se

ct

or

:

Ret

ail

war

eho

us

e

Te

na

nt

:

Farm

foo

ds

RY

:

8.

3%

Ag

re

ed

p

ur

cha

se

pri

ce

: £

2.

396

m

Lo

cat

ion

:

Abe

rd

ee

n

air

po

rt

Lo

cat

ion

:

G

ate

she

ad

30

ERV of portfolio divided by

property valuation plus purchaser’s costs.

29

Se

ct

or

:

In

dust

ria

l

Te

na

nt

s

:

Mu

lt

ip

le

RY

:

11.

8%

Ag

re

ed

p

ur

cha

se:

£1

.6

6m

Se

ct

or

:

Of

fi

ce

Te

na

nt

s

:

W

orld

pay

,

Dat

aw

rig

ht

RY

:

17.

0%

Ag

re

ed

p

ur

cha

se:

£1.

6m

Since the ye

ar end the

Company has ac

quired:

•

A

87k

sq

ft

industrial

facility

in

Grangemouth

for

£7.5m

occupied

by

Thorn

bridge

Sawmills

with

an

annual pass

ing rent of

£388k, reflect

ing a NIY of 5.5%;

and

•

A

5k sq ft retail

a

sset in

W

inchester for £3.65m occupied by

Nat

ionwide Building Society and Hobbs

with an aggr

egate annual

passing re

nt of £249k, ref

lecting a NIY

of 6.4%.

Disposals

Owning the r

ight propertie

s at the right t

ime is a key element of

effective property port

folio management,

which

necessarily

i

n

volves

periodically

selling

properties

to

balance

the

property

portfolio.

Identifyin

g

opportunities

to disp

ose of

assets

which

the

m

ark

et

overrates,

have a

special purcha

ser or

that

no

longer

fit with

in the

Company

’s invest

ment str

ategy is

impor

tant

and throug

h the

year

sales proce

eds of

£54.4

m

were

£9.

6m

ahead

of

valuation

when

the

disposals

were

agreed

(or

£5.4m

above

final

quarterly

valuations

prior to sale).

Taking

advantage

of

the

strength

and

depth

of

demand

in

the

industrial/log

istics

sector

and

the

i

ncreas

ing

demand from o

wner occupiers,

we were delighted

to conclude som

e opportunistic

sales during the yea

r.

We

concluded

t

he

port

folio

sale

of

seven

industrial

units

which

we

felt

did

not

meet

our

medium

-t

erm

aspirations for

rental

gro

wth

or

might require

a

leve

l

of

capital expenditure

tha

t

we w

ou

ld

not

recov

er

in

the valuat

ion.

As part

of

the sale,

we agreed

a dela

yed completi

on which

enable

d us

to partially reinvest

the expected

proceeds in

advance of

completion,

which has he

lped to reduc

e cash drag.

We also sold, to owner occupiers/sp

ecial purchasers,

a B&Q retail warehouse in Galashiels and two car

show roo

ms, in Stockport

and Stafford a

s detailed in

the complete list

for the year

below:

•

A port

folio

of

seven

industrial

properties

located

in

Gateshead,

Stockton

-

on

-Tees,

Warrington,

Stone,

Christchur

ch, Aberdeen and Bedford for £32.6m, £5.1m

(19%) above the properties’ valuatio

n when

terms

of

the

sale

were

agreed

and

£2.9m

above

the

last

valuation.

Th

e

properties

were

acquired

either in

the seed portfolio at IPO or

within subsequent

port

folio acquisitions and have

an aggregat

e

current pass

ing rent of

£2.0m reflecting a

NIY on sal

e price of 5.9%;

30

•

A 42k sq ft car sho

wroom in Stoc

kport for £9.

0m, £1.

4m (18%) ahead

of valuat

ion

w

hen terms of

the

sale were

agreed and £0.

4m above the

last valuatio

n;

•

A 2

3k

sq

ft car showroom in Stafford for £4.9m, £1.15m (31%) ahead of valuat

ion when terms of the

sale were

agreed and £0.

9m above the

last valuatio

n

;

•

A 31k sq ft retail warehou

se in Galashiels oc

cupied by B&Q for

£4.5m to a special purch

aser, £1.8m

(67%) ahead

of valuation;

•

High

street

retail

units

in

Norwich,

Nottingham,

Kings

Lynn

and

C

he

ltenham

at

valuation

for

an

aggregate £2.9

m; and

•

A

vacant

children’s

day

nursery

in

Basingstoke

for

£0.6m,

£0.1m

ahead

of

the

last

published

valuation.

Since the ye

ar end the

Company has so

ld a 25k sq ft

car showroo

m occupied by

Audi for £5.6

m.

Outlook

The recovery in N

AV during the year

has been testament

to the st

rength of the UK comm

ercial property

,

allied to Custodian REIT’s

focus on sm

a

ller regional propert

y and the cl

os

e management of the portfolio

to maximise oc

cupancy,

rent collect

ion, cash flo

w and earn

ings.

The absolute focus on income is central to the manage

ment style and strategy of Custodian REIT. Thi

s

approach

is

likely

to

be

validated

as

yield

compressio

n

slows

and

sharehol

der

returns

are

reliant

on

earnings

and

dividends.

Rent

collection

has

normalised

and

Custodian

REIT

has

latent

rental

growth

which will

justify current

valuation

s.

While

th

ematic investmen

t

has been

the

overwh

elming

fo

cus of

invest

ment

ov

er

the last

12 months, we

believe

the

diversifie

d

strategy,

if

applied

with

discretion

and

clear

ai

ms,

wi

ll

be

able

to

capitalise

on

market

misprici

ng

for

recovering

sect

ors

and

offer

sharehold

ers

a

balanced

a

nd

attractive

risk

a

djusted

return.

Richard

Shepherd-Cros

s

for and on be

half of Custo

dian Capita

l Limited

Investment M

anager

16 June 202

2

31

Asset manag

ement rep

ort

Asset manag

ement strate

gy

Our asset m

anagement

strategy is su

mmarised as

follows:

1.

Generating stron

g and predictable

levels of cash

flow

by:

•

In

-house

manageme

nt

and

rent

collecti

on

-

maintaining

direct

relationships

with

tenants

and

identifying ear

ly any iss

ues to they

can promptly be

addressed

•

Minimising

vacancies

–

proactively

discussing

renewals

and

regears

and

pre

-

empting

exits

to

ensure market

ing has co

mmenced in a

dvance of e

xpiry

2.

Enhancing asset va

lue through:

•

Refurbishment

–

ensuring

tenants

perform

maintenanc

e

obligations

within

lease

contracts

and

working w

ith tenants to ac

tively refurbi

sh and impro

ve assets

•

Improving energ

y performanc

e

–

encouragin

g tenants t

o reduce carbon e

missions an

d usage and

investing in as

sets to enh

ance ESG cre

dentials and

future-proof rents

3.

Maximising opportu

nities of

differing cycles i

n different

sectors:

•

Adjusting allocations

–

f

ocus

ing

on areas

with

t

he

best medium-term

rental growth

prospects and

mitigating r

isk by mainta

ining a diver

sified portfol

io

•

Opportunistic

sales

and

acquisi

tions

–

taking

advantage

of

off-market

acquisition

opp

ortunities

and

only

selling

assets

ahead

of

val

u

ation

or

that

no

longer

fit

within

the

C

o

mpany’s

investment

strategy

Our

continued

focus

on

asset

manage

ment

during

the

year

including

rent

reviews,

new

l

ettings,

lease

extensions

and

the

retent

ion

of

tenants

beyond

their

contractual

break

clauses

resulted

in

a

£

13

.4m

valuation in

crease in the y

ear.

32

Property port

folio summar

y

20

22

20

21

Property port

folio value

£

665

.2m

£551.9m

Separate t

enancies

339

265

EPRA occupa

ncy rate

89.8%

91.6%

Assets

160

159

WAULT

4.7 years

5.0 years

NIY

5.7%

6.6%

Weighted a

verage EP

C rating

C (61)

C (63)

Key asset

management in

itiatives compl

eted during

the year include:

•

A 10

year lease with a fifth year tenant break option with DS Smith Packagin

g on a vacant industrial

unit in Redd

itch with an a

nnual rent of

£401k, incre

asing valuat

ion by £3.5m;

•

A 10

year

lease

with

a

fifth

year

tenant

break

option

with

Harbour

Internat

ional

Freight

on

an

industrial

unit in Manc

hester with an

annual rent

of £316k, incr

easing valu

ation by £2.1

m;

•

A

10 year l

ease with a

fifth year tenant break

option with PDS

Group

on a

new

ly

refurbis

hed

vac

ant

industrial un

it in West

Bromwich

with an annual re

nt of £395k,

increasing v

aluation b

y £2.0m;

•

Exchanging

agreements

for

lease

for

15

year

leases

wi

t

h

Tim

Hortons

on

forme

r

Pi

zza

Hut

restaurants

in

Leicest

er

and

Watford,

which

are

to

be

converted

to

drive-

through

restauran

ts

foll

o

wing

Pizza

Hut’s

company voluntary arrang

ement (“

CVA

”)

with aggregate annual rent of £

275

k, increasing valuations

by £1.9m;

•

A

five

year

lease

with

a

third

year

break

option

to

Green

Retreats

at

a

vacant

industrial

unit

in

Farnborough

at an annua

l rent of

£185k, increasing

valuation by

£0.9m;

•

A 10

y

ear lease renewal

with a fifth year tenant break option with M

TS Logistics on an indu

strial unit

in Bardon

with a stepped

annual rent of

£175k, risin

g to £205k, increa

sing valuat

ion by £0.8

m;

•

A

five

year

l

ea

se

without

break

to

Galliford

Try

on

a

vacant

office

suite

i

n

Leicester

with

an

annual

rent of £165k,

increasin

g valuation by £0.

5m;

•

A

10 year lease renewal with a fifth year break

o

ption with BSS Group

at an industrial unit in

Bri

stol,

increasing

the ann

ual pas

sing rent

from

£250k t

o £255k

with an

open m

arket rent

review

in year

five,

increasing va

luation by £0

.3m;

•

A 15 year lease without break

with Pure Gym on a vacant reta

il warehouse un

it in Grantha

m

with an

annual rent of

£90k, incre

asing valuat

ion by £0.3m;

•

A

five

year

lease

wi

t

h

a

fourth

year

tenant

break

option

with

Carbide

Properties

(t/a

Tu

ngste

n

Properties) on

a vacant

of

fice

su

ite

in Leicester with an

annual rent

of £78k,

increas

ing

va

luation

by

£0.2m;

•

A five year

lease

renewal

with a t

hird year

tenant

break opti

on with

The Work

s on

a retail

unit in

Bury

St Edmunds

with an ann

ual rent of

£85k, increasi

ng valuation b

y £0.2m;

33

•

A 10

year

lease

of

the

vacant

grou

nd

floor

and a

five

year ext

ension

of

the

first

f

loor

with

Dehns

at

the

Company’s

recent

ly

acquired

offices

in

Oxford

with

an

aggregate

annual

passing

rent

of

£271k,

increasing va

luation by £0

.2m;

•

A

10 year l

ease with a

fifth year tenant break

option with Livingstone Brown on

a va

cant office

suite

in Glasgow

with an ann

ual rent of

£56k, increasing v

aluation by

£0.2m;

•

A

five

year

lease

renewa

l

with

a

third

year

break

option

with

DHL

at

an

industrial

unit

in

Aberdeen,

maintaining p

assing r

ent at £208k an

d increasing v

aluation by £0.

1

m;

•

A

10

year

lease

with third

and

fifth

year

t

enant

break

options w

ith Ramsdens

Financ

ial

on

a

vacant

retail unit i

n Glasgow w

ith an ann

ual rent of

£55k, increasing v

aluation by

£0.1m;

•

A

10

year

lease

with

fifth

and

seventh

year

tenant

break

options

with

Industrial

Control

Distributors

on an indust

rial unit in Ket

tering with a

n annual re

nt of £25k, incr

easing val

uation by £0.1

m;

•

A

15

year

lease

without

break

with

Loungers

on

a

retail

unit

in

Shrewsbury,

w

ith

an

annual

rent

of

£90k, with no

impact on

valuati

on;

•

A

15

year

lease

renewal

with

a

tenth

year

tenant

break

option

with

Smyths

Toys

on

a

retail

warehouse

unit in Glou

cester with an

annual rent of

£130k, w

ith no impact

on valuation;

•

A

10 year lease with a fifth

year tenant break option

wi

t

h Diamonds of Ch

ester Camelot on a

v

acant

retail unit i

n Chester, w

ith an annual

rent of £35k, w

ith no impact

on valuation;

•

A

five

year

lease

without

break with

Midon

on

an

industrial

unit

in

Kno

wsley,

with

an

annual

rent

of

£37k, with no

impact on

valuation;

•

A

five

year

lease

with

a

third

year

tenant

break

option

wi

t

h

Clogau

on

a

vacant

retail

unit

in

Shrewsbury

with an ann

ual rent of

£50k, with no

impact on val

uation;

•

A

six

month

l

ea

se

extensi

on

with

Saint

Gobain

on

an

industrial

unit

in

Milton

Keynes,

w

ith

passing

rent

increasi

ng from £26

5k to a ‘pre

mium rent’ of £4

41k, with no

impact on v

aluation;

•

A

short-term

four m

o

nth

licence w

ith Royal

Mail

on a

vacant

industrial uni

t in

Redditch

for a

li

ce

nce

fee of £135k,

w

ith no

impact on valuation;

•

A

10

year

lease

renewal

with

a

fifth

year

break

option

with

M

P

Bio

Science

at

an

industrial

unit

in

Hilton, incre

asing pass

ing rent f

rom £28k to

£36k, resulti

ng in an aggr

egate val

uation uplift

of £0.1m;

•

A

10

year

lease

to

SpaMedica

at

a

vacant

office

building

in

Leic

ester

with

annual

rent

of

£87k

and

open market

rent review

in year five,

with no i

mpact on valuatio

n;

•

A lease with Just

for Pets

on a vacant

retail ware

house unit

in Evesha

m for a t

erm of 10 years

w

it

h a

break in year s

ix, at an an

nual rent of

£95k, with no i

mpact on valu

ation;

•

A

five

year

lease

renewal

with

Quantem

Consulting

at

an

office

building

in

Birmingham,

increasing

the annual p

assing rent

from £30k to £3

9k, with no i

mpact on valu

ation;

•

A 10 year le

ase exten

sion wit

h a break

option in y

ear f

ive with Su

bway at

a retail unit i

n Birmingh

am,

maintaining t

he annual p

assing rent

of £14k, with

no impact on v

aluation;

•

A

five

year

lease

renewal

with

a

third

year

tenant

break

option

with

Superdr

ug

on

a

retail

unit

in

Weston-super-M

are with an annua

l rent of £60k,

with no i

mpact on valuation;

34

•

A

five

year

leas

e

renewal without

break

w

ith

Hollan

d

and

Barrett

on

a

reta

il

unit

in Shrewsbury

w

ith

an annual

rent of £60k, w

ith no impact

on valuation;

•

A

three year lease with

Saima Rani Salon on a

vacant retail unit in

Shrewsbu

ry, with

an annual

rent

of £15k, wit

h no impact on

valuation;

•

A

five year lease w

ith

out break

to Realty Law on

a vacant office

suite in Birmingha

m

with an annual

rent of £28k,

with no impa

ct on valuatio

n; and

•

A

fiv

e

ye

ar lease

r

enewal with a third year break

opt

ion to Done

Brother

s (t/a Betfred) at

a retail unit

in Cheltenh

am with an a

nnual rent

of £25k, with no i

mpact on va

luation.

These

positive

asset

management

outcomes

have

been

partially

offset

by

the

imp

act

of

the

Administrat

ions of

JT

F Whol

esale (£586k

of annua

l rent) and

Rapid Ve

hicle Repair (£

71k of ann

ual rent)

which have r

esulted in an

aggregate 1.8%

decrease

in the annua

l rent roll.

Letting

activity

is

strong

across

most

sectors.

We

have

a

strong

pipeline

of

potential

new

tenants

and

since the year

end have

completed:

•

A

five

year

l

eas

e

extension

with

CDS

(t/a

The

Range)

moving

lease

expiry

out

to

2036

,

which

involved

expanding the

external dem

ise by 2k sq ft t

o accommodate a larg

er garden centre

with an additiona

l

£10k

per

annum of rent

payable on th

e new space;

•

A

10-year

lease

o

n

a

vacant i

nd

ustrial

unit

in

Avonmouth to

Nationwide Platforms

with

pas

sing

rent

of £300k;

•

A

10

-year

lease

renewa

l

wi

th

Hey

wood

Williams

(t/a

Window

Ware)

with

the

agreed

annual

rent

of

£289k reflect

ing £8 per sq

ft;

•

A

new 10

-y

ear

le

ase

with Bunzl

on an

indust

rial

u

nit i

n Castleford

at an

incre

ased rent

of £164k,

an

£18k uplift

from the prev

ious passing

rent;

•

A 10

-year le

ase renewal with B&Q in Banbury with a passing rent of £400k, r

eflecti

ng £11.50 per sq

ft; and

•

An

agreement for

a

10-year

lea

se

with

Cost

a

Coffee on

a

high

street unit

in

Colchest

er

with

annu

al

rent of £65k.

Occupancy has be

en negative

ly impacted by the

acquisition of

DRUM REIT b

ut we expect levels across

the

portfolio,

i

n

cluding

DRUM

REIT

assets,

to

continue

to

recover

over

the

12

months

as

we

complete

more new lett

ings, unles

s there were

to be furt

her significant tenant

failures.

35

Property port

folio risk

We

have

managed the

property

portfolio’s

income expiry

profile

through

suc

cessful

asset m

a

nagement

activities

with

57%

of

aggregate

income

expiring

with

in

five

years

from

31

March

2022

(2021

:

53

%)

.

Short-ter

m

income

at

risk

is

a

relatively

low

prop

ortion

of

the

property

portfolio’s

income,

with

38%

expirin

g

in

the

years

(2021:

31%)

and

our

experience

suggests

that

even

in

the

current

uncertai

n

climate, the

majority of t

enants do not

exit at break

or expiry.

Aggregate inco

me expiry

31 March

202

2

31 March

20

21

0-

1

years

15

%

11%

1-

3

years

23

%

20%

3-5 years

19

%

22%

5-

10

years

31%

34%

10+

years

12

%

13%

100%

Outlook

Looking forward, we main

tain a positive outlook with many of the asset management initi

atives currentl

y

under

way

expected

to

come

to

fruition

over

the

months

which

shoul

d

see

new

tenants

secured,

leases extended

an

d

new

investment

into existing assets

improv

ing

the

ir

envi

ronmental credentials and

realising the

ir full potential

.

Alex Nix

Assistant I

nvestment Man

ager

for and on be

half of Custo

dian Capita

l Limited

Investment M

anager

16 June

202

2

36

ESG Commi

ttee report

The ESG

Committee (

“the Co

mmittee”) was c

onstitut

ed on 1 April 2

021.

Its

key responsibilities are:

•

To set the Co

mpany’s environ

mental KPIs,

monitor

performanc

e against t

hose KPIs and ens

ure the

Investment M

anager is

managing

its property port

folio in line with

the ESG policy;

•

To ensure the

C

o

mpany complies

with its

external r

eporting require

ments on

ES

G

matters in

cluding

the

Global

Real

Estate

Sustainability

Benchmark

(“

GRESB

”)

,

E

PR

A

and

Streamlined

Energy

and

Carbon Report

(“

SECR

”)

and ad

opts sector b

est practice

where appr

opriate;

•

To

assess,

at

least

annually,

the

fees

and

scope

of

engage

ment

of

the

Company

’s

envir

onmental

consultants;

and

•

To asse

ss

w

h

ether

the

Company

is

obtaining

a suita

ble

level

of

social

outcomes

for

i

t

s t

enants,

other

stakeholders

and the co

mmunities in w

hich it operat

es.

The

Company

is

committed

to deliver

ing

its

strategic

objectives

in

an

ethical

and

responsible

manner

and

meeting

its

corporate

responsibilitie

s

towards

society,

human

rights

and

th

e

environ

ment.

The

Bo

ard

acknowledges

its

responsibility

to

society

is

broader

than

simply

generating

financia

l

returns

for

shareholders

.

The

Comp

any’s

approach

to

ESG

matters

address

es

the

importance

of

these

issues

in

the day-

to

-day r

unning of the bus

iness, as deta

iled below.

ESG

approa

ch

Environment

al

-

w

e

want

our

properties

to

minimise

their

impact

on

the

local

and

wider

environment

.

The

Investment

Manager

carefully

considers

the

environmental

performance

of

our

properties,

both

before

we

acquire

them,

as well

as

during our

period

of ownership.

Sites

are visited

on a

regular basis

by

the Invest

ment Manager a

nd any obvious

environ

mental issues are

reported.

Social

-

Custodian REIT strives t

o manage and dev

elop buildings

which are safe

,

comfortab

le and high-

quality

spaces.

As

such,

our

aim

is

that

the

safety

and

w

e

ll-being

of

occupants

of

our

buildings

is

maximised.

Governa

nce

-

high

standards

of

corporate

gover

nance

and

disclosure

are

essential

to

ensuring

the

effective

operation

of

the

Compan

y

and

instilling

confidence

amongst

our

stakeholders.

We

aim

to

continually

improve our l

evels of govern

ance and d

isclosure t

o achieve indust

ry best practice.

T

he

Comm

ittee encourag

es the Inve

stment Ma

nager to

act respons

ibly in the

areas it

can influence

as a

landlord, for

example

by

working

with

tenants

to

improve

the

environmental performance of

the

37

Company’s

properties

and

minimise

their

impact

on

climate

change.

The

C

o

mmittee

believes

that

following this

strategy

will

ulti

mately

be

to

the bene

f

i

t of

shareholders

through

enhanced

rent

and

asset

values.

T

he

Company

’s

environ

mental policy co

mmits the

Company to:

•

Improving the energy performance of our

b

uildings

-

inv

esting in

carb

on reducing technology,

infrastructure

and

onsite

renewables

and

ensuring

redevelopments

is

completed

to

high

environment

al standards.

•

Reducing energy usage and emissio

ns

- liaising closely with

our tenants to gather

and analyse

data on the en

vironme

ntal performance of

our prope

rties to identify area

s for impr

ovement.

•

Achieving social

outcomes

an

d

supporting

loc

al

communit

ies

-

engaging

construct

ively

with

tenants

and local

governme

nt

to

ensure

we

s

upport

the

wider

co

mmunity

thr

ough

local

economic

and

environmenta

l

plans

and

strategies

and

playing

our

part

in

providing

the

real

estate

fabric

of

the econo

my, giving e

mployers safe p

laces of busin

ess that pro

mote tenant w

ell-being.

•

Understan

ding

environmental

risks

and

opportunities

–

allowing

the

Board

to

maintain

appropriate

governa

nce

structures

to

ensure

the

In

vestment

Manager

is

appropriately

mitigatin

g

risks and

maximising op

portunities

•

Reporting

in

line

with

best

practice

and

com

p

lyi

ng

with

all

requirements

-

exposing

the

Company

to

public

scrutin

y

and

communicating

our

targets,

activities

and

initiatives

to

stakeholders

Cladding

Custodian REIT

’s

portfolio currently has no exposure to ‘

high r

isk’ assets which are typically either high

-

rise

b

uildings

(characteristically

those

over

18m

ta

ll)

which

use

clad

ding

in

their

construct

i

on

or

those

used for

multiple res

idential

occupation.

Custodian REI

T does

have exposur

e proper

ties

where c

ladding

material

has

been

used

i

n

their

construction,

and

wher

e

the

composition

of

the

material

is

unkno

wn

.

During

the

year

the

Board

instigated

a

detaile

d

review

of

the

Company’s

clad

ding

risks

and

obligations

involving

the I

nvestment

Manager

a

nd t

he

Company’s

soli

citors.

This

review

has

resulted

in th

e

Investment Manager implementing a more

exte

nsive cladding policy, moving beyond

the mandatory fire

risk assessment req

uirement

s for properties where the compos

ition of cladding material is unknown and

actively

core-drilling

and

replacing,

where nec

essary,

cladding

not

co

mpliant

with

Loss Pr

eventio

n

Certification

Board

guidelines.

This

improved

policy

demonstrates

that

the

C

o

mpany’s

commitment

to

community

safety

signif

icantly

exceeds

the

minimum

required

in

discharging

its

dut

y

as

a

‘Responsible

Person’

31

.

A summary of

the revised po

licy is set

out below:

31

As defined by the LPCB Loss Preven

tion Standards.

38

•

‘High

risk’

bu

ildings

will

not

be

acquired

without

a

co

mprehensive

r

ationale

to

decreas

e

risk

on

acquisitio

n, and require sp

ecific approva

l by the Boar

d;

•

All tenants provide the Investm

ent Manager their Fire Risk Asses

sment (

“

FRA

”

)

which is reviewed

to ensure;

o

It has

been undertake

n by a reputabl

e fire risk asse

ssor;

o

The

tenant

confirms

i

n

writing

that

recommendatio

ns

and

remediations

are

being

actioned to

mitigate the ov

erall risk prof

ile; and

o

The loca

l fire authority i

s contacted a

s required.

•

Following

a

desktop

review

of

each

building

within

the

portfolio,

including

approaches

to

l

oca

l

building control, to

ascert

ain the

co

mposition of any

clad

ding used

in construction

,

t

he

Invest

ment

Manager

will

arrange

to

undertake

core

drill

samples

of

cladding

where

considered

appropriate

with

priority

given to

buildings

identified as

‘

Code

1

’

under LPCB

guidelines

which i

nclu

des

those

with

cladding reco

mmended fo

r immediate sa

mpling or p

roperties ope

n to the publi

c use.

•

Where non L

PC

B co

mpliant claddin

g is identifie

d the Investment Man

ager wil

l:

o

Notify b

uilding insurer

s, the Local F

ire Authority a

nd the tenants

in occupation;

o

Insist that

tenants undert

ake an up

dated FRA ba

sed on the cla

dding compos

ition;

o

Review t

he FRA and

ensure the tenant

is complyi

ng with any r

ecommended a

ctions.

•

Going forward

s the Invest

ment Mana

ger will:

o

Hold

qu

arterly

fire

risk

review

meetings

to

specifically

review

progress

to

date

and

implement

any outstandi

ng actions

o

Maintain

a

live

cladding

l

og,

detailing

the

progress

to

date

in

implementin

g

and

maintaining c

omplianc

e with t

he cladding po

licy

;

o

Maintain

an

approved

list

of

suitable

Fi

r

e

Risk

Ass

essors

w

h

ich

can

be

provid

ed

to

tenants if t

hey do not hav

e any of their o

wn fire con

sultants

;

o

Engage

wit

h

its

legal

advi

sors

to

seek

to

make

lease cl

aus

e

obligations

aro

und

Fire

Risk more ex

plicit and compr

ehensive in al

l new leases.

Environment

al key perf

ormance indicator

s

During

t

he

pri

or

financi

al

year

the

Company

set

environ

mental

target

s

meas

ured

by

key

perfor

m

anc

e

indicators

(

“

KPIs

”

)

which

provide

a

strategic

way

to

assess

its

succes

s

towards

achieving

its

environment

al

object

ives

and

ensure

the

Investment

Manager

has

embedd

ed

key

ESG

principles.

These

environment

al

KPIs

cover

our

main

areas

of

environ

mental

impact

including

energy

efficiency,

greenhouse

gas

emissio

ns, water,

waste and tena

nt engag

ement.

These

environment

al

KPIs

also

directly

support

climate

r

isk

mitigation

and

capture

some

ESG

opportunities

from

the

transition

to

a

low

-c

arbon

economy.

As

we

progress

our

climate

-

identificatio

n and

management,

we aim to

identify a

nd implement

further cl

imate-related metric

s that ca

n

more clearl

y define th

e impact of

climate-relate

d risks

and opport

unities on our

business.

ESG reporti

ng

39

frameworks,

including GRESB, require business

es to

disclose the KPIs which contribute towards

benchmark sc

oring and p

otentially influen

ce investor decis

ions.

The Comp

any’s

environ

mental KPIs i

n place durin

g the year, and co

mments relati

ng to our perfor

mance

against eac

h one, are set

out below:

Boundary

KPI

Progress duri

ng

t

he year

Whole

portfolio

Reduce

total

portfolio

Scope

1

and

2 emissions

by 30% by 20

25

The

like-for-like

data

collected

from

tenants

indicates

a

44%

reduction

against

the

2019

baseline.

Ho

wever,

because

this

percent

age

is

based

on

a

relatively

sm

all

samp

le

populati

on,

the Board believes that although this indicates a

positive p

erformanc

e by

the Com

pany’s

tenants,

the pop

ulation

is in

sufficient

to conclude

that

this

objective

has

been

met

and

in

the

year

endin

g

31

March

2023

the

Investment Manager

will

continue

to

m

ak

e

efforts

to

improve

tenant

response rates.

Al

l

‘D’

EPC

ratings

to

be

remove

d

or

improved

by

2027

,

all

‘E’

EPC

ratings to

be removed

or i

mproved

by

2025

and

all

‘F’

and

‘G’

EPC

ratings to

be removed

or improved

by 31 March

2022

There

are

no lo

nger

any

‘G’

rated asset

s

and

the

one remain

ing ‘F’

is being

improved

.

During

the

year

the

Company

has

updated

EPCs

at

20

units

across

15

properties

covering

358k

sq

ft

.

The

Company

is

currently

revi

ewing

and

undertakin

g

ne

w assessments of any EPCs that

are

older

than

five

years b

elow

a

‘

C

’

rat

in

g.

A

‘C’

rating

is

expected

to

become

the

minimu

m

standard

und

er

the

Minimu

m

Energy

Efficiency

Standard (“

MEES”) in 202

7.

Reduc

e

Scope

1

and

2

energy

consumption

of

the

property

portfolio

by

15%

against

a

2019

baseline by 2

025

The

like-for-like

data

collected

from

tenants

indicates

a

54%

reduction

against

the

2019

baseline,

but

subject

to

uncertainty

due

to

a

small

sample po

pulation as ex

plained above.

Landlord

controlled

Switch

a

ll

landlord-cont

rolled sites

to

100%

renewable

electr

icity

by

2025

Currently

at

94%

and

we

expect

to

achiev

e

100%

by 2023.

Switch

a

ll

landlord-cont

rolled sites

to green gas

by 2025

12

properties

ha

ve

moved

during

t

he

year

and

we re

main

on

track to

achieve

this t

arget

by

2025.

Install

EV

charg

ing

points

across

100%

of

the

Compan

y’s

retail

warehouse

assets

by

2025

and

investigate

onsite

renewables

on

one asset by

2025

We

hav

e

EV chargers

op

erating

at seven

of our

11

retail

warehouse

sites

with

i

n

stallation

at

the

remainder curre

ntly under

way.

Zero

w

a

ste

to

landfill

from

landlord-contro

lled waste

by 2022

Zero waste

to landfill fr

om landlord-contro

lled

waste

was achie

ved durin

g 2021.

2% of

tenants

’

40

waste

has

be

en

sent

to

landfi

ll

duri

ng

the

year

due to a one-

off capital pr

oject undert

aken.

Reduce

landlord-controlled

water

consumption

by 50% by 2

025

Landlord

water

consumption

has

reduced

by

18

% since the

prior ye

ar.

Tenant

Engage

with

occupi

ers

during

lease

negotiations

to

i

nc

orporate

sustainabi

lity

clauses

into

new

leases

Green

cl

a

uses

to

include

renewable

electri

city

as

standard w

ithin all ne

w leases.

Engage

with

tenants

on

quarterl

y

basis on ESG

issues

Tenant

engagement

is

part

of

the

Investment

Manager’s

remit

,

which

it

has

complied

with

during the year,

as it coll

ects all rent an

d directly

manages ea

ch property

in the portf

olio.

Developme

nt

Achieve

EPRA

G

old

Sta

ndard

for

the year end

ed 31 March

2021

Achieved.

Report t

o TCFD by 2021

Selected

element

s

of

the

TCFD

reporti

ng

framework

have been f

ollowed.

Incorporate ESG

factors

into

all

investment

due

diligence

undertaken

Investment

Committee

reports

for

any

new

property

acquisition/refur

bishment

now

include

dedicated

ESG

rationale

detailin

g improve

ments

to

be

made

alongsid

e

relevant

expected

capital

expenditure.

To

help

the

assessment

of

progress

aga

inst

KPIs

a

central

data

manage

me

nt

syste

m,

hosted

by

the

Company’s

environment

consu

ltants,

has

been e

stablished to

provide a r

obust data

collation

and

validation

process

.

This

data

management

system

is

being

used

to

i

de

ntify

tenant

engagement

and

asset

optimisation

opportunities

and

faci

litates the

commu

nication of

environment

al performance

data to

various stake

holders.

Due to

the

success

of the I

nvestment M

anager

in m

eeting cert

ain of

the environ

mental target

s

during th

e

year

and

the

Board

’

s

ambition

to stre

ngthen

the Co

mpany’s

environ

mental

credentials,

the

Board h

as

set

the followin

g revised targe

ts to be reported

against i

n the financial

year ending

31 March 2023:

Area

Target

Change

from

previous tar

gets

Physical

building

improveme

nts

(whole

Increase EV c

harging c

apacity to the

following by 2

025

32

:

•

4,200

kW/h

33

across retail

warehou

se

and other

sect

or

assets; and

•

980 kW/h

34

across offi

ce and industr

ial assets

New

32

Excluding assets with no ca

r parking facilities.

33

Equating to 56 75kW

‘

Rapid

’

Charger

s.

34

Equating to 140 7kW

‘

Fast

’

Chargers

.

41

portfolio

boundary)

Install

onsite

renewable

electricity

generation

at

75%

of

redevelop

ments and

major refurbish

ments

New

Install

smart

meters

across

25%

of

the

portfolio

by

floor

area

New

All ‘D’

EPC rat

ings to

be removed or

improved by

2027

and

all ‘E’ EP

C ratings to

be removed or

improved by

2025

Retained

All

redevelo

pments

to

achieve

Building

Research

Establish

ment

Environment

al

Assessment

Method

(“

BREEAM

”)

Exce

llent rating

New

Landlord

controlled

usage

(landlord

controlled

boundary)

For landlord controlled areas in the like for like portfolio, on

a 2019 base

line, achiev

e:

•

Reduction in Sco

pe 1 and

2 emissions of

30% by 20

25

•

Reduction in energ

y cons

umption of 15%

by 2025

•

Less than 5% wast

e to landfill by

2022

•

Reduction in water

consumption b

y 50% by 2

025

Retained

Switch

all

landlord-contr

olled

sites

to

100%

renewable

electricity by

2023

Retained

but

timetable

accelerate

d

Switch all

landlord contro

lled sites to gre

en gas by 2023.

Retained

but

timetable

accelerate

d

Risk

management

and reporti

ng

Use

TCF

D

recommend

ations

and

reporting

framework

to

disclose

our

approach

to

climate

nance,

strategy, r

isk managemen

t and opportu

nities

Amended

to

omit

elements

of

TCFD

as

the

Company

is

exempt

from

mandatory

TCFD

reporting

Incorporate

ESG

factors

into

all

investment

due

diligence

undertaken

Retained

Achieve an

annua

l

improv

ement in

GRES

B

scor

e

bet

ween

2021 and 20

25

New

Continue

to

report

in

line

with

EPRA

sustainab

ility

Best

Practice Reco

mmendatio

ns to achieve a

‘gold’ standard

Retained

Tenant

engageme

nt

(tenant

boundary)

For

the

non-landlord

controlled

like-for-like

portfolio

,

on

a

2019 base

line, achieve:

•

Reduction in Sco

pe 1 and

2 emissions of

20% by 20

25

•

Reduction in energ

y cons

umption of 10%

by 2025

Amended

to

separate

landlord

controlled

and t

enant contr

olled

emissions,

with

lower

targets

for

tenant

performanc

e

where

the

Compa

ny

does

not

have direct co

ntrol

Engage with t

enants on

a

quarterly bas

is on ESG is

sues

Retained

Engage

with

occupiers

during

lease

negotiations

to

incorporate su

stainability

cl

au

ses into ne

w leases

Retained

42

Social

outcomes

Utilise 25% of vacant high street retail space for short-term

not

-for-prof

it lettings

New

Install

changing

facilities

and

secure

cycle

parking

at

all

appropriate a

ssets

New

Ensure propertie

s comply with the Company’s cladding

policy with

in three months

of acquisiti

on

New

Consider

biodiversity

and

habitat

strategy

during

all

redevelop

ments

New

Investment de

cisions

Investment

decisions

will

play a

key role

in achievin

g

the

C

ompan

y’s

environment

al KPIs.

The Compa

ny

undertakes

an

enviro

nmental

assessment

on

vacated

assets

an

d

during

the

acqu

isition

due

diligence

process

,

rating

assets

or

tenants

against

a

nu

mber

of

ESG

factors

which

form

part

of

t

he

Investment

Committee

decision

making

process

.

This

process

also

helps

the

Investment

Manager

evaluate

the

potential

environmenta

l

risks

and

opportunit

ies

assoc

iated

with

an

asset

and

the

i

mpact

on

the

achievement

of the KPIs.

The

Company

’s

procure

ment

policy

for

property

ser

vices

includes

an

assessment

of

new

suppliers

on

their

specificat

ion

and

use

of

sustainable

and

energy

efficient

m

ater

ials,

systems,

equipment,

onsite

operating

practices

and

performance

evaluation/ince

ntives

put

in

place

for

direct

external

suppliers

and/or

service prov

iders to empl

oy sustainab

le processes

in day-

to

-day work.

ESG policy

To

achieve

the

C

o

mpany’s

environmental

objectives

and

targets,

th

e

Inve

stment

Manager

seeks

to

achieve the fo

llowing:

Environment

•

Ensure operat

ions are

i

n

place

to co

mmit to

the minimisation

of pollut

ion and

comply

w

ith

all relevant

environment

al legislati

on;

•

Gather and analyse d

ata on our env

ironmenta

l performanc

e across our

business an

d portfolio; and

43

•

Set long-term targets of environmental performa

nce for our properties and monitor achieve

ments as

a commit

ment to contin

uous improve

ment.

Climate chan

ge adaptati

on & resilienc

e

•

Through our risk

management

process, ident

ify climate-relate

d risks, bot

h physica

l and financia

l;

•

Perform environm

ental risk

assessments of

our property

portfolio on a

n on-going basis;

•

Design

mitigation

and

ma

nagement

strategies

for

cli

mate

and

environmental risks

and

resilien

ce

to

catastrophe/

disaster; and

•

Improve

our

reputation

on

environmental

issues

by

i

ncorporating

resilience

to

climate-related

transition an

d physical ri

sk disclosures

Energy con

sumption

& management

•

Comply

with a

ll a

pplicable

,

relevant

energy-related

legislation

and

other req

uirements

and adopt

best

practice bey

ond the mand

atory mini

mum where app

ropriate;

•

Seek to reduce e

nergy usage acr

oss propert

ies we cont

rol;

•

Monitor energy c

onsumption acros

s propert

ies we contr

ol, and tenant

consumption,

where poss

ible;

•

Seek engagement

with tenants t

o make mean

ingful reductio

ns to their e

missions and po

llution;

•

Procure renewabl

e energy across

properties w

e control;

•

Review our energy

objectives an

d targets on

an annual b

asis;

•

Promote energy eff

iciency and m

anagement

to our tenants;

and

•

Where possible,

build in gr

een lease clauses

35

into our

tenant leases.

Building m

aterials

•

When

w

e

have

the

opportunity

to

dev

elop

new

propert

y

or

refurbish

current

assets,

we

co

mmit

to

reviewing build

ing materials which have a lower environ

mental impact and

to select these materia

ls,

if appropriate;

and

•

Select greener building materia

ls, in line with our vision to increase the sustainab

ility certifications of

our property p

ortfolio.

Greenhouse g

as (“

GHG

”)

emiss

ions and mana

gement

35

A ‘green lease’ incorporate

s clauses where the owner and occupier u

ndertake specific responsibilities/obligation

s regarding t

he sustainable op

eration/occupation of

a property, for example: en

ergy efficiency measures,

waste

reduction/

management and water efficiency.

44

•

Quantify

our

Scope

1

and

2

(landlord

controlled)

emissions

on

an

annual

basis

in

line

with

our

reporting requ

irements;

•

Gather tenant en

ergy consu

mption data, w

here possib

le, to quant

ify our lease

d assets emiss

ions;

•

Comply

with

and

make

representatio

ns

to

industr

y-standard

ESG

frame

works

including

both

the

EPRA An

nual Sustainabi

lity Report an

d the GRES

B;

•

Continue

to

expand

our

carbon

reporting

in

line

with

industry

expectations

and

rel

ev

ant

legislation;

and

•

Reduce

our

green

house

gas emissions

through

v

arious

energy reduction

init

iatives

includ

ing

virtual

conferencing

m

eet

ings to reduce t

ravel.

Further

infor

mation

on o

ur

GHG e

missions

is

set

out

w

ith

in o

ur

SECR d

isclosur

es

in

the Dir

ectors’

report.

Waste man

agement

•

Monitor waste leve

ls across our

properties a

nd monitor tenant

consumpt

ion, where

possible;

•

Implement landf

ill diversion waste

strea

ms such as r

ecycling in our prop

erties, wher

e possible; an

d

•

Promote waste

management

to our tenants.

Water consu

mption and

management

•

Monitor water co

nsumption across

our properti

es and monitor t

enant consu

mption, where po

ssible;

•

Identify

and

implement

water

reduction

technolog

ies

and

opportunities

within

our

property

portfolio,

where possib

le; and

•

Promote water

managem

ent to our tenant

s.

On

-site carbon-red

ucing t

echnology

•

Install electric ve

hicle char

ging points acros

s the port

folio where de

mand is suff

icient;

•

Install smart meter

s where

tenants are a

menable a

nd in all vaca

nt properties

once re-let; and

•

Investigate other carb

on-reduc

ing technolo

gy during sign

ificant refurbis

hments

.

Biodiversity

•

In the circumstances where we are developing new assets,

the biodiversity of the development

area

will

be

considered

and

maintained

to

the

highest

l

ev

el

possible.

We

will

promote

sustainable

practices

by reducing

the direct pre

ssure on b

iodiversity a

nd habitat

by selecting

more sustainable

materials.

45

Asset level

safety, health

and

well-bein

g

We

wish

to

m

an

age

and

develop

buildings

which

are

safe,

comfortable

and

high-qua

lity

spaces.

As

such,

our

aim

is

that

the

safety

and

well-being

of

the

occupants

of

our

buildings

is

maximised.

We

will

impleme

nt

a

property

portfolio

approach

to

well-being

which

encourages

engagement

wi

th

tenants,

promotes

carbon

reducing behaviours

,

ensures maximu

m

building

safety and

optimises the comfort

and quality of

occupancy.

Stakeholder

engagement

We

engage

regu

larly

with

the

following

internal

and

external

stakeh

olders

on

environmental

and

social

matters:

•

Board

–

the

Board

m

eet

s

at

least

quarterly

and

receives

a

report

from

the

ESG

Committee

on

performanc

e and progres

s towards our ob

jectives;

•

Investment Manager

–

the Investment Manager has an

ESG working group which meets

fort

nightly.

Property

team

staff

roles

and

respons

ibilities

include

ESG

which

is

em

bedded

across

the

work

it

carries out

on behalf of t

he Compan

y;

•

Managing

agents

–

we

receive

q

uarter

ly

reports

on

our

asset

performance

and

engage

direct

ly

on

property portf

olio optimisa

tion

;

•

Tenants

–

we

seek

to

engage

with

tenants

on

a

quarterly

basis

both

to

understa

nd

consumption

trends

and

data

an

d

un

derstand

wher

e

we

can

upgrade

and

optimise

build

ings

for

tenant

w

ell-being

and

environment

al impact

reductions;

•

Local

communities

and

charities-

we

work

closely

with

local

communities

and

charities

in

particular

utilising u

n-let space for

the benefit of

the local co

mmunity

•

Suppliers

and

business

partners

–

we

operate

a

procurement

policy which

seeks

to

ensure

sustainable pr

oducts and

business pract

ices are a

dopted by o

ur suppliers.

To

monitor

energy

consumption

across

the

propert

y

portfolio,

as

well

as

identify

opportunities

to

make

energy

reductions,

the

Company

has

engaged

with

Carbon

Intellige

nce

to

provide

strategic

advice

on t

he

process.

This

collaborati

on

promotes

the

ethos

of

investing

responsibly

and

has

ensured

statutory

compliance

with

the

Energy

Savings

Opportunity

Scheme

(ESOS)

Regulations

2014

and

The

Companies

(Director’s report

) and Limited Liability Part

nerships (Energ

y and Carbon Report

) Regulations 2018

, and

has facilitat

ed inclusion of

EPRA Sustainabil

ity Best Practi

ce Recommen

dations in the

Annual Re

port.

Case study

–

Redditch

46

The Co

mpany expect

s to r

eceive plann

ing permiss

ion in June

2022 to r

edevelop an

existing

59,000 sq

ft

industrial bu

ilding const

ructed in the

1980’s int

o a brand ne

w 60,000 sq f

t industrial/

distribution fac

ility.

The

new

developme

nt

w

i

ll

be

built

with

exceptional

E

SG

complia

nce

and

will

be

certified

BREEAM

‘Excellent’

as

well as hav

ing an Energy

P

erf

ormanc

e rating ‘A’.

In

order

to

achi

eve

this

the

specification

will

include:

a

carbon

neutral

base

build,

electric

vehicle

charging

points,

solar

photovolta

ic

panels

to

the

south

facing

roof

elevations,

LE

D

lighting

to

wareh

ous

e

and

offices, cyc

le storage an

d shower facil

ities and bat r

oost to cat

er for local bi

odiversity.

The

expecte

d

cost

of

the

redevelopment

is

£5.8m

and

w

i

ll

generate

an

estimated

rental

value

in

the

region

of

£500k pa.

Given

the

occupat

ion

dema

nd

in

this

local

ity,

we

are confident

the

prop

erty

will

be pre

-let

prior to co

mpletion of the

construction.

Case study

–

EV chargers

Our

latest

round

of

el

ectri

c

vehi

c

le

(“EV”)

charger

installations

has

resulted

in

the

Company

partnering

with

Pod

Point,

one

of

the

largest

national

charging

networks,

to

install

EV

charging

points

at

our

remaining

retail

warehousing

sites

and

commencin

g

the

rollout

across

appropriate

industri

al

and

office

sites.

At each reta

il warehou

sing site Pod Point i

dentifies

the optimum

number of

chargers to:

•

Minimise

the

‘

payback

’

period

on

the

upfront

capital

expenditure,

targeting

4-6

years,

which

enhances

short-term e

arnings and

minimises ob

solescenc

e risk;

•

Maximise overall

investm

ent return over a t

en year invest

m

ent hor

izon; and

•

Maximise the tot

al available char

ging capacit

y to help

achieve t

he Compan

y’s ESG target

s.

Installing

EV

chargers

for

public

use

al

s

o

enhances

properties’

occupier

appeal

by

increasing

both

customer footf

all and d

well time.

Office

and

industrial

tenants

now

expect

EV

charg

ing

as

a

feature

on

-site

when

loo

king

for

properties

based

on

their

require

ments

for

thei

r

EV/h

ybrid

fleet

or

staff

use.

Pod

Point

provides

advice

on

th

e

required load

man

agement system, groundworks, and

infrastruct

ure

to suit

t

enants’ req

uire

ments which

are

typically

willing

to

pay

a

r

ental

premiu

m

which

allows

the

Co

mpany

to

at

l

east

re

-co

up

its

capita

l

ex

penditure

whilst meetin

g our ESG

targets and fut

ure-proofing t

he asset

.

47

We currently hav

e 14 properties in the p

ipeline for installation with a tota

l of 14 rapid (75kW) charg

ers at

retail ware

housing site

s and a furt

her 23 fast (

7kW) charger

s at office and

industrial loc

ations.

With

many

t

owns

in

the

UK

introduc

ing

clean

ai

r

zones

where

a

congest

ion

fee

is

charged

for

driving

through

certain

areas

and

the

Government

banni

ng

production

of

all

new

petrol

or

diesel

vehicles

from

2030

, we exp

ect to receiv

e further

demand and

income for thes

e chargers in t

he coming y

ears.

48

Case study

–

c

haritable le

ttings

During

the

year

the

Company

has

all

owed

the

foll

owing

c

haritable

lettings

at

some

of

its

v

acant

retail

space,

rent

fr

ee,

w

hich

has

saved

the

Company

vacant

rat

es

and

helped

the

commun

ities

i

n

which

it

operates:

Lo

ca

ti

on

Re

nt

(r

at

ea

bl

e

val

ue)

£0

00

An

nual

ra

te

s

£

00

0

Pr

evi

ous

te

na

nt

Ch

ar

it

ab

l

e

us

e

Gr

af

to

n

Ga

te

, M

ilt

on

Ke

yn

es

32

5

16

6

St

ap

les

Wi

ll

en

Ho

sp

ice

-

cl

ea

ra

nc

e

out

let

Ea

st

er

n

Av

en

ue

,

Gl

ou

ce

st

er

18

6

95

St

ap

les

Fur

nit

ur

e

Re

cy

cl

ing

Pr

oj

ect

-

st

or

ag

e

Tr

in

it

y

Sq

ua

re

,

Co

lc

he

ster

11

4

58

La

ur

a

As

hl

ey

We

are

t

he

Mi

nor

ies

-

a

rt

ga

lle

r

y

an

d

cr

ea

ti

ve

co

mm

un

ity

sp

ac

e

Lo

ng

W

yr

e

St

re

et

,

Co

lc

he

ster

75

38

Po

un

dl

and

On

e

Co

lc

he

ster

-

co

mm

un

ity

h

ub

49

EPC ratings

During the y

ear the Co

mpany has upd

ated EPCs

at

20

units across

15

propert

ies covering 35

8k sq ft f

or

properties

where

existin

g

EPCs

had

expired

or

where

works

had

been

completed.

For

updated

EPCs,

there was an

aggregate

decrease in rat

ing of

34

‘en

ergy p

erfor

mance asset ra

ting points

36

The Invest

ment Manager is currently rev

iewing and undertak

ing new asses

sments of any EPCs that

are

older

than

f

ive

years

and

below

a

‘C’

ratin

g.

A

‘C’

rating

is

expected to

become

the

minimum

stan

dard

under the M

inimum En

erg

y Efficiency

Standard (“M

EES”) in 2

027.

The Comp

any has the f

ollowing ESG

initiatives

planned in t

he coming fin

ancial year:

•

The

tenant

at

a

100k

sq

ft

industrial

unit

in

Winsford

is

vacating

in

June

2022

and

an

extensive

refurbish

ment

i

s

exp

ected to

be undertaken inclu

ding installing solar

pa

nels to the

roof, LED lighting

throughout,

air

source

heats

pumps

t

o

heat

the

office

space

and

E

V

charging.

Th

ese

works

are

expected to

increase th

e EPC of this s

ite from a

‘

C

’

to a

‘

B

’

.

•

During

the

year we

purchased

a

19k

sq

ft

of

office

on Fountai

n

Street

in Manc

hester

with

the

intention

of

undertakin

g

a

compreh

ensive

refurbish

ment

of

the

site

which

will

include

installin

g

solar

panels,

LED

lighting, bi

ke racks,

shower

facilit

ies

with

lock

ers

and

EV

charg

ing.

Recycled furniture

will

also

be

incorporated

into

the

cat

B

fitout

and

roof

terrace

w

ith

a

conseque

ntial

improvement

on

EPC

rating.

The Comp

any’s weighte

d average E

PC score

by rati

ng is illustrated b

elow:

36

O

ne EPC letter

represents

25 energy

performance asset rating points.

3%

21%

49%

20%

7%

0%

Weighted average EPC 31 Ma

rch 2022

A

B

C

D

E

F

50

The weighte

d average sc

ore by sector at 31

March

2022 is illustrat

ed below:

This

graph

s

hows

that

t

he

majority

‘E’

rate

d

assets

are

within

the

office

sector,

including

a

n

umber

of

assets from the DRUM REIT acquisition,

and appropria

t

e investment is p

la

nned to make the necessary

improveme

nts in these as

sets.

Climate-relate

d risks and

opportunities

Climate change poses a

n

umber of

ph

ysical risks

to our property portfolio, for example those

cause

d

by

the increased frequen

cy and severity of extreme we

ather events.

The Co

mmittee also recognises there

are a number of transition-related risks, includin

g economic, technolo

gy or regulatory challenges related

to movin

g to a

greener econ

omy which it

needs to

consider.

But clim

ate chang

e also prov

ides

opportunities

to invest in a

lternative ass

et classes or

to provide ten

ants with ad

ditional serv

ices.

Governance

1%

15%

43%

30%

11%

W

eighted

average EPC

31 March 2021

A

B

C

D

E

0

10

20

30

40

50

Industrial

Office

Other

Retail

Retail Warehouse

A

B

C

D

E

F

51

The Board is

ulti

mately responsible to stakeholders for

the Company’s

activities and

for oversig

ht of

ou

r

climate-related risks

a

nd oppo

rt

unities.

Specifica

lly, the

ESG Committee i

s the B

o

ard

-l

evel

go

vernance

body respon

sible for rev

iewing our ident

ified cli

mate-related risks alon

gside ou

r ESG strat

egy.

The Investment

Manager

maintains the

Company’s

risk management

framew

ork and risk r

egister, which

means

our

ESG

objective

s

are

embedde

d

into

the

way

the

C

o

mpany

conducts

and

manages

the

business

and the propert

y portfolio

day to day.

52

Risk manage

ment

During

the

year

the

Committee

has

revisited

its

climate-related

risks

and

opportunities

to

deter

mine

continued

relevancy

and

impact

on

the

Company.

Wi

th

the

external

consultant,

the

C

ommittee

assesse

d

the

complete

ness

and

effectivene

ss

of

current

controls

an

d

processes

in

p

lace

to

mitigate

and

manage

risks

and

opportun

ities.

The

Committee deemed all

mi

tigation controls

in place

t

o

be effective however a

number

of continuous improvement areas

wer

e

det

ermined which

are highlight

ed

in the

table

below

as next

steps

which

will be

addressed

and act

ioned v

ia the

ESG Com

mittee.

The Co

mpany’s

ESG

targets

also su

pport c

ontin

uou

s mon

itoring of

progress ag

ainst

the

ESG

strategy,

capturing

of

opportunities

and

the

mitigation

of

climate

risks.

These

targets

are

reported

against

on

a

quarter

ly

basis

to

the

C

o

mmittee

by

the

Investment

Manager and t

he Compan

y’s environ

mental consu

ltants.

Climate-relate

d

risk/opportun

ity

What this means for Custodian

REIT

Manageme

nt and mitigati

on of risk

Next steps

Physical ri

sks

Asset

damage

from

storms

and

flood

ing

and

associated

c

hanging

insurance

products,

pricing and

availability

Long

-term

•

Extreme weath

er events

causing da

mage to

infrastructure or

assets

,

making ass

ets unusable

by tenants,

making

insurance cover

harder or

more expens

ive for

tenants to arr

ange and

impacting future

lettability

through lo

wer occupat

ional

demand

•

Historic

al

impact of

floods

or increasing

flood risk

impacting th

e long term

attractiveness

of propertie

s

due to tenants

avoiding

rentals with f

lood risk

•

Annual

property

inspections

enabling

the

Investment

Manag

er to

identify an

y da

mage

or

areas

of

improvements

to

ensure

increased

property

resilience

against

potential stor

ms

•

Building

maintenan

ce

(where

in

the

Company's

contr

ol)

ensures

proper

ties

are

maintained

to

prevent

increase

d

levels

of

potential d

amage from sto

rms and floods

•

Buildings

insurance

coverage

minimis

es

th

e

financial

impact

of

the

d

amage

caused

by

storms

•

Environmenta

l

report

s are

carr

ied

out for all

acquisitio

ns

including

flood

risk

asses

sment

,

albeit flood risk is meas

ured on likeli

hood of

river/sea/surf

ace water

flooding b

ased on

current scenarios/historic

al

data

rather than

future climat

e change

•

Begin

to

establis

h

which

assets

are

likely

to

be

most

at risk of pot

ential extrem

e weather da

mage

•

Update

flood

risk

for

exist

ing

assets

and

underst

and

how this

may change in

the future

•

With

identified

assets

at

risk,

deve

lop

a

management

plan

to

build

property

resilience

such

as through

fitout,

asset upgrade

s or plan t

o divest, as

appropriate

•

Ensure backup power is available in all

bui

lding types

where this i

s Custodian

's responsibility

•

Review

mainten

ance

and

fitout

guidelines

to

i

nc

lude

guidance

on

upgrades

to

storms

such

as

securing

of

external equ

ipment, roof

specifications et

c.

•

Review

environ

mental

rep

orts

procur

ed

at

acqu

isition

to det

ermine wh

ether f

uture climate

projection of

flood

risk can be in

cluded

53

Global

temperatur

e

increases

reduc

ing

the

appeal

of

less

energy-

efficient asset

s

Long

-term

Certain

assets

will

be

more

significantly

impacted

by

rising

temperatures,

such

as

glass

offices,

requiring

more

energy

for

cooling

and

being

less

attractive to

tenants

The

Company’s

t

enant

engagement

progra

mme

provides Custodian with

u

p to

date insights

into

changing

tenant

preference

s,

current

challenges

or

feedback

on

building

performanc

e

and

provides

an

opportun

ity

for

the

Investment

Manager

to

further

understand

solutions

to

continue to

meet

tena

nts’

preferenc

es over t

ime

•

Monitor

any

tenant

con

cerns

around

temperatu

re

through ten

ant engageme

nt progra

mme

•

Continue

ongoing

monitor

ing

of

energy

consu

mption,

particular

ly

of

g

lass

properties,

to

determine

whether

the

risk t

rend

is

accelerating

and co

nsider

the ne

ed

for

upgrade

plans such

as facades,

insultation

etc. to

reduce the property exposure to external temperatur

e

rises

Insufficient

electricity

supply

to

maintain

tenant

oper

ations

due

to

inadequate infr

astructure

Medium

–

lo

ng-term

Due

to

risin

g

demand

for

energy such

as

from cooling

requirements

and

EV

chargers,

current

infrastruct

ure

might

be

unable

to

m

eet

the

energy

demand

Upgrading

power

supplies

w

h

ere

availability

permits

Ensure

power

upgrades

are

utilising

renewable

energy

sources,

where

contracts

are

under

C

usto

dian's

control,

in

line with C

ustodian's e

missions and e

nergy target

s

54

Transition ri

sks

Reduced

attractiven

ess

of

the

portfolio

due

to

changing

tenant

preferences

Short

–

med

ium-term

Changing

tenant

preferences

to

occupy

less energ

y and

carbon

intensive

buildings

as

well

as

requirements u

nder MEE

S

•

Capital

expenditure

considered

necessary

to ma

intain eac

h asset

within

the portfo

lio to

a

suitable

standard

to secure

new

lettings at

expected

rental

levels

is

forecast

and

factored into

cashfl

ow

pro

jections

t

o

ens

ure

resources are

available.

•

EPCs

are

maintained

for

the

whole

portfolio,

with

higher

scor

ing

asset

s

under

review

t

o

ensure

improvements

are

carried

out

as

soon

as

practica

l

as

well

as

monitoring

the

renewal

dates

and

tracking

score

improveme

nts.

This

control

provides

Custodian

oversi

ght

and

transparency

of

the

assets improve

ment over time and provid

es

the

bas

is

of

an

impr

ovement

plan

with

key

assets

to

target

and

direct

ly

relates

to

one

of

our ESG

KPIs

•

Asset

due

diligence

is

perfor

med

at

acquisitio

n stage for

all new asset

s. The

Investment

Manager

considers

the

long

term

suita

bility

of

the

asset

i

nc

luding

ESG

requirements against

our ESG strategy

and

calculates

the

forecast

investment

to

upgrade

the

asset

over

its

life

in

line

with

compliance a

nd tenant

requirements

•

Custodian’s

te

nant

engagement

programme

provides

live

insights

into

the

changing

tenant

preferences

to

stay

abreast

of

changing

trends

to

maintain

l

ett

ability

of

portfolio and

levels of oc

cupation

•

Improve

acquisitio

n

due

diligence

process

es

to

more

accurately assess forecast investment to

upgrade the

asset

over

its

life

in

l

ine

with

complia

nce

and

tenant

requirements

•

Improve

coverage

of

the

tenant

engagement

programme

and

broaden

its

remit

to

better

capture

tenants’ conc

erns and sus

tainability p

lans

55

Investor

divestment

or

activism

due to

changing

ESG expectat

i

on

s

Sho

rt

-term

Increased

st

akeholder

s

crutiny

over

Custodian

REIT's

ESG

ambitions

and

climate

action

and

awareness

of the

im

p

act

of

the built environ

ment, includi

ng

carbon

emissio

ns

from

refurbish

ment

and

construction,

leading

to

reduced

confidence,

shareholder

acti

vism

or

divestment.

•

External

environ

mental

consultants

are

engaged

to

advise

on

the

Company's

ESG

initiatives

and

compare

to

requi

re

ments,

best practice

and peer-gr

oup perfor

mance.

•

Shareholder

expectatio

ns

are

establishe

d

by

the

Company's

brokers

and

distribution

agents and

directly during meetings w

it

h

investors.

S

ignif

icant

changes

in

expectation

s

or

potenti

al

activism

would

be

communic

ated.

•

Continue to engage pro

actively with invest

ors and the

Company’s

wider stake

holder group o

n

ESG matt

ers

•

Continued D

irector tr

aining t

o build

knowledge

around

Net

Zero

and

climate

issues

to

ensure

ongoing

effective govern

ance and

guidance

•

Consider

future

pricing

of

GHG

emissions

and

emissions

offsets

and

future

enhanced

emissions

reporting obligations. C

l

imate change

could affect

the

input costs to produc

e traditional develop

ment related

materials

or

building

services.

Utilising

more

innovative low carbon materials could also

to mitigat

e

some of the

potential t

his risk might

impose.

Unsuccessfu

l

investment

in

new

technology

Medium-term

If

technology

that

has

been

invested

in

is

not

properly

researched,

developed

or

implement

ed,

or

becomes

obsolete

or

no

longer

industry

best

practise,

it

may

not

bring

the return t

hat was foreca

st

All

investments

are

scrutinised

by

the

Investment

Manager’

s

Invest

ment

Committee.

Investment

Committee

reports

i

nc

lude

a

dedicated

ESG

rationa

le.

C

arb

on

reduc

ing

technology

is a key part of the carbon-r

educti

on

strategy but i

s not invested in

speculativ

ely and

only estab

lished product

s are consid

ered.

56

Opportunities

Exposure to

new asset

classes for

potential

investment

Short

–

med

ium-term

Investment

opportu

nities

through exposure to

new asset

classes

All

inve

stments

are

scrutinised

by

the

Investment

M

anager’s Inv

estment

Co

mmittee

•

Continue

t

o

encoura

ge

in

vestment

in

the

Inv

estment

Manager’s

staff

development

for

them

to

rem

a

in

abreast of low-carbon b

uilding solutions an

d other

competitive

offerings

through

industry

bodies,

associations a

nd member

ships

•

At

Board

Strategy

days,

include

a more

promine

nt

segment

focused

on

ESG

and

future

strategy

involving

ESG

Committee

recommendatio

ns

and

the

Company’s

environ

mental

consultants,

i

nc

luding

how

the

Company

might

expand

low-carbon

services

and

review new

investment cla

sses

Shifting

tenant

preferences

may cr

eate

new

demand

for

new

or

existing

products/

services

Short

–

med

ium-term

The

effects

of

climate

change

on

tenant

preferences

m

ay

bring

the

opportunity

to

diversify

business

acti

vities

such

as

l

o

w-carbon

alternative

assets

or

developmen

t

or

expansion

of

low

emissions

services

•

ESG

Credentials

are

currently

part

of

the

marketing/pros

pectus

of

an

asset

-

which

ensures

tenants

are

aware of

Custodian

REIT's

ESG

credentials

to

attract

ESG

conscious t

enants

•

Tenant

engagement

programme

-

pro

vides

insights

into

th

e

changing

tena

nt

preferences

Increased

demand

for

shares

due

to

ESG

credentia

ls

Short-term

Increased

demand

for

shares

from

investors

preferrin

g

to

specifically

invest

in

companies

with strong

ESG credentia

ls

•

Establishment

of

an

ESG

Committ

ee

of

the

Board

and

p

ublication of

revised,

stretchin

g

ESG targets

•

Annual

external

reporti

ng

on

progress

against ESG

targets

•

Investor feedback

is captured r

egularly

Continue to

improve communicati

on

with

stakeh

olders

regarding

ESG

initiatives

through

quarter

ly

stock

market

reporting,

Annual

and

Interim

Reports

and

shareholder

meetings an

d webinars

To account f

or the long-te

rm nature of

climate chan

ge three ti

me horizons

were used

within the assess

ment:

•

Short-term (0-3 years)

;

57

•

Medium-term (3-

12

years)

;

and

•

L

ong

-term (12-

20

years).

This per

iod d

iffers

from t

he lo

nger-term

viability

assessment

of three

years, a

s the o

utputs

of o

ur cli

mate-related

m

ater

iality

asses

sment

will be

review

ed an

d bu

ilt upon

over

time in order

to effective

ly embed

identified risks

into our risk

management

framework.

58

Net zero

37

carbon pat

hway

Starting th

e journey t

owards net

zero car

bon is a

crucial n

ext step

in our ESG

strategy

and making thi

s journey f

it

with

stakeho

lder

goals

an

d

the

Company’s

property

strategy

is one

of t

he

key

challenges

facing

the

Company

and

the

real

estate

sector.

Developing

a

net

zero

carb

on

path

way

,

and

choosin

g

the

right

level

of

consultancy

t

o

support

the

Investment

M

anager

in

achieving

this,

i

s

squarely

on

t

he

Co

mmittee’s

agenda

for

the

forthcoming

year.

Outlook

The

Company

will

work

towards

achieving

its

refin

ed

ESG

targets

over

the

course

of

the

ncial

year,

improving

our

under

standing

of

t

he

specific

impact

s

of

climate

change

o

n

the

Compan

y

,

seeking

to

influence

tenant

behaviour

to

im

prove

environmental

outcom

es

and

assessing

our

st

rategy

towards

creating

a

Net

Zero

pathway.

Approval

This report w

as approved

by the Committ

ee and sig

ned on its beh

alf by:

Hazel Adam

Chair of t

he ESG Committ

ee

16 June

202

2

37

As defined by the Committe

e on Climate Change.

59

Financial revi

ew

The Company has enjoyed its

str

ongest year of total return as

t

he market

con

tinued its

r

ecovery from the impact

of

the

COVID-19

pandem

ic,

with

a

profit

before

tax

of

£122.3

m

(202

1:

£3.7m)

and

EPR

A

earnings

per

share

of

5.9p

(2021:

5.6p)

.

The

C

o

mpany’s

rent

collectio

n

level

has st

abilised

to

pre

-pandemic

levels

w

h

ich

has

supported

the

Board

increasing

dividend

s

per

share

declared

for

the

year

to

5.25

p

(2021:

5.0p)

,

1

10

%

covered

by

EPRA

earnings.

A summary

of

the Compa

ny’s

financia

l performance

for the year

is shown belo

w:

Financial summ

ary

Year ended

31

Mar

202

2

£000

Year ende

d 31

Mar

202

1

£000

Revenue

39,891

39,578

Expenses and n

et finance

costs

(14,639)

(15,904)

EPRA profits

25,252

23,674

Net profit/(lo

ss) on invest

ment property

97,073

(19,925)

Profit before t

ax

122,

325

3,749

EPRA EPS

(p)

5.

9

5.6

Dividend cover

110

.3%

112.7%

OCR exclud

ing direct proper

ty costs

1.

20%

1.12%

Borrowings

Net gearing

19.1%

24.9%

Weighted a

verage debt

maturity

5.7 years

7.4 years

Weighted a

verage cost of

agreed

debt

3.

0%

3.0%

60

T

he Company’s rent roll

has

in

crea

sed by

4.7% from £

38,

692k at

31 March 2021

to £40,493k at

31 March

2022

as illustrat

ed below, which

resulted in IF

RS revenue

in

cr

easing fro

m £

39,578

k

to £

39,891

k.

This

in

crease in

contractu

al

rent

was

due

primari

ly

to

net

propert

y

acquisition

s,

but

import

antly

the

graph above

illustrates

aggregate

rental

growth

across

the

portfolio

and

the

positive

impa

ct

of

asset

management

activity

in

increasing

like-for-

like

occupancy

through

net

new

lettings,

which

demonstrate

the

robust

nature

of

the

Company’s

diverse prop

erty portfolio.

EPRA earnings per share

in

crease

d to 5.9p (2021

:

5.6p) due primarily

to

the stabilisation of rent collection rates,

with

a £0.3m

decrease in

the doub

t

ful

debt provision during

the

year

compari

ng

to a

£2.

7m

increase in

the prior

financial

year;

part

ially

offset

by

the

t

iming

of

acquisitions

and

disposals

and

increased

professiona

l

fees

from

more regear

and new lett

ing activity.

Dividends

The Board acknow

ledg

es

the importance

of income for shareholders and dur

i

n

g the year its objectiv

e

wa

s to

pay

dividends on

a sustainab

le basis

at a rate full

y covered by

net rental

rec

eipts which

doe

s not

inhibit

t

he

f

lexibility

of the Co

mpany’s invest

ment strategy.

The

Company

paid

dividends

totalling

5.625p

per

share

during

the

year

(£24.2

m)

comprisi

ng

fourth

and

fifth

i

nteri

m

dividends

relating

to

the

year

ended

31

March

20

21

of

1.2

5p

and

0.5p

per

share

respectively,

and

quarterly

interim

dividends of 1.

25p, 1.25p

and 1.

375p

per

share rela

ting to the year

ended 31

March 2022.

61

The

Comp

any

paid

a

fourth quarterly

interim

divide

nd

of

1.

37

5p

per

share for

the

quarter ended

31 March

202

2

on 31

May 202

2 totalling £6.1

m.

Dividends relating

to the year ended 31 Mar

ch

202

2 of

5.25p (2021: 5.0p) were

1

10

% covere

d by net recu

rring income

of £25.3

m,

as calcul

ated in Note 2

1.

Cost control

The

Company’s

tiered

management

fee

structure,

detailed

in

N

ote

18,

meant

that

marginal

invest

ment

manage

ment

and

adminis

tration

fees

decreased

dur

ing

the

year

as

NAV

increase

d

to

above

the

£500m

hurdle

.

However,

the

Company

has

continued

t

o

invest

in

its

environme

ntal

and

governan

ce

structures

and

has

al

so

increased

its

marketing

b

udget

which

has

resulted

in

the

OCR

(excluding

direct

property

costs)

increasing

fro

m

1.12%

for

the

year t

o 1.

20%.

Although

governance

is

l

ik

ely

to cont

inue to

increase

we

believe

the

eco

nomies

of

scale

provided

by

the

Company’s

relatively

fi

xed

cost

base

and

fee

structure

wil

l

mean

that

further growth

w

i

ll allow o

ngoing charge

s to be kept

proportionately low.

Key perform

ance indicat

ors

The

Board

reviews

the

Compan

y’s

quarterly

p

erformance

against

a

num

ber

of

key

financ

ial

and

n

on-financial

measures:

•

EPS and E

PRA E

PS

–

r

eflect the

Company’s

ability t

o generate

recurring

earnings

from the

propert

y

portfolio

which underp

in dividends;

•

Dividends

per

share

and

di

viden

d

cover -

to

provide

an at

tractive,

sustainable

level of

income

to

shareholders,

fully

covered

from net

r

ental

income.

The

Board

reviews

target

dividends

in

conjunction

with d

etailed

financial

forecasts to

ensure that

target dividends

are being

met and are su

stainable;

•

NAV

per

share

total

retur

n

–

reflects

both

the

NAV

growth

of

the

Company

and

dividends

payable

to

shareholders.

The

Board

regards

this

as

the

best

overall

measur

e

of

value

d

eliver

ed

to

shareholders.

The

Board

assesses

NAV

per

share

total

return

over var

ious

time

periods

and co

mpares

the

Company's

returns

to

those of its pe

er group of l

isted, closed-end

ed prope

rty investment

funds;

•

NAV

per

share,

share

price

and

market

capitalisation

–

reflect

various

measures

of

shareholder

value

at

a

point in ti

me;

•

Share price tot

al return

–

reflects t

he move

ment in share pri

ce and div

idends payable t

o sharehol

ders;

•

Target dividend per s

hare

–

an expectat

ion of the Co

mpany’s ability to

deliv

er an income stream to

shareholders

for the fort

hcoming year;

•

Net

gearing

–

m

e

asures the

Comp

any’s borrowings as

a proportion of

its investment property, balancing the

additional return

s availab

le from uti

lising debt with

the need

to effectively

manage risk;

62

•

OCR

–

measures

the

annual

running

costs

of

the

Company

and

indicates

the

Board’s

ability

to

operate

the

Company

efficiently, ke

eping costs l

ow to maxi

mise earnings f

rom which t

o pay fully c

overed dividend

s; and

•

EPRA va

cancy r

ate

–

t

he

Board

reviews

the lev

el of

property

voids

within the

C

o

mpany's

property

portfolio

on

a quarterly

basis and co

mpares this t

o its peer grou

p average.

•

Weighted average

EPC rating

–

measur

es the overa

ll environ

mental performa

nce of the Co

mpany’s propert

y

portfolio

The

Board

considers

the

key

performance

measures

over

various

time

periods

and

against

similar

funds.

A

record

of

t

hese

measures is

disclosed in

the Financial

hig

hlights and

performance summary,

the Chairman's

st

atement

and the Inve

stment Man

ager's report

.

EPRA performa

nce meas

ures

EPRA

Best P

ract

i

ce Recommendations

have

been di

sc

losed

to

facilit

ate

comparison

with the

Company’s

peers

through cons

istent report

ing of key rea

l estate speci

fic performan

ce measures.

202

2

2021

EPRA EPS

(p)

5.9

5.6

EPRA Net

Tangible Asset

s (“NTA”)

per

share (p)

119.7

97.6

EPRA NI

Y

5.0%

6.0%

EPRA ‘top

ped up’ NIY

5.5%

6.4%

EPRA vac

ancy rate

10.2%

8.4%

EPRA cost

ratio (includ

ing direct vac

ancy costs)

22.9%

26.1%

EPRA cost

ratio (exclud

ing direct va

cancy costs)

19.

0%

23.9%

EPRA cap

ital expend

iture (£m)

69.0

14.5

EPRA like-for-

like rental g

rowth (£m)

35.3

38.3

•

EPRA EPS

–

a key measure

of the Company’s

underlying operat

ing results and

an indication of

the extent to

which curr

ent dividend p

ayments are su

pported by

earnings

•

EPRA

NAV

per

share

metrics

–

make

adjust

ments

to

the

NAV

per

the

IFRS

financial

state

ments

to

provide

stakeholders wi

t

h

the

most

relevant

informatio

n

on

the

fair

value

of

the

asse

ts

and

liabilities

of

a

real

estate

investment company, under

different scenarios.

EPRA Net

Tang

ible Assets

-

assum

es

that entities

b

uy and

sell assets,

thereby crysta

llising certain leve

ls of una

voidable deferr

ed tax

•

EPRA NIY and

‘to

pped up’ N

I

Y

–

alternative measures of property portfolio valuation based on cash

pa

ssing

rents at t

he reporting date

and once le

ase incentive

periods ha

ve expired,

net of ongoing pro

perty costs

•

EPRA

cost

ratios

–

alter

native

measures

of ongo

ing

charges

based

on

expenses

,

excluding

operating

expenses

of

rental

property

recharged

to

tenants,

but

including

increases

in

the

doubtful

debt

provision,

compared t

o gross rental i

ncome

63

•

EPRA capital e

xpenditure

- capital expend

iture incurr

ed on the Co

mp

any’s propert

y portfolio dur

ing the year

•

EPRA

like-for-

like

rent

al

growth

-

a

measure

of

rental

gro

wth

of

the

pro

perty

portf

olio

by

sector,

e

xcluding

acquisitio

ns and dispos

als

•

EPRA

Sust

ainability

Best

P

ract

ice

R

ec

ommendat

ions

–

envir

onmental

performance

measures

fo

cusing

on

emissions

and

resource

consumption w

h

ich

create

transparency

to

potential

investors

by

enabling

a

compariso

n against peers

and set a directio

n towards improv

ing the integrat

ion of ESG

into the manag

ement

of the Co

mpany’s propert

y port

folio.

Debt financ

ing

The Company operates with a

conservat

ive level of

net gearing, with target borrowings over the

mediu

m

-term of

25%

of

the

aggregate

market

value

of

all

propert

ies

at

the

tim

e

of

drawdown.

The

Company’s

net

gearing

de

creased fr

om 24.9% LT

V last year

to 19.1% at the

year end primar

ily due to

£94.0m of va

luation incr

eases.

Since

the

year

end

the

C

o

mpany

has

arranged

a

£25m

tranche

of

10

year

debt

with

A

v

iva

at

a

fixed

rate

of

interest

of

4.

10%

per annum

to refinance

a £25m

var

iable

r

ate

revol

ving

cre

dit

facil

ity

with RBS,

acquir

ed

via the

DR

UM

REIT acquis

ition. Follo

wing the r

efinancing the Co

mpany had the f

ollowing f

acilities avai

lable:

•

A

£50

m

revolving

credit

facility

(“RCF”)

with

Ll

o

yds

Bank

plc

(“Lloyds”)

with

interest

of

between

1.5%

and

1.8%

above SONI

A

38

, determined

by reference to

the prevailing LTV rat

io of a discrete security pool of

assets,

and

expiring

on 17

S

ept

ember

202

4;

•

A £20m term loan facility with Scottish Wido

ws Limited (“SWIP”) repayab

le in August 2025, with fixed annual

interest of 3.

935%;

•

A £45m term loan f

acility

with SWIP re

payable in J

une 2028,

with fixed annu

al interest of

2.987%; and

•

A £

75

m term loan f

acility

with Aviva compris

ing:

-

A £35m tran

che repayabl

e on 6 April 2

032, with fix

ed annual intere

st of 3.02%;

-

A £15m tran

che repayabl

e on 3 November

2032 wit

h fixed annu

al interest of

3.26%; and

-

A £25m tran

che repayabl

e on 3 November

2032 wit

h fixed annu

al interest of 4.10%.

Each

facility

has a

discrete

s

ecurity

pool,

comprisin

g a

number of

the Compa

ny’s i

ndividual

properties

,

over which

the relevant

lender has se

curity and the

following co

venants:

•

The maximum L

TV of ea

ch discrete

security po

ol

is

between

45% and 5

0%, w

ith an overar

ching cove

nant on

the Compan

y’s property p

ortfolio of a

max

imum 35

% LTV; and

38

The sterling overnight index average

(“SONIA”) which has replaced LIBOR as the UK’s main interest rate benchmark.

64

•

Historical

interest

cover,

requir

ing

net

rental

receipts

from

each

discrete

securit

y

pool,

over

the

preceding

three

months, to exce

ed 250%

of the

facil

ity’s quarterly

interest liabi

lity

.

At the

year end the

Company had

£20

7.2m (31%

of the property portfolio)

of unencumbered assets which

could

be

charged

to

the

security

pools

to

enhance

the

LTV

on

the

individual

loans.

During

the

year

the

Company

charged

unencumbered

properties valu

ed at

£30.3m to

certain

facilities

as subst

itutions

for charged

properties sol

d during

the

year.

Since the

year

end

£53.5m of

unencu

mbered

propert

y

has been

charged to

the

new £25m

tranche

of

debt

with

A

v

iva

wi

th

charg

es

over

£49.0m

of

property

secured

on

the

£25m

RCF

with

RBS

released

on

that

facility’s

subsequent

cancellation.

The

weighted a

verage

cost

(

“WAC”) of

the Company’s

agreed

debt

f

acilities at

31 March

2022

w

as

3.0

%

(2021: 3.0

%)

,

with

a

weight

ed

averag

e

m

aturity

(“

WAM

”)

of

5.

2

years

(202

1:

7.4

years)

.

At

31

March

2022

the

Company

had

£nil

drawn

under it

s

Lloyds

RCF

and

£22.8m

drawn

under

its R

BS

RCF,

meaning

84

%

(2021

:

82

%)

of the Co

mpany’s

drawn d

ebt facilities, and 6

1% (2021:

70%) of its agre

ed debt

facilities, were at f

ixed rates

.

On completion of th

e new tranche of Aviva debt and repay

ment and cancell

ation of the £25m RCF with

RBS, the

Company’s

WA

C of i

t

s agreed debt faci

lities increases to

3.2%

with 74% at a fixed rate of interest and a WAM of

6.

3 years.

This

high

prop

ortion

of

fixed

rat

e

debt

significantly

m

iti

gates

long-term

inter

est

rate

risk

f

or

the

Company

an

d

provides

shareholders

with

a

beneficia

l

margin

between

the

fixed

cost

of

debt

and

income

returns

from

the

property

portfolio.

LIBOR,

the

London

Inter

Bank

Offer

Rate

interest

rate

benchmark

used f

or

setting

the

interest

rate

charged

on t

he

Company’s

RCF facilit

ies

was disc

ontinued

during the

year and has

been

replaced

by SO

NIA.

The tr

ansition ha

s

not had a

material impact

on the interest

rates on th

e RCFs.

Outlook

The

Co

mpany’s

business

model

has

remained

r

esilient

during

the

year

and

w

e

have

further

mit

igated

against

interest

rate

rises b

y refi

nancing

£25m

of var

iable r

ate de

bt at

a fixed r

ate.

W

e have

a

scalable

cost structure

and

flexible

capi

t

al

structure

to

be

on

the

front

foot

when

opportuniti

es

present

themse

lves

to

raise

new

equi

t

y

and

exploit acqu

isition opport

unities.

Ed Moore

65

Finance D

irector

for and on be

half of Custo

dian Capita

l Limited

Investment M

anager

16 June

202

2

66

Property p

ortfolio

Industrial

Tenant

Location

% portfolio

income

Menzies

Distribution

Various

3.4%

H&M

Winsford

1.4%

Teleperfor

mance

Ashby

1.2%

ATL Transport

Burton

1.1%

Restore

Salford

1.0%

Saint Goba

in Building

Distribution

Milton Key

nes

1.0%

DS Smith

Packaging

Redditch

0.9%

Daher Aer

ospace

Hilton

0.9%

Silgan Clos

ures

Doncaster

0.9%

PDS Grou

p Holdings

West Brom

wich

0.9%

l

0.8%

Life Technol

ogies

Warrington

0.8%

Massmould

Milton Key

nes

0.8%

ICT Expres

s

Tamworth

0.8%

Royal Mai

l

Coventry/K

ilmarnock

0.8%

Yesss (B) E

lectrical

Normanton

0.7%

Turpin Distri

bution

Biggleswad

e

0.7%

Harbour Int

ernational Fre

ight

Manchester

0.7%

Hellerman

nTyton

Cannock

0.7%

Yodel

Bellshill

0.7%

Multi-Colour

Daventry E

ngland

Daventry

0.6%

Zentia Prof

iles

Gateshead -

Team Va

lley

0.6%

Sherwin W

illiams

Plymouth

0.6%

DX Network

S

erv

ice

Nuneaton

0.6%

BSS Group

Bristol

0.

5%

Heywood W

illiams Co

mponents

Bedford

0.

5%

Ichor Syste

ms

Hamilton

0.5%

Morrison Uti

lity Service

s

Stevenage

0.5%

Brenntag U

K

Cambuslan

g

0.5%

A Share & S

ons (t/a S

CS)

Livingston

0.5%

Sytner

Oldbury

0.5%

MTS Log

istics

Coalville

0.4%

Procurri Eur

ope

Warrington

0.4%

Semcon

Warwick

0.4%

Green Retr

eats

Farnborough

0.4%

VP Packag

ing

Kettering

0.4%

West Midla

nds Ambulan

ce Service

NHS Trust

Erdington

0.4%

Warburton

Langley Mil

l

0.4%

Northern Co

mmercials

Irlam

0.4%

67

Synergy Hea

lth

Sheffield

Parkway

0.3%

Bunzl

Castleford

0.3%

Powder Syst

ems

Liverpool,

Speke

0.3%

Tricel Co

mposites

Leeds

0.3%

Arkote

Sheffield

0.3%

Hickling and

Squires

Nottingham

0.3%

Sealed Air

Kettering

0.3%

North Warw

ickshire Boro

ugh Counc

il

Atherstone

0.3%

DHL Internati

onal

Liverpool,

Speke

0.3%

PHS Grou

p

Huntingdon

0.

2%

Synertec

Warrington

0.

2%

DHL Globa

l Forwardin

g

Glasgow Air

port

0.2%

Acorn Web O

ffset

Normanton

0.2%

ITM Power

Sheffield

0.2%

Rapid Veh

icle Repairs

Kettering

0.2%

Med Imaging

Knowsley

0.2%

MP Bio Scie

nce

Hilton

0.

1%

Central Electr

ical Armatur

e Winding

Knowsley

0.1%

Equinox Aro

mas

Kettering

0.1%

Engineering

Solutions

& Automation

Services

Knowsley

0.1%

Portakabin

Knowsley

0.1%

Jangala Soft

play

Hilton

0.1%

Midon

Knowsley

0.1%

Precision P

umping and

Metering

Aberdeen

0.1%

RTV - Worldnet

Shipping

Aberdeen

0.1%

Shakespeare

Pharma

Hilton

0.1%

Grampian G

eotechnica

l (Scotland)

Aberdeen

0.1%

Razor Oilto

ols

Aberdeen

0.1%

Industrial C

ontrol Distrib

utors

Kettering

0.1%

Other smal

ler tenants

0.1%

VACANT

3.7%

38.5%

68

Retail Ware

house

B&M

Various

2.7%

B&Q

Banbury/We

ymouth

2.4%

Wickes

Burton/South

port/Winners

h

1.8%

HHGL (t/a

Homebase)

Cromer/Lei

ghton Buzzard

1.4%

Matalan

Leicester

1.1%

Magnet

Gloucester/Le

icester/Pl

ymouth

1.0%

Halfords

Carlisle/

Sheldon/Weym

outh

0.8%

Oak FurnitureL

and Gro

up

Carlisle/

Plymouth

0.5%

Poundstretch

er*

Grantham/S

outhport

0.5%

A Share & S

ons (t/a SCS)

Plymouth

0.5%

M&S

Evesham

0.5%

CDS (t/a The

Range)

Burton

0.5%

Sainsbury

’

s

Torpoint

0.5%

Dreams*

Sheldon/S

outhport

0.5%

Pets at Hom

e

Sheldon/W

innersh

0.4%

Boots

Evesham

0.4%

Argos

Evesham

0.4%

TJ Morris (t/

a Homebarga

ins)

Portishead

0.3%

Smyths Toys

Gloucester

0.3%

Iceland Foods

Carlisle

0.3%

Sofology

Southport

0.2%

Poundlan

d

Carlisle

0.2%

Just For Pet

s

Evesham

0.2%

Pure Gym

Grantham

0.2%

SportsDirect

.com

Weymouth

0.2%

Farmfoods

Gloucester

0.2%

Majestic W

ine

Portishead

0.1%

Parts Allian

ce Group

Southport

0.1%

InstaVolt

Various

0.1%

Other smal

ler tenants

0.1%

VACANT

2.3%

21.1%

*Tenants

in occup

ation

paying £

nil rent

through

CVAs where

ERV h

as been us

ed to

calculate

% port

folio

income.

69

Office

First Title (t

/a Enact)

Leeds

1.4%

Regus (Ma

idstone West

Malling)

West Malling

1.4%

The Skills

Development

Scotland Co

Glasgow

0.9%

National Gr

id

Castle Donn

ington

0.

7%

Wienerberger

Cheadle

0.7%

Agilent Tec

hnologies

Cheadle

0.7%

Home Of

fice

Sheffield

0.6%

Dehns

Oxford

0.6%

Edwards G

eldards

Derby

0.6%

Countryside Pr

operties

Leicester

0.

4%

Lyons David

son

Solihull

0.4%

Nucana

Edinburgh

0.4%

Galliford Try

Construction

Leicester

0.4%

Regus (Leice

ster Grove P

ark)

Leicester

0.

3%

Worldpay

Gateshead

0.3%

Systra

Birmingha

m

0.3%

Oxentia

Oxford

0.3%

Cognizant T

echnology

Solutions

Glasgow

0.2%

Spa Medica

Leicester

0.2%

Health &

Safety Executive

Sheffield

0.2%

NatWest

Oxford

0.2%

Carbide Prop

erties

Leicester

0.2%

Charles St

anley

Oxford

0.2%

Erskine Murra

y

Leicester

0.2%

Meridian He

althcomms

Manchester

Fountain Stre

et

0.2%

Nucana Bi

omed

Edinburgh

0.2%

Datawright C

omputer Ser

vices

Gateshead

0.2%

Tony Gee and

Partners

Manchester

Arthur House

0.

1%

IJ Tours

Manchester

Arthur House

0.1%

Venditan

Manchester

Fountain Stre

et

0.1%

Livingstone

Brown

Glasgow

0.1%

Copeland W

edge Assoc

iates

Birmingha

m

0.1%

KWB Pro

perty Manage

ment

Birmingha

m

0.1%

Fourthline

Manchester

Fountain Stre

et

0.1%

Bell Corn

wall Associ

ates

Birmingha

m

0.1%

UK Speeder

C

on

sulting

Manchester

Arthur House

0.1%

Smith Inst

itute

Oxford

0.1%

Quantem

Consulting

Birmingha

m

0.1%

Coulters L

egal LLP

Edinburgh

0.1%

GoFor Fina

nce

Edinburgh

0.1%

Bradley &

Cuthbertson

LLP

Birmingha

m

0.1%

70

Safe Deposits

Glasgow

0.1%

Reality La

w

Birmingha

m

0.1%

Other smal

ler tenants

0.3%

VACANT

2.3%

16.6%

71

Other

VW Group

Derby/Shre

wsbury

1.2%

TH UK &

Ireland (t/a Tim

Hortons)

Leicester/P

erth/Watford

0.8%

MKM Build

ings Supplies

Castleford/L

incoln

0.7%

Nuffield

Health

Stoke

0.7%

Total Fitn

ess

Lincoln

0.6%

Co

-Op

erative

Gillingha

m

0.6%

Bannatyne

Fitness

Perth

0.6%

Pendragon

Property Hol

dings

York

0.5%

Liverpool C

ommunity

Health NHS

Trust

Liverpool

0.4%

Parkwood H

ealth & F

itness

Salisbury

0.4%

Listers Grou

p

Loughboroug

h

0.4%

Mecca Bingo

Crewe

0.3%

Chokdee

Bath

0.3%

TJ Vickers

& Sons

Shrewsbury

0.3%

Stonegate P

ub Co

High Wyco

mbe

0.3%

Starbucks

Maypole

0.3%

Kbeverage (

t/a Starbucks)

Nottingham

0.3%

Mecca Bingo

(sublet to O

deon

Cinemas)

Crewe

0.2%

The Gym Gr

oup

Carlisle

0.2%

AGO Hote

ls

Portishead

0.2%

Iguanas

Torquay

0.2%

Bistrot Pierre

Torquay

0.2%

Ask Italian

Restaurant

Shrewsbury

0.2%

McDonalds

Plymouth

0.2%

JD Wethersp

oons

Portishead

0.2%

Scotco Easter

n (t/a KF

C)

Perth

0.2%

Wedgmoor

Crewe

0.2%

Loungers

Torquay

0.1%

The Univers

al Church

of the King

dom

of God

Stratford

0.1%

1 Oak (t/

a Starbucks)

Burton

0.1%

Knutsford

Day Nursery

Knutsford

0.1%

F1 Autocentre

s

Crewe

0.1%

Ashbourne

Day Nurseries

Chesham

0.1%

Sam's Club (

t/a House of

the Rising

Sun)

Shrewsbury

0.1%

Edmundson

Electrica

l

Crewe

0.1%

Other smal

ler tenants

0.1%

VACANT

1.0%

12.6%

72

Retail

Superdrug

Southsea/W

eston-super-

Mare/Worce

ster

1.1%

Sainsbury

’

s

Gosforth

0.9%

Specsavers

Cardiff

0.5%

Sportswift

Cardiff/G

osforth/Ports

mouth

0.5%

The Works

Bury St Ed

munds/Port

smouth

0.4%

URBN UK

Southa

mpton

0.4%

Reiss

Guildford

0.4%

Phase Eight

Edinburgh

0.3%

Poundlan

d

Portsmout

h

0.3%

Nationwide B

uilding Soc

iety

Shrewsbury

0.2%

Portsmout

h City Council

Southsea

0.2%

Foxtons

Stratford

0.2%

Wilko Reta

il

Taunton

0.2%

Loungers

Shrewsbury

0.2%

Signet Tradi

ng (t/a Ernest

Jones)

Chester

0.2%

Savers He

alth & Beaut

y

Bury St Ed

munds/Ne

wcastle

0.2%

Tesco

Birmingha

m

0.2%

Boots

Gosforth

0.2%

Holland &

Barrett

Shrewsbury

0.2%

Kruidvat Rea

l Estate (t/

a Savers)

Colchester

0.

1%

Crepeaffaire

St Albans

0.

1%

Lush

Colchester

0.

1%

H Samuel

Colchester

0.

1%

Der Tourist

ik

Chester

0.

1%

WH Smith

Gosforth

0.

1%

Barrhead Tra

vel

Dunfermline

0.1%

British Red

Cross Soc

iety

Dunfermline

0.1%

Lloyds Bank

Gosforth

0.1%

Ramsdens

Financials

Glasgow

0.1%

Clogau Gol

d

Shrewsbury

0.1%

Felldale Reta

il (t/a Lakel

and)

Chester

0.1%

Your Phone

Care

Portsmout

h

0.1%

Ciel (Concess

ions) (t

/a Chesca)

Chester

0.1%

Aslan Jew

ellery

Chester

0.1%

Virgin Money

Gosforth

0.1%

Greggs

Birmingha

m/Dunfermli

ne

0.1%

Brook Tav

erner

Cirencester

0.1%

Leeds Buil

ding Society

Colchester

0.1%

Subway

Birmingha

m/Dunfermli

ne

0.1%

Diamonds of

Chester

Camelot

Chester

0.1%

CHAS Tra

ding

Dunfermline

0.1%

Lloyds Phar

macy

Dunfermline

0.1%

73

Indigo Sun

Retail

Dunfermline

0.1%

Johnson

Cleaners

Dunfermline

0.1%

Viva Italia

Dunfermline

0.1%

The Danis

h Wardrobe (t

/a Noa Noa)

Cirencester

0.1%

Coral

Birmingha

m

0.1%

Costa

Gosforth

0.1%

Cancer Rese

arch UK

Gosforth

0.1%

RMS Estate

Agents

Gosforth

0.1%

Other smal

ler tenants

0.5%

VACANT

0.9%

11.3%

74

Principal

risks and u

ncertainties

The

Board

has

overall

responsibil

ity f

or

reviewing

the

effectiveness

of

the

system

of

risk

manageme

nt

and

i

nt

ernal

control which is

oper

ated by the

Invest

ment Manager.

The Company’s risk manage

ment process is

desig

ned

to

identify,

evaluate

and mit

igate t

he significant

risks the

Company

faces. At

least

annually, t

he Board

undertakes

a

risk

review,

with

the

assist

ance

of

the

Audit

and

Risk

Committee,

to

assess

the

effective

ness

of

the

Investment

Manager’s

risk

management

and

internal

control

systems.

Durin

g

this

review,

no

significant

failings

or

weakness

es

were identifie

d in respect

of risk mana

gement,

internal control a

nd related f

inancial and bu

siness report

ing.

The

Co

mpany

ho

lds

a

por

tfolio

of high

quality property let

to

institutional

grad

e

tenants and

is

primari

ly

finance

d

by fixed rate d

ebt. It

does not undertak

e speculative

development.

There

are

a

number

of

potential

ri

sks

and

uncertainties

which

could

have

a

m

ater

ial

impact

on

the

Company's

performanc

e over the forthcoming finan

cial year and could cause actual resul

ts to differ materially from expect

ed

and

historical

r

esults.

The

Directors

have

asse

ssed

the

risks

f

acing

the

Company,

inclu

ding

risks

that

w

ould

threaten

the

busines

s

model,

future

performance,

solvency

or

l

i

quidity.

The

table

below

outlines

the

princi

pal

risks

identified,

but

does

not

pur

port

to

be

exhaustive

as

there

may

be

addit

ional

risks

that

materialise

over

time

that

the

Co

mpany

ha

s

not yet

identified or

has deemed

not likely

to

hav

e

a potentially material

advers

e

effect on

t

he

business.

75

Risk

Assessme

nt

Mitigating f

actors

Loss of reve

nue

•

Tenant

default

due

to

a

cessation or

curtai

lment of

trade

•

An

increasing number of

tenants

exercis

ing

contractual

breaks

or

not

renewing at

lease expiry

•

Enforced

reduction

in

contractual

rents

through

a

CVA

or

legislative

change

s

due

to

the

COVID-

19

pandemic

•

Property

environ

mental

performanc

e

i

nsufficient to

attract t

enants

•

Decreases

in

ERVs

resulting

in

decreases

in

passing

rent

to

secure

long-term occu

pancy

•

Expiries

or

break

s

concentrated

in

a

specific

year

•

Unable to re-let vo

id units

•

Low

UK

econo

mic

growth

impacting

the

commercial

property

market

Likelihood:

Moderate

Impact: Hig

h

Overall cha

nge in

risk from last

year

:

Decreased

-

reduced imp

act of

the COVI

D-

19

pandemic

•

Diverse

property

portfolio

covering

all

key

sectors and

geographical

areas

•

The

Company

has

339

individual

tenancies

with

the

largest

tenant

accounting

f

or

3.

8%

of the rent

roll

•

Investment

policy

limits

the

Company’s

rent

roll

to

no

more

than

10%

from

a

single

tenant

and 50% f

rom a single s

ector

•

Primarily institutio

nal grade tenant

s

•

Focused

on

establish

ed

business

locat

ions

for invest

ment

•

Active

m

an

agement

of

lease

expiry

profile

considered in f

orming a

cquisition dec

isions

•

Building

specif

ications

typical

ly

not

tailored

to one user

•

Strong tenant relat

ionship

s

•

Significant

focus

on

asset-

by

-asset

ESG

performanc

e

and

pro-actively

investing

in

environment

al

performance

to maint

ain

or

improve renta

l levels

Decreases i

n property

portfolio val

uation

•

Decreases

in

sector-

specific

ERVs

•

Loss

of

contractua

l

revenue

•

Tenants

exercisin

g

contractual

breaks

or

not

renewing at

lease expiry

•

Market

pricing

affecting

value

•

Change

in

demand

for

space

•

Property

environ

mental

performanc

e

insuf

ficient to

attract t

enants

•

Properties

conce

ntrated

in

a

specific

geograp

hical

location or s

ector

•

Reduced

property

m

ark

et

sentiment

and

investor

demand

•

Lack

of

transactiona

l

evidence

Likelihood:

Moderate

Impact: M

oderate

Overall cha

nge in

risk from last

year

:

De

creas

ed

–

reduced i

mpact

of the COVI

D-

19

pandemic and

stabilisation

of the

retail sector

valuations

•

Active

property

portfolio

di

v

ersification

between

office,

industrial

(distribution,

manufactur

ing

and

w

ar

ehousing),

retail

warehousin

g, high street

retail and oth

er

•

Investment

policy

limits

the

Company’s

property

portfolio

to

no

more

than

50%

in

any

specific sect

or or geograp

hical region

•

Small

er

lot-size

business

model

limits

exposure to

individual

asset values

•

High

q

uality assets in

goo

d

loc

ations should

remain pop

ular with inv

estors

•

Significant

focus

on

asset-

by

-asset

ESG

performanc

e

and

pro-actively

investing

in

environment

al

performance

to maintain

or

improve de

mand

76

Risk

Assessme

nt

Mitigating f

actors

Financial

•

Reduced

availability

or

increased

cost

of

arranging

or servi

cing

debt

•

Breach

of

borrowing

covenants

•

Significant

increases

in

interest rates

•

Refinancing

risk

from

acquiring

£25m

of

debt

due to expire

in 2022

Likelihood:

Moderate

Impact: Hig

h

Overall cha

nge in

risk from last

year

:

Increased

due to upward

pressure in

interest rates

•

The Company has

three lenders

•

Target

net

gearing

of

25%

LTV

on

property

portfolio

•

84%

of

drawn

debt

facilities

at the

year

end

at a fixed rat

e of interest

•

Additional

fixed-rate

debt

agree

post

year-

end

•

Significant

unencumbered

propertie

s

available

to

cure

any

pot

ential

breaches

of

LTV covenants

•

Ongoing mon

itoring and

management

of t

he

forecast liqu

idity and cove

nant position

Operational

•

Inadequate

perform

ance,

controls

or

syste

ms

operated

by

the

Investment M

anager

Likelihood:

Low

Impact: Hig

h

Overall cha

nge in

risk from last

year

:

No change

•

Ongoing

review

of

perfor

mance

by

independe

nt Board of

Directors

•

Outsourced

internal

audit

function

reporting

directly to

the Audit and

Risk Committ

ee

•

External

depositary

with

responsibility

for

safeguarding assets and

performing cash

monitoring

Regulatory

and legal

•

Adverse

impact

of

new

o

r

revised

legislation

or

regulations, or by change

s

in

the

interpret

ation

or

enforcement

of

existing

government

policy,

laws

and regulat

ions

•

Non-compliance

with

the

REIT

regime

39

or

changes

to

the

Company’s

tax

status

Likelihood:

Moderate

Impact: Hig

h

Overall cha

nge in

risk from last

year

:

No change

•

Strong compliance

culture

•

External

professional

advisers

are

engaged

to

review

and

advise

upon

control

environment

,

ensure

regulatory

comp

liance

and advise on

the impact of changes due

to

the COVI

D-

19

pande

mic

•

Business

model

and

culture

embraces

FCA

principles

•

REIT

regime

compliance

is

considered

by

the

B

oard

in

assess

ing

the

Company’s

financial

position

and

sett

ing

d

ividends

an

d

by

the

Investme

nt

Manager

in

m

ak

ing

operational de

cisions

39

As defined by the Corporation Tax Act

2010

.

77

Risk

Assessme

nt

Mitigating f

actors

Business i

nterruption

•

Cyber-attack

resu

lts

in

the

Investment

Manager

being

unable

to

use

its

IT

systems

and/or

l

os

ing

data

•

Terrorism

or

pandem

ics

interrupt

the

C

o

mpany’s

operations

through

impact

on

either

the

Investment

Manager

or

the

Company’s

assets

or

tenants

Likelihood:

Moderate

Impact: Hig

h

Overall cha

nge in

risk from last

year

:

No change

•

Investment

Manager

staff

are

all

capable

of

working fro

m home for

an extended

period

•

Data

i

s

regular

ly

backed

up

and

replicated

and

the

Invest

ment

Manager’

s

IT

systems

are

protected

by

anti-vir

us

software

and

firewalls that

are regular

ly updated

•

Fire

protectio

n

an

d

access/

security

procedures

are

in

place

at

all

of

the

Company’s

managed pro

perties

•

Comprehensive

property

damage

and

business

i

nterr

uption

insurance

is

held,

including

three years’ lost

rent and terr

orism

•

At least annually, a

fire risk assess

ment and

health

and safety

inspection

is perfor

m

ed

for

each

property

in

the

C

o

mpany’s

managed

portfolio

ESG

•

Failure

to

appropriately

manage

the

environ

mental

performanc

e

of

the

property

portfolio,

resulting

in

it

not

meeting

the

required

standards

of

environment

al

legislatio

n

and

m

ak

ing

propertie

s

unlettable or

unsellable

•

ESG po

licies

and

targets

being

insufficient

to

meet

the

required

standards

o

f

stakeholders

•

Non-compliance

with

environment

al

reportin

g

requirements

Likelihood:

Moderate

Impact: M

oderate

Overall cha

nge in

risk from last

year

:

Increased

due to increas

ing

best practice

requirements

•

The

Company

has

engaged

specialist

environment

al

consulta

nts

to

advise

the

Board on co

mpliance with

requirements and

adopting b

est practice w

here possib

le

•

The

Company

has

a

published

ESG

w

hi

ch

seeks

to

improve

energy

efficiency

and

reduce emis

sions

•

In

April

2021

the

Company

constituted

an

ESG

Committee

to

ensur

e

compliance

with

environment

al require

ments,

the ESG

pol

icy

and

environmenta

l

KPIs,

detailed

in

the

ESG

Committee r

eport

•

At

a

propert

y

level

an

environ

mental

assessment

is

undertaken

which

influences

decisions

regarding

acqui

sitions,

refurbish

ments

and

asset

manageme

nt

initiatives

Acquisitio

ns

•

Unidentified

liabilities

associated

with

t

he

acquisitio

n

of

new

properties

(whether

acquired

directly

or

via

a

corporate struct

ure)

Likelihood:

Low

Impact: M

oderate

Overall cha

nge in

risk from last

year

:

Increased

due to the

acquisitio

n of

DRUM REI

T

•

Comprehensive due diligence is undertaken

in

conjunction

with

professional

advisers

and

the

provision

of

insured

warranties

and

indemnities

are

soug

ht

from

vendors

where

appropriate

•

Acquired

companies

’

trade

and

assets

are

hive-up into

Custodian REIT plc

and

the

acquired ent

ities liquidate

d

78

Emerging r

isks

The follow

ing emerging ri

sks have b

een identifi

ed:

•

Inflation

-

the

recovery

in

global

dema

nd

following

the

COVID-19

pande

mic

and

the

ongoing

war

in

Ukr

aine

have contributed

to global supply

c

hain issues,

infla

tion

and

the risk of

agricul

tural

short

ages.

These impact

the

Co

mpany

in

ter

ms

of

the

cost

and

availabil

ity

of

materials

and

labour

in

carry

ing

out

red

evelopments,

refurbish

ments

and

maintenance,

their

effect

on

increasing

interest

rates

and

indirectly

through

their

im

pact

on

the

U

K

economy

in ter

ms

of

growth

and

consumer

spending

and

the conse

quential

impact on

occupationa

l

demand for

real estate

.

•

COVID-

19

- the COVID-19 pandemic impacte

d the Company in previous financial years and there remains a

principal ris

k around pote

ntial new vari

ants and t

he associated impact

on the glo

bal economy.

The

Board

believes

the

Company

is

well

pl

aced

to

w

eat

her

the

l

onger-t

erm

impact

of

these

risks

bec

ause

the

Company

has:

•

A diverse portf

olio by sector

and location with

an institution

al grade tenant

base;

•

Low gearing with

84

%

of drawn

debt facilities

at the year

end at a fixed

rate of interest; and

•

A stable invest

ment portfolio a

nd does not un

dertake spec

ulative deve

lopment.

No other

emer

ging risks h

ave been ad

ded to the

Company’s

Risk Register

during the y

ear

.

79

Going conc

ern and longer

-term viabil

ity

In

accorda

nce

with Provision

31

of

the UK

Corporate Governance Code

2018 issued

by

t

he

Financia

l

Reportin

g

Council

(“the

Code”),

the

Directors

have

assessed

the

prospects

of

the

Company

over

a

period

lon

ger

than

12

months. The

Board reso

lved to con

duct this rev

iew for

a period of three ye

ars, because:

•

The Company’s

forecasts

cover a three

-year

period;

and

•

The Board

be

lieves a

t

hree-year horizon maintains a reasonable level of accuracy

reg

arding projected rental

income and

costs, allow

ing robust sen

sitivity analys

is to be

conducted.

The Directors have

assessed the followin

g factors in assessing the

Company

’s

status as a going concern

and

its

longer-ter

m viability

,

includin

g events up t

o the date of

authorisation of

the financial state

ments:

•

A

decrease in r

evenue thr

ough losses of cont

ractual r

ent or tenant

default;

•

Diminished

demand

for

l

easing

the

Company’s

assets

going

forwards

resulting

i

n

rental

decreases

or

an

increase in vo

id units;

•

Contractual oblig

ations due

or anticipate

d within one

year;

•

Potential liquidity

and wor

king capital sh

ortfalls;

•

Access to fund

ing and compl

iance with ba

nking covenant

s

;

and

•

Ongoing complia

nce

wi

th

regulatory requ

irements in

cluding the REIT reg

ime.

The

Directors

note t

hat t

he Co

mpany h

as perf

ormed st

rongly

during t

he year

with rent

collection rate

s back

a pre-

pandemic lev

els and indust

rial valuations

and rents in part

icular impr

oving ove

r the last 12 months.

Results of t

he assessmen

t

Based

on

prudent

assumptions

within

the

Company’s

forecasts

regard

ing

losses

of

contractual

rent,

tenant

default,

void

rates

and

property

valuation

m

ov

ements,

the

Directors

expect

that

over

the

three-year

period

of

their

assessment:

•

The Company h

as surplus

cash to continue

in operat

ion and meet its

liabilities

as they fall due;

•

Borrowing coven

ants

ar

e co

mplied with;

and

•

REIT tests are co

mplied w

ith.

Sensitivities

80

Th

ese

ass

essments

are subject

to

sensitivity analysis,

whic

h

involves

flex

ing

a number

of

key

assump

tions

and

judgement

s included

in the financial pro

jections:

•

A decrease in reve

nue through

l

oss

es of contractu

al rent or

tenant default;

•

Length of potentia

l void period fo

llowing le

ase break

or expiry;

•

Acquisition NI

Y, disposals,

anticipated capita

l expenditure

and the ti

ming of deploy

ment of cash;

•

Interest rate chang

es; and

•

Property portf

olio valuation

movements.

This

sensitivity

analysis

also

evaluates

the

pot

ential

impact

of

the

principal

r

isks

and

uncertainties

should

they

occur

which,

together

with

the

steps

taken

t

o

mitigate

the

m,

are

highlighte

d

above

and

in

the

Audit

and

Risk

Committee report.

The Board

seeks to

ensure that risks

are mitigated appropriately

and managed wi

t

hin its

risk

appetite al

l times.

Sensitivity an

alysis cons

idered the fol

lowing areas:

Covenant

compliance

The

C

o

mpany

operates

the

loan

facilities

summarise

d in

Note

15.

At

31

March

202

2

the

Company

had

significant

headroom on

lender cove

nants at a port

folio level

with:

•

Company

net

ge

aring

of

19.1%

compare

d

t

o

a

m

a

ximum

LTV

covena

nt

of

35%

and

£2

07.2m

(

31

%

of

the

property portf

olio) unencu

mbered by

the Compa

ny’s borrow

ings

;

and

•

Had 207% mini

mum headroo

m on interest cov

er covena

nts for the quart

er ended 31 Mar

ch 2022.

Reverse

stress testi

ng ha

s

been un

dertaken

to

understand

what

circumstanc

es

would

result

in

potentia

l breac

hes

of financial coven

ants. While the assumptio

ns applied in these scenari

os are possible, they do not represent the

Board’s

view

of

the

likely

outturn,

but

the

results

help

i

nform

the

D

ire

ctors’

assessment

of

the

viability

of

the

Company. Th

e testing in

dicated th

at:

•

The

rat

e

of

loss

or

deferral

of

contractual

rent

on

the

borrowing

facility

with

least

headroom

would

need

to

deteriorate

by

45

%

from

the

l

ev

els

included

in

the

Company’s

prudent

forecasts

to

breach

interest

cover

covenants

;

or

•

At

a

portfolio lev

el

property

valuations

would hav

e

to

decrease

by

41

%

from

the

31 March

2022

position

to

risk

breaching t

he overall 35%

LTV coven

ant.

81

The Board notes that th

e February 2022 IPF For

ecasts for UK

Commercial P

roperty Investment sur

vey suggests

an average

2.5

%

incre

ase in rents

during 202

2 with capita

l value

in

creases

of 4.1%.

The Board

believes

that the

valuation

of

the Co

mpany’s

property

portfolio

will

prove

resilient

due

to its

higher

weighting

to

industrial

assets

and

overall diverse and high-quality asset and tenant base comprising 160

ass

ets and

o

ver

30

0 typically 'institutional

grade' tenants

across a

ll commercial s

ectors.

Liquidity

At 31 March 2

022 the Co

mpany had:

•

£

11.

6

m

of

cas

h-

in

-han

d

a

nd

£

52.

2

m

undrawn

RCF,

with

gross

borrowi

ngs

o

f

£

137.8

m

resu

lting

in

low

net

gearing,

with

no

short-term

refinanc

ing

risk

(on

refinancing

the

RBS

RCF

in

June

2022)

and

a

weighted

average debt

facility

maturity of six year

s; and

•

An

annual

co

ntractual

rent

roll

of

£

40.5m,

wi

t

h

interest

costs

on

drawn

loa

n

facilities

of

onl

y

c.

£4.6m

per

annum.

The

Company

’s

forecast

model

projects

it

will

have

sufficient

cash

and

undrawn

facilities

to

settle

its

target

dividends a

nd its expen

se and intere

st liabilities for

a period of at least 12

months.

As

detailed

in

Note

15,

the

Company’

s

Lloyds

RCF

expires

in

September

202

4.

The

Board

anticipate

s

lender

support in agreeing subse

quent facilities, and would

seek to refinance the RCF with another lender or dispose of

sufficient prop

erties to rep

ay it in Septe

mber

202

4 in

the unlikely eve

nt of lender support

being w

ithdrawn.

Impact of

emerging risks

The Board believes it too early to understand fully the longer-term impact of the COVID-19 pandemic, Brexit and

the war

in Ukraine

but

the Board

believes the

C

o

mpany

is we

ll place

d to

weather

any short

er-term imp

acts

due to

the reasons

set out in the

Principal risks a

nd uncertainti

es section.

82

Section 17

2 statement a

nd stakehold

er relation

ships

The

Directors

consider

that

in

con

ducting

the

business

of

the

Company

over

the

course

of

the

year

they

have

complied w

ith Section 17

2(1) of

the

Companies

Act 2006 (“the

A

ct

”) by fulfillin

g their duty to

promote the

success

of

the

Co

mpany

and

act in

the

way

they

cons

ider,

in

good

faith,

would

be most

likely

to

pro

mote

the

success

o

f

the Compan

y for the bene

fit of its

members as a

whole.

Issues, factors

and stakeh

olders

The Bo

ard has

di

re

ct

engagement

with the

Company

’s share

holders a

nd

seeks a

rounded

and balanced

understand

ing

of

the

broader

impact

of

its

decisions

through

re

gular

engagement

with

its

stakeho

lder

groups

(detailed

below)

to

understand

their

views,

typically

through

feedback

from

the

Investment

Manager

and

the

Company’s

broker

,

which

is

regularly

communic

ated

to

the

Board

via

quarterly

meetings.

Stakeholder

engagement

also

ensures

the

Board

is

kept

aware

of

any

si

gnif

icant

changes

i

n

the

market,

including

the

identificatio

n of emerging

trends an

d risks, wh

ich in turn can be

factored i

nto its st

rategy discussio

ns.

Manageme

nt

of

the

Company’s

day

-

to

-day

operati

ons

has

been

delegate

d t

o t

he I

nvestment

Manager,

Custodian

Capital

Limited,

and

the

Com

pany

has

no

employees.

This

externally

managed

str

ucture

allows

the

Board

an

d

the

Investment

Manager

to

have

due

regard

to

the

impact

of

decisions

on

the

following

m

att

ers

specified

in

Section

172 (1) of t

he Act:

Se

ct

io

n 1

72(

1)

fa

ct

or

Ap

proa

ch

ta

ke

n

Li

ke

ly

co

ns

eq

ue

nce

s

of

an

y

dec

isio

n

in

the

lo

ng

-t

er

m

Th

e

bu

si

ne

ss

mod

el

and

str

at

egy

o

f

t

he

Co

mpa

ny

is

set

o

ut

wit

hin

the

Str

ate

gi

c

Re

po

rt

.

An

y d

evi

at

ion f

rom

or

a

me

nd

ment

t

o th

at

st

ra

te

gy i

s s

ubj

ec

t t

o

Bo

ard

an

d,

if

n

ec

es

sa

ry

,

sh

are

hol

de

r

ap

pr

ov

al.

T

he

Co

mpa

ny’

s

Ma

na

ge

ment

En

ga

ge

men

t

Co

mmit

t

ee

en

sur

es

tha

t

th

e

In

ves

tm

ent

M

an

ag

er

i

s

op

er

at

in

g

wi

th

in

the

sc

op

e

of

th

e

Co

mpa

ny

’s

i

nv

est

men

t

o

bje

cti

ve

s.

At

le

ast

a

nn

ua

lly

,

t

he

Bo

ard

con

sid

er

s

a

bu

dg

et

for

the

del

iv

er

y

of

it

s

str

ate

gi

c

ob

je

ct

iv

es

b

ase

d

o

n

a

th

re

e y

ea

r

fo

rec

as

t

mod

el.

Th

e

In

vest

men

t

Man

ager

re

por

ts

no

n-

fi

na

nc

ial

an

d

f

in

an

ci

a

l

key

per

for

man

ce

in

di

cat

or

s

to

the

Boa

rd,

s

et

o

ut

in

de

ta

il

in

th

e

Bus

ines

s

mo

de

l

an

d

str

at

eg

y

sec

ti

on

of

t

he

St

ra

teg

ic

re

po

rt

,

at

lea

st

q

ua

rt

er

ly

wh

ic

h

ar

e u

se

d

to

ass

es

s

t

he

out

co

me

of

dec

is

io

ns

m

ade.

Th

e

Bo

ar

d’s

com

mit

me

nt

to

ke

ep

ing

i

n

mi

nd

the

lon

g

-t

er

m

co

n

se

qu

en

ce

s

of

its

de

ci

si

on

s u

n

der

lie

s it

s fo

cu

s on r

isk

, i

nc

lud

ing

ri

sks

to

th

e l

on

g-t

erm

su

cc

es

s

of

th

e

bu

si

ne

ss

. Thi

s ap

pr

oa

ch r

es

ult

ed in th

e ch

an

g

e to di

vide

nd po

li

cy d

ur

in

g th

e ye

ar

to

pre

ser

ve

c

ash

res

our

ce

s

b

y br

oa

dly

pay

ing d

iv

id

en

ds

fro

m net

ren

t

al

i

nco

me

, in

re

sp

on

se

to

th

e

pol

it

ic

al

an

d

ma

rk

et

unc

ert

ain

ty

caus

ed

by

th

e

CO

VID

19

pand

emi

c.

Th

e

inv

est

men

t

str

ate

gy

of

the

Co

mp

an

y

is

fo

cu

s

ed

on

med

iu

m

t

o

lon

g-t

er

m

ret

ur

ns

an

d

mi

ni

mi

si

ng

th

e

Com

pa

ny’s

imp

act

on

co

mm

un

itie

s

an

d

th

e

en

vi

ro

nm

ent

an

d

as

83

su

ch

th

e

lo

ng-

te

r

m

is

f

ir

ml

y

with

in

the

si

gh

ts

of

the

Bo

ar

d

wh

en

al

l

mat

er

ia

l

dec

isi

on

s

ar

e

ma

de.

Th

e

boar

d g

ai

ns

an

un

de

rs

ta

nd

in

g

of t

he

vie

ws

of

the

C

o

mpa

ny

’s

k

ey

st

ak

e

ho

lde

rs

fr

om

t

he

I

nv

est

ment

Ma

nag

er

,

br

oke

r

an

d

Ma

n

ag

em

ent

E

ng

ag

e

me

nt

Com

mi

tt

ee,

an

d

c

ons

id

er

s

t

ho

s

e

st

ake

hol

der

s’

i

nte

res

ts

an

d

vi

e

ws

i

n

bo

ard

dis

cu

ss

ion

s

a

nd

lo

ng

-t

er

m

de

ci

sio

n-

ma

ki

ng

.

Th

e int

ere

st

s of

t

he

Co

mpa

ny

’s

em

ploy

ees

Th

e C

om

pan

y h

as

no

em

pl

oy

ee

s as

a re

sul

t o

f it

s ex

te

rn

al m

an

ag

em

e

nt

str

u

ctu

re,

but

th

e

Dir

ect

ors

ha

ve

re

gar

d

to

t

he

in

te

re

st

s

of

th

e

ind

iv

id

ua

ls

re

sp

on

si

ble

f

or

de

li

ve

ry

of

t

h

e

pr

o

per

t

y

m

a

na

ge

me

nt

an

d

ad

min

ist

r

at

ion ser

vi

ce

s to

t

he Com

pa

ny

to

t

he

e

xt

en

t

th

at

th

ey

a

re

a

bl

e t

o.

Th

e

Com

pa

ny’

s

No

mi

nat

ion

s

Com

mi

tt

e

i

s

re

spo

ns

ible

f

or

a

pp

lyi

ng

th

e

div

er

sit

y

po

li

cy

s

et

o

ut

in

t

he

No

min

atio

n

s

Co

mmit

t

ee

Rep

or

t

o B

oar

d

re

cr

u

it

men

t.

Th

e

need

to

f

ost

er

th

e

Com

pan

y’

s

bu

si

ne

ss

re

lat

ion

sh

ips

wit

h

su

pp

li

er

s,

cu

st

om

er

s

an

d

ot

he

rs

Bu

si

ne

ss

r

ela

t

io

ns

hip

s

with

sup

pli

er

s,

te

nant

s

and

ot

her

co

un

te

rp

art

ie

s

ar

e

ma

nage

d

by

the

In

ves

tm

en

t

Man

ager

.

Su

pp

li

er

s

and

oth

er

cou

nte

rp

ar

ti

es

ar

e

ty

pi

ca

lly

pr

of

es

sio

nal

fi

rms

su

ch

as

len

der

s,

pr

o

per

t

y

a

ge

nt

s

an

d

ot

he

r

pro

pe

rty

pr

of

es

s

ion

al

s,

acco

unt

ing

fir

ms

an

d

le

ga

l

fir

ms

an

d

te

nant

s

wit

h

wh

ich

th

e

In

ve

st

men

t

Man

age

r

oft

e

n

has

a

lo

ng

sta

ndi

ng

re

lat

io

ns

hip.

Wh

ere

mat

er

ial

co

unt

erp

art

ie

s

ar

e

ne

w

t

o

the

b

us

ine

s

s,

chec

ks,

inc

lu

di

ng

an

ti

mon

ey

lau

n

der

ing

ch

ec

ks

whe

r

e

app

ro

pr

iate

,

are

co

nd

uct

ed

pr

ior

to

tr

an

sa

ct

ing

any

bu

si

ne

ss

to

en

sur

e

t

hat

no

r

ep

ut

at

io

n

al

or

le

gal

is

su

es

wou

ld

ari

se

fr

om

en

ga

gi

ng

with

th

at

co

unt

erp

art

y.

Th

e

Co

mpa

ny

als

o

pe

r

iod

ica

ll

y

re

v

iew

s

the

com

plia

nce

of

a

ll

mat

er

ial

co

unt

erp

art

ie

s wit

h

r

ele

va

nt

law

s and

r

egu

lat

io

ns

su

ch as

th

e

M

ode

r

n

S

lav

ery

Ac

t

20

15.

The

Comp

any

pay

s

su

pp

lie

rs

in

ac

cor

dan

ce

wi

th

p

re-a

gr

ee

d

ter

ms.

T

he

Ma

nage

men

t

E

ng

age

me

nt

Co

mm

itt

ee

e

nga

ge

s

dir

ect

ly

wit

h

th

e

C

om

pany

’s

k

ey

ser

vic

e

p

ro

vi

der

s

pro

vid

in

g

a

dir

ec

t

li

ne

of

co

mm

un

icat

ion

for

rec

eiv

in

g

f

ee

d

ba

ck

an

d

re

so

lv

ing

iss

ue

s.

Be

ca

us

e

th

e

In

ve

st

me

nt

Ma

na

ge

r

d

ir

ec

tl

y

in

vo

ices

mos

t

en

ant

s

an

d

co

lle

ct

s

r

ent

wit

ho

ut

us

ing

m

an

ag

in

g

ag

ent

s,

it

h

as

op

e

n

lin

es

of

co

mm

un

icat

ion

wi

t

h

ten

an

ts

an

d

ca

n

un

de

r

sta

nd

an

d

r

es

olv

e a

ny

i

ss

ue

s pr

omp

tl

y.

Th

e im

pact

of th

e

Co

mpa

ny

’s

op

er

at

io

ns

on

th

e

co

mm

un

ity

and

th

e

en

vi

ro

n

men

t

Th

e

Boa

r

d

rec

og

nise

s

th

e

im

por

t

an

ce

of

su

ppo

rt

ing

lo

ca

l

com

mu

nit

ie

s

whe

re

t

he

Co

mpa

ny

’s

as

set

s ar

e

loc

ate

d a

nd

se

eks

to

in

ve

st

in pr

oper

tie

s w

hi

ch

wi

ll be

f

it

for

fu

tu

re

pur

pos

e

a

nd

wh

ic

h

a

li

gn

wit

h

ESG

t

ar

ge

ts

.

Th

e

Co

mp

an

y

a

ls

o

s

ee

ks

to

be

nef

it l

o

ca

l c

om

mu

ni

ti

es b

y cr

eat

ing s

oci

a

l va

lu

e t

hro

ug

h

emp

loy

me

nt,

vi

ew

in

g

its

pr

op

er

ti

es

a

s

a k

ey

par

t

of

th

e

fa

br

ic

o

f

th

e lo

cal

ec

ono

my.

Th

e B

o

ard

ta

kes

ov

er

all r

es

po

ns

ibi

lit

y for

the

Co

mpa

ny

’s

im

pa

ct on

th

e co

mmu

nit

y

an

d

th

e

en

v

ir

on

me

nt

a

nd

i

ts

E

SG

pol

icie

s

are

s

et

o

ut i

n

th

e

ESG

r

ep

or

t

.

Th

e

Co

mp

an

y’

s

ap

pr

oa

ch

to

pre

ve

nt

ing

br

ib

er

y,

mon

e

y

lau

nd

er

ing,

sla

ve

ry

an

d

hu

ma

n tr

aff

ic

ki

ng

is

disc

lo

se

d

in t

he

Go

ver

na

nc

e r

epo

rt.

Th

e

des

irab

ili

ty

of

th

e

Co

mp

an

y

ma

inta

ini

ng

a

re

pu

tat

ion

fo

r h

ig

h

st

an

da

rd

s

of

bu

si

ne

ss

c

ond

uc

t

The

Board

believes

that

the

ability

of

the

Company

to

conduct

i

t

s

invest

ment

business and f

i

na

nce its a

ctivities depe

nds in part o

n the reputat

ion of the

Board

and

Investme

nt

Manager’

s

team.

The

risk

of fall

i

ng

short

of

t

he

high

standards

expected

and

thereby

risking

its

business

reputation

is

included

in

the

Board’s

review

of

the

Company’s

risk

register,

which

is

conducted

periodica

lly.

The

principal risks and

uncertaintie

s facing the busi

ness are set out in that sect

ion of

84

the

Strategic

report.

The

Company’s

requiremen

ts

for

a

high

standard

of

conduct

and business

ethics are

set out in t

he Governanc

e report.

Th

e

ne

ed

to

act

fa

ir

ly

as

bet

wee

n

me

mbe

rs

of

the

Co

mpa

ny

Th

e Com

pan

y’

s sh

are

hol

de

rs

are a ver

y im

por

t

ant

stak

eho

lder

g

r

ou

p.

The

B

oa

rd

ov

er

se

es

the

Inv

est

me

nt

Man

a

ger

’s

fo

r

ma

l

inv

e

sto

r

rel

at

ions

pr

ogr

amm

e

wh

ich

in

vo

lv

es

t

h

e

Inv

es

t

men

t

Man

age

r

en

ga

gi

ng

r

ou

tin

ely

wi

th

e

Co

mp

an

y’

s

sh

ar

eh

olde

rs.

The

pr

ogr

am

me

is

man

ag

ed

by

t

he

Com

pa

ny

’s

bro

ke

r

an

d

th

e

Boa

r

d

re

ce

ives

pro

mpt

fe

ed

ba

ck

fro

m

bo

t

h

the

I

nv

es

t

men

t

Ma

na

ger

and

br

ok

er

on

t

h

e

out

com

es

of

meet

in

gs

a

nd

pre

se

nta

t

io

ns

.

T

he

Boa

rd

and

In

ve

st

men

t

Ma

na

ge

r

ai

m

to

be

ope

n

with

s

har

eho

lder

s

a

nd

av

ail

ab

le

to

the

m,

sub

je

ct

to

c

om

plia

nc

e

wit

h

re

le

va

nt

sec

ur

it

ie

s la

ws

.

T

he Ch

air

ma

n of th

e Com

pa

ny

and

oth

er N

on-

Ex

ec

ut

iv

e

Dir

ect

ors

ma

k

e

the

mse

lv

es

ava

il

ab

le

f

or

me

et

ing

s

as

ap

pr

opr

iate

and

att

end

t

he

Co

mpa

ny

’s

A

GM

.

Th

e in

ves

to

r r

el

at

io

ns p

ro

gra

mme i

s d

es

ign

ed t

o pr

omo

te

fo

rm

al

en

ga

ge

ment

w

ith

in

ve

st

or

s

and

is

t

yp

ic

al

ly

co

nd

uc

te

d

aft

er

ea

ch

hal

f-y

ear

ly

re

su

lt

s

an

no

unc

em

en

t.

Th

e

Inv

es

t

men

t

Ma

na

ge

r

als

o

eng

age

s

wit

h

e

xi

st

in

g

in

ve

st

or

s

who

may

re

qu

es

t

me

etin

gs

a

nd

wi

th

pot

ent

ia

l n

ew

in

ve

st

or

s o

n

an

ad

ho

c b

asi

s t

hr

ou

gh

out

th

e y

e

ar,

in

cl

ud

ing

whe

re

pro

mpt

ed

by

Co

mpa

ny

ann

o

un

ce

me

nt

s.

Sh

ar

eho

ld

er

pr

es

en

ta

ti

ons

are

ma

de

a

vai

la

bl

e

on t

he

Com

pa

ny

’s

web

sit

e.

The

Co

mp

an

y

ha

s a

si

ng

le

c

las

s

of

sha

re

in

is

su

e

wit

h a

ll

mem

be

rs

of

th

e

Co

mpa

ny

hav

ing

eq

ua

l

r

igh

ts

.

Methods used

by the Bo

ard

The main

methods used

by the Dir

ectors to perfor

m their dut

ies include:

•

B

oard

Strategy

Days

held

at

l

east

annually

to

review

all

aspects

of

the

Company’s

business

model

and

strategy

and assess the

l

on

g-term sustainab

le success

of the Compan

y and its i

mpact on key stake

holders;

•

The Ma

nagement

Engagement

Committee

engages

with th

e

Company’s

key

service

providers

and

reports

on

their

performance

to the

Board.

The respo

nsibilities

of

the

Management

Engagement

Comm

ittee

are de

tailed

in the Manage

ment Enga

gement Co

mmittee report;

•

The

Board

is

ultimately

responsib

le

for

the

Company’s

ESG

activit

ies

set

out

in

the

ESG

C

o

mmittee

report

,

which

it

believes

are a key

part of ben

efitting the

l

oc

al commun

ities where

the Co

mpany’s assets

are located

;

•

The

Board’s

risk

management

procedures

set

out

in

the

Governance

report

identify

the

potential

consequence

s of decision

s in the short,

medium an

d long-term so that mit

igation p

lans can be put in p

lace to

prevent, redu

ce or elimina

te risks to the

Company a

nd wider stak

eholders;

•

The

Board

sets

the

Co

mpany

’s

purpose,

values

and

strategy,

deta

iled

in

the

Business

model

and

strategy

section of

the Strategic r

eport, and t

he Investme

nt Manager ens

ures they a

lign with its cu

lture;

•

The

B

o

ard

carries

out

direct

shareholder

engageme

nt

via

the

AGM

and

Directors

attend

shareholder

meetings

on an ad hoc

basis;

•

Ex

ternal

assuran

ce

is

received

through

internal

and

external

audits

and

reports

from

brokers

and

advisers;

and

•

Specific training f

or existin

g Directors an

d induction

for new Dir

ectors as set

out in the

Governance report.

Principal d

ecisions in t

he year

85

The

Board

has

delegated

operational

functions

to

the

Invest

ment

Manager

and

other

key

service

provi

ders

.

I

n

particular,

responsibility for

m

a

nagement

of

the

Company’s

property portfolio

has

been

delegate

d

to

the

Investment Mana

ger.

The Board retains respons

ibility for reviewing the engagement of the Investment Manager

and exerc

ising overa

ll control of

the Com

pany, reserving

certain k

ey matters

as set

out in the G

overnance report.

The principa

l non-routine

decisions take

n by the Bo

ard during t

he year were:

•

Completing the c

orporate acqu

isition of

DRUM REIT

as

detailed in the I

nvestment M

anager’s report

;

•

Appoin

ting Sav

ills as

one

of the

Company’s

indepen

dent valuers

from 30 June

2021

replacing

Lambert

Smith

Hampton;

•

Extending the ter

m of the R

CF as detailed in

Note 15;

•

Finalising the

Company’s

policy on

cladding e

xplained

further in the E

SG Com

mittee report;

•

Appointing new

Directors

as det

ailed in the

Chairman’s st

atement

;

and

•

Constituting an

ESG Com

mittee as deta

iled in the E

SG Committee

report.

Due

to

the

nature

of

these

decisions,

a

variety

of

stakeholder

s

had

to

be

factored

into

the

Board’s

discuss

ions.

Each decis

ion was anno

unced at t

he time, so that

all stakeho

lders were

aware of

the decisions.

Stakeholders

The Board

recognis

es

the

importance of

stakehol

der enga

g

ement to

deliver its

strat

egic

object

ives

an

d

believes

its stakeho

lders are

vital to the

continued

success o

f the

Company.

The Boar

d is mindfu

l of

stakeholder

interests

and

keeps

the

se

at

the forefront

of

business and

strategic

decisi

ons.

Regula

r

engagement with

stakehold

ers

is

fundamental to

underst

anding their

views.

The

below

sect

ion

h

ighlights how

the Company

engage

s

with

its key

stakeholders,

w

hy

they

are

important

and

the

impact

they

have

on

the

Company

and

therefore

its

long-term

success, which the Board believes helps de

monstrate the successful disc

harge of its duties under s172(1) of the

Act.

86

Stakeholder

interests

Stakeholder

engageme

nt

Tenants

The

Investment

Manager

understands

the

businesses

occupying

the

Com

pany’s

assets

and

seeks

to

create

long-term

partnersh

ips

and

understand

their

needs

to

deliver

fit

for

purpose

real

estate

and

develop

asset

manage

ment oppor

tunities

to

underpin

long-term

sustainable

income

growth

and

maximise

occupier

satisfaction

•

High quality ass

ets

•

Profitability

•

Efficient operatio

ns

•

Knowledgeable

and

committed

landlord

•

Flexibility

to

adapt

to

the

chan

ging

UK

commercia

l

landscape

•

Buildings

with

strong

environment

al

credentia

ls

•

Regular

dialogue

through

rent

collection pro

cess

•

Review

published

data,

such

as

accounts,

trading

updates

and

analysts’ r

eports

•

Ensured

buildings

comply

with

the

necessary

safety

regulat

ions

and

insurance

•

Most

tenants

contacted

to

request

environment

al perfor

mance data

•

Occupancy

has

remaine

d

at

over

90% during t

he year

The

Investm

ent

Manager

and its em

ployees

As

an

externally

managed

fund

the

Company’s

key

service

pr

ovider

is

the

Investment

Manager

and

its

employees

are

a

key

stakeholder.

The

Investment

Manager’s

culture

aligns

wi

t

h

that

of the

Company

and

i

t

s

long-standin

g

reputation

of

operating

in

the

small

er

lot-

size

market

is

key

when

representin

g the Compa

ny

•

Long

-term

viability

of

the Compan

y

•

Long

-term

relationship

with

the

Company

•

Well-being

of

the

Investment

Manager’s

employees

•

Being

able

to

attract

and

retain

hi

gh-

calibre staff

•

Maintaining a positive

and

transparent

relationship

with

the

Board

•

Board and Co

mmittee me

etings

•

Face-

to

-face

and

video-conference

meetings

with

the

Chairman

and

other Board

Directors

•

Monthly and

quarterly

KPI r

eporting

to the Board

•

Board

ev

aluation,

including

feedback

from

key

Investment

Manager perso

nnel

•

Informal meet

ings and calls

Suppliers

A

collaborat

ive

relationship

with

our

suppliers,

including

those to whom

key services

are

outsourced,

ensures

that

we

receiv

e

high

quality

services

to

help

deliver

strategic

and

investment

objectives

•

Collaborative

and

transparent

working

relationship

s

•

Responsive

communic

ation

•

Being

able

to

deliver

service

level

agreements

•

Board and Co

mmittee me

etings

•

One-

to

-one meetings

•

Annual

review

of

key

service

providers

for

the

Ma

nagement

Engagement

Committee

Shareholder

s

Building

a

strong

investor

base

through

clear

and

transp

arent

communic

ation

is

vital

to

building

a

successfu

l

and

sustainable

business

and

generating

long-term gro

wth

•

Sustainable gro

wth

•

Attractive

level

of

income returns

•

Strong

Corporate

Governance

and

environment

al

credentia

ls

•

Transparent reporting

framework

•

Annual and half

year pres

entations

•

AGM

•

Market

announce

ments

and

corporate

website

•

Regular investor feedback

received

from

the

Company’s brok

er

•

On

-going dialogue w

ith analysts

87

Stakeholder

interests

Stakeholder

engageme

nt

Lenders

Our

lenders

play

an

important

role

in

our

business.

The

Investment

Manager

maintains

clos

e

and

supportive

relationships

with

this

group

of

long-term

stakeholders,

characterised

by

openness,

transparency

and

mutual underst

anding

•

Stable cash flo

ws

•

Strong

er

covenants

•

Being

able

to

m

eet

interest pay

ments

•

Maintaining

agre

ed

gearing rati

os

•

Regular

financial

reporting

•

Proactive

notif

ication

of issues or

chan

ges

•

Regular covenant

reporting

•

Regular catch-u

p calls

Governme

nt, local

authorities

and

communiti

es

As

a

responsible

corporate

citizen

the

Company

is

committed

to

engaging

constructive

ly

with

centra

l

and

local

government

and

ensuring

we

support

the

wider

community

•

Openness

and

transparency

•

Proactive

compliance

with new

legislation

•

Proactive

engagement

•

Support

for

local

economic

and

environment

al

plans

and strateg

ies

•

Playing

its

p

art

in

providing

the

real

estate

fabric

of

the

economy,

giving

employers

a

place

of

business

•

Engagement

with

local

authorities

where we

operate

•

Two

way

dialogue

with

regulators

and HMRC

Approval of

Strategic re

port

The

Strategic

report,

(incorporat

i

ng

the

Business

m

od

el

and

strategy,

Chairman’s

state

ment,

I

nvest

ment

Manager’s

report,

Asset

management

report,

ESG

Committee

report,

Financial

report,

Property

portfolio,

Principal

risks

an

d

uncert

ainties

and Section

172 statement and

stakeholder relations

hips)

was

a

pproved by

the Board

of

Directors an

d signed on

its behalf

by:

David Hunter

Chairman

16 June

20

2

88

Board of

Directors and I

nvestment Ma

nager per

sonnel

The

Board

currently

compr

ises

seven

non-executive

di

rect

ors.

A

short b

iography

of

each

director

is

set o

ut

below:

David Hunter -

Indepen

dent Chairma

n, age 68

David

is

a

professional

non-execut

ive

director

and

strategic

adv

iser

focused

principally

on

UK

and

international

real

estate.

H

e

chairs

the

Company

and

its

Nominations

Committee

and

is

on

the

boards

of

both

lis

ted

and

unlisted

companies

in

the

UK

and

overseas,

as

well

as

holding

corpor

ate

advisor

y

roles.

He

qua

lified

as

a

chartered

surveyor

in

1978

and

has

over

25

years’

exper

ience

as

a

fund

manager,

includin

g

as

Managing

Director

of

Aberdeen

Asset

Management’s

property

fund

business.

David

is

a

former

President

of

the

British

Property

Federation

and was

actively

involved

in t

he intr

oduction

of REITs

to

the

UK.

H

e

is also

Honorary

Swedish

Consul

to Glasgow a

nd an Hon

orary Profess

or of real estat

e at Heriot-Watt Univers

ity.

David

is

Non-Executive

Chair

of

Capital

&

Regional

plc

(“C&R”)

.

The

Board

perceives

no

material

conflicts

of

interest bet

ween Custod

ian REIT and t

he activitie

s of C&

R due to their

divergent proper

ty strategies.

David’s oth

er roles are

no

t considere

d to impact

his ability to a

llocate suf

ficient t

ime to the Com

pany to discharg

e

his responsib

ilities effect

ively.

Elizabeth M

cMeikan

–

Senior Indep

endent Direc

tor, age

60

Elizabeth

joined

the

Board

as

Senior

Independent

Director

(“SID”)

on

1

April

2021

.

Her

substantive

executive

career

was

with

Tesco p

lc wh

ere s

he was

a Stores

Board Director

before

embarki

ng on

a

non-executiv

e care

er in

2005.

Elizabeth

is

currently

SID

and

Remunerati

on

Committee

Chair

at

The

Unite

Group

Plc,

the

UK's

largest

owner,

manager

and

develop

er

of

purpose-built

student

accommod

ation

and

Non-Executive

Director

and

ESG

Committee

Chair of Dalata Hotel Group p

lc

, the largest hotel group in the Republic of Ireland. Her other Board roles includ

e

Non-Executi

ve

Director

and

Remun

eration

Committee

Chair

at

McBride

plc,

Europe’s

leading

m

an

ufacturer

of

cleaning

and

hygiene

products,

and

Non-Execut

ive

Director

of

Fresca

Group

Limite

d,

a

fruit

and

vegetable

import/export

company.

Previously she was

SID of JD

Wethersp

oon plc,

SID and Remuneration Committee Chair of Fl

y

be plc

and

Cha

ir

of Moat Ho

mes Limited

.

89

Elizabeth

’s

other

role

s

are

not

considered

to

impa

ct

h

er

ability

to

allocate

sufficient

time

to

the

Company

to

discharge h

er

responsib

ilities effectively.

Matthew

Thorne FCA -

Independent

D

irect

or, ag

e 69

Matthew chairs the Company’s Audit

and Risk

Co

mmittee. Matthew qualified as a

chart

ered accountant in 1978

with

Price

Waterhouse.

He

was

an

independent

non-execut

ive

director

for

nine

years

of

Bankers

Investment

Trust

plc,

retiring

in

2018

having

chaired

the

Audit

C

o

mmittee.

Since

May

2007

Matthew

has

been

an

adviser

to

Consensus

Busines

s

Group

(led

by

Vincent

Tchenguiz).

M

atthew

was

also

A

u

dit

Committee

chair

and

the

finance

member of the Advisor

y Board and Advisory Pan

el of Greenwich Hosp

ital, the Naval Charity, unt

il January 2020

.

Matthew’s previou

s executive roles have included Group Finance Director of McCarthy & Stone p

lc from 1993 to

2007,

Finance

Director

of

Ricardo

plc

from

1991

to

1992

and

Invest

ment

Director

of

Beazer

plc

from

1983

to

1991.

Matthew is exp

ected to ret

ire from the

Board at t

he AGM on 31

August 202

2.

Hazel Adam -

Independ

ent Direct

or, age 53

Hazel

was

an

investment

analyst

with

Scottish

Life

until

1996

and

then

joined

Standard

Life

Investment

s.

As

a

fund

manag

er

she specialised

in U

K

a

nd

then Emerging

Mark

et

equities.

In

2005 H

az

el

joined Goldman S

a

chs

International

as

an

executive

d

irector

on

the

new

markets

equity

sales

desk

before

moving

to

HSBC

in

2012,

holding a si

milar equity sa

les role unt

il 2016.

Hazel

is

an independent non-executive director of Aberdeen

Latin American Income Fund Limited

an

d holds

the

CFA Level 4 c

ertificate

in ESG Investin

g and the Fin

ancial Times

Non-Execut

ive Directors

Diploma.

Hazel

’s

other

role

is

not

considered

to

impact

h

er

ability

to

allocate

sufficient time

to

the

Company

to

discharg

e

h

er

responsi

bilities effect

ively.

Chris Irela

nd FRICS - I

ndepende

nt Director,

age 64

Chris was appo

inted as an Indepen

dent Director on

1 April 2021

.

Chris joined internati

onal property co

nsultancy

King Sturge

in 1979 as

a graduate

an

d

has worked his

wh

ole

care

er

acr

oss

t

he U

K

invest

ment

propert

y

market.

He

r

an

the

investment

teams

at

King

Sturge

before

bec

o

ming

Jo

int

Managing

Part

ner

an

d

subsequently

Joint

Senior Part

ner prior t

o its merger wit

h JLL in 2011.

90

Chris

was

appointed

as

Chief

Executive

Officer

of

JLL

UK

in

2016

and

became

its

Chair

in

Apri

l

2021.

He

will

continue to play an active role in the capital markets

business and is committe

d to leading the property sector on

sustainabi

lity and support

ing the debat

e around the

climate e

mergency.

Chris

is

a

former

Chair

of

the

Investment

Property

Forum

and

is

a

Non

-

Executive

Director

of

Le

Masurier,

a

Jersey

based

family

trust

with

assets

across

the

UK,

G

ermany

and

Jersey.

Chri

s

is

also

a

keen

supporter

of

the

UK

homelessnes

s charity Cr

isis.

Chris’

other roles

are not

considered to

impact hi

s ability

to allocate

sufficien

t

time to

the C

ompany to

discharg

e

his responsib

ilities effect

ively.

Malcolm Coo

per FCCA

FCT - Inde

pendent Dire

ctor, age 63

Malcolm

was appointed

to the Board o

n 6 June 202

2.

He

is

a

qualified

accountant

and

an

experienced

FTSE

250

company

Audit

Committee

Chair

with

an

extensive

background

in corporate fi

nance and a

wide experie

nce in infrastr

ucture and p

roperty.

Malcolm worked with Arthur Andersen and

Br

itish Gas/BG Group/Lattice

bef

ore spending 15

years with Nationa

l

Grid with roles including Managing Direct

or of National Grid Property and Global Tax and Treasury Director,

and

culminated i

n the

successful

sale of

a

majority

stake

in

Nat

ional

Grid’s

ga

s

distribution business

,

now known

as

Cadent Gas.

Malcolm

is

currentl

y

a

Non-Executive

Director

of

Morgan

Sindall

Group

plc,

a

FTSE

25

0

U

K

construc

tion

and

regeneratio

n business, C

hairing its

Audit an

d Responsible

Business

Committe

es. He is

also Senior I

ndependent

Director

of

MORhomes

plc,

Non

-

Executive

Director

and

Audi

t

Committee

C

ha

ir

at

Southern

Water

Services

Limited

and Non-Executive Director and

Audit

and Risk

Committee Chair

at

Local

Pensions Partnership

Investment.

Malcolm

w

a

s

Senior

Ind

ependent

Director

and

Audit

C

o

mmittee

chair

at

CLS

Hold

ings

plc,

a

Non-

Executive

Director

of St

William

Homes

LLP,

Preside

nt of

the

Association

of Corporat

e Treasur

ers an

d a

m

e

mber

of the Financ

ial Condu

ct Authority’s L

isting Aut

hority Advisory

Panel.

Malcolm’s

other

roles

are

not

considered

to

impact

his

ability

to

allocate

sufficient

time

to

the

Company

to

discharge

his responsib

ilities effect

ively.

91

Ian Mattioli

MBE - Dire

ctor, age 59

Ian

is

CEO

of

Mattio

li

Woods

plc

(“Mattioli

Woods”)

with

over

35

years’

expe

rie

nce

in

financial

services,

wealth

manage

ment and

property

busi

n

esses and

is

the founder

director

of Custodian

REIT.

Together

with

Bob Woods,

Ian

founded

Mattioli

Woods,

the

AIM-listed

wealth

manag

ement

and

employee

benefits

business

wh

ich

is

the

parent company of the

Inv

estment Manager. Mattioli Woods now

ha

s

over £

15

bn

of assets under manage

ment,

administrat

ion

and

advice

.

Ian

is

responsibl

e

for

the

vis

ion

and

operat

ional

manage

ment

of Mattioli

Woods

and

instigated

the

developmen

t

of

its

investment

proposi

t

ion,

including

the

syndicate

d

property

ini

t

iative

that

developed

into the seed portfolio for the launch of Custodian REIT. His personal achievement

s include winning the London

Stock

Exchange

AIM

Entrepreneur

of

the

Year

award

and

CEO

of

the

year

in

th

e

2018

City

of

London

wealth

manage

ment awards.

Ian

was

award

ed

an

MBE

in

the

Quee

n's

2017

New

Year's

Honours

list

for

his

servic

es

to

business

and

the

community

in

Leicesters

hire

and

was

appointed

High

Sheriff

of

Leicestershire

in

March

2021,

an

independent

non-

political

Roya

l

appointment

for

a

single

year.

Ian

is

also

No

n-Executive

Cha

ir

of

K3

Capital

Group

plc,

which

is

listed on AIM

and speci

alises in bus

iness transfer,

business br

okerage and

corporate fina

nce across the

UK.

Ian’s

other

roles

are

not

considered

to

impact

his

ability

to

allocate

sufficient

time to

the Co

mpany

to

discharge

his

responsibiliti

es effectively.

Investment M

anager pers

onnel

Short

biographies

of

the

Invest

ment

Manager’s

key

personnel

and

senior

memb

ers

of

its

property

team

are

set

out below:

Richard

Shepherd-Cros

s MRICS - M

anaging Dir

ector

Richard

qua

lified

as

a

Chartered

Surveyor

in

1996

and

u

ntil

2008

worked

for

JLL,

latterly

running

its

national

portfolio in

vestment t

eam.

Since

jo

ining

Mattiol

i

Woods in

2009, Ri

c

hard

estab

lished C

ust

odian C

a

pital as

the

Property Fund

Ma

nagement

subsidiary

to

Matt

ioli

Woods

and

in

2014

was

instrumental

in

the

establish

ment

of

Custodian REIT

plc

from

Mattiol

i

Woods

’

syndicated

prope

rty

portfolio

and

its

1,200

investors.

Following

the

successful

IPO

of

the

Company,

Richard has overse

en the growth of

the Company t

o its current property

portfolio of over £0.6

bn.

Richard and his

family own 371,3

81 share

s

in

the C

ompany.

Ed Moore

FCA

–

Financ

e Director

92

Ed qualified as a Chartere

d Accountant in 2003 with

Grant Thornton, spec

ialising in aud

it, financial repo

rting and

internal

c

ontrols

across its

Midlands practice.

He is

Finance Director

of C

usto

dian

Cap

ital

with

responsi

bility

for

all

day-

to

-day

financial

aspects

of

its

operations.

Ed

is

al

s

o

a

member

of

the

Custodian

Capital

Invest

ment

Committee.

Since

IPO

in

2014

Ed

has

overs

een

t

he

Company

raising

over

£300

m

of

new

equity,

arranging

or

r

efinancing

seven

loan

facilities

and

completing

four

corporate

acquisiti

ons,

inclu

ding

leading

on

the

acquis

ition

of

DRUM

REIT

.

Ed’s key

responsibilities

for

Custodia

n REIT

are

accurate ext

ernal an

d internal

financ

ial reporti

ng, ongoing

regulatory

compliance

and

maintaining

a

robust

control

environment.

Ed

is

Company

Secretary

of

Custodian

REIT

and is

a member of the Investment Manager’s Investment Committ

ee.

Ed

is also responsible for the Investment

Manager’s

environmental

i

nit

iativ

es,

attending

C

u

stodian

REIT

ESG

Committee

meetings

and

co-leading

the

Investment M

anger’s E

SG working gro

up

.

Ian Mattioli

MBE - Fou

nder and Chai

r

Ian’s biogr

aphy is set out

above.

Alex Nix MRI

CS

–

Assi

stant Investme

nt Manager

Alex

graduated

from

Nottingha

m

Trent

University

with

a

degree

in

Real

Estate

Management

before

joining

Lambert

Smith Ha

mpton, where he

spent eight

years and qu

alified as a

Chartered

Surveyor in 200

6.

Alex

is

Assist

ant

Invest

ment

Manager

to

Custodi

an

REIT

hav

ing

joined

Custodi

a

n

Capital

in

2012.

Alex

heads

the

Company

’s

property m

a

nagement and

asset

management

initiatives, assi

sts in

sourcing

and

exe

cuting

new

investments

and is a

member of

the Invest

ment Manager’s I

nvestment Co

mmittee.

Tom Donn

achie MRICS

–

Portfolio Ma

nager

Tom

graduated

from

Durham

University

with

a

degree

in

Geography

befor

e

obtaining

an

MSc

i

n

R

eal

Estate

Manageme

nt

from

Sheffield

Hallam

University.

Tom

worked

in

London

for

three

years

where

he

qualif

ied

as

a

Chartered

Surveyor

with

Workman

LLP

befor

e

returning

to

the

Midlands

first

with

Lambert

Smith

Hampton

and

then CBRE.

Tom joined Custodian C

a

pital in

2015 as

Port

folio Manager w

ith a primary

fu

nction to

mainta

in and

enhance the

existing propert

y portfolio and ass

ist in the selection

and due diligence proc

ess regarding new ac

quisitions.

Tom

93

co-

leads

the

Invest

m

ent

Manag

er’s

environmental

working

group

and

attends

Custodian

REIT

ESG

Committee

meetings.

Javed Satt

ar MRICS

–

Portfolio Man

ager

Javed joined Custodi

an Capital in 2011 after graduating from Birmingha

m City University with a degree in Estate

Manageme

nt Pract

ice.

Whilst

working as

a t

rainee

surveyor on

C

u

stodian

REIT’s

pr

operty

portfolio f

or

Custodian

Capital he complet

ed a PGDip in Surveying via The College of Estate Manag

ement an

d qualifi

ed as a Chartered

Surveyor in 2

017.

Javed operate

s as Portf

olio Manager mana

ging propert

ies predomin

antly loca

ted in the N

orth-West of England.

94

Governa

nce report

The Company

is committed t

o the principles of corporat

e governance co

ntained in the

Code, for which the

Board

is accounta

ble to sharehol

ders. The

Code is availab

le from the F

RC website a

t

frc.org.uk

.

The

Company

has

complied

with

the

principles

and

provisions

set

out

i

n

the

Code

during

the

year,

so

far

as

is

possible, giv

en the Co

mpany’s size and n

ature of b

usiness.

The

Board

has

also

considered

the

principles

and

recommendations

of

the

2019

AIC

C

orp

orate

Governa

nce

Code

for Investment Companies (“AIC Code”).

The AIC Code

ad

dresses all the

princ

iples set

o

ut in

the Code, as well

as

setting out

additional

principles

and reco

mmendat

ions

on

issues

that

are

of spec

ific

relevance

to

the Compan

y.

We

believe

that

reporting

aga

inst

the

principles

and

recommendations

of

the

AIC

Code

(which

incorpor

ates

the

Code), provi

des better

information to

Shareholders

,

except where set o

ut in this sect

i

on.

Further

explanation

of

how

the

main

principles

of

the

Code

have

been

applied

is

set

out

below,

in

the

Remunerati

on

Committee r

eport and in t

he Audit and

Risk Comm

ittee report.

The

areas

of

non-comp

liance

with

the

Code

sin

ce

admission

to

trading

on

the

London

Stock

Exc

hange

in

2014

(“Admission”)

are:

•

There

is

no

chief

executiv

e

position

within

the

Company,

which

is

not

in

accordance

with

provis

ion

9

of

the

Code. As an invest

ment company,

the Company has

no employees and

therefore no requirement for

a chief

executive; an

d

•

The

Comp

any’s

su

ccession

policy permits

a tenure of

longer

than nine years

where

cons

idered appropriate

,

in line with the

A

I

C Code.

Role of the

Board

The

B

oar

d

is re

sponsible

to share

holders,

tenants

and

other

stakeholders

for

promoting t

he

long-term

sustainable

success

of

the

Company

and

generating

sh

areholder

value.

Good

governance

is

funda

mental

to

the

long

-ter

m

success of the

Compa

ny and

t

he

B

oard and

Invest

m

e

nt Manager work

toget

her to

ensure the highest standards

of governance

are maintai

ned by the Co

mpany and

are central t

o every Board

decision.

The

Board

comprises

seven

directors,

all

of

whom

have

wide

experience,

are

non-executive

and,

save

for

Ian

Mattioli, are independe

nt of the Investment Manage

r. Bi

ograph

ical informatio

n on each Director is set

out

earlier

in

the

Go

vernance

Re

port.

The

Director

s

are

res

ponsible

for managing

the Company’s business

in

acc

ordance

95

with

its

Articles

of

Association

(“the

Articles”)

and

the

Investment

Policy

(as

set

out

in

the

Strategic

report),

and

have

overall

res

ponsibi

lity

for

the

Company’s

activities.

The

Directors

may

d

elegate

certain

functions

to

other

parties

and

in

particu

lar

the

Directors

have

dele

gated

respons

ibility

for

mana

gement

of

the

Company’s

property

po

rtfolio

to

the

Investment

Manager.

The

Board

retains

respons

ibility

for

reviewing

the

engagem

ent

of

the

Investment M

anager and

exercising ov

erall cont

rol of the

Company, reserv

ing the foll

owing key

matters:

•

Setting the Com

pany's values,

standards,

investment

strategy, st

rategic aims, risk ap

petite and ob

jectives;

•

Setting the overa

ll approach

of

the Compan

y’s ESG

strategy;

•

Approving the an

nual ope

rating and cap

ital expenditure bud

gets and ext

ernal financial r

eporting;

•

Approving valuat

ions of the

Co

mpany’s propert

y portfolio;

•

Approving the Co

mpany’s

dividend policy

and the in

terim dividend

s;

•

Ensuring

a

satisfactory

dialog

ue w

ith share

holders

and appro

ving

AGM

resolutions

and share

holder

ci

rc

ulars;

•

Reviewing

an

d

approv

ing

changes to

the structure,

size

and composition of

the

Board, including succession

planning, f

ollowing recom

m

e

ndations f

rom the Nominati

ons Comm

ittee;

•

Determining

the

remuneration

policy

for

the

Di

rect

ors,

following

the

recomm

endations

of

the

Remunerat

ion

Committee;

•

Undertaking a

formal and

rigorous annua

l rev

iew of

its own

performance, t

hat

of its

committ

ees and

individual

directors, an

d the divisio

n of responsib

ilities and ind

ependence;

•

Considering the ba

lance of

interests bet

ween shareholders,

employees,

customers

and the co

mmunity; and

•

Approving the ap

pointment

of the Compan

y’s principal prof

essional adv

isers.

Meetings

The

Board

meets

at

least f

our

times

a y

ear

to

consid

er t

he Co

mpany’s

quarterly

trading perf

ormance

and

approv

e

the

Annu

al

and Interim

reports.

The

Board

also meets

on

an ad

hoc basis

to

disc

uss

specif

ic

issues.

Meetings

are

attended

by

the

Directors,

the

Investment

Manager,

the

Company

Secretary

and

other

attendees

by invitation.

Division of

responsibili

ties

The Comp

any applies

principles

F

–

I of the Code i

n determining t

he division of

responsibiliti

es of the Boa

rd.

Chairman

David

Hunter

is

the

Chair

man

and

is r

esponsible

for

the

leadership

of

the

Board

and

ensuring

i

t

s overall

effectiveness

on

directing

th

e

Company

.

The

Chairman

i

s

responsible

for

setting

the

Board’s

agenda

and

ensuring

that

adequate

time

is

available

for

discussion

of

all

agenda

items,

in

particular

strategic

issues.

The

Chairm

an

96

promotes

a

culture

of

openness

and

debate

by

facilitating

the

effective

contribution

of

other

non-execut

ive

directors.

The

Chairman

is

also

responsible

for

ensuring

that

the

directors

receive

accurat

e,

timely

and

clear

information

and

ensuring effect

i

ve co

mmunicat

ion with share

holders.

Senior Indepen

dent Direct

or

Elizabeth McMeikan was

appointe

d

to the

Board as the

SID

on 1

April 2021.

T

he

SI

D

has a

responsib

ility

to be

available as an

alternat

ive point of

contact (other than

the Chair) for

shareh

olders and

oth

er stakeholders and to

act as

a sounding board for the Chairman.

The SID

is also expected to

take

an

active part in

the asse

ssment of

Board eff

ectiveness and

when requ

ired to lead the

recruitment

process for

a new Chair.

Non-Executive

Directors

On

1

April

2021

Elizabeth

McMeikan

and

C

hr

is

Ireland

were

appointed

as

a

non

-ex

ecutive

directors

of

the

Company.

On

6

June

2022

Malcolm

Cooper

was

appointed

as

a

non-executive

di

r

ector

of

the

Company.

The

Company ha

s seven

non

-execut

ive directors and no

employees. The Board has de

legated operat

ional function

s

to

the

Investment

Manager

and

other

key

service

providers.

The

Non-Executive

Directors

provide

constructive

challenge, st

rategic guid

ance and

offer specialist ad

vice to the Inve

stment Ma

nager and hold it

to accou

nt.

Company

Secretary

The

Compan

y

Secretary

i

s

available

t

o

support

al

l

Directors and

is

respo

nsible

for the

efficient

ad

ministration

of

the Company, particularly with regard

t

o

ensuri

ng

co

mpliance with statutory and

regulatory requirements and

f

or

ensuring

th

at

decisions

of

the

Boar

d

are

imple

mented.

Its

other roles

include d

eve

loping

Board

an

d

Committe

e

agendas,

advising

on

regulatory

compliance

and

corporate

governance,

facilitating

Director

induction

progra

mmes

and

organisi

ng the AGM.

Board perform

an

c

e and

evaluation

The

Directors

have

annual

appraisa

ls

as

part

of

a

Board

Effectiveness

Revie

w

(

“

BER

”

).

The

Chair

reviews

the

performanc

e of the other

Independ

ent Non-Exec

utive Directors,

and the S

enior I

ndependent Dire

ctor revie

ws the

Chair.

97

The

Board is

currently undertaking

B

ER

externally facilitated

by

Clare

Chal

mers

Limite

d

and

overse

en

by

D

av

id

Hunter and E

lizabeth Mc

Meikan coveri

ng:

•

Composition - skil

ls, knowledge,

experience,

leadership and

diversity of the

Board;

•

Performance - ho

w well the Boar

d oversees an

d holds m

anagement

to account f

or delivery of t

he strategy;

•

People and culture -

how far

the right behav

iours are

embedded, and

how the Board for

ms a view;

•

Succession pla

nning - depth of

planning, train

ing and develo

pment for

Directors;

•

Risk

management

-

how

the

Board

ensures

there

are

the

right

processes,

controls

and

awar

eness

of

emerging

risk;

•

Leadership - ho

w effective

ly the Chair,

SID and Com

mittee Chair

s fulfil their

roles;

•

Strategy - how f

ar the Board

inputs to, challeng

es and helps

develop the st

rategy;

•

Stakeholders

-

factorin

g

them

into

deci

sion-making

,

engagement

with

shareholders,

regu

lators,

workforce,

E

SG

; and

•

Dynamics - opennes

s, trust

and effective

individual cont

ribution,

and how NEDs

receive feedb

ack.

Board train

ing

We

require

Directors

to

keep

their

knowledge

and

skills

up

to

date

and

include

training

discussions

with

the

Chairman in their

annual appraisals.

As required, we

invite professio

nal

ad

visers to provi

d

e updates on

a range

of

issues including, but

not limited

to, m

ark

et

t

rends,

legislat

ive

develop

ments, environmental, technological and

social

considerat

i

ons.

Our

Company

Secretary

pr

ovides

regular

up

dates

to

the

Board

and

its

committees

on

regulatory and corporate govern

ance matters. In addition

Directors are enco

uraged to attend courses hosted by

the

Deloitte

A

c

ademy

and

PwC.

Our

Directors

receive

training

on

their

duties

under

s

ection

172(1)

of

the

Companies

Act 2006 as

part of

their induction pr

ocess.

During

the

year

al

l

Directors

participated

i

n

an

update

from

the

Company

’s

corporate

lawyers

on

the

Board’s

obligations

regarding risks

and

responsibilities

aroun

d cladding and

participat

ed in

a nu

mber of

sessions

from the

Company’s

broker

regardi

ng

the

Takeover

Code

during

the

process

to

acquire

DRUM

REIT.

The

ESG

Committee

also received a

num

ber of updates fro

m the Compa

ny’s environ

mental

c

onsultants regar

ding a potential

net zero

carbon

strategy.

The

Company’s

auditor

includes

technical

and

regulatory

updates

in

their

reports

to

the

Audit

and Risk Co

mmittee.

98

Board Com

mittees

Audit and

Risk Committee

The

Audit

and

Risk

Committee

comprises the

independent

directors

,

excluding

the Board

Chair,

and is

chaired

by

Matthew Thorn

e. It

s responsibilities ar

e set out

in the Audit and R

isk Committ

ee report.

Manageme

nt Engagemen

t Committee

The Management En

gagement Com

mittee comprises Hazel Adam, Elizabeth

McMeikan, David Hunter, Matthew

Thorne

and

is

chaired

by

Chris

Ireland.

Its

responsibilities

are

set

out

in

the

Management

Engage

ment

Committee

report.

Nomination

s Committee

The

Board

as

a

whole

is

responsible

for

ensur

ing

adequate

successi

on

planning

to

maintain

an

ap

propriate

balance

of

skills

on

the

Board

to

ensure

it

functions

effectively

and

promotes

the long-term

sustai

nable

success

of

the Company, whilst gene

rating shareholder value. Change

s to the structure, size and compositio

n of the Board

may

b

e m

ad

e

fo

llowing recommendati

ons

fro

m

the Nomination

s C

o

mmittee, which operates

u

nder w

r

itten terms

of r

eference

which are

available

on t

he Co

mpany’s

w

eb

site.

This inc

ludes t

he

selection

of the

Chair of

the

Board,

the

Senior

Independent

Di

rector

and

the

Company

Secretary.

The

letter of

appoi

nt

ment

of

new

Directors

sets

out

the

exp

ected

ti

me

co

mmitment and

the Directors must undertake

that they will

have sufficient time

to

meet w

h

at

is

expect

ed

of them.

Their

ot

her

signific

ant

com

mitments are

disclosed to

the Board

before appointme

nt,

with a

broad indicati

on of the ti

me involved,

and

they are requ

ired to infor

m the Board of

subsequent

changes.

The

Nominati

ons

Comm

ittee

comprises

all

Dire

ctors

and

is

cha

ired

by

David Hunter.

Its

responsi

bilities

are set

out in the N

ominations

Committee report

.

Remunerat

ion Committ

ee

The

Remuneratio

n

Committee

compris

es

Hazel

Adam,

Elizabeth

McMeikan,

Chris

Ireland,

David

Hunter

and

is

chaired by Matt

hew Thorn

e. Its r

esponsibilities are

set out in the

Remunerati

on Committee r

eport.

ESG Comm

ittee

99

The

ESG

Committ

ee

com

prises

Hazel Adam

as Chair,

Elizab

eth

McMei

kan

, Malcolm

Cooper and

Chris Ireland,

all

of whom are

indep

endent non-executive directors.

The ESG

Com

mittee was

constitut

ed

on 1 April 2021

and

its key respons

ibilities are

set out in the ESG C

ommittee r

eport.

Meeting atte

ndance

The attenda

nce of t

he Directors

at sched

uled Board

and Boar

d committ

ee meet

ings held

during the

year were

as

follows:

Board

Audit and

Risk

Committee

Remunerat

ion

Committee

Nomination

s

Committee

Manageme

nt

Engagement

Committee

ESG

Committee

David Hunter

4/4

n/a

1/1

n/a

Matthew Thorn

e

4/4

3/3

1/1

n/a

Hazel Ada

m

4/4

3/3

1/1

5/5

Ian Mattioli

4/4

n/a

1/1

n/a

Elizabeth

McMeikan

4/4

3/3

1/1

4

/5

Chris Irela

nd

4/4

3/3

1/1

5/5

Malcolm

Cooper

N/a

Directors’

interests are set

out in the Remunerat

ion Committ

ee report.

The Investm

ent Mana

ger

The Co

mpany has

appointed

Custodian

C

ap

ital Limit

ed as

Investment

Manager

and Alternat

ive Invest

ment Fun

d

Manager

(“AIFM”)

under

an

Investment

Management

Agreement

(“

IMA

”)

.

Under

the

IMA,

the

Investment

Manager

is due an an

nual fund an

d asset mana

gement fee a

nd an annua

l administrat

ion fee

.

The

Investment

Manager

is

a

subsidiary

of

Mattioli

Woods,

a

and

a

provider

of

specialist

pension

consultancy and administrat

ion, employee benefits and

wealth manage

ment services.

The Investment Manager

is authorised and

reg

ulated by the

Financ

ial C

o

nduct Authority (“FCA”) and

h

as an

est

ablished market presence

in

the

smaller

lot-size

property

sector,

with

a

proven

track

record

of

propert

y

syndication

(externa

l

to

the

Company)

,

investment

and asset

management.

Ian

Mattioli

is

CEO

of

Mattioli

Woods

and

is

beneficial

ly

interested

in

the

share

capital

of

Mattioli

Woods,

the

parent

company

of

the

Investment

Manager,

and

therefore

has

an

indirect

interest

in

the

Investment

Manager.

As

a

result,

Ian Mattioli is n

ot indepen

dent.

100

Key person

nel

The Inv

es

tment

Manager’

s key

personnel

are R

ichard

Shepherd-Cro

ss

,

Ed M

oore, A

lex Ni

x and

Tom

Donnachie.

AIFM Directi

ve

The d

irective cre

ates a

Europea

n Union

(“EU”) wide

framework for

regulating an

AIFM.

The Company

’s act

ivities

fall within the scope of the directive

an

d the Board has determined that the Investment Manager will act as AIFM

for these purposes. The Board has put in place a system of regular reportin

g from the AIFM and the Company’s

depositary to en

sure both

are meeting t

heir regulato

ry responsibil

ities in respe

ct of the

Company.

Non-mainstrea

m pooled

investments

The Company

conducts its aff

airs so that its shares can be

recommended

by financial advisers

to retail investors

in

accord

ance

with

the

rules

of

the

FCA

in

relation

to

non-mainstrea

m

pooled

investments,

and

intends

to

continue

to do so for

the foreseeabl

e future.

Directors’

share deali

ngs

The Directors have

a

dopted a

code for directors’ share dealings, w

h

ich is

co

mpliant with

t

he

UK’s

Market Abuse

Regulation

(“M

AR”).

The

Board

is

responsible

for

takin

g

all

proper

and

reasonab

le

steps

to

ensure

comp

liance

with

the M

A

R.

On

10 May

2022 and

6 June

2022 ce

rtain

Non-Executive

Directors

acquired ord

inary

shares

in the

Company det

ailed further

in the Remu

neration Co

mmittee report.

Shareholder

s

The

Board

is

responsible

for

ensurin

g

a

satisfactory

dialogue

with

shareholders

based

on

the

mutual

und

erstand

ing

of

objectives.

It

approves

the

resolutions

and

correspon

ding

document

ation

to

be

put

forward

to

shareholders

at

the AG

M,

together

with

any

circulars,

prospectuses,

listing

particulars

and

press

releases

concerning

matters decid

ed by the Board.

The

Company

reports

to

shareholders

at

least

twice

each

year

in

its

interim

and

annual

reports,

and

makes

announce

ments,

where

any

price

sensitive

or

other

i

n

formation

requires

disclosure,

to

the

London

Stock

Exchange

and

on

the

Company

’

s

website.

Any

ma

teri

al

presentations

to

investors

are

m

a

de

available

on

the

Compan

y

’

s

website.

Where

there has

been

contact

with share

holders,

feedback is prese

nted

to t

he Board

by the

Investment

Manager

and

the

Company’s

broker,

Numis

Secur

ities

Limited,

to

ensure

it

is

aware

of

any

issu

es

raised

by

101

investors.

The

Company

’

s

shareho

lder

profile

and

any

material

chang

es

in

shareh

oldings

are

reviewed

by

the

Board at

least quarterly a

nd more often

as appropri

ate.

All

members of

the Board

are available

to meet

with investor

s

as and

when required.

The

Board

consi

ders

that

the

provision

of

independent

feedback

to

the

Board

through

the

C

o

mpany

’

s

brokers

and,

where

appropriate,

directly from

investors en

sures that

the whole Bo

ard remains w

ell informed of

investors

’

views.

Board members,

including the Chairs of Board Su

b-Comm

ittees

,

and representatives

of the Investment

Manager

are available to meet

with investors and to ans

wer any questions at the Co

mpany

’

s AGM. All shareholders hav

e

at

least

20

clear

working

days’

notice

of

the

AGM,

where

all

directors

and

comm

ittee

members

are

av

ailable

to

answer question

s. At

t

he

AGM

all

votes are dealt wit

h on a

poll and the number of proxy votes cast is indicated.

Votes on sep

arate issues

are proposed a

s separat

e resolutions.

Significant

holdings of ordi

nary shares in t

he Compa

ny are set out

in the Direct

ors’ report.

Conflicts of

interest

The Arti

cles allo

w the

Board

to authorise

potential

conflicts

of interest

that

may arise,

subject to

imposing

limits or

conditions

when

giving aut

hori

s

ation

if

this

is

appropriate.

Only inde

pendent

directors

(who ha

ve

no

interest

in

the

matter being c

onsidered)

are able to take

the relevant decis

ion and, in taking

the decision,

the Directors

must act

in a

way they

consider will

be most

likely to

promote

the Comp

any's succ

ess.

Procedure

s have

been est

ablished

to

monitor

actual

and

potent

ial

conflict

s

of

interest

on

a

regular

basis,

and

the

Board

is

satisfi

ed

that

these

procedures are

w

ork

ing effective

ly.

Internal c

ontrol

The Investment Man

ager is

respons

ible for

operat

ing the Company’s system of

interna

l control

and reviewing its

effectiveness.

Such

a

system

is

designed

to

manage,

rather

than

eliminate,

the

risk

of

fraud

or

the

risks

of

not

achieving

some

or

all

of

t

he

Company’s

business

objectives

and

can

provide

only

reasonable

but

not

absolute

assurance against materi

al misstatement or loss.

The Investment Manager outsourc

es i

t

s i

nt

ernal audit function

to RSM

which has u

ndertaken

an assess

ment of t

he design ef

fectiveness of

internal

controls

during the

year with

no significa

nt deficien

cies reported.

The

B

o

ard

h

as

an

ongoing

process

to

monitor

the

Company

’s

risk

management

and

internal

co

ntrol

systems,

including

financial,

operationa

l and

compliance

controls,

and t

o id

entify,

evalua

te

an

d

manage t

he si

gnificant

risks

faced

by

the Co

mpany

in

line

with

principle

O

of the

Code.

The

process

is r

egularly

reviewed

by

the Boa

rd,

based

on

reports

from

the

Investment

Manager,

and

accor

ds

with

the

Internal

Control

G

uidance

for

Directors

on

the

102

Com

bined

Code

produced

by

the

Turnbull

working

party.

Key

features

of

the

Company’s

system

of

internal

control

include:

•

A detailed author

isation pr

ocess and for

mal delegati

on of authority;

•

A comprehensive

financia

l reporting and

forecastin

g system;

•

A

defined sched

ule of matt

ers reserved for

the Board;

and

•

An

annual review of

the effectiveness of

interna

l

co

ntrols

a

nd

for

mal

c

onsideration of

bus

iness

risks.

Issues

are also rais

ed at quarter

ly board me

etings as ap

propriate.

Investment M

anager empl

oyees

are covered

by Matt

ioli Woods’ wh

istleblowin

g policy.

Bribery,

money laund

ering, slavery

and huma

n trafficking

The

Board

has

considered

the

requirements

of

the

Bribery

Act

2010,

the

C

ri

minal

F

inances

Act

2017

and

the

Modern Slavery Act 2015 and has taken steps to ensure that it has adequate procedures in place to co

mply with

their require

ments.

The

Board

has

a

zero

tolerance

policy

towards

unethical

behaviour

and

is

c

ommitted

to

c

arrying

out

business

fairly,

honest

ly

and

openly

and

it

expects

the

same

of

its

business

partners

.

The

Invest

ment

Manag

er

actively

reviews

and

is

respon

sible

for

monitoring

perc

eived

risks

and

respons

ibility

for

anti

-br

ibery

and

corrupt

ion.

The

Investment

Mana

ger

maintains

a ris

k register

where

perceived

risks

and a

ssociated act

ions

are re

corded

and th

is

is shared an

nually with t

he Board for

approval.

We

belie

ve

that all

efforts should

be made

to eliminate

unethica

l

behavio

ur

from our

supp

ly

chains.

We

seek to

mitigate

our

exposure

to

any

unethical

activity

by

engaging

wit

h

reputable

third-party

professional

service

firms

based in

the United Kingd

om.

We request formal governance informati

on

f

rom our

c

urrent or

potent

ial suppliers

if

there

is

a

perceived

risk

of

unethica

l

beha

viour

to

assess

overa

ll

supp

ly

chain

risk

and

co

nduct

due

diligence

and

risk

assessment

on

potential

new

suppliers

where

considered

necessary.

We

will

continue

to

monitor

and

collaborate

with our s

uppliers an

d tenants

to ensure

that they co

ntinue to

adop

t systems a

nd controls

that reduc

e

the risk of f

acilitating br

ibery, money la

undering, mo

dern slavery, ch

ild labour and hu

man traff

icking.

Approval

This Govern

ance report w

as approved b

y the Board

of Directors a

nd signed

on its behalf

by:

103

David Hunter

Chairman

16 June

20

2

104

Audit an

d Risk Commit

tee report

Compositi

on and desi

gnation

The

Audit

and

Risk

Co

mmittee

(“the

Committee”)

comprises

Matthew

Thorne

as

Chair,

Malcolm

Cooper,

Hazel

Adam,

E

lizabeth

McMe

ikan

and

Chris

Ir

eland,

all of

whom

are

in

dependent non-executive

directors.

The

Board

expects t

o approve

Malcol

m Cooper

’s

appoint

ment as

Chair of

the Co

mmittee with

effect

from 1

September

2022

following

Mat

thew Thorne’

s

anticipated ret

irement at

the 31 August 202

2 AGM.

Responsi

bilities

The Com

mittee meet

s regularl

y to

monitor the i

ntegrity of

the Compan

y’s finan

cial stateme

nts

and to ensure

they

present

a

fair,

balanced

and

underst

andable

assessment

of

the

C

ompany’

s

position

and

prospects

in

line

with

principle

N of the

C

od

e. The

Committee is a

lso resp

onsible for t

he appoint

ment, perf

ormance an

d indep

endence

of t

he external

auditor

and the

programme of

work and

reports

of the

i

nterna

l auditor in

l

in

e with

principle

M of t

he

Code.

In

providi

ng

suppo

rt to

the

Board in m

ak

ing

this statement, the

Co

mmittee

has

rev

iewed and

approved a

process und

ertaken by t

he Investment Man

ager to

provide confir

mation to the

Board.

The Com

mittee

operates

under written

terms of r

eference

which are availa

ble on the Co

mpany’s webs

ite.

The key resp

onsibilities

and princi

pal activities of

the Committ

ee are as foll

ows:

•

To monit

or

the

integrity

of the

financial

statements

of the

C

ompany

and

any f

ormal

announceme

nts

relating

to

the

Compan

y’s

financial

performance,

and

reviewin

g

significant

financial

reporting

judge

ments

conta

ined

in

them;

•

To adv

ise

the

Board

on

whether

the

Interim

Report,

Annual

Report

and financ

ial

statement

s are

fair,

balanced

and u

nderstand

able a

nd

provide t

he

information

nece

ssary f

or

shareholders

to asses

s t

he

Company’s

performanc

e, business

model, st

rategy, risks, worki

ng capital requ

irements a

nd longer-term viab

ility;

•

To

adv

ise

the Board on whether

the Invest

ment

Ma

nager’s working capital review supports assertions m

a

de

in the Annu

al Report

regarding going

concern and

longer-term viab

ility;

•

To

monitor

an

d

review

the

effectiveness

of

the

Company’s

internal

control

environment

and

monitoring

processes,

which

were

in

place

for

the

year

under

review

and

up

to

the

date

of

approval

of

these

financial

statements;

•

To review the si

gnificant r

isks faced by the

Company;

•

To

review

the

internal

audit

progra

mme

and

m

on

itoring

the

effectiveness

of

the

interna

l

audit

proces

s

by

reviewing

reports,

meeting

with

the

internal

auditor

and

identifyin

g

any

matters

it

consi

d

ers

need

action

or

improveme

nt, making

recommendat

ions as to the s

teps to be taken;

105

•

To

make

rec

ommendati

ons

to

the

Board

to

be

put

t

o

shareholders

for

their

approv

al

in

general

meeting

in

relation

to

the

appointment,

reappointment

and

removal

of

the

external

auditor

and

to

approve

the

remuneration a

nd ter

ms of engagement

of the exter

nal auditor;

•

To

review

the

appoint

ment

of

the

external

auditor

,

m

on

itoring

the

external

auditor’s

independenc

e

and

objectivity and

the effectiveness

of the

audit process, taking

into

consid

eration rel

eva

nt

UK professional and

regulatory requ

irements;

•

To

develop

and

implem

ent

policy

on

the

engagement

of

the

external

audito

r

to

supply

non

-a

udit

services,

taking

into

account

relevant

ethical

guidance

regarding

the

provision

of

non

-a

udit

services

by

the

external

audit

firm

and

to

report

to

the

Board,

identifying

any

matters

in r

espect

of

which

it

considers

that

action

or

improveme

nt is needed a

nd making rec

ommendat

ions as to the

steps to b

e taken;

•

To agree the sco

pe of statutory

audit work a

nd any addit

ional assurance

w

ork

to be undertak

e

n;

•

To take an

active part

in discussi

ons betwee

n the ex

ternal aud

itor and t

he Invest

ment Manager

regardin

g the

resolution of

issues that

impact the aud

ited financia

l statements;

and

•

To hav

e t

he opport

unity

to

meet with

the externa

l pro

perty

val

u

ers at

least once

a

year,

to

discuss the

valuers

’

remit and a

ny issues aris

ing from the v

aluations.

The Com

mittee also o

versees and

approves t

he calculation

of fees paya

ble to the

Investment

Manager s

et out in

Note 18.

Meetings

The

Committee

meets

no

l

ess

than

three

times

a

year,

typically

i

n

May

to consi

der

the

Annual

Report

and

external

audit

findings,

in

November

to

consider

the

Interim

Report,

interim

announc

ement

and

external

review

findings,

and

i

n

February

to

plan

for

the

financial

year

ahead.

Any

other

matters,

incl

u

ding

i

nterna

l

controls,

are

consi

d

ered

as and whe

n necessary.

Meetings

are

attended

by

the

Committee

members,

the

Investment

Manager,

the

external

auditor

and

,

periodicall

y,

the internal au

ditor.

106

Primary are

as of judge

ment in rel

ation to the A

nnual Report

and fina

ncial statements

The

Committee

considers

the

si

gn

ificant

judgement

s

made

i

n

the

Annual

Report

and

financ

ial

statements

and

receives

reports

from

the

Investment

Manager

and

the

external

a

uditor

on

those

judgements.

Th

e

Com

mittee

pays particular attention to

the matters it

considers to be

importa

nt by

virtue of size,

potentia

l

i

mpact, complexity

and level of

judgement.

The

principal

issue

considered

by

the

Committ

ee

for

the

year

was

the

valuation

of

the

Company’s

property

p

ortfolio,

w

h

ich

is

fundam

ental

to

the

Company’s

statement

of

financial

position

and

reported

results.

The

external

auditor

uses

real

estate

specialists

to

challenge

the

assumptio

ns

and

approach

adopted

by

the

valuers

and

report

ed

back

to the

Committee

on it

s revi

ew.

The

Committee

also gain

ed

comfort

from the

valuers

’

methodology

and other su

pporting mar

ket infor

mation.

The Com

mittee also revie

wed the rep

orts of the internal

auditor and

considered

how best to continue t

o resource

the

intern

al

aud

it

functio

n.

During

t

he

year,

the

int

ernal

aud

itor

has

reported

on

the

desi

gn

effecti

veness

a

nd

operational ef

fectiveness

of the interna

l control env

ironment.

Loan

covenant

and

REIT

regime

complianc

e

a

re

matters

for

the

whole

Board.

The

Committee

has

consider

ed

reports

to

support

the

Company’s

REIT

regime

compliance

,

going

concern

status

and

longer-ter

m

vi

ab

ility

statement,

along with deta

ils of available u

ndrawn facilit

ies and finan

cial foreca

sts.

The

C

o

mmittee

was

satisfi

ed that

t

hese issue

s

had b

een

fully

and

adequate

ly c

onsidered

and addres

sed

and

that

the judge

ments made wer

e appropriate.

The Com

mittee discussed

the issues

with the external a

uditor, who had

concurred w

ith the judge

ment of

the Investment M

anager.

Audit

Internal audit

The Company’s day

-

to

-da

y operations are contracted to the Investment Mana

ger.

The Company

’s internal audit

function,

which ass

esses

the syste

ms and

control f

ramework

of

the Investme

nt Manag

er and

its pare

nt company,

Mattioli

Woo

ds,

is

carried out

by

RSM.

The

Commi

ttee

agrees

an

appropr

i

at

e

annual

int

ernal

audit programme

with

the

Investment

Manager,

taking

into

considerat

i

on

the

current

size

of

the

Company

and

its

relativ

e

l

ack

of

business co

mplexity

.

107

The

Committee

receives

and

reviews

quarterly

repor

ts

of t

he

internal

audit

function,

w

hich

during

the

year

covered

financial

reportin

g,

purchasing,

governance

and

risk

management

and

property

purchas

e

due

diligence

and

administrat

ion.

The Com

mittee allows ti

me to speak with

the interna

l auditor without t

he Investment

Manager prese

nt for at

least

one meeting e

ach year.

The externa

l audit, revie

w of its ef

fectiveness, aud

itor reappointme

nt and audi

t tendering

The Com

mittee revie

ws annually t

he external au

ditor’s:

•

Appointment;

•

Relationship with th

e Company;

•

Level of effective

ness;

•

Audit and non-audit

fees; and

•

Independence.

The

Committee

notes

the

engagement

of

Deloitte

LLP

(“Deloitte”)

as

auditor

of

Mattioli

Woods

and

of

the

Investment

Manager

for

their

financ

ial

year

ended

31

May

2021

but

consid

ering

the

separate

Deloitt

e

teams

involved

and

the m

e

asures that

Deloitte

has

taken

to

ensure

separatio

n

and

independ

ence

of

the

teams,

it

wa

s

not

deemed a

conflict.

Mattioli

Woods and

the

Inve

stment

Man

ager

have appointed

an

alternative audit

fir

m

for

the audit

of their financi

al year ended

31 May 20

22.

The Committee uses a framework t

o assess the effectiveness of the audit approach and con

sidered the views of

the Invest

ment Manager.

This framework

includes:

•

The

auditor

conf

irming

its

independence

and

compliance

the

FRC’s

Ethic

al

Standard

and

the

Company’s

policy for the

supply of

non-audit servi

ces

;

•

How the auditor de

monstrated

professiona

l scepticism a

nd challenged assu

mptions where

necessary;

and

•

Assessment of

Deloitte’s

audit quality.

In assessing ho

w the Audit

or demonstrated prof

essional scept

icism and cha

llenged as

sumptions,

the Committ

ee

considered

the

depth

of

discussions

held

with

t

he

a

uditor,

particularl

y

in

respect

to

challenging

the

Company’s

approach

to

its

significant

judgements

and

estimates

(set

out

in

the

Strategic

report).

The

Committee

w

a

s

satisfied

that

a

summary

of

findings

from

t

he

Fi

nanc

ial

Reporting

Council

(“FRC”)

report

on

Audit

Quali

ty

Inspections

in

Jul

y

202

1

supported

Deloitte’s

capab

ili

t

y.

After

taking

these

matters

into

account,

the

Committee

concl

uded

that

Deloitte

had performed t

he audit

effectively, ef

ficiently and to

a high qualit

y.

108

The

Committee

allows

time

to spea

k with

the

external

auditor

without the

Invest

ment Manager

present

for

at

least

one meeting e

ach year.

Fees incurr

ed by the Co

mpany from D

eloitte during

the year were

as follows:

Year ended

31 March

20

22

Year ende

d

31 March

202

1

£000

Audit of t

he Company’s

Annual Report

138

106

Total aud

it related fees

138

106

Review of

the Company

’s Interi

m Report

25

20

Total non-aud

it fees

25

20

Total fees

163

126

Non-audit f

ees

An

externa

l

auditor independence

po

licy

has been

adopte

d

by the

Committee, which

consider

s

the appointment

of

the

externa

l

au

ditor

for

non

-au

dit

work,

after

taking

into

account

their

su

itability

to

p

erform

the

ser

vices,

the

potential

impact

on

their

independence

and

objectivity

and

the

relationship

of

non-audit

to

audit

fees.

Fees

for

permissible

non-audit

fee

s

payable

to

the

external

auditor

are

capped

at

70%

of

the

average

audit

fee

over

the

three

preceding

financial

years

(or

from

appointment

,

if

later)

in

l

ine

with

the

FR

C’s

Revised

Ethical

Standard

2019

.

Where

there

are

any

doubts

as

to

whether

the

external

auditor

has

a

conflic

t

of

interest,

Committee

approval

is

required in

advance of the

engagement.

Given

the

external

audito

r’s

detai

led

kno

wledge

of

the

structure

of

the

organisation,

cert

ain

recurr

ing

services

provided

by

them,

subject

to

the

amount

of

fee

involved,

are

not

considered

to

im

pa

ir

the

external

auditor’s

independe

nce

or

objectivity.

Services

i

nc

luded

in

this

category

are:

accou

nting

advice;

compliance

and

regulatory

certificates

and

minor

projects,

where

the

fee

involved

per

service

will

not

exceed

£10,000

without

the

prior

consent

of the Co

mmittee.

Other than t

he review of the Interim

Report, the

Committee will not norma

lly allow the

external auditor to be used

for the following:

tax services, compi

ling accounting

records; payroll serv

ices; work on intern

al controls; valu

ation

109

work;

legal

services;

inter

nal

au

dit

services;

corp

orate

finance

services;

share

brokerag

e

or

human

resources.

Non-audit f

ees incurred during

the year rel

ated to a revie

w of Board ef

fectiveness.

The Com

mittee has revi

ewed the

level of f

ees due to De

loitte for per

mitted non-aud

it services a

nd is satisf

ied the

independe

nce and object

ivity of Delo

itte

as the Co

mpany’s audit

or

is not imp

aired.

As

a ‘publ

ic

interest

entity’,

the

Company

is

required

at

the

latest

to

re

-tender

the

external a

udit

by

2024

and

rotate

audit

firms

by

2034.

Th

e

Committee

intends

to

re-tender

the

external

audit

within

the

timeframe

set

by

the

Financia

l

Reporting Co

uncil and ad

opt its specific r

equire

ments for

the tendering pr

ocess.

Deloitte

has

confirmed

its

willingness

to

continue

in

office

and ord

inary

resolutions

reappointing

Deloitte

as

auditor

and authoris

ing the Com

mittee to

set the auditor’s

remunerat

io

n will be proposed at

the AGM.

Approval

This report w

as approved

by the Committ

ee and sig

ned on its beh

alf by:

Matthew

Thorne

Chair of t

he Audit and R

isk Committ

ee

16 June

20

2

110

Managem

ent Engageme

nt Commit

tee report

Compositi

on

The Manag

ement Eng

agement Com

mittee (“the

Committee”)

comprises

Chris

Ireland as C

hair, Matthew

Thorne

,

Hazel Ad

am, Elizabet

h McMeikan

and

D

avid Hunte

r, all of w

hom are i

ndependent no

n-executive d

irectors.

C

hris

Ireland took over

from Da

vid Hunter

as

Chair of t

he Committee on 1

July 2021

.

Meetings

The Com

mittee meets at

least once

a year and othe

rwise as req

uired.

Responsi

bilities

The key resp

onsibilities

of the Co

mmittee are:

•

Monitor

and

annua

lly

review

the i

nd

ependence,

ex

pertise

and

perfor

mance

of the

Investment

Man

ager

and

its complianc

e with the

terms of the IM

A;

•

Ensure

the terms

of the

IMA

comply with

all

rele

vant regulatory

requireme

nts,

conform with

market practice

and remain i

n the best int

erests of Shar

eholders;

•

Oversee the

relation

ship with the

external propert

y valuers

considering changes, re-appointment and

tendering, t

heir remunerat

ion, terms of

engagement,

independence

and expert

ise; and

•

Review

annually

the remu

neration,

any poi

nts

of

conflict

and

the Invest

ment

M

anager’s

views

on

the

effectiveness of

the Co

mpany’s other key s

ervice pr

oviders.

During the y

ear, the Co

mmittee has c

onsidered:

•

The capability a

nd resour

ces of the Inve

stment Ma

nager to d

eliver satisfacto

ry investm

ent performa

nce; and

•

The fees payable

to the Invest

ment Manager.

The

Directors

are satisf

ied

with

the

Invest

ment

Manager’s

ability

to del

iver

investme

nt

performance

that meets

the

agreed object

ives, such that

the continuing appoint

ment of

the Investment Manager,

on the terms set out in Note

18

,

wa

s cons

idered in the

best interest

of the Comp

any and its shar

eholders.

111

The

C

o

mmittee

has

also c

onsidered

its

externa

l va

luer

engagements

with L

ambert

Smith

Hampton

Grou

p

Limited

(“LSH”)

and

Knight

Frank

LLP

which

began

in

2014

and

2019

respectively.

Following

a

tender

process

for

the

portion

of

the

portfolio

valued

by

LSH

,

triggered

by

LSH’s

engagement

exceeding

five

years,

the

Committee

recommende

d to

the Boar

d that

Savills

be app

ointed

as valuer

on that part

of

the portfol

io from the

quarter

end

ed

30 June 202

1.

Approval

This report w

as approved

by the Committ

ee and sig

ned on its beh

alf by:

Chris Irela

nd

Chair of t

he Management

Engagement

Committee

16 June

202

2

112

Nominatio

ns Commi

ttee report

Compositi

on

The No

minations

Committee

(“the

Committee”)

consists of

David

Hunter

as Chair,

Matthew

Thorne, H

azel Ad

am,

Elizabeth

McMe

ikan,

Chris

Ireland,

Malcol

m

C

o

oper

and

Ian

Mattioli.

Ma

lcolm

Cooper

was

appointed

to

the

Committee on

6 June 202

2.

Meetings

The Com

mittee meets at

least once

a year and othe

rwise as req

uired.

Responsi

bilities

The key resp

onsibilities

of the Co

mmittee, which take

into account pr

inciples J

, K and L of the Co

de, are:

•

Review

the

structure,

size and

composition

(includ

ing

the

ski

lls,

knowledg

e,

experience and

diversity) of

the

Board and

make recomm

enda

t

ions to the

Board wit

h regard to any c

hanges;

•

Consider

success

ion

planning

for

directors,

taking

into

acc

ount

the

challenge

s

and

opportunities

facing

the

Company, a

nd the skills

,

experti

se and diversity n

eeded o

n the Board in t

he future;

•

Keep

under

revie

w

the

leadership needs

of

the

organis

ation,

with

a view

to

ensuring

the continued

ability

of

the Compan

y to compete

effectively in t

he marketp

lace; and

•

Identifying and no

minating

for the

approval of the

Board, cand

idates to

fill Boar

d vacancies as a

nd when t

hey

arise.

Before

any

appointment

is

made

by

the

Board,

the

Committee

i

s

required

to

evaluate

the

balanc

e

of

skills,

knowledge,

experienc

e and

di

vers

ity on

the Board,

and, in t

he light

of this

evaluatio

n, prepare

a descr

iption of

the

role and cap

abilities requ

ired for

a particular ap

pointment

. In identify

ing suitable can

didates the c

ommittee

shall:

•

Use open advertisi

ng or th

e services of extern

al advisers

to facilitate t

he search;

•

Consider candidat

es from

a wide range of

backgrounds;

and

•

Consider

candidates

on merit

and against

objective

criteria

and

with

due r

egard

for

the benef

its of

diversi

ty

on

the Boar

d, inc

luding ge

nder,

social and

ethnic back

grounds an

d cog

nitive a

nd

personal str

engths, taking

care

that appointee

s have eno

ugh time ava

ilable to devo

te to the positi

on.

The Com

mittee also

makes reco

mmendations to

the Board co

ncerning:

113

•

Formulating p

lans for suc

cession for t

he Non-Executive

Directors;

•

Suitable candidat

es for the role of

Senior Indep

endent Director;

•

Membership

of

the

Audit

and

Risk

Committee,

Remuneration

Committee,

ES

G

Committee

and

the

Manageme

nt

Engagement

Committee,

and

any

other

Board

committees

as

appropriate

and

formed

in

due

course, in cons

ultation

with the cha

irs of those committ

ees;

•

The

re-appointme

nt

of

any

N

on-Exe

cutive

Director

at

the

conclusion

of

their

specified

ter

m

of

office

having

given

due

regard

to

their

performance

and

ability

to

continue

to

contribute

to

the

Board

in

the

light

of

knowledge,

skills and ex

perience req

uired; and

•

The annual re-election by shareholders of directors or the retirement

by rotation pro

visions in the Company’s

articles

of

association,

having

due

regard

to

their

performance

and

ability

to

continue

to

contribute

to

the

Board

in

the

light

of

the

knowledge,

skills

and

experience

required

and

the

need

for

progressive

refreshing

of

the

Board.

Policy on t

enure and s

uccession

planning

The

Committee

considers

the

ongoing

independence

of

each

of

the

Non-Executive

Di

re

ctors,

their

respective

skills

and

experience

and

whether

each

Non-Executive

Director

is

able

to

commit

sufficient

time

to

the

Comp

any,

as

well as any other external appoint

ments held. We consider that each Non-Executive Director has contri

buted an

appropriate a

mount of ti

me during the

year.

Pursuant

to

the

Articles

of

Association

of

the

Company,

at

every

AGM

of

the

Co

mpany,

one

third

of

the

N

on-

Executive

Directors

who

are

subject

to

the

requireme

nt

to

retire

by

rotati

on

(not

including

any

Non

-

Executiv

e

Director

who

was

appointed

by

the

Board

since

the

last

AGM

and

is

stand

ing

for

election)

will

retire

from

office

and

m

ay

offer

themselves

for

re-el

ect

ion.

However

,

notwi

thst

anding

the

provisions

of

the

Articles,

all

the

Non

-

Executive

Directors

will off

er

themselves

for

re

-election

at each

AGM in

accordance w

ith t

he provis

ions

of

the AIC

Code.

Non-Executi

ve Directors are appointed for

an initial period of three years.

It is the Company’s policy of tenure to

review

ind

ividual

appointme

nts

after

six

years

of

service

to

consider

whether

the

Non

-Executive

Director

is

still

independe

nt

and

still

fulfils

the

role.

However,

in

accord

ance

with

the

principles

of

the

AIC

Code,

we

do

not

consider

i

t

necessary

to

mandatoril

y

replace

a

Director,

including

the

Chair,

after

a

predetermined

period

of

tenure.

114

Successio

n planning

As

Directors we

have

a

duty

to ensure

the

long

-ter

m

success

of the

Co

mpany,

which i

n

cludes

ensur

ing

that w

e

have an estab

lished succ

ession plan for B

oard cha

nges. The Co

mmittee con

siders success

ion

planning on a regular basis to ensure that changes to the Board are

proact

ively planned and co-ordinate

d where

possible.

During

th

e

year

the Committee led

t

he

select

ion

and appointment process

for a

new

Non-Executive Director,

as

Matthew

Thorne

approaches

his

ninth

year

on

the

Board.

Odgers

Berntson,

an

executive

search

consultancy,

provided

assist

ance

to

the

Committee

and

as

part

of

the

process

was

made

aware

of

the

Board’s

approach

to

diversity.

A

key

component

of

our

specification

w

a

s

that

a

new

member

of

the

Board

has

extensive

Audit

and

Risk

Committee C

hair experie

nce

and

an

understandin

g of the property

sector.

Odgers

Berntson

provide

d

a

l

ong

list

of

potential

candidates,

and

first

stage

interviews

were

conducted

by

the

Chair of t

he Committ

ee and Elizabeth

McMeikan

,

Se

nior Indepe

ndent Director.

A shortlist

of two candida

tes was

selected

for

final stage

interviews

wi

t

h the

Committee

members,

Richard

Shepherd-Cro

ss and

Ed Moore.

Following

satisfactory

conclus

ion

of

a

thoroug

h

due

diligence

and

referencing

process,

the

Committee

unanimously

recommend

ed Malcolm Co

oper

’s

app

ointment t

o the Board with

effect fr

om 6 June 2022.

David

Hunter

is

nearing

the

ninth

anniversary

of

his

appointment

and

is

expected

to

retire

as

a

D

irector

at

the

2023

AGM

.

The

process

of

appoint

ing

his

replace

ment

as

Chair

will

commence

on

conclu

sion

of

the

ongoing

Board

Effectivenes

s Review.

Induction

The

Company

provides

new

Directors

with

a

comprehensive

and

tailored

i

ndu

ction

process

which

includes

meetings

with

the

C

o

mpany

’s

audit

partner

and

corporate

lawyer,

together

with

meetings

with

Investment

Manager

key personn

el and the Dir

ectors individ

ually.

The

inducti

on

progra

mme

is managed

by

the Company

Secretar

y

and

approv

ed

by

t

he

Chair

of the

Com

mittee.

New

Directors

are

also

provided

w

ith

external

training

that

addresse

s

their

role

and

duties

as

a

Director

of

a

quoted

public co

mpany.

115

Diversity poli

cy

T

he

Committee is con

scious of incre

ased stakeho

lder focus on diversity

and understa

nds a diverse Board brings

constructive

challenge

and

fresh

perspectives

to

discussions.

The

Committee

considers

divers

ity

in

a

broad

sense

not limited t

o gender or et

hnicity.

The Comm

ittee also follo

ws the AIC C

ode of Corpo

rate Governance

w

h

ich recom

mends:

•

The Board has a

combinat

ion of skills, exper

ience and

knowledge;

and

•

Both

appointments

and

succession

plans

should

be

based

on

merit

and

objective

criteria

and,

within

this

context,

should pro

mote diversity

of

gender,

social

and

ethnic

background

s,

cognitive

and pers

onal

strengths.

The

Board

’s

posit

ive

appr

oach

to diversity

means that, w

here possible, each

t

ime

a

Director is

recruite

d

at least

one of the short

list candid

ates is fe

male and at lea

st one of the

candidates

is

f

rom a minor

ity ethnic bac

kground

.

The Board

supports the

overall reco

mmendations o

f the Ha

mpton-Alexander

and Parker

Reviews for a

ppropriate

gender and eth

nic divers

ity and is a

ware of the F

CA’s ‘co

mply or expl

ain’ targets,

applicable f

or the financia

l year

ending 3

1 March

2023,

of:

40% of

the Board

to

be w

omen; one

senior

Board p

osition t

o be

held b

y a

woman;

and

one individua

l on the boar

d to be f

rom a minority

ethnic backgr

ound.

T

he

Company’

s

Board

contains

two

females

which

at

the

year

end

repres

ent

ed

33%

with

Elizabeth

McMeikan

acting as t

he Senior Indep

endent Direct

or. No Direc

tors are from a

minority et

hnic backgrou

nd.

At

present

it

is not

seen

to

be in

the

best

interests

of

the

Company

and

its

shareholders

to

set

prescriptive

diversity

targets for

the Board and t

he Committee

do

es

not

positively discr

iminate duri

ng the recruit

ment proces

s

.

During th

e recruit

ment process

for the A

udit and

Risk Commit

tee Chair

design

ate a nu

mber of fe

male candidates

and candidates from

a minority ethnic background were

intervi

ewed.

Malco

lm Cooper w

as

ap

pointed on 6

June

2022

and

is

a

white

male.

The

appoint

ment

of

Malcolm

was

made

based

on

his

skillset

and

experience,

particularly

having

c

haired

other

Audi

t

Co

mmittees

of

listed

r

eal

e

state

ent

ities,

and

following

Matthew

Thorne’s

expect

ed

retirement the

Board will s

till comply w

ith prevailing

FTSE 350

best practic

e.

Approval

This report w

as approved

by the Committ

ee and sig

ned on its beh

alf by:

116

David Hunter

Chair of t

he Nominations

Committee

16 June

202

2

117

Remunerati

on Committ

ee report

Compositi

on

The

Remunerat

ion

Committ

ee

(“the

Committee”)

comprises

Matthew

Thorne

as

Chair,

David

H

unter,

Hazel

Adam

,

Elizabeth McM

eikan an

d Chris Ireland,

all of who

m are independe

nt non-executive d

irectors.

Meetings

The Com

mittee meets at

least once a year

and other

wise as require

d.

Responsi

bilities

The key resp

onsibilities

of the Co

mmittee are:

•

To set

the Re

muneration

Policy for

all

the D

irectors

taking int

o acco

unt

relevant le

gal and

regulatory

requirements

and the pro

visions a

nd recommendati

ons of the

Code and t

he AIC Code;

•

To review the on-g

oing appropri

ateness and re

levance of

the Remunerat

ion Policy; and

•

Within

the

ter

ms

of

the

agreed

policy,

to

determin

e

the

individua

l

remuner

ation

of

each

director,

taking

into

account infor

mation about

remuneration

in other co

mpanies of co

mparable sc

ale and co

mplexity.

The Com

mittee operates

under written T

erms of R

e

ference which are

availabl

e on the Co

mpany’s webs

ite.

Directors an

d officers

The

Non-Executive

Directors

and

Company

Secretary

are

the

only

officers

of

the

Company.

The

Company

Secretary

is

engaged

under

the

terms of

the

IMA

with

the

Investment

Manager.

The

C

o

mpany

has

no

employees.

Under the

terms

of their

appoint

ment,

each

Direct

or i

s required

to retire

by

rotation and

seek

re

-electio

n

at least

every three

years

. The

Company’s

Articles

require one third

of Directors

to ret

ire and seek

re

-election e

ach year

.

However, notwithstanding

the

provisions of

the

Articles, all

the N

on-Executive Directors

will

off

er

themselv

es

for

re

-election at ea

ch AGM

in accordanc

e with the pro

visions of

the AIC Code.

Remunerati

on Policy

118

The

C

o

mpany’s

objectiv

e i

s

to

have a

simple

and

transparent

r

emuneration

structure,

aligned

with the

Company’s

strategy

and be

comparab

le with

similar

companies.

The

Company

offers

Directors,

including any

new

Directors,

an

annual

fee

with

no

pension

contribut

ions,

allowances

or

variable

elements.

Directors

are

engaged

under

Letters

of

Appointment

(rather

than

serv

ice

contracts

wi

th

the

Company),

which

do

not

allow

for

any

p

ayments

on

the

termination

of

office.

Each

Director’s

appointment

under

their

respective

Letter

of

A

ppo

intment

is

t

erminable

immediately by

eith

er

part

y

(t

he

Compa

ny

or the

Director) giving

wr

itten

not

ice

.

Lett

ers

of Appointment are

kept

available f

or inspection at

the Compan

y’s register

ed office.

The Rem

uneration Polic

y was appro

ved at the

AGM held o

n 1 Septemb

er 2020 with 99.

95% of vot

es cast for

the

resolution,

0.05% of votes

cast against t

he resolutio

n with no votes

withheld.

Any

major

decisions

on

Directors’

remuneration

are

taken

by

the

Committe

e,

as

delegat

ed

by

the

Board

in

the

Committee

’s Terms of

Reference, an

d subsequent

ly reported

to the Boar

d.

During the year,

the Com

mittee reviewed

the

Company’s

remuneration

pol

icy, which is des

igned to attr

act, retain

and motivate non-ex

ecutive directors with the skil

ls and experience necess

ary to maximise shareh

older value on

a

long-term

basis,

and

determin

ed

that

it

remain

s

fit

for

purpose

.

The

C

o

mmittee

has

determined

that

t

he

Remunerat

ion Policy has

operated as intended.

For

the

fort

hcoming

finan

cial

year,

the Committee

propos

es

an

amend

ment

to

the

Remuneration

Poli

cy

to

set a

base

Non-Ex

ecutive D

ire

ctor

fee

of £40,000

per

annu

m,

with

incre

ments

being applied

for

the Board

Chair,

SI

D

and

certa

in Board Com

mittee roles.

Shareholder approval

for

the proposed

change

to

the R

e

muneration Policy

above will

be

sought

at the

AGM

on

31 August 20

22, from

which date t

he new policy

will apply if appro

ved.

There

have

been

no

other

major

decisions,

substantial

changes

or

discretion

applied

relating

to

Directors

’

remuneration d

uring the

year, other

than the fees p

ayable to the Direct

ors for

the forthcomin

g financial

year

.

The

Re

muneration

Policy

has

been

prep

ared

in

accordance

with

Schedu

le

8

of

The

L

arge

and

Medium

-siz

ed

Companies

and

Group

’s

(Acco

unts

and

Reports)

Regulations

2008

(“the

Regu

lations”)

as

amende

d

i

n

August

2013

and

2019,

the

Compani

es

(Miscellaneo

us

Reporting)

Regulation

s

2018

and

with

the

Code

and

the

AIC

Code.

The Committee takes

into

accoun

t

any

views in

res

pect of

directors’ remuner

ation expressed by

sharehol

ders i

n

the formulati

on of the Re

muneration

Policy.

119

Directors’

remuneratio

n (audite

d)

202

2

202

1

Fees

£

Er’s NIC

£

Total

£

Fees

£

Er’s NIC

£

Total

£

David Hunter

57,500

7,528

65,028

51,500

6,703

58,203

Matthew Thorn

e

42,650

5,479

48,129

41,200

5,281

46,481

Barry Gilbertso

n*

-

30,000

3,837

33,837

Ian Mattioli

37,500

4,768

42,268

34,500

4,357

38,857

Hazel Ada

m

40,000

5,113

45,113

36,000

4,564

40,564

Elizabeth McM

eikan

**

40,000

5,113

45,113

-

Chris Irela

nd

**

40,000

5,113

45,113

-

Malcolm

Cooper***

-

257,650

33,114

290,764

193,200

24,742

217,942

* Barry Gilbert

son retired f

rom the Boar

d on 1 Janua

ry 2021.

**

Elizabeth M

cMeikan an

d Chris Irela

nd were appoi

nted to the Boar

d on 1 Ap

ril 2021.

*** Malcol

m Cooper wa

s appointed t

o the Board o

n 6 June 2022.

In

April 202

2

t

he Co

mmittee

reviewed

Di

re

ctors’

remunerat

ion

against

com

p

arable

entities

taking int

o accou

nt

the

performanc

e

of

the

Company,

the

nature

of

each

D

irectors

’

duties,

their

responsibi

lities

and

the

tim

e

spent

discharging

their

duties

during

the

year.

The

Boa

rd

also

recognise

s

that

an

increasing

ly

onerous

legis

lative

environment

is

l

ikely

to co

ntinue

to have

a substa

ntial

impact

on

the

time comm

itment

of

the

Directors,

particularly

for

the

Chair.

As

a

resul

t

the

Board

approved

the

following

annual

fees

with

effect

from

1 Apri

l

2022

:

David

Hunter

-

£

60

,000;

M

atthew

Thorne

-

£4

5,

00

0;

Elizabeth

McMeikan

-

£45,

000,

Chris

I

reland

-

£42,250

;

Ha

zel

Adam

-

£4

2,250; I

an Mattioli - £

40

,0

00

; and M

alcolm Coope

r - £40,000.

Malcolm Cooper

is expected to be

appointed as

Chair of

the Audit

and Risk Committee on

31 August 2022

follow

ing

Mat

thew Thorne’s

ant

icipated retirement

, at

which point

his annual f

ee will incre

ase to £45,000.

The Com

mittee was prov

ided with su

itable fee b

enchmarking i

nformation by

Odgers Berntson.

The Board

is

mindful of

the

need to

attract

suitably experi

enced m

embers

and offer

candidates

competitive

l

eve

ls

of

remuneration

when

B

o

ard

refreshment

is

required

in

line

with

the

Company’s

succession

and

diversity

planning

.

No pension b

enefits accru

ed

to any of t

he directors

during the year

(2021: £nil

).

120

The Direct

ors and the key

Investment Manag

er personne

l are considered

to be the

Company’s key

manage

ment

personnel defined by

I

AS 24

‘

Related Party Disclosures’.

The terms and

conditio

ns of

the IMA and

the

am

o

unts

due to the I

nvestment M

anager are s

et out in Not

e 18.

Directors’

interests (aud

ited)

The Directors

had the f

ollowing interests

in the ordi

nary shares of

the Compa

ny at 31 March 2

022:

202

2

202

1

No. share

s

%

holding

No. shares

% holding

David Hunter

29,000

0.01%

29,000

0.01%

Matthew Thorn

e

29,000

0.01%

29,000

0.01%

Ian Mattioli

40

4,842,451

1.10%

4,000,385

0.

9

5%

Hazel Ada

m

-

Elizabeth McM

eikan

10,400

0.00%

-

Chris Irela

nd

25,803

0.01%

-

Malcolm

Cooper

-

4,936,654

1.13%

4,058,385

0.

9

7%

40

Comprising

shares

held by

Ian,

his

wife and

a charitable

trust under

his control of

2,755,461 (2021: 2,710,087)

and 2,086,990 (2021:

1,290,298) shares

held by

other persons closely

associated

.

121

On

10

May

2022

all

independent

No

n-Executive

Directors

serving

at

the

time

acquired

ordinary

shares

i

n

the

Company,

and

on

6

June

2022

Ian

Mattiol

i

also

acquired

ordinary

share

s

in

the

Company.

These

purchases

mean

on

16 June 20

22 the Dire

ctors had the f

ollowing

interests in the

ordinary shar

es of the

Company:

2022

No. share

s

% holding

David Hunter

39,000

0.01%

Matthew Thorn

e

39,000

0.01%

Ian Mattioli

5,642,451

1.28%

Hazel Ada

m

19,566

0.00%

Elizabeth McM

eikan

20,400

0.00%

Chris Irela

nd

50,345

0.01%

Malcolm

Cooper

-

5,

810,762

1.31

%

No

Di

r

ector

has

or ha

s

had

any

interest

i

n

any

transactions

which

are

or w

ere

unusual

i

n

their

nature

or

condition

s,

or significant to the busine

ss of the Company and which were affected by the Company or remain in any respect

outstandin

g

or

unperformed.

No

loan or

guarantee

has

been

granted

or

provided

by

any mem

ber

of

the Com

pany

for

the

benefit

of

any

director.

There

are

no

restr

ictions

agreed

by

any

Director

on

the

disposa

l

within

a

certain

period

of ti

me of t

heir ho

ldings

in the

C

o

mpany’s

securities.

Re

str

ictions

on ot

her transfers

of ordinar

y shares

are

set out in the

Directors’

Report.

There are no

requirement

s or guidel

ines for the

Directors

to own shares

in the Co

mpany.

Richard

Shepherd-Cross

and

E

d

Moore,

Managing

Di

r

ector

and Fi

nance

Di

r

ector

of the

Investment

Manager,

and

their immediat

e families,

respectively, o

wn 371,381

and 97,551 sh

ares in the Co

mpany.

122

Total share

holder retur

n

The

grap

h

below

ill

u

strates

the

total

shareho

lder

return

over

the

period

from

Admissio

n

on

26

March

2014

to

31

March 2

022

in

terms

of

the

change

in

value

of

an

initial

investment

of

£100

invested

on

26

March

2014

in

a

holding of

the Company’s

shares

aga

inst

the correspond

ing

t

otal

share

holder returns

fro

m

a hypothetical basket

of shares in

similar

(‘peer

group’)

listed pro

perty inv

estment co

mpanies

41

.

Benchmark

ing

performance

against

the

perfor

mance

of

the

Company’s

peers

i

s

considered

to

be

the

most

appropriate

method

of

measuring

the

Company’s

relative

performance,

as

required

by

the

Regulatio

ns.

The

performanc

e of the Com

pany relativ

e to its peers i

s discussed

in the I

nvestment

Manager’s rep

ort.

The Companies Act

2006 requires the Auditor to report to the shareholders on cert

ain parts of the Remuneration

Committee report and to

s

tate whether, in

the

ir opinion, those parts of

the report have been properly prepar

ed in

accordance with

the Regulations.

The

part

s

of the

Remunerat

ion

Com

mittee report

that are

subject to

audit are

shown in t

his Report

as (

“audited”).

41

The Company’s peer group comprises:

BMO Commercial Property Trust

Limited,

B

MO Real Estate Investments

Limited, Pic

ton Property Income Limited, Schroder R

eal Estate

Investment Trust Limited, Standard Life

Investments

Property Income T

rust Limited,

UK Commercial Property Trust Limited

an

d Ediston Property Investment Company p

lc.

80

100

120

140

160

180

200

220

Peer Group

Company

Peers: FCPT,

FC

RE,

PCTN

,

SREI, SLI, UKCM,

EPIC

123

Approval

This report w

as approved

by the Committ

ee and sig

ned on its beh

alf by:

Matthew

Thorne

Chair of t

he Remuneratio

n Committee

16 June

20

2

124

Directors’

report

Report a

nd financial stat

ements

The Directors

hav

e

p

leasure

in presenting their

rep

ort together

with the

au

dited financial

st

atements for the

year

ended

31

March

20

22.

The

G

overnance

report

forms

part

of

t

his

report.

For

the

purposes

of

this

report,

t

he

Directors’

responsibil

ities

statement

and

the

Independent

auditor’s

report,

the

expression

‘Company’

means

Custodian R

EIT plc and

the expres

sion ‘Group’

means the

Company and

its subsidi

aries.

The

C

o

mpany’s

principa

l

activity

is

commercial

property

investme

nt.

The

Strategic

report

i

nc

ludes

further

information about

the Company’s principal activit

y, financial performa

nce during the

year and indication

s of likely

future deve

lopments. The

trading status of

the

Com

pany’s subsidiarie

s

is shown i

n Note 11.

Details of sign

ificant eve

nts since the year

end are c

ontained in N

ote 20 to the

financial st

atements.

The Directors believe they have discharge

d their responsibilities under section 414C of the Companies Act 2006

to provide a

balanced a

nd comprehens

ive review of

the develo

pment and perf

ormance of the busines

s.

Results an

d dividends

The Group

profit for the

year after t

axation is set ou

t in the consol

idated state

ment of co

mprehensive

income.

The Com

pany paid a f

ourth inter

im dividend

of 1.

37

5p per s

hare for the

quart

er ended 31 Mar

ch 2022

on 31

May

202

2

totalling

£

6.1m,

res

ulting

in

total

div

idends

relating

to

the

year

of

5.

25

p

per

share

(2021

:

5.0p),

totalli

n

g

£2

2.9m (20

21

: £

21.0m).

The Comp

any’s divide

nd policy

is set out in the

Fin

ancial revie

w section of

the Strategic report

.

Going con

cern

At 31 March 2

022 the Co

mpany

’s forecast

s indicat

e that over t

he next 12

mont

hs:

•

The Company h

as surplus

cash to continue

in operat

ion and meet its l

iabilities

as they fall due;

•

Borrowing coven

ants are co

mplied with;

and

•

REIT tests are co

mplied w

ith.

125

The

forecast

is

subject

to

sensitivity

analysis,

which

involves

flexing

a

number

of

key

assumptions

and

judgements

included in

the financial pr

ojections,

over the follo

wing areas:

Covenant

compliance

The

Company

operates

loan

facilities

summarised

in

N

ote

15.

At

31

March

2022

the

Compan

y

had

significant

headroom on

lender cov

enants at

a portfolio leve

l with:

•

Company

net

ge

aring

of

19.1%

compare

d

t

o

a

m

a

ximum

LTV

covena

nt

of

35%

and

£2

07.2m

(

31

%

of

the

property portf

olio) unencu

mbered by

the

Company’s

borrowings

;

and

•

Had 207% min

imum headr

oom on interest

cover covena

nts for the quart

er ended 31 Mar

ch 2022.

Reverse

stress testi

ng ha

s

been un

dertaken

to underst

and

what

circumstan

ces

would

result in

potential

breaches

of financial coven

ants.

Wh

ile the assu

mptions appli

ed in these scenarios are poss

ible, they do not represent the

Board’s

view

of

the

likely

outturn,

but

the

results

help

i

nform

the

D

ire

ctors’

assessment

of

the

viability

of

the

Company. Th

e testing in

dicated th

at:

•

The

rate

of

loss

or

deferral

of

contractual

rent

on

the

borrowing

fa

cility

with

least

headroom

would

need

to

deteriorate

by

45

%

from

the

l

ev

els

included

in

the

Company’s

prudent

forecasts

to

breach

interest

cover

covenants

;

or

•

At

a

portfolio lev

el

property

valuations

would hav

e

to

decrease by

41

%

from

the

31 March

2022

position

to

risk

breaching t

he overall 35%

LTV coven

ant.

The Board notes that

the February 2022 IPF For

ecasts for UK

Commercial P

roperty Investment sur

vey suggests

an average

2.5

%

incre

ase in rents

during 202

2 with capita

l value

in

creases

of 4.1%.

The Board

believes

that the

valuation

of

the Co

mpany’s

property

portfolio

will

prove

resilient

due

to its

highe

r

w

ei

ghting

to

industrial

assets

and

overall diverse and high-quality asset and tenant base

co

mprising 160 assets and

o

ver

30

0 typically 'institutional

grade' tenants

across a

ll commercial s

ectors.

Liquidity

At 31 March 2

022 the

Company had:

126

•

£

11.

6

m

of

cas

h-

in

-han

d

a

nd

£52.

2m

undrawn

RCF,

with

gross

borrowings

of

£

137.8

m

resu

lting

in

low

net

gearing,

with

no

short-term

refinancing

risk

(on

refinancing

the

RBS

RCF

in

June

2022)

and

a

weighted

average debt

facility

maturity of six year

s; and

•

An

annual

co

ntractual

rent

roll

of

£40.5m,

with

int

erest

costs

on

drawn

loa

n

facilit

ies

of

only

c.

£4.6m

per

annum.

The

Company’s

forecast

m

o

del

projects

it

will

have

sufficient

cash

and

undraw

n

facilities

to

settle

its

target

dividends a

nd its expen

se and intere

st liabilities for

a period of at least 12

months.

As

detailed

in

Note

15,

the

C

o

mpany’s

Lloyds

RCF

expires

in

September

20

24.

The

Board

anticipate

s

lender

support in agreeing sub

sequent facilities, an

d would seek to refinance the RC

F with another lender or dispose of

sufficient prop

erties to rep

ay it in Septe

mber 2024 in

the unlikely event

of lender support

being w

ithdrawn.

The

Directors

consider

preparing

the

financial

statements

on

a

going

concern

basis

to be

appropriate

because the

sensitivity headroo

m

s

et out

above indicates that the

Company can continue in operation

for at least

th

e next

12

months.

Taxation

The

Group

operates

as

a

REIT

and

hence

profit

s

and

gains

from

the

property

rental

business

are

normally

expected to

be exempt f

rom corporation

tax.

Directors an

d Officers

A

list

of

the

directors

and

their

short

biographies

are

shown

in

the

Board

of

Directors

and

Investment

Manager

personnel sect

ion of the G

overnance report

.

The

appo

intment

and

replacement

of

directors

is

governed

by

the

Articles,

the

Code,

the

Companies

Act

and

related legis

lation. The

Articles the

mselves

may be amended by

special r

esolution of t

he sharehold

ers.

Directors’

fees

and

beneficial

interests

in

the

shares

of

the

Company

are

disclosed

in

the

R

e

muneration

Committe

e

report.

D

uring

the year,

no

director

had

a

materi

al

interest

in

a

cont

ract

to

which

t

he

Company

or its

subsidiary

was a

party

(other

than

their own

letter

of

appointment),

requiring disc

losure

under

the

Companies

Act

2006

other

than in respect

of Custod

ian Capita

l Limited and the

IMA as disclo

sed in Note 18

to the financia

l statement

s.

127

On

1

April

2021

Elizabeth

McMeikan

and

Chris

Ireland

were

appointed

as

Directors.

On

6

June

2022

Malcom

Cooper was ap

pointed a

s a Director.

Directors’

indemnity

All dire

ctors an

d officers

of

the Co

mpany have

the benefit

of a

qualifyin

g third

party indemn

ity prov

ision cont

ained

in t

he Art

icles,

which

was

in f

orce t

hroughout

the

year

and

is curr

ently st

ill in

force.

The

Company also

purchased

and

maintained

directors’

and

officers’

liabil

ity

insurance

in

respect

of

itself,

its

directors

and

officers

and

the

directors

and

officers

of

its

subsidiaries

as

permitted

by

Section

234

of

the

Compan

ies

Act

2006

,

although

no

cover

exists in the

event direct

ors or officers

are found to

have acted fraudu

lently or dishone

stly.

Conflicts of

interest

There

are

procedures

i

n

place

to

deal

with

any

dir

ectors’

conf

licts

of

interest

arising

under

section

175

of

the

Companies

Act 2006 and

such proced

ures have op

erated effectiv

ely.

Donations

No political

or charitab

le donations

were made dur

ing the year.

Capital str

ucture

The Comp

any’s authori

sed and issue

d share cap

ital is shown i

n Note 16 to t

he financial stat

ements

.

The

ordinary shares

ran

k

pari passu

in

all

r

espects.

Save

as

may be

agreed at

each

AGM,

t

he

ordinar

y

shares

have pre-emption rights i

n

respect

of any future i

ssues of ordinary

shar

es to

the extent conferred by

sect

ion

561

of the Co

mpanies Act

2006.

There

are

no

restrictions

on

the

transfer

of

ordinar

y

shares

in

the

Company,

other

than

certain

rest

rictions

that

may be

impos

ed from time

t

o

t

ime

by laws and regulations and pursuant to

the Listing Rules of

the FCA and the

Company’s

share de

aling code,

whereby

certain d

irectors a

nd officers r

equire

approval t

o deal in

ordinary

shares

of the Co

mpany.

The Directors are

not aware of

any other agreements bet

ween holders of

securities that may result

in restrictions

on the transf

er of ordinary

shares.

128

There are no

specific restrictions on the

size of a

h

olding nor on

the transfer of shares,

whic

h

are both governed

by

the

general

provisions

of

the

Articles

and

prevailing

legislation.

No

person

has

any

special

rights

of

control

over the Co

mpany’s shar

e capital

and a

ll issued sha

res are fully

paid.

CREST

Custodian

REIT

plc

share

dealings

are

settled

in

CREST,

the

comput

erised

system

for

the

settlement

of

share

dealings

on the

London St

ock Exchange.

CRE

ST reduces

the a

mount

of docu

mentation

required an

d makes

the

tr

ading

of

shares

faster

and

m

ore

sec

ure.

CREST

enables

shares

to

be

hel

d

in

an

elect

ronic

form

i

n

stead

of

traditiona

l share certificates. CREST is voluntary a

nd shareholders can keep

their share certificates if they wish.

This may be pr

eferable for

shareholders who do n

ot trade in sh

ares on a f

requent bas

is.

Substanti

al shareholdi

ngs

At 29

April

202

2

the Direct

ors were

aware that

the

fo

llowing

shareholders

each ow

ned

42

3%

or

more

of t

he issu

ed

share capita

l:

Shareholder

Number of

ordinary shar

es

Percentage

holding

43

BlackRock

23,403,853

5.

3%

Mattioli Wo

ods

17,697,223

4.0%

No changes

in substantia

l sharehold

ing were dis

closed bet

ween 29 April 2022

and

16 June

20

22.

Close com

pany provisi

ons

The Comp

any is not a cl

ose comp

any within the provis

ions of the

Income and Corp

oration Ta

xes Act 19

88.

42

Ownership

incorporates the control of v

oting rights through acting as discretionar

y investment manager on behalf of retail inves

tors holding the beneficial interest.

43

Based on the issued share capital

on

31 March

20

22.

129

Change of c

ontrol

The

Company

has

borrowing

facilities

provided

by

its

bankers

which

include

provisions

which

m

ay

require

any

outstandin

g

borrowings

t

o

be

repaid,

alter

ed

or

terminated

upo

n

the

occurrence

of

a

change

of

control

in

the

Company.

Related part

y transactio

ns

Details of

related party

transactions ar

e given in Not

e 18 to the

financial state

ments.

Environment

al perform

ance and str

ategy

Custodian

REI

T

is

co

mmitted

to

monitoring

th

e

performance

of

its

assets,

and

using

this

information

to

develop

robust

strategies

to

minimise

its

environment

al

impact.

Thi

s

year,

we

have

continued

to

collect

data

to

monitor

the

performance

of

our

property

portfolio

using

a

centralised

data

m

a

nagement

pl

at

form,

hosted

by

the

C

o

mpany’s

environment

consulta

nts,

to

automate

data

collection

and

impro

ve

our

understanding

of

building

performance.

This

data

is

fun

damental

for

the

industry

reporting

frameworks

we

adh

ere

to

each

year

which

are

EPRA

and

GRESB.

The

following

infor

mation

summarises

our

actua

l

environmenta

l

performance

over

the

year.

Our

environmental

impacts include

the consumption

of fuels, electricity and

water, and

the production

of waste.

Our

environ

mental

impacts have b

een derive

d from both

landlord obta

ined and t

enant obtain

ed consumpt

ion data

.

GHG emissio

ns

This

section

has

bee

n

prepared

in

accordanc

e

with

our

regulatory

oblig

ation

to

report

GHG

emissi

ons

pursuant

to

The

Companies (

Directors’

Report)

and Li

mited Li

ability

Partnerships

(Ener

gy and

Carbon Report)

Re

gulations

2018 which

implement

the governm

ent’

s policy on St

reamlined Ener

gy and Carbon R

eporting.

Data

collected

relates

to t

he

calendar

years

2021

and

20

but h

as

been

di

s

closed

as

2022

and

2021

respectively

due to the C

ompany’s Ma

rch accounti

ng reference

date.

Methodology

We

quantify

and

report

our

organisational

GHG

emissions

according

to

the

Greenhou

se

Gas

Protocol.

Consumpt

ion

data

has

been

collated

by

our

sustaina

bility

consultant,

Carbon Intelligence,

and

has

been

converted

130

into carbon diox

ide equivale

nt (“CO2e”) using

the UK Go

vernment 2020

Conversion Factors

for Company

Reporting

in order

to calculate

emissions f

rom corr

esponding

activity data.

The EP

RA guid

ance on th

e approach

to

floor

areas

was

also

used

in

calculating

emissions

intensity.

We

have

also

used

GRESB

guidance

on

estimating

the common parts areas of assets where

t

here are

l

andlord-controlled premises. We

re

ported to GRESB for the

first

time la

st

year and

as

a

result

now

have

more

accurate

common

parts

floor

areas.

We

have theref

ore

restated

comparative f

igures wh

ere necessary to ref

lect thes

e floor areas in t

he below

table.

This

report

has

been

prepared

in

accordanc

e

with

the

GHG

Protocol’s

Scope

2

Guidance;

we

have

therefore

reported

both

a

locat

ion-based

and

market-ba

sed

Scope

2

emissions

f

igure.

The

Scope

2

market-based

figure

reflects

em

issions

from

e

lectricity

purcha

sing

decis

ions

that

the

Compan

y

has

made

(la

ndlord

obta

ined).

When

quantifying

emissions

using

the market-bas

ed approach

w

e

have us

ed a su

pplier sp

ecific e

missions fact

or where

possible.

If

these

factors

were

unavailable,

a

residual

mix

emissions

factor

w

as

then

used,

and

as

a

final

alternative the

l

ocat

ion-based gri

d emissions f

actor was u

sed.

To collect

consumption da

ta, t

he Investment

Manager

contacted t

he Compan

y’s tenants

and

managing agent

s to

request

the

provis

ion

of

data

for

their

property.

Creating

strong

tenant

relationsh

ips

is

key

for

generating

good

data flows. The Investment Manager active

ly

prov

i

des

tenant benchm

arking reports to illustrate how tenants are

performing

in terms of kW

h and tCO2e.

We

have

calculated both

absolute

performance and

l

ike-for-like performance

to

allow

for

more

accurate

compariso

n betwee

n the

datasets

.

Li

k

e-for-like

informatio

n

includes

assets

which the

Company

ha

s own

ed for

at

least

two

years

and

assets

w

her

e

data

is

available

for

both

reporting

years,

but

does

not

adjust

for

properties

being

vacant or let

which i

mpacts the proporti

on of emissi

on which are la

ndlord cont

rolled.

As

part

of our

data

coll

e

ction,

the

Company

undert

ook

a

materialit

y

assessment

in

line

with

EPRA

guid

elines

in

order

to determ

ine wh

ich

EPRA ind

icators

were

relevant to

our organ

isation.

Based on

our pr

ofessional

judgement

, we

assessed

each ind

icator in

terms of

its

impact on

the b

usiness

and its

importance

to stakeholders

.

Certain

environmenta

l

sustainabilit

y

performance

measures

were

cons

idered

material

which

inc

ludes

disclosing

electricity, f

uel, water an

d waste cons

umption as

well as GHG emiss

ions.

Performance

During the y

ear the

Company has put

in place en

vironmenta

l

K

PI targets t

hat will

be used to ass

ess and

improve

our

performance

across

ESG

issues

and

cover

a

range

of

i

n

itiatives

including

energy

efficiency,

green

energy

procurement,

tenant

enga

gement

and ESG

due

dili

gence.

On

1

Apr

il

2021

a

n

ESG

Committ

ee

was

const

ituted

to

create

a

robust

environmental

governanc

e

structure,

m

o

nitoring

overall

progress

towards

these

KPI t

argets

and

ensuring

the

Investment

Manager

seeks

to

identify

new

opportunities

to

further

embed

sustainabi

lity

across

the

131

portfolio

and in our

operations.

The key

responsibilit

ies of

the ESG

Committ

ee are

set out in

the ESG

Committee

report.

The

table

belo

w

shows

absolute

ener

gy

consumpt

ion

for

the

past

two

years

as

well

as

year-

on

-year

chan

ge.

Overall,

we

have

observe

d

21

%

and

63%

de

creases

in

absolute

electricity

and

gas

consumpt

ion re

spect

ively

from

20

21 to 2022.

Absolute energ

y consu

mption (MWh)

2022

2021

Year-

on

-year %

change

Fuels

Landlord obt

ained

502

96

42

3%

Tenant obtai

ned

4,501

13,590

-

67%

5,003

13,686

-

63%

Electricity

Landlord obt

ained

1,021

887

15%

Tenant obtai

ned

6,601

8,722

-

24%

7,622

9,609

-

21%

12,625

23,295

-

46%

Overall,

our re

ported

absolute

energy co

nsumption

under

the

SECR

guidelines

has

decre

ased by

46% from

2021

to

2022.

Our

absolute e

missions

include

our

tenant

consumption

from

assets

that

are

not

managed

by

us

directly.

Every

year

w

e

send out

a data

request

to our

tenants to

account for

their

Scope

3 emissi

ons.

Thi

s

year

the return

of

data

by

our te

nants

was

lower t

han

in

with

information

receiv

ed f

rom

tenants

in 3

2 ass

ets

(2021:

45 assets) cov

ering 75k sqm (20

21: 153k

sq

m) of floor area r

epresenting 13

% (2021: 31%)

of the portfolio’

s floor

area,

which

resulted

in apparent

high r

eductions

in consu

mption.

We

are

working

hard

to improve

response

rates

to ensure thes

e disclosur

es give the b

est availab

le insight into ov

erall consumpt

ion.

Reporting

boundaries a

nd limitation

s

The GHG

sources that

constitute our op

erational

boundary for t

he reporting p

eriod are:

•

Scope

1

:

Natural

gas

combust

ion

within

boilers,

gas

oil

combusti

on

within

generators,

road

fuel

comb

ustion

within own

ed and lease

d vehicles, and f

ugitive e

missions fr

om refrigerants

in air-conditionin

g equipmen

t

•

Scope 2: Purchas

ed elect

ricity consumpt

ion for our

own use

•

Scope 3: Water an

d waste cons

umption, and a

ny natural ga

s and ele

ctricity consum

ption from ten

ants

132

Of the

Company’s entire

property portfolio, our

environmental data

covers 24% of

the

tot

al

floor area

(combined

landlord

and

tenant

data),

compared

to

last

year’s

total

coverage

of

34%

44

.

The

i

mpact

of

the

C

OVI

D-19

pandemic

has

affected

a

number

of

our

tenants,

particularly

th

ose

from

the

retail

sector,

and

i

t

was

not

unexpecte

d

that

a

lower coverag

e was obta

ined with so

me tenants

’ prioritie

s still lyin

g elsewhere

this year.

One of

our

targets is

to

engage

with our

tenants on

a quarterl

y bas

is on

ESG

issues, which

will

be fundament

al to

improving

the

data

covera

ge

of

our

portfolio,

helping

us

to

identify

key

opportun

ities

to

minimise

our

environmental

impact and w

ork collabora

tively with t

enants to impr

ove the perfor

mance of as

sets.

Assumptions

and estim

ations

In some insta

nces where dat

a is missing est

imation

s have been app

lied to fill the

gaps, when estim

ating land

lord

obtained utility consu

mption data for asset l

evel performance m

easures, we have only est

imated utility data to fill

gaps

for missing

periods by

calculat

ing

it

either through

extr

apolation of

available

dat

a

from

th

e

reporti

ng

period

or

through

data

from

rs

as

a

proxy.

We

use

the

same

method

of

estimation

for

all

asset

level

performanc

e

measur

es and

all assets. We

have maintained detailed records of al

l instances of estimation

w

hich

are stored w

ithin our rep

orting evide

nce pack.

44

2021 floor area coverage fi

gure has been res

tated using our latest co

mmon parts floor area calculations using G

RESB guidance.

133

The table below sho

ws absolute performance a

nd like-for-like perform

ance for both landlord and tenant

obtained

consumption

for electr

icity and s

ubsequentl

y carbon,

which is c

learly sho

wn in each r

elevant section of

the belo

w

table. We re

port gas and

water consum

ption on a whol

e building bas

is:

Absolute perf

ormance

Like-for-like

performan

ce

45

GHG emissi

ons (tCO

2

e)

202

2

202

1

%

change

202

2

202

1

%

change

Scope 1

Landlord fue

l consumptio

n (MWh)

502

96

423%

502

96

42

3%

GHG emissi

ons

92

16

475%

92

16

4

75

%

Scope 2

(market-

based)

Landlord ele

ctricity cons

umption

(MWh)

927

718

29%

639

718

(

11%

)

GHG emissi

ons

32

177

(

82%

)

32

177

(

82%

)

Scope 2

(location-

based)

Landlord ele

ctricity cons

umption

(MWh)

1,021

887

15%

731

828

(

12%

)

GHG emissi

ons

222

214

4%

160

199

(

20%

)

Total Sco

pe 1 & 2 emis

sions

(market-bas

ed)

107

183

(

42%

)

92

183

(

50%

)

Total Sco

pe 1 & 2 emis

sions

(location-base

d)

314

230

37%

252

215

17%

Scope 1 & 2

(market-base

d)

emissions i

ntensity (tCO

2

e/m

2

/yr)

0.02

0.04

(

50%

)

0.02

0.04

(

50%

)

Scope 1 & 2

(location-bas

ed)

emissions i

ntensity (tCO

2

e/m

2

/yr)

0.06

0.04

50%

0.05

0.04

25%

Scope 3

Tenant fuel co

nsumptio

n (MWh)

4,501

13,590

(

67%

)

1,992

7,835

(

75%

)

Tenant ele

ctricity consu

mption

(MWh)

6,601

8,722

(

24%

)

3,072

5,396

(

43%

)

Water consu

mption (dam

3

)

8

.4

34

.7

(

76%

)

3

.7

18

.8

(

80%

)

Total wast

e sent to landf

ill (tonnes)

7

371

(

98%

)

0

108

(

100%

)

Total wast

e diverted fr

om landfill

(tonnes)

282

1,266

(

78%

)

56

825

(93%)

Total Sco

pe 3 emission

s

2,554

4,698

(

46%

)

1,096

2,828

(

61%

)

Scope 3 e

missions inten

sity

(tCO

2

e/m

2

/yr)

0.03

-

0.01

0.03

(

67%

)

Gross Scope 1,

2 and 3 e

missions

(market-bas

ed)

2,656

4,745

(

44%

)

1,

256

3,841

(

67%

)

Gross Scope 1,

2 and 3 e

missions

(location-base

d)

2,764

4,928

(

44%

)

1,

348

3,043

(

56%

)

The e

missions inte

nsity calcu

lation is

based upon

the flo

or area met

rics available r

elative to t

he Scope

1, 2 and

3

emissions.

45

Like

-

for

-

like information includes assets

which the Company has owned for at least t

wo years and assets where data is available for bo

th reporting years, but does not

ad

just for

properties being vacant or l

et which impacts the proportion of emission

which are landlord controlled.

134

Overall,

our

absolute

emissio

ns

for

Scope

1

and

2

(location-based)

have

increased

by

36%

from

2021

to

202

2

due to

an increase in

fuel consumption, and our

absolute emiss

ion

s for Scope 3

have decreased by

46% due to

less

data

received

from

our

tenants.

Our

Scope

3

emissions

includes

landlord

water

and

waste

emissions,

as

well

as our tenant

consumptio

n emissions.

Actions

taken

to reduce

energy

consumpt

ion duri

ng t

he current

and prior y

ears

are set

out

in the

ESG C

ommittee

report.

Financial ri

sk managem

ent

The

C

o

mpany

’s

financial

risk

management

is

based

upon

sound

economic

objectives

and

good

corporate

practice.

The

B

o

ard

has

overa

ll re

sponsibil

ity f

or

risk

m

a

nagement

an

d

internal co

ntrol,

with th

e as

sistance

of t

he

Audit

and

Risk

Committee

.

The

Board’s

process

for

identifying

and

managing

risks

is

set

out

in

more

deta

il

in

the

Governance r

eport.

Since

Admiss

ion,

the

Com

p

any

has

sought

to

manage

financial

ri

s

k

to

ensure

sufficient

liquidity

is

available

to

meet

i

t

s

identifiable

needs

and

to

invest

cash

assets

safely

and

profitably.

Short-term

flexibility

is

achieved

through

the

use

of

ban

k

facilities.

The

Compa

ny

does

not

undertake

any

trading

a

ctivity

in

financ

ial

instrument

s.

All

activities ar

e transacted in

pounds sterl

ing. The Company d

oes not

engage in any he

dging activit

ies.

The

Company

rev

iews

the

credi

t

quality

of

potential

t

enants

and

limits

credit

exposures

accordingly.

All

trade

receivables

are

subj

ect

to

credit

risk

exposure.

However,

there

is

no

spec

ific

concentratio

n

of

credit

risk

as

the

amounts rec

ognised repre

sent income f

rom a wide

range of the

Company’s te

nants.

The Comp

any

’s financia

l risk manag

ement policy is

further det

ailed in Note

19 to the

financial statement

s.

Auditor

Deloitte,

which has

been the Company’s

a

uditor

s

ince

20 May

20

14,

ha

s

conf

irmed i

t

s

willing

ness

to continue in

office as auditor in accord

ance with Section 489 of t

he Companies Act 20

06. The Group is satisfi

ed that Deloitte

is independent and there are adequate safeg

uards in place to safeguard its objectivity.

A resolution to reappoint

Deloitte

as the Group’s au

ditor will be pr

oposed at

the fort

hcomin

g

AGM.

135

Directors’

statement as t

o disclosur

e of informati

on

to the audit

or

The

Directors

who

were

members

of

the

Board

at

the

time

of

approving

the

Di

rect

ors’

report

are

li

st

ed

in

the

Governance

report.

Having

made

enquiries

of

fellow

directors

and

of

the

Company

’s

auditor,

each

of

these

directors conf

irms that:

•

To

the

best

of

each

Director’s

knowledg

e

and

belief,

there

is

no

relevant

audit

information

of

which

the

Company’s a

uditor is un

aware; an

d

•

Each

Director

h

as

t

aken

all

steps

they

mi

g

ht

reasonably

be

expect

ed

t

o

h

ave

taken

as

a

director

to

m

a

ke

themselves

awar

e

of

any

rel

ev

ant

audit

information

and

to

establi

sh

that

the

Company’s

auditor

is

aware

of

that infor

mation.

This

confirmation

is

given

and

should

be

interpreted

i

n

accordance

with

the

provisions

of

Section

418

of

the

Companies

Act 2006.

Annual G

eneral Meeting

The

AGM

of

the

Company

will

be

held

on

31

August

2022

at

10

:00am.

The

results

of

the

meeting

will

be

publish

ed

on

the Co

mpany’s

webs

ite following t

he meeting.

At

the

AGM

the

votes

will

be

dealt

with

on

a

poll

,

using

the

proxy

votes

submitted

prior

to

the

meeting.

Every

member ent

itled to v

ote shall ha

ve one v

ote for ev

ery ordinary

share hel

d. None of

the ord

inary shares

carry any

special

voting

rights

with regard

to control

of the

C

o

mpany.

The Notice

of AG

M specif

ies dead

lines for

exercising

voting

rights

and

appointing

a

proxy

or

proxies

to

vote

in

relat

ion

to

resolutions

to

be

passed

at

the

AGM.

The

relevant

proxy

v

otes

are

counte

d

and

the

number

for,

against

or

withheld

in

relation

to

each

resolution

will

be

published o

n our website

following the

AGM.

Engageme

nt with su

ppliers, cust

omers an

d others

The Comp

any’s approac

h to engage

ment with supp

liers, custo

mers and

other stakeh

olders is set out

in the s172

statement and st

akeholde

r relationsh

ips section of

the Strateg

ic report.

Events sin

ce 31 March

20

22

Details

of

significant

eve

nts

occurring

after

the

end

of

the

reporting

year

are

given

in

N

ote

20

to

the

financial

statements.

136

Approval

This Directors

’ report was

approved by the Boar

d of Directors

and signed o

n its beha

lf by:

David Hunter

Chairman

16 June

202

2

137

Directors’

responsibili

ties statem

ent

The

directors

are

r

esponsible

for

preparing

the

Annual

Report

and

the

financ

ial

statements

i

n

accordance

wi

th

applicable la

w and reg

ulations.

Company

l

a

w

requires

the

directors

to

prepare

financial

statements

for

eac

h

financial

year.

Under

that

l

a

w

the

directors

are

required

to

prepare

the

group

financial

state

ments

in

accorda

nce

with

United

Kingdom

adopted

internation

al

accounting

standards

.

The

directors

have

also

chosen

to

prepare

the

parent

company

financial

statements

un

der

United

K

i

ngdom

adopted

i

nt

ernationa

l

accounting

stan

dards.

The

financial

statem

ents

also

comply with

Internation

al Financia

l Reporting

Standards (I

FRSs) as iss

ued by

the IASB. Under co

mpany law t

he

Directors must

not approve the

accounts unless

they are

satisfied that

they give

a true

and fair

view of

the state

of

affairs

of

the

Compa

ny

and

of

the

profit

or

loss

of

the

Company

for

that

period.

In

preparing

these

financial

statements,

International

Accounting Sta

ndard 1 require

s that director

s:

•

Properly select

and apply accou

nting po

licies;

•

Present

informati

on,

including

accounting

policies,

in

a

manner

that

provides

relevant,

reliable,

compar

able

and understan

dable infor

mation;

•

Provide

add

itional

d

isclosures

when

compliance

with

the

specific

requ

irement

s

in

IF

RSs

are

insufficient

to

enable

users to

understand

the

impact of

pa

rt

icular

tr

ansactions,

other

even

ts

and

condition

s

on

the

entity's

financial po

sition and f

inancial perfor

mance; and

•

Make an assess

ment of th

e Company's ab

ility to con

tinue as a going

concern.

The

D

ire

ctors

are

responsible

for keep

ing a

dequate

accounting

records

that

are sufficient

t

o sho

w and

explain

the

Company’s

transactions

and

disclose

with

reasonable

accuracy

at

any

time

the

financial

position

of

the

Group

and

Company

and enable

them

to

ensure

that

the

financial

statement

s

comply

wi

th

the

Companies A

ct

2006.

They

are

also

resp

onsible

for

saf

eguarding

the

ass

ets

of

the

Group

and

Co

mpany

and

hence

for

taking

reasonable

steps for t

he prevention

and detect

ion of fraud an

d other irr

egularities.

The

Directors

are r

esponsible

for

the

maintenanc

e

and

integrity

of

the corp

orate

and

financ

ial

informat

ion

included

on

the

Company

’s

website.

Legislation

in

the

U

nit

ed

Kingdom

governing

the

preparation

and

dissem

ination

of

financial stat

ements may

di

ff

er from leg

islation in ot

her jurisdictio

ns.

Responsi

bility statemen

t

We confir

m that to t

he best of

our knowledge:

138

•

The

fin

ancial statements, prepared in accordance with

the relevant financial reporting framework, give a true

and

fair

view

of

the asset

s,

l

iabil

ities, f

inancial

positio

n and

profit or

loss of

the Company

and

the

undertakings

included in

the consolid

ation taken a

s a whole;

•

The

Strategic

report

includes

a

fair

review

of

the

development

and

performance

of

the

business

and

the

position of t

he Compan

y and the

undertaking

s includ

ed in the cons

olidation taken as

a whole, t

ogether wi

th a

description

of the princip

al risks and uncert

ainties th

at they face;

and

•

The

annual

report

and

f

inancial

stat

ements,

taken

as

a

whole,

are

f

air,

balanced

and

underst

andable

and

provide

the

information

necess

ary

for

shareho

l

ders

to

assess

the

C

o

mpany’s

position

and

performance,

business mode

l and strat

egy.

Approval

This respons

ibility stat

ement was a

pproved by th

e board of dir

ectors and is s

igned on its b

ehalf by:

David Hunter

Chairman

16 June

20

2

139

INDEPENDENT AUDI

TOR’S REPORT TO THE MEMBERS OF CUSTODI

AN REIT PLC

Report on the audit of the financia

l statements

•

Opinion

In our opinion:

•

the financial stat

ements of Custodian

REIT plc (

the ‘parent compa

ny’) and it

s subsidiaries (the ‘g

roup’) give a true

and fair view o

f the state of the grou

p’s and of the

parent company

’s affairs as at

31 March 202

2

an

d of the

group’s profit

for the year t

hen ended;

•

the group financial

statements ha

ve been properly pre

pared in accordance with

United Kingdom adopt

ed

international acc

ounting standa

rds, and Internat

ional Financi

al Reporting Standar

ds (IFRSs) as issu

ed by the

International

Accounting Standard

s Board (IASB);

•

the parent compan

y financial

state

m

ents have be

en properly prepared

in accordance with Unit

ed Kingdom

adopted internatio

nal accounting

standards and as ap

plied

in

accordance with th

e provisions of the Compa

nies

Act 2006; and

•

the financial stat

ements have been p

repared in accor

dance with the requirem

ents of the Companies Act

2006.

We have audited

the financi

al statements which

comprise:

•

the consolidated state

ment of compr

ehensive income;

•

the consolidated and

parent company

’s statements of

financial positi

on;

•

the consolidated and

parent compa

ny’s sta

tements of

cash flows;

•

the consolidated and

parent company

’s statements of

changes in equity; a

nd

•

the related notes 1 to

21.

The financial r

eporting framewo

rk that has be

en applied in the

preparation of th

e group financial

statements is

applicable law, U

nited Kingdom a

dopted internati

onal accounting

standards and I

FRSs as issued b

y the IASB. The

financial reporti

ng framework that

has been appli

ed in the preparati

on of the parent

company financial

statements is

applicable law an

d United K

ingdom adopted internatio

nal accounting sta

ndards and as

applied in accorda

nce with the

provisions of th

e Companies Act

2006.

•

Basis for opinion

We conducted ou

r audit in accordanc

e with Internat

ional Standards on

Auditing (UK) (

ISAs (UK)) and appli

cable law.

Our responsibiliti

es under thos

e standards are furth

er described

in the auditor’s

responsibiliti

es for the audit

of the

financial statem

ents section of ou

r report.

We are indep

endent of the group

and the parent com

pany in accorda

nce with the ethica

l requirements that are

relevant to our au

dit of the financia

l statements in th

e UK, including t

he Financial

Reporting Council’

s (the ‘FRC’s’)

Ethical Standar

d as applied to l

isted public interest

entities, and

we have fulfil

led our other

ethical responsibil

ities

in

accordance with t

hese requi

rements. The non-audit se

rvices provided to t

he group and

parent company for

the year

are disclosed in

note 5 to the financial

statements.

W

e confirm that w

e have not pro

vided any non-audit service

s

prohibited by th

e FRC’s E

thica

l Standard to the grou

p or the parent com

pany.

We believe that t

he audit evid

ence we have obtain

ed is sufficient and

appropriate

to provide a basi

s for our opinion.

•

Summary of our au

dit approach

Key audit matters

The key audit matt

er that we identifi

ed in the current year wa

s:

140

•

Valuation

of investment pr

operty.

Within this r

eport, key audit mat

ters are identi

fied as follows:

Newly identifi

ed

Increased lev

el of risk

Similar level of ris

k

Decreased lev

el of risk

Materiality

The materiality that w

e used for th

e group financia

l statements wa

s £10.5m which

was determin

ed on the basis of 1

.5% of gross asset

s.

Scoping

The Group audit

team perform

ed full scope audit p

rocedures gi

ving a coverage of

100% of the Gro

up’s net assets

value and

net profit for the

year.

Significant changes i

n

our approach

There have be

en no significant chang

e

s in o

ur approach.

•

Conclusions relating t

o going concern

In auditing th

e financial stat

ements, we have c

oncluded that th

e directors’ use of

the going concern

basis of

accounting in the p

reparation of the

financial stat

ements is appropria

te.

Our evaluation o

f the directors’ as

sessment of the

group’s and par

ent company’s a

bility to continue

to adopt the

going concern ba

sis of accounting inclu

ded:

•

obtaining an understa

nding, of th

e relevant controls

relating to the going co

ncern assumption;

•

testing the clerical

accuracy of the model

used to prepa

re the going concern fo

recasts;

•

assessing the histo

rical accuracy of fo

recasts prepared

by management and actual

performance in th

e

subsequent p

eriod;

•

evaluating manag

ement’s assessment

of the impact of

COVID

-19 within the foreca

st;

•

agreeing the avail

able financing facil

ities to und

erlying agreement

s and assessed a

ccuracy of covenant

calculati

on forecasts performed b

y management;

•

assessing the accuracy

of the REIT regim

e calculation fo

recasts performed

by management;

•

assessing the r

easonableness of manag

ement’s r

everse

-str

ess testing; and

•

assessing the ade

quacy of disclos

ures made in th

e financial statem

ents

.

Based on the wor

k we have perform

ed, we have

not identified any

material uncerta

inties relating to e

vents or

conditions that,

individually or coll

ectively, may cast

significant doubt

on the group

's and parent co

mpany’s abili

ty to

continue as a going c

oncern for a pe

riod of at least tw

elve months from w

hen the financial

statements ar

e authorised

for issue.

In relation to th

e reporting on how th

e group has appli

e

d t

he UK Corporate Go

vernance Code, we

have nothing

material to add o

r draw attention to in

rel

ation to the directo

rs’ statement in th

e financial state

ments about

whether

the directors con

sidered it appro

priate to adopt th

e going concern ba

sis of accounti

ng.

Our responsibiliti

es and the

responsibiliti

es of the directors with

respect to going concern are d

escribed in the

relevant section

s of this report.

•

Key audit matt

ers

Key audit matt

ers are those matt

ers that, in our

professional judg

ement, were

of most significa

nce in our au

dit of the

financial statem

ents of the curr

ent period and in

clude the most significant as

sessed risks o

f material misstate

ment

(whether or not d

ue to fraud) that

we identified. The

se matters incl

uded those wh

ich had the gr

eatest effect

on: the

overall audit strateg

y, the al

location of resources in

the audit; and

directing the efforts of the

engagement tea

m.

141

These matters w

ere addres

sed in the cont

ext of our audit of t

he financial state

ments as a whole, and

in forming our

opinion thereon, and

we do not pro

vide a separate opi

nion on these mat

ters.

a)

Valuation of investment p

roperty

Key audit matter

description

The Group’s principa

l activity is to

invest in comme

rcial properties and

secure

income from tenant

s of those prop

erties. As disclos

ed in Note 10 the G

roup’s

investment prop

erty portfolio is valued at

£665.2m as at 31 Marc

h 2022 (2021

:

£551.9m).

The Group’s acco

unting poli

cy in Note 2 states that

investment p

roperty is held at

fair value and Not

e 2.4 describes

key judgements ma

de in valuation

of investmen

t

properties. In

determining the fai

r value, the external v

aluers make a num

ber of key

estimates and si

gnificant assum

ptions, in particular

assumption

s in relation to

market compara

ble yields and

estimates in relati

on to future rental inc

ome

increases or d

ecreases. Certa

in of these estimate

s and assumptions require in

put

from management

. Estimates and a

ssumptions ar

e subject to market

forces and

will change ov

er time.

Valuation of inve

stment property i

s an area of judgem

ent which could mat

erially

affect the financi

al stateme

nts. The valuati

ons

we

re carried out by thir

d party

valuers. The

valuers were engaged

by those charge

d with governanc

e and

performed thei

r work in accordanc

e with the Ro

yal Institute of Chart

ered Surveyors

(RICS) Valuation

–

P

rofessional Standar

ds.

The estimation

of yields and estimated r

ental values

(ERVs) in the prop

erty

valuation is a signi

ficant jud

gement area, und

erpinned by a

number of assum

ptions

relating to the siz

e and location of th

e property as well

as certain attribut

es of the

lease. Given th

e high level

of judgement involved, we det

ermined that the

re was a

potential for po

ssible mani

pulation of these

key inputs to th

e valuation. The

inherent subj

ectivity in rela

tion to estimation of yi

elds and ERV

s, coupled with th

e

fact that only a

small percentage di

fference in individual

property valuations

, when

aggregated, could

result in a material

misstatem

ent on the Statement

of

Comprehensi

ve Income and the Stat

ement of Financia

l Position, warrants

specific

audit focus in this

area and w

e have considered it a

s a key audit matter.

The Audit and Risk Co

mmittee report on

pages [104-

109

] discloses t

his as a primary

area of judg

ement.

How the scope of our

audit responded to th

e

key audit matter

We obtained an

understanding o

f the relevant cont

rols over the val

uation process,

including ass

essing manage

ment’s process and

control for r

eviewing and

challenging the

work of the external

valuers including

management’

s experience

and knowledg

e to undertake thi

s activity.

With the involvem

ent of our real estate

specialists

we

i

dentified items su

bject to

testing and met

with the third part

y valuers app

ointed by those c

harged with

governance with th

e aim of challenging

the valuatio

n methodology ado

pted. We

assessed the c

ompetence,

capabilities and obj

ectivity of th

e external valuers and

read their t

erms of engagement

with the Group to

determine wh

ether there were

any matters that

might have aff

ected their obj

ectivity or may have im

posed scope

limitati

ons on their work.

We assessed a

nd challenge

d the reasonabl

eness of the significant judgments a

nd

assumptions ap

plied in the valuat

ion model for each

property in our

sample,

focusing in particula

r on the

yields and ERVs a

ssumed and ass

essing the sensiti

vity

of the valuation to

changes i

n assumptions. We a

ssessed th

e completeness and

accuracy of the data

provided by

the Group to the

valuers for the pu

rposes of thei

r

valuation exerci

se.

142

With the involvem

ent of our specialists, w

e reviewed t

he significant as

sumptions in

the valuation

process, teste

d a sample of prop

erties by benchmarking against

external approp

riate property indice

s and under

stood the valuation met

hodology

and the wider

market analysis. W

e reviewed the

information provi

ded by the

valuers both in th

e meetings and conta

ined in th

e detailed valuat

ion report; and w

e

undertook our own

research into the

relevant markets

to evaluate the

reasonablenes

s of the valua

tion inputs and th

e resulting fair valu

es.

We have also te

sted the integrity of t

he model which i

s used by th

e external

valuers.

We also consid

ered the adequacy

of t

he Group’s disclo

sures around th

e degree of

the estimation an

d sensitivi

ty to key assumptio

ns made when valuing

these

properties, inclu

ding the impact

of the COVID-19 pandemic

.

Key observations

The results of ou

r tests were

satisfactory and w

e

co

ncluded that the key

assumptions ap

plied in determining t

he property

valuations wer

e appropriate.

Based on the wor

k performed we conclud

ed that the

valuation of invest

ment

property is app

ropriate.

•

Our applicatio

n of materiality

a)

Materiality

We define materiali

ty as the magnit

ude of misstat

ement in the financi

al statements tha

t makes it pro

bable that the

economic decisio

ns of a reasonabl

y knowledgeable

person would be

changed or influe

nced. We use mat

eriality both

in planning th

e scope of ou

r audit work and in evaluati

ng the results

of our work.

Based on our p

rofessional judgem

ent, we determin

ed materiality

for the financial

statements as a whol

e

a

s follows:

Group financial

statements

Parent company financi

al statements

Materiality

£10.5m (2021: £8.

4

m)

£9.8m (2021: £8

.39m)

Basis for

determining

materiality

1.5% of gross a

ssets (2021: 1.5% of gross a

ssets) for th

e Statement of fina

ncial positi

on testing.

This percentag

e takes into account o

ur knowledge of t

he group and par

ent company, ou

r

assessment of

audit risks and th

e reporting r

equirements for

the financial state

ments.

Rationale for the

benchmark

applied

We have used t

he gross ass

ets value as at 31

March 2022 as the bench

mark for determining

materiality, as t

his benchma

rk is deemed to be o

ne of the key dri

vers of busines

s value, and is a

critical component

of the financial

statements and i

s a focus for user

s of those fina

ncial

statements

for property compani

es. In addition to gro

ss assets, we consid

er EPRA earnings

as a

critical performanc

e measure fo

r the Group that i

s applied to

underlying earnings

. We have also

benchmarked t

hese percenta

ges and our appr

oach to materiality to

other listed R

EITs based on

information publicl

y disclosed in

the audit reports an

d found the

m to be consisten

t.

A lower materiali

ty of £2.0m (2020: £1.9m) w

hich was determin

ed on the basis

of 8% (2021

:

8%) EPRA ear

nings was

used for amounts

in the statem

ent of comprehensiv

e income. We consid

er EPRA earning

s to be the most

appropriate

benchmark du

e to it being one of th

e key focus areas

for both investor

s and managem

ent. Refer to note

21 for a

reconciliati

on to IFRS earnings.

b)

Performance material

ity

We set performanc

e materiali

ty at a level lower than

materiality to r

educe the probabi

lity that, in aggr

egate,

uncorrected and

undetecte

d misstatements exc

eed the materiali

ty for the financi

al statement

s as a whole.

143

Group financial

statements

Parent company financial

statements

Performance

materiality

70% (2021: 70%)

of group materiality an

d parent com

pany materiali

ty (respectively).

Basis and

rationale for

determining

performance

materiality

In determining

performance mat

eriality, we consid

ered the following factors:

1. our cumulati

ve knowledge of th

e Group and its envi

ronment

, including industry

wide pressure

on valuation o

f property portfoli

o; and

2. our past exp

erience of the audit

, which has indicat

ed a low num

ber of corrected and

uncorrected mis

statements identi

fied in prior p

eriods.

c)

Error reporting threshold

We agreed with th

e Audit and Risk Com

mittee, that we

would report to th

e Committee all audit

differences in

excess

of £525,000 (2021:

£435,000), as w

ell as differenc

es below that th

reshold that, in

our view, warrant

ed reporting on

qualitati

ve grounds. We als

o report to the Audit and Ri

sk Committee on disclo

sure matters t

hat we identified

when

assessing the

overall presenta

tion of the financia

l statement

s.

•

An overview of t

he scope of our audit

a)

Identification and scoping

of components

Our group audit wa

s scoped b

y obtaining an und

erstanding of the group an

d its environm

ent, including g

roup-wide

controls, and ass

essing the risks of

material missta

tement at the group l

evel. All a

udit work to respond

to the risks of

material misstat

ement was per

formed directly

by the group audit

engagement tea

m

.

The Group consi

sts of the pa

rent company, the ac

quired DRUM REIT entities, an

d other subsidiarie

s that were inactiv

e

by the year en

d. We carried out a

full scope audit of t

he Group.

b)

Our consideration of th

e control environment

We obtained an un

derstanding of th

e relevant control

s in relation to k

ey business proc

esses as well as

IT systems that

were relevant to th

e audit. We howe

ver did not rely

on controls due to

nature of the grou

p’s business and

processes.

•

Other informat

ion

The other infor

mation comprises th

e information inclu

ded in the annual

report, other than t

he financial sta

tements

and our auditor

’s report ther

eon. The director

s are responsi

ble for the other in

formation contain

ed within the annua

l

report.

Our opinion on th

e financial statement

s does not cov

er the other infor

mation and, except to

the extent oth

erwise

explicitly stated i

n our report, we d

o not express an

y form of assurance c

onclusion th

ereon.

Our responsibility i

s to read

the other informati

on and, in doing

so, consider whether the oth

er information i

s

materially incon

sistent with the

financial statem

ents or our knowl

edge obtained in

the course of th

e audit, or

otherwise appear

s to be materiall

y misstated.

If we identify s

uch material inconsi

stencies or apparent

material misstatements, w

e are required

to determin

e

whether this gi

ves rise to a mat

erial misstat

ement in the financia

l statements th

emselves. If,

based on the work we

have perform

ed, we conclude t

hat there is a mat

erial misstat

ement of this ot

her information

, we ar

e requir

ed to

report that fact.

We have nothing to

report in this

regard.

144

•

Responsibilities

of directors

As explained mor

e fully in the dir

ectors’ respon

sibilities statem

ent, the directors a

re responsible

for the prep

aration of

the financial stat

ements and for being

satisfied that th

ey give a true and

fair view, and for s

uch internal contr

ol as the

directors determin

e is necessar

y to enable th

e preparation of fina

ncial statement

s that are free from

material

misstatement

, whether due to fra

ud or error.

In pre

paring the

financial statem

ents, the director

s are responsible

for assessing t

he group’s and th

e parent

company’s ability

to continue as a goi

ng concern, discl

osing as applicabl

e, matters relat

ed to going concern

and using

the going conce

rn basis of accounting

unless the direc

tors either intend to l

iquidate th

e group or the par

ent company

or to cease op

erations, or ha

ve no realistic alte

rnative but to do

so.

•

Auditor’s responsib

ilities for t

he audit of the financia

l statements

Our objectives ar

e to obtain reasonabl

e assurance ab

out whether the

financial sta

tements as a whole ar

e free from

material misstat

ement, wheth

er due to fraud or

error, and to iss

ue an auditor’s r

eport that incl

udes our opinion.

Reasonable as

surance is a hi

gh level of assuranc

e,

b

ut is not a guara

ntee that an a

udit conducted in

accordance with

ISAs (UK) will al

ways detect a

material misstat

ement when it exist

s. Misstatement

s can arise from fraud

or error and

are considered mat

erial if, individ

ually or in the agg

regate, they co

uld

rea

sonably be expecte

d to influence t

he

economic decisio

ns of users tak

en on the basis o

f these financial state

ments.

A further desc

ription of our respo

nsibilities for t

he audit of

the financial statem

ents is located on t

he FRC’s we

bsite at:

www.frc.org.uk/a

uditorsresponsi

bilities

. This descriptio

n forms part of our au

ditor’s repo

rt.

145

•

Extent to which t

he audit was consi

dered capabl

e of detecting irr

egularities, including

fraud

Irregularities, inclu

ding fraud, are i

nstances of non-complia

nce with laws and r

egulations. We d

esign procedur

es in

line with our resp

onsibilities, outli

ned above, to detect

material missta

tements in resp

ect of irregularit

ies, including

fraud. The exte

nt to which our proc

edures are capabl

e of detecting ir

regularities, incl

uding fraud i

s detailed below.

a)

I

d

entifying and assessing

potential risks rela

ted to irregularities

In identifying

and assessing

risks of material

misstatement in r

espect of irregulariti

e

s, inclu

ding fraud an

d non

-

compliance with la

ws and regula

tions, we consi

dered the following:

•

the nature of the i

ndustry and

sector, control envi

ronment and business perform

ance including the

design of

the group’s re

muneration poli

cies, key drivers for

directors’ remun

eration, bonus l

evels and perfor

mance

targets;

•

the group’s own asse

ssment of the ris

ks that irregularit

ies may occur eith

er as a result o

f frau

d

or

error that

was approved b

y the board on 1 June 20

22;

•

results of our enquirie

s of management,

internal audit, Investm

ent Manager and the Audit a

nd Risk

Committee about th

eir own identi

fication and as

sessment of th

e risks of irregula

rities;

•

any matters

we identifi

ed having obta

ined and reviewe

d the group’s doc

umentation of th

eir policies and

procedures relati

ng to:

•

identifying, evaluati

ng and complyi

ng with laws and reg

ulations and wheth

er they were awar

e of any

instances of non-co

mpliance;

•

detecting and respon

ding to the risk

s of fraud and wh

ether they have

knowledge of any act

ual, susp

ected

or alleged fra

ud;

•

the internal controls

established to miti

gate risks of fra

ud or non-compliance with

laws and regulati

ons;

•

the matters discuss

ed among the audit

engagement team a

nd relevant internal

specialists

, including real

estate specialist

s, regarding

how and where fra

ud might occur i

n the financial stat

ements and any potentia

l

indicators of f

raud.

As a result of t

hese procedures

, we considered t

he opportunities and incentiv

es that may exist within

the orga

nisation

for fraud and id

entified the

greatest potentia

l for fraud i

n the following areas:

valuation of i

nvestment propert

y. In

common with all au

dits under ISAs (

UK), we are al

so required to per

form specific procedures to respon

d to the risk of

management ov

erride.

We also obtain

ed an understanding

of the legal and r

egulatory framew

ork that the group

operates in, focusi

ng on

provisions of th

ose laws and r

egulations that had a dir

ect effect on t

he determinati

on

of

material amounts a

nd

disclosures in th

e financial sta

tements. The ke

y laws and regula

tions we considered in

this context incl

uded the UK

Companies Act,

Listing Rules, REI

T legislation

.

In addition, we

considered provision

s of other laws a

nd regulation

s

that d

o not have a dir

ect effect on th

e financial

statements but co

mpliance

with which may b

e fundamental to th

e group’s ability t

o operate or to a

void a material

penalty. These

included health and

safety regulati

ons and emplo

yment law.

b)

Audit response to ris

ks identified

As a result of pe

rforming the abov

e, we identified

valuation of invest

ment property as

a key audit matter r

elated to

the potential

risk of fraud. The

key audit matters s

ection of our report

explains th

e matter in mor

e detail an

d al

so

describes th

e specific procedur

es we performed in

response to that

key audit mat

ter

In addition to t

he above, our proce

dures to respond

to risks identi

fied included th

e following:

•

reviewing the financi

al statement

disclosures and te

sting to supporting doc

umentation to as

sess compliance

with provisions

of relevant l

aws and regulations

described as ha

ving a direct

effect on the financi

al

statements;

•

enquiring of manag

ement, the Audit and Ri

sk Committee and exte

rnal legal coun

sel concerning actual

and

potential li

tigation and claims;

•

performing analytica

l procedures to id

entify any unusu

al or unexpected

relationships that

may indicate ris

ks

of material misstat

e

m

ent due to fraud;

146

•

reading minutes of meeti

ngs of thos

e charged with gov

ernance and reviewing int

ernal audit reports;

•

in addressing th

e risk of fraud throug

h management o

verride of control

s, testing the appro

priateness o

f

journal entrie

s and other adjustment

s; assessing w

hether the judgem

en

ts

made in making accou

nting

estimates ar

e indicative of a pote

ntial bias; and eval

uating the bu

siness rational

e of any significant

transactions that ar

e unusual or out

side the normal

course of busi

ness.

We also communica

ted relevant id

entified laws and

regulations and potential

fraud risks to all enga

gement te

am

members, including

internal sp

ecialists, and r

emained alert to any indica

tions of fr

aud or non-compliance with laws

and regulation

s throughout the a

udit.

Report on other le

gal and regulatory requirement

s

•

Opinions on ot

her matters

prescribed by the Compani

es Act 2006

In our opinion th

e part of the dir

ectors’ remune

ration report to b

e audited has be

en properly prepar

ed in accordance

with the Compa

nies Act 2006

.

In our opinion,

based on the wo

rk undertaken in th

e course of the audit:

•

the information gi

ven in the

strategic report and t

he directors’ r

eport for the fina

ncial year for which th

e financia

l

statements ar

e prepared is consist

ent with the

financial statem

ents; and

•

the strategic

report and

the dir

ectors’ report hav

e been prepared in acc

ordance w

ith applicable legal

requirements.

In the light of th

e knowledge an

d understanding

of the group and

the parent comp

any and their

environment

obtained in the c

ourse of the a

udit, we have not id

entified any material missta

tements in th

e strategic report or t

he

directors’ report

.

•

Corporate Gover

nance Statement

The Listing Rule

s require us to r

eview the dir

ectors' statement in r

elation to going

concern, longer

-t

erm viability and

that part of the Co

rporate

Governanc

e Statement r

elating to the group

’s compliance with

the provisions o

f the UK

Corporate Go

vernance Code sp

ecified for our re

view.

Based on the wor

k undertaken as

part of our audit,

we have concluded

that each of the

following elements

of the

Corporate Governanc

e Statement i

s materially consi

stent with the fina

ncial statement

s and our knowl

edge obtained

during the audit:

•

the directors’

statement wi

th regards to the app

ropriateness of ad

opting the goin

g concern basis o

f accounting

and any material

un

certainti

es identified [set o

ut on page …];

•

the directors’

explanation as to its

assessment of th

e group’s pro

spects, the period

this assessment

covers and

why the period i

s appropriate [s

et out on pag

e …];

•

the directors'

statement on fair, ba

lanced and

un

der

standable [s

et out on page …];

•

the board’s con

firmation that i

t has carried out a ro

bust assessment

of the emerging and

principal risks

[set out

on page …];

•

the section o

f the annual report that

describes th

e review of

effectiveness of

risk management and internal

control systems [s

et out on page …]; an

d

•

the section d

escribing the

work of the Audit and Risk C

ommittee [set out on pag

e …].

•

Matters on which

we are required t

o report

by exception

a)

Adequacy of explanati

ons received and accounti

ng records

Under the Compani

e

s Act

2006 we ar

e required to rep

ort to you if, in our opini

on:

•

we have not received a

ll the informati

on and explanati

ons we require for ou

r audit; or

•

adequate accounting

records have not b

een kept by the

parent company

, or returns adequate for our audit

have not been r

eceived from b

ranches not visit

ed by us; or

147

•

the parent company

financial statem

ents are not in ag

reement with t

he accounting record

s and returns.

We have nothing to

report in r

espect of these mat

ters.

b)

Directors’ remu

neration

Under the Compani

e

s Act

2006 we ar

e also required to

report if in our opinio

n certain disclos

ures of directors

’

remuneration ha

ve not been made

or the part of t

he directors’ re

muneration report to b

e audited is not in

agreement

with the accounting

records and r

eturns.

We have nothing to

report in r

espect of these mat

ters.

•

Other matters

which we are r

equired to address

a)

Auditor tenure

Following the recom

mendation of th

e Audit and Risk Committe

e, we were app

ointed as audito

r by the Direct

ors in

2014 to audit the financi

al sta

tements for the pe

riod ended 24 Marc

h 2014 and s

ubsequent financi

al periods. Th

e

period of total u

ninterrupte

d engagement including

previous ren

ewals and reapp

ointments of the fi

rm is

nin

e years,

covering the p

eriods ended 24 March

2014 to 31 Marc

h 2022.

b)

Consistency of the audit r

eport with the additional

report to the Audit and Risk Committee

Our audit opinio

n is consist

ent with the additional

report to the Audit and Ri

sk Committee w

e are required to

provide

in accordance with

ISAs (UK).

•

Use of our r

eport

This report is mad

e solely to the com

pany’s memb

ers, as a body, in accorda

nce with Chapt

er 3 of Part 16 of t

he

Companies Act

2006. Our audit w

ork has been un

dertaken so that w

e might state to the

company’

s members

those matters w

e are required to

state to th

em in an auditor’s

report and for no o

ther purpose. To

the fullest

extent permitt

ed by law, w

e do not accept or ass

ume responsibility to

anyone other than t

he compan

y and the

company’s memb

ers a

s a body, for our

audit work, for

this report, or fo

r the opinions w

e have formed

.

As required by th

e Financial Cond

uct Authority (FCA

) Disclosure Guidanc

e and Transparenc

y Rule (DTR) 4.

1.14R,

these financial

statements f

orm part of the Eur

opean Single El

e

ctronic F

ormat (ESEF

) prepared Annual

Financial

Report filed on t

he National Storag

e Mechanism o

f the UK FCA in accor

dance with the

ESEF Regulatory Tec

hnical

Standard (‘E

SEF RTS’). This a

uditor’s report pro

vides no assuranc

e over whether t

he annual financi

al report has

been prepared u

sing the singl

e electronic format

specified in th

e ESEF RTS.

James Wright

(Senior statutory audi

tor)

For and on behalf

of Deloitte LL

P

Statutory Auditor

London, United Ki

ngdom

16 June 202

2

157

necessary

to

ensure

con

sistency

wit

h

the

acco

unt

ing

policies

adopted

by

the

Group.

Profit

or

loss

and

other

comprehens

ive income

of

subsid

iaries acquired or

disposed of during

the

y

ear

are recognised from

the effective

date of acqu

isition, or

up to the eff

ective date of

disposal, as app

licable.

2.3.

Business combi

nations

Where property is

a

cquired, via corporate acquisitions or otherwise, the substance

of the assets and

a

ctivities of

the

acquired

entity

are

considered

in

determin

ing

whether

the

acquisition

rep

resents

a

business

combi

nation

or

an

asset

purchase

under

IFRS

3

-

Business

Com

binations.

Where

such

acquisitions

are

not

jud

ged

to

be

a

business

combination

the

cost

to

acquire

the

corporate

entity

is

allocated

between

t

he

identifia

ble

asset

s

and

liabilities

of

the

entity

based

on

their

relative

fair

values

at

the

acquisition

date.

Accordingly,

no

goodwill

or

additional

deferred

taxation

arises.

Otherwise,

acquisitions

are

accounted

for

as busin

ess

combinat

ions

usi

ng

the

acquisitio

n method.

2.4.

Application of ne

w and revised

International

Financial Report

ing Standar

ds

During the year t

he Company

adopted the followi

ng new standar

ds with no impact

on reported f

inancial

performanc

e or position:

•

IFRS 17

–

‘Insuran

ce Contr

acts’

IFRS

17

became

ef

fective

for

periods

co

mmencing

on

or

after

1

January

2021.

IFRS

17

establishes

the

principles

for

the

recognition,

measurement,

presentation

and

disclosure

of

insurance

contracts

and

supersedes

IFRS 4 Insura

nce Contracts.

At

t

he

date of

authorisation of

these financial

statement

s,

there

were no

new and

revised

IF

RSs

which

have

not

been app

lied in these fina

ncial state

ments were in

issue b

ut not yet eff

ective.

2.5.

Significant accou

nting policies

The

pr

incipal

acc

ounting policies

adopt

ed

by the

Group

and Company and

applied to

these

finan

cial

st

atements

are set out

below.

Going conc

ern

The D

ir

ectors

be

lieve

the Company is

well placed

to manage

its business risks

succ

essfully

and

t

he Company’s

projections

show that

it

sh

ould

be

able to

operate within

the leve

l of

its curr

ent fina

ncing arran

gements for

at least

158

the next

12 months

, set

out in m

ore detail in

the Directors’ report and

Princ

ipal risks

and uncertainties section of

the

Strateg

ic

report.

Accordin

gly,

the

Direct

ors

cont

inue

to

adopt

the

going concern

basis

for the

preparation

of

the financial st

atements.

Income reco

gnition

Contractua

l revenues are al

l

ocated to each

p

erformance obligat

ion of

a contract and revenue is recognised on a

basis

consistent

with

the

transfer

of

contr

ol

of

goods

or

services.

Revenue

is

measured

at

the

fair

value

of

the

consideration r

eceived, ex

cluding discou

nts, rebates

, VAT and ot

her sales t

axes or duties.

Rental

income

from

oper

ating

leases

on

properti

es

owned

by

the

Company

is

accounted

for

on

a

str

aight

-line

basis

over

the

term

of

the

lease.

Rental

income

excludes

service

charges

and

other

costs

directly

recoverab

le

from tenants.

Lease incent

ives are reco

gnised on a st

raight-line b

asis over the

lease term.

Revenue

and profit

s on

the sale

of propert

ies ar

e

recognised

on the

complet

ion

of

contracts.

The

amount

of profit

recognised is t

he differen

ce between t

he sale pr

oceeds and t

he carrying a

mount.

Finance

income

relates

to

bank

interest

receivab

le

and

amounts

receivab

le

on

ongoing

developm

ent

funding

contracts.

Taxation

The

Group

operates

as

a

REIT

and

hence

profit

s

and

gains

from

the

property

rental

business

are

normally

expected

to

be

exempt

from

corporation

tax.

The

tax

expense

represent

s

the

sum

of

the

tax

current

ly

payable

and

deferred

tax

relating

to

the

residual

(non-prope

rty

rental)

business.

The

tax

currently

payabl

e

is

based

on

taxable

profit

for

the

y

ear

.

Taxable

profit

di

ff

ers

from

net

profit

as

reported

in

the

statement

of

comprehensive

income

because

it

excludes

i

t

ems

of

income

an

d

expens

e

that

are

taxabl

e

or

deductible

in

other

years

and

i

t

further

excl

udes

items

tha

t

are

never taxable

or

deduct

ible.

The

Company

’s liability

for

current tax

is

calculat

ed

using tax rat

es that have

been enacted

or substanti

vely enacted

by the reporting d

ate.

Investment pro

perty

Investment

property

is

held

to

earn

rentals

and/or

for

capital

appreciation

and

is

i

nit

ially

recognised

at

cost

including

direct t

ransaction

costs.

Investment

property

is

subsequently

valued

externall

y on

a market

basis

at the

reporting

159

date

and

recorded

at

valuation.

Any

surplus

or

deficit

arising

on

revaluing

invest

ment

property

is

recognised

i

n

profit

or

loss

in

the

year

in wh

ich it

arises.

Dilapidatio

ns rece

ipts

are

held

in

the st

atement

of

financial

position

and

offset against

subsequent

associated expe

nditure. Any u

ltimate gain

s or short

falls are measured by

reference to

previously

published val

uations and recognis

ed in profit or

loss, offset agai

nst any directly corr

esponding

movement

in fair value

of the invest

ment properties

to which they re

late.

Group undert

akings

Investments

are

included

in

the

Company

only

statement

of

financial

posi

t

ion

at

cost

less

any

provision

for

impairme

nt.

Non-listed eq

uity investment

s

Non-listed equity i

nv

estments are

clas

sified

at

fair value

throu

gh

prof

it

and loss and

are subsequently measured

using

level

3

inputs,

meaning

valuation

techniqu

es

for

which

the

lowest

l

ev

el

input

that

is

significant

to

the

f

air

value measure

ment is un

observable.

Financial ass

ets

The

C

o

mpany’s

f

inancial

assets

inc

lude

cash

and

cash

equivalents

and

trade

and

other

receivables.

Interest

resulting fro

m holding fi

nancial asset

s is recognised

in profit or lo

ss on an accr

uals basis.

Loan

s

and

receivables

are

measured

subsequent

to

initial

recogn

ition

at

amortised

cost

using

the

effective

interest

method,

less

provision

f

or

impairment.

Provision

for

i

mpairment

of

tr

ade

an

d

ot

her

rece

ivables

is

m

a

de

wh

en

objective

evidence

i

s

received

that

the

C

o

mpany

will not

be

able

to

collect

all amo

unts

due

to

it in

accord

ance

with

the

origi

nal

terms of

the r

ecei

vable.

The amount

of the

impairment is

determined as

the difference

betwee

n

the

asset

’

s

carrying

amount

and

the

present

value

of

estimated

future

cash

flows,

discounted

at

the

effective

rate

computed at initial recognition

.

Any

ch

ange in

valu

e through

i

mpairment or reversal of

impair

ment is

recognise

d

in profit or lo

ss.

A financial asset

is de-recognised on

ly where the co

ntractual rights

to the cash flows from t

he asset expire or

the

financial

asset

is

transferr

ed

and

that

transfer

qualifies

for

de-recognition.

A

financial

asset

is

transferr

ed

if

the

contractual

rights

to

recei

ve

the

cash

flows

of

the

asset

have

been

transferred

or

the

Company

retains

the

contractual

rights

to r

eceive

the

cash

flows

of

the

asset

but

assumes

a cont

ractual

obligation

to

pay

the

cash

flows

to

one or

more

recipients.

A f

inancial

asset t

hat

i

s

transferred

qualifies

for

de-recognition

if

the

Company

transfers

substantia

lly all the risks

and rew

ards of owners

hip of the

asset.

160

Cash and c

ash equivalent

s

Cash

and

cash

equivalen

ts

include

cash

in

hand

and

on

-demand

deposits,

and

other

short-ter

m

highly

liquid

investments

that

are

readily

convert

ible

into

a

known

amount

of

cash

and

are

subject

to

an

insignificant

risk

of

changes in va

lue.

Financial liab

ilities and eq

uity

Financial

liabilities

and

equity

instru

ments

are

classified

according

t

o

the

substanc

e

of

the

contractual

arrangements entered into.

An

equity

instru

ment

is

any contract

that evidences

a residual

interest

in the

assets

of

the

Company

after

deducting all

of

its

liabilities.

Equity instr

uments

i

ss

ued

by

the

Company

are

recorded

at

the

proceeds rece

ived, net of

direct issue c

osts.

Share capital represents the

no

minal value

of equity shares issued.

Share premium represents the excess over

nominal val

ue of the fair v

alue of t

he consideration r

eceived for

equity shares,

net of

direct issue costs.

Retained

earnings

i

n

clude

all

current

and

prior

year

results

as

disclosed

in

profit

or

loss

.

Retained

earnings

include

realised

and

unrealised

profits.

Profits

are

considered

unrealised

where

they

arise

from

movement

s

in

the

fair

value of inv

estment pro

perties that

are considered t

o be temporary rath

er than per

manent.

Bank borro

wings

Interest-beari

ng bank loan

s and overdraf

ts are recorded at

the fair value of

proceeds received,

net of direct

issue

costs.

Fi

n

ance

charges,

including

premiums

payab

le

on

settleme

nts

or

redempt

ion

and

direct

issue

costs,

are

accounted for

on an

ac

cruals basis

in

pr

ofit

or loss using

the effective interest rate

method and

are added to

the

carrying a

mount of the

instrument t

o the extent t

hat they are not

settled in

the period in

which they aris

e.

Trade paya

bles

Trade

pay

ables

are

in

itially

measur

ed

at

fair

valu

e

and

are subsequently

measured at

amortised

co

st,

using the

effective interest

rate

method.

Leases

Where a

n invest

ment pro

perty

is held

under

a leaseh

old interest

, the

headlease is

initially

recognised

as

an asset

at

cost

plus

the

present

value

of

minimum

ground

rent

payments.

The

corresponding

rental

liability

to

the

head

161

leaseholder is included in the balance sheet as a

lia

bility.

Lease payments are apportioned between

the

finance

charge

and

the

reduct

ion

of

the

outstand

ing

liability

so

as

to

produce

a

constant

periodic

rate

of

intere

st

on

the

remaining le

ase liability.

Segmenta

l reporting

An

operating

segment

is

a

distinguishable

component

of

the

Company

that

engages

in

business

activ

ities

from

which

it

m

ay

earn

revenues

and

incur

expenses,

whose

operating

results

are

regularly

reviewed

by

the

Company’s

chief operating decision maker

(the Board) to

make decisions about the

allocat

ion

of resources and assessment

of perf

ormance an

d about

whi

c

h discret

e financi

al informat

ion is av

ailable. As

the chief oper

ating deci

sion make

r

reviews financ

ial informati

on for,

and makes decisio

ns about the Compa

ny’s investment prop

erties as a portfolio,

the Directors ha

ve identif

ied a single oper

ating seg

ment, that

of investment in

commercial prop

erties.

2.6.

Key sources of

judgements and est

imation unc

ertaint

y

The pre

paration of

the

financial

statement

s requires

the Company

to mak

e estimate

s and

assumptions

that

affect

the reported amou

nt of revenues, expens

es, assets and liabi

lities and the disclos

ure of contingent lia

bilities.

If in

the

future

such

estimates

and

assumptions,

w

hich

are

based

on

the

Directors

’

best

judge

ment

at

the

date

of

preparation

of

the

financ

ial

statements,

deviate

from

actual

circumstan

ces,

the

original

estimates

and

assumptions

will be

modified as approp

riate in the p

eriod in wh

ich the circu

mstances chan

ge.

Judgements

The areas w

here a higher

degree of judgeme

nt or complexity

arises are discus

sed below:

•

Valuation of investm

ent property

-

Investment pro

perty

is

valued at t

he reporti

ng date at fair va

lue. Whe

re an

investment

property

is

being

redevel

oped

the

pro

perty

conti

nues

to

be

treat

ed

as

an

investment

property.

Surpluses

and

deficits

attributable

to

the

Company

arising

from

revaluation

are

recognised

in

profit

or

loss

.

Valuation

surpluses

reflec

ted

in

retained

earnings

are

not

di

stributa

ble

until

realised

on

sale.

In

m

aking

its

judgement

over the va

luation of pro

perties, the Co

mpany cons

iders valuations

performed by t

he indep

endent

valuers

in

deter

mining

the

fair

value

of

its

invest

ment

properties.

The

valuers

make

reference

to

market

evidence

of

transaction

prices

for

similar

properties.

The

valuations

are

based

upon

assumptions

including

future rental i

ncome, antic

ipated maint

enance costs

and appropr

iate discount r

ates

.

Estimates

Areas where

accounting e

stimates are s

ignificant to

the financial st

atements ar

e:

162

•

Doubtful

d

ebt

prov

isioning

–

the

appr

oach to

providi

ng

for ‘expected credit

los

ses’

is detailed in

Note 12

and

uses

est

imates

wit

hin

a

matrix

of

ho

w

much

th

e

credit

risk

of

t

rade

recei

vables

has

increased

since

init

ial

recognition based on

a

nu

mber

of days overdue,

tak

ing

into account qualitative

and quantitativ

e

support

able

information. Eac

h individual prop

erty rental rec

eivable is review

ed to assess whether t

here is a probability

of

default

and

expected

credit

loss

given

the

Investment

Manager’s

knowledge

of

the

specific

tenant

over

and

above the prov

ision calc

ulated from the

matrix.

163

3.

Earnings per or

dinary s

hare

Basic EPS

amo

unts are

calcu

lated by

divid

ing

net prof

it for

the

year attributable to ordinary equi

ty holde

rs of

the

Company

by the weighted

average nu

mber of ordin

ary shares out

standing du

ring the year.

Diluted

EPS

amounts

are

cal

c

ulated

by

dividing

the

net

profit

attributable

to

ordinary

equity

holders

of

the

Company

by

the

weighted

average

number

of

ordinary

shares

outstanding

during

the

year

plus

the

weighted

average

number

of ordinary

shares that

would be

issued on

the c

onversion

of all

the d

ilutive

potential or

dinary

shares int

o ordin

ary

shares.

There

are

no

dilu

tive

instruments

in

issue.

Any

shares i

ssu

ed

after

the

year

end

are

disc

losed

in

Note

20.

The

Company

is

a

FTS

E

EPRA/NA

REIT

index

series

constitue

nt

and

EPRA

perfor

mance

measures

h

ave

been

disclosed

to

facilitate

comparability

with

the

Company’s

peers

throug

h

consistent

reporting

of

key

performance

measures.

EP

R

A

has

issued

recommended

bases

for

the

calcula

t

ion

of

EPS

w

h

ich

the

Directors

consider

a

re

better indicators

of perfor

mance.

Group

Year

ended

31 March

2022

Year

ended

31 March

2021

Net

profit

and

diluted

net

profit

attributable

to

equity

hol

d

ers

of

the

Company (£

000)

122,

325

3,749

Net (profit)/lo

ss on invest

ment property (

£000)

(97,073)

19,925

EPRA

net profit

attributable

to equity

holders

of

the

Company

(£000)

25,252

23,674

Weighted a

verage numbe

r of ordinary sh

ares:

Issued ordin

ary shares at

start of

the year (thousand

s)

420,053

Effect of

shares issued du

ring the year

(thousands)

8,649

-

Basic and

diluted weig

hted averag

e number of

shares (thousa

nds)

428,

7

02

420,053

Basic and

diluted EPS (

p)

28.5

0.9

EPRA EPS

(p)

5.9

5.6

164

4.

Revenue

Group

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Gross rental

income fro

m investment

property

39,039

38,664

37,638

38,664

Income fro

m recharges to

tenants

852

914

852

914

39,891

39,578

38,490

39,578

5.

Operating profit

Operating prof

it is state

d after (crediting)/

charging:

Group

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Profit on d

isposal of inv

estment

property

(5,369)

(

393

)

(5,369)

(

393

)

Investment pro

perty valua

tion (increase)/

decrease

(91,704)

20,318

(91,704)

20,318

Fees

payable

to

the

Company

’s

auditor

and

its

as

sociates

for the audit

of the

Compa

ny’s annual fi

nancial state

ments

1

38

106

138

106

Fees

payable

to

the

Company

’s

auditor

and

its

associates

for other

services

25

20

25

20

Administrat

ive fee paya

ble to the I

nvestment Mana

ger

459

416

459

416

Directly

i

n

curred

operati

ng

expenses

of

vacant

rental

property

1,826

822

1,611

822

Directly

incurred operat

ing expen

ses of let renta

l property

1,444

1,142

1,418

1,142

Movement

in doubtf

ul d

ebt

provision, wr

ite of

fs

due t

o t

enant

business f

ailure and rent

concessions

7

3,591

(26)

3,591

Amortisatio

n of right-

of

-us

e asset

7

Fees

payable

to the

Company’s

auditor,

Deloitte LLP,

are

furt

her detaile

d in

the

Audit

and R

isk Co

mmittee

report.

165

6.

Finance incom

e

Group

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Bank intere

st

-

28

-

28

Finance in

come

-

33

-

33

-

61

-

61

7.

Finance costs

Group

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Amortisatio

n of arrangem

ent fees on debt facil

ities

364

347

33

7

347

Other financ

e costs

307

287

302

287

Bank intere

st

4,156

4,269

3,976

4,269

4,827

4,903

4,615

4,903

166

8.

Income tax

The tax charge assessed

for the y

ear

i

s lower tha

n the standard rate of corporation tax in the UK during the y

ear

of

19

.0

%. The diff

erences

are explained b

elow:

Group

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Profit before

income tax

122,

325

3,749

114,1

75

3,749

Tax charge o

n profit at

a standard rate of

19.0% (20

21:

19.0%)

23,242

712

21,6

93

712

Effects of:

REIT tax exe

mpt rental pr

ofits and gain

s

(23,242)

(712)

(21,6

93

)

(712)

Income tax ex

pense

-

Effective

income tax rate

0.

0%

0.0%

0.

0%

0.0%

The

Company

operates

as

a

REIT

and

hence

profits

and

gains

from

the

property

investment

business

are

normally

exempt fro

m corporatio

n tax.

167

9.

Dividends

Group and

Company

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Interim divid

ends paid on

ordinary shar

es relating

to the quarter

ended:

Prior year

- 31 March 202

1: 1.25p (2

020: 1.6625p)

- 31 March 202

1: 0.5p (20

20: nil)

5,257

2,102

6,983

-

Current ye

ar

- 30 June 20

21: 1.25p (20

20: 0.95p)

5,257

3,990

- 30 Septe

mber 2021: 1.2

5p (2020:

1.05p)

5,511

4,411

- 31 Dece

mber 2021: 1.37

5p (2020: 1.25p)

6,062

5,251

24,191

20,635

The C

o

mpany

p

aid

a fourth

interim dividend

rel

ating

t

o

the

quarter ended

31

March

20

22

of 1.

37

5p

per

ordinary

share (totalling £6.1m) on

31

May

20

22 to shareholders on the

r

egister at the cl

os

e of

busine

ss on

13 May 202

2

which has not

been includ

ed as liabilities

in these fin

ancial statements.

168

10.

Investment prop

erty

Group

Company

£000

At 31 March 2

020

559,817

Impact of

lease incentives

1,932

Additions

12,150

Amortisatio

n of right-

of

-us

e asset

(7)

Capital exp

enditure an

d developm

ent

2,308

Disposals

(3,960)

Valuation de

crease before

acquisition co

sts

(19,611)

Acquisition

costs

(

707

)

(

707

)

Valuation de

crease includi

ng acquisition

costs

(20,318)

At 31 March 20

21

551,922

Impact of

lease incentives

1,112

1,158

Additions

65,495

23,801

Amortisatio

n of right-

of

-us

e asset

(7)

Capital exp

enditure an

d developm

ent

3,515

3,510

Disposals

(4

8,555)

(48,555)

Valuation increa

se before

acquisition cost

s

93,977

86,655

Acquisition

costs

(2,273)

Valuation increa

se includ

ing acquisiti

on costs

91,704

84,382

At 31 March 20

22

665,186

616,211

£458.0m

(

2021: £391.9m) of

invest

ment

propert

y

w

as

charged as

s

ecurity against

the Company

’s

borrow

ings

at

the year end

. £

0.6m (2

021: £0.6

m) of investm

ent property

comprises

right-

of

-use ass

ets.

The

carrying

value

of

investment

propert

y

at

31

March

202

2

compris

es

£557.8m

freehold

(2021:

£444.1m)

an

d

£107.4m lea

sehold proper

ty (2021:

£1

0

7.8m).

Investment

propert

y

is

stated

at

the

Directors

’

estimate

of

its

31

March

2

022

fair

value.

Sav

ills

(UK)

Limited

(“Savills”)

and

Knig

ht

Frank LLP

(“K

F”)

,

prof

essionally qualified independent valuers,

ea

ch

valu

ed

appr

oximately

half

of

the

property

portfolio

as

at

31

March

2022

in

accordance

with

the

Appraisal

and

Valuation

Standards

169

published

by the

Roya

l Institut

ion of Chart

ered Surv

eyors (“

RICS”).

Savi

l

ls

and

KF have rec

ent exper

ience in t

he

relevant lo

cations and cat

egories of the propert

y being valued.

Investment

property

ha

s

been

valued

using

the

investment

method

w

h

ich

involv

es

applying

a

yield

to

rental

income

streams.

Inputs

include

yield,

current

rent

and

ERV.

For

the

year

end

valuation,

the

equivalent

yields

use

d

ranged

from

4.

3%

to

12.3%.

Valuat

ion rep

orts

are

based

on

both infor

mation pro

vided

by the

Company

e.g.

current

rents

and

lease

t

erms,

w

h

ich

a

re

deriv

ed

from

the

Company

’s

fin

ancial

and

pr

operty

management

syste

ms

and

are

subject

to

the

Company’s

overall

control

environment

,

and

as

sumptions

applied

by

the

valuers

e.g.

E

R

Vs

and

yields.

These

assumptio

ns

are

based

on

market

observation

and

the

value

rs

’

professional

judgement.

In

estimating t

he fair value

of

each

prop

erty, the hig

hest and best

use of the pro

perties is

their current

use.

All

other

factors

being

equal,

a

higher

equivalent

yield

would

lead

to

a

decrease

in

the

valuation

of

inv

estment

property,

and

an

incre

ase

in

the

current

or

estimated

future

rental

stream

would

have

the

eff

ect

of

increasing

capital

value,

and

vice

versa.

However,

there

are

interrelationsh

ips

between

unobservable

i

n

puts

which

are

partially det

ermined by

market conditions,

which could i

mpact on t

hese changes.

170

11.

Investments

Shares in s

ubsidiaries

Company

Name

Company

number

Country of

registration

and

incorporation

Principal

activity

Ordinary

shares

held

31

March

2022

£000

31

March

2021

£000

Custodian R

eal Estate

Limited

08882372

England an

d

Wales

Non-trading

100%

-

Custodian R

eal Estate

BL Limite

d

09270501

England an

d

Wales

Non-trading

–

in liquidation

100%

-

Custodian R

eal Estate

(Beaumont Le

ys)

Limited*

04364589

England an

d

Wales

Non-trading

–

in liquidation

100%

4

Custodian R

eal Estate

(Leicester) Li

mited*

04312180

England an

d

Wales

Non-trading

–

in liquidation

100%

497

Custodian R

eal Estate

(JMP4) Li

mited

11187952

England an

d

Wales

Non-trading

–

in liquidation

100%

2,904

Custodian R

eal Estate

(DROP Holdi

ngs)

Limited (form

erly DRUM

Income Plus

REIT plc)

9511797

England an

d

Wales

Property

investment

100%

19,133

-

Custodian R

eal Estate

(DROP) Limited

(formerly D

RUM Income

Plus Limited)*

9515513

England an

d

Wales

Property

investment

100%

-

22,538

3,405

* Held indire

ctly

The

Company

’s

non

-trading U

K subsidiaries

have claimed

the

audit

exe

mption

availabl

e

under

Sectio

n

479A

of

the Compan

ies Act 200

6.

The Company

’s registered

office is also

the registered off

ice of each U

K subsidiary.

Custodian R

eal Estate (J

MP4) Li

mited was dissolv

ed on 18 April 20

22.

DRUM REI

T acquisition

The acquis

ition of D

RUM REIT dur

ing the year

has been acco

unted for as

an asset

acquisition.

Consid

eration of

£19.1m

comprise

d

the

issue

of

20,247,040

shares

at

their

market

value

of

94.5p.

This

consideration

was

allocated

171

between the

fair value of t

he acquired asset

s and lia

bilities of DRUM

REIT comprising £0.

15m of workin

g capital,

£22.7m of net

borrowing

s and £41.65

m of investment

property.

Non-listed eq

uity investment

s

Group and Co

mpany

Name

Company

number

Country of

registration

and

incorporation

Principal

activity

Ordinary

shares

held

31

March

202

2

£000

31

March

202

1

£000

AGO Hote

ls Limited

12747566

England an

d

Wales

Operator of

hotels

4.5%

-

The Company

was allotted 4.5% of the ordi

nary share capita

l of

AGO

Hotels Limited on 31 Jan

uary 2021 as part

of a new lett

ing of its hot

el asset in Port

ishead.

172

12.

T

r

ade and oth

er receiva

bles

Group

Company

31 March

2022

£000

31 March

2021

£000

31 March

2022

£000

31 March

2021

£000

Falling due

in less than on

e year:

Trade receivab

les

3,094

4,192

2,642

4,192

Other receiv

ables

1,960

1,706

576

1,706

Prepayme

nts and accrue

d income

147

103

147

103

5,201

6,001

3,365

6,001

The

Company

regularly

monitors

the

effectivenes

s

of

the

criteria

used

to

identify

whether

there

has

been

a

significant

increase

in

credit

risk

and

revises

them

as

appropriate

to

ensure

that

the

criteria

are

capable

of

identifying sign

ificant incr

eases in cred

it risk before

amounts be

come past

due.

The

Company

considers

the

following

as

constituti

ng

an

event

of

default

for

internal

credit

risk

management

purposes

as

historic

al

experience

i

nd

icates

that

financia

l

assets

that

meet

either

of

the

followin

g

cri

teria

are

generally not

recoverable:

•

When there is a bre

ach of

financial covenants

by the debtor

; or

•

Available inform

ation indicat

es the debtor is

unlikely t

o pay its creditors.

173

Such balanc

es are prov

ided for

in full. For re

maining bal

ances the

Company has applied

an expecte

d credit lo

ss

(“ECL”)

m

atr

ix

based

on

its

experience

of

collecting

rent

arrears.

The

ECL

matrix

fully

provides

for

receivable

balances

more

than

18

0

days

past

due

and

partial

ly

provides

against

receiv

able

balances

between

60

and

180

days past

due.

Group

Company

31 March

2022

£000

31 March

2021

£000

31 March

2022

£000

31 March

2021

£000

Expected cre

dit loss prov

ision

Opening b

alance

3,030

341

3,030

341

(Decrease)/incre

ase

in

provision

relating

to

trade

receivables

that are cr

edit-impaired

(291)

2,689

(291)

2,689

Closing b

alance

2,739

3,030

2,739

3,030

The

de

crease in prov

ision during the

year is due

to the collectio

n of previous

ly provided f

or debts.

Tenant rent

deposits of £1

.1m (2021: £0.9

m) are held

as collateral ag

ainst certain tr

ade receivab

le balances.

13.

T

r

ade and oth

er payable

s

Group

Company

31 March

2022

£000

31

March

2021

£000

31 March

2022

£000

31

March

2021

£000

Falling due

in less than on

e year:

Trade and other

payable

s

3,960

1,730

1,973

1,730

Social sec

urity and other

taxes

456

882

366

882

Accruals

4,2

26

2,665

4,100

2,665

Rental depos

its

1,141

908

1,141

908

Amounts due t

o subsidiar

y undertak

ings

-

3,405

9,783

6,185

10,985

9,590

The

Directors

consider

that

the

carrying

amount

of

trade

and

other

payables

approximates

to

their

fair

val

ue.

Trade

payables

and

accruals

principally

comprise

amounts

outstanding

for

trade

purchases

and

ongoing

costs.

For

most

suppliers interest is charged if payment i

s not made

w

ith

in

t

he required terms.

Thereaf

ter, interest is

c

hargeable

on

the

outstandi

ng

balances

at vario

us rates.

The

C

o

mpany

has

financia

l

risk

manage

ment

policies

in place

to

ensure that a

ll payables

are paid wit

hin the credit ti

mescale.

174

Amounts pay

able to subs

idiary undertak

ings are du

e on demand.

14.

Cash and cash e

quivale

nts

Group

Company

31 March

2022

£000

31 March

2021

£000

31 March

2022

£000

31 March

2021

£000

Cash and c

ash equivalent

s

11,624

3

,

920

9,217

3

,

920

Group

and

Company

c

as

h

and

cash

equivalents

at 31

March

2022

include

£

1.

7m

(2021:

£2.6m)

of

restrict

ed

cash

comprising:

£1.1m (20

21: £0.9

m) rental d

eposits

held on

behalf of t

enants, £0.3m

(2021: £n

il) exchan

ge deposits

on pipeline acquisit

ions, £0.3m (2021: £0.2

m) retentions held in respect of dev

elopment fundin

gs

and £nil (2021

:

£1.5m) intere

st prepay

ments.

175

15.

Borrowings

Group

Company

Bank

borrowings

£000

Costs

incurred in

the

arrangement

of bank

borrowings

£000

Total

£000

Bank

borrowings

£000

Costs

incurred in

the

arrangement

of bank

borrowings

£000

Total

£000

Falling due w

ithin

one year:

At 31 March 2

021

-

Borrowings ar

ising

from the ac

quisition

of DRUM

REIT

22,760

(

60

)

22,700

-

Amortisatio

n of

arrangement

fees

-

27

-

At 31 March 20

22

22,760

(33)

22,727

-

Falling due

in more

than one year:

At 31 March 2

021

140,000

(1,396)

138,604

140,000

(1,396)

138,604

Net repay

ment of

borrowings

(25,000)

-

(25,000)

-

(25,000)

Arrange

ment fees

incurred

-

(57)

-

(57)

Amortisatio

n of

arrangement

fees

-

336

-

336

At 31 March 20

22

115,000

(1,117)

113,883

115,000

(1,117)

113,883

Total borro

wings:

At 31 March 20

22

137,760

(1,1

50

)

136,

610

115,000

(1,117)

113,883

During the y

ear the Co

mpany and Ll

oyds agreed

to extend the ter

m

of

the RCF by

one year to exp

ire in 2024.

At the year en

d the Comp

any has t

he following f

acilities availab

le:

•

A £

20

m R

CF with

Lloyds

with interest

of between

1.5% and

1.8%

above three

-month

LIBOR

and

is r

epayable

on 17 Septe

mber

202

4.

The RCF limit wa

s

increase

d to £50m w

ith Lloyds’ co

nsent

since the y

ear end

;

•

A £25m RCF

with RBS

with interest of

1.75% abov

e SONIA, exp

iring on 30

September 20

22;

•

A £20m

term

loan

with

Scottish

Widows plc

with inte

rest

fixed

at

3.935%

and

is

repayable

on 13 August

2025;

176

•

A

£45m

term

loan

with

Scottish

Wido

ws

plc

w

ith

in

terest

fixed

at

2.987%

and

is

repayable

on

5

June

2028;

and

•

A £50m term loan

with Avi

va comprising:

-

£35m Tranch

e 1 repayab

le on 6 April 2

032 attractin

g fixed annu

al interest of

3.02%;

and

-

£15m Tranch

e 2 repayabl

e on 3 Nove

mber 2032 att

racting fixed a

nnual intere

st of 3.26%.

Each

facility

has a

discrete

s

ecurity

pool,

comprisin

g

a number

of

the Compa

ny’s

individual

properties,

over

which

the relevant

lender has se

curity and

covenants:

•

The

maximum

L

TV

of

t

he

discrete security

pool is

between 45%

and

50%, with

an

overarc

hing

cove

nant

on

the Compan

y’s property p

ortfolio of a

maximum

35% LTV; an

d

•

Historical

interest

cover,

requiring

net

rental

receipts

from

each

discrete

security

pool,

over

the

prec

edi

ng

three

months, to

exceed 250%

of the f

acility’s quarterl

y interest lia

bility.

The

C

o

mpany’s

debt

facilities

contain

m

ark

et

-standard

cross-guarantees

such

that

a

default

on

an

individua

l

facility will r

esult in all fac

ilities fa

lling into defa

ult.

Si

nce

the

year

end

the

Company

has

arranged

a

£25m

tranche

of

10

year

debt

with

Aviva

at

a fix

ed

rate

of

interest

of 4.10% per

annum to ref

inance the £25

m variable

rate revolving

credit facilit

y with RBS.

177

16.

Share capital

Group and

Company

Issued share

capital

Ordinary

shares

of 1p

£000

At 1 April 20

20

420,053,344

4,201

Issue of share

capital

-

At 31 March 2

021

420,053,344

4,201

Issue of share

capital

20,797,054

208

At 31 March 20

22

440,850,398

4,409

During

the

year,

the

Company

rai

s

ed

£

19.

7m (bef

ore

costs

and

expenses)

through t

he pla

cing

of

20,

797

,054

new

ordinary shar

es.

Rights, preferen

ces and r

estrictions on s

hares

All

ordinary

shares

carry

equal r

ights

and

no priv

ileges

are

attached

to

any sha

res

in th

e

Company.

A

ll th

e

shares

are

freely

transferable,

except

as

otherwise

provided

by

law.

The

holders

of

ordinary

shares

are

entitled

to

receive

dividends as

declared from

time to

time

and are

entitled to

one vote

per

shar

e

at meetings

of the

C

ompany.

All

shares rank

equally with r

egard to the

Company

’s residual ass

ets.

At

t

he

AGM of

the Company

held on

25

Aug

ust

2021, the

Board was

give

n

aut

hority

to issue

up to

140,

201

,

115

shares, pursua

nt to section 551 of the Companies Act 2006

(“the Authority”)

. The Authority is intended to satisf

y

market

demand

for

the

ordinary sh

ares

and

raise

further

m

o

nies

for inve

stment

in acc

ordance

with

the Co

mpany’s

investment

policy.

20,797,054

ordinary

shares

have

been

issued

under

the

Authority

since

25

August

2021,

leaving

an uni

ssued ba

lance of

119,404,06

1 at

31 M

arch

20

22.

The Auth

ority

expires

on th

e earlier

of 1

5 mont

hs

from 25 Aug

ust 2021 and

the subsequ

ent AGM, due

to take place

on

31

Augu

st

20

22.

178

In

addition, the

Company

was

grant

ed

authority

t

o

make

market purchases

of up

to

42,

060,344

ordinar

y

shares

under sectio

n 701 of the

Companies

Act 2006. No

market purch

ases of ordin

ary shares h

ave been m

ade.

Company

Group

Group an

d Company

Other reserves

Retained

earnings

£000

Retained

earnings

£000

Share

premium

account

£000

Merger

reserve

£000

At 1 April 20

20

172,082

250,469

-

Shares issued d

uring the

year

-

Costs of sh

are issue

-

Profit for

the year

3,749

-

Dividends pa

id

(20,635)

-

At 31 March 2

021

155,196

250,469

-

Shares issued d

uring the

year

-

552

18,931

Costs of sh

are issue

-

(51)

-

Profit for

the year

114,175

122,

325

-

Dividends pa

id

(24,191)

-

At 31 March 20

22

245,180

253,

330

250,970

18,931

The nature

and purpose o

f each reserv

e within equ

ity are:

•

Share premium

- Amount

s subscribed for

sh

are capital in

exce

ss of

nom

inal value less

any assoc

iated issue

costs that have b

een cap

italised.

•

Retained

earnings

-

All

other

net

gains

and

losses

and

transactions

with

owners

(e.g.

dividends)

not

recognised

elsewhere.

•

Merger

reserve

-

A

non-statutory

reserve

that

is

credited

instead

of

a

company's

share

premium

account

in

circumstanc

es where

merger relief und

er section 61

2 of the Co

mpanies Act

2006

is obtained.

179

17.

Commitments an

d contingencie

s

Company

as lessor

Operating leases, i

n which the C

o

mpany is the lessor, relate to investment

property owned by the Company with

lease

terms

of

between

0

to

15

years.

The

aggregate

d

future

minimum

rentals

receivable

under

all

non-cancella

ble

operating leas

es are:

Group

Company

31 March

2022

£000

31

March

2021

£000

31 March

2022

£000

31 March

2021

£000

Not later tha

n one year

36,512

36,191

33,565

36,191

Year 2

32,830

31,771

30,332

31,771

Year 3

27,986

27,987

25,819

27,987

Year 4

23,367

23,875

21,975

23,875

Year 5

19,764

19,300

18,546

19,300

Later than f

ive years

67,843

72,428

62,418

72,428

208,302

211,552

192,655

211,552

The follow

ing table presen

ts amounts r

eported in rev

enue:

Group

Company

31 March

2022

£000

31 March

2021

£000

31 March

2022

£000

31 March

2021

£000

Lease inco

me on operat

ing leases

38,884

38,621

37,483

38,621

Therein leas

e income re

lating to vari

able lease

payments t

hat do not dep

end on an index

or rate

155

152

155

152

39,039

38,773

37,638

38,773

180

18.

Related party trans

actions

Save

for transactions

des

cribed

below, the

Compa

ny

is

not

a party

to,

nor had

any

interest

in,

any

oth

er

on during

the y

ear

.

Transactions

w

ith d

irectors

Each

of

the

directors

is

engaged

under

a

letter

of

appointment

with

the

Company

and

does

not

have

a

service

contract

with

the

Compan

y.

Under

the

terms

of

their

appointment,

each

director

is

required

to

retire

by

rotation

and

seek

re-

election

at

least

every

three

years.

Each

director’s

appoint

ment

under

t

heir

respecti

ve

letter

of

appointme

nt i

s terminable

i

mme

diately by

either party (the Company or

the director) giving written notice and

no

compensat

ion or

benefits

are payabl

e upo

n

termination

of office

as a

director

of

the

Company

becoming

effective.

Ian

Mattioli

i

s

Chief

Executive

of Mat

tioli

Woods,

the parent

company

of

the

Investment

Manager,

and is

a director

of

t

he

Investment

Manager.

As

a result,

Ian

Mat

tioli

is not

independent.

The

Company Secretary, Ed

Moore, is

also a dire

ctor of the I

nvestment Manager.

Investment M

anagement

Agreement

The

Investment

Manager

is

engaged

as

A

I

FM

under

an

IMA

wi

th

respons

ibility

for

the

m

ana

gement

of

the

Company’s

assets,

subject

to

the

overall

supervision

of

the

Directors.

The

Investment

Manager

manages

the

Company’s

investment

s

in

accordance

with

the

policies

l

a

id

down

by

the

Board

and

the

investment

restrictions

referred

to

in

the I

MA.

The

Investment

Manager

also

provides d

ay-

to

-day

administratio

n

of

the

Company

and

acts

as secretary to th

e Company, including

maintenance of accou

nting records a

nd preparing the annual a

nd interim

financial stat

ements of t

he Company.

On

22

June

2020

the

terms

of

the

IMA

were

varie

d

to

secure

the

appoint

ment

of

the

Investment

Manager

for

a

further

three years,

with

a

further

year’s notic

e,

and t

o

introduce

further f

ee h

urdles

such th

at

annual

management

fees payable

to the Invest

ment Mana

ger under the

IMA are now:

•

0.9% of the NAV of the Company as at the relevant

quarter day which is less than or equal to £200m di

vide

d

by 4;

•

0.75%

of

the

NAV

of

the

Company

as

at

the

relevant

quarter

day

which

is

in

excess

of

£200m

but

below

£500m

divided by 4;

•

0.65%

of

the

NAV

of

the

Company

as

at

the

relevant

quarter

day

which

is

in

excess

of

£500m

but

below

£750m

divided by 4;

plus

•

0.

55% of the NAV of

the Co

mpany as at

the relevant

quarter day

which is in

excess of £

750

m

divided by

4.

181

Administrat

ive fees payab

le to the

Investment Man

ager under

the IMA are no

w:

•

0.

125%

of

the

NAV

of

the

Company

as

at

the

relevant

quarter

day

which

is

l

es

s

than

or

equal

to

£200m

divided

by 4;

•

0.08%

of

the

NAV

of

the

Company

as

at

the

relevant

quarter

day

which

is

in

excess

of

£200m

but

below

£500m

divided by 4;

•

0.05%

of

the

NAV

of

the

Company

as

at

the

relevant

quarter

day

which

is

in

excess

of

£500m

but

below

£750m

divided by 4;

plus

•

0.03% of the NAV of

the Co

mpany as at

the relevant

quarter day

which is in exces

s of £

75

0m

divided by 4.

The

IMA

is

termina

ble

by

ei

ther

party

by

giving

not

less

than

12

months’

prior

written

notice

to

the

othe

r,

w

h

ich

notice

may

only

be

g

iven

after

the

expiry of

the

Initial

three

year

ter

m.

The

I

MA

may

also

be

terminat

ed

on

the

occurrence

of

an

insolve

ncy

event

in

relation

to

either

party,

if

the

Invest

ment

Manager

is

fraudulen

t,

grossly

negligent or comm

its a material breach which, if capab

le of remedy, is not remedied with

in three months, or o

n a

force majeure

event conti

nuing for more

than 90 da

ys.

The Inv

estment

Manager

receives

a market

ing fee

of

0.25% (20

21

: 0.25%)

of t

he aggregate

gross pro

ceeds f

rom

any issue of

new shares i

n consideratio

n of the mar

keting services it

provides

to the Company.

During

the

year

the

Investment

Manager

charged

the

Company

£

4.

41m

(2021:

£3.75m)

comprising

£3.86m

(2021:

£3.33m)

in

res

pect

of

annual

management

fees,

£0.46m

(

20

21

:

£0.4

2m)

in

respect

of

administrative

fees,

£n

il

(20

21

:

£nil)

i

n

respect

of

m

ark

eting

fees

and

a

transact

ion

fee

of

£0.

09

m

relating

to

work

carried

out

on

the

acquisitio

n of DRUM R

EIT.

Mattioli

Woods

arrang

es

insurance

on

behalf

of

the

Company’s

te

nants

through

an

insura

nce

broker

and

the

Investment M

anager is pa

id a commiss

ion b

y the Compan

y’s tenants f

or administerin

g the policy.

19.

Financial risk man

agement

Capital risk m

anagement

The

Company

manages

its

capital

to

ensure

it

can

continue

as

a

going

concern

w

h

ile

m

ax

imising

the

return

to

stakeholders

through

the

optimisation

of

the

debt

and

equity

balance

within

the

parameters

of

its

investment

policy.

The capital structure of

th

e C

ompan

y consists of

debt,

w

hic

h i

nc

ludes the

b

orrowings disclosed below, cash and

182

cash equivale

nts and equi

ty attributable to eq

uity holders of the parent

, comprising

issued ordinary s

hare capital,

share premiu

m and reta

ined earning

s.

Net gearing

ratio

Th

e

Board

reviews

the

capital

structure

of

the

Company

on

a

regular

basis.

As

part

of

this

review

,

the

Board

considers the

cost

of

ca

pital

and

t

he

risks associated

with each

class

of capital.

T

he

Compan

y

has

a

t

arget

net

gearing ratio

of 25% determ

ined as

the proportion of debt

(net of unrestricted cash) to

invest

ment property.

The

net gearing rat

io at the ye

ar-

end

was 19.

1% (20

21

:

24.9%

).

Externally imp

osed cap

ital requirements

The

Company

i

s

not

subje

ct

to

externally

imposed

capital

requirements,

although

there

are

restrictions

on

the

level

of interest t

hat can be pai

d due to conditi

ons impos

ed on REIT

s.

Financial r

isk manageme

nt

The

Company

seeks

to

minimise

the

effects

of

i

nterest

rate

risk,

credit

risk,

liquidity

risk

and

cash

flow

risk

by

using

fixed and float

ing rate deb

t instruments

w

ith var

ying matur

ity profiles, at

low levels of

net gearing.

Interest r

ate risk manage

ment

The

C

o

mpany’s

activit

ies

expose

it

primarily

to the

financial

risks

of

increases

in interest

rates,

as

i

t

borrows f

unds

at floating

interest rates

.

The risk

is managed by

maintaining:

•

An appropriate ba

lance betwee

n fixed and fl

oating rate borr

owings;

•

A low level of net

gearing;

and

•

T

he

RCF whose

flexibility

allows the Co

mpany to

manage the risk of

changes

in interest r

ates.

The

Board

period

ically

considers

the

availability

an

d

cost

of

hedging

instruments

to

assess whether

their

use

is

appropriate a

nd also co

nsiders

the mat

urity profile o

f the Company’

s borrowin

gs.

Interest r

ate sensitivity

analysis

183

Interest rate risk arises on interest payable on

the RCFs only, as interest on all

other debt facilities is payable on

a

fixed

rate

basis.

At

31

March

20

22,

the

RBS

RCF

was

drawn

at

£

22.

8

m.

Assuming

this

amount

was

outstanding

for

the who

le year

and ba

sed on

the

exposure

to

interest

rates

at t

he rep

orting

date, if

three-

month

LIBOR/SO

NIA

had

been

0.5%

higher/

lower

and

all

other

variables

were

constant,

the

Company’s

profit

for

the

year

ended

31

March 2022 w

ould decrea

se/increase by

£0.1m due

to its variable r

ate borrowings.

Market risk ma

nagement

The

Company

manages

its

exposure

to

market

risk

by

holding

a

port

folio

of

investment

propert

y

diversified

by

sector, loc

ation and ten

ant.

Market risk se

nsitivity

Market risk arises on the valuation of the Com

pany’s property portfolio in co

mplying with its bank loan covenant

s

(Note 15).

The Company would breach its overall borrowing covenant i

f the valuation of i

t

s

pro

perty portfolio fell

by 45

% (20

21:

29

%).

Credit risk ma

nagement

Credit

risk refers

to

the

ri

s

k

that

a

counterpart

y

will

default

on

its cont

ractual

obligations

resulting

i

n

a

financia

l

loss

to

the

Company.

The

Company

’s

credit

risk

is

primarily

attributa

ble

to

its

trade

receivables

and

cash

balances.

The amounts incl

uded in the statement of fina

ncial posit

ion are net of allowan

ces for bad and doubtful

debts. An

allowance

for

i

mpair

ment

is

mad

e

wh

ere

a

debtor

is

in

brea

ch

of

its

financial

cove

nants,

available

information

indicates a

debtor can’t pa

y or where b

alances are s

ignificantly

past due.

The Company has adopte

d a pol

ic

y of only

dea

ling with creditworthy counterp

arties

as a means of mitigating the

risk

of

financ

ial

loss

fr

om

defaults.

The

m

a

ximum

credit

risk

on

financi

al

a

ssets

at

31 March

202

2

was

£3.1

m

(2021

: £

4.

2m).

The

C

o

mpany

has

no

significant

conce

ntration

of credit

risk, with

exposure

spread

over

a

large

number o

f

tenants

covering

a

wide

variety

of

business

types.

Further

detail

on

the

Company’s

credit

risk

management

process

is

included

within the Strate

gic report.

Liquidity ris

k manageme

nt

184

Ultimate responsibility for

liquidity risk

mana

gement rests

with

the

B

oard,

whic

h

has built

an

ap

propriate liquidity

risk

management

frame

work

for

the

m

a

nagement

of

the

C

ompany

’s

s

hort,

medium

and

long

-t

erm

funding

and

liquidity

manage

ment

requirements.

Th

e

Compa

ny

manages

liquidity

risk

by

maintaining

adequate

reserves,

banking

fac

ilities

and

reser

ve

borrowing

facil

ities

by

continuous

ly

monitoring forecast

and

actual

cas

h

flows

and

matching the

m

atur

ity profile of fin

ancial ass

ets and l

iabilities.

The

following

tables

detail

the

Company’s

contractua

l

maturity

for

its

f

inancial

liabilities.

The

table

ha

s

been

drawn

up based

on undisc

ounted cas

h flows of

financial

liabilities

based o

n the earl

iest date o

n which th

e Company can

be required t

o pay.

The table inc

ludes bot

h interest and pr

incipal cash f

lows.

Group

Weighted

average

effective

interest rate

%

31 March

2022

0-3 months

£000

31 March

2022

3 months

–

1 year

£000

31 March

2022

1-5 years

£000

31 March

2022

5 years +

£000

Trade and other

payable

s

N/a

9,783

-

151

420

Borrowings:

Variable rat

e

2.491

100

299

16,585

-

Variable rat

e

2.441

139

-

Fixed rate

3.935

197

590

2,656

-

Fixed rate

2.987

336

1,008

5,377

47,939

Fixed rate

3.020

264

793

4,228

41,362

Fixed rate

3.260

122

367

1,956

18,227

10,941

3,196

30,953

107,948

Company

Weighted

average

effective

interest rate

%

31 March

2022

0-3 months

£000

31 March

2022

3 months

–

1 year

£000

31 March

2022

1-5 years

£000

31 March

2022

5 years +

£000

Trade and other

payable

s

N/a

10,985

-

151

420

Borrowings:

Variable rat

e

2.491

100

299

16,585

Fixed rate

3.935

197

590

2,656

-

Fixed rate

2.987

336

1,008

5,377

47,939

Fixed rate

3.020

264

793

4,228

41,362

Fixed rate

3.260

122

367

1,956

18,227

185

12,004

3,057

30,953

107,949

Group

Weighted

average

effective

interest rate

%

31 March

2021

0-3 months

£000

31 March

2021

3 months

–

1 year

£000

31 March

2021

1-5 years

£000

31 March

2021

5 years +

£000

Trade and other

payable

s

N/a

6,185

-

151

42

1

Borrowings:

Variable rat

e

1.888

118

354

25,692

-

Fixed rate

3.935

197

590

2,656

-

Fixed rate

2.987

336

1,008

5,377

47,939

Fixed rate

3.020

264

793

4,228

41,362

Fixed rate

3.260

122

367

1,956

18,227

7,222

3,112

40,060

107,9

49

Fair values

The fair valu

es of financ

ial assets and

liabilities are

not materially

different fro

m their carryi

ng values in t

he

financial stat

ements.

The fair val

ue hierarchy

levels are as f

ollows:

Company

Weighted

average

effective

interest rate

%

31 March

2021

0-3 months

£000

31 March

2021

3 months

–

1 year

£000

31 March

2021

1-5 years

£000

31 March

2021

5 years +

£000

Trade and other

payable

s

N/a

9,590

-

151

421

Borrowings:

Variable rat

e

1.888

118

354

25,692

-

Fixed rate

3.935

197

590

2,656

-

Fixed rate

2.987

336

1,008

5,377

47,939

Fixed rate

3.020

264

793

4,228

41,362

Fixed rate

3.260

122

367

1,

956

18,227

10,627

3,112

40,060

107,9

49

186

•

Level 1

–

quoted pri

ces (unad

justed) in active

m

ark

ets for

identical assets an

d liabilities;

•

Level

2

–

inputs

other than

quoted prices

include

d

within level

1 that

are observable

for the

asset or

liability,

either directl

y (i.e. as pric

es) or indir

ectly (i.e.

derived fr

om prices); and

•

Level

3

–

inputs

for

the

assets

or

l

iab

ilities

that

are

not

based

on

observ

able

m

ar

ket

data

(uno

b

servable

inputs).

There have b

een no tr

ansfers betwe

en Levels 1,

2 and 3 during the ye

ar. The

main methods an

d assu

mptions

used in estim

ating the fair

val

u

es of financi

al instrument

s and investment

property are

detailed belo

w.

Investment pro

perty

–

le

vel 3

Fair

value

i

s

based

on valu

ations

provided

by a

n

independent

firm of

chartered

surveyors

and register

ed

appraisers,

whi

ch

uses

the

inputs

set

out

in

Note

10

.

These

values

were

deter

mined

after

having

taken

i

nto

consideration

recent

m

ark

et

transactions

for

similar

properties

in

similar

l

ocat

ions

to

the

investment

properties

held

by

the Company.

The

fair

value hierarchy

of investment property

is

le

vel

3.

At 31

March

20

21,

the fair

value

of

the Compan

y’s

invest

ment properties was £

665.2m (

20

21

:

£551.9m

).

Interest beari

ng loans and

borrowings

–

le

vel 3

As

at 31

March

20

22

the

value of

the Company’s

lo

ans

with

Ll

oyds, R

B

S,

SWI

P

and Aviva

all

he

ld

at amortised

cost

wa

s £13

7.8m (20

21

:

£

14

0.

0m).

The

difference

between the

carrying

value

of

Co

mpany’s l

oans

and

their f

air

value is detai

led in Note 2

1.

Trade and other

receivab

les/payables

–

l

evel 3

The carrying amount of

all

receiv

ables and

p

ayables deemed to be

due within one year

are consider

ed to reflect

the

ir

fair

value.

Impact of

the COVID-

19

p

andemic

As set out in the Princi

pal risks and uncertaint

ies section of the Strate

gic report,

the Board believes

it too early to

understand fully the

longer-t

erm

impact of

the COVID-

19

pandemic, but

the

Board believes the

Com

pany

is

well

placed to w

eather any sho

rt-term impact

due to the reaso

ns set out in the

S

t

rategic report.

187

The Board does t

herefore not

consider it necessary or

possible to carry out

sensitivity analys

is on its valuation

or

cashflow assu

mptions.

20.

Events after the re

porting date

Property trans

actions

Since the ye

ar end the

Company has ac

quired:

•

A

87k

sq

ft

industrial

facility

in

Grangemouth

for

£7.5m

occup

ied

by

Thornbridge

Sawmills

with

an

annual

passing re

nt of £388k, ref

lecting a NIY of 5.

5%; and

•

A

5k

sq ft

retail asset

in Winchester

for £3.65m

oc

cupied

by

Natio

nwide B

u

ilding S

oc

iety

an

d

Hobbs with

an

aggregate an

nual passi

ng rent of

£249k, reflecting a

NIY of 6.

4%.

Since the ye

ar end the

Company has so

ld a 25k sq ft

car showroo

m occupied

by Audi for £5.6m.

Borrowings

Since

the

year

end

the

C

o

mpany

has

arranged

a

£25m

tranche

of

10

year

debt

with

A

v

iva

at

a

fixed

rate

of

interest

of 4.10% per

annum to ref

inance a £25

m variable ra

te revolving cr

edit facility with

RBS.

188

21.

Alternative perf

ormance measur

es

NAV per s

hare total return

A

m

eas

ure of

perf

ormanc

e t

aking

into a

ccount

both

capital

returns

and div

idends

by assu

ming dividends

declared

are

reinvested

at

NAV

at

the

tim

e

the

shares

are

quoted

ex

-dividend,

shown

as

a

percentage

change

from

the

start of

the year.

Group

Year

ended

31 March

2022

Year

ended

31 March

2021

Net assets

(£000)

527,

640

409,866

Shares in issu

e at 31 Mar

ch (thousands)

440,850

420,053

NAV per s

hare at the start

of the year

(p)

97.6

101.6

Dividends per

share pa

id during the

year (p)

5.62

5

4.9125

NAV per s

hare at the en

d of the year

(p)

119.7

97.6

NAV per sh

are total retu

rn

28.4%

0.9%

Share pric

e total return

A

m

eas

ure

of

performance

taking

into

account

bot

h

share

pr

ice

return

s

and

dividends

by

assu

ming

dividen

ds

declared ar

e reinvested at

the ex-dividend sh

are price,

shown as a percent

age chan

ge from t

he start of

the year.

Group

Year

ended

31 March

2022

Year

ended

31 March

2021

Share pric

e at the start

of the year

(p

)

91.8

99.0

Dividends per

share paid

during the year

(p)

5.62

5

4.9125

Share pric

e at the end of t

he year (p)

101.8

91.8

Share price t

otal return

17.0%

(2.3%)

189

Dividend cover

The extent

to which div

idends relatin

g to the year ar

e supported by recurr

ing net

income

.

Group

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Dividends pa

id relating t

o the year

16,830

13,652

Dividends appr

oved relat

ing to the

year

6,062

7,354

22,892

21,006

Profit after

tax

122,

325

3,749

One-off costs

-

Net (profit)/lo

ss on invest

ment property

(97,073)

19,925

25,252

23,674

Dividend

cover

110.

3%

112.7%

190

Net gearing

Gross borro

wings less ca

sh (exclud

ing rent deposit

s), divided by pr

operty port

folio value.

Group

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Gross borro

wings

137,7

60

140,000

Cash

(11,

624

)

(3,920)

Cash held on

behalf of

tenants

1,141

1,179

Net borrow

ings

127,

2

77

137,259

Investment pro

perty

665,186

551,922

Net gearin

g

19.1%

24.9%

Ongoing ch

arges

A

measure

of

the

regular

,

recurring

costs

of

running

an

invest

ment

company

expresse

d

as

a

percentage

of

average NA

V.

Group

Year ended

31 March

2022

£000

Year ende

d

31 March

2021

£000

Average qu

arterly NAV du

ring the year

462,501

408,703

Expenses

9,8

12

11,062

Operating exp

enses of r

ental property rechar

geable t

o tenants

(852)

(914)

8,960

10,148

Operating exp

enses of r

ental property dire

ctly incur

red

(3,422)

(5,559)

One-off costs

-

5,538

4,589

191

OCR

1.94%

2.48%

OCR exclud

ing direct

property expense

s

1.20%

1.12%

192

EPRA performa

nce meas

ures

EPRA

promotes,

develops

and repres

ents t

he European

public

real

estate se

ctor,

providing lead

ership i

n matter

s

of commo

n interest b

y publish

ing research

and enc

ouraging di

scussion

of issues

impacting t

he propert

y industry

,

both

within

the

membership

and

with

a

wide

range

of

stakeholders,

including

the

EU

institutions,

governmenta

l

and

regulator

y

bodies

and

business

partners.

The

Board

supports

EPRA’s

drive

to

bring

parity

to

the

comparability

and quality

of informat

ion provided

in this report to

investors and other

key stakeh

olders.

EPRA earn

ings per sh

are

A m

eas

ure

of the

Co

mpany’s operating

res

ults

e

xcluding

ga

ins or

losses

o

n

invest

ment property,

givin

g

a better

indication

than

basic

EPS of

the ext

ent to

which d

ividends pa

id

in the ye

ar are

support

ed by

recurring ne

t inco

me.

Group

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Profit for

the year after

taxation

122,

325

3,749

Net (profit)/lo

ss on invest

ment property

(97,073)

19,925

EPRA earning

s

25,252

23,674

Weighted a

verage numbe

r of shares in i

ssue (thous

ands)

428,702

420,053

EPRA ear

nings per s

hare (p)

5.9

5.6

193

EPRA NAV p

er share met

rics

EPRA NAV

metrics

make adjust

ments to the I

FRS NAV t

o provide sta

keholders

with the most relevant

information

on

t

he

fair

value

of

the

assets

and

liabilities

of

a

real

estat

e

investment

co

mpany,

unde

r

different

scenarios.

EPRA Net

Reinstatement

Value (“NR

V

”)

NRV assum

es the Compa

ny never sells its

assets a

nd aims to r

epresent the value

required to rebu

ild the

entity.

Group

31 March

2022

£000

31 March

2021

£000

IFRS NAV

527,

640

409,865

Fair value of

financial instr

uments

-

Deferred t

ax

-

EPRA N

RV

527,

640

409,865

Number of

shares in issu

e (thousand

s)

440,850

420,053

EPRA

NRV

per shar

e (p)

119.7

97.6

194

EPRA Net

Tangible

Assets (“NTA”

)

Assumes

that

the

Compan

y

buys

and

sells

assets

for

short-term

capita

l

gains,

thereby

crystallising

certain

deferred

tax balances.

Group

31 March

2022

£000

31 March

2021

£000

IFRS NAV

527,

640

409,865

Fair value of

financial instr

uments

-

Deferred t

ax

-

Intangibles

-

EPRA N

TA

527,

640

409,865

Number of

shares in issu

e (thousand

s)

440,850

420,053

EPRA NTA per

share (

p)

119.7

97.6

195

EPRA Net

Disposal Va

lue (“NDV”)

R

epresents

the

shareholders’

value

under

a

disposal

scenario,

where

deferred

tax,

financial

instru

ments

and

certain other

adjustment

s are calculated

to the full e

xtent of their li

ability, net of

any resulting tax.

Group

31 March

2022

£000

31 March

2021

£000

IFRS NAV

527,640

409,865

Fair value of

fixed rate d

ebt

-

(9,468)

Deferred t

ax

-

EPRA ND

V

400,397

Number of

shares in issu

e (thousand

s)

440,850

420,053

EPRA ND

V per shar

e (p)

119.7

95.3

The fair value of

the liabilit

y

of

Com

pany’s interest

-bearin

g loans included in

th

e balance sheet at

amort

ised cost

has been

calculate

d based on

prevailing swap

rates, and e

xcludes ‘

break’ cos

ts chargeab

le should

the Co

mpany

settle loans ahead of

their contractual expir

y. A

t

31 March 2022

all of the Company

’s fixed rate debt instr

uments

were ‘in th

e money’ so n

o fair value ad

justment has

been made i

n calculati

ng EPRA N

DV.

196

EPRA NI

Y and EPR

A ‘topped

-

up’ NIY

EPRA

N

IY

represents

annualised

rental

income

based on

cash rent

s pass

ing

at

the

balance

sheet

date, less

non

-

recoverable property oper

ating expenses, divided by the gross property valuation. The EPRA

‘

topped-

up

’

NIY is

calculated

by

making

an

adjustment

to

the

EPRA

NIY

in

r

espect

of

the

expi

ration

of

rent

free

periods

(or

other

unexpired le

ase incentive

s such as disc

ounted rent

periods and st

epped rents)

.

Group

31 March

2022

£000

31 March

2021

£000

Investment pro

perty

665,186

551,922

Allowance f

or estimated p

urchasers

’

cost

s

46

43,237

35,875

Gross-up pro

perty portfoli

o valuation

708,423

587,797

Annualised

cash passi

ng rental income

37,367

36,314

Property out

goings

(1,719)

(1,004)

Annualised

net rents

35,648

35,310

Impact of

expiry of current

lease incentiv

es

3,126

2,378

38,773

37,688

EPRA NI

Y

5.0%

6.0%

EPRA ‘top

ped

-

up’ NIY

5.5%

6.4%

46

Assumed at

6.5%

of invest

ment property valuation

.

197

EPRA vac

ancy rate

EPRA vac

ancy rate is t

he ERV of

vacant spac

e as a percentag

e of the E

RV of the

whole property portfol

io.

Group

31 March

2022

£000

31 March

2021

£000

Annualised

potential rent

al value of

vacant pre

mises

4,643

3,562

Annualised

potential renta

l value for t

he property por

tfolio

45,580

42,554

EPRA vacan

cy rate

10.2%

8.4%

EPRA cost

ratios

EPRA cost

ratios reflect o

verheads an

d operating c

osts as a perc

entage of gross

rental inco

me.

Group

Year

ended

31 March

2022

£000

Year

ended

31 March

2021

£000

Directly

incurred operat

ing expen

ses and adm

inistrative f

ees

8,960

10,147

Ground rent co

sts

(37)

EPRA costs

(including d

irect vacan

cy costs)

8,9

23

10,110

Property void c

osts

(1,525)

(888)

EPRA costs (ex

cluding d

irect vacancy costs)

7,398

9,222

Gross rental

income

39,039

38,698

Ground rent co

sts

(37)

Rental inco

me net of grou

nd rent costs

39,002

38,661

EPRA cost

ratio (inclu

ding direct

vacancy costs)

22.9%

26.1%

EPRA cost

ratio (excludi

ng direct

vacancy co

sts)

19.0%

23.9%

198

EPRA cap

ital expend

iture

Capital exp

enditure incurr

ed on the

Company’s pro

perty portfolio

during the y

ear.

Group

31 March

2022

£000

31 March

2021

£000

Acquisitions

65,495

12,150

Developme

nt

-

691

Like-for-like

portfolio

3,515

1,617

Total capit

al expenditur

e

69,010

14,458

EPRA like-for-

like rental g

rowth

Like-for-like

rental gro

wth of the propert

y portfolio by

sector.

31 March 202

2

Group

Industrial

£000

Retail

warehouse

£000

Retail

£000

Other

£000

Office

£000

Total

£000

Like-for-like

rent

14,6

37

7,8

87

3,167

5,3

97

4,168

35,

256

Acquired prop

erties

2

18

182

538

-

1,074

2,012

Sold propert

ies

976

100

14

9

546

-

1,77

1

15,8

31

8,1

69

3,8

54

5,9

43

5,242

39,039

31 March 202

1

Group

Industrial

£000

Retail

warehouse

£000

Retail

£000

Other

£000

Office

£000

Total

£000

Like-for-like

rent

16,14

3

8,641

3,653

6,355

3,500

38,292

Acquired prop

erties

38

-

26

127

191

Sold propert

ies

18

-

1

63

-

1

81

16,199

8,641

3,816

6,381

3,627

38,664

199

Environment

al disclosur

es (unaudit

ed)

EPRA Su

stainability Be

st Practice R

ecommendat

ions

(“sBPR”)

Guide

lines

Custodian

REIT

recognises

the

importance

of

di

sc

losing

its

ESG

information

as

it

creates

transparency

to

potential

investors

a

nd

sets

a direction

to

wards

improv

ing

th

e

integrati

on

of

ESG

into

t

he

manage

ment

of the

Company’s

property portf

olio. The

Company has

chosen t

o report in alignm

ent with the

Europe

an Public Re

al Estat

e (EPRA)

guidelines

to

achieve

this

which

are

consi

dered

best

practice

and

are

utilise

d

across

the

real

estat

e

industry,

enabling a co

mparison

against our

peers and he

lping set clear b

enchmarks f

or the

Company moving forward

s.

Materiality

The

sco

pe

of our

EPRA

s

BPR

data disclosure was

influenc

ed

by our

application of

materiality.

Custodian REIT

undertook

a

materiality

assessment

to

review

the

applicability

of

the

full

set

of

EPRA

indicators.

Based

on

profession

al

judgement

,

each indicator

was assessed

in terms

of

its impact

on

the

Com

pany

and

its importance

to stakeholder

s.

This calcu

lation resulted

in an overa

ll score wh

ich determined

if an issue

was materia

l

.

As

part

of

our

EPRA

disclosures

and

assoc

iated

materiality

assessment,

we

have

defined

Custodian

REIT’s

organisat

ional boundary

in line w

ith the

Greenho

use G

as (GHG)

Protocol. W

e have

taken

the op

erational

control

approach and this has pla

yed a fundamental role in the materiality a

ssessment. Custodian REIT is an externally

managed

real

estate

investment

trust

which

has

no

direct

employees.

The

Investment

Man

ager

is

Custodian

Capital

Limited

which

has

17

em

p

loyees

and

Custodian

REIT

has

operat

ional

control

over

neither

Custodi

an

Capital

nor

its

employee

s.

The

Social

Performance

indicators

determin

ed

immateria

l

are

in

re

lat

ion

to

employees,

thus they are

not relevant

for reporting at

the Custod

ian REIT lev

el.

Using

this

organisationa

l

boundary,

our

materiality

assessm

ent

determined

the

following

Sustaina

bility

Performance

m

e

asures imm

aterial for Cu

stodian REI

T:

•

Employee gender an

d diversity

•

Employee gender

pay ratio

•

Employee train

ing and de

velopment

•

Employee perfor

mance apprai

sals

•

New hires and

turnover

•

Employee health

and safet

y

200

However,

as

Custodian

REIT

does

have

i

ts

own

board,

which

consists

of

seven

N

on

-Ex

ecutive

Directors,

we

have

chosen

to

report

on

gender

,

di

versity

and

the

gender

pay

ratio

of

Custodian

REIT’s

board

members,

to

be

as

transparent

as possible

with our stakeho

lders.

The Co

mpany’s

asset level

reporting

is

disclosed

on it

s website

at cu

stodianrei

t.com/environmen

tal-social-

and

-

governance-esg/.

201

Historical

performance

su

mm

ary (unau

dited)

Income statem

ent

2022

£000

2021

£000

20

£000

2019

£000

2018

£000

Revenue

39,891

39,578

40,903

39,974

34,813

Expenses and n

et finance

costs

(14,

639

)

(15,904)

(12,230)

(11,688)

(9,646)

EPRA ear

nings

25,252

23,674

28,673

28,286

25,167

Property valu

ation move

ments

93,977

(19,611)

(25,850)

(5,499)

11,859

Acquisition

costs

(2,273)

(707)

(599)

(3,391)

(6,212)

Profit/(loss)

on disposa

l

5,369

393

(101)

4,250

1,606

Property (loss

es)/gains

97,073

(19,925)

(26,550)

(4,640)

7,253

Profit after

tax

122,

325

3,749

2,123

23,646

32,420

Dividends r

elating to the y

ear

22,892

21,006

27,464

25,767

23,847

Statement of

financial

position

Investment pro

perty

665,186

551,922

559,817

572,745

528,943

Net borrow

ings

(127,2

77

)

(137,259)

(125,512)

(137,897)

(111,282)

Other assets

and liabilitie

s

(

10,269

)

(4,797)

(7,553)

(8,225)

(2,459)

NAV

527,

640

409,866

426,752

426,623

415,202

Financial hig

hlights

NAV per s

hare total return

28.4%

0.9%

1.1%

5.9%

9.6%

NAV per s

hare (p)

119.7

97.6

101.6

107.1

107.3

EPRA earn

ings per sh

are (p)

5.9

5.6

7.0

7.3

6.9

Dividends per

share (p)

5.25

5.0

6.65

6.55

6.45

Dividend cover

110.

3%

112.7%

104.4%

110.4%

105.5%

Share pric

e total return

17.0%

(2.3%)

(5.0%)

4.2%

6.7%

New equity r

aised

19,692

-

25,300

13,420

54,670

Net gearing

19.1%

24.9%

22.4%

24.1%

21.0%

OCR

excluding d

irect pro

perty expen

ses

1.

20%

1.12%

1.15%

202

Company i

nformation

Directors:

David Hunter

Inde

pendent Non-Executive Cha

irman

Elizabeth McMeikan

Senior Independent No

n-Executive Director

Matthew Thorne

Independent Non-

Executive Director

Hazel Ad

am

Independent

Non-Executive Director

Chris Ir

eland

Independent Non-

Executive Director

Malcolm

Cooper

Independent Non-

Executive Director

Ian Matt

ioli MBE

Non-Executive Director

Company Secretary

:

Ed Moore

Registrar:

Link Group

Unit 10

Central Squar

e

Registered office:

1 New Walk Place

Leicester

LE1 6RU

29 Wellington

Street

Leeds

LS1 4DL

Registered number:

08863271

Depositary:

Lang

ham Hall UK

Investment Manager:

Custod

ian Capital Limited

1 New Wa

lk Place

Leicester

LE1 6RU

Depositary LL

P

1 Fleet Place

London

EC4M 7R

A

Broker:

Numis

Securities Limited

45 Gresha

m Street

London

EC2V 7

BF

Banker:

Lloyds

Ban

k plc

114

-1

16 Colmore Row

Birmingham

B3 3BD

Solicitors:

DWF LLP

No. 2 Lochri

n Square

96 Founta

inbridge

Edinburgh

EH3 9QA

Tax adviser:

KPMG LLP

1 Snow H

i

ll

Queensway

Birmingham

B4 6GH

Valuers:

Savills

33 Margaret

Street

London

W1G 0JD

Knight Fra

nk LLP

55 Baker Str

eet

London

W1U 8AN

203

Statutory Auditor:

Deloitte LLP

1 New Stre

et Square

London

EC4A 3HQ

204

Financial

cal

endar

12 May

20

22

Ex

-dividen

d date for fourt

h interim div

idend

13 May

20

22

Record date f

or fourth inte

rim dividend

31

May 2022

Payment of

fourth interim

dividend

16 June 202

2

Announce

ment of results

for the year end

ed 31 March

2022

31

August 20

22

AGM