Climate Change Data

Environmental Metrics

ESG Focus Areas

• Diversity
• Environment
• Human Rights
• Business Relationships

Environmental Achievements

• Reduced non-property operating expenses by 41% (35% like-for-like), including a period where M7 did not charge an investment advisory fee.

Social Achievements

• Granted concessions to certain tenants to settle rent monthly due to the impact of the COVID-19 pandemic.
• Maintained strong rent collection (97.8%) during the COVID-19 pandemic.

Governance Achievements

• Improved corporate governance processes by changing key service providers.
• Welcomed Stephanie Eastment to the Board as a non-executive Director and Audit Chair.

Climate Goals & Targets

Environmental Challenges

• Tenant default due to the COVID-19 pandemic.
• Portfolio concentration risk.
• Property defects.
• Rate of inflation.
• Property market downturn.
• Property valuation uncertainty.
• Illiquidity of investments.
• Breach of borrowing covenants.
• Failure of service providers.
• Dependence on the Investment Adviser.
• Ability to meet objectives.
• Maintaining Group REIT status.
• Political/Economic Risks (including COVID-19 and Brexit).

Mitigation Strategies

• Investment policy limits exposure to any one tenant to 15% of GAV (maximum exposure 9.8% as at 30 June 2021).
• Investment restrictions in place to spread and mitigate risk.
• Due diligence process with professional indemnity cover.
• Inflation-linked leases with contractual rent review collars and caps.
• Investment restrictions to spread and mitigate risk.
• Use of an independent valuer (Knight Frank LLP).
• Aim to hold properties for long-term income.
• Ongoing monitoring of borrowings and quarterly risk monitoring.
• Regular monitoring of service providers and their service level agreements.
• Close working relationships with service providers.
• Investment policy to achieve a balanced portfolio with a diversified tenant base.
• Monitoring REIT compliance through various parties.
• Investment in UK properties with strong alternative use values and long leases.

Supply Chain Management

Climate-Related Risks & Opportunities

Reporting Standards

Frameworks Used: GRI, EPRA

Certifications: ISO 14064 (GHG emissions)

Third-party Assurance: Independent third-party consultancy

Environmental Metrics

ESG Focus Areas

• Environmental
• Social
• Governance

Environmental Achievements

• Reduced GHG emissions by 21% in Scope 3 (electricity) from 104.11 tCO2e to 82.21 tCO2e. Proactive approach to EPC reassessments ahead of Minimum Energy Efficiency Standards 2023.
• Responsible refurbishment with consideration to improving EPC rating and reuse of existing materials.

Social Achievements

• Commitment to occupier engagement.
• Incorporation of social improvements to each asset (defibrillators & electrical charging points).

Governance Achievements

• Client checks completed on all tenants, new suppliers, and contractors.
• Regular tenant engagement and inspections to ensure assets are used as agreed within leases.

Climate Goals & Targets

Environmental Challenges

• Global and UK economic headwinds impacting the UK commercial property sector.
• Soaring inflation, increasing debt costs, and decreasing consumer confidence.
• Potential tenant defaults due to macroeconomic factors.
• Climate change related physical risks and regulatory changes.

Mitigation Strategies

• Resilient portfolio of 19 investment properties with long-dated, higher-yielding income (96% inflation-linked).
• Canada Life senior debt facility eliminates exposure to increasing debt costs.
• Diversified portfolio across sectors and tenants.
• Due diligence process with covenant checks on tenants.
• Ongoing monitoring and liaison with tenants to manage bad debt risk.
• Investment restrictions to spread and mitigate risk.
• Development of an ESG strategy to meet legal requirements and remain attractive to tenants.

Supply Chain Management

Responsible Procurement

• Client checks on suppliers and contractors

Climate-Related Risks & Opportunities

Physical Risks

• Extreme weather events (flooding)

Transition Risks

• Regulatory changes

Reporting Standards

Frameworks Used: GHG Protocol

Certifications: ISO 14064 (GHG emissions assurance)

Third-party Assurance: Independent third-party consultancy

Environmental Metrics

ESG Focus Areas

• Environmental
• Social
• Governance

Environmental Achievements

• Improved EPC ratings at Motorpoint, Birmingham (C75 to C62) and Travelodge Hotel, Swindon (C62 to B42), mainly due to tenant refurbishment works.
• Identified works at six properties to improve EPC levels in the year to 30 June 2024 (LED lighting, boiler replacement, solar panels, secondary glazing).

Social Achievements

• Commitment to occupier engagement.
• Incorporation of social improvements to assets (defibrillators, electrical charging points).
• Regular training and awareness for managers on social issues (wellbeing, mental health).

Governance Achievements

• Client checks completed on all tenants, new suppliers, and contractors.
• Regular tenant engagement and inspections to ensure assets are used as agreed.

Climate Goals & Targets

Environmental Challenges

• High levels of inflation and interest rates impacting real estate valuations and share prices.
• Potential tenant defaults due to macroeconomic pressures.
• Property market downturn risks.
• Environmental regulations and ESG expectations from tenants.

Mitigation Strategies

• Diversified portfolio with long-dated, higher-yielding leases with index-linked rental increases.
• Investment restrictions to limit exposure to single tenants and sectors.
• Due diligence processes and ongoing monitoring of tenants.
• ESG strategy to meet legal requirements and attract tenants.
• Active asset management initiatives.

Supply Chain Management

Responsible Procurement

• Client checks on new suppliers and contractors

Climate-Related Risks & Opportunities

Physical Risks

• Extreme weather events (flooding)

Transition Risks

• Regulatory changes

Opportunities

• Improved energy efficiency

Reporting Standards

Frameworks Used: GHG Protocol, EPRA Best Practice Recommendations of Sustainability Reporting 2017

Third-party Assurance: Independent consultancy specializing in sustainability in commercial real estate (ISO 14064 principles)

Environmental Metrics

ESG Focus Areas

• Environmental
• Social
• Governance

Environmental Achievements

• Proactive approach to EPC reassessments ahead of Minimum Energy Efficiency Standards 2023, maintaining quarterly reviews of EPC schedules, identification of opportunities to improve energy efficiency, and working closely with tenants who occupy under full repairing and insuring leases.
• Ongoing environmental reviews and audits as part of regular due diligence, including regular asset inspections to avoid any breach in environmental legislation.
• Responsible refurbishment in respect of all works to assets with consideration of the best approach to improving the EPC rating against potential spend, liaising with tenants in respect of any fit-out or alterations to reuse existing materials where feasible to reduce waste.
• Three new EPC’s were carried out; Premier Inn, Camberley fell from B34 to B38; Petrogas, Crawley improved from C56 to B32; Pure Gym, London improved from C54 to B43. The improvements are mainly as a result of tenant’s internal refurbishment works.

Social Achievements

• Commitment to occupier engagement.
• Encourage improvements to each asset such as installing defibrillators & electrical charging points.
• Provision of regular training and awareness to all managers on issues, such as wellbeing and mental health.

Governance Achievements

• Client checks being completed on all tenants as well as new suppliers and contractors.
• Regular tenant engagement and inspections to ensure assets are used as agreed within leases.
• Effective tracking of legislative requirements to assess and monitor risks and opportunities.

Climate Goals & Targets

Environmental Challenges

• Tenant default
• Portfolio concentration
• Property defects
• Rate of inflation
• Property market downturn
• Property valuation challenges
• Illiquidity of investments
• Environmental regulations and ESG concerns
• Breach of borrowing covenants
• Inability to refinance loan facility
• Failure of service providers
• Dependence on the Investment Adviser
• Inability to meet objectives
• Maintaining REIT status
• Political and macroeconomic events
• Disclosure risks
• Regulatory changes

Mitigation Strategies

• Investment policy limits exposure to any one tenant (maximum exposure 10.6% at 30 June 2024). Ongoing monitoring and liaison with tenants to manage bad debt risk.
• Investment restrictions in place to spread and mitigate risk. Diversified portfolio reduces potential volatility.
• Due diligence relies on third-party professionals with Professional Indemnity cover.
• Inflation-linked leases have contractual rent review collars and caps; majority of caps exceed RPI and CPI forecasts.
• Investment restrictions in place to spread and mitigate risk. Long leases with upward-only rent reviews linked to RPI or CPI.
• Uses an independent valuer (Knight Frank LLP) to value properties quarterly.
• Aims to hold properties for long-term income; careful management of property investment/disinvestment.
• ESG strategy in place to meet legal requirements and attract tenants. In-depth research on each property at acquisition.
• Regular monitoring of borrowing covenants; significant headroom in LTV and interest cover covenants.
• Board has commenced debt refinancing plan; interview process with debt advisors underway.
• Regular meetings and monitoring of key service providers; annual performance review by the Management Engagement Committee.
• Regular meetings with Martley Capital; formal annual review by the Management Engagement Committee; segregation of AIFM and Investment Adviser roles.
• Investment policy aims for a balanced portfolio with a diversified tenant base; long WAULT (16.5 years to break, 18.4 years to expiry).
• Monitors REIT compliance through various channels; uses third-party tax advisors.
• Invests in UK properties with strong alternative use values and long leases; Investment Adviser monitors macro and micro economy.
• Service providers monitor disclosure obligations and liaise with the Board.
• Board receives regular updates on regulatory changes; Investment Adviser monitors impact of emerging legislation.

Supply Chain Management

Responsible Procurement

• Client checks on suppliers and contractors

Climate-Related Risks & Opportunities

Physical Risks

• Extreme weather events (flooding)

Transition Risks

• Regulatory changes

Reporting Standards

Frameworks Used: GHG Protocol, EPRA Best Practice Recommendations of Sustainability Reporting 2017

Certifications: ISO 14064 (GHG emissions verification)

Third-party Assurance: Independent third-party consultancy